INTRODUCTION

Traditionally, working capital has been defined as the firm’s

investment in current assets. Working capital decisions are of tremendous importance
for any firm, as they affect the business’s liquidity position. The principles underlying
the management of working capital are both similar. Like long term investment
decisions, working capital decisions require an evaluation of the benefits and costs
associated with each component of current assets.
Like long term investment decisions, cash flows play an important role in working
capital decisions as well. The primary difference between long term decisions and
working capital decisions relates to the time horizon of the decision making. While
long term financial decisions have cash flows implications for a period that may
extend up to 20 years, even more, short term financial decisions, i.e., working capital
decisions typically affect the cash flows of the firm for a shorter time frame,
extending up to a maximum of one year, normally. Unlike the cash of long term
investment decisions. This makes the concepts of risk and time value of money less
pertinent to working capital decision making, as the value of money and the risk of
profile don’t undergo any consequential change within a short time frame. Instead, the
concept of operating cycle and its management assumes significant in the context of
working capital management (WCM). Firms have a greater degree of flexibility in
working capital decisions, compared to long term financial decisions because working
capital directly corresponds in to sales.
 WHAT IS WORKING CAPITAL?

Fixed Capital is that part of which is required for the purchase of fixed assets
like Land and Building , Plant and machinery etc. The fixed capital provides the
basic means for the business to earn its return... But by themselves, these fixed assets
would not produce anything. For instance, to operate the machines, we require men,
materials, power, tools, accessories etc. These factors involve expenses. In addition,
we have to maintain certain current assets like stocks, stores, equipment’s, etc. All
these require enough resources to keep the wheels of the business in motion.
Therefore, in addition to the amount of fixed capital every business – whether new or
growing requires Working Capital. Working Capital is that portion of a business
concern’s total capital, which is employed in term of operations. Without working
capital, fixed capital would be idle and ineffectual.
 A number of definitions have been formulated: perhaps the most widely acceptable
would be:
 “WORKING CAPITAL represents the excess of CURRENT ASSETS over
CURRENT LIABILITIES”.
 The same may be designated in the following equation:
 WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES:
 Funds thus invested in current assets keep revolving fast and are being constantly
converted in to cash and this cash flows out again in exchange for other current assets.
Thus it is known as revolving or circulating capital or short term capital.
MEANNING OF WORKING CAPITAL

The concept of working capital is, perhaps one of the most

misunderstood issues in the literature of finance. The reason is that is subject to
multiple connotations. Form the accountants” perspective it refers to the current assets
–current liabilities differential “form the finance managers” angle it implies the total
investment made in current assets “from the production managers, view it refers to the
total funds that a firm needs to carry out its day to day operations. For definitional
purposes, view of working capital of the sake of simplicity, we postpone issues of
similarity or otherwise of the three perspectives to later paragraphs.

Working capital alternatively referred to as current or circulating capital is the

investment made by firms in their current assets comprises all assets such as cash,
marketable securities, accounts receivables, and inventories that the firm expects to
convert into cash within the year. It is theses currents assets that determine the
liquidity position of the business. The higher the investment in currents assets, the
better is the health of the firm from the liquidity perpective,befor we get the issue
profit ability liquidity tangle, les us understand the concept of gross and net working
capital.

MEANING OF GROSS WORKING CAPITAL

Is the border concept of working capital, as it talks about the total investment made by
a firm in currents assets? It is referred to as the manager “concept of working capital,
as it denotes the liquidity position of the firm. Other factors remaining the same the
higher the (GWC) of a firm, the better it’s liquidity position. However, the increased
holding of the current assets, i.e.
The (GWC) by a firm incises its cost of carrying these assets and thus adversely
affects its profit-ability. Furthermore, an increased GWC incises the risk of
obsolescence of inventory in industries in which of obsolescence rates are high.
Besides, it also causes a slowdown in turnover of current assets.
MEANING OF NET WORKING CAPITAL

Refers to the differences between current assets and current liabilities (CA-CL). This
differential denotes that part of current assets which is financed by long term sources’
of financing. It is referred to as the accountant definition of working capital. As
increases NWC indicates an improving liquidity position of the firm, as it reflects an
increasing use of long term financing sources to partly finance short term assets. The
availability and cost short term funds are subject to market vagaries; thus to the extent
a firm use long term funds it finances investment in current assets, it precludes the
possibility of non-availability of short term funds for finance these assets. This
improves the firm’s liquidity position. However, increased usage of long term sources
of financing increases the firm’s cost of financing, as long term funds are normally
costlier then short term financing.
 WORKING CAPITAL MANAGEMENT

Working capital management refers to the management of short term assets (the
current assets). It involves planning and controlling the level and mix of a firms
current assets as well as the pattern of there financing. It is alternatively referred to as
current assets management, specifically, WCM requires the finance manager to decide
on the to issues:
 What should be the optimal level of current assets held by the firm?
 How should these current assets be financed?

Working Capital Management refers to management of current assets and current

liabilities. The major thrust of course is on the management of current assets. This is
understandable because current liabilities arise in the context of current assets. Working
Capital Management is a significant fact of financial management. Its importance
stems from two reasons:-
1. Investment in current assets represents a substantial portion of total investment.
2. Investment in current assets and the level of current liabilities have to be geared
quickly to change in sales. To be sure, fixed asset investment and long term financing
are responsive to variation in sales. However, this relationship is not as close and direct
as it is in the case of working capital components.

The importance of working capital management is effected in the fact that financial
managers spend a great deal of time in managing current assets and current liabilities.
Arranging short term financing, negotiating favorable credit terms, controlling the
movement of cash, administering the accounts receivable, and monitoring the
inventories consume a great deal of time of financial managers.
The problem of working capital management is one of the “best” utilization of a
scarce resource.
Thus the job of efficient working capital management is a formidable one, since it
depends upon several variables such as character of the business, the lengths of the
merchandising cycle, rapidity of turnover, scale of operations, volume and terms of
purchase & sales and seasonal and other variations.

SCOPE OF WORKING CAPITAL MANAGEMENT

Working capital management relates to the current assets (CA) and current liabilities
(Cl) components of the balance sheet, as indicated in figure.
.
All these components from part of the operating cycle. The scope of WCM is very
wide. Working capital decisions affect the firms profit through their impact on sales,
operating cost, and interest expense They affect the firms risk through their impact on
the
Variability of the firm’s cash flows, the probability of not receiving cash flow and
ability to generate cash in a crisis. The working capital policy touches upon almost
every functional area of the business’s operation. Working capital management affects
and gets affected by the different operational decision in a firm

WORKING CAPITAL NEEDS OF DIFFERENT TYPES OF BUSINESS

The quantum of working capital requirement is closely related to the nature of

business of the firm, which in turn, is related to the operating cycle. For example, in a
bakery unit, the requirement may hardly be for one or two days. Similarly, in case of
an electric supply company, or a transport company, or a that is still in a seller’s
market, working capital requirement mat be much less. This is due to the shorter
operating cycle, which is due to the fact that sales for such businesses are mainly on
cash basis. As the result, the time lag between credit sales and collection of accounts
receivables is cut down. As against this, a company manufacturing heavy machine
tools or turbines will naturally be having a much longer operating cycle, as it would
be selling mostly on credit, and consequently would require a much higher level of
working capital. Also for such businesses, the value of raw material inventory,
finished goods inventory, and credit sales is high due the costly nature of products
they deal in.
Seasonal industries, such as those manufacturing woolen clothes and blankets,
geysers, etc., may require a much higher level of working capital in peak season and a
much lower requirement during slack seasons. Table demonstrates this relationship
between current assets and total assets for different industrial sectors. As can be seen
in the table, the highest level of working capital/current assets is maintained by
trading firms. This is because investment in the inventory of finished goods is the
single most significant investment for such firms.

