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A STUDY OF “WORKING CAPITAL MANAGEMENT” AT MINDA CORPORATION LTD. NOIDA From 3 rd May 2010 to 30 th June 2010. Submitted By: Manish Pandey (M200936) APEEJAY INSTITUTE OF TECHNOLOGY GREATER NOIDA (UP) Under The Guidance Of Submitted To Industrial Guide: Academic Guide: 1

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A STUDY

OF

“WORKING CAPITAL MANAGEMENT”

AT

MINDA CORPORATION LTD. NOIDA

From 3rd May 2010 to 30th June 2010.

Submitted By:

Manish Pandey (M200936)

APEEJAY INSTITUTE OF TECHNOLOGY GREATER NOIDA (UP)

Under The Guidance Of Submitted To

Industrial Guide: Academic Guide:

Mr. J.K.Gupta Ms. Sonika Gargi

Head Finance & Accounts Faculty- Finance

Minda Corporation Ltd. APEEJAY Institute Of

Noida (U.P) Technology Greater Noida (U.P)

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DECLARATION

I, hereby state that the project report titled “Working Capital Management” of Minda Corporation Ltd. is an original work done entirely by me and is based on my own observations. The facts presented here are true to the best of my knowledge.

Place: Noida (Manish Pandey.)

Date: 30- june- 2010

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PREFACE

During post graduation in master of business administration program, Students comes direct contact with the real corporate world through the Industrial training. PGDM program provides its students with an in-depth study of various managerial activities that are performed in any organization. It is great privilege for me to place this report before the readers. The report is concerned with “Working Capital Management Of Minda Corporation Ltd.” which is an QS 9000, ISO-14001, and TS  Certification. This report is proposed in a very simple and understandable language. I would also like to start that although every possible care has been taken to make this report error free. I shall feel highly obliged to all the readers if the same are brought to my notice. I sincerely express my gratefulness to all those who have directly or indirectly helped me in preparing this report.

I have spent my 8 weeks, prime time to under and the function of Finance and Accounts Section .

In brief I can say that this project is a summary of all the information and knowledge, I have gathered during my training period.

(Manish Pandey.)

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ACKNOWLEDGEMENT

This project is an authenticated work on Summer Training project at Minda Corporation Ltd. Noida Uttar Pradesh. This project which is on “Working Capital Management In Minda Corporation Ltd. provides details regarding the working capital, balance sheet, profit and loss account accounting process, and sales & purchase account.

I would like to take this opportunity to thank all the people, who extended their immense help to complete my project. I would like to thank my project supervisor Mr. J.K. Gupta, Head Finance And Accounts, Minda Corporation Ltd. who spent his valuable time to discuss about the project and his continuous co-operation to me and for guiding and helping me to solve all kinds of quarries regarding the project work.

I would also like to thank to my mentor Ms. Sonika Gargi (Finance) for their useful guidance and advises.

Last but not the least I would like to thank all the employees of Minda Corporation Ltd. who have directly or indirectly helped me with their moral support for the completion of my project.

(Manish Pandey.)

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SUPERVISOR’S CERTIFICATE

This is to certify that project titled, “ Working Capital Management ” carried out by Manish Pandey, student of PGDM –II year at Apeejay Institute of Technology, School of Management, Greater Noida, under my supervision.

This is an original work carried out by the said student to the best of my knowledge and I recommend for the submission of this research project.

(Ms. Sonika Gargi)

Faculty Supervisor

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DIRECTOR’S CERTIFICATE

This is to certify that project titled, “ Working Capital Management ” carried out by Manish Pandey , student of PGDM –II year at Apeejay Institute of Technology, School of Management, Greater Noida, under the supervision of Ms. Sonika Gargi. (Faculty Supervisor, AIT, Greater Noida).

This is an original work carried out by the said student to the best of my knowledge and I recommend for the submission of this research project.

(Prof. R. K. Verma) Executive Director

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TABLE OF CONTENTS

S.N PARTICULARS PAGE NO.

1. Declaration. 2

2. Preface. 3

3. Acknowledgement. 4

4. Certificates. 5-6

5. Company Profile. 10-29

(a) – Management Team 15-16

(b) -Group Companies. 16-21

(c) –Competitiveness & Commitments. 21-24

(d) –Mission And Vision Statement. 25-26

(e) –SWOT Analysis. 26-27

(f) -Products And Customers. 28-29

6. Objective Of The Project. 30

7. Methodology Of The Project. 31-32

8. Working Capital Management. 33-68

(a) –Concept Of Working Capital Management. 34-36

(b) -Determinant. 36-39

(c) –Need & Objective Of Working Capital . 39-41

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(d) –Operating Cycle. 42-44

(e) –Time & Money Concept Of Working Capital. 44-45

(f) –Types Of Working Capital. 45-48

(g) –Sources Of Working Capital 48-51

(h) –Different Aspect Of Working Capital.

(Management Of Inventory, Receivables / Debtors, Cash, Payable / Creditor

52-68

9. Working Capital Ratios. 69-84

(a) – Current Ratio. 69-70

(b) –Quick Ratio. 71-72

(c ) –Inventory Turnover Ratio. 73-74

(d) – Debtor Turnover Ratio. 74-76

(e) – Creditor Turnover Ratio. 76-78

(f) –Working Capital Turnover Ratio. 78-80

(g) – Average Collection Period. 80-82

(h) – Average Payment Period. 82-84

10. Working Capital. 84-88

(a) – Gross Working Capital. 84-86

(b) –Net Working capital. 86-88

11. Working Capital Limits 89-90

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12. Findings. 91-95

13. Conclusion. 96-97

14. Suggestion. 98

15. Bibliography. 99

16. Annexure. 100-103

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COMPANY PROFILE

HISTORY.

The group was founded in 1958 by Mr. S.L.Minda in Delhi. Today it has emerged as a leading automotive component player in India and Worldwide.

2010 Acquired Tectro in Poland

2009

Setup Minda Vietnam Co. Ltd.

Setup Minda Automotive Solutions in Uzbekistan

Acquired ALU Automotive in Germany

2008 Acquired Schenk Plastic Solutions in Germany

2007

Setup Japan Engg. Office

Minda Furukawa JV

Minda Valeo JV

Acquired KTSN in Germany

2005 Setup PTMA, Indonesia

2004 Minda Stoneridge JV

2003

Formed Minda SAI Ltd. (through merger of Sylea Automotiv India

Ltd. & Minda Wirelnks)

Acquired Sylea Automotive India Ltd.

1985Established Minda Wirelinks

Minda Huf JV

1989 MCL, Noida

1958 Group Foundation

OVERVIEW

For over  five decades,  MINDA  has been a major presence in  India's automobile industry. These fifty years have been interspersed by a number of

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technological innovations that have gone on to become industry standards. Today the Group has emerged as one of the leading manufacturer of automobile components with an expected turnover of  Rs. 1625 Crores ($ 340 million)  for 2009-10 and employs more than  8000 people  India-wide & Overseas.

For the technological edge, we have a dedicated R&D facility and collaborations with the pioneers and leaders of the Automobile Industry. For assimilating the latest technologies, Minda has entered into strategic alliances and technical collaborations with leading international companies and acquired businesses across Europe. This has provided Minda with the cutting edge in product design and technology to meet strict international quality standards.

The Group companies are accredited with  QS 9000, ISO-14001, and TS Certification. Minda Group is the India's leading manufacturers of Security Systems, Wiring Harnesses, Couplers & Terminals and Instrument Clusters, Die Casting, Interiors, Windows Regulators, Keys & Key Duplicating Machines, and Surface Finishing that caters to all major two , three, four wheeler & off – road vehicles manufacturer in India & Overseas

s

Export Sales

667 744995

14961750

2472

19872159

0

500

1000

1500

2000

2500

3000

2002 2003 2004 2005 2006 2007 2008 2009

Years

Rs M

illio

n

Export Sales

MINDA CORPORATION TODAY.

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Minda Corporation Limited started operation in the year 1985 under the name of Minda Switch Auto Private Limited for manufacture of Ignition Switches for Indian Automotive Industry.

In the year 1996, the company joined hands with Huf Hüsbeck Fürst GmbH & Co. KG, Germany and became a Joint Venture Company known as Minda Huf Limited. In its quest for growth and to serve the increasing needs of its customers for more products, the company was re – christened into its present form in 2007.

The company which started by making Ignition Switches for the service market is today one of the market leaders in the manufacture of 2 wheeler, 3 wheeler and off road vehicle security system and supplies to major Indian OEM's (Original Equipment Manufacturer) besides exporting about 20% of its products. Today, the company is not only making its conventional mechanical security but is also manufacturing high technology mechanical & electronic security system like 2 track & 4 track key system, Magnetic Shutter Mechanism, Immobilizers including the RF based & transponder based.

The Group manufactures different lines of automobile parts:

To cater to the Indian OEM's expectation of European technology, in the year 2007, the company diversified into the manufacturing of Door System with

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TOOL BOX LOCK

SEAT LOCK / CABLE ASSY.

FUEL TANK CAP LOCK

STEERING LOCK CUM IGNITION SWITCH

IMMOBILISER

& ALARM

FLASHER

REGULATOR RECTIFIER

INTELLIGENT CDI

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technical assistance from Castellon SA of Spain for design & manufacturing Window Regulators.

In the year 2009, the company started its Plastic Division with the support of its Group Companies in Europe.

Keeping in mind the future requirement of its customers, in 2009 the company rolled out its commercial production of Electronic Controllers for Electric Vehicles.

Minda Corporation Limited Is a diversified company with a product port folio encompassing from Mechanical & Electronic Security System, Door System, Electronic Controllers for Electric Vehicles, Plastic Interiors and for Auto OEMs across the Globe. It also manufactures Die Casting Parts and high class Surface Finishing parts for auto and consumer durable industry.

Minda Corporation Limited is one of the largest manufacturers of 2 wheeler, 3 wheeler and Off Road vehicles, Electronic & Mechanical Security System to Indian OEM's. It exports about 20% of its products to USA, UK, Europe & South East Asia and ASEAN countries.

It is the only company in India to have its own patented Magnetic Shutter for 2 wheeler application . To enhance the vehicle security it manufactures key sets with conventional keys, 2 track keys, 4 track keys & Snake Biting keys for 2 wheeler applications.

Minda Corporation Limited manufactures Window Regulator in India for renowned Indian OEM's with Technical Assistance from CASTELLON SA, Spain.

Minda Corporation Limited is the first company in India to develop a controller for E - Bikes. These controllers are manufactured with technical tie-up with NEC Corporation, Japan.

To provide German technology at Indian prices to India Auto OEM's Minda Corporation Limited has set up its Plastic Interiors manufacturing operations with support from its Group companies in Europe.

Minda Corporation Limited has a State of the Art Surface Finishing Division which is capable of plating Nickel, Chrome, Copper, Brass, Electrophoresis Lacquering, Powder & Wet painting facility to give any type of finish to its products.

Minda Corporation Limited has its own Die Casting Division, which develops Aluminum & Zinc Die Cast parts not only for Captive consumption but

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also for other Tier 1 & OEM customers in India and abroad. It is having Pressure Die Casting as well as Gravity Die Casting Machines. The Division also has excellent facilities for Machining & Powder coating the components.

MANUFACTURING.

Minda Corporation Limited was the first company in the Minda Group to establish and develop the strong Minda Manufacturing Systems which have been imbibed across the manufacturing plants of the Minda Group of companies.

The best practices like Kaizen, VSM, Poke - Yokes, Cellular manufacturing, Piece Flow etc are Implemented throughout its plants.

The State of the Art testing & validation equipment is installed at Minda Corporation Limited, to make it self sufficient to test & validate the vide range of the products manufactured by it. The company also has its own Standards Laboratory for calibrating its equipment from time to time.

Quality & Standardization is given the importance at Minda Corporation Limited. OEM's in India respect Minda Corporation Limited for its quality levels across all products.

Most of the plants are of Minda Corporation Limited are ISO/TS 16949, ISO (International Organization for Standardization) 14000 certified. The Pant Nagar plant and Its Surface Finishing Division are also OHSAS (Occupational Health & Safety Advisory Services) certified.

TPM activities are in place at its Pune & Pant Nagar plants.

Ashok Minda Group manufactures different lines of automobile parts that broadly fall under the following categories:

Electronic & Mechanical Security Systems.

Connective Systems.

Die Casting.

Window Regulators & Door Checkers.

Interiors.

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Instrument Clusters & Sensors.

Keys & Key Duplicating Machines.

Surface Finishing

MANAGEMENT TEAM.

Chairman & Group CEO.

Mr. Ashok Minda.

Business Heads.

Mr. Jeevan Mahaldar - Managing Director, Minda Corporation Ltd.

Mr. Sanjay Thapar - Managing Director, Minda Valco Security System

Pvt. Ltd.

Mr. N.K.Modi - Managing Director, Minda Stoneridge Instruments

Ltd.

Mr. Mukesh Malhotra – Managing Director, Minda KTSN Plastic Solution

GmbH.

Mr. paul Domink Czarnecki – Managing Director, Minda Schenk Plastic

Solutions Group.

Mr. Pramod Parasramka – Managing Director, Minda Silica engineering Ltd.

Mr. K.D.Singh – Joint Precedent, Minda Furukawa Electric Pvt. Ltd.

Mr. Praveen Gupta – Managing Director, Minda SAI Ltd.

CORPORATE FUNCTIONAL HEAD.

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Mr. D.C. Shrma – Group CEO.

Mr. Mukesh Malhotra – Head Global Interiors.

Mr. P. Elangovan – Head – Group Corporate TQM.

Mr. Vikas Rai Bhatnagar – Head – Group Corporate HR.

Mr. Kalyan Datt – Head – Group Corporate IT.

