Project Report Ankita v1

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SUMMER INTERNSHIP PROJECT REPORT

IN PARTAIL FULFILLMENT OF DEGREE

OF BBA

2009-10

SUBMITTED TO: SUBMITTED BY:

Sumit bansal jaya Sharma

2 Project ~ Working Capital

ACKNOWLEDGEMENT

I consider it pleasant privilege to express my heartiest gratitude and indebtedness to those who

have assisted me towards the completion of my project report.

I am very much thankful to Mr. Munish kaushal Senior Manager, Finance and IT

GlaxoSmithKline, for making me capable of conducting such a study.

I express my heartiest and sincere thanks to my company guide Mr. Sumit Bansal and Mr.

Anoop Wadhwa, Mr. Rixon Singla, Ms. Pooja Sharma, Mr. Sunil Sharma, Mr. Virender

Arora and Mr. Usman Ali of Finance department, GSK who have been a constant source of

inspiration and encouragement to me in carrying out this study.

I would also like to express my gratitude towards my Faculty guide Prof. Birendra Prasad who

helped me to complete the project.

I owe my special regards to God, my parents and my elders for their blessings and good wishes.

Last, but definitely not the least, I would also like to thank I would like to thank my college

faculty with a worth mentioning name of prof neeraj goyal and mrs richa of modi college for

providing me an opportunity and platform for conducting this study.

Under his able guidance I have increased my capacity to understand and

work in a demanding environment.

Summer Internship Report

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PREFACE

The problem of unemployment is one of our major problems. This problem has been troubling us

ever since we gained independence. One reason for growing unemployment in the country is our

faulty education system. Students are given bookish knowledge without any training for specific

jobs. To mitigate such problems of our education system to some extent, training programs are being

introduced. These programs help the students to widen their horizon. Training can be done in

industries, business-houses, sales and income tax department of various central, state, local,

government societies etc.

A training program in industry is to get an overall view and exposure of the industry and its working

environment. It enhances the confidence and boosts the morale of the students preparing themselves

to work in industry in future. These programs continuously find place in curriculum of management

studies for development of the personality of students and to provide them with a firsthand

experience about working in industry.


TABLE OF CONTENTS

EXECUTIVE SUMMARY

1. INTRODUCTION

Company profile 8

Historical Background of the Company

9

Geographical Overview 11

Business Stations 12

Manufacturing Process 14

Supply Chain Process 15

2. ABOUT NABHA PLANT

Introduction 16

Product Profile 17

Departmental Overview 22

5S 23

GSK Mission Culture and Statement 26

3. WORKING CAPITAL

Meaning of Working Capital 27

Need of Working Capital 32

Financial Ratio Analysis 34

Operating Cycle 40

Operating Cycle of GSK 42

4. SCOPE OF STUDY

Objectives of the Study 45

5. METHODOLOGY


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Data Collection and Interpretation 46

6. RECOMMENDATIONS 47

7. CASH MANAGEMENT AT GSK 50

CONC

LUSION 54

SWOT ANALYSIS 55

ASSIGNMENTS OTHER THAN PROJECT

PERFORMED AT COMPANY 57


EXECUTIVE SUMMARY

Working capital nowadays has been identified as a major thrust area by almost all the firms

throughout world in order to manage the current assets and consequentially current liabilities.

Working capital refers to the capital which is used to carry out the day to day operation of a

business. Every business needs funds for two purposes, for its establishment and to carry on its

day to day operations. Long term funds are required to create production facilities through

purchase of fixed assets such as Plant, machinery, and building, furniture etc. Funds are also

needed for short-term purposes i.e. for the purchase of raw material, payment of wages and carry

on day-to-day operations of business etc. These funds are known as working capital.

The above idea of Working capital suggests that lifeline of a business is cash. Cash flows in a

cycle into, around and out of a business. If a business is operating profitably, then it should, in

theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run

out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment.

There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-

progress) and Receivables (debtors owing you money). The main sources of cash are Payables

(creditors) and Equity and Loans.

The cheapest and best sources of cash exist as working capital right within business. Good

management of working capital will generate cash will help improve profits and reduce risks.

For similar reasons optimization of working capital came into existence as an exhaustive project

at GlaxoSmithKline, Nabha which started in beginning of year 2009.


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The project conducted for optimization of working capital is a live project at GSK, Nabha under

the name Working Capital. The project basically deals with analysis of credit terms of

suppliers, supplying different items at all the seven sites of GlaxoSmithKline involved in

production as well as packaging of different products of the company. Apart from analyzing the

credit terms of suppliers for the company standard norms for holding the inventory of raw

materials, packaging materials was also analyzed to determine the opportunities for reducing the

working capital. A few more aspects of working capital have also been studied to fulfill the

objectives of the study.


COMPANY PROFILE

CHAIRMANSimon J. Scarff, O.B.E

MANAGING DIRECTORZubair Ahmed

DIRECTORSAshok DayalGautam K. Chakraborty (till 30.11.07)Kunal KashyapP. DwarakanathP. MurariPraveen K GuptaRamakrishnan Subramanian (w.e.f. 1.12.07)Subodh Bhargava

COMPANY SECRETARYSurinder Kumar

BANKERSDeutsche BankCitibank N.A.Bank of AmericaThe Hongkong & Shanghai BankingCorporation Limited

AUDITORSPrice Waterhouse

REGISTERED OFFICEPatiala Road Nabha 147201 (Punjab)


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HISTORICAL BACKGROUND

GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born

out of the merger of two leading international organizations SmithKline Beecham and Glaxo

Welcome. Its global mission is

“To improve the quality of human life by enabling people to do more, feel better and live Longer ".

YEAR DESCRIPTION

1955: Horlicks a milk product manufactured by Horlicks Ltd. Slough, England

was being imported, bottled and sold in India. Due to changes in import

policy import stopped.

1956–57: A team from the organization visited to explore the possibilities of setting

up a plant with the support of Maharaja of Nabha, His highness PRATAP

SINGH, and a plant was set up at Nabha.

