A STUDY ON ANALYSIS OF WORKING CAPITAL REQUIREMENTS WITH RESPECT TO PRECOT MERIDIAN LTD.

, PALAKKAD, KERALA

By B.CHITHRA Reg.no. 108001156068 Of SRI VENKATESWARA INSTITUTE OF INFORMATION TECHNOLOGY AND MANAGEMENT A PROJECT REPORT Submitted to the DEPARTMENT OF MANAGEMENT In partial fulfillment of the requirements For the award of the degree Of MASTER OF BUSINESS ADMINISTRATION JULY 2011

CERTIFICATE

BONAFIDE CERTIFICATE

This is to certify that this project titled analysis of financial statements using ratio analysis respect to PRECOT MERIDIAN LTD, Kerala is the bonafide work of Ms. SARANYA.T.S who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported here does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on earlier occasion on this or any other candidate.

FACULTY GUIDE

DIRECTOR

VIVA EXAMINATION HELD ON

INTERNAL EXAMINER

EXTERNAL EXAMINAR

DECLARATION

DECLARATION

This is to declare that the project work entitled A STUDY ON ANALYSIS OF WORKING CAPITAL REQUIREMENTS WITH REFERENCE TO PRECOT MERIDIAN LIMITED is a bonafide work submitted to Anna university in partial fulfillment of the requirements for the award of MASTER OF BUSINESS ADMINISTRATION is a record of original project work done by me during the of study in Sri venkateswara institute of information technology and management, under the guidance of, head, school of management, Ettimadai, Coimbatore.

I further declare that this report has not been submitted to any other universities/ institutions/board for the award of any degree/diploma before.

Date: Place:

B.CHITHRA (Reg no: 108001156068)

ACKNOWLEDGEMENT

ACKNOWLEDGEMENT

I take this opportunity for giving thanks to all the respected persons who helped me to complete my project work successfully. I express my sincere gratitude to Mr. Rajeev General Manager and Mr. Guruvayurappan (AM) human resources also thank my organization guide, Mr. K.G. Jyothish for their guidance. I express my affectionate thanks to Comander.K.VELU our chairman and managing trustee, Dr. I. GOSWAMI Director of Sri Venkateswara institute of information technology and management, and department of management studies for giving me an opportunity to do this project. I am greatly indebted to my faculties of the department of management for inspiring me and for this valuable guidance and assistance provided to complete this training successfully I express my sincere thanks to my beloved parents, friends, for their valuable assistance in completing my training successfully

CONTENTS

CONTENTS

List of tables List of charts SI.NO CHAPTER SCHEME EXECUTIVE SUMMARY 1 2 INTRODUCTION INDUSTRY PROFILE
2.1) COMPANY PROFILE

PAGE NO

3 4 5

REVIEW OF LITERATURE RESEARCH AND METHODOLOGY ANALYSIS AND INTERPRETATION

4.1)OPERATING CYCLE ANALYSIS 4.2) SCHEDULE OF CHANGE IN WORKING CAPITAL & ANALYSIS 4.3)ANALYSIS OF WORKING CAPITAL RATIOS

6 7 8

FINDINGS, SUGGESTIONS,CONCLUSION BIBLIOGRAPHY ANNEXURE

LIST OF TABLES

LIST OF TABLES
Sl. No. 1 2 3 4 5 6 7 Page No.

Name of Table Statement of Working Capital requirement for 2008 09 Statement of Working Capital requirement for 2009 10 Schedule of changes in Working Capital 2008 09 Schedule of changes in Working Capital 2009 10 Debtors Turnover Ratio Creditors Turnover Ratio Working Capital Turnover Ratio

LIST OF CHARTS

LIST OF CHARTS
Sl. No. 1 2 3 Page No.

Name of Table Debtors Turnover Ratio Creditors Turnover Ratio Working Capital Turnover Ratio

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

The project on working capital management has been a very good experience. Every manufacturing faces the problem of working capital management in their day-to- day processes. An organizations cost reduced and the profits increased only if it is able to manage its working capital efficiently. At the same time company can provide customer satisfaction. And hence can improve their overall productivity and profitability.

