PROJECT REPORT

ON
Working Capital Management
IN
J.B.M.COMPONENT PRIVATE LIMITED
(FINANCE DEPARTMENT)
SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE
REQUIREMENT OF
MBA DEGREE
(2014)
ADVANCED COLLEGE
PALWAL M.D. Un!"#$%& R'%()*
0
SUBMITTED BY:
KAVITA
ROLL:NO. MB13016
SUBMITTED TO:
MS. NEHA
PREFACE
The Project entitled +W'#*n, C)-%). M)n),"/"n% )% J.B.M. )n0 BEST WA1
STEEL -!%. L%0. 2 deals in this segment. The term of study was kept limited to make the
title true. The purpose of the report is to get the in depth understanding of the process of
working capital management. With the growing Indian economy and the liberal
government policies for infrastructure, the demand for MT!" services is increasing and
seeing this as an opportunity is under taking many new projects for e#pansion of the
production which are under implementation for increasing the capacity of the plants.
$bm.component and best way pvt. "td. world recognised MT!" company so the
management of working capital consist of different of new techni%ue which is not common
in Indian MT!" industry.
The main objective of my research that how $.&.M and &'T W!( pvt.ltd. maintain the
proper balance between the amount of current assets and the current liabilities in such a
way that the firm is always able to meet its financial obligations, whenever due. This will
ensure the smooth working of the unit without any production held ups due to paucity of
funds and also how $.&.M. and &'T W!( pvt. "td. manage the current assets in such a
way that the marginal return on investment in these assets is not less than the cost of capital
ac%uired to finance them. This will ensure the ma#imi)ation of the value of the business
unit.
Working capital management in $.&.M. and &'T W!( pvt. "td. is seem to be different
and also effective as comparison other metal firms in India. *eason for being different is
their nature of business and implementation of new techni%ue which help them to smooth
flow of the fund.
Performance of $.&.M. and &'T W!( pvt. "td. +orea and India both are affluent. Their
mi#ed corporate culture and the area of e#pertise in metal processing construction
contract help them to get succeed in every project
1
ACNOW!ED"EMENT
The or!"#$!%#o" &ro'e(% o) *+(h "!%+re )or %h#* *+((e**)+, (o-&,e%#o"
"ee.* (oo&er!%#o" !". *+&&or% o) &eo&,e. I h!/e 0ee" )or%+"!%e %o e%
(o"*%!"% +#.!"(e 1 e"(o+r!e-e"% )ro- -!"2 3h#(h he,&e. -e ! ,o%
%o 0e *+((e**)+, #" !"2 e4or%*. Th#* )or-!, !(5"o3,e.e-e"% 3#,, h!r.,2
0e *+6(#e"% %o e7&re** o"e .ee& *e"*e or r!%#%+.e %o !,, o) %he-.
A% %he o+%*e%8 I 3o+,. ,#5e %o %h!"5 Mr# D$%&'ant Sing& (Training )
Pla*ement O+*er, !". o%her -e-0er* o) %he &,!(e-e"% (e,, )or
#/#" -e !" o&&or%+"#%2 %o *+((e**)+,,2 (o-&,e%e -2 *+--er
#"%er"*h#& #" %he#r e*%ee-e. or!"#$!%#o".
A &ro'e(% re&or% h!* "e/er 0ee" %he *!,e &ro.+(% o) %he &er*o" 3ho*e
"!-e !&&e!r* o" %he (o/er. There !re !,3!2* *o-e &eo&,e 3ho*e
+#.!"(e &ro/e* %o 0e o) #--e"*e he,& #" #/#" #%* 9"!, *h!&e. So #% #*
-2 9r*% .+%2 %o e7&re** -2 r!%#%+.e %o3!r.* !,, o) %he-.
:
DECLARATI ON
I am +avita ,,lass M&! -rd 'M of !dvanced Institute of Technology and management
of Palwal .ereby declare that the project entitled /P!*TI!" 01"0I""M2T 30 T.
*41I*M2T /is an 3riginal Work and the same has not been submitted to any other
institute for the award of any other degree.
S,n)%3#" '4 C)n00)%"
3
TABLE OF CONTENTS
1 COMPAN1 PROFILE 5
2 INTRODUCTION OF TOPIC 45
5 OBJECTIVES6 SCOPE 7 LIMITATIONS 44
4 REVIEW OF LITERATURE 84
8 RESEARCH METHODOLOG1 89
9 DATA COLLECTION AND ANAL1SIS 8:
: FINDINGS OF THE STUD1 98
; CONCLUSION 7 SUGGESTION
< BIBLIOGRAPH1 :0
10 QUESTIONNAIRE :1

COMPAN1 PROFILE
;
J.B.M. COMPONENT .%0. co ,which is incorporated as MT!" company in 1<;1 . It is
engaged in providing total MT!" services like design MT!" , planning , procurement
and construction for the petrochemical , refinery ,gas plant, industrial e%uipment
installation and environmental fields. It has completed more than 5677 projects with staff
of more than 5-77 specialised personnel and sales e#ceeding 1'8 59.6- billion:9755;.
3ver -7 years ago, $bm.component and best way ltd. with sharp awareness ,initiated a step
award to design and construct heavy industrial plant solely using technology. !s India<s
MT!" company $bm.component and best way ltd. has been key factor behind the
advanMT!" MT!" capability.
Mr.SURESH NEOTIA is the chairman and ONNE VAN DER WEIJDE is the managing
director of j.b.m. component ltd.
In 1<59, ="$% >)& .%0. has been established a major role on the turnkey project overseas
which include large projects in southeast !sia ,India =ermany and Me#ico.
MT!" ltd. is now poised to provide a full spectrum of reliable, %uality project within
budget and on schedule.
Mr. A#&) is the chairman and M#.S3$(. %>)# is the managing director of 'T"
MT!" ltd.
The main vision of $bm component and best way ltd. India P>T "td is to provide high
%uality parts ,drawing ?technical services. The Indian company shall be used as
knowledge hub and MT!" centre for global needs for above activities.
The main object of $bm component and best way ltd. India is to carry on all or any of the
business to provide develops ,supply and render MT!" and technical services. !nd also
to carry on the business of providing MT!" ,procurement, maintenance and operation
service to industrial ,petrochemical ,environmental, gas, energy generation and refinery
projects.

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The area of e#pertise is MT!" processing construction contract especially for process
MT!", chemical MT!" ,piping MT!" and instrumental MT!".
With advent of new millennium, global as well as domestic MT!" a markets are faced
with uncertainties, creating a whole new environment where only a handful of market
leaders with global competitiveness can e#pect future.
$bm component and best way ltd. give priorities to health ,safety and environment.
Moreover ,under the business principle to provide an economical and optimised manner
within the fastest possible time, and also focused on building an effective knowledge
management system, improving corporate efficiencies through continued cost reduction
and overall improvement efforts, and building a global standard management basis to
become a customer @ oriented ,total solution provider.
0urthermore, with people and technology the critical factors in the MT!" business, $bm
component and best way ltd. is setting out to establish long term training programs aimed
at nurturing professional with e#tensive e#periences in the environment and energy sector
facilitating the arrival of future.
$bm component and best way ltd. is committed to becoming the most reliable business
partner, catering the needs with best %uality and seamless services driven by the attitude of
genuinely caring customer.
$bm component and best way ltd. India Pvt . ltd will try to provide the best manpower and
technology for best product and service to customer.
$bm component and best way ltd. As no 5 mission is generating values to the customers and
shaping businesses for continuous fulfilment of the client<s needs.
$bm component and best way ltd. has earned a reputation for e#cellence in MT!"
construction and project management. With a highly talented ,dedicated and creative team
e#perts, $bm component and best way ltd. has grown into one of the most highly
recogni)ed MT!" companies in the world.
INTERNATIONAL PROJECT E@PERIENCE
6
$bm component and best way ltd. points clients to success. There numerous successes in
petrochemical, refinery, gas, industry, environmental plant and infrastructure businesses
worldwide have served as the basis for success and the power to overcome any difficulties
and e#plore new opportunities. 1ndisputed capabilities, strong potential and unrivalled
enthusiasm are the drivers that $bm component and best way ltd. relies on to bring a
genuine success to their clients.

