WORKING CAPITAL

Working capital management plays a vital role to conduct day to day

operations of firms. Basically three decisions are detail in the field of corporate finance:
capital structure decisions, capital budgeting decisions and working capital management
decisions. So working capital management among these decisions has a fundamental
importance because it focuses on the liquidity and profitability of the companies. Working
capital means ready funds which are necessary for the working (147 EUROPIAN JOURNAL
OF ECONOMICS, FINANCE AND ADMINISTRATIVE SCIENCES – ISSUE 40 (2014)) and
operations of any business concern. Basically companies performs their activities by using
the current assets with the support of fixed to offset its current obligations in an efficient
manner. In fact, manufacturing companies have more current assets than fixed assets; these
may be over the half of the total assets. If the firms have not adequate current assets then they
have to face cannot perform their day to day operations smoothly. For efficient working
capital management firms have to plan in such a way that may reduce the risk of supply
shortage and by ignoring extra investment in current assets. It is necessary for the efficient
working capital management of companies that finance manager will have to understand the
trade-off between liquidity and profitability.

Every organization whether profit oriented or not, irrespective of size and

nature business requires necessary amount of working capital. Working capital is a more
important factor to maintain existence, liquidity, solvency and profitability. If the firms have
greater proportion of liquid assets then there is no risk of shortage but this will affect
profitability in the other hand. So by managing the working capital management value for
shareholders because they are preserving the liquidity and increasing the profitability of the
companies. If the working capital determinants are not explaining fully and adequately the
requirements of operations then companies might be pushed towards bankruptcy.

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 The most important matter in working capital management is to attain
optimum tradeoff between liquidity and profitability. Because if we consider risk and return
theory, more risky investment will provide more return. So the firms with high liquidity of
working capital have less risk and there will be low profitability. Contrary to it, a company
that has low liquidity of working capital facing high risk result to high profitability. So the
main dilemma here is to manage the risk and return by managing the working capital. The
focus of this study is to analyze the impact of working capital management on profitability of
FCI OEN Connectors td. The aim of the study is to identify important determinants which
affect the working capital management efficiency.

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STATEMENT OF THE PROBLEM:-

One of the major objectives of finance department within an organization is to ensure

effective management of working capital. Decisions relating to working capital and short
term financing are referred to as working capital management. The goal of working capital
management is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short term debt and upcoming operational
expenses. The study concentrates on the fluctuating working capital of FCI OEN LTD due to
change in gold price.

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 CHAPTER-3

THEORETICAL FRAMEWORK

WORKING CAPITAL MANAGEMENT

Effective Financial Management Is The Outcome, Among Other Things, Of Proper
Management Of Investment Of Funds In Business. Funds Can Be Invested For Permanent Or Long-
term Purposes Such As Acquisition Of Fixed Assets, Diversification And Expansion Of Business,
Renovation Or Modernization Of Plants & Machinery, And Research & Development. Funds Are
Also Needed For Short Term Purposes, That Is, For Current Operations Of The Business. Hence It Is
Necessary to Manage Working Capital in Today’s World.

Working Capital Is A Financial Metric Which Represents Operating Liquidity Available To A

Business, Organization Or Other Entity including Governmental Entity. Working Capital Is An
Excess Of Current Assets Over Current Liabilities. In Other Words The Amount Of Current Assets
Which Is More Than Current Liabilities Is Known As Working Capital. If Current Liabilities Are Nil
Then, Working Capital Will Equal To Current Assets. Working Capital Shows Strength Of Business
In Short Period Of Time. If A Company Have Some Amount In The Form Of Working Capital, It
Means Company Have Liquid Assets And With This Money Company Can Face Every Crisis
Position In Market. Working Capital Can Be Either Be Positive Or Negative. Working Capital Is
Positive When Current Assets Are Greater Than Current Liabilities And Working Capital Is Said To
Be Negative When Current Assets Are Less Than Current Liabilities.

Working Capital Represents Firm’s Total Investment In Current Assets. Often Working Capital
Management Refers to Problems Relating to Net Working Capital, Which Represents the Difference
between Firm’s Current Assets and Current Liabilities. Working Capital Management Is The Process
Of Planning And Controlling The Level And Mix Of The Current Assets Of The Firm As Well As
Financing These Assets.Specificaly Working Capital Management Require Financial Managers To
Decide What Quantities Of Cash, Other Liquid Assets, Accounts Receivable, And Inventories The
Firm Will Hold At Any Point In Time. In Addition, Financial Managers Must Decide Hw Their
Current Assets Are To Be Financed. Financing Choices Include The Mix Of Current As Well As
Long Term Liabilities. The Management Of Working Capital Plays An Important Role In
Maintaining The Financial Health Of The Firm During The Normal Course Of Business. The Need
For Working Capital Is Directly Related To The Firm Growth.

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Working Capital Management Is The Part Of Financial Management. It Also Includes Management
Of Cash, Management Of Inventory, Management Of Debtor And Management Of Creditor. Hence
Working Capital Management Is The Part Of Financial Management. In Working Capital
Management, Management Of Cash, Management Of Inventory, Management Of Debtor And
Creditor Will Include.

CONCEPT OF WORKING CAPITAL

Concept Of Working Capital Includes Meaning Of Working Capital And Its Nature.
Working Capital Is The Investment In Current Assets. Without This Investment, One Cannot
Operate The Fixed Assets Properly. For Getting Good Profit From Fixed Assets, One Need
To Buy Some Current Assets Or Pay Some Expenses Or Invest Our Money In Current
Assets. For Example Must Keep Some Of Cash Which Is The One Of Major Part Of
Working Capital. At Any Time The Machines May Need Rapair.Repair Is Revenue Expenses
But Without Cash, One Cannot Repair The Machines And Without Machines, The
Production May delay. Like This, One Need Inventory Or To Invest In Debtors And Other
Short Term Securities.

On The Basis Of Concept, Working Capital Can Be Divided Into Two Parts.

Chart no.8

a. Gross Working Capital: Gross Working Capital Refers To Working Capital Refers
To Working Capital, Means The Total Current Assets. It Can Be Also Referred To As The
Funds Required For Financing The Minimum Total Current Assets. Current Assets Are The
Assets, Which Can Be Converted Into Cash Within The Accounting Year.
b. Net Working Capital: The Term Net Working Capital Refers To The Difference
Between Current Assets And Current Liabilities.Alternatively,It Can Be Defined As The
Portion Of A Firm’s Current Assets, Which Is Financed With Long Term Funds.

c. NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES

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 Structure Of Current Assets And Current Liabilities

CURRENT LIABILITIES CURRENT ASSETS

Bank Overdraft Cash & Bank Balance

Creditors Inventories: Raw Materials

Work-In-Progress
Finished Goods

Outstanding Expenses Spare Parts

Bills Payable Accounts Receivables

Short Term Loans Bills Receivables

Proposed Dividends Accrued Income

Provision For Taxation, Etc Short Term Investment

Prepaid Expenses

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SIGNIFICANCE OF WORKING CAPITAL
Funds are needed in every business for carrying on day to day operations. Working capital
funds are regarded as the life blood of a business firm. A firm can exist and survive without
making profit but cannot survive without working capital funds. If a firm is not earning profit
it may be termed as sick but not having working capital may cause its bankruptcy working
capital in order to survive. The alternatives are not pleasant. Bankruptcy is one alternative
being acquired on unfavorable terms as another.thus,each firm must decide how to balance
the amount of working capital it holds, against the risk of failure.

Working capital has acquired a great significance and sound position in the recent past for the
twin object of profitability and liquidity. In period of rising capital costs and scare funds, the
working capital is one of the most important areas requiring management review. It is rightly
observed that,” constant management reviews is required to maintain appropriate levels in
various working capital accounts”. Mainly the success of a concern depends upon proper
management of working capital so working capital management has been looked upon the
driving seat of financial manager.”

It consumes a great deal of time increase profitability as well as to maintain proper liquidity
at minimum risk.

CLASSIFICATION OF WORKING CAPITAL

Working capital can be mainly classified into two. They are

A)PERMANENT WORKING CAPITAL: it is a part of total current assets which is

changed due to variation in sales. There is always a minimum level of cash,inventories,and
accounts receivables which is always maintained in the business even if sales are reduced to
minimum. Amount of such investment is called as regular working capital.

The need for current assets is associated with the operating cycle, which is continuous
process. As such, the need for current assets is felt constantly. The magnitude of investment
in current assets however may not always be the same. The need for the investment in current
assets may increase or decrease over a period of time, according to the level of production.
Never the less ,there is always a certain minimum level of current assets, which is essential

7
for the firm to carry on its business irrespective of the level of operations. This is irreducible
minimum amount necessary for maintaining the circulation of current assets. This minimum
level of investment in current asset is permanently locked up in business and is therefore
referred to as permanent or fixed or regular working capital. It is permanent in the same way
as investment in the firm’s fixed asset is.

B) TEMPORARY WORKING CAPITAL: Temporary working capital is also called as

fluctuating or seasonal working capital. This represents additional investment needed during
prosperity and favorable seasons. It increases with the growth of the business. Temporary
working capital is the additional assets required to meet the variation in sales above the
permanent level. Depending upon the changes and sales, the need for working capital may all
as so vary on account of seasonal changes or abnormal or unanticipated conditions. For
example, a rise in the price level may lead to an increase in the amount of funds invested in
stock of raw material as well as finished goods. Additional does of working capital may be
required to face cutthroat competition in the market or other contingencies like strikes and
lockouts. Any special advertising campaigns organized for increasing sales or other
promotional activities is called the fluctuating (variable, seasonal, temporary or special)
working capital.

IMPORTANACE OF WORKING CAPITAL MANAGEMENT

For smooth running an enterprise, adequate amount of working capital is very essential.
Efficiency in this area can help, to utilize fixed assets gainfully,to assure the firm’slong term
success and to achieve the overall goal of maximization of the shareholders,fund .shortage or
bad management of cash may result in loss of cash discount and loss of reputation due to
non-payment of obligation on due dates. Insufficient inventories may be the main cause of
production held up and it may compel the enterprise to purchase raw materials at unfavorable
rates. Likewise facility of credit sale is also very essential for sales promotions. It is
observedthat many a time’s business failure takes place due to lack working capital.
Adequate working capital provides a cushion for bad days, as a concern can pass its period of
depression without much difficulty.

