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COMPANY PROFILE
Introduction of the company
Super Cassettes industries Ltd. Is the largest producer and publisher of music and video in India
under world famous trade mark T-series. Whether it is original soundtrack from the movies or
the ever-popular remix, old devotional bhajan or new age item numbers ,melodies from the 60,s
or pop hits of 90,s glamorous music videos and big budget films, T-Series is the largest producer
of them all. It is no wonder; the company has entered itself no. one recall in the Indian markets.
This fact has been re enforced by AC Nielsen ORG-Marg consumer study.
T-series music is heard, played and performed throughout India and other parts of the world by
way of our sound recordings, videos or by performers. Today t-series controls more than 60%
share of the Indian music market. Even in the international market t-series enjoys a turnover in
excess of $4.2 million, and exports to 24 countries across six continents. Combined with India’s
largest distribution network of over2500 dealers, our support system make us to take on the
future.
T-series
TYPE: private
FOUNDED: 1983
HEADQUARTERS: Noida, India
FOUNDER: Lt Mr. Gulshan kumar
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KEY PEOPLE :
Mr. Bhushan kumar (chairman & M.D)
Madam Sudesh kumara (director)
Mr.Darshan kumar (director)
Mr. Ved Channa (Directors)
Mr. A.N Sehgal (Director)
Mr. Vijay sachdeva (director)
INDUSTRY: Music and entertainment
PRODUCTS: Music and entertainment
PARENTS: Super Cassettes industries Ltd.
WEBSITE OF COMPANY: www.t-series
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ABOUT FOUNDER
Gulshan kumar,(August,12) was an Indian bollywood movie producer.
He founded super Cassettes industries, a small video cassette pirating operation which soon grew
to be very big. Later he started a music production company in noida, near Delhi. He is said to
start the practice of exploiting a loophole in the Indian copyright law, and creating cover versions
of popular songs.
To counter exorbitantly priced poor-quality audio tapes which use to marketed by reputed music
companies, Gulshan kumar brought out in the late 1970,s very reasonably priced music cassettes
with adequate quality. He exported quality music cassettes when his business grew.
Gulshan also introduced religious music cassettes at highly subsidized prices with the idea of
promoting religion among fellow Hindus. He produced some movies and TV serials which
covered Hindu Mythology.
The Indian music industry use to be controlled by a few high profiled singers. Gulshan
introduced young talented singers to the music world, Sonu Nigam, Anuradha paudwal and
Kumar sanu being the prominent ones among them. He also introduced some new actors and
music directors.
Gulshan established a bhandara , serving a free style food to pilgrims who hiked to the hindu
shrine of shree mata vaishnodevi. He become an example for Indian businessmen by sharing his
wealth the community.
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T-SERIES IN INDIAN FILM & MUSIC INDUSTRIES
42 HINDI FILMS ON THE FLOOR WHICH T-series holds the audio/video copyright. T-series
counts among the biggest film release for 2004-05 and 2006. Big banner films production and
theatrical distribution. Merchandising & big budget promotions. 1,482 exclusively signed
artists.35000+audio tittles/ 2000 video tittles. Hindi film music -5800 film/ combination tittles.
Extensive captive talent pool of author’s composers and performance artists – himesh
reshammiya, Adnan Sami, Jagjeet sing, Lata mangeshkar, Asha Bhosle, Udit Narayan, Sonu
Nigam Bombay Viking etc,
New tittles of music are added almost every day in our already existing vast catalogue.
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Super cassette industries are diversified group of companies having a great deal of interest in the
consumer electronics, appliances and electronic components.
T-series main products lines are classified into-
1-consimer electronic (CE)
2-consumer appliances (CA)
It includes small appliances classified as utilized. Consumer electronics includes color T.V,
audio/video system and audio/video pre-recorded & blank cassettes
& C,D.
A technical collaboration with Hyundai digital courier has already started to bear fruits VCD
players, introduced in India under T-series Hyundai brand, have established a strong presence in
the market.
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DIVISION
MEDIA DIVISION
CD DIVISION
Super cassettes India ltd. The CD division was started with sole aim to provide high class at
competitive prices. It has high end system for CD replication, with machines from NETSTAL
(Switzerland).LEYOLD (Germany), and UUBIT (France). It has capability to produce 12 million
CD,s annually or 70 CD,s/ minute, give the company a competitive advantage in these fact
changing the market situation.
AUDIO/VIDIO DIVISION
It has 65% for itself. This division of super cassette industry limited has the feature of sourcing
all the components in- house. 190 million audio/video cassettes per annum.
CONSUMER ELECTRONIC DIVISION
The kind of infrastructure allows this company to offer consumer electronics. SCI LTD. Is the
first company to introduce CD players with built-in- amplifier.