Mr. N.K. Taneja – Head – Group Corporate Marketing And Corporate.

GROUP COMPANIES.

(1)- MINDA SILCA ENGINEERING.

Minda Silca Engineering was incepted in 2002 by A.K. Minda Group with the name of Tuff Engineering Pvt. Ltd.

Based at Noida, this company of A.K. Minda group initiated with humble beginning by Partnering in providing key solutions to Original Key Manufacturers.

From supplying keys to OEMs of the parent company Tuff joined hands with Silca Inc. of Italy a member of world renowned Kaba group to be called as Minda Silca Engineering Ltd.

(2)- MINDA SAI LTD.

Minda SAI limited is one of the leading manufacturer of broad range of Wiring Harnesses, Wiring Sets, Connectors, Terminals & Wires.

Providing solutions to each vertical of Automotive world, Minda SAI also gives connective systems for White goods, Medical Equipments, Industrial & Domestic Freezers, Industrial & Domestic Boilers and Off – Road Vehicles.

As a connective system provider Minda SAI gives its customers, a complete solution from modular design to sequenced delivery with an expertise In process & product management.

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(3)- MINDA SCHENK PLASTIC SOLUIONS.

Minda Schenk Plastic Solutions specializes in manufacturing automotives interiors for cars. It is one of the key player in Europe and has several prestigious clients including global giants like Daimler. Minda Schenk is rapidly expanding its presence around the world and plants to strategically mark its presence in Indian market as well.

The company is headquarter is Esslingen, Germany and has two plants- is Esslingen and in Liberec, Czech Republic.

The company has a patent on skin form technologically that was developed by the company through rigorous research and has come to be recognized as a revolutionary application that promises to develop high - end plastic components. The skin form technology allows the development of plastic components in a manner that provides for a highly scratch – resistance and leather surfaces in plastics.

(4)- MINDA ASEAN AUTOMOTIVE.

Recognizing the importance of the ASEAN market, The Minda group has setup green field manufacturing facility in Indonesia through a company named PT. Minda Asean Automotive.

The project that was conceptualized in October 2004, began its production in Indonesia in October 2005, Today PT. Minda Asean Automotive boasts of a state of the art manufacturing facility in Indonesia.

In short span, the ASEAN venture started to acquire renowned ASEAN OEM customer and is today exporting to Malaysia, Vietnam, Philippines and Thailand.

The product range comprises of switches and locks for two wheelers and is going to start manufacturing of other groups product lines.

(5)- MINDA AUTOCARE LTD.

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Minda Autocare Limited (MACL) is the Group's specialist auto component distribution and servicing Company with a countrywide distribution network of about 300 dealers spread across 91 A, B and C category cities covering the 2 wheeler as well as 4 wheeler business segments. The company was established in 1985 and was then known as Switch Masters Limited.

The company supplies and services the entire range of Minda Group products across the length and breadth of the country. The goodwill and acceptance that Minda products have in the market is a direct result of the Group's emphasis on quality, its wide acceptance amongst almost all customers in the country, and the excellent sales and service facilities provided by the Minda Autocare Ltd. field force and distribution network, acknowledged to be amongst the best in the industry.

MACL has a three – tier distribution network, which covers over 15,000 retailers and garages/ mechanics/ electricians throughout the country. Development of a parallel distribution network largely through vehicle accessory dealers is also in the offing. This will support products such as Electronic Security Systems and Automotive Batteries. Simultaneously, MACL is also in the process of spreading its wings outside India to address the vast and growing global replacement market for its range of products.

(6)- MINDA INTERNATIONAL LTD.

Minda International Ltd. was setup in 2007 in order to interact and work closely with its Esteem Japanese customers, participating at Global Supplier Level in the Auto Component Sector.

The Japan Office started its operation in Japan in Jan-07 with an objective to make effective Communication, Co-ordination and Collaboration with OEMs in Japan regarding Design and Development of Auto Components across the Globe.

Minda International Ltd. is working towards establishing MINDA as a renowned and preferred Global Auto Component solution provider.

(7)- MINDA KTSN PLASTIC SOLUTION.18

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Kunststofftechnik Sachsen GmbH & Co. KG is a subsidiary of the Indian Minda Group with more then 3500 employees worldwide. We are a medium-sized, international company which secured oneself a good market position as automotive supplier.

Minda KTSN Plastic Solutions GmbH & Co. KG (MKPS) is a Group Company of the Ashok Minda Group. Located at Pirna, near Dresden, MKPS has more then 50 years experience in development and production of technically plastic parts -and assemblies.

The business activities include the complete processes chain: Starting with the first design draft up to the realization of the production run.

Customers in Europe and all over the world have confidence in our Know - How regarding the realization of their products, Innovative, constructive solutions and their realization assure us and our customers the necessary head start.

(8)- MINDA VIETNAM COMPANY LTD.

Vietnam Co. Ltd. was established in June 2008 for the purpose of addressing the growing auto market in Vietnam and exporting to the ASEAN countries. It has established a plant in Binh Xuyen Industrial Zone in the northern province of Vinh Phuc.

Minda Vietnam is the first Indian automotive component manufacturer in Vietnam.

(9)- MINDA VALEO SECURITY SYSTEM PVT. LTD.

The Minda Valeo Security Systems Pvt. Ltd. enjoys market leadership in security systems for the automotive industry.

Headquartered at Pune, Minda Valeo Security Systems Pvt. Ltd. is 50:50 joint venture between A K Minda Group and Valeo Security Systems, France.

(10)- MINDA STONERIDGE INSTRUMENTS LTD.

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Minda Stoneridge Instruments Limited (MSIL), a group company of the Ashok Minda Group entered into a joint venture with Stoneridge Inc, a leading manufacturer of Electronics instruments.

As a part of this agreement the $752 million Stoneridge Inc, USA (NYSE: SRI) has 49% stake in MSIL. With this development, MSIL has exclusive manufacturing and marketing rights for India and 17 Asian countries, namely Malaysia, Indonesia, Philippines, Singapore, Thailand, Vietnam, Pakistan, Bangladesh, Brunei, Burma, Cambodia, Laos, Mauritius, Maldives, Nepal, Sri Lanka.

Our plant is located at Chakan, Pune, giving us proximity to most of the automotive OEM's in India. Our plant has all the state of the art machinery, testing and support facilities required for making all types of instruments as per our customer's requirement.

(11)- MINDA FURUKAWA ELECTRIC PVT. LTD.

Minda Furukawa Electric Pvt. Ltd. (MFE) is a Joint Venture between the Ashok Minda Group, India and Furukawa of Japan. The Joint Venture is a 51: 49 partnership with Ashok Minda Group holding 49% and Furukawa holding 51%.

The company develops and produces the entire range of wiring harness for four wheelers for its customers, and components related to wiring harness e.g. couplers, terminals, relay box, junction box, and Steering Roll Connectors used for the airbag systems etc.

(12)- MINDA AUTOMOTIVE SOLUTIONS.

Minda Automotive Solutions (MAS) was incorporated in March 2009 with a view to support the only automotive customer General Motors – Uzbekistan being a localized source. Prior to this supply of various parts such as Instrument clusters, Security systems, sensors etc. were being exported from India. Since the year 2000.

RESEARCH AND DEVELOPMENT.

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Minda Group has grown with technology over the years. All Group Companies have their own special cells that undertake Research and Development activities from time to time. With an ever-expanding portfolio of automotive products there is a renewed emphasis on Research and Development in the Group. Today our R&D activities span many countries and many products.

In Minda Corporation Ltd., the Group's oldest Company, a dedicated Research Department undertakes research on developing futuristic Mechanical & Electronic Security Systems, Window regulators, Electronic Controllers & Plastic Interiors. This R&D department not only works for its Indian operations but also develops products for its manufacturing companies in Indonesia & Vietnam. The engineers in this department are globally - trained and they also frequently coordinate with the Indian Institutes of Technology (IITs) and the various design teams in Minda Group companies that are stationed in Germany & Japan. Minda Corporation Limited has filed 8 patents on Magnetic Shutter technology in India, Indonesia, Vietnam, Philippines, Thailand and Japan.

Minda Schenk Plastic Solutions (MSPS), our benchmarked Group Company in Plastic Interiors, owns the patent to the world – class Skinform Technology. This technology allows the development of plastic components in a manner that provides highly scratch - resistant and leather – like hepatic surfaces in plastics. Research in Skin form was begun in MSPS in March 2003 and by June 2003 it went for trials and was eventually introduced in October 2004.

COMPETITIVENESS.

(a)- ENGINEERING.

Engineering capabilities are acclaimed far and wide. The Minda Group today has the capability to transform any idea that the customers may have on innovative products for their future vehicles.

Most of our engineering resources are hand – picked from the best institutes in the country. Fresh engineers are rigorously trained to be able to meet the demands of the industry and our customers. The engineering force is led by a team of seasoned professionals with several years of experience in the industry.

(b)- MANUFACTURING.

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Manufacturing facilities are spread all across the world, depending on specific products and also the needs of specific markets. Beginning with its first manufacturing plant in India in 1958, the Group today is a global player operating from 16 plants in India and about 10 plants and offices in Germany, Indonesia, Poland, Czech Republic, Vietnam, Japan, India, and Uzbekistan. It is our manufacturing excellence that most of our customers respect us for our benchmarked quality levels across all products.

Following are the highlights of our manufacturing capabilities:

Use of best practices like kaizen, VSM, Poke – Yokes, Cellular manufacturing, Piece Flow etc. that are implemented throughout its plants.

State of the testing & validation equipment to test & validate wide range of the products manufactured by us.

Standards Laboratory for calibrating equipment from time to time.

Most of our plants are ISO/TS 16949, ISO 14000 certified and OHSAS certified.

COMMITMENTS.

(a)- CORPORATE GOVERNANCE.

Corporate Governance practices requires from a Company that it functions as a unit which is able to meet its obligations, optimize shareholders' value and be accountable towards the Community, Customers Employees, Government and other segments of the society.

The Company believes that the Corporate Governance is not only about creating checks and balances; it is also about creating an outperforming organization, which leads to increasing Employee and Customer satisfaction and delivering Shareholder value by ensuring timely and transparent, financial as well as managerial disclosures. Transparency, fairness, disclosure and accountability are central to the working of the Company and its Board of Directors.

Our Group is open, accessible and consistent with communication. It shares a long term perspective and firmly believes that good Corporate Governance practices underscore its drive towards competitive strength and sustained performance. Thus, basic Corporate Governance norms have been institutionalized as an enabling and facilitating business process at the Board, Management and at all operational levels.

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(b)- SOCIAL RESPONSIBILITY.

Children are the most valuable yet the most vulnerable resource of our society. They also constitute to be the foundation of any organized society; in fact they are our future.

Yet much remains to be done at the ground level. For instance, revisit the statistics on infant mortality, malnutrition, deaths due preventable diseases, child illiteracy, and lack of basic needs. These reflect that more is required from each one of us to promote and protect our future.

Childhood is a priceless possession and cannot be redeemed. It is also the laboratory for adulthood.

After watched the Gujarat earthquake in 2001 The Minda Corporation promote an institution that could provide natural care, love and protection to the parentless children. Minda Bal Gram was started to fulfill this aim. It has made a modest beginning with limited resources. It tries to provide enabling environment to children to develop intellectual, moral and spiritual capacities for a meaningful life.

(c)- ENVIROMENT & SAFETY.

The Minda Group has always been committed to developing products and manufacturing processes that combine technological innovation with respect for the environment.

All Group companies are concerned about environmental impacts of its activities and products and are therefore committed to:

Ensuring continual improvement in its environmental performance.

Ensuring compliance with all applicable environmental Laws and regulations.

Reducing air, water and soil pollution, waste generation and natural resources consumption.

Generate environmental awareness among all employees.

A series of Energy Conservation, water conservation and pollution control Activities Under ISO 14001 have been implemented.

Energy Conservation.

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In a step towards Energy Conservation, energy efficient tube lights (E+) have been introduced in Assembly area. This has resulted in the saving of 22 Mw per existing lights (4 feet) and 32 Mw per 2 existing tube lights (2 feet).

These tube lights are guaranteed for a period of 2 years - free replacement.

Water Conservation.

Under Water Conservation program, the company has saved 600 KL of ground water from Jan'03 to June'03. This much of the treated water was used from ETP output, which is as par with the norms of Environmental Protection Rules 1986 / schedule VI.

Pollution Control.

In the step towards abating various type of pollutions, some specific plantation were done in the company.

For Air Pollution (Bel, Gurhal)

For Pollution of dust, temperature, chemical emission (Amaltas, Mango Teak).

For Noise Abatement ( Cassia nodosa, Ashok)

For plants that restored garbage dumps to pleasant green landscape ( Arjun, Gulmohar, Ticoma stans).

MISSION AND VISION STATEMENT.

“To be a Dynamic, And Profitable Global Automotive Organization For Emerging As The Preferred Supplier and Employer, To Create Value For All Stakeholders.”

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Minda Mission is to be  globally recognized as world class system supplier  to Minda’s valued customers by doing  360 degree innovation, making excellence a habit, utilizing cutting edge technologies and  delivering maximum customer satisfaction. 

PHILOSOPHY OF THE VISION STATEMENT.

Dynamic.

As a player the Group is sensitive to the rapidly changing business environment. The actions of all Group Companies are and will be geared towards meeting stringent benchmarks and norms that are required and will be required.

Innovative.

As a group Minda have been at the forefront of innovation. Minda Group intend to increase its focus on innovation in products and technologies, organizational structure, and optimizing efficiencies. Minda Group also are committed to change management as a way of life to enable us to meet the emerging challenges of the Industry.

Profitable.