Because of its close relationship with day to day operations of a business, a study of working
capital and its management is of major importance to internal, as well as external analysts. It
is being increasingly realized that inadequacy or mismanagement of working capital is the
leading cause of business failures. Neglect of management of working capital may result in

8
technical insolvency and even liquidation of a business unit. With receivables and inventories
tending to grow and with increasing demand for bank credit in the wake of strict regulation of
credit in the wake of strict regulation of credit in India by the central bank, managers need to
develop a long term perspective for managing working capital. Inefficient working capital
management may cause either inadequate or excessive working capital, which is dangerous.

The dangers of excessive working capital are as follows:

 Heavy investment in fixed assets: a concern may invest heavily in its fixed assets
which are not justified by actual sales. This may create situation of over
capitalization.
 Reckless purchase of materials: inventory is purchased recklessly which results in
dormant slow moving and obsolete inventory. At the same time it may increase the
costdue to mishandling, waste, theft,etc.
 Speculative tendencies: speculative tendencies may increase and if profit is increased
dividend distribution will also increase. This will also increase. This will hamper the
image of the concern in future when speculative loss may start.
 Liberal credit: due to liberal credit, size of accounts receivables will also increase.
Liberal credit facility can increase bad debts and wrong practices will start, regarding
delay in payments.
 Carelessness: excessive working capital will lead to carelessness about costs which
will adversely affect the profitability

Paucity of working capital is also bad and has the following dangers:

 Implementation of operating plans becomes difficult and a concern may not

achieve its profit target.
 It is difficult to pay dividend due to lack of funds.
 Bargaining capacity is reduced in credit purchases and cash discount could not
beavailed.
 An enterprise loses its reputation when it becomes difficult even to meet day
to daycommitments.
 Operating inefficiencies may creep in when a concern cannot meet it financial
promises.

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  Stagnates growth as the funds are not available for new projects.
 A concern will have to borrow funds at an exorbitant rate of interest in case of
need.
 Sometimes, a concern may be bound to sale its product at much reduced rates
to collectfunds which may harm its image.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT

 principles of the risk variation: Risk here refers to the inability of firm to maintain
sufficient current assets to pay its obligations. If working capital is varied relative
sales , the amount of risk that a firm assumes is also varied and the opportunity for
gain or loss is increased. In other words, there is definite relationship between the
degree of risk and the rate of return. As a firm assumes more risk, the opportunity or
gain or loss increases .as the level of working capital relative to sales decreases, the
degree of risk increase. When the degree of risk increases, the opportunity for gain
and loss also increases. Thus, if the level of working capital goes up, amount of risk
goes down, and vice-versa, the opportunity for gain is likewise adversely
 Principle of equity position: According to this principle, the amount of working
capital invested in each component should be adequately justified a firm’s equity
position. Every rupee invested in the working capital should contribute to the net
worth of the firm.
 principle of maturity of payment : This principle emphasizes that different sources
of finance have different cost of capital. It should be remembered t the cost of capital
moves inversely with risk. Thus additional risk capital results in decline in the cost of
capital.
 D)principle of maturity of payment : A company should make every effort to relate
maturity of payments to its flow of internally generated. There should be the least
disparity between the maturities of the firm’s short term debt instruments and its flow
of internally generated funds,because a greater risk is generated with greater
disparity.a margin of safety should , however be provided for any short term debt
payment.

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 FACTORS INFLUENCING WORKING CAPITAL REQUIREMENT

There are no set rules or formulas to determine the working capital requirements of a firm.
The corporate management has to consider a number of factors to determine the level of
working capital. The amount of working capital that the firm would need is affected not only
by the factors associated with the firm itself but is also affected by the economic, monetary
and general business environment. The following are the major factors influencing working
capital requirement.
 Nature of business: Trading and industrial concerns require more funds for working
capital. Concerns engaged in public utility services need lessworking.for, example, if
a concern is engaged in electric supply, it will need less current assets, firstly due to
cash nature of the transactions and secondly due to sale of services.however, it will
invest more in fixed assets. In addition to it, the investment varies concern to
concern, depending upon the size of business, the nature of the product, and the
production technique.
 Conditions of supply: If the supply of inventory is prompt and adequate, less funds
will be needed.but, if the supply is seasonal or unpredictable, more funds will be
invested in inventory. Investment in working capital will fluctuate in case of seasonal
nature of supply of raw material, spare parts and stores.
 Production policy: In case of seasonal fluctuations in sales, production will fluctuate
accordingly and ultimately requirement of working capital will also fluctuate.
However, sales department may follow a policy of off-season discount, so that the
sales and production can be distributed smoothly throughout the year and sharp,
variations in working capital requirement are avoided.
 Seasonal operations: It is not always possible to shift the burden of production and
sales to slack period. For example, in case of sugar mill more working capital will be
needed at the time of crop and manufacturing.
 Credit availability: If credit facility is available from banks and suppliers on
favorable terms and conditions, less working capital will be needed. If such facilities
are not available more working capital will be needed to avoid risk.Business
fluctuations: Seasonal and cyclical fluctuations in demand for a product affect the
working capital requirement considerably, especially the temporary working capital

11
 requirement of the firm. An upward swing in the economy leads to increased sales,
resulting in an increase in the firm’s investment in inventory and receivables or book
debts. On other hand, a decline in the economy may register a fall in sales and,
consequently, a fall in the levels of stocks and book debts.
 Manufacturing cycle: The manufacturing cycle starts with the purchase f raw
materials and is completed with the production of finished goods. If the
manufacturing cycleinvolves a longer period the need for working capital will be
more, because an extended manufacturing time span means a larger tie-up of funds in
inventories. Any delay at any stage of manufacturing process will result in
accumulation of work in process and will enhance the requirement of working
capital. One may have observed that firms making heavy machinery or other such
products, involving long manufacturing cycle, attempt to minimize their investment
in inventories (and thereby in working capital) by seeking advance or periodic
payments from customers.
 Credit policy enterprises: In some enterprises most of the sale is at cash and even it
is received in advance while, in other sales is at credit and payments are received
only after a month or two. In former case less working capital is needed than the
later. The credit terms depend largely on norms of industry but enterprise some
flexibility and discretion. In order to ensure that unnecessary funds are not tied up in
book debts, the enterprise shouldfollow a rationalized credit policy based on the
credit standing of the customers and other relevant factors.
 Growth & expansion: The need of working capital is increasing with the growth and
expansion of an enterprise. It is difficult to precisely determine the relationship
between volume of sales and the working capital needs. The critical fact,however,is
that the need for increased working capital funds does not follow growth in business
activities but precedes it. It is clear that advance planning is essential for growing
concern.
 Price level change: With the increase in price level more working capital will be
needed for the same magnitude of current assets. The effect of rising prices will be
different for different enterprises.
 Other factors: There are some other factors, which affect the determination of the
need for working capital. A high net profit margin contributes towards the working
capital pool. the net profit is a source of working capital to the extent it has been
earned cash. The cash inflow canbe calculated by adjusting non-cash items such as

12
 depreciation, outstanding expenses, losses written off, etc.from the net profit. The
firm’s appropriation policy, that is, the policy to retain or distribute profits also has a
bearing on working capital. Payment of dividend consumes cash resources and thus
reduces thr firm’s working capital to that extent. If the profits are retained in the
business, the firm’s working capital position will be strengthened.

In general, working capital needs also depend upon the means of transport and
communication. If they are not well developed, the industries will have to keep huge stocks
of raw materials, spares, finished goods, etc. At places of production as well as at
distribution outlets.

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OPERATING CYCLE
The time between purchase of inventory items (raw material or merchandise) and
their
conversion into cash is known as operating cycle or working capital cycle. a perusal of the
operating cycle would reveal that the funds invested in operations are recycled back into
cash.
The cycle, of course, takes some time to complete. The longer the period of this conversion
the longer is the operating cycle. A standard operating cycle may be for any time period but
does not generally exceed a financial year. Obviously, the shorter the operating cycle, the
larger will be the turnover of funds invested for various purposes. The channels of the
investment are called current assets. Sometimes the available funds may be in excess of the
needs for investment in these assets, e.g., inventory, receivables and minimum essential
cash balance. Any surplus may be invested in government securities rather than being
retained as idle cash balance.The duration of time required to complete the following
sequence the following sequence of events, in case of manufacturing firm is called the
operating cycle:
 Conversion of cash into raw materials.
 Conversion of raw materials into work-in-progress.
 Conversion of work in process into finished goods.
 Conversion of finished goods into debtors and bills receivables through sales.
 Conversion of debtors and bills receivables into cash.

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 OPERATING CYCLE OF MANUFACTURING CONCERNS

INVENTORY MANGEMENT

Inventory means a list compiled for some formal purpose, such as the details of an
estate going to probate, or the contents of a house let furnished. This remains the prime
meaning in British English. In the USA and Canada the term has developed from a list of
goods and materials to the goods and material available in stock by a business; and this has
become the primary meaning of the term in North American English, equivalent to the term
“stock” in British English. In accounting, inventory or stock is considered an asset.
Inventory’s other names are goods, stock or products of company.80% of business
transaction are relating to purchasing and selling of inventories. Inventory can divide in raw
material, work in progress and finished goods. For continuing production, it is very necessary
to manage inventory management because without inventory management, it may possible
that there is no stock in store and without stock of raw material our production may delay.
But the sense of inventory management in finance or financial management is advance and it
is the part of working capital management. In finance, it is the money of investment. So
proper inventory management is very helpful to provide good return on the investment in
inventory.
Inventory management is primarily about specifying the shape and percentage
of stocked goods. It is required at different locations within a facility or within many
locations of a supply network to precede the regular and planned course of production and
stock of materials. The scope of inventory management concerns the fine lines between
replenishment lead time, carrying cost of inventory, asset management, inventory forecasting,
inventory valuation, inventory visibility, future inventory price forecasting, physical
inventory available physical space for inventory, quality management, replenishment, returns
and defective goods, and demand forecasting. Balancing these competing requirements leads
to optimal inventory levels, which is an on-going process as the business needs shift and react
to the wider environment. Inventory management involves a retailer seeking to acquire and
maintain a proper merchandise assortment while ordering, shipping, handling, and related
costs are kept in check. It also involves systems and processes that identify inventory
requirements, set targets, provide replenishment techniques, report actual and projected

15
inventory status and handle all functions related to the tracking and management of material.
This would include the monitoring of material moved into and out of stockroom locations and
the reconciling of the inventory balances. it also may include ABC analysis, lot tracking,
cycle counting supported. Management of inventories , with the primary objective of
determining/controlling stock levels within the physical distribution system, function to
balance the need for product availability against the need for minimizing stock holding and
Handling costs.