OPERATING CYCLE AND ITS RELEVANCE FOR WORKING CAPITAL

MANAGEMENT

The operating cycle, as shown in figure is the total duration taken to complete one
cycle of operation, i.e., the times is takes to turn the investments (for the purchase of
raw materiel & finished goods) back into cash (through collection of accounts
receivables). For manufacturing firms, it typically consists of three activates:
procurement of inputs, transformation of inputs of outputs, and distribution (selling)
of output. The total time involved in operating cycle can be broken up into the
following three constituents:
 Inventory conversion period (ICP) the total time involved from the procurement
of inputs till the conversion of inputs into outputs is called inventory conversion
period. It consists of three successive stages-raw material conversions period, work-
in-progress in conversion period, and finished goods conversion period.
 Receivables conversion period (RCP) time lag in converting credits sales into cash
is called receivables conversion period. It depends on the credit period offered to
customers and collection efforts of the firm.
 Payables deferral period (PDP) The period of which the firm can defer its
payment is referred to as payable deferred period. The longer the period, the lesser
would be the firms need to seek capital financing from external sources.
 GOC = ICP+RCP
 The net operating cycle (NOC) implies the net time for which the working capital
needs to be arranged. It ignores the period for which the firm is able to defer payables
(PDP).
 NOC = GOC-PDP
 MEANAGING of CURRENT ASSETS

Current assets can be defined as assets that can be converted to cash within the
operating cycle or within year. They are also referred to as short term assets. There
are to main characteristics of current assets”

1.They have a short life span that usually extends to an operating cycle or to a period not
exceeding 12 months.

2.Any one from of currents assets gets transformed into other from of currents assets
rapidly.

Cash, accounts receivable, inventory, marketable securities, and prepaid expenses are
some of the prominent example of current assets that appear on the Balance Sheets of
various firms. The importance of currents assets lies in the fact that they funds the
ongoing, day –to day operations of firms .these assets determine the liquidity position
of the firms . A high level of currents assets denotes a high liquidity position, and vice
versa. It is for this reasons that lenders, particularly short terms lenders, expect the
firms to have a high level of current assets.

Firms acquire fixed assets because of the future cash flows those assets are
expected to generate. . Likewise , firms invest in current assets because of the
expected benefits derived from such assets. In this chapter, our interest in the firms’
short –term investment decisions relates to their effect on the firm’s liquidity position.
As a means of increasing arts liquidity, the firm may choose to invest additional funds
in current assets, particularly cash and/or marketable securities. Such an action
involves a tradeoff, however, since these assets earn little or no return. The firms thus
funds that it can reduce its risk of illiquidity only by reducing its overall return on
invested funds, and vice versa. The optimal level of current assets it’s decided in light
of the tradeoff between the cost liquidity and the cost of liquidity.

It is at this tradeoff point that the total cost is lowest .The larger the
investment in current assets, the higher is the opportunity cost of, funds blocked in the
current assets. As indicated in figure The profitability – liquidity tangle needs to be
resolved in deciding the issue of the optimal level of current assets .A higher
investment in current assets a increases the liquidity position of the business ,but
brings down profitability due to the higher blockage of funds in idle current assets
that give an abysmally low return ,if any. Carrying out of operations in an efficient
manner. , without blocking extra funds in current assets, is the guiding criterion in
deciding the level of current assets.

Seasonality

Seasonality of operations and production policy of the firm has an

impact on firms working capital needs .A firm manufacturing and selling seasonal
products such as air conditioner, sugar, etc, will witness large variations in its working
capital investments during the peak season and a decline during the lean season
similarly , firms with seasonal production policy will have a higher investment in
working capital during the peak season , as compared to those following a steady
production policy .

Market conditions

Prevailing and emerging market conditions also determine the level of

working capital investments. Expansionary market conditions normally witness a
growth in working capital requirements across the industry.
Now let take up the risk –return tradeoff that needs to be resolved in a given
situation to decide the optimal level of current assets.

Managing Current liabilities

The other important issue in the management of working capital relates to the
financing of working capital relates to the financing of current assets i.e. ,deciding
about the mix of current versus long-terms debt .Here too , a risk –return tradeoff
needs to be resolved by the firm. Other things remaining the same, the more the use of
short-terms debt or current liability in the financing mix, the less the liquidity of the
firm. But that is only one side of the coin(i.e. the risk perspective), as short terms
sources of financing (i.e., current liabilities)render certain benefits too .Current
 liabilities are , normally ,not only less costly then long terms financing , they also
provide the firm with a more flexible means of financing current assets.

Advantages of current Liabilities

The advantages of using current liabilities to fund the level of current assets are:
1) Flexibility and
2) Interest cost.

Flexibility current assets offer the firm a flexible source of financing. They can be
used to match timing of firms needs for short term financing. For example, if a firm
needs funds for a three month period each year to finance a seasonal expansion in
inventories, then a three month loan can provide substantial cost savings over a long
term loan (even if the interest rate on short term financing should be higher). This
results from the fact that the use of long term debt in this situation involves borrowing
for the entire year rather than for the three month period for which the funds are
needed; this increase the interest cost the firm has to bear. This brings us to the second
advantage, generally associated with the use of short term financing.
Interest Cost IN general, interest rates on short term debt are lower than on long term
debt for a given borrower. This relationship is usually referred to as the term structure
of interest rates. For a given firm, the term structure might appear as follows:
Loan Maturity Interest Rate
Up to 3 month 11.75%
3-6 months 12.00%
6-9 months 12.75%
9 months-1 year 13.50%
1-3 years 14.25%
3-5 years 15.75%
5-10 years 16.00%

Note that this term structure reflects the rates of interest applicable to a given
borrower at a particular point in times; thus, it would not describe the rates of interest
available to another borrower or even those applicable to the same borrower at a
different point in time.

Disadvantages of current Liabilities

The thus of current liabilities or short term debt as opposed to long term debt subjects
the firm to a greater risk of illiquidity. That is, short term debt, due to its very nature
must be repaid or rolled over more often, and so it enhances the possibility that the
firms financial condition might deteriorate to a point where the needed funds might
not be available.
A second disadvantage of short term debt is the uncertainty of interest costs from year
to year. For examples, where a firm borrows during a six-month period each year to
finance a seasonal expansion in current assets, it might incur a different rate of interest
each year.

WORKING CAPITAL POLICY

As discussed, overall working capital policy depends on two factors; the level of
current assets (that we refer to as current assets policy) and the financing of current
assets (that can be alternatively referred to as working capital financing policy or level
of current liabilities). Whether the working capital policy of the firm is aggressive or
conservative in relation to its policy in the past or vis-à-vis its competitors depends
upon its current assets financing policy, as shown in figure. Depending upon the level
of current assets and their financing, working capital policy of firms can be
categorized into one of the four quadrants.
As can be seen in the figure, if the firm on one hand maintains low level of current
assets while on the other it depends more on short term sources of financing its
overall working capital policy is termed as aggressive.

High

lll lV
Moderate overall Aggressive overall
Working capital policy Working capital
Policy

l ll
Conservation overall Moderate overall
Working capital working capital
Policy Policy

Where is Working Capital Analysis Most Critical?