Minda Group want to emerge in the Global arena as a leading automotive player and realize profitability in business so as to sustain and enhance its efforts towards emerging as a leader in the industry.

Global.

Minda Group are already Global and will continue to expand to meet the global requirements of OEMs and be a significant player globally, in its own domain. In spreading globally Minda Group will not focus on any specific country or region but take decisions based on its core interests in the automotive sector.

Automotive.

Minda Group will stick to being a significant player in the automotive domain and emerge as a systems supplier. Minda Group will not deviate from his core sector but will expand to include different components and systems that align and have synergy with its products and technologies.

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Emerge Preferred Supplier and Employer.

Minda Group will be focused towards meeting the two essential areas of endeavor - become a preferred supplier to global OEMs and also emerge as the preferred employer in its Industry. For this, Minda Group plan to undertake several initiatives such as closely monitoring every aspect of our move to offer world – class products to his ever - increasing clientele. On the employee front, we intend to continue with its people – sensitive initiatives so as to realize a rich and vibrant work – culture and also, continue to nurture employees towards greater efficiency, through training and development. As a Group, Minda consider that its employees are equal owners and stakeholders and this Group belongs to them all. Minda Group will continue to offer participation in the Growth of its Group, to all its employees.

Create Value For All Stakeholders.

As an Organization Minda Group is sensitive towards all stakeholders including its esteemed Clients, its Employees and their Families, our Suppliers, and the Society within which Minda operate. Minda Group core focus is on developing confidence, generating greater thrust towards undertaking active role in building Customer Trust and Confidence, generating Greater Returns and Trust for its Investors, undertaking Corporate Social Responsibility for wider interests of the society and the needs of its Suppliers, as well as, addressing the holistic Needs and Concerns of its Employees and their Families.

SWOT ANALYSIS OF MINDA CORPORATION LTD.

Strengths:

Strong brand recognition.

Growing International presence.

Strong Financial returns. Strong sense of culture in the working environment.

Customer Loyalty.

Good Corporate image.

Organization can change direction quickly if the approach isn't working.

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Weakness:

Complexity of operation.

Lengthy processing chain.

Continuous increase in labor cost.

Appreciation of rupees against foreign currency.

Opportunity:

Rapid integration with Global Economy.

Explore the new market in the rest of the World.

The modernization, productivity improvement and cost control measures will improve the performance of the division in times to come.

Threats:

Entry of Global players.

Political Threats.

The impact of Foreign currency fluctuation and Interest Rates.

It is hard to find the skillful labor for the company.

The numbers of players are increasing which further increases the competition.

PRODUCTS.

Remote Key Less Antenna.

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To know about the Current assets and Current liabilities position of Minda Corporation Ltd.

To determine the Ratios relating to the Working Capital.

To know about the Net Working Capital position of Minda Corporation Ltd.

To look at possible remedial measures if any on the basis of which tied –

up funds in Working Capital could be used effectively and efficiently.

To suggest, if possible on the basis of conclusion some modification to

meet the situation.

METHODOLOGY OF THE PROJECT.

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The Methodology followed in this project involved the following Phases:

Collection of Data.

Type of the project.

Analysis of Data.

Conclusion & Recommendation.

Collection of Data:

Data required for the project e.g. Balance Sheet, statement of Profit & Loss Account etc. were collected from the Annual Reports of Minda Corporation Ltd. period of 2005-06, 2006 - 07, 2007 - 08, & 2008 – 09 and other necessary information collected itself like for inventory, Direct expenses, and Working Capital Provider Banks and their limits etc. Besides for Explanation of several issues, different articles, Internet data’s, Books etc were consulted. The data collected are Primary Data .

Type Of The Project:

The project is descriptive and analytical in nature.

Analysis:

For the comparative analysis ratios were used along with graphs, charts, and necessary diagrams. The current year i.e., 2009-10 has not been taken into calculation because, at that time the preparation of this annual report of the Company was going on.

Interpretation & Recommendation:

After completion of the entire analysis, interpretation & recommendation were made on the basis of figures and diagrams . Statistical tools like Tables, Charts, Bar graphs used for representation of data.

LIMITATIONS OF THE PROJECT.

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Time is definitely the main Constraint. Time was not sufficient enough to asses all the processes and policies of an organization of the structure o Minda Corporation LTD.

The study depends on Financial data collected from Annual Report Of the company. The data collected from above the source are not of detailed nature.

Inadequacy of data is another problem.

There are controversies related to correctness of Current Assets and Current Liabilities that enters in to the domain of Working Capital Management.

WORKING CAPITAL MANAGEMENT.

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INTRODUCTION.

“Working capital means the part of the total assets of the business that change from one form to another form in the ordinary course of business operations.”

“More business fails for lack of cash than for want of profit”. Efficientmanagement of working capital is one of the pre – conditions for the success of an enterprise. Efficient management of Working Capital means management of various components of Working Capital in such a way that an adequate amount of Working Capital is maintained for smooth running of a firm and for fulfillment of twin objectives of liquidity and profitability. While inadequate amount of Working Capital impairs the firm’s liquidity. Holding of excess Working Capital results in the reduction of the profitability. But the proper estimation of Working Capital actually required, is a difficult task for the management because the amount of Working Capital varies across firms over the periods depending upon the nature of business, production cycle, credit policy, availability of raw material, etc. Thus efficient management of Working Capital is an important indicator of sound health of an organization which requires reduction of unnecessary blocking of capital in order to bring down the cost of financing..

Management of Working Capital Management is an extremely important area of Financial Management as Current Assets represent more than half of total assets of a business. For shortage of Working Capital, the enterprise would suffer reduction in earnings due to productive capacity remain unutilized. While excess Working Capital leads to extra cost for want of productive capacity. Thus the amount of Working Capital in every enterprise, whether manufacturing or non – manufacturing, should be neither more or less than what is actually required.

Working Capital in business is just live blood in human body. Optimum and appropriate movement of blood through the body is extremely necessary to continue life. Like human blood, the proper circulation of funds (Working / Circulating Capital) is utmost necessary to continue business. If the circulation of Working Capital becomes weak, the businesses can hardly prosper and service. An enterprise should maintain optimum amount of Working Capital so as to carry on the productive and distributive activities smoothly. While, the determination of optimum level of Working Capital involves fundamental decisions to an organization’s liquidity, which in turn are influenced by a trade off between profitability and liquidity. Thus, goal of Working Capital Management is to manage the firm’s Current Assets and liabilities in such a way that satisfactory level of Working Capital minted.Every Business needs funds for two purpose:-

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Long term funds are required to create production facilities through purchase of fixed assets such as plants, machineries, lands, & buildings etc.

Short term funds are required for the purchase of raw materials, payment of wages, and other day – to – day expenses.

CONCEPT OF WORKING CAPITAL.

The word working capital is made of two words :

1.Working and

2. Capital

The word working means day to day operation of the business, whereas the word capital means monetary value of all assets of the business.

MEANING OF WORKING CAPITAL.

Working Capital is the amount of capital that a business has available to meet the day - to - day cash requirements of its operations, or more specially, for financing the conversion of raw material into finished goods, which the company sells for payment. Funds are also needed for short – term purposes for the purpose of raw materials, payment of wages and other day – to – day expenses, etc. These funds are known as Working Capital. In simple words, Working Capital refers to that part of the firm’s capital, which is required for financing short - term or Current Assets such as cash, marketable securities, debtors and inventories. Working Capital is a valuation metric that is calculated as Current Assets over Current Liabilities. Working Capital is also known as Operating Capital.

Working Capital can be defined broadly in two different ways i.e. Gross Working Capital and Net Working Capital.

Gross Working Capital refers to organizations investment in total Current Assets. Current Assets are the assets, which can be, convert into cash within an accounting year and include Cash, Marketable Securities, intently etc. it is also known as Circulating Capital.

Net Working Capital refers to the difference between Current Assets and Current Liabilities are those claims of outsiders, which are accepted to mature

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for payment within an accounting year and include Creditors, Bills Payable and outstanding expenses.

Symbolically: NWC = CA – CL.

Where, NWC = Net Working Capital.

CA = Current Assets.

CL = Current Liabilities.

Net Working Capital can also be defined as the portion of firm’s Current

Assets, which can financed by long – term funds.

CURRENTS ASSETS.

This is any cash or assets that can be quickly turned into cash. Current Assets are assets, which can be converted into cash within an accounting year.

Constituents of Current Assets:

Cash in hand and bank balance.

Bills receivables.

Sundry debtors (provision for bad debts).

Short tern loans and advances.

Inventories of stocks.

Raw material.

Work in progress.

Stores and spares.

Finished goods.

Prepaid expenses.

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Accrual incomes. Etc.

CURRENT LIABILITIES:

Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year.

Constituents of current Liabilities:

Bills payable.

Sundry creditors or account payable.

Short term borrowings.

Dividend payable.

Bank overdraft.

Provisions.

Outstanding expenses.

Reserve for D/D (Discount For Debtors).

Tax in arrear.

Dividend in arrear.

DETERMINANTS OF WORKING CAPITAL:

Working Capital requirements of a concern depends on a number of factors, each of which should be considered carefully for determining the proper amount of Working Capital. It may be however be added that these factors affect differently to the different units and these keeps varying from time to time. In general, the determinants of Working Capital which re common to all Organization’s can be summarized as under:

(a)- Nature Of Business:

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Need for Working Capital is highly depends on what type of business, the firm in. there are trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public utilities like railways, electricity, ete., need much less inventories and cash. Manufacturing concerns stands in between these two extends. Working Capital requirement for manufacturing concerns depends on various factors like the products, technologies, marketing policies.

(b)- Production Policies:

Production policies of the organization effects Working Capital requirements very highly. Seasonal industries, which produces only in specific season requires more Working Capital. Some industries which produces round the year but sale mainly done in some special seasons are also need to keep more Working Capital.

(c)- Size Of Business:

Size of business is another factor to determines the need for Working Capital.

(d)- Length Of Operating Cycle:

Operating Cycle of the firm also influence the Working Capital. Longer the Operating Cycle, the higher will be the Working Capital requirement of the organization.

(e)- Credit Policy:

Companies; follows liberal credit policy needs to keep more Working Capital with them. Efficiency of debt collecting machinery is also relevant in this matter. Credit availability form suppliers also effects the company’s Working Capital requirements. A company doesn’t enjoy a liberal credit from its suppliers will have to keep more Working Capital.

(f)- Business Fluctuation:

Changes in the Economy also influencing the Working Capital. During boom period, the tendency of Management is to increase the up inventories of raw materials and finished goods to avail the advantage of rising prove. This creates demand for more Capital. Similarly during depression when the prices

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and demand for manufactured goods. Constantly reduce the industrial and trading activities show a downward termed. Hence the demand for Working Capital is low.

(g)- Current Asset Policies: The quantum of Working Capital of a company is significantly determined by its Current Assets policies. A company with conservative assets policy may operate with relatively high level of Working Capital than its sales volume. A company pursuing an aggressive amount assets policy operates with a relatively lower level of Working Capital.

(h)- Fluctuations Of Supply And Seasonal Variations:

Some Companies need to keep large amount of Working Capital due to their irregular sales and intermittent supply. Similarly companies using bulky materials also maintain large reserves’ of raw material inventories. This increase the need of Working Capital. Some companies manufacture and sell goods only during certain seasons. Working Capital requirements of such industries will be higher during certain season of such industries period.

(i)- Other Factors:

Effective co – ordination between production and distribution can reduce the need for Working Capital. Transportation and communication means. If developed helps to reduce the Working Capital requirement.

EXCESS OR ADEQUATE WORKING CAPITAL.

Every business concern should have adequate Working Capital to run its business operations. It should not have either redundant / excess Working Capital or inadequate/ shortage of Working Capital. Both excess as well as shortage of Working Capital situations are bad for any business. However, out of the two, inadequacy or shortage of Working Capital is more dangerous from the point of view of the firm.

Disadvantages Of Redundant Or Excess Working Capital:

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Idle funds, non – profitable for business, poor ROI.

Unnecessary purchasing & accumulation of inventories over required leve.

Lower rate of return leads to lower dividend available to share holder that causes companies Goodwill decreases.

Overall inefficiency in the organization.

When there is excessive Working Capital, Credit worthiness suffers.

Due to low rate of return on investments, the market value of shares may fall.

Disadvantages Or Dangers Of Inadequate Or Short Working Capital:

Can not pay off its short – term liabilities in time.

Economies of scale are not possible.

Difficult for the firm to exploit favorable market situations.

Day – to – day liquidity worsens.

Improper utilization the fixed assets and ROA/ROI falls sharply.

NEED FOR WORKING CAPITAL.

The basic objective of Financial Management is to maximize shareholder’s wealth. For this it is necessary to generate sufficient profits. The extent to it, which the profit can be earned, largely depends on the magnitude of sales. However sales do not convert into cash instantly. There is invariable the time gap between the sales of goods and receipts of cash. There is, therefore, a need for Working Capital in the form of Current Assets to deal with the problem arising. Out of the lack of immediate realization of cash again goods sold. Therefore, sufficient Working Capital is necessary to sustain sales activity.

Working Capital is needed for the following purpose:-

For the purchase of raw material, components and spares.

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To incur day to day expenses and overhead costs such as fuel, power and office expenses, etc.

To meet selling costs as packing, advertisement etc.

To provide credit facilities to the customers.

To maintain the inventories of raw material, work in progress, stores and spare and finished goods.

To pay wages and salaries.

OBJECTIVE OF WORKING CAPITAL MANAGEMENT.

Deciding Optimum Level of Investment in various Working Capital Assets.

Decide Optimal Mix of Short Term and Long Term Capital.

Decide Appropriate means of Short Term Financing

WORKING CAPITAL IN TURMS OF FIVE COMPONENTS.