TYPES OF INVENTORY
 Raw materials inventory: Raw material inventory include stores of items used
in production and quality discounts which means to get discount on price when
large quantity is purchased. Also assure supply in times of scarcity.
 Work-in-process inventory: Work-in-progress inventory are items at some
intermediate state of completion and its size is related to length and complexity
of product cycle.
 Finished goods inventory: Finished goods inventory are items ready and
available for sale and it permits prompt filling of orders.

COST ASSOCIATED WITH AN INVENTORY POLICY

 Ordering cost: Costs of placing and receiving an order of goods,

including inspecting shipments, handling payment, follow up calls and
letters.
 Carrying costs: Costs of holding inventory for a given period of time,
including storage and handling cost, obsolescence and deterioration cost,
and opportunity cost of funds invested in inventory.
 Stock out costs: Incurred when a firm is unable to fill an order,
including losing sales and the extra cost of placing special order or work
overtime to produce the needed product.
 Just-in-time inventory (JIT): The firm does not carry inventory. Once
the order Is received from customers, the order for raw material is placed
with the supplier and the product is manufactured.JIT method is used to
reduce inventory cost by supplying inventory at exactly the right time
and in exactly the right quantities. Example, dell computer co.

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 IMPORTANCE OF INVENTORY MANAGEMENT

Inventory management is very important for making company’s sales, strategic,

production and financial planning. An inventory manager should aware that inventory, its
quantity, its cost, its rates and price because inventory is effected large number of factors. so,
it should be based on flexible approach, so that company can change its design according to
changes in inventory market.
With effective inventory management, production and sales department can work to
know inflow and outflow of material. This information can be very useful for management to
reduce working capital in the form of inventory, because raw material, work in progress or
finished stocks are the block of money and fund. But management should not forget that at
the time of inflation to purchase high quantity can give us earning due to increasing prices of
same raw material within short period of time. With proper inventory management, we can
create balance between supply of raw material and demand of raw material.

MAIN TECHNIQUES OF INVENTORY MANAGEMENT

Effective inventory management requires an effective control system for inventories.
A poor inventory control not only helps in solving the acute problem but also increases
profits and causes substantial reduction in the working capital of the concern. The following
are the important tools and techniques of inventory management control:
 Determination of stock levels.
 Determination of safety stocks
 Selecting a proper system of ordering of inventory.
 Determination of economic order quantity.
 A.B.C. Analysis
 V E D Analysis
 Inventory turnover ratio
 Aging schedule of inventories
 Classification codification of inventories
 Preparation of inventory reports
 Lead time
 Perpetual inventory system

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  JIT control system

CASH MANAGEMENT
Cash is the most liquid current assets. It is of vital importance to the daily
operations of business. While the proportion of assets held in the form of cash is very small,
its efficient management is crucial to the solvency of the business. Therefore, planning cash
and controlling its use are very important tasks. Cash budgeting is a useful device for this
purpose. In financial management, management of cash is not good; it would be difficult to
manage the working capital.
 Transaction motive: transaction motive refers to the holding of cash
to meet routine requirements to finance the transaction which a firm
carries on in the ordinary course of business. A firm enters into a
variety of transaction to accomplish its objectives which have to be
paid for in the form of cash.
 Precautionary motive: Precautionary motive is a motive for holding
cash or near cash as a cushion to meet unexpected contingencies or
demand for cash. The cash balance held in reserve for such random and
unforeseen fluctuations in cash flows are called as precautionary
balances.
 Speculative motive: Speculative motive is a motive for holding cash
near-cash to quickly take advantage of opportunities typically outside
the normal course of business. The speculative motive represents a
positive and an aggressive approach. Firm aim to exploit profitable
opportunities and keep cash in reserve to do so.
 Compensating motive: Compensative motive is motive holding cash
or near cash to compensate banks for providing certain services or
loans. During periods when the supply of credit is restricted and
interest rates are rising banks require a borrower to maintain a
minimum balance in his account as a condition precedent to the grant
of loan. This is presumably to compensate the bank for a rise in the
interest rate during a period when the loan will be pending.

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 MOTIVES FOR HOLDING CASH
The term cash with reference to cash management is used in two senses. In a narrow
sense, it is used broadly to cover currency and generally accepted equivalents of cash, such as
cheques, draft and demand deposits in banks. The broad view of cash also includes near cash
assets such as marketable securities and time deposits in banks. The main characteristics of
these are that they can be readily sold and converted into cash. They serve as a reserve pool
of liquidity that provides cash quickly when needed. they also provides a short term
investment outlets for excess cash and are also useful for meeting planned outflow of funds.
There are four primary motives for maintaining cash balances. They are:
 Transaction motive: transaction motive refers to the holding of cash to
meet routine requirements to finance the transaction which a firm carries
on in the ordinary course of business. A firm enters into a variety of
transactions to accomplish its objectives which have to pay for in the form
of cash.
 Precautionary motive: precautionary motive is a motive for holding cash
or near cash as a cushion to meet unexpected contingencies or demand for
cash. The cash balance held in reserve for such random and unforeseen
fluctuations in cash flows are called as precautionary balances.
 Speculative motive: speculative motive is a motive for holding cash or
near cash to quickly take advantage of opportunities typically outside the
normal course of business. The speculative motive represents a positive
and an aggressive approach. Firms aim to exploit profitable opportunities
and keep cash in reserve to do so.
 Compensating motive: compensative motive is a motive holding cash or
near cash to compensate banks for providing certain services or loans.
During periods when the supply of credit is restricted and interest rates are
rising banks require a borrower to maintain minimum balance in his
account as a condition precedent to the grant of loan. This is presumably
to compensate the bank for a rise in the interest rate during a period when
the loan will be pending.

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 DETERMINING OPTIMUM CASH BALANCE

A firm has to maintain minimum amount of cash for settling the dues in time. The
cash is needed to purchase raw materials, pay creditors, day to day expenses, dividend;
etc.the test of liquidity of the firm is that it is able to meet various obligations in time. Some
cash will be needed for transaction needs and amount may be kept as safety stock. An
appropriate amount of cash balance to be maintained should be determined on the basis of
past experience and future expectations. If a firm maintains less cash balance then its
liquidity position will be weak. If higher cash balance is maintained then an opportunity to
earn is lost. Thus a firm should maintain an optimum cash balance neither a small nor a large
cash balance. For this purpose the transaction cost and risk of too small a balance should be
matched with the opportunity cost of too large a business. There are basically two approaches
determine optimum cash, namely:
 Minimizing cost models
 Preparing cash budget

CASH MANAGEMENT MODELS

A number of mathematical models have also been developed to determine the

optimal cash balance. They are;
 Operating cycle model
 Inventory model
 Stochastic model
 Probability model
However the inventory model as developed by William j. Baumol and the
stochastic model of M.H.Miller and Daniel Orr are mainly used to determine the optimum
balance of cash.
RECEIVABLES MANAGEMENT

Accounts receivable also known as debtors, is money owed to a business by its clients
(customers) and shown on its balance sheet as asset. It is one of a series of accounting
transactions dealing with the billing of a customer for goods and services that the customer

20
has ordered. Accounts receivable represents money owed by entities to the firm on the sale of
products or services on credit. In most business entities, accounts receivable is typically
executed by generating an invoice and either mailing or electronically delivering it to the
customer, who, in turn, must pay it within an established timeframe, called credit terms or
payment terms. The accounts receivable departments use the sales ledger; this is because a
sales ledger normally records:

 The sales a business has made.

 The amount of money received for goods or services.
 The amount of money owed at the end of each month varies(debtors)

The accounts receivable team is in charge of receiving funds on behalf of a company

andapplying it towards their current pending balances. Collections and cashiering teams are
part of the accounts receivable department. While the collection’s department seeks the
debtor, the cashiering team applies the monies received.
Company can sell the goods on credit or cash. Cash sale is inflow of cash and it is
controlled under cash flow analysis. But credit sale creates sundry debtors. Company has to
receive money from them. If company starts to sell on return of cash, then it decreases the
level of company’s sale and profitability. On the other side, if company promotes credit sale,
it can increase the risk of bad debts. So it is required to control and to manage debtors.
Debtor management means the process of decisions relating to the investment in
business debtors. In credit selling, it is certain that we have to pay the cost of getting money
from debtor and to take some risk of loss due to bad debts. To minimize the loss due to not
receiving money from debtors is the main aim of debtor management.

21
 SOURCES OF WORKING CAPITAL

SOURECS OF WORKING CAPITAL

PERMANAT OR FIXED TEMPORARAY OR VARIABLE

1. Shares 1. Commercial banks
2.Debentures 2.Indigenous bankers
3.Public deposits 3.Trade creditors
4.Ploughing back of profit 4.Installment credit
5.Loans from financial 5.Advances
institutions
6.Accounts receivables
7.Accrued expenses
8.Commercial paper

22
 WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business. Adequate
amount of working capital is very much essential for the smooth running of the business. And
the most important part is the efficient management of working capital in right time. The
liquidity position of the firm is totally effected by the management of working capital. So, a
study of changes in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This involves the need
of working capital analysis.

The analysis of working capital can be conducted through a number of devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The technique of

ratio analysis can be employed for measuring short-term liquidity or working capital position
of a firm. The following ratios can be calculated for these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

23
 7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working

capital) business enterprise between beginning and ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices

to be pursued in the future period time. Working capital budget as a part of the total budge
ting process of a business is prepared estimating future long term and short term working
capital needs and sources to finance them, and then comparing the budgeted figures with
actual performance for calculating the variances, if any, so that corrective actions may be
taken in future. He objective working capital budget is to ensure availability of funds as and
needed, and to ensure effective utilization of these resources. The successful implementation
of working capital budget involves the preparing of separate budget for each element of
working capital, such as, cash, inventories and receivables etc.