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0or several decades $bm component and best way ltd. has been active in the petrochemical
industry, initially heading large scale petrochemical plant construction projects in +orea
for major companies such as 'amsung Petrochemical. 1sing these e#periences as a strong
foundation, $bm component and best way ltd. has fineBtuned its e#pertise and capabilities
to successfully e#ecute lump sum turnBkey projects including MT!", procurement,
construction and commissioning. 0rom the early 5CC7<s, the company e#panded and
penetrated into overseas markets such as ,hina, Thailand, gypt, India, Malaysia, and Iran.
In the 'audi !rabian market, $bm component and best way ltd. was recogni)ed for its
business performance by successfully carrying out the '!&I, &uteneB5 Plant and 'P,
P8.DPP Plant. This resulted in securing new orders such as the !PP, P8.DPP Plant,
'.!*4 = Plant and T!'2 thylene Plant and I&2E!.* PP Plant in 977F. Two
years later, $bm component and best way ltd. secured M!<!82 !mmonia Plant and
+!(!2 PP and !mines Plant, due to our global player status in the petrochemical plant
market. "ooking forward, we will focus on e#panding deeper into ethylene, 3D=,
P8.DPP, P plants and building long term relationships with our clients and penetrating
the =,,, ,I', !ustralia, and 2orth !frica.
R"4n"#&
$bm component and best way ltd. has steelumulated e#tensive refinery e#perience across
the globe such as the I3," *efinery Plant in India, &'T 1nleaded =asoline !dditive Plant
in Thailand, and refinery plants in Thailand and Taiwan. In Me#ico, $bm.component and
best way ltd. was awarded both the Tula and 'alamanca *efinery from PMG, proving
the company<s continuing partnership with its clients. ,urrently, $bm.component and best
=
way ltd. is constructing two ,entral and 'outh !merican projects. They are the PMG
Minatitlan *efinery Plant in Me#ico and PT*3T*I2 2.T ? ,,* Plat former *efinery
Plant in Trinidad ? Tobago.9776 marks the year $bm.component and best way ltd. was
awarded a 8.T Plant from !*!M,3, 'audi !rabia<sstateBowned and world<s largest oil
company. This was a milestone that would signal enhanced market competitiveness in a
market with large investment potential. $bm.component and best way ltd. aims to focus on
the refinery plant industry by securing grassBroots performing capacity, and advanced
refining capacity and looks to a future in the offshore market.
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=as plants are $bm.component and best way ltd.<s sustained activities in the hydrocarbon
sector and has demonstrated knowBhow through the %uality of projects in several
continents. In Thailand, P, services for both PTT 'P and ='PBH Plants began in 9776,
strengthening its competitiveness in overseas gas plant industry. 3ther notable gas plant
projects include the IP," =as Plant in India, +.!"8! =as Plant in gypt and
Petrovietnam =as Plant in >ietnam. "ast but not least, a recent successfully constructed
TTM ='PB5Plant for the consortium of Thailand<s PTT and Malaysia<s PT*32!', and
PTT ='PBF plant in Thailand. $bm.component and best way ltd. is grooming the li%uefied
natural gas:"2=; li%uefaction market to be the companyIs ne#t strategic business.
$bm.component and best way ltd.<s e#tensive e#perience in the cryogenic process such as
ethylene and air separation will help the company achieve this goal. Their initial foothold
in the "2= market was secured when our company was awarded the Man)anillo "2=
terminal project from ,0 in Me#ico. 3ur company is preparing diligently to penetrate
this market and it is not far from our reach
F"#%.D"#$ 7 C("/A).$
$bm.component and best way ltd. has enjoyed success not only in petrochemicals,
refineries, and gas processing plant projects, but also in fertili)er projects, like >ietnam<s
Phu My 0ertili)er plant project as well as general and fine chemical plant projects at home
and abroad.
>
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#ploring overseas markets and pioneering new products, $bm.component and best way
ltd. implements a strong growth strategy. Through Industrial projects in the fields of IT,
energy, automobile, aerospace, food, and sports facilities, $bm.component and best way ltd.
is demonstrating technological leadership and %uality products through its turnBkey
services. In particular, $bm.component and best way ltd. is focused on highBtech sectors
such as display and semiconductors for the purpose of securing top technology. &ased on
its outstanding project e#ecution ac%uired from the +orean market, $bm.component and
best way ltd. has strived to focus on overseas markets in !sia, urope, ,I', the Middle
ast and "atin !merica. Through such efforts, $bm.component and best way ltd. has
pioneered new products such as steel mill plants, power plants, renewable energy plants as
well as new 8,P:8istinct ,ooling Plants; and logistics centers.
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IT
IT is an important component in the industrial plant sector for $bm.component and best
way ltd.. With a great track record in IT projects and the steelumulation of the world<s
leading technologies in the areas of P8P, ",8,3"8, semiconductor and cleanBrooms. It
has a proven speciali)ation in ne#t generation displays after completing construction of the
!M3"8 line and the P8P line J for 'amsung '8I. ,urrently, $bm.component and best
way ltd. is involved in a project to increase capacity for the 6th generation ",8 substrate
glass manufacturing line of 'amsung ,orning Precision =lass. $bm.component and best
way ltd. also remains active in IT projects outside of +orea and is currently undertaking a
semiconductor facility in >ietnam for Intel. Working with many +orean companies that
have entered markets such as the Philippines, ,hina, and 'lovakia, $bm.component and
best way ltd. serves as a partner in their overseas operations. The company plans to
strengthen its e#pertise centring on e#isting client companies and to further enhance
itsKcompetitiveness by reducing construction time and developing new construction
techni%ues, as well as being more active in e#ploring new overseas markets.
?
&ased on its e#tensive e#perience in the food ? beverage industry as well as other
manufacturing sectors, $bm.component and best way ltd. has successfully completed a
number of large projects based in +orea, including the +T?= Tobsteelo manufacturing
Plant, +onkuk 8airy umsung 0acility, the !san, =umi and 2oksan 0acilities of 2ongs
him, 2amyang 8airy ,heonan 0acility, $inro ,ass &eer 0acility and .ankook Tire
Plant.!t the same time, $bm.component and best way ltd. has served as a strategic partner
with domestic companies to help them enter overseas markets, taking part in 2ongshim
'hanghai 0acility and .ankook Tire Plant in astern urope. $bm.component and best way
ltd. is also working on a number of fronts to e#pand its business portfolio to include
8,P:8istrict ,ooling Plants;, and to secure new growth engines for the future.
$bm.component and best way ltd. is strengthening its internal competencies through
constant research and development aimed at =MP:=ood Manufacturing Practices; for
medical and pharmaceutical devices.
.
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In the steel sector, $bm.component and best way ltd. secured contracts representing a total
of 9F million 1'8 in9776 alone. These projects included sinter and &yBproduct =as
'upply 0acilities for .yundai 'teel,P3',3 ,=" 1tility in Me#ico and a blast furnace
facility for the '!I" II',3 'teel Plant. Winning the bid for the .yundai 'teel Plant was
particularly significant in that it showed how far $bm.component and best way ltd. has
progressed within an industry that is known for having high barriers for new contractors.
This achievement was made possible by $bm.component and best way ltd.<s e#tensive
e#perience in project operation, its cooperation with technology providers and partners that
allows efficient project e#ecution, and differentiated marketing strategies. their company
will continue to be engaged in overseas operations through its partnerships with domestic
steel companies. $bm.component and best way ltd. also plans to e#pand its portfolio of
steel operations to include integrated steel mill packages, miniBmills, ,=" and stainless
steel facilities so that it will be able to operate steel plant projects independently.
P'>"#
'ince the 5CC7s, $bm.component and best way ltd. has successfully completed projects for
medium to large combined heat and power plants as well as integrated energy plants in
turnBkey contracts. #amples include !nsan ,ombined .eat and Power Plant, 'ihwa
10
,ombined .eat and Power Plant, Incheon 2onhyun 8istrict Integrated nergy Plant, and
the nergy *ationali)ation 0acility in Mongolia. It has set up a plan to transform overseas
IPP projects into strategic products for longBterm growth and has madevarious efforts to
speciali)e in IPP projects in 'outheast !sia. In Thailand, Philippines and Indonesia, it is
working hard to ac%uire power plant projects including those for ,PP. &y securing needed
technologies and e#pertise to undertake medium to large si)ed projects:-77 MW IPP or
larger;, it has become an important player in IPP overseas markets and is laying a
foundation for e#ploring new growth engines such as the renewable energy industry.
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!spiring to become a specialist in environmental ? infrastructure through aggressive
technology development and business e#pansion. MT!" companys entered the
environmental sector in the 5C67s and has since been speciali)ing in the environmental and
infrastructure field. &ased on -L years of e#perience in the water business, it established a
comprehensive water management system that covers ultra pure water, wastewater reuse
and highly efficient wastewater treatment, and continues building upon its capabilities in
the design, construction and operation of related facilities overseas. $bm.component and
best way ltd. has secured core technologies in other environmentBrelated areas such as the
reduction of air pollution from IT facilities and municipal waste. 'imultaneously, the
company is actively engaged in '3,:'ocial 3verhead ,apital; projects in the domestic
railway market and has successfully operated projects such as the railway depot and
deployment projects for integrated operation systems. "everaging its e#perience in
environmental ? infrastructure, MT!" company will continue its growth as a leading
water specialist and infrastructure construction company.
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11
$bm.component and best way entered the sewage treatment sector in the 5CC7<s and has
successfully completed a number of domestic sewage treatment projects in 'eogwipo,
=wangyang, !nsung,=uryongpo and +iheung. It is also currently undertaking and
operating sewage treatment facilities in 8ongbu, &usan and 'ongdoBMansu in Incheon
through privately invested contracts, as well as another privately invested project to
integrate the 59 sewage treatment facilities in (ongin. The company< s e#tensive
e#perience in the waste water treatment sector has provided it with a solid foundation from
which was utili)ed to enter the overseas market in 1!. The contract that was awarded
from .,'E to build and operate a wastewater treatment facility for the !bu 8habi I,!8
,omple# was a highlight for in 9776. In the ultra pure and wastewater reuse sectors, it is
steadily increasing its market share as it has successfully built ultra pure water ?
wastewater recycling facilities for 'amsung lectronics in .wasung, +iheung and
,heonan in +orea, and also 'u)hou, ,hina. In 977L, the company plans to become more
actively engaged in the seawater desalination sector by leveraging its membrane, ultra pure
water, and desalination technologies.
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$bm.component and best way pvt. "td.<s uni%ue technological power and e#pertise has
been demonstrated in various waste treatment projects owned by the government and local
authorities. The company is steelumulating e#pertise in sludge treatment through its
involvement in the construction and operation of the 'eonamB2anji and 'ungnam 'ludge
Incinerators. MT!" company construction and operation of the ,heonan Municipal 'olid
Waste Incinerator is being used as a case study in +orea as well as in other countries. !s
the reduction of air pollution has become an international issue, $bm.component and best
way ltd. is
becoming a global leader in this field by applying its e#perience in the petrochemical
industry to various projects aimed at treating harmful gases such as P0,:Per 0luoro
,arbon; produced by IT manufacturing facilities. R).>)&
'ince entering the domestic railway market in the 5CC7s, MT!" company has
steelumulated technologies specific to railway systems through its completion of the 'eoul
*olling 'tork 8epot, the &usan *ailway Maintenance 8epot, and the !nsan lectric Train
8epot. In 9776, it became the first private company to successfully complete a
comprehensive operation system, the 8aejeon 'ubway "ine 5. That project helped the
1:
company secure necessary capabilities related to the deployment and trial operation of
integrated operation systems for urban railways. It plans to be more active in entering
overseas markets such as the Middle ast while diversifying its business portfolio to
include system integration of light rail transit ?M and railway ?M, and by nurturing
this business as a future growth engine.
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MT!" company entered the '3, sector in the 5CC7s, beginning with its construction of
the 'eogwipo 3utport &reakwater. It has since contributed to the e#pansion of +orea<s
'3, infrastructure through a variety of '3, projects including the 1lsanB=angdong
.ighway ,onstruction, the 'eoul World,up 'tadium, .aeundae Marine Theme !%uarium
and &ucheonB'angdong .ousing ,omple# 8evelopment. &ased on its track record in
projects related to ports, sports comple#es, roads, bridges and tunnels, intends to further
build on its e#pertise in overseas infrastructure projects in the Middle ast, 2orth !frica,
and 'outheast !sia.
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In 9776, despite the dramatic escalation in oil prices and raw material prices, 'amsung
ngineering worked diligently to record an allBtime high. 2ew orders rose HF percent to
+*WJ.L trillion while net profit rose -5 percent to +*W 5FH billion on the back of sales
rising 59percent to a record +*W 9.9 trillion. The performance of the .ydrocarbon Plant
8ivision was a stellar one, as MT!" companys continuously secured mega projects in
'audi !rabia, Thailand, and India on the strength of their trusted and respected reputation
developed through their successful business performance. ! notable milestone for MT!"
company includes securing 'audi !rabia<s !*!M,3 as their client, the worldIs largest oil
company.
!dvancing into the 1! market was another proud achievement this year. In the Industrial
Plant 8ivision, $bm.component and best way ltd. made great progress in diversifying its
business portfolio by entering the steel plant market. 'ecuring the Intel 'emi conductor
project in >ietnam meant another e#pansion into a new market and widening their client
base into the global IT sector. In addition, MT!" company<s steelumulated e#perience
and high technology in the nvironmental ? Infrastructure 8ivision resulted in a new
award for a sewage treatment plant in the 1!. $bm.component and best way ltd. engaged
13
in a buyback of a total of 5 million stocks worth +*WFJ.H billion to stabili)e their share
prices and enhance shareholder values, simultaneously and effectively maintaining
shareholderBoriented management for the best interest of their shareholders.
$bm.component and best way ltd.<s share prices have doubled since the beginning of the
year while its market capitali)ation reached +*W -.6F9 trillion, raising overall corporate
value.
1;
INTRODUCTION
,orporate finance is an area of finance dealing with the financial decisions corporations
make and the tools and analysis used to make these decisions. The primary goal of
corporate finance is to ma#imi)e corporate value while managing the firmIs financial risks
!lthough it is in principle different from managerial finance which studies the financial
decisions of all firms, rather than corporations alone, the main concepts in the study of
corporate finance are applicable to the financial problems of all kinds of firms. The
discipline can be divided into longBterm and shortBterm decisions and techni%ues. ,apital
investment decisions are longBterm choices about which projects receive investment,
whether to finance that investment with e%uity or debt, and when or whether to pay
dividends to shareholders. 3n the other hand, the short term decisions can be grouped
under the heading MWorking capital managementM. This subject deals with the shortBterm
balance of current assets and current liabilities the focus here is on managing cash,
inventories, and shortBterm borrowing and lending.
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The word working capital is made of two words 1.Working and 2. ,apital. The word working
means day to day operation of the business, whereas the word capital means monetary value of
all assets of the business.
Working capital may be regarded as the life blood of business. Working capital is of major
importance to internal and e#ternal analysis because of its close relationship with the
current dayBtoBday operations of a business. very business needs funds for two purposes.
N "ong term funds are re%uired to create production facilities through purchase of fi#ed
assets such as plants, machineries, lands, buildings ? etc
N 'hort term funds are re%uired for the purchase of raw materials, payment of wages, and
other dayBtoBday e#penses.
. It is other wise known as revolving or circulating capital
1<
It is nothing but the difference between current assets and current liabilities. i.e.
Working ,apital O ,urrent !sset @ ,urrent "iability.
&usinesses use capital for construction, renovation, furniture, software, e%uipment, or
machinery. It is also commonly used to purchase inventory, or to make payroll. ,apital is
also used often by businesses to put a down payment down on a piece of commercial real
estate. Working capital is essential for any business to succeed. It is becoming increasingly
important to have steeless to more working capital when we need it.
Working capital typically means the firm<s holding of current or shortBterm asset s such as
cash, receivables, inventory and marketable securities. Much academic literature is
directed toward gross working capital ,I .e . total current or circulating assets. ach item s
are referred to as circulating assets. these items are referred to as circulating assets
because of their cyclical nature. in a retail establishment cash is initially employed to
purchase inventory which is turn sold on credit and result in steelount receivable . once
receivables are collected , they come cash @part of which reinvested in additional
inventory and part. Working capital management is the process of planning and controlling
the level and mi# of the current assets, of the firm as well as financing these asset ,
specifically working capital management re%uire financial managers to decide what
%uantities of cash , other li%uid asset , steelount receivable , and inventories the firm will
hold at any point in time . In addition, financial manager would decide how there current
assets are financed.financing choices include the mi# of current as well as longB term
liabilities.
This high degree of divisibility has two important implications for the management of
working capital , first if the management so chooses, working capital can be ac%uired
piecemeal to meet immediate needs as they arise. 'uch handBtoBmouth policy has
advantage of reducing the average investment in working capital,thereby minimi)ing the
interest charges , insurance e#penses, and storage fees necessary to carry the investment .
however a landBtoB mouth policy has these disadvantages Pthere will be increased ordering
costs associated with greater likelihood that firm may e#perience a shortage working
capital , because there is no buffer stock to absorb une#pected fluctuation in re%uirement.
&y balancing the saving in carrying cost against the cost of shortage and of more fre%uent
procurement , the management of a firm will generally find it profitable to maintain its
16
working capital at a level higher than needed to meet its immediate needs. .owever ,the
relationships among carrying costs , shortage costs , and procurement costs are such the
most firms will find that the economic level of working capital is no more than a few
month<s supply .This relatively short planning hori)on in working capital decisions
contrast sharply with the much longer hori)on in working capital decisions contrast sharply
with the much longer planning hori)on in fi#ed capital decisions.
The second implication of divisibility ,which follows logically from first concern the
appropriate methods for financing working capital only amount to a few months supply
means that the working capital cycle , a cycle running from cash to inventories ,
inventories to receivables and receivable to cash , is measured in months rather than in
years. This "i%uidity of working capital allows the management a corresponding fle#ibility
inits financing decisions. Whereas fi#ed capital should generally be financed with either
longB term funds or shortBterm funds or some combination of the two.
In the management of working capital , therefore the firm is faced with two key %uestions.
0irst given the level of sales and the relevant cost considerations, what are the optimal
amounts of cash assets, steelount receivable, and inventories that a firm should choose to
maintainQ 'econd , given these optimal amount s what is the most economical way to
finance these working capital investmentsQ To produce the best possible returns firm
should keep no unproductive asset and should finance with the cheapest available sources
of funds. whyQ in general ,it is often advantageous for the firm to invest in short @term
assets and to finance with short term liability.
1=
Working capital, also known as net working capital, is a financial metric which represents
operating li%uidity available to a business. !long with fi#ed assets such as plant and
e%uipment, working capital is considered a part of operating capital. It is calculated as
current assets minus current liabilities. If current assets are less than current liabilities, an
entity has a working capital deficiency, also called a working capital deficit. ! company
can be endowed with assets and profitability but short of li%uidity if its assets cannot
readily be converted into cash. Positive working capital is re%uired to ensure that a firm is
able to continue its operations and that it has sufficient funds to satisfy both maturing
shortBterm debt and upcoming operational e#penses. The management of working capital
involves managing inventories, steelounts receivable and payable and cash.
C'nA"-% '4 >'#*n, A)-%).
=ross Working ,apital O Total of ,urrent !sset
2et Working ,apital O #cess of ,urrent !sset over ,urrent "iability
C3##"n% A$$"%$ C3##"n% L)=.%"$
,ash in hand D at bank
&ills *eceivable
'undry 8ebtors
'hort term loans
InvestorsD stock
Temporary investment
Prepaid e#penses
'teelrued incomes
&ills Payable
'undry ,reditors
3utstanding e#penses
'teelrued e#penses
&ank 3ver draft
1>
G#'$$ >'#*n, A)-%).B refers to the firm<s investment in current assets. ,urrent assets are
the assets which can be converted into cash within an steelounting year and include cash
short @term securities , debtors.
N"% W'#*n, C)-%). Bis defined as ,urrent !ssets minus ,urrent "iabilities. ,urrent
assets include stocks, debtors, cash ? e%uivalents and other current assets. ,urrent
liabilities include all the shortBterm borrowings. The formula are as follows
O :$%'A*$ G 0"=%'#$ G A)$( 7 "H3!)."n%$ G A3##"n% )$$"%$6 '%("#) F A#"0%'#$6 $('#%
F'A3$n, 'n /)n),"/"n% '4 A3##"n% )$$"%
The gross working capital concept focuses attention on two aspects of current assets
management P :5;how to optimise investment in current assetsQ:9;how should current asset
be financedQ.The consideration of the level of investment in current assets should avoid
two danger pointsB e#cessive or inade%uate investment in current assets. Investment in
current assets should be just ade%uate to the needs of the business firm .#cessive
investment in current assets should be avoided because it impairs the firms profitability , as
idle investment earn nothing. 3n the other hand , inade%uate amount of working capital
can threaten solvency of the firm because of its inability to meet current obligations. It
should be reali)ed that the working capital of the firm may be fluctuating with changing
business activity . this may cause e#cess or shortage of working capital fre%uently. The
management should prompt t o initiate an action and correct imbalances. !nother aspect of
the gross working capital point to the need of arranging funds to current assets whenever a
need for working capital fund arises due to increasing level of business activity or for any
reason , financing arrangement should be %uickly . similarly, if suddenly, some surplus
fund arise they should not be allowed to remain idle , but should be invested in shortBterm
securities. thus the financial manager should have knowledge of the sources of working
capital fund as well as investment avenues where idle funds may be temporarily invested
F'A3$n, 'n .H30%& /)n),"/"n%
2et working capital is a %ualitative concept. it indicates the li%uidity position of the firm
and suggests the e#tent to which working capital needs may be financed by permanents
sources of funds. ,urrent assets should be sufficiently in e#cess of current liabilities to
constitute a margin or buffer for maturing obligations within the ordinary operating cycle
1?
of a business . in order to protect their interests, shortBterm creditors always like a company
to maintain current asset at a higher liability. it is a conventional rule to maintain the level
of current asset should be considered in determining the level of current asset vis- a- vis
current liabilities. ! weak li%uidity position poses a threat to the solvency of the
company and make it unsafe and unsound. ! negative working capital means a negative
li%uidity and prove to be harmful for the company As reputation. e#cessive li%uidity is
also bad . it may be due to mismanagement of current assets Therefore ,prompt and timely
action should be taken by management to prove and correct imbalances in li%uidity
position of the firm. 2et working capital concept also cover the %uestion of judicious mi#
long term demand short term fund for financing currents assets.
0or every firm there is a minimum amount of net working capital is permanent.
Therefore , a portion of the working capital should be financed through permanent sources
of fund such as e%uity share capital , debenture , long term, debt, preference share capital ,
or retained earnings. Management must therefore , decide the e#tent to which current asset
should be financed with the e%uity and Dor borrowed capital.
In summary , it may emphasised that both gross and net concepts of working capital are
e%ually important efficient management of working capital . there is no precise way to
determine the e#act amount of gross ,or net working capital for any firm . the data and
problems of each company should be analysed to determine the amount of working
capital . there is no specific rule as to how current asset should be financed . it is not
feasible in practise to finance current asset by short tern sources only. keeping view the
constraints of the individuals company, a judicious mi# long and short term financed
should be invested in current asset . since current involve cost funds , they should be
invested incurrent assets. 'ince current assets involve costs of funds, they should be put to
productive.
W'#*n, A)-%). n %"#/$ '4 4!" A'/-'n"n%$
C)$( )n0 "H3!)."n%$P B This most li%uid form of working capital re%uires constant
supervision. ! good cash budgeting and forecasting system provides answers to key
%uestions such asP Is the cash level ade%uate to meet current e#penses as they come dueQ
What is the timing relationship between cash inflow and outflowQ When will peak cash
:0
needs occurQ When and how much bank borrowing will be needed to meet any cash
shortfallsQ When will repayment be e#pected and will the cash flow cover itQ
S%"".'3n%$ #"A"!)=."I F Many businesses e#tend credit to their customers. If you do, is the
amount of steelounts receivable reasonable relative to salesQ .ow rapidly are receivables
being collectedQ Which customers are slow to pay and what should be done about themQ
In!"n%'#&I F Inventory is often as much as F7 percent of a firmIs current assets, so
naturally it re%uires continual scrutiny. Is the inventory level reasonable compared with
sales and the nature of your businessQ WhatIs the rate of inventory turnover compared with
other companies in your type of businessQ
S%"".'3n%$ -)&)=."IF 0inancing by suppliers is common in small businessR it is one of the
major sources of funds for entrepreneurs. Is the amount of money owed suppliers
reasonable relative to what you purchaseQ What is your firmIs payment policy doing to
enhance or detract from your credit ratingQ
S%"".#3"0 "?-"n$"$ )n0 %)?"$ -)&)=."I F These are obligations of your company at any
given time and represent a future outflow of cash.
C'nA"-% '4 >'#*n, A)-%).
&alance sheet concept
3perating cycle concept
It goes without saying that the pattern of management will be very largely influenced
by the approach taken in defining it. Therefore the two concept are discussed
separately in a nutshell.
B).)nA" $(""% A'nA"-%B there are two interpretation of working capital under the balance
sheet concept. It is represented by the e#cess of current assets over current liabilities and is
the amount normally available to finance current operations. &ut some time working
capital is also synonym for gross or total current assets. In that case , the e#cess of current
asset over current liabilities is called the net working capital or net current assets. The
conventional definition of working capital in terms of the difference between the current
:1
assets and the current liabilities somewhat confusing. Working capital is really what a part
of long @term finance is locked in and used for supporting activities. It is difficult to say
whether this is right or wrong. !pparently are warned about tight working capital
situation , the logic of the above definition would perhaps indicate diversion of long term
finances for short term finances. 0or if shortB term bank loans were procured to bring in
cash , under the conventional method working capital evidently remain unchanged.
"i%uidation of debtor or inventory into cash would also keep the level unchanged.
O-"#)%n, A&A." A'nA"-%B a company operating cycle typically consists of three primary
activities Ppurchasing resources , producing the product ,and distributing :selling; the
product. These activities create fund flows that are both unsynchronised and uncertain.
They are synchronised because cash disbursement :for e#ample ,payments for resources
purchases; usually take place before cash receipts :for e#ample, payments for resources;.
They are uncertain because future sales and costs, which generate the respective receipts
and disbursement ,cannot be forecasted with complete steeluracy. If the firm is to maintain
li%uidity and function properly, it has to invest funds in various shortBterm assets :working
capital; during this cycle. It has to maintain a cash balance to pay the bills they come due.
In addition the company must invest in inventories to fill customer orders promptly. !nd
finally ,the company invests in steelounts receivable to e#tend credit to its customer. The
firm<s gross operating cycle :=3,; can be determined as in inventory conversion period
:I,P; plus debtor conversion period :8,P;. Thus ,=3, is given followsP
G#'$$ '-"#)%n, A&A."J n!"n%'#& A'n!"#$'n -"#'0G 0"=%'#$ A'n!"#$'n -"#'0.
In!"n%'#& A'n!"#$'n -"#'0 is the sum of raw material conversion period :*M,P;,
work @inB progress conversion period :WIP,P;,and finished goods conversion
period:0=,P;
I,PO*M,P SWIP,PS0=,P
R)> /)%"#). A'n!"#$'n -"#'0(RMCP; is the average time period taken to convert raw
material conversion period is the average time period taken to convert material in to
workBin @process *M,P depends onP raw material consumption per day ,and :b; raw
material inventory. *aw material consumption per day is given by the total raw material
consumption divided by the number of days in the year :say -H7.the raw ,material
::
conversion period is obtained when raw material inventory is divided by raw material
inventory is divided by raw material consumption per day. 'imilar calculation can be made
for other inventories debtors and creditors. The following formula can be used P
*aw material conversion period O*MI G -H7D*M,
W'#* KnF-#'A"$$ A'n!"#$'n -"#'0 (WIPCP; is the average time taken to
complete the semi @finished or work @inBprocess. It is given by the formula
Working @inB process conversion periodOWIPI G -H7D,3P
Fn$("0 ,''0 A'n!"#$'n -"#'0 (FGCP) is the average time taken to sell the
finished goods. 0=,P can be calculated as followsP
0inished goods conversion periodO0=I G -H7D,='
D"=%'#$ A'n!"#$'n -"#'0 is the average time taken to convert debtors into cash .
8,P represent the average collection period. It is calculated as followsP
8ebtors conversion period:8,P;O 8&T3*' G -H7D,*8IT '!"'
C#"0%'#$ 0"4"##). -"#'0 is the average time taken by the firm in paying
suppliers. It can be calculated are as follows
,reditor deferral periodO creditors # -H7 Dcredit purchases
C)$( A'n!"#$'n A&A." '# n"% '-"#)%n, A&A."
2et operating cycle :23,; is the difference between gross operating cycle and payables
deferral period.
2"% '-"#)%n, A&A."J (,#'$$ '-"#)%n, A&A."F A#"0%'#$ 0"4"##). -"#'0).
2et operating cycle is also referred to as cash conversion cycle. 'ome people argued that
depreciation and profit should be e#cluded in the computation of cash conversion cycle
since the firm<s concern is with cash flows associated with conversion at costsP
depreciation is an nonBcash item and profits are not costs. ! contrary view is that a firm has
:3
to ultimetaly recover total costs and make profitsR therefore the calculation of operating
cycle should include depreciation and even the profits. !lso, in using the aboveB mentioned
formulae, average figures for the period may be used.
RA@ MATERIAL
@ORK IN
PROARESS
FINISH AOODS SALES
DEBTORS 1
BILLS
RECEIVABLES
CASH
OPERATIN" CYC!E
:;
T&-"$ '4 W'#*n, C)-%).
:<
SIGNIFICANCE OF WORLING CAPITAL
F)A%'#$ #"H3#n, A'n$0"#)%'n >(." "$%/)%n, >'#*n, A)-%)..
The average credit period e#pected to be allowed by suppliers.
Total costs incurred on material, wages.
The length of time for which raw material are to remain in stores before they are
issued for production.
The length of the production cycle :or; work in process.
The length of sales cycle during which finished goods are to be kept waiting for
sales.
The average period of credit allowed to customers
:6
The amount of cash re%uired to make advance payment
I/-'#%)nA" '4 W'#*n, C)-%). R)%'$
R)%' F'#/3.)" R"$3.% In%"#-#"%)%'n
'tock
Turnover
:in days;
!verage 'tock N
-HFD
,ost of =oods
'old
O # days 3n average, you turn over the value of your entire
stock every # days. (ou may need to break this down
into product groups for effective stock management.
3bsolete stock, slow moving lines will e#tend overall
stock turnover days. 0aster production, fewer product
lines, just in time ordering will reduce average days.
*eceivables
*atio
:in days;
8ebtors N -HFD
'ales
O # days It takes you on average # days to collect monies due to
you. If your official credit terms are JF day and it takes
you HF days.
3ne or more large or slow debts can drag out the
average days. ffective debtor management will
minimi)e the days.
Payables
*atio
:in days;
,reditors N -HFD
,ost of 'ales :or
Purchases;
O # days 3n average, you pay your suppliers every # days. If
you negotiate better credit terms this will increase. If
you pay earlier, say, to get a discount this will decline.
If you simply defer paying your suppliers :without
agreement; this will also increase B but your reputation,
the %uality of service and any fle#ibility provided by
your suppliers may suffer.
,urrent
*atio
Total ,urrent
!ssetsD
Total ,urrent
"iabilities
O # times ,urrent !ssets are assets that you can readily turn in to
cash or will do so within 59 months in the course of
business. ,urrent "iabilities are amount you are due to
pay within the coming 59 months. 0or e#ample, 5.F
times means that you should be able to lay your hands
on T5.F7 for every T5.77 you owe. "ess than 5 times
e.g. 7.6F means that you could have li%uidity problems
and be under pressure to generate sufficient cash to
meet oncoming demands.
:=
4uick *atio :Total ,urrent
!ssets B
Inventory;D
Total ,urrent
"iabilities
O # times 'imilar to the ,urrent *atio but takes steelount of the
fact that it may take time to convert inventory into
cash.
Working
,apital *atio
:Inventory S
*eceivables B
Payables;D
'ales
!s U
'ales
! high percentage means that working capital needs
are high relative to your sales.
*atio analysis can be used by financial e#ecutives to check upon the efficiency with which
working capital is being used in the enterprise. The following are the important ratios to
measure the efficiency of working capital. The following, easily calculated, ratios are
important measures of working capital utili)ation.