(a)- Cash And Equivalents: - This most liquid form of Working Capital requires constant supervision. A good cash budgeting and forecasting system provides answers to key questions such as: Is the cash level adequate to meet Current expenses as they come due? What is the timing relationship between cash inflow and outflow? When will peak cash needs occur? When and how much bank borrowing will be needed to meet any cash shortfalls? When will repayment be expected and will the cash flow cover it?

(b)- Accounts Receivable: - Many businesses extend credit to their customers. If you do, is the amount of Accounts Receivable reasonable relative to sales? How rapidly are receivables being collected? Which customers are slow to pay and what should be done about them?

(c)- Inventory: - Inventory is often as much as 50 percent of a firm's Current Assets, so naturally it requires continual scrutiny. Is the inventory level reasonable compared with sales and the nature of your business? What's the rate of inventory turnover compared with other companies in your type of business?

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(d)-Accounts Payable:- Financing by suppliers is common in small business; it is one of the major sources of funds for entrepreneurs. Is the amount of money owed suppliers reasonable relative to what you purchase? What is your firm's payment policy doing to enhance or detract from your credit rating?

(e)- Accrued Expenses And Taxes Payable: - These are obligations of your company at any given time and represent a future outflow of cash.

FORCASTING / ESTIMATION OF WORKING CAPITAL MANAGEMENT REQUIREMENT.

Factors to be considered:

Total costs incurred on materials, wages and overheads. The length of time for which raw materials remain in stores before they are issued to production.

The length of the production cycle or WIP, i.e., the time taken for conversion of raw material into finished goods.

The length of the sales cycle during which finished goods are to be kept waiting for sales.

The average period of credit allowed to customers.

The amount of cash required to pay day to day expenses of the business.

The amount of cash required for advance payments if any.

The average period of credit to be allowed by suppliers.

Time – lag in the payment of wages and other overheads.

NATURE OF WORKING CAPITAL MANAGEMENT.

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WORKING CAPITAL (OPERATING) CYCLE.

The Working Capital requirement of a firm depends, to a great extent upon the Operating Cycle of the firm. The operating cycle may be defined as the time duration starting from the procurement of goods or raw material and ending with the sales of realization. The length and nature of the Operating Cycle may differ from one firm to another depending upon the size and nature of the firm. In a trading concern, there is a series of activities starting from procurement of goods (saleable goods) and ending with the realization of sales revenue (at the time of sale itself in the case of cash sales and at the time of debtors realization in case of credit sales). Similarly in case of manufacturing concern, this series starts from the procurement of raw materials and ending with the sales realization of finished goods. In both the cases, however, there is

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Profitablity,

Risk &

Liquidity

Profitablity,

Risk &

Liquidity

Working

Capital

Management

Working

Capital

Management

Composition & Level

Of CA

Composition & Level

Of CA

Composition &

Level Of CL

Composition &

Level Of CL

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a time gap between the happening of the first event and the happening of the last event. This time gap is called the Operating Cycle.

Thus, the Operating Cycle of a firm consists of the time required for the completion of the chronological sequences of some or all of the following:-

Procurement of raw material and services.

Conversion of raw material into work – in – progress.

Conversion of work – in – progress into finished goods.

sale of finished good(cash or credit)

Conversion of receivable into cash.

Symbolically: -

O = R + W + F + D - C.

Where, O= Length of Operating Cycle.

R= Raw Material storage period.

W= work in progress period.

F= Finished stock storage period.

D= Debtors collection period.

C= Creditors payment period

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( The Working Capital Cycle (Operating cycle)

TIME AND MONEY CONCEPT IN WORKING CAPITAL CYCLE.

Each component of working capital (namely inventory, receivables and payables) has two dimensions . TIME and MONEY, when it comes to managing working capital.

Time is Money:

If we can get money to move faster around the cycle (e.g. collect money due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund Working Capital. As a consequence, we can reduce the cost of bank interest or will have additional free money available to support additional sales growth or investment. Similarly, if we can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; we effectively create free finance to help future sales.

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If We Then

Collect receivables (debtors) faster. We release cash from cycle.

Collect receivables (debtors) faster. Our receivables soak up cash.

Get better credit (in terms of duration or amount from suppliers).

We increase our cash resources.

Shift inventory (stocks) faster. We free up cash.

Move inventory (stocks) slower. We consume more cash.

TYPES OF WORKING CAPITAL.

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ON THE BASIS OF CONCEPT.

Gross Working Capital : The Gross Working Capital refers to the firm’s Investment in all the assets taken together. The total of investment in all the individual Current Assets is the Gross Working Capital.

For example: if a firm has a cash balance of Rs. 50,000, debtors of Rs.70,000 and inventory of raw material and finished goods has been assessed at Rs .1,00,000, then the Gross Working Capital of the firm is Rs.2,20,000 (i.e. Rs 50,000 + Rs.70,000 + Rs.1,00,000).

Net Working Capital : The term Net Working Capital may be defined asthe excess of Total Current Assets over Total Current Liabilities. Current Liabilities refer to those liabilities which are payable within a period of 1 year.

The Net Working Capital may either be positive or negative. If the Total Current Assets are more than Total Current Liabilities, then the difference is known as Positive Net Working Capital, otherwise the difference is known as Negative Net Working Capital. The Net Working Capital measures the firm’s liquidity. The greater the margin, the better will be the liquidity of the firm.

Net Working Capital = Total Current Assets – Total Current Liabilities.

A financial manager must consider both (Gross and Net Working Capital) because they provide different interpretation. The Gross Working Capital denotes the Total Working Capital or the total investment in Current Assets. This will help avoiding :

The unnecessary stoppage of work or chance of liquidation due to insufficient Working Capital.

Effect on profitability (over flowing Working Capital implies cost). The Gross Working Capital also gives an idea of total funds required for maintaining Current Assets.

On the other hand, Net Working Capital refers to the amount of funds that must be invested by firm, more or less, regularly in Current Assets. The Net Working Capital also denotes the net liquidity being maintained by the firm.

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ON THE BASIS OF TIME.

Permanent / Fixed Working Capital : Permanent Working Capital may bedefined as the minimum level of Current Assets, which is required by a firm to carry on its business operations. Every firm has to maintain a minimum level of raw materials, work – in – progress, finished goods and cash balances.

For example – extra inventory of finished goods will have to be maintained to support the peak periods of sale. Permanent Working Capital is permanently needed for the business and therefore, it should be financed out of long term funds.

Fluctuating / Variable Working Capital : It is the extra Working Capital needed to support the changing production and sales activities of the firm. The amount of Temporary Working Capital keeps on fluctuating on time to time on the basis of business activity.

Both kind of Working Capital – Permanent and Fluctuating (Temporary) are necessary to facilitate production and sales through the Operating Cycle. The amount over and above Permanent Working Capital is temporarily variable or fluctuating.

PERMANENT AND VARIABLE WORKING CAPITAL OF A STABLE FIRM.

Amount Of Temporary Working Capital.WorkingCapital.

Permanent Working Capital.

Time.

In the above figure, it is shown that Permanent Working Capital is stable over the time, while Temporary Working Capital is fluctuating – some times increasing and sometimes decreasing.

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PERAMANENT AND TEMPORARY WORKING CAPITAL OF A RISING FIRM.

However when the business is Growing, the level of Permanent Working

Capital also grows. The Working Capital graph will be rising one as given in

figure below:

Temporary Working Capital. Amount Of Working Capital.

Permanent Working Capital.

Time.

SOURCES OF WORKING CAPITAL.

The company can choose to finance its Current Assets by:

Long term sources.

Short term sources.

A combination of them.

(1)- Long Term Sources Of Working Capital.

Include Equity and Preference Shares, Retained Earning, Debentures and other Long Term Debts from public deposits and Financial Institution. The Long Term Working Capital needs should meet through long term means of financing.

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Financing through long term means provides stability, reduces risk or payment. And increases liquidity of the business concern. Various types of long term sources of Working Capital are summarized as follow:

(a)- Issue of Shares: It is the primary and most important sources of regular or Permanent Working Capital. Issuing equity shares as it does not create and burden on the income of the concern. Nor the concern is obliged to refund capital should preferably raise Permanent Working Capital.

(b)- Retained Earnings:

Retain Earning accumulated profits are a permanent sources of regular Working Capital. It is regular and cheapest. It creates not charge on future profits of the enterprises.

(c)- Issue Of Debentures:

It crates a fixed charge on future earnings of the company. Company is obliged to pay interest. Management should make wise choice in procuring funds by issue of Debentures.

(d)- Long Term Debt:

Company can raise fund from accepting public deposits, debts from financialInstitutions like banks, corporations etc. the cost is higher than the other financial tools.

(e)- Other Sources: sale of idle Fixed Assets, Securities received from employees and customers are examples of other sources of finance.

(2)- Short Turm Sources Of Working capital.

Temporary Working Capital is required to meet the day to day business expenditures. The Variable Working Capital would finance from short term sources of funds and only the period needed. It has the benefits of, low cost and establishes closer relationships with banker.

Some sources of Temporary Working Capital are given below:

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(a)- Commercial Bank:

A commercial bank constitutes significant sources for short term or Temporary Working Capital. This will be in the form of short term loans, cash credit, and overdraft and though discounting the bills of exchanges.

(b)- Public Deposits:

Most of the companies in recent years depend on this source to meet their short term Working Capital requirements ranging from six month to three years.

(c)- Various Credits:

Trade credit, business credit papers and customer credit are other sources of short term Working Capital. Credit from suppliers, advances from customers, bills of exchanges, etc helps to raise Temporary Working Capital

(d)- Reserves and other funds:

Various funds of the company like depreciation fund. Provision for tax and other provisions kept with the company can be used as Temporary Working Capital. The company should meet its Working Capital needs through both long term and short term funds. It will be appropriate to meet at least 2/3 of the Permanent Working Capital equipments form long term sources, whereas the Variables Working Capital should be financed from short term sources. The Working Capital financing mix should be designed in such a way that the overall cost of Working Capital is the lowest, and the funds are available on time and for the period they are really required.

(3)- Sources Of Additional Working Capital.

Sources of additional Working Capital include the following-

Existing cash reserves.

Profits (when you secure it as cash).

Payables (credit from suppliers).

New equity or loans from shareholder.

Bank overdrafts line of credit.

Long term loans.

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If we have insufficient Working Capital and try to increase sales, we can easily over stretch the financial resources of the business. This is called overtrading. Early warning signs include:-

Pressure on existing cash.

Exceptional cash generating activities . offering high discounts for clear cash Payment.

Bank overdraft exceeds authorized limit.

Seeking greater overdrafts or lines of credit.

Part paying suppliers or there creditor.

Management pre occupation with surviving rather than managing.

SIGNIFICANCE OF WORKING CAPITAL.

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PAYMENT TO

SUPPLIERS.

PAYMENT TO

SUPPLIERS.

SIGNIFICANCE OF

WORKING CAPITAL.

SIGNIFICANCE OF

WORKING CAPITAL.

EASY LOANS FROM BANKS.

EASY LOANS FROM BANKS.

INCREASE EFFECIENC

Y.

INCREASE EFFECIENC

Y.

INCREASE IN FIXED ASSETS.

INCREASE IN FIXED ASSETS.

INCREASE DEBT

CAPICITY.

INCREASE DEBT

CAPICITY.

DIVIDENT DESTRIBUTION.

DIVIDENT DESTRIBUTION.

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DIFFERENT ASPECTS OF WORKING CAPITAL MANAGEMENT.

Management of Inventory.

Management of Receivables / Debtors.

Management of Cash.

Management of Payables / Creditors.

MANAGEMENT OF INVENTORY.

Inventories constitute the most significant part of Current Assets of a large majority of companies. On an average, inventories are approximately 60% of Current Assets. Because of large size, it requires a considerable amount of fund.

The inventory means and includes the goods and services being sold by the firm and the raw material or other components being used in the manufacturing of such goods and services.

NATURE OF INVENTORY.

The common type of inventories for most of the business firms may be classified as raw – materiall, work – in – progress, finished goods.

Raw Material : It is basic inputs that are converted into finished products Through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions.

Work – in – Pogress : Work – in – progress is semi – manufactured products. They represent products that need more work before they become finished products for sale.

Finished Goods : These are completely manufactured products which are ready for sale.

NEED TO HOLD INVENTORY.

Maintaining inventories involves trying up of the company’s funds and incurrence of storage and holding costs. There are three general motives for holding inventories: -

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(a)- Transactions Motive: IT emphasizes the need to maintain inventories to facilitate smooth production and sales operation. (b)- Precautionary Motive: It necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. (c)- Speculative Motive: It influences the decision to increase or reduce inventory levels to take advantage of price fluctuations.

OBJECTIVE OF INVENTORY MANAGEMENT.

The aim of Inventory Management should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for smooth production and sales operations.

An effective Inventory Management should:-

To ensue a continuous supply of raw material to facilitate uninterrupted production.

To maintain sufficient stocks of raw materials in the periods of short supply and anticipate price changes.

To maintain sufficient finished goods inventory for smooth sales operation, and efficient customers service.

To Minimize the carrying cost and time.

To Control investment in inventories and keep it at an optimum level.

EFFECT OF EXCESS OR INADEQUATE INVENTORY.

If too much inventory is held, the organization wastes money through a variety of factors.

Money is held up in stock when it could be put to better use.

There are superfluous warehousing and storage costs.

Inventory may deteriorate.

There is potentially greater risk of theft.

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On the other hand, too little inventory can lead to stock – out which can:

activity. Completely Stopped.

Lose income.

Cause discomfort or distress to Clint.

INVENTORY MANAGEMENT TECHNIQUE.