The project is a sincere effort to study and analyze the working capital of Precot Meridian Ltd, Wallayar. The project focused on financial overview of the company conducting a working capital analysis of precot group for the years 2007 to 2010. Various ratios and components of working capital &format emphasing working capital.

The internship is bridge between the institute and organization. This made me to be involved in a project that helped me to employ my theoretical knowledge about the myriad and fascinating facts of finance. Moreover, in this process I could contribute substantially to the organizations growth. The experience that I gathered in the past two months has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future.

INTRODUCTION

INTRODUCTION WORKING CAPITAL MANAGEMENT MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT
The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them. The basic goal of working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for business. Working capital refers to the excess of current assets over the current liabilities. Working capital management is concerned with the administration of current assets and current liabilities. The basic objective of working capital management is to charge the firms current assets and current liabilities in such a way that satisfactory level of working capital its maintained.ie, the working capital is either inadequate or excessive. This is so because as well as excessive working capital position is bad for any business. Inadequate working capital may lead the firm to insolvency and excessive working capital means idle funds which earn no profit for the business. When a firm invests more in current assets, it increase liquidity, reduces the risk and profitability. The reason is the opportunity cost of earning from excess investment in current assets reduces the liquidity, but increases the risk and profitability. Thus the level of investment in current assets has a bearing on liquidity and profitability. In fact, liquidity and profitability are inversely related. When one increases, the other decreases. Therefore, the financial manager has to frame a suitable working capital management policy so as to strike a proper balance between the liquidity and profitability. The balanced level if investment in current assets has a great influence on firms profitability and liquidity.

Working capital management policies also have a great impact on the structural health of the organization. If different components of working

capital are not properly balanced, the firms liquidity position may not be satisfactory in spite of favorable current ratio and liquidity ratio.

It is therefore important that the financial manager should chalk out suitable working capital management policies in respect of different components of working capital so as to ensure higher profitability, proper liquidity and sound structural health of the organization. The proper and efficient management of working capital can ensure this.

SOURCES OF WORKING CAPITAL

The main sources for financing of working capital are: Financing of permanent working capital. Financing of temporary or variable working capital.

TYPES OF WORKING CAPITAL

Working capital may be classified into two ways:

A. Permanent or fixed working capital It is the minimum amount of working capital required to ensure effective utilization of fixed assets and support the normal operations of the business. There is always a minimum level of current assets which is continuously required by the enterprise to carryout its normal business operations. Every firm has to maintain a minimum level of raw materials, work in progress, finished goods and cash balance. This minimum level of current assets is called permanent working capital as this part capitals permanently blocked in current assets. Hence this should be financed by long-term sources. B. Temporary or variable working capital

It is the amount of working capital which is required by the business over and above the permanent working capital. The amount of such working capital keeps on fluctuating from time to time on the basis of business activities. It is intended to meet seasonal demands and some special agencies. Variable working capital cannot be permanently employed gainfully in the business. Therefore, it may be financed from short term sources.

NEED FOR WORKING CAPITAL

Every business enterprise needs some amount of working capital. The need for working capital arises due the time gap between purchase of raw materials and production; production and sales; and sales and realization of cash. This time gap is technically termed as operating cycle of the business. The needs for working capital are the following: To purchase raw materials, spares and component parts. To pay wages and salaries. To incur day to day expenses. To meet selling costs such ads packing, advertising To maintain inventories of raw material, work-in-progress and finished goods.

IMPORTANCE OR ADVANTAGES OF WORKING CAPITAL

Working capital is the life blood and nerve center of any business. No business can be run successfully without adequate amount of working capital. The advantages of maintaining adequate working capital are as follows:

 Continuous production: Adequate working capital ensures regular supply of raw materials and continuous production. Solvency and goodwill: Adequate working capital enables prompt payment to creditors. This helps in creating and marinating goodwill. Easy loans: A concern having sufficient working capital enjoys high liquidity and good credit standing. Hence it can secure loans from banks on easy and favorable terms Cash discounts: Adequate working capital enables a concern to avail cash discounts on the purchases, leading to reduction in cost. Regular payment of expenses: A company which has ample working capital can make regular payments of salaries, wages and other day to day commitments. Such prompt payment raises the morale of employees and increases their efficiency. As a result costs are minimized and profit increases. Exploitation of market conditions: A concern with adequate working capital can exploit favorable market conditions. It can buy its requirements of raw materials in bulk when the market price is lower. Similarly, it can hold stock of finished goods to realize better prices. Ability to face crisis: Adequate working capital enables a concern to face business crisis such as depression because during such periods there is much pressure on working capital. High return on investments: Adequacy of working capital facilitates continuous

production and effective utilization of fixed assets. Because of this, the concern is able to generate more profits and ensure higher return on investments.