PLASTIC MOLDING DIVISION
T-series is the organization that is able to all the components in the house. CHONHSONG (Hong
Kong). JSM (Japan) and WINDSOR machines of t-series injection molding division.
EXPORT DIVISION
The list of exports are :
Pre- recorded Audio/video cassettes
Audio/video CD,s
Television sets
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Music deck
Mobile phone’s
The products of t- series group of industries available. Across Australia , Bangladesh, Singapore,
Nepal, Hong Kong, srilanka, UAE, USA, Kenya, Japan.
CINE PRODUCTION DIVISION
Four full fledged studios, two in Mumbai and noida (Golden chariot studio, Sudeep studio,
Laxmi studio, film center )are equipped with the 6-DXC-30P Sony camera set-ups, 32 channels,
Mackie audio mixer, professional wireless communication system (Drake)and broadcast record.
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AWARDS
NATIONAL CITIZEN AWARD(1990)
For the sterling contribution for the promotion of music and developing new twlents in the film
industry.
MOTHER INDIA NATIONAL AWARD
It was presented by NRI institute, in the recognigation of the field of outstanding social
achievements of Mr. Gulshan Kumar in all woks of life.
LIMCA BOOKS OF RECORD AWARD(1992)
For the phenomenal contribution of the field of music.
VIJAY RATAN AWARD
Given by the international friendship society of India.
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Departmental profile
(Finance and accounting department)
The finance & accounts departments works as a judicious manager in distribution of available
funds in an optimal manner for the organization as a whole on daily, month and annual basis and
also a conscious book keeper for the company going through every transaction having financial
implication with complete thoroughness without acceptance of liability. It is also look after the
information requirements of the company and various statutory authorities in compliance of the
applicable statutory provisions. The onus of ensuring company’s provisions. The onus of
ensuring company’s various assets adequately insured is also with this department.
FINANCE AND ACCOUNTING DEPARTMENTS
GENERAL ACCOUNTS
This section is divided into two different subsection, viz.
Raw material and stores accounting
Personal related accounting
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LITERATURE REVIEW
Working capital
Funds needed for short term purposes for the purchase of raw material, payment of wages, and
other day to day expenses, etc. These funds are known as working capital. ―Working capital also
known as net current assets, it is the amount of funds necessary to cover the cost of operating the
enterprises‖. It is the excess of current assets over current liabilities. All organization has to carry
working capital in one form or the other. The efficient management of working capital is
important from the point of both liquidity and profitability. Poor management of working capital
means that funds are unnecessarily tied up in idle assets hence reducing the ability to invest in
productive assets such as plant and machinery, so affecting the profitability.
―Working capital is the part of the fir m capital which is required for financing short term or
current assets such as cash marketable securities, inventories etc‖. So working capital is the
amount of funds necessary to cover the cost of operating the enterprise.
Thus working capital is the funds of capital, which are needed for short term purposes of raw
material, payment of wages and other day to day expenses.
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Working capital management
Working capital in general practice refers to the excess of current assets over current liabilities.
Management of working capital therefore, is concern with problems that arise in attempting to
manage the current assets, the current liabilities and the inter-relationship that exists between
them. In other words it refers to all aspects of administration of both current assets and current
liabilities.
The basic goal of working capital management is to manage the current assts and current
liabilities of a firm in such a way that a satisfactory level of working capital is maintained means
it is neither inadequate nor excessive. This is so because both inadequate as well as excessive
working capital position is bad for any business. Inadequacy of working capital may lead the
firm to insolvency and excessive working capital implies idle funds which earn no profit for the
business.
NEED OR OBJECT OF WORKING CAPITAL
Working capital is required to sustain the sales activity. In case adequate working capital is not
available the company will not be in position to sustain he sales since it may not be in position to
purchase the raw material, components and spares, to pay wages and salaries, to incur day to day
expenses and overhead costs such as fuel, power and office expenses, to meet the selling costs as
packing, advertising, etc. to provide credit facilities to the customers and to maintain the
inventories of raw material, work-in-progress, stores and spares and finished stock
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TYPES OF WORKING CAPITAL
Working capital is classified as Gross working capital and net working capital this classification
is important from the point of view of financial manager.
Gross working capital: the term working capital refers to the gross working capital and
represents the amount of funds invested in current assets. Thus the gross working capital is the
capital invested in total current assets of the enterprise.
Net working capital: the term working capital refers to the net working capital. Net working
capital is the excess of current assets over current liabilities. Or say
Net working capital= current assets – current liabilities
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IMPORTANCE OF WORKING CAPITAL
Solvency of the business
Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.
Goodwill
Sufficient working capital enables a business concern to make prompt payments and hence helps
in creating and maintain goodwill.