In managing inventories, the firm’s objective should be in consonance with the shareholder wealth maximization principle. For this, the firm should determine the optimum level of inventory. Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in unbalanced inventory and inflexibility – the firm may sometimes run out of stock and sometimes may pile up unnecessary stocks. This increases the level of investment and makes the firm unprofitable.

To manage inventories efficiently, the following two questions should be kept in mind:-

1. How much should be ordered?

2. When should be ordered? To answer the above two questions, we must calculate Economic Order Quantity and Re – Order Point.

Economic Order Quantity (EOQ).

The Economic Order Quantity model attempts to determine the order size that will minimize the total inventory cost. It assumes that total inventory cost = total carry cost + total ordering cost.

The EOQ model as a technique of Inventory Management defines three parameters for any inventory:-

Minimum level of inventory of that item depending upon the usage rate of that item, time leg in procuring that item and unforeseen circumstances, if any.

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The re – order level of that item , at which next order for that item must be placed to avoid any chance of a stock – out .

The re – order quantity for which each order must be placed.

Assumptions: The EOQ model is based on the following assumptions:-

The total usage of a particular item for a given period ( usually 1 year) is known with certainty and that the usage rate is even through out the period.

That there is no time gap between placing an order and getting its supply.

The cost per order of an item is constant and the cost of carrying inventory is also fixed and is given as % of average value of inventory.

That there are only two costs associated with the inventory, and these are the cost of ordering and the cost of carrying the inventory.

EOQ may be presented as follows:-

2AP C

Where,

EOQ = Economic Order Quantity. A = Total annual requirement for the item. P = Ordering cost per order of that Item. C = Carrying cost per unit per annum.

Ordering Cost.

The term Ordering Costs is used in case of raw materials (or supplies) and includes the entire costs of acquiring raw material. It includes requisitioning, purchase ordering, transporting, receiving, inspecting and storing. Ordering Cost increase in proportion to the number of order placed. Thus, the more frequently inventory is acquired, the higher the firm’s Ordering Cost. On the other hand, if

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the firm maintains large inventory level, there will be few orders placed and Ordering Costs will be relatively small.

Total ordering Cost = (Annual Requirement Per Order Cost) Order Size TOC = AP C

Carrying cost.

Costs incurred for maintaining a given level of inventory are called carrying cost. It includes storage, insurance, Taxes, deterioration and obsolescence. Carrying costs very with inventory size

Total Cost. Carrying Cost.

.

Ordering Cost.

Cost. O EOQ. It is shown that the total Ordering Cost for any particular item is decreasing as the size per order is increasing. It is just because of the increase in the size of the order; the total numbers of orders for a particular item will decrease resulting in decrease in the Total Order Cost. The Total Annual Carrying Cost is increasing with the increase in order size. This will happen because the firm would be keeping more and more items in stores. The

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Total Cost of inventory initially reduces with the increase in the size of order but then increases with the increase in the size of order. The trade – off of these two costs is attained at the level at which the Total Annual Cost is the least.

The Re – Order Point. The Re – Order level is the level of inventory at which the fresh order for the item must be placed to procure fresh supply. The Re – Order point depends on Lead Time, Average usage, Economic Order Quantity.

Lead Time. Is the time normally taken between the placement of an order and receiving the supply.

Average Usage.

Is the rate at which the inventory is being used up.

Reorder point = Lead time × Average usage

MANAGEMENT OF RECEIVABLES / DEBTORS.

The Receivables (including the debtors and the bills) constitute a significant portion of the Working Capital. The Receivables emerge whenever goods are sold on credit and payments are deferred by customers. A promise is made by the customer to pay cash within a specified period. The customers from whom receivable or book debts have to be collected in the future are called trade debtors and represents the firm’s claim or Assets. Thus, Receivable is type of loan extended by the seller to the buyer to facilitate the purchase process.

Receivable Management may be defined as collection of steps and procedure required to properly weight the costs and benefits attached with the credit policy. The Receivable Management consist of matching the cost of increasing sales (particularly credit sales) with the benefits arising out of increased sales with the objective of maximizing the return on investment of the firm.

Nature.

The term Credit Policy is used to refer to the combination of three decision variables:-

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(a)- Credit Standards.

It is the criteria to decide the type of customers to whom goods could be sold on credit. If a firm has more slow – paying customers, its investment in accounts receivable will increase. The firm will also be exposed to higher risk of default.

(b)- Credit Terms.

It specifies duration of credit and terms of payment by customers. Investment in accounts receivable will be high if customers are allowed extended time period for making payments.

(c)- Collection efforts.

It determine the actual collection period. The lower the collection period, the lower the investment in accounts receivable and vice versa.

COSTS AND BENEFITS OF CREDIT POLICY.

There are various costs and benefits attached with a Credit Policy.

COSTS.

Cost Of Financing.

The credit sales delays the time of sales realization and therefore the item gap between incurring the cost and the sales realization is extended. This results blocking of funds and the company has to arrange funds to meets its obligation. These funds are to be procured at some explicit or implicit cost. This is known as the Cost of Financing the receivables.

Administration Cost:

A firm will have to incur various costs in order to maintain the record of credit customers both before and after the credit sales.

(a)- Delinquency Costs: The firm may have to incur additional cost as delinquency costs, if there is delay in payment by a customer. It includes reminders, phone calls, postage , legal notice etc. More over, there is always an opportunity cost of the fund tied up in the receivable due to delay in payment.

(b)- Cost Of Default By Customers: If any default is made by the customers in payment, partly or wholly, it will termed as bad debts. It becomes cost to the firm.

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BENEFITS.

(a)- Increase In Sales: The sales can be increased by credit sales. This will attract more customers to the firm resulting in higher sales and growth of the firm.

(b)- Increase In Profit: Increase in sales will help the firm to easily recover the fixed expenses and attaining break – even level and increase the operating profit of the firm. In a normal situation, there is a positive relation between the sales volume and the profit.

(c)- Extra Profit: Sometimes, the firm make the credit sales at a price which is higher than the usual cash selling price. It brings an opportunity for the firms to make extra profits.

TRADE – OFF ON RECIVABLES.

The trade – off on receivables can be applied to find out whether to liberalize the credit terms or not. More liberal credit terms may be expected to generate higher sales revenue and higher profit. But they increase the potential cost also in the form of bad debts and a decrease in liquidity of the firm. If the net benefit expected from liberalizing the credit terms is positive, the firm may offer such terms, otherwise not. On the other hand, a stringent Credit Policy reduces the profitability but may increase the liquidity of the firm.

Profitability.

Cost And Benefit.

Liquidity.

Optimum. Stringent policy Credit Policy Liberal policy Credit Policy, Profitability and Liquidity of a Firm.

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It is clear from the above figure that as the firm takes its Credit Policy towards more and more liberal; its liquidity decreases whereas the profitability increases. On the other hand, if the firm makes its Credit Policy more and more stringent, the liquidity may increase but profitability will go down.

Thus, a firm should try to frame its Credit Policy in such a way as to attain the best possible combination of profitability and liquidity.

CREDIT EVALUATION. Credit Evaluation involves determination of the type of customers who are going to qualify for the trade credit. Evaluation of Credit worthiness of a customer is a two fold steps procedure:-

Collection of information.

Analysis of information.

Collection Of Information.

In order to make better decisions, the firm may collect information from various on the prospective credit customers. The following are sources of information which can provide sufficient data or information about the credit worthiness of a customer:-

(a)- Bank Reference: The bank may be asked to comment on the financial position of a particular customer. The customer may also be required to ask his Bank to provide necessary information in this respect.

(b)- Credit Agency Report: There are certain credit rating agencies which provide independent information on the credit worthiness of different parties. These credit agencies gather information on the credit history and see it to the firm which want to extend credit.

(c)- Published Information: The published financial statements of the customers for few preceding years may also be taken as a source of information. Various ratios calculated on the basis of these financial statements may throw light on the profitability, liquidity and debt service capacity of a customer.

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Analysis Of Information.

Once all the available credit information about a potential customer has been gathered, it must be analyzed to reach at some conclusion regarding the credit worthiness of a customer. A firm should go for further information and analysis only if required. If it is evident at any stage that the customer has satisfactory credit worthiness, then there is no need to go for costly exercise of further analysis . In case of those customers who are marginally creditworthy. In such situation, the financial manager must attempt to balance the potential profitability against the potential loss from the default.

CONTROL OF RECEIVABLES. Once the credit has been extended to a customer as per the credit policy, the next important step in the management of receivables is the control of these receivables. In this reference, the efforts may be required in the two directions as follow:-

(a)- The Collection Procedure: Once a firm decides to extend credit and defines the terms of credit sales, it must develop a policy for dealing with delinquent or slow paying customers. The overall collection procedure of the firm should neither be too lenient nor too strict. A strict collection policy can affect the goodwill and damage the growth prospect of sales. If a firm has a lenient Credit Policy, the customer may become slower in payments. Thus, the objective of collection procedure and policies should be to speed up the slow paying customers and reduce the incidence of bad debts.

(b)- Monitoring Of Receivables: In order to control the level of receivables, the firm should apply regular checks and there should be a continuous monitoring system. The finance manager should keep a watch on the credit worthiness of all the individual customers and the total Credit Policy of the firm. For this ,number of measures are available as follows:-

1. Average Collection Period: A common method to monitor the receivables is the collection period or number of day’s outstanding receivables. The Average Collection Period may be as follows:

Debtors × 365 Credit Sales

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The collection period so calculated is compared with the firm’s stated credit period to judge the collection efficiency.

There are 2 limitations to this method:-

It provides an average picture of collection experience and it is based on aggregate data.

It is susceptible to sales variations and the period over which sales and receivables have been aggregated.

2. Lines Of Credit: Another control measures for Receivables Management is the line of credit which refers to the maximum amount of a particular customer may have as due to the firm at any time. Different lines of credit may be allowed to different customers. The lines of credit must be reviewed periodically for all the customers.

3. Accounting Ratios: Accounting information may be useful in order to control the receivables. Two accounting ratios may be calculated to find out the changing pattern of receivables.

Receivables Turnover Ratio.

Average Collection Period.

MANAGEMENT OF CASH.

Cash Management refers to management of cash balance and the bank balance and also includes the short terms deposits. Cash is the important Current Asset for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis. It is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The term cash includes coins, currency, and cheque held by the firm and balance in the bank accounts.

Factors Of Cash Management.

Cash Management is concerned with the managing of

Cash flows into and out of the firm.

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Cash flows within the firm.

Cash balance held by the firm at a point of time by financing deficit or investing surplus cash.

(CASH MANAGEMENT CYCLE.)

Sales generate cash which has to be disbursed out. The surplus cash has to be invested while deficit has to borrow. Cash Management seeks to accomplish this cycle at a minimum cost and it also seeks to achieve liquidity and control.

ASPECT OF CASH MANAGEMENT.

In order to resolve the uncertainty about cash flow prediction and lack of synchronization between cash receipts and payments . The firm should develop appropriate strategies regarding the following four aspects of Cash Management:-

(a)- Cash Planning: Cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planning period. Cash Budget should be prepared for this purpose.

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Business

Operation.

Business

Operation.

Information And

Control.

Information And

Control.

Cash

Collection.

Cash

Collection.

Deficit.

Surplus.

Deficit.

Surplus.

Cash

Payment.

Cash

Payment.

Borrow.

Invest.

Borrow.

Invest.

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(b)- Managing The Cash Flows: The flow of cash should be properly managed. The Cash Flow should be accelerated while the cash outflows should be decelerated.

(c)- Optimum Cash Level: The firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.

(d)- Investing Surplus Cash: 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 inter – corporate lending.

MOTIVES OF HOLDING CASH.

A distinguishing feature of cash as an asset is that it does not earn any substantial return for the business. Even though firm hold cash for following motives:-

(a)- Precautionary Motive: This implies the needs to hold cash to meet unpredictable contingencies such as strike, sharp increase in raw materials prices. If a firm can borrow at short notice to pay them unforeseen contingency, it will need to maintain relatively small balances and vice – versa.

(b)- Speculative Motives: It refers to the desire of the firm to take advantage of opportunities which present themselves at unexpected movements and which are typically outside the normal course of business.

(c)- Compensatory Motive: Bank provides certain services to their client free of cost. They therefore, usually require client to keep minimum cash balance with them to earn interest and thus compensate them for the free service so provided.

OBJECTIVE OF CASH MANAGEMENT.

There are two basic objectives of Cash Management:-

(a)- Meeting cash disbursement.

This is the first basic objective of cash management, according to which the firm should have sufficient cash to meet the various requirement of the firm at different time period. Cash has been described as “Oil to lubricate the ever turning wheels if business, without it the process grinds to a stop.”

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Managing your cash balances is one of the most important parts of Working Capital Management. If an organization runs out of cash resources it will have to stop operating immediately . There may not even be the money to pay the salaries at the end of the month, and the banks might have started dishonoring cheques. Furthermore, the trustees or directors could stand charged with wrongful or fraudulent trading, which could entail personal liability or even imprisonment.

(b)- Cash Planning.

Cash Planning is a technique to plan and control the use of cash. It helps to anticipate the future cash flows and needs of the firm and reduces the possibility of idle cash balances and cash deficits. Cash Planning protects the financial conditions of the firm by developing a projected cash statement from a forecast of expected cash inflows and outflows for a given project. Cash plans are very crucial in developing the overall operating plans of the firm. Cash Planning may be done on daily, weekly or monthly basis. The period and frequency of Cash Planning generally depends upon the size of the firm and philosophy of management.

Cash forecasting and Budgeting: Cash Budget is the most significant device to plan for and control cash receipts and payments. A Cash Budget is a summery statement of the firm’s expected cash inflows and outflows over a projected time period. It gives information on the timing and magnitude of expected cash flows and cash balances over the projected period. This information helps the financial manager to determine the future cash needs of the firm, plan for the financing of these needs and exercise control over the cash and liquidity of the firm.