DISADVANTAGES OR DANGERS OF WORKING CAPITAL

Every business concern should have adequate working capital for its smooth functioning. It should have neither excess working capital nor shortage of working capital. Both excessive working capitals as well as inadequate capital positions are bad for any business. However, out of the two, inadequacy of working capital is more dangerous for a firm. Due to excess working capital: 1. It means idle funds which earn no profit for the business. Hence, the business cannot earn a proper rate of return on its investments. 2. Due to low rate of return on investments, the value of shares may also fall. 3. Redundant working capital may lead to unnecessary purchasing and accumulation of inventories. As a result, chances of theft waste and losses will increase. 4. Excessive working capital is an indication of excessive debtors and defective credit policy. Consequently, their may be delay in collection and higher incidence of bad debts. 5. Excessive working capital makes management complacement.it leads to overall inefficiency in the organization.

Due to inadequate working capital 1. A concern which has inadequate working capital cannot pay its short term liabilities in time. As a result, it losses its reputation and faces credit terms.

2. it cannot buy its requirements in bulk and take advantage of cash discounts 3. The concern will experience difficulties in meeting its day to day expenses. 4. It becomes difficult to exploit favorable market conditions and undertake profitable projects due to lack of working capital. 5. Due to paucity of working capital, fixed assets are not effectively utilized. thus; the rate of return investments fails

FACTORS DETERMINING WORKING CAPITAL NEEDS

Working capital refers to the capital required for day to day operations of the business. It is the excess of current assets over current liabilities. Adequate working capital is necessary for the successful running of organization. The organization must arrange the working capital in advance and arrange for its financing of them. It is depended on the following factors: Nature of business: In the case of public utility concern like railways, electricity most of the transactions are on cash basis. Further they do not require large inventories. Hence working capital requirements are low. On the other hand, manufacturing and trading concerns require more working capital since they have to invest heavily in inventories and debtors. Size of business: Generally large business concerns are required to maintain huge inventories for the flow of business. Hence, bigger the size, the larger will be the working capital requirements. Time consumed in manufacturing:

To run a long production process more inventories is required. Hence the longer the period of manufacture, the higher will be the requirements of working capital and vice-versa. Seasonal fluctuations: A number of industries manufacture and sell goods only during certain seasons. For example, the sugar industry produces practically all sugar between December and April. Their working capital requirement will be higher during this season. It is reduced as the sales are made and cash is realized. Fluctuations in supply: If the supply of raw materials is irregular, companies are forced to maintain huge stocks to avoid stoppage of production. Ion such case, working capit6al requirement will be high. Speed of turnover: A concern say hotel which effects sales quickly, needs comparatively low working capital, this is because of the quick conversion of stock into cash. But if the sales are slow; more working capital will be required. Terms of sales: Liberal credit sales will result in locking up of funds in sundry debtors. Hence, a company which observes strict credit norms. Terms of purchase: Working capital requirements are also affected by the credit enjoyed by the company. A company enjoying liberal credit facilities from its suppliers will need lower amount of working capital. But a company which has to purchase only for cash will need more working capital. Labor intensive/capital intensive industries In labor intensive industries, larger working capital is required because of heavy wage bill and more time taken for production. But the capital intensive industries require lesser amount of working capital because of heavy investment in fixed assets and shorter time taken for production.

 Growth and expansion of business: A growing concern needs more working capital to finance its increasing activities and expansion. But working capital requirements are low in the case off static concerns. Price level changes: Changes in price level also affect the working capital requirements. Generally, the rising prices will require the firm to maintain larger amount of working capital. This is because more funds will be required to maintain the same amount of working capital to maintain the same level of activity.