24
 ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF
LIQUIDITY

The short –term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm to
meet its obligations in time. The short term obligations of a firm can be met in time only
when it is having sufficient liquid assets. So to with the confidence of investors, creditors, the
smooth functioning of the firm and the efficient use of fixed assets the liquid position of the
firm must be strong. But a very high degree of liquidity of the firm being tied – up in current
assets. Therefore, it is important proper balance in regard to the liquidity of the firm. Two
types of ratios can be calculated for measuring short-term financial position or short-term
solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ‘ratios

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as and when
these become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about liquidity.
These should be convertible in cash for paying obligations of short-term nature. The
sufficiency or insufficiency of current assets should be assessed by comparing them with
short-term liabilities. If current assets can pay off the current liabilities then the liquidity
position is satisfactory. On the other hand, if the current liabilities cannot be met out of the
current assets then the liquidity position is bad. To measure the liquidity of a firm, the
following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO

3. ABSOLUTE LIQUID RATIO

25
 SCOPE OF THE STUDY

The study aims at arising the liquidity position, solvency position and profitability
position, of the company. It in analyzed by using ratios.

Financial soundness of the company will give an idea of the efficiency of the
company . Financial soundness can be analyzed by measuring the financial performance of
the company.

In the present study an attempt in made to analyze the financial performance. Tools
like ratio analyzes, comparative statements, common size statements etc. are used for
analyzing the financial performance.

26
 OBJECTIVES OF THE STUDY

The main objectives of the study are the following.

PRIMARY OBJECTIVES

 To know the liquidity and solvency position of the company.

 To evaluate the overall financial position of the company.

SECONDARY OBJECTIVES

 To know the functioning and operation of the company.

 To know the profitability and financial soundness of the company.
 To measure the efficiency in the utilization of various assets.
 To give suggestion and recommendations for improving the financial management of

the company.

27
LIMITATIONS OF THE STUDY

1. The study suffers from the following limitations:-

2. The study is based on the last 5 years performance only.
3. Due to the inadequate time it is not possible to analyze all aspects relevant the study.
4. The study mainly depends upon the secondary data.
5. This study is mainly depending on figures available in the Balance sheet and P&L
account. The actual position may be slightly different.
6. Personal bias of the researcher may influence the interpretation to a great extent.
7. Findings and suggestions of the study are purely based on the financial statements.
8. The limitation of ratio analysis also form part of this study.

28
 Industry profile

An Introduction to Electronic Industry

The worldwide electrical and electronics and computer industry is the most
flourishing and extremely diversified sector consisting of manufacturers, suppliers, dealers,
retailers, electrical engineers, electricians, electronic equipment manufacturers and trade
unions. This sector has been growing at a rapid pace with the invention of of innovative
technologies and an ever increasing customer inclination towards electronic goods and
services.
Initially electronics and electronic equipment’s were meant m merely for man’s
luxury and merry making. But just like the saying “today’s luxury is tomorrow’s necessity”
goes; electronic device cannot be branded as luxury items as they have become part and
parcel of everyday life.
Electronic has made our vast world a very small place and has united different people
scattered across the globe. A comparison of the first computer with the latest vacuum tubes
and Pentium III microprocessors reveals the immense improvement man has made in this
field. Electronics has bought the world under man’s fingertips. With just the push of the
button or a click of a mouse, he is capable of conducting strenuous and time consuming tasks,
within a matter of seconds. Automation is the key to the speed in which electronic appliances
perform several applications.

29
 connectors
A “connector” transmits electrical power and/or electronic signals between two
devices. It provides the vital link between electrical components with speed, efficiency and
reliability. A connector is a device for holding two parts of an electrical conductor in contact.
It is an object fixed to the end of the wire, used for connecting two pieces of equipment. Uses
of these connectors are more in where there is more electrical and electronic systems are
used.
When using an electrical cable, a connection is established when the conducting wires
are joined by way of connectors in order to make and maintain continuous contact, allowing
the signal to simply move along the cable across the contact. Some example of the use of the
connector linking a cable and and a Network Interface Card or NIC card, a connector linking
two cable segments.

There are various types of connectors in the market like:

 Circular connectors
 Rectangular connectors
 PCB connectors
 IDC connectors
 Coaxial connectors
 Fiber optic connectors
 Automotive connectors

When determining the type of connector that is used, it is important to take into
consideration the components being used, and, as far as networks, the type of cable and
architecture being used.

30
 CONNECTORS IN OUR LIFE
In our credit card
Pay quickly and securely when we travel, our credit card guarantees us comfort and
security. A single connector in our credit card allows it to be recognized by payment
terminals all over the world which means we can pay the bill wherever we are.
In our car (squib connector)
“Drive safely with our airbag “- In our car we will find as many as 400 connectors
playing a whole range of different roles, one such role is vehicle safety. Our connectors link
together the various components of an airbag, ensuring we have a soft cushion in the event of
a crash; it is good to know we are in safe hands.
In our cell phones

Connectors bring together the inner working of a cell phone. They provide that vital
link between the electrical components in our phone with speed.

In communication (Bank panel connector)

“connectors to the standards of WIFI”-WIFI technology may involves no wires, but it

relies on a whole host of connectors. Inside our WIFI router we will find up to a 20
connectors link together different electrical elements and making sure our wireless
connection is always fully operational.

In television (flex circuit connector)

A high definition television relies on high quality connector. It is because of the

connector that the different electrical components of our television work together
harmoniously, which means we can lay back and enjoy great picture quality.

In Hospitals

“make sure we get a precise diagnosis”- in hospitals precision and reliability are not
simply desired, they are required, the connector link together the various electrical
components of CAT ( Computerized Axial Tomography) scanner so that doctors can be sure
that they are making an accurate diagnosis.

31
Based on their contract ares connectors can be callsified in to:

 Male connectors:- The male connectors have their external contact ares projrcting
out.
 Female connectors:- These from a pair with the male connectors. The female contact
area is usually made by two or three lip areas to hold on to the male contacts firmly.

Based on their utility areas of connection, the connectors are:-

Straight spill

These connectors are used to connect head on black panel boards.

 Angle spill/edge connectors:- These are usually male connectors, used when one of
the panels is at some angle with respect to the other. The most commonly used angle
spills have the contact area angles at 90 degree. This is usually used to connect 2
panels, one vertical and the other horizontal to the ground.

GLOBAL SCENARIO

The global electrical and electronic sector is highly fragmented, comprising of various
auxiliary sectors namely electronic components, computer and office equipment,
telecommunications, consumer appliances and industrial electronics. The world wide
electronic industry is distinguished by fast technological advances and grown rapidly than
most other industries over the past 30 years.

In Asia pacific region, Japan, Korea, china, Taiwan, India and Singapore are the
principal manufacturing hubs for of electrical and electronic products. China is becoming the
manufacturing region of electronic products on the globe.

In United States of America, New York, Atlanta, Colorado, Florida, Texas etc. are the
major industrial hubs of electronics industry. Presently the electronic products manufacturing
is expanding on Asian region and deflating in Americas and Europe.

32
Top 10 Electronic Connector manufacturers

Tyco electronics JST

Amphenol corporation Foxconn

Molex incorporated Delphi connection systems

FCI JAE

Yazaki Hirose

Factors Governing the Growth of this Industry

The key factors governing the growth of electrical electronic industries are as
follows:-

 Rising and continuous investments in research & development has led to increased
productivity and higher value-added electrical and electronics products.
 Rising incomes and living standards have resulted in the increase in demand of
electronics especially consumer electronics products in the world.
 Asia Pacific region is emerging as the most spinning place for the consumer
electronics industry, as the markets remain still unreached.
 Rapid pace innovation in electronic technology is resulting in a constant demand for
newer and faster products and applications.

United States, Japan, Korea are the top three electrical and electronic goods
manufacturing country in the world. The USA is the largest producer of electronic products
in the world, contributing a total share of around 21%. Furthermore, it also occupies the
largest market share with about 29% in the global market. Sony Corporation, Apple Inc,
Toshiba Corporation, LG Electronics Inc., SANYO Electric CO., Ltd and Samsung
Elecronics Co. Ltd are the key players of electrical electronic products in the world market

33
Future Growth Prospect

The worldwide electrical electronic industry is distinguished by fast technological

advances and has grown rapidly than most other industries over the past 30 years. There is an
estimation that within 20 years, two third of the electronic industries will be four times as big
as today and half of it will remove to Asia. The future seems prosperous for this electrical and
electronics industry in terms of the expected surge in global demand and upsurge in
investments. With a projected five year compound growth rate of 8.0%, the industry value
will grow to $ 130,693 million by 2016.

The big difference with the other tree market sectors is that the industrial market for
connectors have always been more lucrative market for niche players in the connector
industry. This is due to a certain lack of standards, a large variety of applications, and a stable
growth pattern- with recent exceptional growth in particular sectors, like renewable energy
technologies (wind/solar). While the big OEMs in the telecom, computer and automotive
industries dictate more or less the connector landscape in their respective markets, which is
often characterized by large, global companies, the industrial market is much more
fragmented, and allows many more and smaller players to participate, including local region
companies. Although large, global connector suppliers prominently present in this market;
the nature of the market allows niche players to develop specific products for specific
applications, often in relative small volumes, in contrast with the huge quantities consumed in
telecom and computer applications. Many of these small and medium sized connected
manufacturers in the industrial market have developed specific specializations and this has
been a successful strategy.

34
The industrial market connectors includes the following equipment:-

 Production process and manufacturing machinery

 Heavy industry machinery, energy generation and distribution equipment
 Robotics
 Farming, forestry and agricultural equipment

 Environmental technologies
 Building and civil engineering
 Industrial and process control equipment, networking and automation
 Other equipments

Major Players

Honda Connectors, originally established in 1932 as a manufacturer of precision

screw machine parts. By 1942, Honda had entered into the telecommunications market by
manufacturing plugs and patch cards for telephone switch boards. In 1947, the company was
re- established as full line connector company developing and designing products for the
computer telecommunications and instrumentation markets.

Cinch connector is multinational manufacturer of a board range of interconnect

products. With facilities in North America & Europe, cinch satisfies the need of customers.
Volex is one of the world’s largest producers of electrical & electronic cable assemblies with
over 30 facilities located strategically into the major geographic markets of Europe, North
America, South America & Asia positron industry is a manufacturer of high performance,
reliable connectors. Air born is the global source for connector products & design.

WELCO Electrical Connectors Inc has provided solutions from the beginning.
Connector application knowledge is one of the important key to their success. SMP
Technology Inc, a privately held corporation, designs & manufacturers interconnection
devices, power supplies & cable assemblies.

35
INDIAN SCENARIO

The electronic industry in India constitutes just 0.7% of the global electronic industry.
Hence it is miniscule by international comparison. However the demand in the Indian market
is growing rapidly and investments are flowing into augment manufacturing capacity. India
however remains a major importer of electronic materials, components and finished
equipment. This is not a desirable situation and local manufacturing has to keep pace with
growing local demand.