On the one hand, working capital is always significant. This is especially true from
the lender's or creditor's perspective, where the main concern is defensiveness: can the
company meet its short-term obligations, such as paying vendor bills?
But from the perspective of equity valuation and the company's growth prospects,
working capital is more critical to some businesses than to others. At the risk of
oversimplifying, we could say that the models of these businesses are asset or capital
intensive rather than service or people intensive. Examples of service intensive
companies include H&R Block, which provides personal tax services, and Manpower,
which provides employment services. In asset intensive sectors, firms such as telecom
and pharmaceutical companies invest heavily in fixed assets for the long term,
whereas others invest capital primarily to build and/or buy inventory. It is the latter
type of business - the type that is capital intensive with a focus on inventory rather
than fixed assets - that deserves the greatest attention when it comes to working
capital analysis. These businesses tend to involve retail, consumer goods and
technology hardware, especially if they are low-cost producers or distributors.

The difference between current assets and current liabilities.

ESTIMATION OF WORKING CAPITAL RECQUIREMENTS

Accurate estimation of working capital requirements is of tremendous importance , as
the funding of working capital requirements depends upon this estimate . Estimation
is essentially a projection that depends on both past data and the projected level of
activity for which the working capital is required .It requires information from varied
sources. The production department provides inputs on the rate of material
consumption and labor usage and on production overheads based on past
performance. The stores section provides data on average inventory held by the firms
in the past , while the marketing department provides sales projection for the period
for which working capital is to be estimated. The personal department submits
information about the salary bill and other manpower –related coast, and the accounts
department provides an estimate of the various overheads likely to be incurred for
the period.
 Working capital essentially refers to funds that need to be blocked in the various
stages of the firm’s value chain (i.e. , the different components of currents assets), to
carry out the desired level of actives in a smooth and efficient manner. Its estimation
requires the estimations of funds to be blocked in the different components of
currents assets and the duration of their blockage.
The operating cycle and its components (ICP, RCP, AND PDP) that have been
discussed earlier in the chapter from the basis of such estimation.
Step 1. Determining the duration of blocked of funds. This gives the
time period for which the money will be tied up in the various components of the
operating of the cycle. It is the same as estimation the time its takes to complete one
stage to the succeeding stage. Hence its is alternative referred to as conversion period.
The duration of the different component of the operating cycle can be estimation as
following:

History and Development of Company

 INDIAN FOOTWEAR INDUSTRY
Until recently, a major part of the demand was met by the unorganized, informal,
small sector. Branded shoes, produced by large Indian producers, multinationals
producing in India and imports, account for only less than 20% of the entire market.
The branded footwear market is estimated to be 100 million pairs, made up of 5
million pairs of sports and athletic shoes and nearly 95 million pairs of shoes and
boots. The segment is dominated by men’s footwear, and there are not more than three
women’s brands known nationally.
Women’s footwear purchases are mostly in the casual footwear market, ruled by
unbranded goods. Formal footwear expenditure (in 1997) by the upper segment of
urban women (2.8 million households in the SECA/B class) was estimated to be less
than US$ 8.69mn, which is less than 1% of the total market size. However, ladies
brands in footwear are now on the rise, with several new players focusing on the
formal dress needs of the working women The largest players in footwear are Lakhani
Shoes, an Indian brand that has performed exceedingly well in shoes with leather as
well as non-leather soles, and Bata, the international brand present in India for close
to 100 years, which has a 24% market share. Lakhani, with a production of 10.5
million pairs, claims to enjoy a market share of 36% in the leather footwear segment
and 22 % in the non-leather sole segment. Exports constitute 30% of Lakhani’s sales.
Both Bata and Lakhani have launched international brands in India through tie-ups:
Bata with Hush Puppies, Lakhani with Burberry’s. An interesting feature of the
market is the presence of several international players in the informal and sport shoes
segment, which has a total market of only 5 million pairs. The major MNC players are
Reebok, Adidas and Nike. Italian brands Lotto and Fila have franchise tie-ups in
India, although the brand is not aggressively promoted. Reebok, with a premium
positioning, sells 0.2 million pairs in the domestic market in 1999, posted breakeven
revenues of US$ 15.21million, and is adding a chain of sport goods and fitness stores
to complement its premium Rockport brand. Adidas is aiming to become the leader in
the sports footwear and sports wear market, which is estimated to be at US$
217.3million. The company uses the manufacturing set up of an Indian company,
Lakhani, to manufacture the Adidas range in India. Nike Shoes purchases its products
from a contract supplier, and sells through select Bata showrooms and a few
departmental stores. Other international brands like Woodland, Lumberjack and even
Bally have set up shop in India with production or assembly facilities.
 Indian leather industry is the core strength of the Indian footwear industry. It is the
engine of growth for the entire Indian leather industry and India is the second largest
global producer of footwear after China.

Reputed global brands like Florsheim, Nunn Bush, Stacy Adams, Gabor, Clarks,
Nike, Reebok, Ecco, Deichmann, Elefanten, St Michaels, Hasley, Salamander and
Colehaan are manufactured under license in India. Besides, many global retail chains
seeking quality products at competitive prices are actively sourcing footwear from
India.

While leather shoes and uppers are produced in medium to large-scale units, the
sandals and chappals are produced in the household and cottage sector. The industry is
poised for adopting the modern and state-of-the-art technology to suit the exacting
international requirements and standards. India produces more of gent’s footwear
while the world’s major production is in ladies footwear. In the case of chapels and
sandals, use of non-leather material is prevalent in the domestic market.

Leather footwear exported from India are dress shoes, casuals, moccasins, sport
shoes, horrachies, sandals, ballerinas, boots. Non-leather footwear exported from
India are Shoes, Sandals and Chappals made of rubber, plastic, P.V.C. and other
materials.

With changing lifestyles and increasing affluence, domestic demand for footwear
is projected to grow at a faster rate than has been seen. There are already many new
domestic brands of footwear and many foreign brands such as Nike, Adidas, Puma,
Reebok, Florsheim, Rockport, etc. have also been able to enter the market.

The footwear sector has matured from the level of manual footwear
manufacturing methods to automated footwear manufacturing systems. Many units
are equipped with In-house Design Studios incorporating state-of-the-art CAD
systems having 3D Shoe Design packages that are intuitive and easy to use. Many
Indian footwear factories have also acquired the ISO 9000, ISO 14000 as well as the
SA 8000 certifications. Excellent facilities for Physical and Chemical testing exist
with the laboratories having tie-ups with leading international agencies like SATRA,
UK and PFI, Germany.
 One of the major factors for success in niche international fashion markets is the
ability to cater them with the latest designs, and in accordance with the latest trends.
India, has gained international prominence in the area of Colours & Leather Texture
forecasting through its outstanding success in MODEUROP. Design and Retail
information is regularly made available to footwear manufacturers to help them
suitably address the season's requirement.

The Indian Footwear Industry is gearing up to leverage its strengths towards

maximizing benefits.

Strength of India in the footwear sector originates from its command on reliable
supply of resources in the form of raw hides and skins, quality finished leather, large
installed capacities for production of finished leather & footwear, large human capital
with expertise and technology base, skilled manpower and relatively low cost labor,
proven strength to produce footwear for global brand leaders and acquired technology
competence, particularly for mid and high priced footwear segments. Resource
strength of India in the form of materials and skilled manpower is a comparative
advantage for the country.
 The estimated annual footwear production capacity in 1999 is nearly 1736 million
pairs (776 million pairs of leather footwear and 960 million pairs of non-leather
footwear).Region-wise share of total estimated capacities is as follows:

Non- Leather Non

Leather Leather
Region leather Shoe Leather
Shoes Sandals
Shoes Uppers Sandals
Percentage
Tamil Nadu 26 5 54 1 0
Delhi & up
10 77 4 1 60
North
Agra, Kanpur 45 0 32 62 0
Calcutta 12 0 2 3 0
Bangalore 3 3 4 0 0
Mumbai 4 2 1 32 0
Others 0 13 3 1 40
Total 100 100 100 100 100

Shoes manufactured in India wear brand names like Florsheim, Gabor, Clarks,
Salamander and St. Micheal’s. As part of its effort to play a lead role in the global
trade, the Indian leather industry is focusing on key deliverables of innovative design,
consistently superior quality and unfailing delivery schedules. India in itself has a
huge domestic market, which is largely untapped.The Indian footwear industry is
provided with institutional infrastructure support through premier institutions like

Central Leather Research Institute, Chennai, Footwear Design & Development

Institute, Noida, National Institute of Fashion Technology, New Delhi, etc in the areas
of technological development, design and product development and human resource
development.
 MAJOR PLAYERS

Comparison of key ratios with the companies of comparable size in the same
industry group*.