Dividend policy: The dividend policy of a concern has a dominant influence on the working capital. A firm that maintains high rate of cash dividend irrespective of its generation of profits needs more working capital. On the other hand, a firm that follows conservative dividend policy retains larger part of its profits needs less amount of working capital.

Operating efficiency: Efficient and co-ordinates utilization of capital goods reduces the amount required for working capital. Level of taxes: The level of taxes paid depends on taxation laws. These amounts usually have to be paid in advance. Thus the need for working capital varies with tax laws and advance tax provision.

INDUSTRY PROFILE
INDUSITY PROFILE

HISTORY OF INDIAN TEXTILE INDUSTRY

The human need is eat well for to be alive and shelter to protect them from discomforts of nature and a place to live in. human beings also need something to cover their body from adverse climatic conditions and also to their appearance. Earlier there was a stage where the human beings know nothing about the cloth to wear. The human beings first used tree barks, leaves and animal skin to warp around them. Then as the development of brain took place, they started to explore other possibilities and invent more in this area. There is a constant search for clothing and this led to the knowledge of sources from vegetarian i.e., Cotton and from animals i.e. wool, which could be knitted and woven to manufacture clothes to wear. The commercial development man-made fiber began late in the19th century, experienced much growth in the year1940s, expanded widely after world war-2 and in the 1970s was still the subject of extensive Research and Development. The spinning and weaving both are common and attached with each other in all parts of the world. We talk of the ancient times, when weaving of the clothes was done manually, but all the things were done for the right preservatives. From time to time the developments were taken place, which has been found to be a continuous process. Similarly considering the developments in the spinning and weaving lots of improvements had come-up. Because earlier too was the cotton crop was grown by farmers, but its end use was not done in an effective manner, which seems good. So much thick fiber was produced and accordingly its impact for the fabric preparation.

APPARTUS USED FOR SPINNING AND WEAVINGDURING PREINDEPENDENCE

Before independence we talk of the political parties like Mahatma Gandhi who had always insisted to use khadi cloths and even self- spinning and weaving. It is also- dependence for all needs. Such a good initiative had come up at India level amongst the follower of the leader- Mahatma Gandhi. On the other side too such initiatives had been proved very good and had attracted many western countries to follow such practices and show their excited ness. though we walk of the English rule before the independence i.e. 1947, it was not appreciated by the English rulers, but after the freedom these leaders had got very good appreciation for the self spinning and weaving and in all overall manner this sector of spinning and weaving was industrializes even after the independence too on the basis of Indian cotton growers.

It is needless here that throughout India, cotton growers belt are available and after independence, even English people take their raw material from here and had established the spinning and weaving industries. Overall in India no such preferences for spinning and weaving industries were made, however the library research reveals that the first cotton mill had established in India during 1854 named as Bombay spinning and

weaving company. Though the cotton industry had progressed a lot, but in case we say that India alone is heading this world, it is wrong. Though in India textile machine manufactures are there and one or two decades ago they were the market leaders, but with the help of the other parts/people of the world i.e., Germany, Switzerland., India had made a very good recognition in the yarn market.

Because Indian industrial organizations have also initiated towards the most modernized machinery provided by Germany, Switzerland. This is just the example of development, that in India too the most modern machinery is being installed. However it is evident that the Indian yarn is always running on the development trend since its inspection of the first unit in Bombay, but its position in international market has not appeared so good. Because many other countries like china in cotton textiles were gone ahead. though till today India had achieved a lot in the textile industry and almost 700 textiles were working successfully, because India is having at present more than 20 million spindles and weaving capacity of more than 2.5 lacs looms and total output of more than. Rs.1500crs, employing more than 10 lac of workers directly. The invention and production of manmade thirty three fibers that is synthetic fibers like nylon, acrylic fiber, polyester fiber, viscose, s.sament yarns, mlange yarns, etc., which ultimately had given a good blow to grow for cotton textile industry and know occupy a major part of consumer acceptance. About 50 countries have been importing such materials from India and the description of the spinning and weaving industry had remained incomplete without referring to woolen industry.

REVIEW OF LITERATURE

OUTLINE OF THE STUDY

The management of working capital is very important. It involves the study of day- to day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organizations and to help the company in developing the efficient working capital management. Therefore it helps in future planning and control decision.