The major market sector for connectors in India are Communication, automotive,
industrial and instrumentation.

India is also an exporter of a vast range of electronic components and products for the
following segments:

 Display technologies
 Optical storage devices
 Passive components
 Electromechanical components
 Semiconductor designing
 Telecom equipment

Factors governing the growth of Indian Electrical Industry

 Research and development played an important role to the increased productivity and
higher value added electrical and electronic products.
 Global industries like medical, telecommunications, industrial and automotive
industries have been cordially supported by electrical and electronics industry.
 Foreign industries accelerated growth in production and export as well. To expand
their business, foreign companies have done huge investment which leads developing
countries in establishing production units.
 Increase in income increased the demand of electronics products globally.
 Innovation has played importantly in this industry. It led to a consistent demand for
newer and fater products and appliances.

36
Future Growth Prospect Of Indian Electronics Industry

The electrical and electronic industry in India is growing to its full potential in the
coming years and no doubt that India will soon come to be recognized for quality products
and services which in turn, will bring this industry to a position of true leadership.

Indian electrical and electronic industry has grown because of government’s trust on it
and also due to overall economic growth. It has also reached a stage where the industry has
demonstrated its capabilities. The industry has seen a 20% growth and should continue at the
same level for the next few years.

Major Players

As the market size was small there are only a minimum number of connector
manufacturers in India. It includes:

 Mafatlal
 Micron
 Amphenol
 Essendinki
 FCI OEN LTD

FCI OEN connectors Ltd manufacturers rack & panel connectors, terminal connectors,
flat cable connectors, circular connectors, heavy duty connectors and IC sockets.

Amphenol corporation manufacturers electrical electronic and fiber optic connectors,

coaxial and flat ribbon and inter connect systems.

37
Issues Faced By Indian Electronic Industry

The major focus is on consumer products, electronic switching and transmission

equipment related products rather than focusing on wireless telecommunications, computing
and information technology related products. Therefore Indian electronic industry is not able
to take advantage of the rapid growth taking place in the area of telecommunications and
information technology. Indian components plants are also very small leading to relatively
high cost of production.

38
 COMPANY PROFILE

Introduction To FCI OEN CONNECTORS LIMITED

FCI OEN Connectors limited is the country’s prime supplier of professional grade
connectors. The company is a joint venture with FCI France (earlier called Framatome
connectors France). It was incorporated on the 2nd day of June 1981.

“ with 14,000 employees in 30 countries and sales of 1.28 billion euro in 2010,FCI is
a leading manufacturer of connectors for various markets such as automotive,
telecommunication infrastructure and consumer and industrial electronics.”

Operating in 30 countries throughout the world and in 15 different languages, FCI is a

leading designer; manufacturer and supplier of innovative and high quality electrical and
electronic interconnect systems for a wide range of consumer and industrial application. FCI
is controlling their own sales marketing design and manufacturing activities.

A major market player, the connector industry is highly competitive market composed
of some 1,200 companies- and FCI is the first and only European connector manufacturer in
the industry’s top ten.

FCI designs and manufactures a multitude of products ranging from the most basic to
the most complex, like the smart or high-density connectors found inside a cell phone or
laptop computer. Connectors are used in cars, buses and televisions - and they play a vital
role in supplying electricity, sending satellite communications and operating hospital
equipment. FCI has 14 R&D centers worldwide and have already registered several 1000
patents with licensing agreements. More than 10% of the company’s sales revenue is invested
every year in developing and manufacturing new products.

39
History

FCI was established in 1988 by Framatome as a way of diversifying outside the

nuclear field. Some 20 acquisitions and 20 years later, FCI has become one of the largest
connector manufacturer.

In November 2005, FCI was acquired by Bain Capital, a private investment fund.
Bain Capital has significant investment experience in early 75 industrial & technology
companies worldwide, including companies in the automotive and telecommunications
components sectors, making it a valuable partner for FCI in terms of financial strength,
international presents and commitment.

Giant Strides

Way back in 1984, when the company commenced by the technical backing of the
joint venture partner, M/s. FCI France and its subsidiaries, also catalyzed by the company’s
ever passing day has been prodigious. The result – FCI OEN Connectors Ltd. Is today
magniloquent of a wide gamut of connectors like Rack & Panel Connectors, Terminal
Connectors, Flat Cable Connectors, Circular Connectors, PCB Connectors, Heavy Duy
Connectors and IC Sockets.

Collaborators

FCI France is the technology supplier of the company since inception. In 1989, they
acquired 26% of the company’s equity share capital. In august 1993, the equity stake
increased to 40%. Immediately thereafter, the stake further increased to 51% by an exclusive
issue of 7, 59,863 equity shares to them at a premium of Rs. 75/- per share. In 1999, by the
Conversion of Zero Interest Fully Convertible Debentures issued to FCI France, their equity
increased from 51% to 61.5%.

Consequent to the amalgamation of Framatome Connectors Berg with FCI OEN,

1,89, 000 equity shares were issued to FCI France. Again on 5th march 2004, by way of
preferential issue, FCI France acquired 8, 40, 000 shares and the total holding thereby
increased to 67.83%. now more than 97% of the shares of the company are held by the FCI
France SA, FCI SA & FCI Asia Pvt Ltd.

40
 FCI France, headquartered at Guyancourt, France, had a turnover of 935 million
Euros in 2009. Operating in more than 30 countries, it employs around 14,000 people all over
the world, who are committed to providing customers with reliable, high-quality products for
a wide range of consumer and industrial applications .

Strategy of FCI OEN

The 2014-2016 strategic plan is designed to promote long term value. It is based
around five key initiatives: Customer Focus, Lean Product Development, Lean
Manufacturing, Supplier Development and People Empowerment. Together these five
initiatives will help gradually change the culture and processes to achieve sustainable growth.
Above all, the long term strategy is about people- both the FCI customersand staff. FCI strive
to put people at the heart of our decisions, help them share values, and promote a seamless
exchange of knowledge and information between them.

Customer focus covers three main areas: integrating on demand tools; developing a
well- defined key account strategy; and acquiring a complete customer service culture by
instilling values such as responsiveness, availability and flexibility. The overall objective is to
ensure customer satisfaction at all times and at all levels.

FCI Head Office

FCI SA- Immeuble Calypso- 18 Parc Ariane III- 78 280 Guyancourt Identification: 349 566
240 R.C.S Versailles

41
 BOARD OF DIRECTORS

S.N. TALWAR CHAIRMAN

P.GEORGE VARGHESE VICE CHAIRMAN

GILLES RUCKSTUHL BOARD MEMBER

THIERRY ROSIGNEUX BOARD MEMBER

MICHEL SAFIR BOARD MEMBER

RAFAEL MATHIEU BOARD MEMBER

RAJAMANI G MANAGER & DIRECTOR

BIJU K.ELIAS COMPANY SECRETARY

S.N. TALWAR,THIERRY AUDIT COMMITTEE

ROSIGNEUX,
P.GEORGE VARGHESE

PRICE WATERHOUSE STATUTORY AUDITOR

VARMA & VARMA INTERNAL AUDITOR

MENON & PAI LEGAL ADVISOR

BANK OF INDIA, HDFC BANK BANKERS

42
AREA OF BUSINESS

Electronics

FCI is a leading supplier of interconnect solutions for networks and

telecommunication infrastructures, data storage, medical and instrumentation applications.
All kinds of electronic equipment are powered by connectors and FCI Electronics division is
a leading supplier to this market. They design, develop and manufacture solutions for a whole
range of everyday uses. FCI technological expertise allows them to bring to the market a
wide range of new, high performing and cost effective connectors.

Micro connectors

The micro connections division is a leading supplier of micro circuitry solutions for a
whole range of applications (such as banking or cell phones) and a reference supplier for
RFID (antennas, tags and inlays) and consumer applications (inkjet catridge modules).

Smart cards

One of the division’s main activities is providing solutions for smart cards. The
connectors link together the various components is the SIM card of a cell phone and in credit
cards. They provide solutions for contactless and RFID technology.

Motorized vehicles

The motorized vehicles division represents a biggest single activity, and its solutions
cover a wide range of applications. FCI

Offers high performance interconnect solutions for all electronic system in a vehicle:
electrical hardness, interior and car body equipment, exterior lighting, braking system, safety
restraint systems, powertrain sensors and electronics- including high power connectors for
hybrid and electric vehicle. FCI Is a worldwide leader in airbag connector system for safety

43
restraint applications. Its customers recognize FCI as a partner of choice of quality, cost
competitiveness and delivery performance. Connectors play a major role in any given
vehicle.

Anticipating customer needs

The R&D teams are constantly anticipating customer needs and developing new
products via partnerships with major system suppliers and car manufacturers. Furthermore,
the connectors for motorized vehicles have proved so that they have been adopted by other
markets such as construction and agriculture.

Everyday uses

When you store data on a server, a hard disk drive or your desktop computer, you are
relying on FCI connectors. If you watch a DVD on a LCD television, you are putting a whole
series of connectors to work in both devices. In brief, FCI electronics division provides
solutions for everything from consumer goods like to your digital camera to specialized
equipment such as hospital diagnostic apparatus.

Innovation

The technical expertise and experience of the Electronics teams made FCI a well
established industrial supplier. Furthermore, the company is constantly improving the
products to make them ever more cost effective precise and reliable. More than 10% of the
sales revenue is invested every year in developing and manufacturing new products and the R
& D centers worldwide have already registered several thousand patents with licensing
agreements.

44
 VISION AND PHILOSOPHY OF FCI CONNECTORS

“Everyday FCI Aim To Be Focused, Committed And

Inventive To Become The Benchmark In The

Connectors Market.”

Focused

FCI focuses on identified markets and applications to develop a competitive offer that
matches its client’s specific needs. FCI also focuses on total quality management to achieve
total client satisfaction. This includes programs allowing FCI’s employees to identify and
share best practices and acquire international quality standards.

Committed

FCI is totally committed to its customers. The company has for instance, implemented
many added- value services, all of which aim at a customer oriented continuous
improvement program. Indeed customized services have been extended and refined to include
a range of online business service.

Inventive

FCI sees innovation as a key factor for future growth. The continuing trend towards
miniaturization and high speed of connectors has added further impetus to FCI’s Research
and Development program. FCI own several thousand patents on new products for emerging
requirements. FCI innovative technology is used by key actors across of the connector
industry.