Major players or the competitors of the lakhani shoes ltd.

Corporate Philosophy

Steeped in a philosophy that has at its core innovation, technology and advancement,
we at Lakhani, pride ourselves over and above everything else on our healthy and
heart-felt respect for the human ethos, which projects itself in the expectancy and
excitement with which one greets the arrival of the new combined with a sincere and
deep regard for the old, which is appreciative of and adopts at every stage the unique
balance between modernization and tradition.
Lakhani as a brand is constantly evolving to keep pace with the changing trends,
styles, beliefs, and aspirations of people while maintaining the sanctity of certain
traditions like workmanship and good value.
Our Credo
To ensure that the method we use is the latest technology the world over. To
follow the highest standards of honest workmanship in whatever we make. To Walk
the extra mile to ensure customer satisfaction worldwide. To remain a true
cosmopolitan to the spirit. To remain a great corporation to associate with, to work
for.
 Technology

Better methods. Better tools. Better technology. Enhanced productivity. Finest quality.
Greater customer satisfaction. Lakhani has a lot of firsts to its credit.
It has introduced a new material called TPU (Thermo Plastic Urethane), for high
quality footwear, into the country. This material has better properties than PVC or
TPR (conventional materials used for footwear).
Lakhani has also been instrumental in introducing EVA (Ethyl Vinyl Acetate), which
is a direct injection molding used for making sole for the first time in Asia. This
technology uses very light material & the footwear is made with the direct injection
system.

Lakhani also pioneered the PU (Poly Urethane) Technology in India for the footwear
industry.
Besides these Thermo Plastic Elastomer has been developed for the first time in
India at Lakhani. A CAD/CAM design center is in place at Lakhani. The Sympatex
waterproof technology in footwear was pioneered by also Lakhani. Lakhani is also the
first company to market PPE products for safety purpose
 Manufacturing Excellence

We call them Humantech Centers. When people visit us they see them as centers
of Excellence for manufacturing shoes where technology works in perfect tandem
with human creativity. Lakhani has Humantech centers at four locations in India, the
latest being the Uttaranchal project which was launched recently to boost the
production of world-class footwear. This Greenfield plant near Dehradun will increase
the company's existing production capacity of 18 million units’ pa by 200,000 units

The locations of the four are Humantech Centers:

GHARAUNDA, HARYANA (APPROX. 95 K.M. FROM DELHI)

Gharaunda is the first plant of its kind in this part of Asia that is equipped with Desma
machines for PU Direct Injection Moulding. Using PUF technology and Computer
Aided Systems this vertically integrated plant produces Industrial Safety Shoes that
are made to European standards. Sympatex TEX booties as well as ordinary booties
are also made here. Beside these Gharaunda has a design center where an ambitious
team of young designers working in tandem with experienced technologists.
 Lakhani puram, Haryana (102 k.m. from Delhi)

About 14 km from Karnal this Humantech center, spread across 50 acres of

landscaped greens, has 16 lines for Cement Last Construction footwear, 15 lines for
Direct Injection Mounded footwear and 3 lines for EVA Direct Injection footwear. It
is a manufacturing base for slippers and sandals that put the Chinese sheet slippers to
shade, teenager's shoes with very light

PVC soles as well as leather soles, shoes for both sexes as well as booties for
ladies.
 Karnal, Haryana (124 k.m. from Delhi)

Lakhani’s first manufacturing center caters essentially to the domestic market and
produces Cement Last Construction as well as leather sole footwear for both men and
women

Dehradun in, Uttaranchal

This new Humantech center makes Cement Last Construction footwear as well as
the comfort range of sandals for ladies. It will soon also produce sports shoes for the
likes of Reebok and Nike as well as for the domestic market.
 Product Range

Lakhani has created a repertoire of 10 well developed brands, each one of which has
been painstakingly nurtured to cater to its specified target group. Care has been taken
to create a specific identity for each brand and to provide the latest international
designs.
Today, the new range from Lakhani is all about style, design, and comfort. The range
imbibes the spirit of fun and is trendy to the core. There is a product for every season
and occasion.

Force 10 has long perceived to be the flagship brand of Lakhani, Force 10, today is
Synonymous with value for money fashion sports shoes. It is a symbol of family force
of Lakhani which has 10 members. Targeted at the age Group of 13-28 year old boys
and men, Force 10 produces over 600,000 pairs annually. Available in the range of Rs.
350 to Rs. 1250, Force 10 looks with
“Life at a force of 10”

Coolers are the brand of men’s sandals and slip-ons. These sandals cater to the age
group of 21-45 years and are a stylish and comfortable accompaniment to any apparel.
The range is amongst the most sought after during the summer months and over
1,000,000 sandals are produced every year. In the price range of Rs. 295 to Rs. 899,
Coolers are indeed

“Cool comfortable sandals”

Foot fun has been created as an exclusive brand for children in the age group of 1 to
12 years. Children have their own peculiar requirements so far as footwear is
concerned. The Lakhani Foot fun addresses all concerns of style, comfort, fitting as
well as gives special emphasis to the flexibility of the footwear. Bright and vibrant
colors are to the USP of the range and the maintenance proof products add value for
the children and parents alike.
The products in this category include sandals, infant and toddler range of unisex
shoes, sports shoes, and school shoes. The range is available in the price range at Rs.
135.00 to Rs. 395.00 and sells over 2,400,000 pairs annually. It conforms to the tag
line.

“Non Stop Fun”

Fortune comprises of men’s formal and casual shoes in Leather from the House of
Lakhani. These shoes, meant for today’s students and executives in the age group of
18-45, combines the latest trends in formal wear abroad in to the most formal
footwear. It is a sign of good luck, a symbol of being prosperous. The Fortune
collection produces 600,000 pairs of shoes every year. In the price range of Rs. 850 –
1495, these shoes promise,

“It takes some men places”

A symbol of light weight footwear, it gives a feeling of floating in air. It is the most
important brand of Lakhani as it covers all segments, varieties, colours, designs and
price ranges. It is a mass brand of the company. Gliders cater to the specific need of
normal, semi-formal footwear as well as beachwear for the age group of 2-45 years.
This range has something or the other to cater to the requirements of children, young
men and women. Over 45, 00,000 pairs of Gliders footwear are produced each year in
the price range of Rs. 125 to Rs. 1795. Gliders conform to the adage:
“Some things are just right”

Senorita is a brand that caters to the high design and fashion styling amongst young
women. Bringing out the flair of each style, Senorita invites young women in the age
group of 14-26 to be comfortable as well as look the most delicately brought out the
latest designs for this brand. Over 4, 50,000 pairs are produced in this range in the
price category of Rs. 495 to Rs. 995. Senorita invites women to retain their
youthfulness, vibrancy and energy through its tag-line

“Hey woman, stay girl”

Geo Sport exclusive professional sports shoes for 14-38 year olds; Geo Sport is
targeted at budding and professional sportspersons. The shoes cater to niche of
professional sportswear, 15,000 pairs of shoes are created every year in the price
range of Rs. 895 - Rs. 1695. Geo Sport is important to serious player

“Because winning matters”

Warrior a range of safety shoes for institution sales and workers of the age group 21-
45 years comprise Warrior, because of its solid sturdy looks, Warrior is also becoming
quite a rage with the young boys and men. The product line is available from Rs. 685-
1195 and sells 4, 00,000 pairs annually.