B).)nA"0 >'#*n, A)-%). -'$%'n
The firm should maintain a sound working capital position. It should have ade%uate
working capital working capital to run its business operations. &oth e#cessive as well as
inade%uate working capital positions are dangerous for the firm<s point of view. #cessive
working capital means holding costs and idle funds which earn no profit for the firm .
paucity of working capital not only impairs the firm<s profitability but also result in
production interruptions and inefficiencies and sales disruption.
T(" 0)n,"# '4 "?A"$$!" >'#*n, A)-%). )#" )$ 4'..'>$
It results in unnecessary steel emulation of inventories. Thus chances of inventory
mis handling , wast ,theft and losses increase.
It is an indication of defective credit policy and slack collection period.
,onse%uently ,higher incidence of bad debt result. Which adversely affects profits.
#cessive working capital makes management complacent which degenerates into
managerial efficiency.
:>
Tendencies of steelumulation inventories tend to make speculative profits grow.
This may tend to make dividend policy liberal and difficult to cope with in future
when firm is unable to make speculative profits.
In)0"H3)%" >'#*n, A)-%). $ ).$' =)0 )n0 ()$ %(" 4'..'>n, 0)n,"#$
It stagnates growth . it becomes difficult for the firm to undertake profitable
projects for non availability of working capital working capital funds.
It becomes difficult to implement operating plans and achieve the firms profit
target.
3perating inefficiencies creep in when it becomes difficult even to meet dayBday
commitments.
0i#ed assets are not efficiently utilised for the lack of working capital funds. Thus
fir<s profitability would deteriorate.
Paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc.
The firm loses reputation when it is not in position to honour its short term
obligations. !s a result ,the firm faces tight credit terms.
!n enlightened management should, therefore maintain the right amount of working
capital on a continuous basis. 3nly then a proper functioning of business operations will be
ensured. 'ound financial and statistical techni%ues, supported by judgement, should be
used to predict the %uantum of working capital needed at different time periods.
! firm<s net working capital position is not only important as an inde# of li%uidity but it
also used as a measure of the firm<s risk. *isks in this regard means chances of the firm
being unable to meet its obligation on due date. The lender considers a positive net
working capital firm has, the less likely that it will default in meeting its current financial
obligations. "enders such a commercial bank insists that the firm should maintain a
minimum net working capital positive.
:?
D"%"#/n)n%$ '4 >'#*n, A)-%).
There are no set rules or formulae to determine the working capital re%uirements of firms.
! large number of factors, each having different importance ,influence working capital
needs of firms. The importance of factors also changes for a firm over time. Therefore , an
analysis of relevant factors should made in order to determine total investment in working
capital. The following is the description of factors which generally influence the working
capital re%uirements of firms.
N)%3#" '4 =3$n"$$IF working capital re%uirements of a firms are basically influenced by
the nature of its business. Trading and financial firms have a very small investment infi#ed
assets, but re%uire a large sum of money to be invested in working capital. *etail stores, for
e#ample, must carry large stock like W!"BM!*T may carry, say 97,777 items. 'ome
manufacturing businesses, such a tobsteelo manufacturer and construction firms, also
have to invest substantially in working capital and a nominal amount in fi#ed asset. In
contrast ,public utilities may have limited need for working capital and have to
abundantly in fi#ed assets. Their working capital re%uirement are nominal because they
may have only cash sales and supply services, not products. Thus ,no funds will be tied up
in debtors and stock:inventories;. 0or the working capital re%uirements most of the
manufacturing companies will fall between two e#treme re%uirement s of trading firms and
public utilities. 'uch concerns have to make ade%uate investment in current assets
depending upon the total assets structure and other variables.
M)#*"% )n0 0"/)n0 A'n0%'nIF the working capital needs of a firm are related to its
sales. .owever ,it is difficult to precisely determine the relationship between volume of
sales and working capital needs. In practice current asset will have to employed before
takes place. It is, therefore, necessary to make advance planning of working capital for a
growing firm on a continuous basis.
=rowing firm may need to invest in fi#ed assets in order to sustain growing production and
sales. This will , in turn ,increase investment in current assets to support enlarged scale of
operations. =rowing firms need fund continuously. They use e#ternal sources as well as
internal sources to meet increasing needs of funds. These firms faces further problems
when they retain substantial portion of profit, as they will not be able to pay dividends to
30
shareholders. It is therefore imperative that such firms do proper planning to finance their
increasing needs for working capital.
'ales depend on demand conditions. "arge number of firms e#perience seasonal and
cyclical fluctuations in demand for their products and services. These business variation
affect the working capital re%uirement, specially the temporary working capital
re%uirement of the firm. When there is a upward swing in the economy , sales will
increase R correspondingly ,the firm<s investment in inventories and debtors will also
increase. 1nder boom, additional investment in fi#ed assets may be made by some firms
productive capacity. This act of firms will re%uire further additions of working capital. To
meet their re%uirements of fund for fi#ed assets and current assets under boom period ,
firms generally resort to substantial borrowing. 3n the other hand , when there is a decline
in the economy ,sales will fall and conse%uently , levels of inventories and debtors will
also fall. 1nder recession, firms try to reduce their shortBterm borrowing.
'easonal fluctuations not only affect working capital re%uirement but also create
production problems for the firm. 8uring periods of peak demand ,increasing production
may be e#pensive for the firm. 'imilarly ,it will be more e#pensive during slack periods
when the firm has to sustain its working force and physical facilities without ade%uate
production and sales. ! firm may thus , follow a policy of level of production, irrespective
of seasonal changes in order to utilise its resources to the fullest e#tent. 'uch a policy will
mean steelumulation of inventories during off season and their %uick disposal during peak
season.
The increasing level of inventories during the slack season will re%uire increasing funds to
be tied up in the working capital for some months. 1nlike cyclical fluctuations seasonal
fluctuation generally conform to a steady pattern. Therefore financial arrangement for
seasonal working capital re%uirement can be made in advance. .owever , the financial
plan or arrangement should be fle#ible enough to take care of some abrupt seasonal
fluctuations.
T"A(n'.',& )n0 /)n34)A%3#n, -'.A&IF the manufacturing cycle :or the inventory
conversion cycle; comprises of the purchase and use of raw materials and the production of
finished goods. "onger the manufacturing cycle ,larger will be the firm<s working capital.
31
C#"0% -'.A&IF the credit policy of the firm affects the working capital by influencing the
level of debtors. The credit terms to be granted to customers may depend upon the norms
of the industry to which the firm belongs. &ut a firm has the fle#ibility of shaping its credit
policy within the constraint of industry norms and practices. The firm should use direction
in granting credit terms to its customers. 8epending upon individual case, different terms
may be given to different customers. ! liberal credit policy without rating credit worthiness
of customers , will be detrimental to the firm and will create a problem of collection later
on. The firm should be prompt in making collections. ! high collection period will mean
tieBup of large funds in debtors. 'lack collection procedure can increase the chances of bad
debt. In order to ensure that unnecessary funds are not tied up in debtors, the firm should
follow a rationalised credit policy based on credit standing of customers and other relevant
factors. The should evaluate the credit standing of new customers and periodically review
the credit worthiness of the e#isting customers. The case of delayed payments should be
thoroughly investigated.
A!).)=.%& '4 A#"0% 4#'/ $3--."#$IFthe working capital re%uirements of a firm are also
affected by credit terms granted by its suppliers. ! firm will needless working capital if
liberal credit terms are available to it from suppliers. 'upplier<s credit finance the firm will
have ti borrow funds for bank. The availability of credit at reasonable costs from banks is
crucial. It influences the working capital policy of a firm. ! firm without the supplier credit
but which can get bank easily on favourable conditions will be able to finance its
inventories and debtors without much difficulty.
O-"#)%n, "44A"nA& IF the operating efficiency of the firm relates to the optimum
utilisation of all resources at minimum costs. The efficiency in controlling operating costs
and utilising fi#ed and current assets leads to operating efficiency. The use working capital
is improved pace of cash conversion cycle is steelelerated with the operating efficiency.
&etter utilisation of resources improves profitability and thus ,helps in releasing the
pressure on working capital. !lthough it may not possible for a firm to control prices of
material or wages of labour, it can certainly ensure efficient and effective use of its
material ,labour and other resources.
P#A" ."!". A()n,"$ IB the increasing shifts in price level make function financial
manager difficult. 'he should anticipate the effect of price level changes on working
3:
capital re%uirements of the firm. =enerally rising price levels will re%uire a firm to
maintain higher amount of working capital. 'ame levels of current assets will need
increased investment when prices are increasing. .owever companies that can
immediately revise their product prices with rising price levels will not face a severe
working capital problem. 0urther , firms will feel effects of increasing general price
level differently as prices of individual products move differently. Thus it is possible
that some companies may not be affected by rising prices while others may be badly
hit
P'.A"$ 4'# 4n)nAn, %(" A3##"n% )$$"%$
! firm can adopt different financing policies visBa vis current assets . three types of
financing may be distinguished P
"ong term financing @ the sources of long term financing include ordinary share
capital, preference share capital , debenture , long term borrowings from financial
institution and reserved surplus :retained earning;.
'hort termB the short term financing is obtained for a period less than one year. It is
arranged in advanced from banks and other supplier of short term finance in the
money market . short @term finances include working capital funds from banks ,
public deposits commercial paper factoring of receivable etc.
'pontaneous financingB spontaneous financing refers to the automatic sources of
short @term fund arising in the normal course of a business. Trade :supplier; credit
and outstanding e#penses are e#ample of spontaneous financing. There is no
e#plicit cost of spontaneous financing. ! firm is e#pected to utilise these sources of
finance to the fullest e#tent. The real choice of financing current asset ,once the
spontaneous sources of financing have been fully utilised , is between the longB
term and short sources of finance.
D"-"n0n, 'n %(" /? '4 $('#%F )n0 .'n,F%"#/ 4n)nAn, %(" )--#')A( 4'..'>"0 =& )
A'/-)n& /)& =" #"4"##"0 %' )$I
Matching approachBthe firm can adopt a financial plan which matches the e#pected life of
assets with the e#pected life of the source of funds raised to finance assets with the
33
e#pected life of the sources of fund raised to finance a plant e#pected life of ten years R
stock of goods to be sold thirty days may be financed with a thirty @ day commercial paper
or a bank loan. The justification for the e#act matching is that since the purpose of
financing is to pay for assets, the sources of financing and the asset should relin%uished is
e#pensive as funds will not be utilised for the full period. 'imilarly , financing will have to
be made on a continuing basis.
When the firm follow matching approach :also known as hedging approach;,long term
financing will be used to finance fi#ed assets and permanent current asset increases, the
longBterm funds and as level of these assets are financed with long term financing level
also increases. The temporary or variable current asset are financed with short @term funds
as their level increases , the level of short term financing also increases. 1nder matching
plan ,no short term financing will be used if the firm has a fi#ed current assets need only.
,onservative approachB a firm in practice may adopt a conservative approach when it
depends more on long term fund for financing needs. 1nder conservative plan the firm
finances its permanent assets and also a part of temporary current assets with long term
financing. In periods when the firm has no need for temporary current assets, the idle long
term funds can be invested in the tradeable securities to conserve li%uidity. The
conservative plan relies heavily on long term financing and therefore , the firm has less risk
of facing the problem of shortage of funds.
!ggressive approachB a firm may be aggressive in financing the current asset. !n
aggressive policy is said to be followed by the firm when it uses more short term financing
than warranted by the matching plan. 1nder an aggressive policy , the firm finance a part
of current asset with the short term financing. 'ome e#tremely aggressive firm may
even finance the a part of their fi#ed asset s with short term financing.
I$$3"$ n >'#*n, A)-%). /)n),"/"n%
Working capital management refers to administration of all components of working capital
@ cash , marketable securities, debtor :receivable; and stock :inventories; and creditors
:payables ;. The financial manager must determine level and composition of current assets.
It must see the right source tapped to finance current assets, and that current liabilities are
paid in time.
3;
There are many aspect of working capital management which make it an important
function of the financial manager.
Time @working capital management re%uires much of the financial manager As
time.
Investment @working capital represents a large portion of the total investment in
asset.
,ritically working capital management has great significance for all firms but it is
very critical for small firms.
=rowthB the need for working capital is directly related to firm<s growth
L"!". '4 A3##"n% )$$"%$ I $'/" "?)/-." '4 In0)n A'/-)n"$.
C3##"n% )$$"%$ 4'#/ ) $,n4A)n% -'#%'n '4 %'%). )$$"%$ '4 /)n& In0)n A'/-)n"$ .
A'n$0"# %(" 4'..'>n, "?)/-."
:in crores;
MAHINDRA
TECH.
S.L.PVT.LTD. JMB
COMPONENT
OTHER
'ales 6HF5.5 5J6H.6, L6L9.F, 59-9.-
Total asset CH77.J 5CC5.C, 567CF.C, LH9.C
,urrent
asset
LH75.7 LL9.C 55-CL.J, HFL.J
,!DT! LC.H JJ.- HH.6, 6H.-
,!D'!"' 559.J FC.L 59C.L, F-.J
MTH COMPONENTB is a large , well diversified ,private sector marketing @cumB
manufacturing organisation. In 977- the company<s current asset are threeB fourth of total
assets and more than half of sales.
3<
BEST WA1 TECHNOLOG1 is also a diversified company in the private sector.
In 977- ,its current assets are two thirds of total assets and about a third times of
sales.
OTHERB is a joint sector:joint venture between state of =ujarat and private
sector; company manufacturing fertili)ers, industrial products:methanol, formic
acid, nitric acid, ammonium nitrate, li%uid nitrogen etc.; and e%uipment products.
Its current assets in the year 977- are less than half of total assets and H7 percent of
sales.
'.".2=I2*I2=F '.". was started as a large public sector company. its share
have been partly divested now. It has a dominant position in the power sector. Its
manufacturing operations are spread into industrial and transportation sectors also.
! large number of its products are long productions cycle products. The company
As main customer are state electricity boards who fail to pay their due on time.
current asset s in 977F are C7 percent of total asset and 559 percent of sales.
mpirical observation show that the financial managers have to spend much of their
time to the daily internal operations, relating to current assets and current liabilities of
the firms. !s the largest portion of the financial manager<s valuable time is devoted to
working capital problems, it is necessary to manage working capital in the best
possible way to get the ma#imum benefit.
Investment in current asset represent a very significant portion of the total investment
in assets. 0or e#ample , in the case of the large and medium public limited companies
in India current asset constitute about H7 per cent of total assets or total capital
employed. In large company such as '.". current asset as a percentage of total assets
may be as high as say ,C7 percent . above e#ample clearly indicates that the financial
manager should pay attention to the management of current asset continuing basis.
!ctions should be taken to curtail unnecessary investment in current assets.
Working capital management is critical for all firms , but particularly for small firms.
! small firm may not have much investment in fi#ed assets , but it has to invest in
current assets. 'mall firms in India face a severe problem of collecting their
debtors:book debts or receivables;. 0urther the role of current liabilities in financing
current assets is far more significant in case of small firms as unlike large firms, they
face difficulties in raising long term finances.
36
There is a direct relationship between a firm<s growth and its working capital needs. !s
sales grow the firm needs to invest more in inventories and debtors. These need
become very fre%uent and fast when sales grow continuously . the financial manger
should be aware of such needs and finance %uickly. ,ontinuos growth in sales may
also re%uire additional investment in fi#ed assets.
It may , thus , concluded that all precautions should be taken for the effective and
efficient management of working capital. The finance manger should pay particular
attention to the levels current assets and the financing of current assets. To decide the
levels and financing of current assets, the risk @ return implications must be evaluated.
O!"#!"> '4 >'#*n, A)-%). /)n),"/"n% n J.B.M. )n0 BEST WA1 -!%. L%0.
The aim of working capital management is to strike off a balance between 4n)nA).
$%)=.%& )n0 -#'4%)=.%&.$bm.component and best way pvt. "td. working capital
management maintaining both the factors they have financial stability as well as they
generate profit for the business. There working capital management %uite different from
the industry because of their business profile and for the strong financial assistance from
their parent company. !n e#amination of the components of working capital is helpful at
this point because of the preoccupation of management with the proper combination of
assets and ac%uired funds. 0irst , shortBterm ,or current ,liabilities constitute the portion of
funds which have planned and raised. 'ince there management must be concerned with
the proper financial structure, these and other funds must be raised judiciously , if we see
their past performance their deficiency of their fund is very low.
*ecently in their pani pat project they faced some hindrances because of the cyclone their
infrastructure has been destroyed but the losses has been adjusted in cost , although they
reinstall everything actually it is not a loss but cost has been double. &ecause of this
incident they had impact on their entire working capital management therefore
reinstallation make their initial cash outflow increased and also their profit margin from
this milestone has been decreased. In the same project they make a huge tower and
presume that this tower cannot be install in one process so they adjusted their cost in a such
manner, if the fail to do so they wont face any loss but beyond every one e#pectation they
3=
install it in one take and that adjusted cost add in the profit.business needs to invest in
current assets to sustain its business operations
MANA"IN" WORIN" CAPITA!
T#)0" #"A"!)=." /)n),"/"n%
*eceivable management refers to the decision a business makes regarding its overall credit
and collection politics and the evaluation of individual credit applicants. In formulating
an operational credit policy , finance manger must analyse the marginal benefits and costs
associated with change in credit terms ,collection efforts etc. receivable management
proves for a firm , both, an asset and a problem Pan asset because of the promise of a future
cash flow and a problem because of the need to obtain while waiting for the cash flow and
a problem because of need to obtain financing while waiting for the future cash flow. 0irst
a company must decide to sell good on credit. !n affirmative answer will necessitate an
evaluation of the credit . terms which will be consistent with the goal of ma#imi)ing the
value of the company to its shareholder. 3nce an optimum credit policy is determine , the
financial manager must ascertain the effect it will have on sthe company As current asset
re%uirement s.
'teelount receivable are asset steelounts representing amounts owed to the firm as a result
of the sale of goods and services in the ordinary course of business . The value of these
claims is carried on the balance sheet under titles such as steelounts receivable , trade
receivables or customer receivables. The financial manager can add value to the company
As share by properly influencing three areas Pthe company As aggregate invest receivables
its credit term and credit standard . over investment in receivable can costly because the
investment is typically financed by short term borrowing and because it may signal
steeleptance of late paying customers. If the credit term :cash discount and period allowed
for payment;are not competitive when compared to other seller in the same industry or are
misaligned with the product line profitability , they can also diminish shareholder value.
'etting credit standard for customer incorrectly can erode shareholder because of lost
sales:when too stringent;or uncollectible sales: when too lenient ;. When a firm makes an
ordinary sale of goods or services and does not receive payment the firms grants trade
3>
credit and creates steelounts receivable which is collected in the future . this steelount
receivable represent and e#tension of credit to customers, allowing them a reasonable
period of time in which to pay for the goods which they have received . receivable are
significant current assets that must be financed on a continuing basis.
T(" #"A"!)=." /)n),"/"n% -#'A"$$
C#"0% -'.A& !)#)=."$
While analysing the receivable management optimum credit policy is one of the important
aspect. In establishing the an optimum credit policy ,we should consider the important
decision variable which influence the level of receivables. !s stated in the preceding
section ,the major controllable decision variables include the followingP
,redit standard analysis
,redit terms
,ollection policy and procedure
C#"0% $%)n0)#0 are the criteria which a firm follows in selecting customers for the
purpose of credit e#tension. The firm may have tight credit standardsP that is it may sales
mostly on cash basis and may e#tend credit only to the most reliable financial strong
customer .such standards will result in no bab debt losses, and less cost of credit
administration. &ut the firm may not able to e#pand sales. The profit sacrificed on lost
3?
sales may be more than the costs saved by the firm. 3n the contrary if credit standard are
loose , the firm may have larger sales but the firm will have to carry larger receivable. The
costs of administering credit and bad debt losses will also increase, thus the choice of
optimum credit standard involves a trade off between incremental return and incremental
costs.
C#"0% %"#/$ the stipulation under which the firm sells on credit to customers are called
credit to customers are called credit terms. These stipulation include :a; credit period and
:b; the cash discount.
,ollection policy is needed because all customer do not pay the firm<s bills in time. 'ome
customer are slow payers while some are non payer. The collection efforts should,
therefore ,aim at steelelerating collection from slowBpayers and reducing bad debt loses. !
collection policy should ensure prompt and regular collection. Prompt collection is needed
for fast turnover of working capital keeping collection costs and bad debt within limits and
maintaining collection efficiency .*egularity n collection keeps debtors alert, and they
tend to pay their dues promptly. The collection policy should lay down clear cut collection
procedures. The collection procedures for past dues steelounts should be established in
unambiguous terms . the slow paying customers should be handled tactfully . some of them
may be permanent customer. The collection process imitated %uickly without giving any
chance to them , may antagonise them and the firm may lose them to competitor. The
responsibility for collection and follow up should be e#plicitly fi#ed.
R"A"!)=." /)n),"/"n% =& J.B.M. )n0 BEST WA1 -!%. L%0.
Trade credit creates steelount receivable while in case of $.&.M. and &'T W!( pvt. "td.
they belief in smooth running transaction without create any ambiguity to their customer.
&asically they worked on big infrastructure project where regular recipient of payment is
very important otherwise it put effect on work and increase the completion date therefore it
create loss for both the party. "ikewise there ongoing project in pani pat is about 5977cr.
This 5977cr is divided in several parts means several milestone like making the shade,
installation of machinery, ,onstruction of building etc ,and in this payment also divided
steelording to the steelomplishment of the milestone. !s soon as they as achieve the
;0
milestone they get payment, so that the over dues would not be their and smooth pattern
would be maintain .
While discussing about the credit standard they provide a general credit standard to their
client that is 5FB-7days in ground of major problem although the firm have tight credit
standard, such credit standard will no result bad debt losses and less cost of credit
administration, and also they don<t have fear of reduce sale because they don<t have major
competitor in India ,there is no chance of sacrificing on profit because of lost sales and
also costs saved by the firm.
$.&.M. and &'T W!( pvt. "td. main agenda is to be cost effective that<s why they used
to steelomplish their milestone before time ,so they would make a good reputation in
market and there client would never create any %uestion while making payment .
8efault risk is the like hood that a customer will fail to repay the credit obligation .on the
basis of past practice and e#perience, the financial or credit manger should be able to form
a reasonable judgement regarding the chances of default . To default the financial risk
j.b.m. and best way pvt. "td. manager consider:a; character:b;capacity:c; condition.
,haracter refer to the customer As willingness to pay. The financial
or credit manager should judge whether the customer will make
honest effort to honour their credit obligations. The moral factor is
of considerable importance in credit evaluation in practice.
,apacity refers to the customer<s ability to pay can be judged by
assessing the customer<s capital and assets which mat be offer as
security .capacity is evaluated by the financial position of the firm as
indicated by analysis of ratios and trends in firms cash and working
capital.
,ondition refers to the prevailing economic and other condition
which may affect the customer<s ability to pay . !dverse economic
condition can effect the ability or willingness of a customer.
$.b.m. and best way pvt. "td. faced default risk in the situation of any steelident happened
in the place of work. It may be happen de to the natural calamities or technical fault. While
they treated as business loss in the financial statement.
;1
'teelording to the j.b.m. and best way pvt. "td. regulation if the completion of project get
delayed ,means the failed to steelomplished their project with in the due date the li%uidity
damage has been deducted by their client.
If they steelomplish their project before time they would be awarded by the bonus from
their client. likewise they done in the petrochemical project of 'audi !rabia ,they got