1958: On May 31, 1958 His highness Pratap Singh laid the foundation stone of

the Company at Nabha.

1960: On 24th March 1960, the factory went into production.

1969: Horlicks Group disposed off their holding in India and U.K. to

“BEECHAM GROUP OF INDUSTRIES" which was a multinational

and owned more than 500 companies in more than 200 countries engaged

in manufacturing of Brylcream, Hair cream, Eno Fruit Salt, Macleans,

Toothpaste, Pure Silvikrin etc. Immediately after taking over the

management, Beecham Group shifted its head office from Nabha to Delhi.

1979: Beecham India (Pvt.) Ltd. Mumbai merged with Hindustan Milk food

Manufacturers Ltd. and the name was changed to H.M.M. Ltd. Beecham

Group Plc.


1991: SmithKline U.S.A. merged on September 16, 1991 to form Smith Kline

Beecham Consumer Brands, Plc. with its registered office in the U.K.

H.M.M. became a part of Smithkline Beecham Consumer Brands, one of

the three sectors of Smithkline Beecham and its name was changed to

SmithKline Consumer Brands Ltd.

1994: The name was changed to Smithkline Consumer Healthcare Ltd. to

reassert the company's promise of providing Healthcare to consumers. The

company decided to do away with its toiletry products and sold its brands

like Brylcream and Silvikrin to Sara Lee.

2000: The Company acquired MALTOVA and VIVA brands of nutritional from

Jagatjit Industries Ltd.

A merger took place between Smithkline Beecham and Glaxo Welcome

and the new company Glaxo Smithkline (GSK) was formed on 27-12-00

2002: Change of name took place from 23-04-02

2003: Company installed another manufacturing unit in Haryana - Sonepat

2004: The Bank of Punjab has tied up with the company for facilitating finance

on attractive terms to its milk suppliers.

2005: Deutsche bank has tied up with GSK for facilitating their fund management

as well as treasury management on a centralized basis

2006: Company’s packing unit at Excise Free Zone – Baddi (Himachal Pradesh)

came into existence.


Glaxo

Smith Kline Beecham

MergerGlaxoSmithKline

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2007: Company’s packing unit at Excise Free Zone – Gauhati(Assam) came into

existence.

2008: Company launched Actibase and Actigrow products - Energy drinks

GEOGRAPHICAL OVERVIEW

ChennaiChennaiChennaiChennai

MumbaiMumbai

PunePune

(GSK PHARMA)(GSK PHARMA)RajahmundryRajahmundry

KompallyKompally

KolkattaKolkatta

GuwahatiGuwahati

NabhaNabhaBaddiBaddi

GurgoanGurgoan

SonepatSonepat

Head Office

Factories

RSOs

Packing Stations

GhaziabadGhaziabad


BUSINESS STATIONS

The company started packing Horlicks in ½ Kg and 1kg pouches. Packing machines was

imported and installed at packing stations. The main market for sale of Horlicks was in the

South and East India, need was felt for the sale of Horlicks in small units of the country.

Therefore, different stations were opened at different places. At present Horlicks is dispatched

from Nabha in bulk quantity to the following packing stations:

MANGALDOI, GAUHATI (ASSAM)

KOMPALLY

BADDI (HIMACHAL PRADESH)

Apart from packing stations at mentioned above the malted Food Powder is also send to

Ghaziabad at M/s Parson Nutritionals Pvt Ltd for manufacturing of Biscuits

PARSON GHAZIABAD

The marketing of the company's products is done through various Regional Sales Offices (RSO)

situated at:

NORTH (GURGAON OFFICE)

WEST (MUMBAI OFFICE)

EAST (KOLKATA OFFICE)

SOUTH (CHENNAI OFFICE)

The company has its head office in Gurgaon. Bulk-malted food manufactured in Nabha is

dispatched to different packing stations in drums for packing in unit’s container or gusseted

pouches (GPs). GlaxoSmithKline Consumer Healthcare Limited is one of the three

sectors of GlaxoSmithKline. The other two sectors are:


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1. GLAXOSMITHKLINE PHARMACEUTICALS:

It is a one of the major players of pharmaceutical companies and has activities in all the major

markets of the world and spends a major part of its income in R&D.

2. GLAXOSMITHKLINE CLINICAL LABORATORIES:

It is the leading network of clinical testing laboratories in North America and its major

laboratories and patient centers provide the broadcast range of testing to help physicians,

hospitals and other private organization to detect disease and monitor health.


MANUFACTURING PROCESS

The Manufacturing process for Horlicks is as Follows:

1. The First step in the production process involves the mixing of wheat flour with malted

barley.

2. In the second step water is added to the above mixture and the material is mashed

thoroughly, as a result of which the outer cover of malted barley is removed and remains

after is called Husk.

3. After mashing, the material becomes thick slurry in which the solid content is above

55%.

4. The fourth step involves adding up of milk to the mixture.

5. The next stage is the stage of evaporation in which the material is evaporated and the

result is thick slurry in which the solid content is around 82%.

6. After evaporation, comes the step of spreading out of material in plates and keeping them

in the oven for about half an hour.

7. Once the material is completely dried, the plates are taken out from the oven and the food

item is scrapped out, which comes out in the form of thin layers. Then the vitamins and

other essential nutrients are added to the food items which is then ground and the result is

our final product HORLICKS.


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SUPPLY CHAIN PROCESS

The Supply Chain Process at GSK, Nabha is as follows:

Consumer Drums (at factories)

Retailers Bottles & GPs (at packing stations)

Wholesalers Sale Depots

Horlicks is manufactured at the Nabha plant, after that it is put in drums with a capacity of 186

kg. The finished good thus packed in drums is either bottled or packed in pouches and then sent

to sales depots situated across the country.