IMPORATANCE AND SIGNIFICANCE OF CASH BUDGET.

Cash Budget is an effective tool of cash management and it may help the management in the following ways:-

Identification of the period of cash shortage so that the Financial Manager may plan well in advance about arranging the funds at an appropriate time.

Identification of cash surplus position and duration for which surplus would be available so that alternative investment of this excess liquidity may be considered in advance.

Better coordination of the timing of cash inflows and outflows in order to avoid chances of shortages or surplus of cash.

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Cash forecasts are needed to prepare Cash Budgets. Cash forecasting may be done on short or long – term basis. Generally, forecasts covering periods of one year or less are considered short term. Those extending beyond one year are considered long – term.

Short – Term Cash Forecast: It is comparatively easy to make Short – Term Cash Forecasts. The important functions of carefully developed Short – Term Cash Forecasts are:-

To determine operating cash requirements.

To anticipate short – term financing.

To manage investment of surplus cash.

The short – term forecast helps in determining the cash requirements for predetermined period to run a business. One of the significant roles of the Short – Term Forecasts is to pinpoint when the money will be needed and when it can be repaid.

Long – term Cash Forecasting: Long – Term cash forecasts are prepared to give an idea of the company’s financial requirements in the distant future. They are not as detailed as the Short – Term Forecasts. The major uses of the Long – Term Cash Forecast are:-

It indicates as company’s future financial needs, especially for its Working Capital requirement.

It helps to evaluate proposed capital projects. It pinpoints the cash required to finance these projects as well as the cash to be generated by the company to support them.

It helps to improve corporate planning. Long – Term Cash Forecasts compel each division to plan for future and to formulate projects carefully.

Long – Term Cash Forecast may be made for two, three or five years. Long –Term Cash Forecasting reflects the impact of growth, expansion or acquisitions. It also indicates problems arising from these developments.

Control Aspects: After preparation of Cash Budget, the Financial Manager should also ensure that there are no significant difference between the expected Cash Flows and the Actual Cash Flows. This requires controlling and reviewing of the whole exercise on a regular basis.

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MANAGEMENT OF PAYABLES / CREDITORS.

Creditors are a important part of effective Cash Management and should be managed carefully to enhance the cash position. Purchasing initiates Cash Outflows and an over – zealous purchasing function can create liquidity problems. Consider the following:-

Who authorizes purchasing in our company – is it tightly managed or spread among a number of people?

Are purchase quantities geared to demand forecasts?

Do we use order quantities which take account of stock – holding and purchasing costs?

Do we know the cost to the company of Carrying Stock?

Do we have alternative source of supply?

How many of our suppliers have a returns policy?

Are we in a position to pass on cost increases quickly through price increase?

If a supplier of good or service lets you down can you charge back the cost of delay?

Can we arrange delivery of supplies staggered or on a just – in – time basis?

TRADE CREDIT.

Trade Credit refers to that credit that a customer gets from suppliers of goods in the normal course of business. This deferral of payments is a short – term financing called Trade Credit. It is a major source of financing for firms. It is mostly an informal arrangement and is granted on an open account basis. Open account Trade Credit appears as Sundry Creditors on the buyer’s balance sheet.

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CREDIT TURMS.

Credit Terms refer to the conditions under which the supplier sells on credit to the buyer and the buyer is required to repay the credit. These conditions include the due date and the cash discount given for prompt payments. Due date is the date by which the supplier expects payments. Cash discount is the concession offered to the buyer by the supplier to encourage him to make prompt payments.

BENEFITS AND COSTS OF TRADE CREDIT.

Trade Credit is normally available to a firm. As the volume of the firm’s purchase increases, Trade Credit also expands.

The major advantages of Trade Credits are as follows:-

(a)- Easy Availability: Unlike other sources of finance, Trade Credit is relatively easy to obtain. Except in the case of financially very unsound firms, it is almost automatic and does not require any negotiations.

(b)- Flexibility: Trade Credit grows with the growth in firm’s sales. The expansions in the firm’s sales cause its purchase of goods and services to increase which is automatically financed by Trade Credit.

(c)- Informality: It does not require any negotiations and formal agreement. it does not have the restrictions which are usually parts of negotiated sources of finance. Trade Credit involves implicit cost. The cost of credit may be transferred to the buyer via the increased price of goods supplied to him. The user of Trade Credit should be aware of the costs of Trade Credit to make use of it intelligently. Most of the time the supplier passes on all or part of costs to the buyer implicitly in the form of higher purchase price of goods and services supplied. Credit Terms sometimes include cash discount if the payment is made within a specified period. The buyer should take a decision whether or not to avail it. If the buyer takes discount, he benefits in terms of less cash outflow, but then he foregoes the credit granted by the supplier beyond the discount period. In case of stretching accounts payable the firm has to forgo the cash discount and may also be required to pay penalty interest charges.

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WORKING CAPITAL RATIOS OF MINDA CORPORATION AND ITS INTERPRITATION LTD.

(A)- CURRENT RATIO.

It is most common measure for measuring liquidity. It expresses relationship between Current Assets & Current Liabilities. The Current Ratio of a firm measures its short – term solvency, that is, its ability to meet short – term obligations. It indicates the money amount of Current Assets available for each money unit of liabilities.

A Current Ratio of 2:1 is usually considered satisfactory (thumb rule). However, sometimes a lower ratio of 1.33:1 is also accepted.

  CURRENT ASSETS (Rs.)  

2009 2008 2007 2006

TOTAL 432,523,788 401,376,070 558,139,109 408,193,805

  CURRENT LIABILITIES (Rs.)  

  2009 2008 2007 2006

TOTAL 397,572,358 350,738,937 481,819,290 283,481,370

      2009 2008 2007 2006

 

Current Ratio =Current Assets 432,523,788 401,376,070 558,139,109 408,193,805

 Current Liability 397,572,358 350,738,937 481,819,290 283,481,370

 

  1.08 1.14 1.16 1.44

             

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OBSERVATION.

Now if we analyze the four years data it can be predicted that it holds a stable position all throughout period but it is seen that in 2005-06 the Current Ratio was 1.44 which is best ratio in these four years and after that ratio is continuously decreasing. It holds a low position in 2008-09 which is 1.08.

Normally the Current Ratio of 2:1 considered very good. Banks however, taken as Current Ratio 1.33:1 as reasonable.

After analyzing the four years Current Ratio it can be predicted that the companies liquidity position decreasing day by day because we saw that the Current Ratio of the company is decreasing every year. It was highest in 2005-06 and lowest in 2008-09.

So it can say that the liquidity position of the company in 2005-06 was good but after that continuous decreasement in the liquidity position of the company.

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(B)- LIQUID/ ACID TEST RATIO.

It is also known as Acid Test Ratio. It is a relation between Quick Assets and Current Liabilities. It is more useful in knowing the Liquidity of a firm than Current Ratio.

A quick Assets means Current Assets excluding Stock and Prepaid Expenses.

The term Quick Assets refers to Current Assets which can be converted into cash immediately or at a short notice without diminution of value. These include Cash and Bank balances, Short –Term Marketable Securities and Debtors/ Receivables.

The Acid Test Ratio is a rigorous measure of the firm’s ability to service short – term liabilities.An ideal Acid Test Ratio is generally taken as 1:1.

  LIQUID ASSETS (Rs.)  

  2009 2008 2007 2006Current Assets 432,523,788 401,376,070 558,139,109 408,193,805Less. Inventory -85,420,518 -77,795,186 -186,824,737 -123,283,427

Less. Prepaid Expenses        

TOTAL 347,103,270 323,580,884 371,314,372 284,910,378

Quick Ratio = Quick Assets Current Liability

  2009 2008 2007 2006

Quick Ratio = 347,103,270 323,580,884 371,314,372 284,910,378

  397,572,358 350,738,937 481,819,290 283,481,370

 

  0.87 0.92 0.77 1.00

           

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OBSERVATION.

Quick Ratio indicates the company has sufficient liquid balance for the payment of Current Liabilities. The normal value for such ratio is taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm.

Now if we analyze the four years data it can be predicted that the Quick Ratio in 2005-06 is best which was 1.01 and after that it fluctuate and move up and down and in 2008-09 it is 0.87.

In the Financial year 2005-06 the Quick Ratio was 1.01, so can satisfactory and in the Financial year 2006-07, 2007-08, 2008-09 was i.e. 0.77, 0.92, 0.87 which is not satisfactory. It may not be able to meet its Current liabilities on time, which is not a good sign for the enterprise.

The Liquid Ratio of 1:1 is suppose to be standard but here ratio is less

than 1:1 in recent 2-3 years. It means the company has less Liquid

Assets that actually it is suppose to have.

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(C)- INVENTORY TURNOVER RATIO.

It is the ratio between the Net Sales and the average inventory.

Inventory Turnover Ratio = Net Sales / Average Inventory

The ratio indicates how fast inventory is sold.

Rs.

  2009 2008 2007 2006

Net Sales 2,159,827,365 1,987,165,186 2,567,315,127 1,986,630,925

      2009 2008 2007

 

Inventory Turnover = Net Sales 2,159,827,365 1,987,165,186 2,567,315,127

Ratio Avg. Inventory 81,607,852 264,619,924 155,054,082 

      26.47 7.51 16.56

times times Times

In times.

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OBSERVATIONS.

This ratio tells the story by which stock is converted into sales. A high Stock Turnover Ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year.

Now if we analyze the three years data it can be predicted that the ratio has been increasing. In 2006 – 07 the Inventory Turnover Ratio was 16.56 times but in 2007-08 Inventory Turnover Ratio decreases and it was 7.51 times and in the 2008-09 it again increases and it is 26.47 times which is good for the company. So we can say that the company is able to turned its inventory in sales.

A high Inventory Turnover Ratio indicates the efficient management of inventory because more frequently the stocks are sold. So we can say that enterprise have a very good Inventory Turnover Ratio.

For every organization point of view the High Inventory Turnover Ratio is desirable , but high Inventory Turnover Ratio may not indicates the profitable situation always.

(D)- DEBTOR TURNOVER RATIO. It is the Ratio between the Net Sales and Sundry Debtors Outstanding during the year.

Debtors Turnover Ratio = Net Sales / Sundry Debtors

The ratio measures how rapidly receivables are collected.

Rs.

  2009 2008 2007 2006

Net Sales 2,159,827,365 1,987,165,186 2,567,315,127 1,986,630,925

Sundry Debtor 239,107,328 228,557,499 261,010,999 202,617,020

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 2009 2008 007 2006

Debtor Turnover = 2,159,827,365 1,987,165,186 2,567,315,127 1,986,630,925Ratio 239,107,328 228,557,499 261,010,999 202,617,020   9.03 8.69 9.84 9.80

     Times  Times  times  Times

OBSERVATIONS.

The Debtors Turnover Ratio, which shows that the number of times the Debtors are turned over cash during a year. The Debtor of the company is increasing which shows that the company is able to properly managing its Debtors.

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Now if we analyze the four years data it can be predicted that the Debtor Turnover Ratio decrease in 2008-09 in comparison to 2005-06 and it fluctuates.

Higher the value of Inventory Turnover Ratio the more efficient is the management of Debtors or more Liquid the Debtors are. Similarly, low Debtors Turnover Ratio implies inefficient management of Debtors or less Liquid Debtors.

In 2005-06 the Debtor Turnover Ratio was 9.80 times which was good and ratio increases in the year 2006-07 and it was 9.84 times which shows the good sign for the company, in 2007-08 Debtor Turnover Ratio decreases and it was 8.69 times which was not good for the company and comparatively to previous year it increases in 2008-09 and it is 9.03 times. So excluding 2007-08 we can say the Debtor Turnover Ratio is good.

Low Debtor Turnover Ratio in 2007-08 indicates slowing down process of collection system or an extend line of credit that is being allowed by the customer to the company.

(E)- CREDITOR TURNOVER RATIO.

It is the ratio between net purchases and the Sundry creditors outstanding during the year. Creditors Turnover Ratio = Net Purchases / Sundry Creditors

The ratio indicates how rapidly payables are paid.

Rs.

  2009 2008 2007 2006

Net Purchase 1,387,416,871 1,307,116,569 1,662,808,944 1,223,265,953

Sundry Creditor 332,880,796 277,738,589 399,598,888 215,228,141

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  2009 2008 2007 2006

Creditor Turnover= 1,387,416,871 1,307,116,569 1,662,808,944 1,223,265,953

Ratio 332,880,796 277,738,589 399,598,888 215,228,141

  4.17 times. 4.71 times 4.16 times. 5.68 times.

In times.

OBSERVATION.

The creditor Turnover Ratio indicates how rapidly payables are paid to the

supplier.

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Now if we analyze the four years data it can be predicted that the Creditor Turnover Ratio decrease in 2008-09 in comparison to 2005-06 and it fluctuates.

A high Creditors Turnover Ratio or a lower Credit Period ratio signifies that the Creditors are being paid promptly. This situation enhances the credit worthiness of the company. However a very favorable ratio to this effect also shows that the business is not taking the full advantage of credit facilities allowed by the Creditors.

In 2005-06 the Creditor Turnover Ratio was 5.68 times and ratio decreases in the year 2006-07 it was 4.16 times which shows the bad sign for the company, in 2007-08 Creditor Turnover Ratio increases and reached to 4.70 times and comparatively to previous year it decreases in 2008-09 and it is 4.17 times.