Windsor provides casual and formal shoes for the young executives in the age group
of 21 to 40 years. This brand caters to the need for power dressing for the young
executives and allows the busy executive to make a statement in power dressing,
which is as much at ease in the boardroom as in the cocktail lounge.

The idea is to be comfortable wearing these attractive leather formal shoes over long
periods every day, in keeping with the hectic lifestyles today. Over 750,000 pairs of
Windsor are produced annually in the price range of Rs. 895 to Rs. 1999. Windsor
truly believes

“What’s life without a little comfort?”

Tiptopp caters to providing comfortable and fashionable women’s slip-ons and

sandals. This range is synonymous with comfort, durability and neat styling. Targeted
at ladies in the age group of 24-40 years, this range sells 7, 50,000 pairs annually.
Available in the price range of Rs. 325 to Rs. 550.

Lakhani Retail Revolutions Limited

In the elite shopping avenues of fashion capitals "Revolutions" has begun its walk.
The fashion accessory and footwear stores have begun operations in Chennai,
Bangalore , Mumbai, Kolkatta, Hyderabad, Indore, Lucknow, Delhi & NCR and Pune
with upcoming Revolutions Stores in Noida, Chandigarh and Ahmedabad.These are
company managed and owned outlets where the emphasis is to deliver high fashion to
the customers backed by quality service making it a delightful shopping experience

SWOT
ANALYSIS
 STRENGTH
 Established brand name.
 Wide Dealers network.
 Bondage between company and employees.
 Customer’s faith.
 Leaders in quality
 Economies of scale
 Infrastructure

WEAKNESS
 After sales service like replacement of shoe is very poor.
 Price of products offered is not satisfactory.
 Company representative doesn’t visit dealers frequently.
 Sustained growth rate

OPPURTUNITIES
 Have the opportunity of grabbing the market share through launching of new
& wide range of products with new designs.
 Wide market in low price shoes as most population is financially weak in our
country.
 Existing successful products of company.
 Increase sales by giving incentives to sales officers and dealers.
 Develop market sensitive product line.
 Globalization

THREATS
 Cut throat Competition
 Due to lack of good design of products and good after sales service the
company can lose their customer to other companies who provide good quality of
product and after sales service.
 Competition for resources
 New entries in the market
 Unforeseen conditions

LEARNING

My summer training at Lakhani shoes was a great learning experience. I was given a
project on market research and sales. The project itself boasts me of a lot of learning. I
learnt how to deal with people, how to convince them to give time. I had to give the
impression that I was doing the project for academic purpose. So, it was not actually
of any help to the people. So, I had to adopt different techniques at different places to
get positive responses. Our strategy making skills were honed in this manner.
Moreover the scorching heat sometimes made it almost impossible to carry out the
fieldwork. Latter on we started looking out for the customers at the evening, so that I
can easily ask them to fill the questionnaire.

Another thing of great importance that I learnt during the course of the project is
patience. As a researcher, the company as well as the respondent was my customer. I
learnt that to deal with customers I need a great deal of patience. And it helps a lot to
have patience while interacting with others. It shows through professionalism and
makes a good impression.

Last but not the least, we have also learnt about the corporate culture. It was a
great experience. It was a fabulous experience interacting with all the employees of
the compa
 MARKET SEGMENTATION
Men's Range

ENGLISH SYSTEM

English sizes are measured in inches. For e.g. size 8 would mean the foot measures 11
inches. Between two English sizes the difference in foot length is 1/3rd of an inch.

FRENCH SYSTEM
French sizes are measured in centimeters. For e.g. size 8 would mean the foot
measures 27.91 cms. Between two French sizes the difference in foot length is 2/3rd
of a centimeter.

CIS/MONDOPOINT SYSTEM
Midpoint sizes are measured in millimeters. For e.g. size 8 would mean the foot
measures 280 mm. Between two Midpoint sizes the difference in foot length is 10
millimeters.

AMERICAN SYSTEM
Add ½ sizes to English sizes to arrive at the American size. For e.g. English size 8
equals American size 8½
The table given below enables you to find out the length of your foot in inches,
centimeters or millimeters by tallying with the corresponding International sizes. For
e.g. English size 8 is equal to French size 42 & CIS size 280 which would mean the
foot measures 11 inches or 27.91 centimeters.
 Women's Range

ENGLISH SYSTEM
English sizes are measured in inches. For e.g. size 5 would mean the foot measures 10
inches. Between two English sizes the difference in foot length is 1/3rd of an inch.

FRENCH SYSTEM

French sizes are measured in centimeters. For e.g. size 5 would mean the foot
measures 25.38 cms. Between two French sizes the difference in foot length is 2/3rd
of a centimeter.

CIS/MONDOPOINT SYSTEM

Midpoint sizes are measured in millimeters. For e.g. size 5 would mean the foot
measures 250 mm. Between two Midpoint sizes the difference in foot length is 10
millimeters.

AMERICAN SYSTEM

Add 1½ size to English sizes to arrive at the American size. For e.g. English size 5
equals American size 6½.

The table given below enables you to find out the length of your foot in inches,
centimeters or millimeters by tallying with the corresponding International sizes. For
e.g. English size 5 is equal to French size 38 & CIS size 250 which would mean the
foot measures 10 inches or 25.38 centimeters.
 Teenager's Range

ENGLISH SYSTEM
English sizes are measured in inches. For e.g. size 5 would mean the foot measures 10
inches. Between two English sizes the difference in foot length is 1/3rd of an inch.

FRENCH SYSTEM
French sizes are measured in centimeters. For e.g. size 5 would mean the foot
measures 25.38 cms. Between two French sizes the difference in foot length is 2/3rd
of a centimeter.
CIS/MONDOPOINT SYSTEM
Midpoint sizes are measured in millimeters. For e.g. size 5 would mean the foot
measures 250 mm. Between two Mondopoint sizes the difference in foot length is 10
millimeter
 Kid's Range

ENGLISH SYSTEM
English sizes are measured in inches. For e.g. size 10 would mean the foot measures 7
1/3 inches. Between two English sizes the difference in foot length is 1/3rd of an inch.
FRENCH SYSTEM
French sizes are measured in centimeters. For e.g. size 10 would mean the foot
measures 18.61 cms. Between two French sizes the difference in foot length is 2/3rd
of a centimeter.
CIS/MONDOPOINT SYSTEM
Midpoint sizes are measured in millimeters. For e.g. size 10 would mean the
millimeters. foot measures 190 mm. Between two Midpoint sizes the difference in
foot length is 10.
The table given below enables you to find out the length of your foot in inches,
centimeters or millimeters by tallying with the corresponding International sizes. For
e.g. English size 10 is equal to French size 28 & CIS size 190 which would mean the
foot measures 7 1/3 inches or 18.61 centimeters.

These questions should be answered once the new business shapes up.
 Lakhani White ware is being set up with an investment of Rs 50 crore, expandable
to more than Rs 100 crore in three years
 Ceramic vitreous sanitary ware products are being manufactured in a 72,000
square meter-plus plant in Neemrana
 The trial production at the plant commenced on September 14, 2005 and the final
products are expected to reach the market in the ongoing festive season
 Lakhani has a targeted turnover of Rs 200 crore from the project in the fifth year
of commercial operations
 LAKHANI LATEST ACHIEVMENTS

 Lakhani gets the Amity Corporate Excellence Award

Amity International Business School has accorded a special honor to Lakhani
Shoes Ltd. for outshining the competition with their distinct vision, innovation,
competitiveness and sustenance.