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PRODUCT PROFILE

The main products of the company are:

New Horlicks

Horlicks Pistachio

Horlicks Export

Boost Intermediate

Horlicks intermediate for Pistachio and Butterscotch variants

Horlicks Premix

Horlicks Vanilla Premix

Junior Horlicks Chocolate with DHA

Actibase Vanilla

Horlicks with FAT

Junior Horlicks Intermediate

New Junior Horlicks DMI

New Mother Horlicks DMI

Horlicks Butterscotch delite

New Improved Boost

Horlicks Lite Regular Malt

Junior Horlicks With DHA

New Elaichi Horlicks

Mother’s Horlicks With DHA

Boost Premix

Acitbase Regular

Actigrow Chocolate

Actigrow Vanilla


GlaxoSmithKline Consumer Healthcare Ltd. is having three production units, which are at

Nabha, Rajahmundry and Sonepat. The unit at Nabha is the mother unit and its production

capacity is 99500 MT per annum and the products manufactured by this company fall under two

categories of consumer healthcare:

1. HORLICKS

The flagship brand of the company, this product name is associated with that of the company. It

would be interesting to know how and where this global brand took off. Way back in 1883,

James Horlicks, a London based chemist experimented with powered malt mixed with milk and

launched this product in Chicago, USA, as "Malted Milk". In 1906 he returned to England and

set up a factory at Slough. Renamed as 'Horlicks' in 1931, it became a part of the giant Beecham

Group in 1969. India forms almost half the world's market for Horlicks.

2. BOOST

Boost was launched in 1976 as an energy drink in the Brown Powder segment. An Indian Brand,

this is manufactured at the Nabha Plant. It is also exported to Countries in West Asia. Very

popular in the South, Boost has grown an average growth rate of 15% per annum. Sportsmen like

Kapil Dev and Sachin Tendulkar back it, making it the secret of OUR ENERGY!!

3. JUNIOR HORLICKS WITH DHA

Junior Horlicks was launched in 1991 in Karnataka in an attempt to cater to the specialized needs

of certain age groups. This special nourisher, an India brand was targeted at 1-3 years old as a

delicious tasting Milk food drink based on the international standards of nutrition


Nutritional Health Drinks

Gastrointestinal ENO Fruit Salts

Horlicks and its variants

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4. MOTHER HORLICKS WITH DHA

Mother Horlicks is manufactured for lactating mothers. Mother’s Horlicks (launched in

November’96), is a special nourisher scientifically designed to help meet the nutritional needs of

pregnant and lactating women, as part of a healthy diet. It is made with the natural goodness of

Horlicks by a unique spray dried process, which helps make it easy to digest. It is enriched with

natural honey, and a combination of vitamins and minerals that not only gives excellent flavour

but also help in keeping good health during pregnancy and optimal birth weight of the baby It is

also essential for physical and mental development of the growing foetus. When taken during the

breast-feeding period the nourishment of Mother’s Horlicks helps to improve the quality and

quantity of breast milk.

5. GOPIKA GHEE (BY PRODUCT)

The main by-product of this company is Gopika Ghee. Gopika Ghee is packed in the factory

itself, rest of the product are bulk packed in containers, which contain 186 kg of Horlicks and

124 kg. of Boost. These are sent to the packing near the major markets.

6. ELAICHI HORLICKS

Elaichi Horlicks was launched in October 1974. Horlicks position as the market leader in the

Milk Food Drinks (MFD) category was further strengthened with the launch of Chocolate

Horlicks in November 1990. Elaichi Horlicks is Horlicks with a fresh cardamom taste and aroma

along with natural goodness of wheat, milk and malted barley making an appetizing and easily

digestible drink.

7. ENO

Eno is a 100 years old global brand. It is a part of ‘Gastrointestinal category’ Eno is the only

powder antacid and has shown favorable growth over the years. This has been strengthened of

the lemon variant and the sachet pack.


8. BISCUITS

The biscuit division has spread its wings and set flight with a 54% increase in the turnover.

Horlicks biscuits are now a truly national brand. The division has a number of plans for the

future growth with the lot of exciting new variety up its sleeves.

DEPARTMENTAL OVERVIEW Summer Internship Report

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The various departments in GSKCH, Nabha are:

Manufacturing Department

Engineering Department

Quality Assurance Department.

Warehouse & Supply Chain Management

Procurement Department (Milk Sourcing Procurement and Purchase Department)

Finance & IT Department

Human Resources and Administration Department.

Environment, Health and Safety Department (EHS)

Operational Excellence


DEPARTMENTS


QUALITYASSURANC

MANUFACTURIN

PROCUREMENT

ENGINEERING

WAREHOUSESUPPLY CHAINMANAGEMEN

HR &

FINANCE&

I.T.

ENVIORNMENT HEALTH &

OPERATIONAL

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ABOUT THE NABHA PLANT

GSK’s Nabha plant is a huge manufacturing unit so the requirement of workforce changes with

change in production policy. It is biggest unit of all the three manufacturing units and it is also

the registered office of GSK Consumer Health Care. The plant at present employs a work force

varying from 1500 to 2000 out of which approximately 1100 are permanent. There is a staff and

management of about 140 persons. There is a wage agreement for 3 years. The workers also get

weekly off according to Labour Statutes. The plant runs 24 X 7 and there are 3 shifts which from

5.15 a.m. to 1.15 p.m., 1.15 p.m. to 9.15 p.m. & 9.15 p.m. to 5.15 a.m. The office opens for 6

days in a week.

There are 7 Milk Collection Centers (MCC’s) around Nabha, to meet the requirement of 70 tones

of Milk per day. The main purpose of opening collection centers at village level was to get good

quality of Milk directly from the producer and pay them good prices, thus, raising their standard

of living.


5S AT NABHA

5S is a tool that aims to create and maintain an organized, clean & high performance workplace.

This tool has been efficiently utilized by Nabha Unit and it has lead to reduce the records

retrieval time drastically.

Sort Throw out rubbish

Store Find suitable storage area for everything

Shine Clean all surface areas

Standardize Communicate the 5S procedure for your area

Sustain Participate in site-wise monthly assessment & display results

Why do it?