In 2005-06 the Creditor Turnover Ratio 5.68 times was best and in 2008-09 it decreases and reached to 4.17 times. It is a bad for the company because if the higher Creditor Turnover Ratio it means we pay money in time then we get credit easily but other side if the Creditor Turnover Ratio is low it means we are not able to pay the money on time then it is difficult for the company to get credit from the supplier. Higher Creditor Turnover Ratio is very important for the company. So it means company has low Creditor Turnover Ratio so company work for increase the Creditor Turnover Ratio.

(F)- WORKING CAPITAL TURNOVER RATIO.

This ratio indicates whether the investments in Current Assets or Net Current Assets ( i.e., Working capital ) have been properly utilized.

Higher the ratio lower is the investment in Working Capital and higher is the profitability. But too high ratio indicates over trading. Working Capital Ratio = Net Sales / Working Capital.

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  WORKING CAPITAL (Rs.)  

  2009 2008 2007 2006Current Assets 432,523,788 401,376,070 558,139,109 408,193,805

Less. Current Liabilities -397,572,358 -350,738,937 -481,819,290 -283,481,370

Net Working Capital 34,951,430 50,637,133 76,319,819 124,712,435

      2009 2008 2007 2006W.C Turnover Ratio =

Net Sales 2,159,827,365 1,987,165,186 2,567,315,127 1,986,630,925

 Working Capital 34,951,430 50,637,133 76,319,819 124,712,435

   61.80 39.24 33.64 15.93

      times. times. times. times.

In times.

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OBSERVATION.

Working Capital Turnover Ratio indicates whether the investments in Current Assets or Net Current Assets ( i.e., Working Capital ) have been properly utilized. In order words it shows the relationship between Sales and Working Capital. Higher the ratio lower is the investment in Working Capital and higher is the profitability.

In the financial year 2005-06 the Working Capital Turnover Ratio was 15.93 times but after that it continuously increasing. Working Capital Turnover Ratio in the financial year 2006-07, 2007-08 was i.e. 33.64, 39.24 times and in the year 2008-09 the ratio is 61.8 times which is good sign for the company.

Working Capital Turnover Ratio is an important indicator about the Working Capital position. Now if we analyze the four years data we find that Ratio follows increasing trend which means that companies investment in Working Capital is minimum and the company utilizing more of its profit.

The Working Capital Turnover Ratio graph shows the capability of Minda Corporation and the organization achieve maximum sales with the minimum investment in Working Capital. In the Financial year 2008-09 the Working Capital Turnover Ratio was highest compared to Financial year 2005-06, 2006-07, 2007-08. It means company achieved maximum sales in the year 2008-09.

(G)- AVERAGE COLLECTION PERIOD.

The Average Collection Period is the number of days, on average, that it takes a company to collection its credit accounts or its accounts receivables. In other words, the Average Collection Period of accounts receivable is the average number of days required to convert receivables into cash.

Average Collection Period shows in how many days we collect the money.

Average Collection Period = 365 / Debtor Turnover Ratio.

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  2009 2008 2007 2006

Avg. Collection = Period 365 365 365 365

  9.032878177 8.69437754 9.836041917 9.804857089

 

  40.40 41.98 37.11 37.23

     days.  days.  days.  days.

In days.

OBSERVATION.

Average Collection Period is the relationship between no. Of days in a year and Debtor Turnover Ratio.

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The ratio indicates the time at which the debts are collected on an average during the year. So we can say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer.

Now if we analyze the four years data we can say that it holds a good position while receiving its money from its debtors. Here in the Financial Year 2005-06 and 2006-07 the Average Collection Period was i.e. 37.23 days, 37.11 days which was approximately same and then the Average Collection Period increasing. It the Financial year 2007-08 the Average Collection Period was 42 days and in the Financial Year 2008-09 Average Collection Period is 40 days. So we can say this is a good sign for the enterprise.

If the Average Collection Period is high then the Bad Debts can increase and the company may face losses. As a general rule the Average Collection Period is not more then 3 to 4 months. So after analyzing the four years data we can say that the Average Collection Period of the company is good.

(H)- AVERAGE PAYMENT PERIOD.

The Average Payment Period is defined as the number of days a Company take to pay off Credit Purchase. If the Average Payment Period is increase, Cash should increase as well, but Working Capital remains same. Most Companies try to decrease the Average Payment Period to keep their larger suppliers happy and possibly take advantage of Trade Discount. Average Payment Period shows that how many days firm makes payment to the Creditors.

Average Payment Period = 365 / Creditor Turnover Ratio.

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  2009 2008 2007 2006

Avg. Payment = Period 365 365 365 365

  4.167909016 4.706283609 4.161195123 5.68357812

 

  87.57 77.56 87.72 64.22

  days. days. days. days.

In days.

OBSERVATION.

Average Payment Period reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low Creditor’s Turnover Ratio implies favorable and it is good for the company.

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Now if we analyze the four years data we find that in the Financial Year 2005-06 the Average Payment period was best which is 64 days and then Average Payment Period was increases and in the Financial Year 2006-07 and 2007-08 the Average Payment Period was i.e. 88 days and 78 days which is not a good sign for the company. In the Financial Year 2008-09 the Average Payment Period is 88 days. So it is increasing which is not good for the company. Most of the companies wants to decrease the Average Payment Period.

If the Ratio was very high which means that its position of creditors that year was not good. So we can say that they not enjoys a very good credit facility from the suppliers.

It is clear that the Average Payment Period is less in the Financial Year 2005-06 as compared to other Financial Years. It is continuously increasing except the Financial Year 2007-08. It shows that the company has not sufficient liquidity for the payment.

WORKING CAPITAL OF MINDA CORPORATION.

(A)- GROSS WORKING CAPITAL. Gross Working Capital denotes the Total Working Capital or total investment in Current Assets.

Gross Working Capital = Total Current Assets.

  CURRENT ASSETS (Rs.)  

  2009 2008 2007 2006Inventories 85,420,518 77,795,186 186,824,737 123,283,427Sundry Debtors 239,107,328 228,557,499 261,010,999 202,617,020Cash, Bank Balances 8,468,035 14,772,612 13,264,023 11,340,860Other Current Assets 6,843,340 5,697,017 17,536,869 13,588,454

Loans, Advances 92,684,567 74,553,756 79,502,481 57,364,044

TOTAL 432,523,788 401,376,070 558,139,109 408,193,805

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In lacs.

OBSERVATION.

The various components of Current Assets are also called Gross Working Capital. It denotes the Total Working Capital or Total Investment in Current Assets.

After analyzing the four years data we can say the Gross Working Capital increased heavily in the Financial Year 2006-07 in compared to all the years.

The Gross Working Capital increase in 2006-07 then the Gross working Capital decreases in the Financial Year 2007-08 and then again the gross Working Capital increases in the Financial Year 2008-09 which is good sign for the company.

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Sufficient Working Capital helps the company to avoid stoppage of work and effects on profitability. The company can also get an idea about the required funds for maintaining Current Assets. The Gross Working Capital of the company increases in the Financial year 2008-09. So we can say the position of Gross Working Capital of the company is good.

(B)- NET WORKING CAPITAL.

Net Working Capital ( which also known as “Working Capital” or the initials “NWC”) is a measurement of the operating liquidity available for a Company to use in developing and growing its business. The Working Capital can be calculated subtracting a Companies’ Total Current Liabilities from its Total Current Assets.

Net Working Capital = Current Assets – Current Liabilities.

  CURRENT LIABILITIES (Rs.)  

  2009 2008 2007 2006Acceptance 4,688,047 1,014,849 1,086,606Sundry Creditors 332,880,796 277,738,589 399,598,888 215,228,141Due To Minda Sons-On Account Of 12,397,930 20,711,582 11,643,805Purchase Consideration.      Security Deposit 700,000 1,400,000 3,277,500 4,227,500Investors Education & Protection Fund 548 6,098 7,598 7,598Other Liabilities 20,259,702 15,312,719 22,486,119 21,469,628Provisions 43,731,312 39,195,554 30,212,779 28,502,152Differed Premium on Forward cover   4,328,310 1,315,940Interest Accrued But Not Due On -       Term Loan From Bank   118,353  

Differed Payment Credit     63,312  

TOTAL 397,572,358 350,738,937 481,819,290 283,481,370

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  WORKING CAPITAL (Rs.)  

  2009 2008 2007 2006Current Assets 432,523,788 401,376,070 558,139,109 408,193,805

Less. Current Liabilities -397,572,358 -350,738,937 -481,819,290 -283,481,370

Net Working Capital 34,951,430 50,637,133 76,319,819 124,712,435

In lacs.

OBSERVATION.

Net Working Capital is Current Assets over Current Liabilities. Company has favorable or positive Net Working Capital over the four year which shows the good liquid position of the company.

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After analyzing the four years data we can say that the situation of Net Working Capital is fluctuating from very high to very low. So organization can work for maintain the Net Working Capital.

In the Financial Year 2008-09 has lowest Net Working Capital as compare to earlier years. Which is problem for the company. The best Working Capital figure in the Financial Year 2005-06 which was Rs. 1,247 lacs and then huge decreasement in the Financial Year 2008-09 which is Rs. 349.5 lacs.

The Net Working Capital measures the liquidity of the firm. The greater the margin, the better will be the liquidity of the firm. So we can say the position of the company is satisfactory but company have to do work for increase the Net Working Capital.

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Minda Corporation Ltd.

Working Capital Limits & Utilization as of 31.12.2009. Rs/ lacs

Sl. No Name Of The Banks Facility Limit Outstanding

  Fund Based :      

1 Indian Overseas Bank. CC 660 149

    WCFC 480 480

      1,140 629

2 AXIS Bank. Cash Credit 560 442

3 Standard Chartered Bank. CC 1,200 677

    PC/ PCFC    

4 Karnataka Bank. Fund Based 500 457

5 State Bank of India. WCDL (Tooling) 500 394

    Plastic Project    

  Total   3,900 2,598

         

  Non Fund Based Limits :      

1 Indian Overseas Bank. BG 100 27

    LC 450 -

2 Standard Chartered Bank. BG 100  

    LC 450  

3 Karnataka Bank. LC/ LG 125 8

         

      1,225 35

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OBSERVATION

Minda Corporation Ltd. took Working Capital loan to fulfill the requirement of Working Capital, from consortium of banks. The company avail the limits of Working Capital in order to avail the benefits of shipment credit, packing credit, Working Capital loans in foreign currency as company has too many exports involved in the business. Minda Corporation also uses Cash Credit Account, (interest @ 12%), but its not cost free source of Working Capital loan because it involves implicit cost. Minda also uses WCFC (Working Capital Loan In Foreign Currency) the rate of interest applied is labor charges +5%.

According to existing norms set by RBI, banks can only charge the London Inter-bank Offered Rate (Libor) plus one percentage points as interest for their dollar loans. This is called packing credit in foreign currency (PCFC). The liquidity condition have became very tight after the sub - prime crises and Indian Banks are not able to procure Foreign currency at competitive rates. The PCFC loan rate is 3.5%. PCFC loans are vital for exports as they use these funds to procure raw material, which means the credit limit provided by the bank to the exporters till the packing of the finished material because these loans are cheap, exporters save on cost and thus remain competitive. Banks are not lending in dollars and asking the borrowers to take loan in rupees. If the bank are willing to give dollar loans, they demanding service charge are pretty much on the higher side.

Different banks have different limits for Working Capital Loans. Ex. Indian Overseas Bank’s limit is of Rs. 11.40 lacs @ 11.5%, while Axis Bank limit of Working Capital loans is 560 lacs @ 11.25%.

Minda also uses non fund based facility, and took the loans on bank guarantee and also uses letter of credit and letter of guarantee. Thus, Minda Corporation Ltd. Should consider the opportunity cost of one method of credit to other sources of credit while taking it’s financial decisions

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FINDINGS.

        in %

  2009 2008 2007 2006Inventories 20 19 34 30Sundry debtors 55 57 47 50Cash, Bank Balances 2 4 2 3Other Current Assets 2 1 3 3Loans, Advances 21 19 14 14Net Sales 25 23 29 23Net Purchase 25 23 30 22Liquid Assets 26 24 28 22Sundry Creditor 27 23 33 17Security Deposit 1 3 6 8Other Liabilities 31 27 40 40Provisions 68 70 54 52Total Current Assets    24   22   31   23Total Current Liability 26 23 32 19Working Capital 12 18 27 43Average Inventory 16 53 31

WORKING CAPITAL  RATIOS.  

  2009 2008 2007 2006

Current Ratio. 1.09 1.14 1.16 1.43

Quick Ratio. 0.87 0.92 0.77 1

Inventory Turnover Ratio (in times). 26.5 7.5 16.6  

Debtor Turnover Ratio (in times). 9 8.7 9.83 9.8

Creditor Turnover Ratio (in times). 4.17 4.7 4.16 5.7

WC Turnover Ratio (in times). 61.8 39.24 33.64 15.93

Average Collection period (in days). 40.41 41.98 37.11 37.23

Average Payment Period (in days). 87.6 77.6 87.72 64.22

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CURRENT RATIO.

The idle Current Ratio is 2:1 but the 1.33:1 is also accepted. In the above calculation we found that the best Current Ratio is in the Financial year 2005-06 after that It continuously decrease which is not a good sign for the company.

In the Current Assets inventory was fluctuating it moves ups and down. Comparing to Financial year 2005-06 and 2006-07 inventory decreased in the Financial year 2007-08 and 2008-09.

Sundry Debtor position increasing in every financial year it means companies policy is good.

Cash and bank balance was decrease in the Financial Year 2008-09. The best cash position in the Financial Year 2007-08 and the best position of loans and advances in the Financial Year 2008-09 it means company is able to collect the short term loans.

Sundry Creditor fluctuating in every year and in the Financial Year 2006-07 Sundry Creditors position Is high.

Security Deposit and other liabilities decreasing In the Financial Year 2008-09 in comparison to other Financial Year.