45
VALUES OF FCI OEN

Environment

FCI are fully committed to sustainable development. Since 2004, FCI have strongly
encouraged all sites to attain ISO 14001 compatibility – a wide recognized international
standard for environmental management system. FCI have developed a number of tools to
ensure that the environmental policies are efficiently enforced.

FCI environmental performance has been recognized by a number of award

committees. For FCI, environmental management is all about continuous improvement.
Employees at all levels of FCI are responsible for integrating Environmental policy into their
daily work activities which means FCI commitment to the environment is felt across the
entire company.

Ethics

Ethical behavior is one of FCI’s most fundamental values. It underlies all the business
activities at every level of the organization.

Code of business conduct

FCI business conduct is a twelve – clause documents that sets out the commitment to
fair and responsible behavior. It covers everything from relationships with customers and
suppliers to respect for stake holders, cultural diversity and compliance with antitrust laws.

Training and communication

To make sure of FCI’s code of business conduct is properly upheld FCI continually
train and inform the employees. Furthermore FCI different business entities submit a report
every year concerning their ethical behavior.

46
Quality

At FCI, quality is central to everything. FCI experience in the automotive- a culture

where quality is not negotiable has taught FCI the importance of constantly maintain high
standards across the operation, process and products.

Quality in the workplace

To make a high quality product FCI need high standards in the work place. That’s
why FCI invested in Lean initiatives across the different sites.

Safety

FCI are committed to continually improving the safety performance. For FCI the key
to safety is communication. FCI firmly believes that training and education are the corner
stone for instilling a culture of safety and assuring safe working environment.

FCI guiding principles

 FCI will be a market customer driven company constantly seeking cost effectiveness
and competitiveness.
 FCI will focus on adding value all along the supply chain & avoid wasting scarce
resources.
 FCI will be a decentralized, rapid decision making company
 FCI will be a champion of teamwork and clear accountability.

47
MANUFACTURING FACILITIES OF FCI OEN CONNECTORS

FCI OEN has 4 manufacturing units, of which 3 of them are at Mulanthuruthy,

Cochin and one in Bangalore.

Electronics division (ELX)

Immaculately clean and impeccably tidy, the factory today boasts of the sophisticated
and contemporary equipment’s and fully air conditioned assembly area of 35000 sq.ft. The
manufacturing process strictly adheres to the standards and specification set by the
collaborator. No wonder, the products match the quality and reliability leave set by the
collaborator and the products are well accepted by the market.

Global Tooling Centre (GTC)

Global tooling center started in 2001, manufactures tools / moulds required for the
production of interconnection devices. It also undertakes tool design activities. Manufacture
of tools/moulds is a highly precision and technology oriented business for which the
company has been using high quality imported equipment. It has a world class tool room with
a controlled atmosphere and high-tech machine tools and auxiliary equipment to meet the
global quality standards in tooling. It also has its own Training Centre apart from the main
production area and the total built up area comes to 27370 sq ft. the said centre employs
around 250 people.

Motorized Vehicles Division (MVL)

FCI MVL offers a complete range of reliable, high-tech and innovative interconnect
solutions for automotive applications. FCI MVL division operates 11 manufacturing sites and
5 R & D centers globally., capable of delivering state of the art components for engine,
cockpit, harness sectioning, safety, Electronic Control Units and multimedia applications for
motorized vehicles, both on road and off road. The MVL in Cochin started in 2005,
manufacturers interconnect solutions for a global clientele, servicing most of the major
OEMs. A wide range of products other than for multimedia applications are manufactured
locally. The division employs around 450 people. The plant has a built up area of 32260 sq ft.

48
Bangalore

The Bangalore manufacturing facility offers Copper and Fiber Optic Cable Assembly,
backplanes and value added business. Value added products not only connectors, but also
complete interconnect sub-assemblies (particularly cable assemblies and back planes). Fiber
Optic and Value Added Business will find increased markets in the future and therefore the
company has identified these as thrust areas for future growth. The unit employs around 65
people.

Market and Marketing Network

With a Central Marketing Office at Cochin, the company has regional offices all
major cities with field personnel carrying forward the work put in by
design/production/quality team. The penetrating style of customer service of the field
personnel ensures that the company meets not only the required specifications, but also the
adaptability with reference to each specific application. The company also represents the FCI
in India since 1985 for marketing their multitudinous varieties of connectors and similar
products.

Quality Approvals Accolades

Quality is a way of life and an article of faith at the manufacturing site. The emphasis
on quality, a corporate obsession, is evident in all facets on activities in the FCI OEN
Connectors Ltd. No wonder the products of the company have been well accepted by the
market and its name is synonymous with quality and reliability. FCI OEN is the first
connector manufacturer in India to received QPL approval from the defense Electronic
supply center, USA, for manufacturing circular connectors, making the first company in Asia
to receive such an approval. This will enable the company to market the products in the US
and European aerospace and defense markets.

49
 FCI OEN is certified to ISO/TS 16949:2002 Quality Management System. Product
certification includes international approvals like UL, CSA and National approvals like
LCSO,

CACT, DQQA and DGAQA. As a part of lean implementation, tools like QRQC & Red BIN
Analysis are used in the manufacturing shops to improve the quality performance. The
company has won the national Productivity Award; Akina Award for Export Quality, Kerala
State Productivity Award and DOE Award for excellence in electronics etc. company won
the National Award for Excellence in indigenization of products instituted by the ministry of
Govt.of India. The Award was in recognition for the indigenization done for Bharath
Electronics in backplane Assemblies including contacts for military communication.

Departments working at FCI OEN include:-

 Manufacturing Department
 Automation Department
 Quality assurance Department
 Document Control Department
 Engineering Department
 General Services Department
 Logistics & customer service Department
 Maintenance Department
 Marketing Department
 Material Control Department
 Production Planning Department
 Sub Contracting
 Vendor Development
 Quality Control
 Tool Room
 HRD
 finance

50
Products

FCi manufacturers about 2500 various types of connectors. These are based on their
applications and customer demands. The main products of FCI are as follows:

1. D-SUB miniature connectors for industry, Military & Telecommunications

2. MODULAR connectors for PCbs
3. FLAT CABLE connectors
4. EDGE connectors
5. Delta-D for Delta markets
 Millipac connectors
 Smart card connectors
 Automotive connectors

Global Tooling Centre

GTC is a world class tool room with a controlled atmosphere and high tech machine
tools and auxiliary equipment to meet the global quality standards in tooling. The major
activity in this unit is the manufacturing of high precision stamping tools, multi cavity mould
parts and its spares according to customers tool/engineering drawing.

51
 Research Design And Methodology

INTRODUCTION

When we talk of research methodology, we not only talk of the research methods but also the
comparison of the logic behind the methods, we used in this context of our research study and
explain why we are using a particular method or technique and why using the others.
Research methodology is a way to systematically solve the research problem. It may be
understood as a science of studying how research is done systematically. In this we study
various steps that are generally adopted by the researcher in studying his research problem
along with the logic behind them.

As the study is analyze probing in nature, which is entirely based on the secondary
data gathered through the various reports of the industry. Therefore it provides a historical
perspective of decisions.

RESERCH METHODS

Research method may be understood as those method or techniques that are used for
conduction of research. All those methods which are used by the researcher during the course
of studying the research problem are termed research methods. Keeping in view, the research
methods can be put into following three groups:

 In the first group we include those methods which are concerned with the collection
of data. Those methods will be used where the data already available are sufficient to
arrive at the required solution.
 The second group consists of those statistical techniques which are used to establish
 relationships between the data and the unknown.
 The third group consists of those methods which are used to evaluate the accuracy of
 the obtained results.

52
METHOD USED FOR STUDY:

ANALYTICAL STUDY METHOD (STATISTICAL METHOD)

Statistical method is a system of procedures and techniques of analysis applied to

quantitative data. It consists of a system of statistical techniques applicable to numerical data.
Statistical methods are a mechanical process especially designed to facilitate the
consideration and the analysis of the large body of quantitative data. The aim of statistical
method is to facilitate comparison, study relationship between the two phenomena and to
interpret the data for the purpose of analysis.

Uses of statistical methods

 It helps in comparison between present and past.

 It is useful to make projection and to make predictions.
 Relationship can be studied.
 It helps to form probable inferences.
 It describes facts through presentation of data.
 Its approach is quantitative and hence definite and reliable

Disadvantages of statistical method

 It can be misused by inexpert.

 It can be applied only to quantitative data.
 It can be used to study only aggregates.

In the qualitative approach, the subjective assessment of attitudes, opinions, behavior

will be done. Research in such situation is a function of researcher’s insight and impressions.
Such an approach to researchers generates results either in non-qualitative form.

53
Types of research

The design followed is descriptive research. It is based on the internal records and the
annual records of the company. Besides, information is gathered from the officers of the
company. Here the researcher attempts to present the existing facts by collecting data. It is a
research of fact finding.

Sources for data collection

1. The data for the study were collected in the following manner.
2. Primary data collected through investigation.
3. Secondary data has been collected by reffering the various records, reports and the
4. website of the company

Tools for analysis

 Comparative Statement
 Common size Statement
 Ratio analysis

Representation

Tables, figures, and Charts are use

54
 NET WORKING CAPITAL FOR THE PERIOD 2013-2013

(Working Capital=Current Assets-Current Liabilities)

TABLE 4.1

YEAR CURRENT ASSETS CURRENT NET WORKING

LUIABILITIES CAPITAL

2013 87,76,75,619 33,00,86,708 54,75,88,911

2014 1,54,86,81,267 53,59,66,649 1,01,27,14,618

2015 1,56,18,17,289 56,73,05,559 99,45,11,730

2016 1,85,82,36,122 1,02,13,00,928 83,69,35,194

Chart 4.1

1,200,000,000.00

1,000,000,000.00

800,000,000.00

600,000,000.00 NET WORKING CAPTAL(Rs.)

400,000,000.00

200,000,000.00

0.00
2013 2014 2015 2016

INTERPRETATION:-

current assets of the company showed in increasing trend. It reveals the stability in the growth
of the company.