 Lakhani Shoes wins the 2005 – 2006 Export Awards

The Council for Leather Exports has presented the plaque for non leather footwear
exports as well as the brand promotion award for non leather footwear to Lakhani
Shoes Ltd.
 The Revolutions Fashion Week
The Fashion week has a new venue. At the Revolutions Stores across the country
the fashion week with a difference will unfold. In a unique offer some of the Footwear
that will be showcased for the first time in India.

 Things getting back to normal at Lakhani

These have been trying times for all members of the Lakhani family. But it is
during times like these that our commitment to each other is proven. After all there is
so much that we have achieved target.

 Pune in the grip of Revolutions

Revolutions Store, the flagship of Lakhani Retail Revolutions Ltd., sparked off a
new era in the country’s fashion scene while ushering in a novel trend in fashion
retailing opens a retail outlet in PUNE.

 New Lakhani Polyurethane Plant coming up at Roorkee in Uttaranchal

Lakhani Shoes is ramping up capacity to meet the demands of Reebok and Nike in
the domestic market and Wal-Mart in the US market. Towards this end a new plant is
coming up at Roorkee in Uttaranchal.

 Udyog Rattan Award for Mr. Adesh Gupta

 Institute of Economic Studies presented Mr. Adarsh Gupta, CEO of Lakhani
Shoes Limited with the Udyog Rattan Award at a special function at the India Habitat
Centre, Lodhi Road, and New Delhi on the 10th.

 Lakhani at Lakme Fashion Week, 2006

 Lakhani GenNext Show
Lakhani Shoes will be the title sponsor for the “GenNext Show”, a unique concept
where six promising designers will showcase their collections at the inaugural.

 Revolutions store opened at TDI Mall, Rajouri garden, New Delhi on March
3, 2005

The latest Revolutions Store opened at TDI Mall, Rajouri Garden, and New Delhi
on March 3, 2006 with a spectacular range of new designs that includes the much-
coveted ‘F’ collection.

 Lakhani –Turning Brand India into a Global Fashion Statement

Incorporation of Lakhani Foot Fashion (U.A.E.) L.L.C., 100% subsidiary
company at Dubai.

 Revolutions Store opened at Shipra Mall, Ghaziabad on January 15, 2006

 Revolutions store opens in Indore

The Revolutions Rage Continues Revolutions Store, the flagship of Lakhani Retail
Revolutions Ltd., sparked off a new era in the country’s fashion scene while ushering
in a novel trend in fashion remark.

 Montage wins "Image Fashion Awards 2004"

It is only natural that a magazine that is all about fashion and style facilitates the very
best through awards. But it is also equally nerve wrecking to guess who the winner
would be. Such was the montage.
 OBJECTIVES

 Find out Ratios related to working capital management of LAKHANI and compare

with last 5 years.

 Find deviation of calculated from standard or Norms.
 To suggest measures to improve its market share and positioning.
 To know the working capital management of LAKHANI with the of

ratio analysis.
 To analyze the market strength of Lakhani.

Estimation of working capital can be stated as a four step process:

 RESEARCH METHODOLOGY

For every comprehensive research a proper research methodology is indispensable

& it has to be properly conceived. The methodology adopted by me is as follows:-
RESEARCH PROBLEM
 To know the working capital management of LAKHANI with the help of ratio
analysis.
 To analyze the market strength of Lakhani.

HYPOTHESIS OF THE STUDY

A research hypothesis is the statement created by a researcher when they speculate
upon the outcome of a research or experiment.
For the study of customer preference towards Lakhani the following hypothesis
was set up.
 H0: There is no significant relationship between factors and satisfaction level.
 H1: There is significant relationship between factors and satisfaction level.

SCOPE OF STUDY
The scope of this study is to provide an insight into concept of working capital
management and illustrate it by actually working capital management of LAKHANI.
This study also provides insight of the customer preference of Lakhani .

RESEARCH DESIGN
According to Clifford Woody, “research comprises defining and redefining
problems, formulating hypothesis or suggested solutions; collecting, organizing and
evaluating data; making deductions and reaching conclusions; and at last carefully
testing the conclusions to determine whether they fit the formulating hypothesis.

This research is divided in two parts:

(i) Working Capital Management through secondary data based on certain
parameters;
(ii) an exploratory research based on a survey of the concerning literature. A
sample survey was conducting with the help of Scheduling Method of collecting data
i.e. personally the enumerator visited and got the questionnaires filled from the
respondents. The enumerator in this method helps the respondents in recording their
answers to various questions in the said schedules.

SOURCES OF DATA
There are two types of data viz. primary and secondary. The primary data are
those which are collected afresh and for the first time, and thus happen to be original
in character.
The secondary data, on the other hand, are those which have already been
collected by someone else and which have already been passed through the statistical
process.
For this research report, primary data was collected through questionnaires from
customers and recharge dealers of sector 8 and 9 and there was no bias on the part of
the enumerator while selecting the sample for the analysis concerning Lakhani
Competitors.
Secondary data was used for the working capital management of LAKHANI that
is company annual reports, profit and loss account and balance sheet for the years
2006-07, 2007-08, 2008-09, 2009-10, 2010-11, brochures from recharge dealers,
magazines and newspapers.

SAMPLE SIZE
For this research, in part one, a sample size of annual reports for 5 years 2006-07,
2007-08, 2008-09, 2009-10, 2010-11 were taken.
For the second part, a sample size of 100 respondents was taken out of the total
customers using mobile phones

SAMPLE AREA
The sample area was Jaipur and involved respondents coming to recharge dealers
in sector 8 and 9 and the residents of sector 8.
 LIMITATIONS OF THE STUDY

Following were the limitations of the study:

1. Time was limited.
2. The sample size of 100 is very small and more than that could not be possible.
3. The study was only based on the survey of respondents in Jaipur and no other area
could be undertaken for the survey due to lack of transport and time.
4. This of working capital management is based solely upon the annual reports of the
company in hard copy and through company website.
5. Only 5 companies could be compared for the market analysis in order to avoid
complexity of data.
 Inventory Management
Introduction

Inventory management involves the control of assets being produced to

be sold in the course of the firm‘s operation .The general categories of inventory,
work-in-process inventory, and finished goods inventory. The three categories of
inventory taken together constitute the biggest component of currents assets. The
management of inventory assumes significance in the light of the funds blocked in
them. A comfortable cushion of inventory enables the firm to absorb both supply and
demand shocks. However, possessing a high level inventory for longs terms period of
time is likely to affect the bottom –line adversely due to increased inventory storage ,
obsolescence, and spoilage costs, Conversely, an inventory level that is too low is not
good either, because the business runs the risk of losing out on potential sales and
potential market share as well. Thus the thrust of inventory management is to arrive
at the optimal level of inventory.