OBJECTIVES OF THE STUDY

The objectives of the study are the following: To analyze the working capital management of the company. To determine the net and gross operating cycle of the company. To know the future need of working capital for the running organization To render recommendation for effective management of working capital.

SCOPE OF THE STUDY:

The study is conducted in Precot meridian ltd, Wallayar for 6 weeks duration. The study of working capital. Management is purely based on the secondary data and all the information is available in the from of records in the company itself. To get the proper understanding I have done the study of balance sheets, profit & loss accounts, and trial balance and cost sheets. I have conducted interviews with the employees of accounts & finance department. So, scope of study is limited up to the availability of official records & information provided by the employees. The study is supposed to be related to the past 4 years.

REVIEW OF LITERATURE
1. The research done by Pass. C.L., Pike.R.H, an overview of working capital management and corporate financing, (1984) describes that over past 40 years major theoretical developments have occurred in the areas of longer-term investment and financial decision making. Many of these new concepts and related techniques are now being implemented successfully in the industrial practice. By contrast far attention has been paid to the area of short- term finance, in particular that of working capital management. Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of firm. Indeed, experience shows inadequate planning and control of working capital is one of the more common causes of business failure.

2. The research done by Dr.R.Rmachandran, how to understand working capital management describes that cash is king so say the money managers who share the responsibility of running the countrys businesses. And the banks demanding more from their prospective borrowers greater emphasis has been placed on those accountable for so called working capital management. Working capital management refers to the management of current or short- term assets and shortterm liabilities. In essence, the purpose is to that make certain that the company has enough assets to operate its business. 3. The research done by Duby.R, working capital management an effective tool for organizational success (2008) describes that the working capital in a firm generally arises out of four basic factors like sales volume, technological changes, seasonal or cyclical changes and policies of the firm. The strength of the firm is dependant on working capital as discussed earlier but this working capital is itself dependant on the level of sales volume of the firm. The firm requires current assets to maintain operational and functional activities. By current assets we mean which can be converted readily into cash. If the level of sales is stable and towards growth the level of cash, receivables and stock will also be on the high.

RESEARCHAND METHODOLOGY

RESEARCH METHODOLOGY
The term research refers to the systematic method consisting of enunciating the problem , formulating a hypothesis collecting the data , analyzing the facts and reaching the certain conclusions either in the form of solution towards the concern problem or in certain generalization for some theoretical formulation . Research Methodology is a way to solve systematically the research problem .It may be understood as a science of studying how research is done scientifically.

TIME PERIOD OF STUDY:

The present study was undertaken during Six weeks from 1st June - 25th July.

RESEARCH DESIGN:
Descriptive research procedure is used for describing the recent situations in the organization and analytical research to analyze the results by using research tools.

DESCRIPTIVE RESEARCH:
Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied. Descriptive research answers the questions who, what, where, when and how... Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Thus, Descriptive research cannot be used to create a causal relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity. In short descriptive research deals with everything that can be counted and studied. But there are always restrictions to that. Your research must have an impact to the lives of the people around you. For example, finding the most frequent disease that affects the children of a town. The reader of the research will know what to do to prevent that disease thus; more people will live a healthy life.

DATA SOURCE AND COLLECTION METHODS :

There are two types for collecting data 1. Primary data 2. Secondary data

PRIMARY DATA
Collect the necessary data from the finance manager like: o How the data are being recorded. o Whether the company preparing only one annual report for a year or quarterly or half yearly basis. o How the past data stored.

SECONDARY RESEARCH:
Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. The Secondary data consist of reality available compendices already complied statistical statements. Secondary data consists of not only published records and reports but also unpublished records. Here we done the analysis on basis of secondary data, which included Balance sheet of company Profit and loss A/C Cost sheets, & Trail balance for three years

PURPOSE:
The purpose of this project is to properly analysis of the working capital management of precot meridian, wallayar over the period 20052009.

TOOLS USED:
I used the different tools to analyze the working capital management of PRECOT MERIDIAN Analysis through sales method Analysis through schedule of change in working capital Analysis through working capital ratios

LIMITATIONS OF THE STUDY

As central purchase office, purchase raw material and central marketing yarn make sales. Information that is so more detailed cannot be received about these. Cash from debtors were collected by the corporate office through commission agents. As collection of debtors cannot be clearly known from PRECOT MERIDIAN, Wallayar. Investment of funds are also made by corporate office, so it becomes difficult to know that how much investment is made in different ways for continuous availability of funds.