Provisions are increasing year by year this may be due to taxes and Propose Dividend.

QUICK RATIO.

The idle Quick /Acid test Ratio is 1:1. In the Financial Year 2005-06

company achieve the Idle ratio position. Then in the Financial Year 2007-08 and 2008-09 it increase which is good sign for the company due to increase in Quick Assets.

The best Liquid Assets position in the year 2006-07 and then 2007-08 it decreases and then company work for that and it increases in the Financial Year 2008-09.

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INVENTORY TURNOVER RATIO.

In the analysis we found that Inventory Turnover Ratio is Fluctuating but in the Financial Year 2008-09 the ratio increases. It means company is able to sold its Inventory. It helps in reducing accumulation of Inventory.

Net Sales best position in the Financial Year 2007-08 because that time company sales its Fixed Assets after that it decrease but another in the Financial Year 2008-09 it increases which is good for the company.

Average Inventory is decrease in the Financial Year 2008-09 in comparison to other Financial Years. Which is good for the company because it means we are not holding Inventory in so many days.

DEBTOR TURNOVER RATIO.

Debtor Turnover Ratio is fluctuating every year and in the Financial Year 2007-08 it decreases but in the Financial Year 2008-09 it increases company is able to collect the money quickly.

Debtor are high in the Financial Year 2007-08 that’s why Debtor Turnover decreases and Debtors are decreases in the in the Financial Year 2008-09 that’s why Debtor Turnover increases which is good for the company.

CREDITOR TURNOVER RATIO.

In the analysis we found that Creditor Turnover Ratio was good in the Financial Year 2006-07 after that it fluctuates but not so much. It means company is able to maintain the Creditor Turnover Ratio.

In the Financial Year 2006-07 company purchase Material in high quantity. And company sales its Assets that’s why companies sales increase but in the Financial Year 2008-09 company achieve satisfactory position.

Creditors are fluctuating in every year. Creditor position is very high in the Financial Year 2006-07 but in the Financial Year the Financial year 2008-09 it decreases, which is good for the company.

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WORKING CAPITAL TURNOVER RATIO.

Working Capital Turnover is continuously increasing. The highest Working Capital Turnover in the Financial Year 2008-09 in comparison to other years.

Company achieve High Working Capital turnover in the Financial Year 2008-09. High Ratio means high profitability but too high Ratio indicates over trading.

Working Capital continuously decreasing. The lowest Working Capital in the Financial Year 2008-09 in comparison to other years.

AVERAGE COLLECTION PERIOD.

Average Collection Period is the time period required by company to collect its debts.

The highest Average Collection Period in the Financial Year 2006-07 after that Average Payment Period increase and in the Financial Year 2008-09 it is good and it is acceptable and company is able to collect its debts in 40 days.

AVERAGE PAYMENT PERIOD.

Average Payment period is the time in which the company pay its debts to supplier.

Average Payment Period fluctuating every year some time it increased and some time it decreased. It is huge difference in Average Payment Period between the Financial Year 2005-06 and 2008-09. The Average Payment Period is best in the Financial Year 2005-06 which is less. Every company want to decrease it, because less Average Payment period means company has sufficient liquidity to pay its debts.

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NET WORKING CAPITAL.

After analyzing the data we found that in the Financial Year 2006-07 inventory increased and in the Financial Year 2007-08 it decreases and then in the Financial Year 2008-09 it increases because of purchase.

Debtors are increasing and in the Financial Year 2008-09 Debtors are 55% of its Current Assets it means company has sound credit policy.

In the Financial Year 2006-07 there was high blockage in inventory so Creditor are going high in comparison to other years.

Company block Inventory highly in the Financial Year 2006-07 and also sale its Assets. So sales increase highly in the Financial Year 2006-07 in comparison to other years.

Cash is decrease in the Financial Year 2008-09, so it means company utilize its cash reserve to pay the Current liability.

Provisions are increasing year by year because the increase in taxes and propose dividend.

Companies sales is high in the Financial Year 2006-07 and 2008-09 in comparing to other years that’s why Current Assets and Current Liability also increase.

After analyzing the data it can be said that company forecast its sales in the Financial Year 2008-09 which helped company to block less amount Inventories and also achieved its overall sales.

Thus, many times it happened, company’s Working Capital is favorable which infect protect company against inadequacy of funds required for operations.

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CONCLUSION.

Current Ratio has been decreased in the Financial Year 2008-09, which signifies increase in Current Liabilities.

The Inventory Turnover Ratio shows how rapidly the inventory is turning into receivables through sales. This ratio has been increase in the Financial Year 2008-09 in compared to other years. A high Inventory Turnover indicates the efficient management of inventory because more frequently the stock are sold. So we can say that enterprise has a very good inventory Turnover Ratio. Thus Minda has a very good Inventory Management.

In the Financial Year 2008-09 the Working Capital decreased because of increase in manufacturing expenses and increase in price of raw material because of high inflation and recession also affected the price of various other commodities.

Debtors Turnover Ratio Fluctuating but in the Financial Year 2008-09 it increase. More the number of times Debtors' Turnover, better the liquidity position of the firm. The combined effect of better management of inventory and debtors.

The Current Assets and Liabilities are increasing year by year. It means the company is investing in Current Assets and expending its business.

Working Capital Turnover Ratio indicates the efficiency of the firm I utilizing the Working Capital in the business. High ratio means high profitability. So Working Capital Turnover Ratio is good in the Financial year 2008-09. It varies between 39 to 61 times. Which is excellent for the Management of the firm.

Average Collection Period is the relationship between no. Of days in a year and Debtor Turnover Ratio. Sundry Debtors were the major part in Current Assets which shows efficient Average Collection period. In the Financial Year 2007-08 and 2008-09 the Average Collection Period increase in comparison to other years. This is not a good sign for the enterprise because every company want to decrease Average Collection Period. If the Average Collection Period is high cause of that, the bad debts are increase.

Average Payment period faces ups and down. But in the Financial year 2008-09 it is high. But in the Financial Year 2005-06 and 2006-07 it is

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good. Less Average Payment Period means company has sufficient liquidity for the payment.

Gross Working Capital has increased in the Financial Year 2008-09 in comparison to 2007. If we compare the Gross Working Capital of the Financial Years 2006-07 and 2007-08, there is very big difference because that time company sale its Assets. Gross Working Capital denotes the total Working Capital or total investment in Current Assets.

Net Working Capital is fluctuating from very high to very low. In the Financial Year 2008-09 has lowest Net Working Capital as compared to the other Financial Years. The Net Working Capital measures the liquidity of the firm.

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SUGGESATIONS.

Creditors increasing year by year so the company should maintain the low level of creditors because the company can pay them easily whenever required.

Company has to induct long term funds by ways of share capital, equity, term loans/ unsecured loans from promoters to improve it’s Current Ratio as per the norms.

Company should raise funds through short term sources for short term requirement of funds.

The company should maintain a proper level of inventory so that’s why the unnecessary blockage of funds can be avoided.

Company should take control of Average Payment period it is very high in the Financial Year 2008-09. Which shows the liquidity position of the company.

The company must have adequate cash and bank balance to face any situation. The company has low cash and bank balance in the Financial Year 2008-09.

The Gross Working Capital is fluctuating and it increase in the Financial Year 2008-09 but the major proportion of Current Assets comprise of inventories in each year. The company should try to reduce investment in inventory.

The lowest Net Working Capital in the Financial Year 2008-09 as compared to other years. The company must increase its Net Working Capital. The greater the margin, the better will be the liquidity of the enterprise.

The company has highest seller market of security system. So the company should try to increase productivity and produce products at lower rate.

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BIBLOGRAPHY.

Books.

Payday I.M., ”Financial Management, ”7th edition; New Delhi: Vikas Publishing House Pvt. Ltd; 1995.

Rustagi R. P.,” Fundamentals of Financial Management, ”3rd edition; New Delhi: Galgotia Publishing Company; 2002.

Gupta S.P., “Management Accounting, ”12th edition; Agra: Sahitya Bhawan Publication; 2007.

Annual Report.

Annual Report of Financial Year 2005-06, 2006-07, 2007-08, and 2008-09

of Minda Corporation Ltd.

Internet Sources.

http://www.minda.co.in

http://www.wikipedia.com

http://www.workingcapital.com

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ANNEXURE.

BALANCE SHEET OF MINDA CORPORATION LTD. 1 st   AS AT 31-03-2009 AS AT 31-03-2008SOURCES OF FUND      Shareholders Funds -      Share Capital 86,359,900   86,359,900  Reserve and Surplus 353,796,480   282,084,681      440,156,380 368,444,581Loan Funds -      Secured Loans   511,263,785 501,502,673Unsecured loans   119,279,029 109,033,301Deferred Tax Liability   35,929,000 33,429,000 TOTAL   1,106,628,194 1,012,409,555       APPLICATION OF FUNDS      Fixed Assets -      Gross Block 910,529,620   838,568,020  

Less: depreciation-

358,091,854  -

317,111,182  Net Block 552,437,766   521,456,838  Capital Work In Progress 64,388,660   41,478,748  Capital Advances 33,657,037   37,833,135      650,483,463 600,768,721Investments   421,193,301 361,003,701Currents Assets      Inventories 85,420,518   77,795,186  Sundry Debtors 239,107,328   228,557,499  Cash & Bank Balances 8,468,035   14,772,612  Other Currents Assets 6,483,340   5,697,017  Loans And Advances 92,684,567   74,553,756    432,163,788   401,376,070         Less: Current Liabilities, Provisions      Current liabilities 353,841,046   311,543,383  Provisions 43,731,312   39,195,554    397,572,358   350,738,937  Net Current Assets   34,591,430 50,637,133 TOTAL   1,106,268,194 1,012,409,555         

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BALANCE SHEET OF MINDA CORPORATION LTD. 2 nd   AS AT 31-03-2007 AS AT 31-03-2006SOURCES OF FUND    Shareholders Funds -    Share Capital 24,674,250 24,674,250Reserve and Surplus 284,869,473 246,626,020    309,543,723   271,300,270Loan Funds -    Secured Loans   386,247,781 333,282,658Deferred Tax Liability   30,864,000 30,140,538 TOTAL   726,655,504 634,723,466     APPLICATION OF FUNDS    Fixed Assets -    Gross Block 932,138,999 878,097,211

Less: depreciation-

449,952,197-

376,331,490Net Block 482,186,802 501,765,721Capital Work In Progress 159,234,539 4,075,581Capital Advances 4,881,543 44,480    646,302,884   505,885,782Investments   3,986,580   3,986,580Currents Assets   `  Inventories 186,824,737 123,283,427Sundry Debtors 261,010,999 202,617,020Cash & Bank Balances 13,264,023 11,340,860Other Currents Assets 18,244,947 13,588,454Loans And Advances 78,794,403 57,364,044  558,139,109 408,193,805Less: Current Liabilities, Provisions    Current liabilities 451,606,511 254,979,218Provisions 30,212,779 28,502,152  481,819,290 283,481,370Net Current Assets   76,319,819   124,712,435     Miscellaneous Expenditure     Technical fee   46,221   138,669 TOTAL   726,655,504   634,723,466         

PROFIT & LOSS ACCOUNT OF MINDA CORPRATION LTD. 1st  

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YEAR ENDED YEAR ENDED  31-03-2009   31-03-2008  INCOME -      Sales 2,159,827,365   1,987,165,186  Less: Excise duty -155,533,324   -217,979,888  

2,004,294,041   1,769,185,298  Other Income 72,832,383   71,718,934  Accretion/(Depletion) in Stock 2,862,804   -16,201,316  

2,079,989,228   1,824,702,916         EXPENDITURE -      Cost Of Materials 1,387,416,871   1,307,116,569  Manufacturing Expenses 40,499,952   32,539,230  Employees Remuneration & Benefits 185,249,729   134,926,969  Administrative & Other Expenses 181,646,631   96,464,788  Selling & Distribution Expenses 29,831,201   30,681,416  Interest & Finance charges 69,426,187   58,361,274  Deprecation/Amortization/Impairment 69,199,505   55,837,459  

1,963,270,076   1,715,927,705         PROFIT BEFORE TAXATION - 116,719,152   108,775,211  (Income - Expenditure)      Provision For Income Tax 19,500,000   24,550,000  Provision For Fringe Benefit Tax 2,800,000   2,552,000  Deferred Tax Liability 2,500,000   2,565,000  NET PROFIT - 91,919,152   79,108,211           

PROFIT & LOSS ACCOUNT OF MINDA CORPRATION LTD. 2nd    YEAR ENDED YEAR ENDED

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  31-03-2007   31-03-2006  INCOME -    Sales 2,567,315,127 1,986,630,925Less: Excise duty -380,344,941 -236,140,200  2,186,970,186 1,750,490,725Other Income 53,885,791 28,944,625Accretion/(Depletion) in Stock -10,874,984 5,768,115

  2,229,980,993 1,785,203,465

     

EXPENDITURE -    Cost Of Materials 1,662,808,944 1,223,265,953Manufacturing Expenses 52,416,401 70,858,065Employees Remuneration & Benefits 155,778,071 156,453,043Administrative & Other Expenses 102,552,858 112,901,425Selling & Distribution Expenses 67,506,071 56,256,653Interest & Finance charges 44,205,839 33,815,009Deprecation/Amortization/Impairment 71,442,365 79,031,049

  2,156,710,549 1,732,581,197

     

PROFIT BEFORE TAXATION - 73,270,444 52,622,268

(Income - Expenditure)    Provision For Income Tax 25,000,000 24,650,000Provision For Fringe Benefit Tax 3,530,000 3,680,000Deferred Tax Liability 723,462 -4,999,861

NET PROFIT - 44,016,982 29,292,129

         

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