*'5Fmillion bonus and most of them had been distributed among their employees and rest
they treated as retain earning :fi#ed deposit in bank;.while in case of their ongoing pani
pat project they covered C7U of their milestone means all the installation of machinery
have been completed only testing are going on and they are doing their working three
month advance , in this project they will get bonus .
B'n3$ )0B3$%/"n%
If j.b.m. component and best way ltd. got delayed for completion of project then , per week
.7FU li%uidity damage has been deducted by their client .9U per week has been given as a
bonus if they done their project in advance means before completion time, a minimum gap
would be their like in case of three year contract they have to complete minimum three
month advance. &onus is calculated over and above the contract value and also it is treated
as a income from other sources in the balance sheet.
Most of their transaction is transaction but in some special case like they re%uired a
immediate payment which is not scheduled earlier in such case they prefer to receive in
cash so that transaction would made more faster, while same thing happen when they are
making payment to their suppliers.
A,n, $A("03."
The aging schedule removes one of the limitation of the average collection period. It
breaks down receivable steelording to the length of time for which they have been out
standing. While in case of j.b.m.component and best way ltd. they have tight credit
standard so their average collection period would strictly maintain ,means payment must
be receive within the 9F to -7 days. $bm.component and best way ltd. gets payment
L7Uon the same month and 97U in the ne#t month. This process of receiving payment is
possible because they do heavy and long run project. F!" #")$'n 6>(& 0' %(" B=/
A'/-'n"n% )n0 ="$% >)& .%0. ()!" %,(% A#"0% $%)n0)#0
;:
,ompetition B generally the higher degree of competition ,the more credit granted by
the firm. however the firm like jbm component and best way ltd. who very less
competitor not only in India but also in world they wouldn<t prefer to granting credit.
,ompany bargaining power @ if company have a higher bargaining power vis Ba @vis
its buyers, it may grant no or less credit . jbm component and best way ltd. have strong
bargaining power because they provide industrial facilities such as fertili)er ,petroleum
refining and petrochemical plants all this project are heavy project it can be
steelomplish without government intervening so they don<t have competitor although
"arsen ?turbo is their who actually provide kind of this industrial facilities but they are
not the perfect competitor of jbm component and best way ltd. ,it will help jbm
component and best way ltd. to create a monopoly another factor is the brand name
/'amsungV it is the part of 'amsung group and one of the +orea<s leading company.
&uyers re%uirements @ jbm component and best way ltd. provide industrial facilities in
this type of case completion of work is very important otherwise client would have
heavy loss. If the client would e#tend the credit period thus 'amsung also failed to
make payment to their supplier? employees thus project get delayed although those
project are related to huge amount so regular payments must be made.
&uyers statusBlikewise their ongoing project in pani pat is a petrochemical project by
I3," so it is a big giant and every work are interrelated with each other so they prefer
to make payment in scheduled dates. I3," would provide bonus if jbm component and
best way ltd. do their in advance likewise 'amsung is e#pecting to steelomplish this
project in three month advance and would receive bonus for that.
Marketing toolBcredit is used as a marketing tool ,but in case of jbm component and
best way ltd. it belong from renowned group so that why they don<t re%uire any
support of credit to increase their popularity.
In!"n%'#& M)n),"/"n%
Inventories constitute the most significant part of current assets of a large majority of
companies in India .on an average inventories H7 percent of current assets in public limited
companies in India. &ecause of the large si)e of inventories maintained by firms, a
considerable amount of funds is re%uired to be committed to them . it is ,therefore
,absolutely imperative to manage inventories efficiently and effectively in order
;3
unnecessary investment. ! firm neglecting the management of inventories will be
jeopardising its longBrun profitability and may fail ultimetaly . it is possible for a
company to reduce its level of inventories to a considerable degree ,e.g 57to 97 percent
,without any adverse effect on production and sales by using simple inventory planning
and control techni%ues. The reduction in e#cessive inventories carries a favourable impact
on a companyAs profitability.
Inventory Management and Inventory ,ontrol must be designed to meet the dictates of the
marketplace and support the companyIs strategic plan. The many changes in market
demand, new opportunities due to worldwide marketing, global sourcing of materials, and
new manufacturing technology, means many companies need to change their Inventory
Management approach and change the process for Inventory ,ontrol.
O=B"A%!" '4 n!"n%'#"$ /)n),"/"n%
To maintain a large si)e of inventories of raw material and workBinBprogress for
efficient and smooth production and of finished goods for uninterrupted sales
operations.
To maintain a minimum investment in inventories to ma#imise profitability.
In!"n%'#& A'n%#'. $&$%"/$
! firm needs an inventory control system to effectively manage its inventory. There are
several inventory control systems in vogue in practice. They range from simple systems to
very complicated systems .the nature of the business and si)e dictate the choice of an
inventory control system. 0or e#ample , a small firm may operate a twoBbin system .under
this system , the company maintains two bins. 3nce inventory in one bin used, order is
placed, and mean while the firm uses inventory in the second bin. 0or a large departmental
store that sell hundreds of items, this system is %uite unsatisfactory. The departmental
store will have to maintain a self operating, automatic computer system for tracking the
inventory position of various items and placing order .
ABC n!"n%'#& A'n%#'. $&$%"/Blarge numbers of firms have to maintain several
types of inventories. It is not desirable to keep the same degree of control on all the
items. The firms should pay ma#imum attention to those items whose value is the
highest. The firm should therefore , classify inventories to identify which items
;;
should receive the most effort in controlling. The firm should be selective in its
approach to control investment in various types of inventories.
J3$%Fn K%/" (B%)$&$%"/$B $apanese firms popularised the justBinBtime :jit;system
in the world. In a $IT system material or the manufactured components and parts
arrive to the manufacturing sites or stores just few hours before they are put to use.
The delivery of material is synchronised with the manufacturing cycle and speed.
$IT system eliminates the necessity of carrying large inventories, and thus saves
carrying and other related costs to the manufacturer. The system re%uires perfect
understanding and coordination between the manufacturer and supplier in terms of
the timing of delivery and %uality of the material. Poor %uality material or
components could halt the production. The $IT inventory system complements the
total %uality management. The success of the system depends on how well a
company manages its suppliers. The system put tremendous pressure on suppliers.
They will have to develop ade%uate system and procedure to satis factory meet the
needs of manufacturer.
O3%$'3#An,Fis a system of buying parts and components from outside rather than
manufacturing internally. Many companies develop a single source of supply , and
many others help developing small si)e suppliers of components that they re%uire.
Tata motors has for e#ample developed number of ancillary units around its
manufacturing sites that supply parts and components to its manufacturing plants.
C'/-3%"#$"0 n!"n%'#& A'n%#'. $&$%"/$B a computerised inventory control
system enables a company to easily tracks large items of inventories. It is an
automatic system of counting inventories , recording withdrawals and revising the
balance. There is an inBbuilt system of placing order as a computer notices that the
reorder point has reached.
In!"n%'#& /)n),"/"n% =& B.=./. A'/-'n"n% )n0 ="$% >)& .%0.
Inventory management is concerned with keeping enough product on hand to avoid
running out while at the same time maintaining a small enough inventory balance to allow
for a reasonable return on investment. Proper inventory management is important to the
financial health of the corporation. #cessive level of inventory, however ,results in large
inventory carrying costs, including the costs of the capital tied up in the inventory
warehouse fees , insurance etc. while after considering all this factor jbm component and
;<
best way ltd. decide to follow justBinBtime techni%ue for managing their inventory. *eason
for choosing justBinBtime techni%ue are as followsP
While j.b.m. component and best way ltd. usually work on heavy projects and all
the projects are different in nature so their re%uirements are different from each
other , that<s why It is not a continuos process.
2o storage
This is not a manufacturing organi)ation all item are one time purchase.
T(" n!"n%'#& /)n),"/"n% -#'A"$$ 4'..'>"0 =& B.=./. A'/-'n"n% )n0 ="$% >)&
.%0.
$bm.component and best way ltd. provides industrial service to the refinery , gas ,
petrochemical plant though all this project are heavy project involvement of fund
is also very high, that<s why for being more cost effective and %uote low prices to
their customer $bm.component and best way ltd. prefer to use justBin @time
techni%ue for management of their inventory. &ecause of this they have to
purchase si)eable imported raw materials and compulsory bulk purchases of items
like steel and construction item.
The %uestion arises about the availability of raw material , for that 'amsung have
safety plan like In case of their ongoing pani pat project their client I3," gave few
option steelording to that 'amsung choose supplier, likewise preference would be
given steelording to the best price %uoted by the supplier. 'amsung find out the
actual time when material would re%uired, means they divide the work in several
milestone and they placed order for all the material in the beginning of the project
but they take delivery steelording to the milestone or actually when they
re%uired . $bm.component and best way ltd. issue letter of Indian to the supplier.
$bm.component and best way ltd. know actually how much time they re%uire to
complete a specific milestone steelording to that they placed order, in case they
re%uire material in month of 8ecember then they put up a notice in month of
2ovember. Two three day variation would happen then supplier would keep the
material in his own place.
!part from that $bm.component and best way ltd. derive some new techni%ue under
the heading of $IT, which is E1 T#)n$)A%'n7 H,( S") S).". E1 %#)n$)A%'n is
applicable for the
;6
domestic procurement of raw material , for an e#ample there are three party jbm.
com and best way ltd.8".I,I3," P!2I P!T,?'!I" +3"+!T!, when sail
despatched the raw material they have to charge sales ta# , if 'amsung would
receive the raw material and put it in his own warehouse then send to the I3,"
again 'amsung would have to charge sales ta# means same item ta# twice
automatically cost has been increase. 0or that reason 'amsung took delivery to the
sail in the middle 'amsung employee endorsed and despatched to the I3," paniB
pat ,'amsung would not posses any material in his own warehouse like this way
warehouse e#pense of $bm.component and best way ltd. have been save and also
they avoid double ta#ation. In case of imported raw material they follow H,( S")
S)." T#)n$)A%'n6 for an e#ample a &ra)ilian supplier in favouring the
representative of $bm.component and best way ltd. of high sea sale agreement with
the &ra)ilian company to transfer the ownership to I3,". once the material landed
in Indian port all the ta#es paid by I3,".
!n inventory monitoring cell has been constituted at the corporate offices.
The purchases were controlled by the materials management group reporting to the
director of finance .
Monthly review of total inventory at the level of chief e#ecutive of plants and
corporate management is introduced.
Inventory control is dovetailed with the budgeting system
Top 577 inventory items were identified for closer scrutiny and control.
In!"$%/"n% n n!"n%'#"$
In managing the inventories, the firmAs objective should be in consonance with
shareholders wealth ma#imisation principle. To achieve this , the firm should determine the
optimum level of inventory . fficiently controlled inventories make the firm fle#ible.
Inefficient inventory control result in unbalanced inventory and infle#ibility @ the firm may
sometimes run out of stock and sometimes may pile up necessary stock. This increases the
level of investment and make firm unprofitable.
To manage inventories efficiency ,answer should be sought to the following two
%uestionsP
;=
.ow much should be orderedQ
When should it be orderedQ
While in case of $bm.component and best way ltd. when should it to be ordered considered
to be more important ,because of uncertainty and is a problem of determining the reBorder
point. 3ne of the major inventory management problems to be resolved is how much
inventory is replenished. If the firm is buying raw materials, it has to decide lots in which it
has to be purchased on replenishment. If the firm is planning a production run , the issue is
how much production to schedule, these problems are called order %uantity problem.
8etermining an optimum inventory level involves two types of costsP:a;ordering costs:b;
carrying cost.
O#0"#n, A'$% is includes the entire costs of ac%uiring raw material. They include cost
incurred in ordering , transporting, receiving, inspecting ? storing. In case of jbm.
,omponent and bes tway ltd. ,their transporting costs would be adjusted in material cost
or they pay separately to their vendor. 3rdering costs increase with the number of ordersR
thus the more fre%uently inventory ac%uired ,the higher the firms ordering costs.
$bm.component and best way ltd. placed order steelording to their milestone so it is
difficult to identify their ordering costs.
C)##&n, A'$%$ incurred for maintaining a given level of inventory. This include storage
,insurance ,ta#es. $bm component and best way ltd. used to paid ta# addition to their
material cost, they usually pay custom duty, 0&T, service ta#, e#cise duty, vat.
T#)0" -)&)=." /)n),"/"n% =& B=/. A'/-'n"n% )n0 ="$% >)& .%0.
$bm component and best way ltd. payment system is based on 0I03 basis. !lthough they
have certain procedure for making payment ,they divide their vendor like international?
national basis.
F'..'>n, $%"- >'3.0 =" /)n%)n"0 =& %(" >(." /)n),n, %#)0" -)&)=.".
They familiari)e with their vendors, then they decide the time when actually
material has been utili)e steelording to that the time of delivery. &ased on material
re%uired they gave advance to their supplier ,advance would made 57Uto5FU.
;>
3nce the material is despatched to the site ,'amsung installed it and commission
the material after successful installation, they bill to the customer as per the term
money received by 'amsung that is generally -7to J7 days.
In case of their imported material they pay through letter of credit procedure is
banker given assurance to the vendor then depend upon viability state bank would
allot letter of credit, it is not necessary that only state bank can issue letter of credit
but there would be mutual agreement while choosing bank , if they have large
amount in some bank that bank would gave more preference. In case of domestic
supplier all the payments would be done on cash.
While negotiating the prices to the vendors at the beginning the payment term
generally finali)ed .
! recent e#ample of there payment system ,they are making three watch tower in
pani pat project, they complete their work in scheduled time but they get payment
for second watch tower then they would make payment to those vendor only who
supply material to the second watch tower. If they failed to receive the payment for
first ?third watch tower then the raw material supplier have to wait till the
payment receive but within -7days $bm.component and best way ltd. have to make
payment to their supplier and if their client failed to make payment for this specific
task then they have to pay by their own.
C)$( /)n),"/"n%
,ash is a important current asset for the operation of the business. ,ash is the basic input
needed to keep the business running on a continuos basis R it is also the ultimate output
e#pected to be realised by selling the service or product manufactured by the firm. The
firm should keep sufficient cash, neither more nor less. ,ash shortage will disrupt the
firm<s manufacturing operations while e#cessive cash will simply remain idle, without
contributing anything towards the firms profitability. ,ash is the money which a firm can
disburse immediately without restriction. The term cash includes coins , currency, and
che%ues held by the firm , and balances in its bank steelounts. 'ometimes near cash
;?
items ,such as marketable securities or bank times deposits ,are also included in cash. The
basic characteristics of nearBcash assets is that they can readily be converted into cash.
=enerally , when a firm has e#cess cash ,it invests it in marketable securities. This kind of
investment contributes some marketable securities. This kind of investment contributes
some profit to the firm.
management is concerned with the managing of P:5;cash flows into and out of the firms,
:9;cash balances held by the firm at a point of time by financing deficit or investing surplus
cash. It can be represented in the cash management cycle.
C)$( M)n),"/"n% C&A."
,ash management is also important because it is difficult to predict cash flows steelurately
,particularly the inflows ,and there is no perfect coincidence between the inflows and
outflows of cash. during some periods, cash flow steelurately ,particularly the inflows and
outflows of cash. 8uring some period ,cash outflows will e#ceed cash inflows ,because
payment for ta#es ,dividend or seasonal inventory build up. !t other times , cash inflow
will be more than cash payment because there may be realised in large sums promptly.
0urther , cash management is significant because there may be large cash sales and
<0
debtors may be realised in large sums promptly. 0urther , cash management is significant
because cash constitutes smallest portion of the total current assets , yet management As
considerable time is devoted in managing it. In recent past , a number of innovation have
been done in cash management techni%ues. !n obvious aim of the firm these days is to
manage its cash affairs in such a way as to keep cash balance at a minimum level and to
invest the surplus cash in profitable investment opportunities. In order to resolve the
uncertainty about cash flow prediction and lack of synchronisation between cash receipts
and payments, the firm should develop appropriate strategies for cash management. The
firm should evolve strategies regarding the following four facts of cash management.
C)$( -.)nnn, @ cash inflows and outflows should be planned to project cash
surplus or deficit for each period of the planning period. ,ash budget should be
prepared for this purpose.
M)n),n, %(" A)$( 4.'>$B the flow of cash should properly managed. The cash
inflows should be steelelerated while as far as possible , the cash outflows should
be decelerated .
O-%/3/ A)$( ."!"l @ the firm should decide about the appropriate level of cash
balances deficiency should be matched to determine the optimum level of cash
balances.
In!"$%/"n% '4 $3#-.3$ A)$( @the surplus cash balances should be properly invested
to earn profits. The firm should decide about the division of such cash balance
between alternative short term investment opportunities such as bank deposits,
marketable securities, or interBcorporate leading.
C)$( /)n),"/"n% n J=/.A'/-'n"n% )n0 ="$% >)& .%0.
,ash is the lifeblood of a business firm, it is needed to ac%uire supplies, resources,
e%uipment, and other assets used in generating the product and service provided by the
firm. It is also needed to pay wages and salaries to workers and managers. Ta#es to
government , interest and 3bjectives to creditors and dividends to shareholders. More
fundamentally , cash is the medium of e#change which allows management to carry on the
various activities of the business firm from day to day. ,ash is a important aspect of
<1
business but more is managing it so every company have it own techni%ue . The $bm
component and best way ltd. strategies regarding the following four facts of cash
management.
,ash planning B $bm component and best way ltd. makes cash planning steelording
to their projects, like in case of their pani pat project ,they considered it to be long
term project and cash flow is systematic. !nother project which I took as a
e#ample is considered to be a scattered project , because it is not a single long term
project. &asically head office +orea globally participating ,when they are biding
somewhere they gave order to 'amsung India for to make drawing ? proposal.
3nce $bm component and best way ltd. korea received order then they gave order
to the $bm component and best way ltd. India for making further industrial facility
as per the terms $bm component and best way ltd. India received payment from
$bm component and best way ltd. +orea. While for further clarity I made the cash
budgeting for these one project.
Managing the cash flowB the flow of cash should properly managed. The cash
inflows should be steelelerated while as far as possible , the cash outflows should
be decelerated , $bm component and best way ltd. cash flows are %uite fi#ed in
nature because they prefer to do heavy ?long term project , where payment are
received steelording to the completion of the work ,usually they divide their work
in several milestone and steelording to the completion of milestone they receive
payment from their client. !part from that they get full financial assistance from
their parent company $bm component and best way ltd. +orea , its help them to
make their cash flow more viable. In the same they maintain their cash outflow
,they prioritise their payment first is statutory payment, second is employees
salaries ,third is administrative e#penses and fourth one is vendors and others. In
this way the make balance in their outflow they never face cash deficiency because
of their viable strategies and full support from their parent company.
Investment of surplus cashB it<s a two way process ,when they are taking help from
their parent company ,in return they also providing them assistance when they
re%uired. $bm component and best way ltd. different system for proper utili)ation of
surplus cash like In4' -''. $&$%"/ in this system $bm component and best way ltd.
India send all the bank detail mean level of cash, flow of payment system ,surplus
cash for the particular period to the citi bank us then $bm component and best way
<:
ltd. korea would steeless it easily. If $bm component and best way ltd. korea
re%uired any fund they check from the citi bank and then they tell to $bm
component and best way ltd. India for fund and they get as a loan. !part from that
if any branch of $bm component and best way ltd. re%uire any cash then another
branch is having surplus they can mutually transacted and after that they return to
each other. 0or making investment plans they having strategic planning department
in their head office.
W'#*n, C)-%). Fn)nA" =& B=/. A'/-'n"n% )n0 ="$% >)& .%0.
#ternal funds available for a period of one year or less are called short @term finance. In
India short @term sources funds are used to finance the working capital. Two significant
shortBterm sources of finance working capital areP trade credit and bank borrowing. The
use of trade credit a has been increasing over a years in India. Trade credit as a ratio of
current assets is about J7 percent. &ank borrowing is the ne#t important source of working
capital finance. &efore seventies, bank credit was liberally available to firms. It became a
restricted resource in eighties and nineties because of the change in the government
prescribed norms in financing working capital re%uirement of firms. 2ow there are no
<3
government norms, and banks are free to take business decisions in granting finance for
working capital.
$bm component and best way ltd. follows several techni%ue to finance their working
capitalP
!lthough they have viable financial structure ,but when they start new project they
take initial advance from their customer percentage depend upon the contract value.
'amsung faced default risk in the situation of any steelident happened in the place
of work. It may be happen de to the natural calamities or technical fault. 0or that
particular situation they took loans ?advances from their head %uarter so the flow
of working capital would be maintain .
$bm component and best way ltd. take overdraft in rare cases ,when head %uater
failed to provide them and they re%uire fund in short notice then only take overdraft
and they never cross their overdraft limit.
Their fund flow has been planned in centrali)ed manner and that<s why hardly they
faced financial deficiency in the organi)ation.
OBJECTIVES6 SCOPE 7 LIMITATIONS
OBJECTIVEPThe main objective of my research that how $.&.M and &'T W!( pvt.ltd.
maintain the proper balance between the amount of current assets and the current liabilities
in such a way that the firm is always able to meet its financial obligations, whenever due.
This will ensure the smooth working of the unit without any production held ups due to
paucity of funds and also how $.&.M. and &'T W!( pvt. "td. manage the current assets
in such a way that the marginal return on investment in these assets is not less than the cost
of capital ac%uired to finance them. This will ensure the ma#imi)ation of the value of the
business unit.
Working capital management in $.&.M. and &'T W!( pvt. "td. is seem to be different
and also effective as comparison other metal firms in India. *eason for being different is
<;
their nature of business and implementation of new techni%ue which help them to smooth
flow of the fund.
Performance of $.&.M. and &'T W!( pvt. "td. +orea and India both are affluent. Their
mi#ed corporate culture and the area of e#pertise in metal processing construction
contract help them to get succeed in every project.
Working capital objectivesP
$bm component and best way ltd. aims to maintain its position as a worldBclass company,
devoting their human resources and technology to create superior products and services,
while contributing to a greater society for everyone. To this end, they share and pursue
core valuesP People, #cellence, ,hange, Integrity, and ,oBprosperity. !s part of an effort
to reali)e these values, they will also adhere to 'amsung<s &usiness Principles. This
represents not only our promise to comply with the law and good ethical practices, but also
a concrete commitment to these values. 'amsung<s &usiness Principles will serve as every
employee<s guiding principles at the company, as they outline the conduct e#pected of all
workers both individually and collectively.
O=B"A%!"$ 1 W $bm component and best way ltd. comply with the law and ethical
standards. They respect the dignity and diversity of individuals. they compete fairly,
complying with the law and business ethics.they maintain steelounting transparency by
keeping steelurate records. They do not intervene in politics and instead maintain a neutral
instance on all political issues.
O=B"A%!"$ 2 W $bm component and best way ltd. maintain an honest organi)ational culture
in all business activities. They draw a strict line between public and private affairs. they
protect and respect the intellectual property of the company and others. They do their
utmost to create a healthy organi)ational atmosphere.
O=B"A%!"$ 5 W $bm component and best way ltd. respect customers, shareholders and
employees. They place customer satisfaction as the top priority in their business activities.
They focus on shareholder value they endeavor to improve employees< %uality of life.
<<
O=B"A%!"$ 4 W $bm component and best way ltd. care for the environment, health and
safety. They engage in environmentally friendly management practices. They value
peopleIs health and safety.
O=B"A%!"$ 8 W $bm component and best way ltd. are a socially responsible corporate
citi)en. They actively perform their duties as a corporate citi)en. They respect the
characteristics of local customs, culture, and society, while striving to prosper alongside
local communities. They build winBwin relationships with business partners.