How often do you go to use a piece of equipment and it’s not where you left it? Wouldn’t it be

less time consuming if everybody knew where they were supposed to store it?

Where do I start?

Get everyone involved

Get commitment and authorization for area wide improvement

Have leaders set expectations


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Sort - Get rid of what is not needed. Throw out rubbish

Define personal space first (and stay out). Start at one corner touch everything. Ask questions

about each thing: How often do you use it? Where does it go? Place stuff based on frequency of

use. Place red tags on unnecessary stuff.

1. Red tagging visually identifies what is not needed in the workplace.

2. Establish rules for what is needed and where it belongs.

3. Remove and store Red Tagged items in a temporary holding area.

4. Sort through and dispose of those items that are truly unnecessary. Prepare all other items

for relocation. Ensure that all interested parties agree.

5. Continue to Red Tag regularly.

Store - Organize what’s Left! Arrange and Identify for ease of use

A place for everything, everything in its place, Know what you have and where it’s kept to get

rid of waste of searching.

1. Designate locations in a variety of ways

2. Lines on the floor

3. Signs hung from the ceiling

4. Tool boards

5. Fix Storage Methods and Places

Shine - Clean up what’s left! Clean Daily

Paint, refurbish, etc….Get the remaining items into the same condition as when they were new!

Standardize - Standardize cleanup methods

1. Make Sort, Storage, and Shine a daily habit

2. Assign responsibilities to apply these procedures

3. Integrate Sort, Storage, and Shine into regular work activities

4. Check on the maintenance of Sort, Storage, and Shine


5. Do you have standards, procedures & assigned responsibilities for Sort, Storage & Shine?

Sustain - Set discipline, plan and schedule

1. Follow the rules that you set!

2. Involve everybody in the production of standard documents and checks sheets. Develop

habits you won’t forget! Assessment is a key activity and should be carried out on a

regular basis depending on the overall status of the 5S activity. The radar chart is used to

map progress using the data from the assessment checklist within the area. It should be

displayed in a prominent location and updated on completion of the assessment.


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GSK MISSION

Our global quest:

“To improve the quality of human life by enabling people to do more, feel better, and

live longer”.

People at GlaxoSmithKline Consumer Healthcare Limited are dedicated to deliver medicines and

products that help millions of people around the world to live longer, healthier and happier

lives.

CULTURE

Successful companies have developed something special that supersedes corporate strategy,

market presence, or technical advantage - distinctive culture. What it is, whether it is important

or not, what you deal with indirectly. Why? Because culture is an intangible shadow. You cannot

hold culture. It has no handles, nothing you can touch directly. Having said all that, it is an

important issue GSK’s culture is the set of norms that create powerful precedents for

acceptations around acceptable risk, change orientation, creative and innovation, group versus

individuals effort, customers orientation, extra efforts and more. Culture is a powerful force and

can provide an engine to achieve market success or an anchor pulling the firm toward failure.

GSK SPIRIT

We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for

innovation. We value performance achieved with integrity. We will attain success as world-class


leader with each and every one of our people contributing with passion and an unmatched sense

of urgency.

MEANING OF WORKING CAPITAL

In simple words working capital means that which is issued to carry out the day to day operation

of business. Capital required for a business can be classified under two main categories.

Fixed capital

Working capital

Every business needs funds for two purposes, for its establishment and to carry on its day to day

operations. Long term is required to create production facilities through purchase of fixed assets

such as Plant, machinery, and building, furniture etc. Investment in these assets represent that

part of firm’s capital, which is blocked on a permanent or fixed basis, is called fixed capital.

Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of

wages and carry on day-to-day operations of business etc. These funds are known as working

capital.

The management of fixed and current assets however, differs in three important ways: -

1. In managing fixed assets, time is a very important factor consequently discounting

and compounding techniques play a significant role in capital budgeting and a minor

one in the management of current assets.

2. Large holding of current assets, especially cash, strengthens firm’s liquidity position

but it also reduces the overall profitability.

3. Levels of fixed as well as current assets depend upon expected sales, but it is not only

current assets which can be adjusted with sales fluctuating in short run.


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In simple words working capital refers to that part of firm’s capital, which is required, be

financing short term and current assets such as cash, marketable securities, debtors and

inventories.

CONTENTS OF WORKING CAPITAL

CURRENT ASSETS CURRENT LIABILITIES

Cash in hand and bank balance Bills payable

Bills receivables Sundry creditors

Sundry debtors Accrued loans

Short term loans and advances Short term loans

Investment of stock as: Advances and deposits

Raw material Dividend payable

Work in progress Bank overdraft

Finished goods Provision for taxation

Store and spares

Temporary investment

Prepaid expenses

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Raw Materials

Project ~ Working Capital

Accrued incomes

GROSS WORKING CAPITAL:

Simply called working capital it is total of current assets, it refers to the firm’s investment in

current assets. Current assets refer to those assets, which in the ordinary course of business can

be continued into cash within an accounting year.

GROSS WORKING CAPITAL OF GSK: -

CURRENT ASSETS RS. LACS

Inventories 27717.03

Sundry Debtors 4325.02

Cash & Bank Balance 2045.42

Loans & Advances 3383.15

Total 37470.62

Gross Working Capital = Current Assets

Therefore, Gross working Capital of GSK = Rs.37470.62 Lacs.


Debtors (Receivables)

Cash

Work-in-Progress

Finished Goods

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NET WORKING CAPITAL: -

Net working capital is the difference between current assets and current liabilities. Current

liabilities include items payable or expected to be turned within one year from the date of the

balance sheet and the term is used to designate obligation whose liquidation is reasonably

expected require the use of existing resources assets or creation of other current liabilities. Net

working capital may be positive or negative.

A positive working capital arises when current assets exceed current liabilities a negative net

working capital occurs when current liabilities are more than current assets.