ANALYSIS AND INTERPRETATION

ANALYSIS AND INTERPRETATION

WORKING CAPITAL ANALYSIS

In PRECOT MERIDIAN LTD the current assets are financed from both short term as well as long term sources, so they follow conservative approach:

1. PERCENTAGE OF SALES METHOD

In this method, the level of working capital requirement is decided on the basis of past experience. The past relationship between sales and working capital is taken as abase for determining the size of working capital requirements. The basic of this method is that it assumes a linear relationship between sales and working capital. Thus is true in all cases and hence this method is universally accepted.

STATEMENT OF WORKING CAPITAL REQUIREMENT FOR 2008-09 PARTICULARS PERCENTAGE OF SALES BASED ON 2007-08 Sales 100% Current assets Inventories Debtors Cash bank TOTAL -A Current liabilities 21.69 7.23 1.60 30.50 ACTUAL SALES 2007-08 36649 7916 2652 610 11178.00 ESTIMATED OF SALES OF 2008-09 37896 8182 2740 605 11527.00

Current 10.85 liabilities & provisions TOTAL -B 10.85 WORKING 19.65 CAPITAL { A-B} Analysis and interpretation:

3978 3978 7200

4112 4112 7415

Here the working capital is estimated with considering the sales as 100% and taking the year 2007-08 as the base year. and the requirement of working capital is arrived. This will help the company to plan according the fund estimated. The working capital requirement is high as compared to the basic year 2007-08 to that of current year 2008-09. But it is interpreted that the estimated amount of working capital is more than that of used.

STATEMENT OF WORKING CAPITAL REQUIREMENT FOR 2009-10

PARTICULARS PERCENTAGE OF SALES BASED ON 2008-09[lakhs] Sales 100% Current assets Inventories Debtors Cash bank TOTAL -A Current liabilities 17.17 6.65 1.24 25.06

ACTUAL SALES 2008-09 [lakhs] 37896 6510 2518 472 9500

ESTIMATED OF SALES OF 2009-10 [lakhs] 43660 7496 2903 542 10941.00

Current 7.51 liabilities & provisions TOTAL -B 7.51 WORKING 17.55 CAPITAL { A-B}

2847 2847 6653

3279 3279 7662

Analysis and interpretation

Here the working capital has been estimated in the last year but the statement shows the working capital is used less than the estimated amount. Since the sales as well as business growing the estimated amount is higher than the estimated sales year to that of past year.

2. SHEDULE METHOD
Working capital is the difference between current assets and current liabilities in order to estimate the requirements working liabilities capital; one has to forecast the amount of current assets and current liabilities.

SHEDULE OF CHANGES IN WORKING CAPITAL [2008-09] PARTICULARS 2008 Current assets: Inventories 7917.12 2651.67 Sundry debtors Cash bank 609.59 Other current 872.19 assets TOTAL Current liabilities: Current liabilities TOTAL WORKING CAPITAL[CACL] Net increase in WC 3978.22 3978.22 8072.35 2847.26 2847.26 7350.29 +1130.96 12050.57 2009 6509.61 2517.99 472.10 697.85 10197.55 Increase Decrease -1407.51 -133.68 -137.49 -174.34

(722.06)

SHEDULE OF CHANGES IN WORKING CAPITAL [2009-10] PARTICULARS Current assets: 2009 2010 13582.25 2904.55 518.58 881.06 17886.44 Increase +7072.64 +386.56 +46.48 +183.29 Decrease

6509.61 Inventories Sundry 2517.99 debtors 472.10 Cash bank Other current assets 697.85 TOTAL Current liabilities: Current liabilities TOTAL WORKING CAPITAL[CA-CL] 2847.26 2847.26 7350.29 10197.55

5219.50 5219.50 12666.94 (5316.65)

-2372.24

Net increase in WC

3.