Inventory balances are significant because inventory cost accounting

impacts reported gross profit margins. (For an explanation of how this happens,
see inventory Valuation for Investors: FIFO and LIFO.) Investors tend to monitor
gross profit margins, which are often considered a measure of the value provided to
consumers and/or the company's.
Below we compare three accounts used by three prominent
retailers: net sales, cost of goods sold (COGS) and the LIFO reserve. Other words,
comparing FIFO to LIFO is not like comparing apples to apples. GAP will get a slight
upward bump to its gross profit margin because its inventory method will tend to
undercount the cost of goods. There is no automatic solution for this. Rather, we can
revise Gap’s COGS (in dollar terms) if we make an assumption about
the inflation rate during the year. Specifically, if we assume that the inflation rate for
the inventory was R% during the year, and if "Inventory Beginning".
Kohl's Corporation uses LIFO, but its LIFO reserve declined year over
year - from $4.98 million to zero. This is known as LIFO liquidation or liquidation of
LIFO layers, and indicates that during the fiscal year, Kohl's sold or liquidated
inventory that was held at the beginning of the year. When prices are rising, we know
that inventory held at the beginning of the year carries a lower cost (because it was
purchased in prior years). Cost of goods sold is therefore reduced, sometimes
significantly. Generally, in the case of a sharply declining LIFO reserve, we can
assume that reported profit margins are upwardly biased to the point of distortion.

MEANING OF INVENTORY

Inventory represents value locked up at both ends of the production system. For
manufacturing firms, this blockage is the form of raw material at one end of the
production system, WIP (or semi – finished goods within it,) and completely finished
goods at the other end. For a trading \merchandising firm such as Big Bazaar ,
inventory refers to the stock of finished goods , for sale , while in the definition of
inventory includes raw material , WIP (or semi –finished )goods , and finished
goods . Thus the definition of inventory is specific to the nature of business .Although
spares and stores are also shown as a part of inventory for financial reporting
purpose , they are excluded from the definition of inventory in the chapter because
they are procured to procured to facilitate production /operations and not sales.

PURPOSE OF INVENTORY

Imperfection in the market cause both demand and supply side uncertainties’. If
the productive –distributive systems were perfectly integrated backward to the input
sources and forward to the input sources and the plant operation ran smoothly and
flexibly in response to the demand and supply , they perhaps ,there would not have
been any necessity to hold inventories at the different stages of the enterprise “.
However to the extent this is not feasible, there is always the possibility of demand
and supply shocks. Inventory because a necessity for absorbing such demand and
supply shocks that occurs on account of market imperfection.
Another rationale for holding inventory is that in a sequential production–distributive
system, they enable the decoupling of the operations of the firms-that is marking each
function of the business independent of other function so that delays or shutdown at
some stage in production distribution function no longer affect production and
delivery schedules .To better illustrate the decoupling function that inventories
perform, we will look at several general types of inventories.
RAW MATERIALS INVENTORY

Raw material inventory consists of basic material used as inputs in the firm’s
production operations. For a steel manufacturing firm. Iron or is the main raw
material: for a construction company, cement iron, bricks it are. The basic raw
material. All manufacturing firm maintain a raw material’s inventory regardless of the
specific form of the inventory. Its purpose is to decouple the production function form
the purchasing function –that is, to make these to function’s independent of is other,
so that delays in shipment of raw materials do not cause production delays. In the
event of a delay in shipment, the firm can meet its need for raw materials by dipping
into its existing raw material inventory.

Another reason for maintaining raw material inventories is that firm fined it
economical to by raw materials in large quantities. This give’s the firm flexibility in
purchasing some time, firms maintain large raw material inventory’s in anticipation of
a price increase by suppliers, material’s shortage, labour transporters “strike affecting
the supplies, and other similar factors. For manufacturing firms, which have
production /manufacturing as a core business activity, the raw material inventory
assumes special significance for the reason that it reduces supply side uncertainties. It
is thus no wonder that for such firm’s Raw material constituted 46.75% of the total
inventory investments in the year 2011-2012 as can be seen be table 22-1.

Work –in process inventory

Work –in process inventory consists of partially finished goods requiring additional
work before they become finished goods. The more complex and lengthy the
production process, the larger.
Will be the investment in WIP inventory. The purpose of WIP I inventory is to
decouple the various operations in the production process so that machine failures and
work stoppages in one stage of operation do not affect the subsequent stages. Assume,
for example, that there are ten different production operations in a sequential
production system, each one involving the piece of work produced in the previous
operation. If the machine performing the first production operation breaks down, a
firm with no WIP inventory will have to shut down all ten production operation. yet if
a firm Work –in process inventory, the remaining nine operation can be continued
with as, the firms holds in its inventory goods that have passed processing at the firs
stage .thus until such time as the stage operation get restored, production can continue
by drawing on input form the WIP inventory for the second stage operation rather
than directly form the out of the first operation. Thus the WIP inventory breaks the
sequential dependence of operation and related interruptions. Although irrespective of
their nature, firms maintain WIP inventories, investment by manufacturing firms in
this component of inventory is much higher than that of trading firms. In reality, there
is hardly any WIP inventory for trading firms again, this difference is due to the
nature of their respective operation (refer to table 22-1 and 22-2).

FINISHED GOODS INVENTORY

The finished goods inventory of unsold goods on which production process have
been completed. The purpose of a finished goods inventory is to decouple production
and sales functions, so that sales remain unhindered by stoppages/slowdown in the
production process. Firms holding such an inventory can absorb temporary
bottlenecks in the production process, meet delivery schedules, and service
customers’ demands despite the lag in the production schedules. For example, their
was a strike in the production facility of hero motorcycle & scooter INDIA (HMSI) in
April 2006 that lasted for a month. If HMSI did not carry an inventory of motorcycle
and scooters, sales would have virtually ceased during the strike period. Sufficient
finished goods inventories carried by dealers ensured that the strike did not have an
impact on sales. A finished goods inventory allows a firm, flexibility in its production
scheduling.
 CONCLUSION