55
 WORKING CAPITAL IN DETAIL

Table 4.2

CURRENT ASSETS
YEARS 2013 2014 2015 2016

INVENTORIES 24,7700,173 24,18,47,444 21,50,34,937 40,80,90,726

SUNDRY
DEBTORS 35,14,27,591 53,40,95,616 59,12,72,693 81,03,91,668
CASH &BANK
BALANCES 1,56,80,553 19,08,08,015 20,14,18,865 16,97,14,724

OTHERS 5,92,41,981 13,12,77,077 8,76,45,128 9,18,36,722

LOANS&
ADVANCES 6,31,25,321 45,06,53,115 46,64,45,666 37,82,02,282
TOTAL
CURRENT 87,76,75,619 1,54,86,81,267 1,56,18,17,289 1,85,82,36,122
ASSETS
CURRENT LIABILITIES

LIABILITIES 33,00,86,708 53,59,66,649 53,08,09,394 74,86,45,053

PROVISIONS - - 3,64,96,165 27,26,55,875

TOTAL
CURRENT 33,00,86,708 53,59,66,649 56,73,05,559 1,02,13,00,928
ASSETS
NET
WORKING 54,75,88,911 1,01,27,14,618 99,45,11,730 83,69,35,194
CAPITAL

56
Chart 4.2

2,000,000,000.00
1,800,000,000.00
1,600,000,000.00
1,400,000,000.00
1,200,000,000.00
CURRENT ASSETS(R.s)
1,000,000,000.00
CURRENT LIABILITIES(R.s)
800,000,000.00
600,000,000.00
400,000,000.00
200,000,000.00
0.00
2013 2014 2015 2016

INTERPRETATION:-

Net working capital shows the excess of current assets over current liabilities. The Net
Working Capital has almost doubled in2014 than 2013. It shows a declining trend in
2015&2013. It shows that the firm has got an excess of current assets over current liabilities.
The current assets of the company have increased which shows the increase in turn over.

57
 CURRENT RATIO

(Current ratio=Current assets/current liabilities)

Table 4.3

YEAR CURRENT ASSETS CURRENT RATIO

LUIABILITIES

2013 87,76,75,619 33,00,86,708 2.66

2014 1,54,86,81,267 53,59,66,649 2.89

2.75
2015 1,56,18,17,289 56,73,05,559

2016 1,85,82,36,122 1,02,13,00,928 1.82

Chart 4.3

2.5

2
RATIO(Times))
1.5

0.5

INTERPRETATION:- The Current Ratio Of The Company In These Years Of 2.53. THIS
Indicates That Every 1 Rupee Of Current Liability There Are Current Assets Of Rs 2.53.ie.
Liquidity position if the company is safe.

58
 LIQUID RATIO

(Liquid ratio=(current assets-inventory)/current liabilities)

Table 4.4

YEAR CURRENT ASSETS CURRENT RATIO

LUIABILITIES

2013 64,54,72,694 33,00,86,708 1.96

2014 1,30,68,33,823 53,59,66,649 2.44

2015 1,34,67,82,352 56,73,05,559 2.37

2016 14501145396 1,02,13,00,928 1.42

59
Chart 4.4

2.5

1.5
QUICK RATIO(Times)

0.5

INTERPRETATION:-

The liquid assets of the company showed an increasing trend. The average liquid ratio is 2.05
which are very much higher than the standard norm of 1:1. Company also has investments in
mutual funds which are easily convertible into cash even on a day’s notice.

60
 WORKING CAPITAL TURN OVER RATIO

(Working capital turnover ratio=sales/working capital)

Table 4.5

YEAR WORKING CAPITAL SALES RATIO

2013 54,75,88,911 2,0623,55,149 3.77

2014 1,01,27,14,618 2,30,96,79,415 2.28

2015 99,45,11,730 2,52,28,20,243 2.54

2016 83,69,35,194 3,68,80,48,742 4.4

61
Chart 4.5

4.5
4
3.5
3
2.5 WORKING CAPITAL
2 TURNOVER RATIO(Times)

1.5
1
0.5
0
2013 2014 2015 2016

INTERPRETATION:-

The working capital turnover ratio indicates the number of times the working capital is turned
over into sales. The 3 year shows an average of 2.86, which means the company, is able to
convert its working capital into 2.86 times.

62
 SUNDRY DEBTORS ANALYSIS

Table 4.6

PARTICULARS 2013 2014 2015 2016

DEBT
OUTSTANDING 58,80,419 77,68,412 51,47,652 1,84,761
EXCEEDING 6
MONTHS

OTHER DEBTS 34,75,74,887 52,77,60,641 58,74,14,040 79,4090,971

LESS 20,27,715 14,33,437 12,88,999 21,64,064

PROVISIONS

TOTAL 35,14,27,591 53,40,95,616 59,12,72,693 81,03,91,668

63
Chart 4.6

900000000
800000000
700000000
600000000
500000000
TOTAL DEBTORS(Rs)
400000000
300000000
200000000
100000000
0
2013 2014 2015 2016

INTERPRETATION:-

Debtors of the company show an increasing trend. Receivables are increasing because of the
change in customer profile. The company of selling more to global customers like
Nokia(Microsoft) which shows the global reach of the business in this competitive world.

64
 DEBTORS TURN OVER RATIO & DEBT COLLECTION PERIOD

(Debt collection period=debtors turnover ratio*no.of days in a year)

Table 4.7

YEAR DEBTORS SALES RATIO DEBT

COLLECTION
PERIOD

2013 35,14,27,591 2,06,23,55,149 5.87 62

2014 53,40,95,616 2,30,96,79,415 4.32 84

2015 59,12,72,693 2,52,28,20,243 4.27 85

2016 81,03,91668 3,68,80,48,742 4.55 80

65
Chart 4.7

90
80
70
60
50 DEBT COLLECTION
40 PERIOD(Days)
30
20
10
0
2013 2014 2015 2016

INTERPRETATION :-

The debt collection period shows the efficiency with which the company is able to collect its
receivables. The 3 years average shows that for a period of 78 days of the company’s funds
are locked up with the customers, which show that the company provides more than 2 months
credit.

66
 CREDITORS TURN OVER RATIO & CREDIT PAYMENT PERIOD

(Credit payment period=creditors turnover ratio*No.of days in a year)

Chart 4.8

YEAR CREDITORS PURCHASES RATIO PAYMENT

PERIOD

2013 30,49,41,911 1,40,13,62,639 0.22 79

2014 50,70,80,078 1,60,20,92,638 0.32 115

2015 49,96,60,993 1,67,98,67,867 0.30 108

2016 73,04,21,344 2,61,19,60,944 0.28 102

67
Chart 4.8

120

100

80
PAYMENT
60
PERIOD(Days)
40

20

0
2013 2014 2015 2016

INTERPRETATION:-

creditor’s payment period indicates the time with which payment to credit purchases are
made. The company is able to take advantage of an average off 101 days (more than 3
months) allowed by its suppliers.

68
 CONSUMPTION PATTERN OF RAW MATERIALS

( Daily Consumption= Raw Materials Consumed/No.Of Days In A Year)

(Holding Period- Raw Materials Inventory/Daily Consumption)

Table 4.9

PARTICULARS 2013 2014 2015 2016

RAW
MATERIALS 1,13,37,92,388 1,3583,33,106 1,46,46,31,383 2,28,02,60,421
CONSUMED

INVENTORY 13,63,29,024 16,11,08,678 14,00,43,706 33,59,18,460

DAILY
CONSUMPTION 31,06,280.52 37,21,460.56 40,12,688.72 62,47,288.83

HOLDING
PERIOD 44 43 35 54

69
Chart 4.9

60

50

40

30 HOLDING PERIOD(Days)

20

10

0
2013 2014 2015 2016

INTERPRETATION:-

The company holds its inventory for an average period of 44 days. But in 2013 the holding
period increased to 54 days.

70
 CONVERSION OF FINISHED GOODS

(Daily consumption= Net sales/Daily consumption)

(Holding Period= Finished Goods Inventory/Daily Consumption)

Table 4.10

PARTICULARS 2013 2014 2015 2016

NET SALES 2,06,23,55,149 2,30,96,79,415 2,52,28,20243 3,68,80,48,7

42
FINISHED 2,29,68,399 1,62,31,003 54,55,128 60,48,239
GOODS

DAILY 56,50,288.08 63,27,888.808 69,11,836.28 1,01,04,243.

CONSUMPTION 13

HOLDING 4.06 2.56 0.79 0.60

PERIOD

71
Chart 4.10

4.5
4
3.5
3
2.5
HOLDING PERIOD(Days)
2
1.5
1
0.5
0
2013 2014 2015 2016

INTERPRETATION:-

In accordance with the above information we are able to understand that the holding period
of finished goods increasing.ie,the demand for FCI-OEN products has increased which is
favorable for the company management.

72
 USAGE PATTERN OF STORES AND SPARES

(Daily Consumption=Stores And Spares Consumed/No.Of Days In A Year)

(Holding Period= Store And Stores Inventory/Daily Consumption)

Table 4.11

PARTICULARS 2013 2014 2015 2016

STORES AND 3,65,21,322 3,60,19,960 3,59,57,213 8,51,55,079

SPARES
CONSUMED
STORES & 25,60,149 26,60,833 52,05136 1,09,57,112
SPARES

DAILY 1,00,058.41 98,684.82 98,512.91 2,33,301.59

CONSUMPTION

HOLDING 26 27 53 47
PERIOD

73
Chart 4.11

4.5
4
3.5
3
2.5
HOLDING PERIOD(Days)
2
1.5
1
0.5
0
2013 2014 2015 2016

INTERPRETATION:-

If the stores & spares are hold for a long period, it will result in dead funds. The average
holding period of the company is 39, while in 2015 is rose to 53 days in 2013. Which means
the company is giving utmost care I controlling the holding period.

74
 PROPORTION OF INVENTORY TO CURRENT ASSETS

Table 4.12

YEAR INVENTORY CURRENT RATIO PERCENTAGE

ASSETS

2013 24,77,00,173 89,31,72,867 0.28 28%

2014 24,18,47,444 1,54,86,81,267 0.16 16%

2015 21,50,34,937 1,56,18,17,289 0.14 14%

2016 40,80,90,726 1,85,82,36,122 0.22 22%

75
Chart 4.12

2,000,000,000.00
1,800,000,000.00
1,600,000,000.00
1,400,000,000.00
1,200,000,000.00
INVENTORY(Rs)
1,000,000,000.00
CURRENT ASSETS(Rs)
800,000,000.00
600,000,000.00
400,000,000.00
200,000,000.00
-
2013 2014 2015 2016

INTERPRETATION:-

The Company being a manufacturing concern, major part of its current assets will be
inventory. During these years 20% of company’s current assets are inventory, which is
essential.