NET WORKING CAPITAL OF GSK: -

CURRENT ASSETS RS. LACS CURRENT LIABILITIES &

PROVISIONS

RS. LACS

Inventories 27717.03 Sundry Creditors 17252.17

Sundry Debtors 4325.02 Other Liabilities 3208.18

Cash & Bank Balances 2045.42 Advances 685.92

Loans & Advances 3383.15 Trade Security Deposits 3732.78

Unclaimed Dividend 122.56

Provisions

Income tax 458.90

Fringe Benefit Tax 94.10

Other Provisions 140.03

Total 37470.62 Total 25694.69

Net working capital = Current Assets – Current Liabilities

Therefore, Net Working Capital of GSK= Rs. 37470.62 – 25694.69 = Rs. 11775.98 Lacs.


WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every

manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a

business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't

generate surpluses, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment. The

cheapest and best sources of cash exist as working capital right within business. Good

management of working capital will generate cash will help improve profits and reduce risks.

Bear in mind that the cost of providing credit to customers and holding stocks can represent a

substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-

progress) and Receivables (debtors owing you money). The main sources of cash are Payables

(your creditors) and Equity and Loans.

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 one 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, you could reduce the cost of bank interest or you'll have

additional free money available to support additional sales growth or investment. Similarly, if

you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit

limit; you effectively create free finance to help fund future sales.


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It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If

you do pay cash, remember that this is now longer available for working capital. Therefore, if

cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc.

Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water

flowing downs a plughole, they remove liquidity from the business. More businesses fail for

lack of cash than for want of profit.

It is this importance of cash that, cash management is one of the key areas of working capital

management. Apart from the fact that it is the most liquid asset, cash is the common denominator

to which all the current assets can be reduced because the other major liquid assets, that is,

receivables and inventory eventually get converted into cash. This underlines the significance of

cash management.

The term cash with reference to cash management is used in two senses. In a narrow sense it is

used to cover currency and generally accepted equivalents of cash, such as cheques, drafts and

demand deposits in banks. The broad view of cash also includes, near cash assets such as

marketable securities and time deposits in banks.

A firm is well advised to hold adequate cash balances but should avoid excessive balances. The

firm has, therefore, to assess its need for cash properly. Cash budget is a device that helps affirm

to plan and control the use of cash. It is statement showing the estimated cash inflows and

outflows over the planning horizon. In other words, the net cash position (surplus and deficiency)

of a firm as it moves from one budgeting sub period to other is highlighted by cash budget.

The various purposes of cash budgets are:

To coordinate the timings of cash needs

It pinpoints the periods when there is excess of cash


It helps to arrange the funds on most favorable terms and prevents excess

accumulation of cash.

It enables a firm which has sufficient cash to take advantage of cash

discounts on its accounts payables, to pay obligations when due, to

formulate dividend policy, to help unify the production schedule during

the year so that the firm can easily smooth out the heavy fluctuation

seasons.

NEED OF WORKING CAPITAL

1. For the purchase of raw material components and stores

2. For the payment of wages and salaries.

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

expenses.

4. To meet the selling cost as packing, advertising etc.

5. To provide credit facility to the customers.

6. To maintain the inventories of raw material, work-in-progress, stores and spares and

finished stock.

7. To meet the requirement of anticipated needs of future.

8. To face business crisis in emergencies such as depression, because during such

periods, generally, there is much pressure on working capital.


35

FINANCIAL RATIO ANALYSIS

Financial ratio analysis is a study of ratios between various items or group of items in financial

statement and the turnover ratios. Ratio analysis is the powerful tool of financial analysis. In

financial analysis, ratio analysis is used as an index or yardstick to measure the performance of

the firm.

Working capital is that part of total capital which is important in current assets. To get better

insights about the working capital position of the firm ratio analysis has been utilized.

To determine the Working Capital position of the firm following ratios have been analyzed:

Current ratio

Absolute liquid ratio

Quick ratio

Current asset turnover ratio

Working capital turnover ratio

Inventory turnover ratio

Debtors turnover ratio

Creditors turnover ratio

Inventory to working capital rate


Current ratio, Quick ratio and absolute liquidity ratio are regarded ad liquidity ratios. The

liquidity aspect is essential for both the creditors as well as management of a business

enterprise. These ratios are used to judge firm’s ability to meet short term obligations. These

ratios give an insight about present cash solvency of the firm and its ability to remain solvent

in the event of adversities.

CURRENT RATIO:

The current ratio is very popular financial ratio which is used to measure the ability of a

firm to meet its current liabilities. Current assets are converted into cash for the payment of

current liabilities. Apparently higher is the current ratio, greater is the short term solvency.

Current ratio is given by the formula:

Current Assets

Current Liabilities

Particulars

2008(Rs Lacs)

Current Assets 85336.62

Current Liabilities 31246.27

CURRENT RATIO 2.73

A current ratio of 2:1 is generally considered to be acceptable. As the firm has a current

ratio (2.73:1) better than acceptable ratio (2:1), the firm is well within a position to meet its

current liabilities.


37

QUICK RATIO ( ACID TEST RATIO):

Quick ratio is much more exacting measure than the current ratio. By excluding inventories,

it concentrates on really liquid assets, with value fairly certain.

Quick Assets consist of only cash and near cash assets. Inventories are deducted from

current assets on the belief that these are not ‘near cash assets’. Quick ratio is given by

the formula:

Liquid assets

__________________

Current liabilities

A quick ratio of 1:1 is considered as

acceptable. A higher ratio of 1.8:1 ensures the ability of the firm’s quick assets to meet its

current liabilities.

ABSOLUTE LIQUID RATIO (CASH RATIO):

This ratio measures the absolute liquidity of the business. This ratio considers only the

absolute liquidity of the business and is calculated as:

Cash + Marketable Securities

_________________________

Current Liabilities

.