Traditionally, working capital has been defined as the firm’s investment in current
assets. Working capital and its management determine the solvency position of the
business. Gross working capital refers to the total investment in current assets and
current liabilities. As working capital policy touches upon almost every functional
area of business, the scope of working management (WCM) is very wide.
The total duration taken by a firm to complete one chain of operations that begins
with the procurement of inputs and ends with the realization of credit sales is known
as operating cycle. Inventory conversion period (ICP), receivables conversion period
(RCP) and the payables deferral period (PDP) are the three constituents of the
operating cycle. Gross operating cycle (GOC) and net operating cycle (NOC) are the
two measures of the operating cycle, and so firms take recourse to techniques such as
outsourcing, vendor-managed inventory reduction is collection float, and
technological up gradation to cut the length of the operating cycle.
Managing working capital entails considering two related problems: of managing the
firms’ investment in current assets, and of managing the firms’ use of short term or
current liabilities. Thus the two key issues in WCM are:
 What should the optimal level of current assets held by the firm be?
 How should these current assets be financed?
Investing in current assets does have a favorable effect on the firms liquidity, butit
also has an unfavorable effect on the firms’ rate of return earned on invested funds.
Financing of current assets also involves a risk-return tradeoff. Other things remaining
the same, the greater the reliance upon short-term debt of current liabilities in
financing current assets, the lower will liquidity is. On the other hand, the use of
current liabilities offers some very real advantages to the user in that they can be less
costly then long-term financing and they provide the firm with a flexible means of
financing its fluctuating needs for assets.
Theoretically, the policies of working capital financing can be categorized as:
Matching; conservatives; and aggressive approaches. While the matching approach
uses shot-term financing sources to finance seasonal financing needs, and aggressive
approaches rely more on long-term and short-term sources of financing respectively.
Depending upon its current assets policies and the current assets financing policies, a
firm’s working capital can be categorized as conservative, aggressive or moderate.
Estimations of working capital requirements are based past date and future
projections. The required estimations of the duration and wait of different components
of operating cycle, the amount of working capital requirement depends, inter alia,
upon the nature of business.
Inventories represent the value that is blocked at both the ends of the
production systems. For a typical manufacturing firm, they serve as buffers to
decouple the purchasing, and sales activities of the firm, so that all do not have to
proceed at the same rate and unexpected events are not disruptive. Such buffers are
necessary because of transaction costs and uncertainty. As inventories are expanded,
some costs rise and others decline. The costs that rise with inventory are termed
carrying costs. They include storage costs, and risk of loss in value .Total ordering
costs of inventory decline with the increasing level of inventory.
The inventory theory provides a framework for analysing inventory costs. The
economic order quality (EOQ) model deals with the tradeoff between carrying costs
and ordering costs. Minimizing the sum of all inventory costs leads to the point of
maximum operating profit. As in the case of accounts receivables, the optimal
inventory policy must consider not operating profit alone, but also return on
investment. The expected return on incremental investment in inventory can be
calculated by identifying the various elements of cost associated with different
inventory levels, calculating incremental operating profit, and dividing by required
incremental investment.
The EOQ model is the certainty-based model, which is the cause of its
limitation. However, the model can be modified suitably adjusted to incorporate of
price, cost, demands and supply.
The objectives of both credit policy and inventory policy is to
maximize the value of the firm. In both cases, the policy that accomplishes this
objective lies at the point where marginal expected operating returns necessary to
compensate suppliers of funds.
Management of inventory assumes importance due to the fact that
funds that are blocked in the production-distribution system incur costs. To the extent
that a firm is able to untie the funds that are blocked in inventory it can create value of
shareholders. It is in this context that inventory control has emerged as one of the
prominent issues in costs management & control. Techniques like ratio analysis, ABC
analysis & vendor managed inventory are controlling the investment in inventory.
While techniques like JIT, outsourcing, improved supply chain, improved production
scheduling & re-engineering the order-to-delivery cycle etc., are useful in inventory
reduction.
Much of our concern with accounts receivable is derived from the
fact that they make up around 25% of a typical manufacturing firms assets. Thus,
because of their sheer magnitude, any change in their levels affects profitability. In
effect, when we discuss management of one-quarter of the firms assets. Management
of accounts receivable focuses on credit policy and collection procedures.
Credit policy directly influences sales, investment levels, bad-debt
losses, and collection costs. The demand for firm’s products can be purchased on
credit. As credit terms are made more liberal, the firm’s investment in cash, accounts
receivable, inventories, and, sometimes even physical investment increase in
complementary fashion. The decision to change the existing credit policy is taken
based on the incremental analysis of the change in credit terms. An appropriate credit
policy balances profits from increased sales due to more liberal credit terms with
increased costs due to increased investments, bad-debt losses, and collection costs.
The ideal credit policy allows for the liberalization of credit terms to the point where
the marginal revenues from a new category of credit accounts is exactly equal to the
marginal costs of selling and servicing such accounts. One way to liberalize credits
terms is to increase the credit period. Conversely, Credit terms can be tightened by
shortening the credit period. Credit policy can also be altered by changing credit
standards, i.e., by selling customers with higher of lower risk profiles. Models and
techniques like heuristic approach, credit scoring, etc., are put into practice for
evaluating the creditworthiness of customers.
Active collection efforts are needed by firms to collect the
accounts as and when they get due. By examining the average collection period, the
ratio of receivables to assets, the ratio of credit sales to receivables (called the
accounts receivable turnover ratio), and the amount of bad-debt relative to sales over
time, the finance manager can determine whether or not receivables are drifting out of
control. In addition, an ageing of accounts receivables provides a break-up both in
rupee and in percentage terms of the proportion of receivables that are past data offers
further insight into the degree of control that is being maintained over receivables.
Once the delinquent accounts have been identified, an effort should be made to collect
them. A variety of collection procedures can be utilized by the firm in its efforts to
collect on delinquent accounts. The initial efforts should be very low key and should
become stricter as per the response from debtors. Legal action is taken as the last
resort in realizing the amounts due.
The term cash in this chapter refers to total liquid assets, made up of working cash
balance plus interest-bearing securities and deposits. Firms hold cash (liquid assets)
for two reasons: to facilitate their day-to-day transaction (transactionary motive) and
to overall problem of cash management comprises of four issues: (1) collection and
disbursing funds efficiently; (2) developing a reliable system of cash forecasting to
identify the leads and lags in cash flows; (3) determining the appropriate working
cash balance and (4) investing the remaining excess cash.
The objective of cash management is to maximize the availability of cash and also, to
maximize interest income. The two may seem to be contradictory. In order to
maximize the availability of cash, firms should follow the policy of quick collections
and slow disbursements. Also they should concentrate the collected funds in a central
pool quickly to make the collected funds usable.
A reliable system of cash forecasting is a sine qua non of an effective cash
management system. Cash forecasting is an integrated exercise requiring inputs from
different sources and departments. The duration of forecast enables the firms to
identify the periods of cash surplus/deficit and do their resource planning accordingly.

This project is based on the study of “Customer perception and market potential
about “LAKHANI SHOES”. The market of Lakhani is prosperous & customer
perception about it is good. Major findings include that although company holds a
very good reputation in the market, it failed to satisfy customers on few aspects.
Although the company offers very good product quality but, few problems like
unattractive designs, low customer preferences in comparison with MNC’s like Nike,
Reebok, bad color combination, effective presence only in northern part of the
country are few problems with the Lakhani. Lack of good advertising & promotional
Strategies has made Lakhani to fall little low in the number game. The company
should improve the technology and designing process according to latest fashion and
trends in the apparels market. Company is facing stiff competition from Action,
Lakhani, Bata, Red Tape, Lee cooper Red Chief, Nike, Adidas, Reebok. Apart from
that company can indulge in promotional activities in rural areas where market
potential is really good.

 It has been observed that most of the customers were not aware with the quality and

features of the product.

 New entrants in the market are pushing their product very aggressively. There

marketing campaigns are very much effective and attractive.

 Customers usually add his shoe with his lifestyle as now they don’t want to

purchase one shoe for all the occasion.

 Design of Lakhani’s product is not that much effective. People find that other

competitor’s design and color combination is quite impressive.

 Most of the consumers were satisfied with the product’s raw material quality and its

performance as Lakhani’s shoes are known as a durable product.

 Most of the retailers were not satisfied with the dealer’s behavior. They said that

company should give emphasis on developing and managing an efficient and broad

distribution system.
 According to retailers, company does not understand the importance of distribution

system. Due to that retailers are turning towards other companies for stock to sale.
 According to survey, price does not matter much while making a purchase decision.
 SUGGESTIONS

 The market is, by and large, unaware about the features and quality of the

products of lakhani.

 A special marketing campaign should be started in the unexplored regions

where company does not have its reach.

 Company can exercise separate product mix, marketing mix and a

differentiated marketing communication mix for the marketing campaign.

 The company has the option of reducing the cost of production, so that the

price sensitive consumer can also be covered by the effective marketing strategy.

 Company should concentrate more on advertisements and sales promotions

through different media.

 There is enough demand in rural areas for lakhani products. After

liberalization, standard of living and purchasing power of rural people is on the rise.

There s a great scope in rural market as compared to the urban markets because major

portion of urban market is already saturated. By adopting an appropriate rural-

marketing strategy, the lakhani shoe limited can push up sales up to a great extant.

 Company’s advertisements are not very attractive. Company should make

them more interesting and effective.

 BIBLIOGRAPHY

Books:-

 Marketing management –

Kotler Philip Edition 2003

Page No. - 89-92

 Statistical method-

Gupta S.P Edition-2002

Page No.- 51-68

 Research methodology-

Kothari-C.R Edition 2006

Page No.-72-88

WEBSITES:-

 Company’s Handouts & Bulletins.

 www.lakhanishoes.com

 www.google.com