SCOPEI working capital management is very important aspect in running a business
house successfully ? smoothly on daily basis and on long term basis. 'o in depth
knowledge of working capital management give us idea how to utilise the funds so that
cash asset can be utilised in best manner without any obstacles on business operation.
The study of working capital enable us the recognise the need of future capital ? study
tells us how to utilise it in best manner. The purpose of the report is to get the in depth
understanding of the process of working capital management. With the growing Indian
economy and the liberal government policies for infrastructure, the demand for MT!"
services is increasing and seeing this as an opportunity is under taking many new projects
for e#pansion of the production which are under implementation for increasing the
capacity of the plants. $bm.component and best way pvt. "td. world recognised MT!"
company so the management of working capital consist of different of new techni%ue
which is not common in Indian MT!" industry.
"IMIT!TI32' 30 T. 'T18(
B3$& SA("03." '4 C'nA"#n"0 E?"A3%!"$I The concerned e#ecutives were having very
busy schedule because of which they were reluctant to give appointment.
T/"I The time duration could not provide ample opportunity to study every detail
of working capital management of the company.
Un)>)#"n"$$I #ecutives were unaware of many terms related to working capital
study while asking to them.
<6
C'n40"n%). In4'#/)%'nI !s the company on steelount of confidential report has
not disclosed some figures. Moreover, in some cases separate steelounts of division
are not separately maintained thereby, leading to restrictions in study.
'econdary data usedP This project is completed by using secondary data.