Particulars 2008(Rs Lacs)

Quick Assets 57619.59


QUICK RATIO 1.8


The acceptable standard for this ratio is 0.5:1

Activity ratios are also called as turnover ratios or performance ratios. These ratios are

employed to evaluate the efficiency with which the firm manages and utilizes its assets.

These ratios usually indicate the frequency of sales with respect to its assets.

CURRENT ASSETS TURNOVER RATIO:

The idea of the current assets turnover is to ascertain the contribution of the current assets

to sales. The relationship indicates efficiency or otherwise utilization of current assets to

attain the maximum turnover sales.

Particulars 2008 (Rs Lacs)

Sales 170147.22

Current Assets 85336.62

TURNOVER RATIO 1.99

WORKING CAPITAL TURNOVER RATIO: Net working capital turnover ratio

indicated the velocity of the utilization of working capital. A higher ratio indicates the

effective utilization of working capital and a low ratio indicate otherwise.


Particulars 2008 (Rs Lacs)

Absolute Liquid Assets 47097.69


ABSOLUTE LIQUID RATIO 1.50

Particulars 2008

(Rs Lacs)

Sales 170147.22

Working Capital 11775.98

WORKING CAPITAL TURNOVER RATIO 14.44

39

The above Working capital turnover ratio suggests that the working capital is being utilized

efficiently.

Working capital is segregated into Inventory turnover, Debtor’s turnover and creditor’s

turnover

INVENTORY TURNOVER RATIO:

This ratio is also known as stock turnover ratio and establishes the relationship between the

cost of goods sold during the year and average inventory held during the year. It is

calculated as follows:

Sales

Average Inventory

DEBTOR’S TURNOVER RATIO:

In case firm sells goods on credit, the realization of sales is delayed and the receivables

are created. The cash is realized from these receivables later on. The speed with which

Particulars 2008

(Rs Lacs)

Sales 170147.22

Average Inventory 23599.69

INVENTORY TURNOVER RATIO 7.21


these receivables are collected affects the liquidity position of the firm. The debtors’

turnover ratio throws light on the collection and credit policies of the firm. The debtor’s

turnover ratio is calculated as follows:

Sales

Average Accounts Receivable

CREDITOR’S TURNOVER RATIO:

This ratio is calculated on same lines as receivable turnover ratio is calculated. This

shows the velocity of debt payment by the firm. A low creditor’s turnover ratio reflects

liberal terms granted by the suppliers. While a high ratio shows the accounts are settled

rapidly. It is calculated as follows:

Credit Purchases

Average Accounts Payable


Particulars 2008

(Rs Lacs)

Sales 170147.22

Average Accounts Receivable 5693.12

INVENTORY TURNOVER RATIO 48.19

Particulars 2008

(Rs Lacs)

Credit Purchases 178381.90

Average Accounts Payable 15822.65

CREDITOR’S TURNOVER RATIO 11.27

41


OPERATING CYCLE

There is a difference between current assets and fixed assets in terms of their liquidity. A firm

requires many years to recover the initial investment in fixed assets such as Plant & Machinery.

On the contrary, investment in current assets is turned over many times in a year.

Operating cycle is the time duration required to convert sales (after conversion of resources into

inventories and inventories into finished goods) into cash.

The operating cycle of a manufacturing Company involves three phases: -

1. Acquisition of resources such as raw material labor, power and fuel etc.

2. Manufacture of the product which includes conversion of raw material into work-in-

progress into finished goods.

3. Sale of the product either for cash or on credit. Credit sales create book debts for

collection.

The length of the operating cycle of a manufacturing firm is the sum of:

Inventory conversion period (ICP) and

Book debts conversion period (BDCP).

The inventory conversion period is the total time needed for producing and selling the product.

It includes: -

1. Raw material conversion period (RMCP)

2. Work in progress conversion period (WIPCD)

3. Finished goods conversion period.


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The book debts conversion period is the time required collecting outstanding amount from

customer. The total of inventory conversion period and book debts conversion period is the

maximum time required to collect outstanding amount from customers and sometimes it referred

to as gross operating cycle. Generally, a firm acquires resources on credit and temporarily

postpones payment of certain expenses. The payable deferral period (PDP) is the length of the

time the firm is able to defer payments on various resource purchases. The difference between

operating cycle and payables deferral period is net operating cycle. The length of operating cycle

can be determined as: -

GOC =ICP+BDCP

NOC=ICP+BDCP-PDP

ICP=RMCP+WIPCP+FGCP

Where, GOC=Gross Operating Cycle; NOC=Net Operating Cycle;

ICP=Inventory Conversion Period; BDCP= Book Debts Conversion Period;

PDP= Payable Deferral Period; RMCP= Raw Material Conversion Period;

FGCP= Finished Good Conversion Period.

OPERATING CYCLE ANALYSIS:

In order to understand the length of time taken to convert sales (after conversion of resources

into inventories and inventories into finished goods) into cash, operating cycle analysis has been

done. The operating cycle of a firm begins with the acquisition of raw material and ends with the

collection of receivables. There are four aspects of operating cycle, which involves commitment

of resources, a material stage, accounts finished stage and account payable stage. The operating

cycle is calculated as the sum of first three stages minus accounts payable stage.


OPERATING CYCLE OF GSK

1. Raw Material Conversion Period (RMCP)

Average raw material inventory x 365

Raw material consumed during the year

Particular 2008( Rs. Lacs)

Opening stock of R.M. 4524.72

Closing stock of R.M. 7368.95

Average stock 5946.83

Raw material consumed 47727.81

Raw material conversion period 46 days

2. Finished Goods Conversion Period (FGCP)

Average finished goods inventory x 365

Cost of goods

Particular 2008 ( Rs. Lacs)

Opening stock 9193.47

Closing stock. 11993.15

Average stock 10593.31

Cost of goods Sold 170147.22

Finished Goods Conversion Period 23 days

3. Work in process conversion period (WIPCP) Summer Internship Report

45

Average stock in process inventory x 365

Cost of production

Particular 2008 (Rs. Lacs)

Opening stock of

Work in Process

788.99

Closing stock of

Work in process

670.26

Average stock of

Work in process

729.63

Cost of production 89927.01

Conversion period 2.96

4. Debtors Conversion Period or Book Debts Conversion Period

Average debtors x 365

Credit sales

Particulars 2008 ( Rs. Lacs)

Average debtors (4325.02+2736.19)/2

*365

Credit sales 170147.22

Debtors Conversion Period 8 days

Note:

Total Sales are taken as Credit Sales.