Easy loans
A concern having adequate working capital, high solvency and good credit standing can arrange
loan from banks and others on easy and favorable terms.
Regular payments of salaries, wages and other day to day commitments
A company which has ample working capital can make regular payments of salaries, wages and
other day to day commitments which raises the morale of its employee, increase their efficiency,
reduces wastages and costs and enhances production and profits.
Ability to face crises
Adequate working capital enables a concern to face business crises in emergencies such as
depression because during such period, generally, there is much pressure on working capital.
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ANALYSIS OF WORKING CAPITAL AND MEASURING THE EFFICIENCY IN THE
MANAGEMENT WORKING CAPITAL
As pointed out earlier, the working capital magnitude of concern should neither be too
inadequate nor to excessive as compared to its requirements. Maintaining adequate level of
working capital ensures the improvements of profitability. Thus financial manager all the time
strive to strike a balance between working capital requirements and the working capital
magnitude. This is done by analyzing and examining the changes in individual components of
working capital, i.e., item of CA and CL. When we make a deep examination of various
components of working capital with an objective to ensure its adequacy or otherwise, it is known
as ―analyzing of working capital‖ for such an analysis, the following techniques are used.
schedule changes in working capital
fund statement
ratio analysis
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CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goo
6) Temporary investment of surplus funds.
7) Prepaid expenses
8) Accrued incomes.
9) Marketable securities.
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CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enter price to provide correct amount of working capital at correct time
2. Every management is more interested in total current assets with which it has to operate then
the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
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4. This concept is also useful in determining the rate of return on investments in working .
DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL
Excessive working capital means ideal funds which earn no profit for the firm and business
cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and accumulation of inventories.
Excessive working capital implies excessive debtors and defective credit policy which causes
higher incidence of bad debts.
It may reduce the overall efficiency of the business.
If a firm is having excessive working capital then the relations with banks and other financial
institution may not be maintained.
Due to lower rate of return n investments, the values of shares may also fall.
The redundant working capital gives rise to speculative transactions.
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DISADVANTAGES OF INADEQUATE WORKING CAPITAL
Every business needs some amounts of working capital. The need for working capital arises due
to the time gap between production and realization of cash from sales. There is an operating
cycle involved in sales and realization of cash. There are time gaps in purchase of raw material
and production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
For the purpose of raw material, components and spares.
To pay wages and salaries
To incur day-to-day expenses and overload costs such as office expenses.
To meet the selling costs as packing, advertising, etc.
To provide credit facilities to the customer.
To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc.
These expenses are called preliminary expenses and are capitalized. The amount needed for
working capital depends upon the size of the company and ambitions of its promoters. Greater
the size of the business unit, generally larger will be the requirements of the working capital.
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The requirement of the working capital goes on increasing with the growth and expensing of the
business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.
There are others factors also influence the need of working capital in a business.
MANAGEMENT OF CASH
Cash is the most liquid assets, is of vital importance to the daily operation of business firms.
Cash is the basic input needed to keep the business running on a continuous basis. It is also the
ultimate output expected to the realized by selling the service or the product manufactured by the
firm.
In views of its importance it is retrieved as the “Life blood of a business enterprise”.
The firm needs cash for two primary reason.
To meet the needs of day-to-day transaction.
To protect the firms again uncertainties characterizing its cash flows.
The firms should keep sufficient cash neither more nor less. Shortage of cash will disrupt the
firms manufacturing operations, while excessive. Cash will simply remain idle without
contributing towards firm profitability.
Thus a major function of a finance manager is to maintain a sound cash position cash
manage is concern with the managing of :
Cash flow in and out of the firm
Cash balance held out by the firm at a point of time financing deficit or investing surplus
cash.
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Instruments used for collection
The main instruments used :
Cheques
Draft
Letter of credit
Motives for holding cash
Transaction motives
Precautionary motives
Speculative motives
Compensation motives
RECEIVABLES MANAGEMENT
Receivables management is the process of making decision relating to investment in trade
debtors. Certain investment in receivables is necessary to increase the sales and the profit of a
firm. But at the same time investment in these assets involves costs considerations also. Further,
there is always a risk of bed debts too.
Thus, the objective of receivables management is to take sound decision as regards investment in
debtors.
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Dimensions of receivables management
Forming of credit policy
For efficient management of receivables, a company must adopt a credit policy.
Credit standards
Length of credit period
Discount period
1. Executing credit policy:
After formulating the credit policy, its proper execution is very important. The evaluation of
credit application and findings out the credit worthiness of customers should be undertaken.
Collection credit information
Credit analysis
Credit decision
Financing investments in receivables and factoring
2. Formulating and executive collection policy:
The collection of amount due to the customer is very important. The concern should device
procedures to be followed when account. Become due after the expiry. A collection policy
should be strict or consent. A strict collection policy involves more efforts on collection This
early collection of dues and will reduce bad debts losses.