76
 INVENTORY TURN OVER RATIO&

INVENTORY HOLDING PERIOD

(Inventory Turnover Ratio=Net Assets/Avg.Inventory)

Table 4.13

YEAR NET SALES AVERAGE RATIO HOLDING

INVENTORY PERIOD

2013 2,06,23,55,149 24,83,50908 8.30 44

2014 2,30,96,79,415 24,47,73,809 9.44 39

2015 2,52,28,20,243 22,84,41,191 11.04 33

2016 3,68,80,48,742 31,15,62,832 11.84 31

77
Chart 4.13

4,000,000,000.00

3,500,000,000.00

3,000,000,000.00

2,500,000,000.00
NET SALES(Rs)
2,000,000,000.00
AVERAGE INVENTORY(Rs)
1,500,000,000.00

1,000,000,000.00

500,000,000.00

0.00
2013 2014 2015 2016

INTERPRETATION:-

The above information shows the capacity of FCI-OEN to convert its inventory into sales.
The company is able to convert its inventory into sales 10 times a year. The company has to
hold goods as material in stock for an average of 37 days before final use.

78
 OPERATING CYCLE (IN DAYS)

(Operating Cycle=Inventory Period+Collection Period)

Table 4.14

YEAR INVENTORY ACCOUNTS OPERATING

PERIOD RECEIVABLES CYCLE
PERIOD

2013 44 62 106

2014 39 84 123

2015 33 85 118

2016 31 80 111

79
Chart 4.14

125

120

115

110 OPERATING CYCLE(DAYS)

105

100

95
2013 2014 2015 2016

INTERPRETATION:-

Operating cycle shows the cycle involved in acquisition of raw materials, converting it into
finished goods, its sales and receiving cash from customers. The operating was 106 days in
2013 while in 2014 it increased to 123 days. The efficiency of the management helped in
bringing down the operating cycle in 2013 to 111 days.

80
 INVENTORY TO WORKING CAPITAL

Table 4.15

YEAR INVENTORY ACCOUNTS OPERATING

PERIOD RECEIVABLES CYCLE
PERIOD
2013 24,77,00,173 54,75,88,911 0.45

2014 24,18,47,444 1,01,27,14,618 0.24

2015 21,50,34,937 99,45,11,730 0.22

2016 40,80,90,726 83,69,35,194 0.49

81
Chart 4.15

1,200,000,000.00

1,000,000,000.00

800,000,000.00

INVENTORY(Rs)
600,000,000.00
WORKING CAPITAL(Rs)

400,000,000.00

200,000,000.00

0.00
2013 2014 2015 2016

INTERPRETATION:-

The ratio of inventory to working capital is calculated in order to ascertain that there is no
overstocking. The firm’s inventory to working capital ratio was stable during 2014&2015. As
the demand for goods increases the ratio of inventory to working capital goes up. The
company follows just in time method in handling inventory. Inventory is down by the
company focus on procuring on just in time basis to avoid excess inventory or obsolete
inventory in the first changing technology world.

82
 CASH POSITION

Table 4.16

PARTICULARS 2013 2014 2015 2016

CASH ON HAND 88,149 1,33,716 82,341 1,43,160

BALANCE WITH 12,56,60,883 169731320 18,99,33,886 15,69,07,513

SCHEDULE
BANKS
ON CURRENT 18,58,892 16,90,614 15,48,493 14,12,699
ACCOUNT(UNCL
AIMED
DIVIDEND
ACCOUNT)
ON DEPOSIT 2,85,72,629 1,92,52,365 98,54,145 1,12,51352
ACCOUNT

TOTAL 15,61,80,553 19,08,08,015 20,14,18,865 16,97,14,724

83
Chart 4.16

250000000

200000000

150000000
CASH AND BANK
BALANCES(Rs)
100000000

50000000

0
2013 2014 2015 2016

INTERPRETATION:-

Cash is generated essentially from the profit of the company. The company has been prudent
in retaining the cash for future expansion rather than paying the same as dividend even
though is almost fully owned by FCI,FRANCE.

84
 PROPORTION OF CASH BALANCE TO CURRENT LIABILITIES

Table 4.17

YEAR CASH CURRENT RATIO

LIABILITIES
2013 15,61,80,553 33,00,86,708 0.47
2014 19,08,08,015 53,59,66,649 0.36

2015 20,14,18,865 56,73,05,559 0.36

2016 16,97,14,724 1,02,13,00,928 0.17

Chart 4.17

1,200,000,000.00

1,000,000,000.00

800,000,000.00

CASH(Rs)
600,000,000.00
CURRENT LIABILITIES(Rs)
400,000,000.00

200,000,000.00

0.00
2013 2014 2015 2016

INTERPRETATION:-cash position of the company is comparatively weak

when compared to current liabilities. the cash to current liability ratio are below
the standard norm of 0.5:1

85
 CASH TURN OVER RATIO

Table 4.18

YEAR CASH CURRENT RATIO

LIABILITIES

2013 1,81,76,09,388 15,61,80,553 11.64

2014 2,12,69,95,081 19,08,08,015 11.15

2015 2,25,89,21,514 20,14,18,865 11.22

2016 3,59,31,14,317 16,97,14,724 21

Chart 4.18

25

20

15
CASH TURN OVER RATIO(Rs)
10

0
2013 2014 2015 2016

INTERPRETATION:- The company requires an average of 14% of its total cash balance
for meeting its operating expenses during a year. The company holds a cash balance with it.
This shows that the company does not have greater difficult if an argument cash payment
arises.

86
 SCHEDULE SHOWING CHANGES IN WORKING CAPITAL

Table 4.19

PARTICULARS 2015 2013 INCREASE DECREASE

CURRENT
ASSETS,LOANS
& ADVANCES

INVENTORIES 21,50,34,937 40,80,90,726 19,30,55,789 -

SUNDRY 59,12,72,693 81,03,31,668 21,91,18,975 -

DEBTORS

CASH&BANK 20,14,18,865 16,97,14,724 - 3,17,04,141

BALANCES

OTHER 8,76,45,128 9,18,36,722 41,91,594 -

CURRENT
ASSETS

LOANS& 46,64,45,666 37,41,29,978 - 9,23,15,688

ADVANCES

CURRENT
LIABILITIES

SUNDRY 49,96,60,993 73,04,21,344 23,07,60,351 -

CREDITORS

87
LIABILITY ON 2,20,53,021 1,05,07,183 - 1,15,45,838
RETIREMENT

BENEFITS

OTHER 72,53,137 58,67,342 - 13,85,795

LIABILITIES

UNPAID 15,95,118 42,229 - 15,52,889

MATURED
DEPOSITS

INTEREST 2,47,125 3,94,256 1,47,131 -

ACCRUED BUT
NOT DUE ON
LOANS

PROVISIONS 3,64,96,165 4,02,32,384 37,36,219 -

NET INCREASE 51,25,05,708

IN WORKING
CAPITAL

TOTAL 65,10,10,059 13,85,04,351

88
INTERPRETATION:-

During 2014&2015 financial years, there was an increase in working capital of

Rs.512505708.it shows that the company’s working capital position is improving. There was
an increase in current asset items other than cash and loans& advances. The overall position
shows the effort made by company to achieve a favorable working capital in these years.

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FINDINGS:-

 The current assets of the company has increased continuously during

2014,2015&2016. It shows the increase in turnover due to an increase in operations of
the company.
 The operating cycle of the company has been efficiently managed.ie; appropriate
actions were taken to reduce the operating cycle whenever it moved up.
 The working capital turnover ratio showed an average of 3.25 which means that the
company was able to convert a major share of its working capital into sales.
 The current ratio was in an ideal position in these years. Average current ratio of all
these years was more than 2. The firm’s liquidity position was safe during these years.
 Investments in mutual funds increase the liquidity position of the company. These
mutual funds are easily convertible into cash with in a day’s time.
 The debtors of the company have increased due to increase in sales. The analysis
shows that the company was able to collect its dues on an average of 5 times a year.
 The customer profile of the company is changing. They are able to win GLOBAL
customers like Nokia (Microsoft).
 An average of 101(more than 3 months) days are been allowed to the company by the
creditors settlement efficiency of the company.
 The company was able to maintain an average of 44 days of holding period which
showed the demand for company’s products

 Being a manufacturing unit the major part of current assets of the company constitutes
of inventory.

 The inventory turnover ratio shows an increasing trend. This indicates the good
inventory management policies of the company.

 Company focus on procuring on just in time basis to avoid excess inventory in the fast
changing technology world.

 The quick ratio of the company shows an average of 2.05 during these years. The firm
is able to pay its short term obligations whenever required. The short term financial
position of the firm is good.

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 The firm requires 14% of its total cash balance for meeting its operating expenses
over the years.

 The overall working capital of the firm is increasing. It reveals the management’s
efficiency in managing its working capital.

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SUGGESTIONS:-

 The company should maintain proper current assets to its current liabilities.
 There is a possibility of increase in cost of raw materials. Company should maintain
its profitability either through cost reduction. Proper attention could be given so that
the cost of is not passed onto customers.
 Measures could be taken in order to increase its cash position.
 Measures could also be taken to maintain stability in working capital
 Company should not only aim in attracting new customers but also steps should be
taken in order to retain its international customers.

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CONCLUSION:-

The objective of the study was to analyze and interpret the performance of FCI-OEN
connectors during 2013, 2014, 2015 & 2016 financial years. Various ratios have been used
for analysis and interpretation.

Study reveals that the working capital position of the company is satisfactory. Cash
balance of the company is sufficient. The current ratio, quick ratio and inventory ratio shoes a
positive trend. Fluctuations in the price of raw materials are a major concern for the
company.

The FCI-OEN management is efficient in acquiring raw materials, manufacturing,

administering, selling and managing its debtors and creditors. The overall financial position
of the company is satisfactory which helps the management to expand the business in order to
capture world markets.

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BIBLIOGRAPHY:-

Websites:-

 http://www.fcioen.com
 http://www.svtution.org/2013/03/debtor-management-finance.html
 http://www.wisegeek.com/what-is-cash-management.html
 http://www.barcodesinc.com/articles/what-is-inventory-
management.html

Books:-

 Research methodology by C.R.Kothari

 Financial management by IM Pandey

Reports:-

 Annual reports of FCI OEN Connectors during 2013, 2014, 2015, &
2016.

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