5. Creditors Conversion Period or Payable Deferral Period

Average creditors x 365

Credit purchases

Particular 2008 (Rs. Lacs)

Opening creditors 14393.14

Closing creditors 17252.17

Average creditors 15822.65

Credit purchase 178381.90

Creditors Conversion Period 17 days

GROSS OPERATING CYCLE

Year RMCP WIPCP FGCP DCP GOC= ICP +

DCP

2008 46 3 23 8 80

NET OPERATING CYCLE

Year GOC CCP NOC=GOC-CCP ICP

2008 80 17 63 72


47

SCOPE OF STUDY

The above project was conducted keeping in mind the components of Working capital

mentioned above i.e. inventory, receivables, and payables and further, credit terms with

suppliers; project Working Capital took its shape. The project Working Capital was started at

Nabha plant of GSKCH Ltd. early this year with an idea of standardization of credit period

across sites, scrutinizing the inventory holding period of raw materials, packaging materials and

finished goods and estimating the working capital thus released through these initiatives.

The study was conducted with following broad and specific objectives:

BROAD OBJECTIVE:

Main objective of the project is to analysis the whole data of GSK of various sites and find

various opportunities to improve the working capital of the company

SPECIFIC OBJECTIVES:

To standardize the credit period provided by the suppliers of raw materials, packaging

materials, finished goods and store items.

To determine the difference between the standard norms and actual number of days for

which the inventory of raw materials, packaging materials, finished goods and store

items is kept.

To determine the difference between the standard norms and actual number of days for

which the inventory of raw materials, packaging materials, finished goods and store

items is kept for purpose of quality clearance.

General PO terms are required to be reduced.

Rationalization of bank balances.

To understand the cash forecasting and budgeting at GSKCH, Nabha.


METHODOLOGY

COLLECTION OF DATA:

Data pertaining to supplier credit terms for raw materials, packaging materials, finished goods

and store items; inventory holding period as per standard norms and actual number of days and

inventory holding period for the purpose of quality clearance as per standard norms and actual

number of days for items mentioned above was collected to accomplish the objectives of the

study.

For better consolidation of results data templates were provided to all the concerned sites. These

data templates were framed in a way that desirable information is obtained easily and is readily

accessible for quick interpretations.

ANALYSIS AND INTERPRETATION:

The data thus obtained was ready for analysis, interpretations and drawing conclusions out of it.

Thus the data used for conducting the project was secondary in nature. For purpose of analysis,

data was further captured in spread sheet for better comparisons both within a site as well as

between different sites simultaneously. The results obtained after comparing it within a site and

across different sites was presented in form of power point presentation.


49

RECOMMENDATONS

The result of the live project done at GSK is presented in the form of following

recommendations:

Working capital can be improved by:

1. Reducing the inventory holding period of items.

2. Increasing the credit period of Creditors..


3. Decreasing the credit period of Debtors.

Pertaining to the above three major prerequisites of the project following key focus areas

have been suggested.

KEY FOCUS AREAS OF THE PROJECT:

1) Inventory:

• Strategic Stock Review

• Quality Clearance Norms

• FG Stock Inventory Review over Plan

• General Stores – Min-Max Level Reviews

• Review of non-moving inventory

2) Trade Payables:

• Increased Credit Period – Category wise

• Common Suppliers – Payment days

• Calculation of Payment due date – Standardization

• Settlement of Pending Advances

3) Trade Receivables:

• Review of Credit Period & Credit Limits

• Review of payment terms

• Review of No. of Clearance days

• Credit period of raw material suppliers to be checked for standardization

• Credit period of same supplier to be checked for standardization across all locations


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• General PO terms to be checked for revision for Simplification

• Inventory holding to be validated for checking against the norms

• FG quality clearance time to be reviewed for reduction

• Upward revision of credit limit of suppliers post discussions

• Credit period of same raw material supplied by different supplier to be standardized at same site in case they differ

If more than one supplier supply raw material at same site then their credit period should be same

If more than one supplier supply raw material at same site then their credit period should be same


As it is mentioned above in the project report tat cash management serves to be an important part

of working capital management an attempt was made to understand the cash budgeting (Funds

forecasting and budgeting) of GSKCH, Nabha which is as follows:

FUNDS FORECASTING AND BUDGETING AT GSK, NABHA

The principal aim of budgeting as a tool is to predict the cash flows over a given period of time is

to ascertain whether at any point of time there will be excess or shortage of cash. So is the

purpose of cash budgeting done at GSK, Nabha.

The first element of cash budgeting at Nabha is selection of period of time to be covered by the

budget. It is referred to as planning horizon. The planning horizon means the time span and the

sub periods within the time span over which the cash flows are to be projected.

At GSK, Nabha the sub period taken for the purpose of budgeting is a time span of one month

which is further used to consolidate it for quarterly and then annual budgeting.

The second element of cash budgeting is to determine the factors that have a bearing on cash

flows. The items included in cash budget are only cash items; non cash items such as

depreciation and amortization are excluded. The factors that generate cash flows are generally

divided into two broad categories: Operating and Financial. Cash flows generated by the

operations of the firm are known as operating cash flows while the others are termed as financial

cash flows.

At GSK, Nabha as per the limits of the project only operating cash flows have been considered.