<=
REVIEW OF LITERATURE
Working ,apital Management is very important aspect of financial management. Working
capital need on daily basis for smoothly running a business house. so, procurement ?
proper availability of working capital is very important in every business. >arious studies
and research has been on this industry by e#perts. .ere are the lists of few books that have
been referred to for the purpose of the study.

<>
RESEARC- MET-ODO!O"Y
*esearch methodology consist of mode of data collection or generation and type of
analysis of data. 8ata collection methods consist of primary collection, secondary
collection, %ualitative data and %uantitative data. while primary data consist of 3riginal
data collected for a specific research goal like 4uestionnaire surveysR InterviewsP formal or
structured. Then secondary data consist of data originally collected for a different study,
used again for a new research %uestion like Published statistics , Published te#ts ,
documents, forms reports.
!nother part is 4ualitative data and 4uantitative data. While %ualitative 8ata involving
understandings of the comple#ity, detail and conte#t of the research subject, often
consisting of te#ts such as interview transcripts and field notes, but also audiovisual
material and %uantitative 8ata that can be described in terms of objects, variables and their
values
In regarding my research work I was strictly relied upon the primary and secondary
method of data collection. Primary research consist of collection the financial information
to the respective individuals of the company, through in depth interview and study of
different financial statement of the company. While my half of the thesis is relied on the
primary data collection as my internal guide is a general manager of finance in jbm.
,omponent and best way pvt ltd. so through in depth interview of my guide is one of my
important source of data collection and in the same way he used to provide all the
relevant statement of the company which I can follow and make analysis of it.
While my secondary research consist of collection of data about the brief introduction of
the company ,their ranking in the market ,condition of their e#isting project from the
different website ,company brochure, yearly company maga)ine. !part from the
information about company , I collected information about working capital management,
how different companies managing their working capital , different aspects of working
capital management.