WORKING CAPITAL RATIOS

DEBTORS TURNOVER RATIO This ratio is also called receivable turnover ratio or debtors velocity. It indicates the number of times average debtors are turned over during a year. Table showing debtors turnover ratios

Years 2007-08 2008-09 2009-10

Net sales 36648.76 37896.34 43661.29

Average debtors 2651.67 2517.99 2904.55

Debtors turnover ratio[times] 14 times 15 times 15 times

By analyzing the table it is clear that the debtors turnover ratio is really high in 2007-08 it is 14 times in 2008-09 it is 15 times and 2009-10 it is 15 times, better result.

CREDITORS TURNOVER RATIO This ratio is also known as payable turnover ratio. It is the number of times average debtors are paid off during a year. Table showing creditors turnover ratios

Years 2007-08 2008-09 2009-10

Annual net credit purchases 18122.08 19355.85 29030.39

Average trade creditors 2404.44 1831.85 2016.13

Creditors turnover ratio 8times 11times 14times

It is clear from the above table that the creditors turnover ratio of the firm during the three years is satisfactory. Higher the ratio is the better result.

WORKING CAPITAL TURNOVER RATIO

This ratio indicates the number of times the working capital is capital is turned over in the course of a year. It measures the efficiency with which the working is being used by a firm. Table showing working capital turnover ratios

Years 2007-08 2008-09 2009-10

Net sales 36648.71 37896.34 43661.29

Net working capital 8072.35 7350.29 12666.94

Working capital turnover 5times 5times 4times

By analyzing the table, the working turnover ratio is not satisfactory. The Ratio is low comparing with the past years.

CONCLUSION

CONCLUSION

By conducting the study about the working capital management, I found out that working capital management of PRECOT MRIDIAN LTD is good. PRECOT MERIDIAN LTD had sufficient funds to meet the current obligation every time, which is due to sufficient profits and efficient management of PRECOT MERIDIAN. Raw material for the unit is purchased from the corporate office in bulk, which is a major problem for the company as it increases the inventory cost. Company is cash rich but due to expansion and diversification plans under the pipeline, company is not utilizing these funds. For meeting the working capital needs and capacity expansion needs, it had borrowed from banks. Lack of advertisement is to be considered as a week point for the precot meridian. The amount of stock is increasing per year, which is a good sign, as it would help them to meet the tough competition coming ahead. Firm profitability can be increased by shortening account receivables and inventory periods.

RECOMMENDATIONS

RECOMMENDATIONS
The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of prime customer and actions by competitors. So the effects of unforeseen demands of working capital should be factored by the company. This was one of its reasons for the variation of its revised working capital projection from the earlier projection. It pays to have contingency plans to tide over unexpected events. While market leaders can manage uncertainty better, even other companies must have risk- management procedures. This must be base on objective and realistic view of the role of working capital. Addressing the issue of working capital on a corporate wide basis has certain advantages. Cash generated at one location can well be utilized at another. For this to happen, information access, efficient banking channels, good linkages between production and billing internal system to move cash and good treasury practices should be in place. An innovative approach combining operation and financial skills and an all encompassing view of companys operations will help in identifying and implementing strategies that generate short term cash. This can be achieved by the right set of executives who are responsible in setting targets and performance levels. They could be then held accountable for delivering, encouraged to be enterprising and act as changing agents. Effective dispute management procedures in relation to customers will go along away in freeing up cash otherwise locked in due to disputes. It will also improve customer service and free up time for legitimate activities like sales, order entry and cash collection. Overall efficiency will increase due to reduced operating costs. Working capital management is an important yardstick to measure company operational and financial efficiency. This aspect must form the part of the strategic and operational thinking. Efforts should constantly make to improve the working capital position. This will yield greater efficiencies and improve customer satisfaction

BIBLIOGRAPHY

REFERENCE BOOKS:
FINANCIAL MANAGEMENT Dr. R. Ramachandran & Dr. R. Srinivasan. FINANCIAL MANAGEMENT (McGraw hill education) -Prasanna Chandra. FINANCIAL MANAGEMENT I.M.Pandey.

WEBSITES:
WWW.PRECOTMERIDIAN.COM WWW.MANAGEMENTPARADISE.COM WWW.CITEFIN.COM

SEARCH ENGINES:
WWW.GOOGLE.COM WWW.YAHOOSEARCH.COM

ANNEXURE