The operating cash flow items which are require to be considered are mentioned as below:


53

OPERATING CASH FLOW ITEMS

Inflows/Cash receipts Outflows/Disbursements

Cash Sales Accounts payable

Collection of accounts receivable Purchase of raw materials

Disposal of fixed assets Wages and Salary

Factory expenses

Administrative and selling expenses

Maintenance expenses

Purchase of fixed assets

As is mentioned in the table above the operating cash flow items which are used at GSK for the

purpose of budgeting are mentioned in the template attached. This template is used for obtaining

the inputs for the cash flow items from the various departmental heads on monthly basis. The

major heads in the template are receipts, payments for purchase of raw materials, packaging

materials, freight, employee salaries, electricity expenses and provision for taxation.

After the time span of the cash budget is decided, the final step is the construction of the budget.Post receiving inputs from various departments the budget is constructed.


CONCLUSION

Working capital management is concerned with the problems that arise in attempting to manage

the current assets, the current liabilities and the interrelationship that exists between them. The

major current assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities which are intended, at their inception, to be paid in the

ordinary course of business, within a year, out of the current assets or earnings of the concern.

The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding

expenses.

The goal of working capital management is to manage the firm’s current assets and liabilities in

such a way that a satisfactory level of working capital is maintained.

The majority of Indian companies maintain relatively lower cash/bank balances. Marketable

securities are yet to emerge as a popular means of cash management. The excess cash is

deployed to retire short term debt/ in short term bank deposits.

Though there is a notable decline over the years but yet inventory constitutes an important part of

total current assets.

Debtors/ receivables also constitute an important part of current assets. The collections are

required to be as quick as possible and thus corporates offer cash discounts for the purpose.

Accounts payables and short term loan/ advances are major components of current liabilities.

The project Working Capital cardinally focuses on inventory and credit terms for the creditors

and debtors.

The approach followed in the project is to reduce the inventory so as to adhere to the standard

norms of the inventory holding thereby releasing the working capital out of it.

Secondly to revise the credit terms in such a way so as to make them uniform across all the sites.

Thus releasing the working capital at the sites where the credit terms were proposed to be

revised.


55

SWOT ANALYSIS

SWOT analysis provides the information that is helpful in matching the firm’s resources and

capabilities to the competitive environment in which it operates. Environmental factors internal

to the firm can be classified as Strengths (S) and Weaknesses (W) and those external to the firm

are classified as Opportunities (O) and Threats (T). Such an analysis of strategic environment is

called SWOT ANALYSIS.

SWOT ANALYSIS OF GSK, NABHA IS AS FOLLOWS:

STRENGTHS

The firm’s strengths are its resources and capabilities that can be used as competitive advantage.

The main strengths of Glaxo SmithKline consumer healthcare ltd. are:

Strong brand names. Recently brand equity has place the brand Horlicks on 6 th position in

the list of top 10 brands in terms of brand equity.

Good reputation among the customers

Capability for troubleshooting and crises management

Creative and innovative thinking

Peaceful Industrial Environment

Strong discipline and positive attitude culture

Strong HRD development tools for work force

WEAKNESS

The absence of certain strengths may be viewed as weakness and the major weakness faced by

the GSK is:

Non availability of tax exemptions and subsidies.

Approach to the plant at Nabha is not through national Highway.

Over dependence on single product Horlicks.


OPPORTUNITIES

External environment analysis may reveal certain new opportunities for profit and growth and

the opportunities before GSK are:

Rising household incomes, increasing urbanization, changing life styles, growth and

working women population demand for processed food products

Capturing niche markets with customer specific features in the products such as Junior

Horlicks, Mother’s Horlicks etc.

Liberalization in Gov. policies and tax laws

Availability of latest / state of art technology

THREATS

Changes in external environment may also poses threats to the firm Major threats to GSK are:

High inflation has offset the rise in household incomes as the disposable income of people has declined vis-à-vis previous years.

Government Policies, Rules and Regulations.

Shift in consumer taste away from the firm’s product

Competition from other MNCs like Cadburys and Nestle.


57

2. BANK RECONCILIATION

Bank reconciliation is a process under which each month bank sends the company a

statement detailing the activity that has taken place in the account during the month.

The bank statement shows the balance at the beginning of the month, the deposits, the

cheques paid, and other debits and credits during the month, and the balance at the

end of the month. As part of on job training bank reconciliation has been performed.

3.FIVE ‘S’

Five ‘S’ is a model used in Nabha for maintenance of records in all the departments.

The five ‘S’ in the model signify:

Sort

Store

Shine

Standardize

Sustain

These are basically the steps which are used to manage and maintain the records so as to

minimize the retrieval time of the documents and files. Same model has been utilized to

store the data for past 10 years.

The model has been efficiently utilized by Nabha unit which ensures effective storage

system for keeping personal records in all departments at the unit viz; Finance, HR,

Quality Control, Procurement and Production.


4. SERVICE TAX AUDIT

Service tax is levied on specified taxable services and the responsibility of payment

of the tax is cast on the service provider. System of self-assessment of Service Tax

Returns by service tax assesses has been introduced w.e.f. 01.04.2001. The

jurisdictional Superintendent of Central Excise is authorized to cross verify the

correctness of self assessed returns. Tax returns are expected to be filed half yearly.

Under service tax audit I was assigned the job of internal tax auditors. As part of

internal tax audit following tasks were performed.

The concerned documents were checked for fulfillment of certain criteria such as

Service tax number on the bill

Description of the service being provided

Classification of service type

Service tax being charged is as per the prescribed regulation

5. ISSUING C - FORMS

The C-form allows companies to avail lower tax rates for Interstate sales.

Here's how it works when a company sells goods to a customer in another state, the

customer is supposed to give company a C- form, which allows company a to pay just

4% central sales tax. Without a C-form the tax burden on company is for a local sale

as high as 12.5%.

As part of training C- Forms were issued and the records were maintained for the

company’s own use as well as for transferring the data to the concerned government

authorities.


59

6. ISSUING A.R.E FORMS:

Application for Removal of Excisable Goods were issued for goods being exported as part of one

of the assignments done at the company.

Documents

Project Report Ankita v1