<?
R"$")#A( D"$,nI
The research design used in this study is 0"$A#-%!".
S)/-.n, P#'A"03#"F The sampling procedure consists ofP
P#'=)=.%& '# #)n0'/ $)/-.n,F mployees are selected for study using
probability sampling. It is one in which each and every unit of the population has
an e%ual chance of being selected into the sample.
N'nF-#'=)=.%& '# n'nF#)n0'/ $)/-.n,F Managers are selected for study using
2onBprobability sampling. In this the chance of including an elementary unit of
population in the sample cannot be determined and hence they do not lend
themselves to a statistical treatment and analysis.
60
DATA COLLECTION AND ANAL1SIS
METHODS OF DATA COLLECTIONI F
'econdary sources of data collection was used for the study of working capital
management at $bm component and best way pvt. "td.
THE PRIMAR1 SOURCES OF DATA COLLECTION
8ata observed or collected directly from firstBhand e#perience is called primary data.
'ources to collect Primary data are throughP
&y administering the %uestionnaireR
&y nonB participative observationR
&y face to face discussions R
THE SECONDAR1 SOURCE OF DATACOLLECTION
!vailable records
!nnual reports
,ompany maga)ines, etcX.
THE SCOPE OF THE SURVE1I F
The survey will be conducted at 'amsung limited 0aridabad. This survey is related to study the
working capital management 'amsung limited 0aridabad. The study is confined to only one
company so that, it has limited scope for getting more knowledge.
61
.#Amo$nt o/ 0orking *apital in 1i2erent 'ear%.
Year% :00=B0> :00>B0? :00?B10 :010B
11

3#4#m#*omponent(in
*rore%, 1=1 :;6
31> :>>
Interpretation:
I )o+". %h!% #" %he 2e!r :00=B0> 3or5#" (!&#%!, 3!* 1=1.=>
(rore* 3h#,e #" 2e!r :010B11 #% 3!* :>>.33 (rore*.
5# T'pe o/ 0orking *apital $%e1 in 34m#*omponent
an1 4e%t 0a' lt1#
Per-!"e"% Te-&or!r2
=;C :6C
6:
:00=B0> :00>B0? :00?B10
:010B11
:>.
Interpretation:
O+% o) %o%!, 3or5#" (!&#%!, o) %he (o-&!"28 =;C #*
&er-!"e"% !". :6C #* %e-&or!r2 3or5#" (!&#%!,.
6# Met&o1 $%e /or Material 1i%pat*&:

Interpretation:
Re*+,% *ho3* %h!% -o*% o) %he %#-e* (o-&!"2 !.o&% LEFO
-e%ho. %o #**+e #"/e"%or2. A". )or o%her %2er* (o-&!"2 !,*o
+*e FIFO -e%ho. . 0+% *o-e%#-e* (o-&!"2 !,*o !&&,2 HIFO 1
o%her -e%ho.* %o- *+&&,2 #"/e"%or2
Met&o1 FIFO LIFO HIFO O%her
Re%pon1
ent%
789
1< :0 10 <
63
:# Time perio1 o/ *olle*ting ra0 material /rom
%$pplier#


Interpreattion:
Co-&!"2 e% r!3 -!%er#!, )ro- #%* *+&&,#er* h!,) 2e!r,2 30C8
3;C -o"%h,28 ::CD+!r%,2
11; C 2e!r,2 *o-e %#-e*.
;# So$r*e% to rai%e <nan*e /or 0orking *apital:
Time
Perio1
Mo"%h,2 H!,)
Ee!r,2
F+!r%er
,2
Ee!r,2
Re%pon1e
nt
789
3; 30 :: 1;
6;


Interpretation:Ae"er!,,2 (o-&!"2 r!#*e )+".* %hro+h
o3"e. 1 0orro3e. )+".* 1 !,*o %hro+h o%her *o+r(e* !,*o.
=# Co%t in*$rre1 /or maintaining Re*ei>a4le%:
So$r*e% o/
Finan*e
O3"e.
F+".
Borro3e.
F+".
O%her
*o+r(e*
Bo%h 1 1
:
Re%pon1ent
789
= 10 = =6
Co%t Co*% o)
9"!"(#"
Co*% o)
(o,,e(%#o"
B!.
.e0%
O%her
Co*%
Re%pon1en
t
789
;0 10 10 ;0
6<
Interpretation
For -!#"%!#"#" re(e#/!0,e* (o-&!"2 h!/e %o #"(+rre. !,, %2&e
o) (o*% #.e. (o*% o) 9"!"(#" 8 (o*% o) (o,,e(%#o"8 0e. .e0% (o*%
1 o%her %2&e o) (o*%.
=. Te*&ni?$e $%e /or in>entor' management#

Interpretation
Te*&ni?
$e
ABC
A"!,2*#*
VED
A"!,2*#*
F#7!%#o" o)
EOF
GEH
A"!,2*#*
Re%pon1
ent
789
30 :> :0 ::
66
For *&!re &!r%* oo.2e!r #".#! !re #" +*e. .(o-&!"2
(,!**#9e. *&!re &!r%* !* VITAL(V) ESSENTIAL(E) !".
DESIRABLE(D) APPLE ::C 1 !,*o +*e ABC !"!,2*#* 1 !,*o +*e
EOF 1 GEH !"!,2*#*.
>. Cre1it pa'ment perio1

Interpretation
Co-&!"2 &!#. %o #%* (re.#%or* h!,) 2e!r,2(<0C)o) #%* (re.#%8
:6C 2e!r,281;C D+!r%er,2 o) #%* .e0%*110C-o"%h,2
Time
Perio1
Mo"%h,2 H!,)
Ee!r,2
F+!r%er
,2
Ee!r,2
Re%pon1e
nt
789
10 <0 1; :6
6=
FINDINGS OF THE STUD1
3pportunities are given for advance metal.
3rgani)ation makes their employees feel that their work is important for the
organi)ation, if working capital management rate is higher..
mployees are given opportunity to look ways to stream line process and them more
efficient which acts as a motivator for them.
3rgani)ation recogni)es contribution made by individuals by programmes using
working capital management.
I noticed that working capital management plays a very important role in employee
relations.
I4 >" ()!" $344A"n% >'#*n, A)-%). n )n& 4#/ 6% /)*"$ ,''0 #".)%'n$(- >%(
$3--."#$ %(#'3,( %/".& -)&/"n% %' %("/.
D#/#.e". .#*%r#0+%e* re+,!r,2 0e%3ee" *h!reho,.er*
3#%h e"o+h 3or5#" (!&#%!,.
I.e!, 3or5#" (!&#%!, r!%#o he,&* #" e!*2 ,o!"* )ro- 0!"5*.
6>
CONC!USION AND
SU""ESTION
The overall performance of $bm.component and best way ltd. is getting on a good track.
The total turn over of the company also increased in good phase and that they will achieve
their vision of global leader in MT!" by obtaining new order worth 1'897 billion and
revenue 5F billion by 975F.if we see their e#pansion plan when they came to they decided
to do only heavy project which have government intervention but now they change their
decision and started doing some small projects also. 3nly for e#pansion in India is the
competitive advantage because they don<t have perfect competitor in Indian market. 0or
taking care the vision and objective they have the best man power and technology in their
organi)ation. $bm.component and best way is committed to becoming the most reliable
business partner catering the needs with the best %uality and seamless services driven by
the attitude of genuinely caring customer and it also reflect in their five business principle
$bm.component and best way ltd. working capital management is smooth because of the
implementation of new techni%ue which is more improvised and avoid the ambiguity.
There overall projection of help them to maintain the flow of fund in their organi)ation. If
go through their trade receivable management , they worked on big infrastructure project
where regular recipient of payment is very important otherwise it put effect on work and
increase the completion date therefore it create loss for both the party. They worked in
milestone basis so hardly they face any over dues and payment would be receive smoothly.
since they have tight credit standard it help them to avoid bad debt and losses. There main
agenda is being cost effective so they try to complete their work before time. 0or before
6?
completion they receive bonus from their client .&onus is calculated over and above the
contract value and also it is treated as a income from other sources in the balance sheet.
While their aging sechdule they gets payment L7 percent on the same month and 97U .
This process of receiving payment is possible because the do heavy and long run
project.There payment system is based on 0I03 basis. !lthough they have certain
procedure for making payment ,they divide their vendor like international? national basis.
&ased on material re%uired they gave advance to their supplier ,advance would made
57Uto5FU. They used letter of credit for international supplier? for national supplier they
placed bill as per terms of agreement.
They follow just @inBtime techni%ue for managing their inventory, and it help them to be
more cost effective. &ecause of this they have to purchase si)eable imported raw materials
and compulsory bulk purchases of items like steel and construction item !part from that
$bm.component and best way derive some new techni%ue under the heading of $IT, which
is E1 %#)n$)A%'n7 H,( $") $).".
,ash is a important aspect of business but more is managing it so every company have it
own techni%ue . The $bm.component and best way strategies regarding the following four
facts of cash management ,ash is a important aspect of business but more is managing it
so every company have it own techni%ue . $bm.component and best way makes cash
planning steelording to their projects, like in case of their pani pat project ,they considered
it to be long term project and cash flow is systematic. $bm.component and best way ltd.
cash flows are %uite fi#ed in nature because they prefer to do heavy ?long term project ,
where payment are received steelording to the completion of the work ,usually they
divide their work in several milestone and steelording to the completion of milestone they
receive payment from their client. while their investment of surplus cash ,they gave
financial assistance to their parent company and other one is In4' -''. $&$%"/.
$bm.component and best way pvt. "td. finance their working capital by different sources
likewise when they start new project they take initial advance from their customer
percentage depend upon the contract value. In case of default risk they take loans and
advance from their head %uarter so the flow of working capital would be maintain. In rare
cases they use overdraft ,sometime they re%uire fund in very short notice.
=0
If we see the trend year wise then their net working capital is increased in year 9755as
comparison to year 9757. Then there is continuous rise in the debtors for two years,where
as it considered to be as a good sign for the business.
Whereas their cash balance is decreasing because they e#pand their business . ,ompany is
utili)ing the fi#ed cash for e#ploding the projects that is good for growth.
They would not provide any loan and advances to outsider or any supplier. they only give
loan to their parent company .
There current liability is also decreasing "ower current liabilities indicate that company is
not using credit facilities by creditors. In same way their provision indicating a good trend
that their provision is increased mean their income has been increased and also the profit.
While their ratios are also indicating good signs, their receivable ratio is high mean debt
collection period is short. ven their payable ratio is also favourable. The most important
ratio is current ratio is %uite close to favourable.




=1
SU""ESTIONS
W'#*n, A)-%). /")n$ %(" -)#% '4 %(" %'%). )$$"%$ '4 %(" =3$n"$$ %()% A()n," 4#'/ 'n"
4'#/ %' )n'%("# 4'#/ n %(" '#0n)#& A'3#$" '4 =3$n"$$ '-"#)%'n$.2
$bm.component and best way pvt. "td. should understand the competitive edge of
indian market and steelording to that they would e#pand their business .
$bm.component and best way pvt. "td. seem to be conservative in regarding their
inventory management although just @in @time is applicable in some specific
case ,but when they are the e#panding their business specifically in Indian market
they would liberalise their inventory techni%ue and consider the other techni%ue
also.
If $bm.component and best way pvt. "td. maintain a small cash balance its
li%uidity positions weakens but its profitable for opportunities. 3n the other hand
if the firm keeps high cash it will have a strong li%uidity position but its
profitability will be low. The potential profit forgone on holding large cash balance,
it is an opportunity cost for firm. ! firm should maintain optimum @ just enough ,
neither too much nor too little cash balance.
$bm.componentand 'teel cememt pvt. "td. India never give loan and advance to
different parties, company, employees ,whereas they prefer to give loan to their
parent company through the n4' -''. $&$%"/ 6 but in return they are not getting
any interest from them. 0or that reason they should provide loan and advances to
different parties, company, employees ,in return they will be liable to make timely
repayment of that amount in addition to interest on that loan. which will increase
their profitability.
=:
BIB!IO"RAP-Y
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QUESTIONNAIRE
=3
1. What are the re%uirements of working capitalQ
:a; LCC7 lacs Y Z :b;-9 C977 lacs Y Z
:c; CF77 lacs Y Z :d; CL77 lacs Y Z
2. What is the type of working capitalQ
:a; Permanent Y Z :b; Temporary Y Z
Working capital working capital
5. What is your economic order %uantityQ
:a; H7777 units Y Z :b; 67777 units Y Z

:c; L7777units Y Z :d; C7777 units Y Z
4. Which method use for material dispatchedQ
:a; 0I03 Y Z :b; "I03 Y Z
:c; .I03 Y Z :d; 3thers Y Z
F. Which techni%ue is most preferred in inventory managementQ
:a; !&, analysis Y Z :b; >8 !nalysis Y Z
:c; 34 Methods Y Z :d; G(E !nalysis Y Z
H.2eed for working ,apital come in business:period of time;Q
:a; (early basis Y Z :b; daily basis Y Z
:c; 4uarterly basis Y Z :d; Monthly basisY Z
=;