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Management of inventory
Inventory constitutes a significance of current assets. About 26% of the companies capital us tied
up form of inventories effective and efficiently in order to invite unnecessary.
Inventory includes the following things
Raw material
Work in progress or semi finished goods
Consumables
Finished goods
Spares etc.
Nature of inventory
Inventories are stock of the products of a firm is manufacturing for sale and components that’s
make up the products.
The purpose of inventory management is to keep the stock in such a way that neither there is
overstocking nor under stocking.
Inventory management is determine.
What to produce
How much to produce
From where to produce
Where to store etc.
Inventory control
Inventory control can be mainly done by these tools and techniques.
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Determination of stocks levels
Max level
Min level
Re-order level
Danger level
Average stock level
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ABC analysis
This technique is based on this assumption that a firm should not exercise the same degree of
control on items which are more costly as compared to those items which are less costly.
This can be applied as follows:
Class no.of items value of items
A 10 70
B 20 20
C 70 10
ABC analysis categorization at t-series
The classification of material into A,B,C is based on the following demarcation.
A .category- cost above Rs.500/-piece
B . category-cost above Rs.100/-piece
C. category- cost less than Rs.100/-piece
This classification is arbitrary.
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Working capital policy followed at t- series
There are three types of working capital policies which a firm may adopt I,e.
Moderate working capital policy
Conservative working capital policy
Aggressive working capital policy.
These policies are describe the relationship between sales and the level of current assets.
FIGURE1: RELATIONSHIP BETWEEN SALES & LEVEL OF CURRENT ASSETS
T-series follows the aggressive working capital policy.
CURRENT
ASSET
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FINANCIAL RATIOS
A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values
taken from an enterprise's financial statements. Often used in accounting, there are many
standard ratios used to try to evaluate the overall financial condition of a corporation or other
organization. Financial ratios may be used by managers within a firm, by current and potential
shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to
compare the strengths and weaknesses in various companies.[1]
If shares in a company are traded
in a financial market, the market price of the shares is used in certain financial ratios.
Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value,
such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or
always less than 1, such as earnings yield, while others are usually quoted as decimal numbers,
especially ratios that are usually more than 1, such as P/E ratio; these latter are also called
multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal
will be below 1, and conversely. The reciprocal expresses the same information, but may be
more understandable: for instance, the earnings yield can be compared with bond yields, while
the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.
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Purpose and types of ratios
Financial ratios quantify many aspects of a business and are an integral part of the financial
statement analysis. Financial ratios are categorized according to the financial aspect of the
business which the ratio measures. Liquidity ratios measure the availability of cash to pay
debt.[2]
Activity ratios measure how quickly a firm converts non-cash assets to cash assets.[3]
Debt ratios measure the firm's ability to repay long-term debt.[4] Profitability ratios measure
the firm's use of its assets and control of its expenses to generate an acceptable rate of return.[5]
Market ratios measure investor response to owning a company's stock and also the cost of
issuing stock .[6]
These are concerned with the return on investment for shareholders, and with the
relationship between return and the value of an investment in company’s shares.
Financial ratios allow for comparisons
between companies
between industries
between different time periods for one company
between a single company and its industry average
Ratios generally hold no meaning unless they are benchmarked against something else, like past
performance or another company. Thus, the ratios of firms in different industries, which face
different risks, capital requirements, and competition are usually hard to compare.
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" Working capital is an excess of current assets over current liabilities. In other words, The
amount of current assets which is more than current liabilities is known as Working Capital. If
current liabilities are nil then, working capital will equal to current assets. Working capital shows
strength of business in short period of time . If a company have some amount in the form of
working capital , it means Company have liquid assets, with this money company can face every
crises position in market. "
Formula of Calculating Working Capital
Working Capital = Current Assets - Current Liabilities
Current Assets
Current assets are those assets which can be converted into cash within One year or less then one
year . In current assets, we includes cash, bank, debtors, bill receivables, prepaid expenses,
outstanding incomes .
Current Liabilities
Current Liabilities are those liabilities which can be paid to respective parties within one year or
less than one year at their maturity. In current liabilities, we includes creditors, outstanding bills,
bank overdraft, bills payable and short term loans, outstanding expenses, advance incomes .
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Important things about Working Capital
1. Working Capital can be negative. At that time, We add one word " deficiency" in the back of
working capital . It means if Current Liabilities are more than current assets, it is known as
working capital deficiency or inverse working capital or negative working capital.
2. Working capital can be easily adjusted, if Accounts manager knows different techniques of
managing working capital . He can try to get short term loan or he can increase working capital
by proper management of inventory and outstanding incomes and debtors .
3. Working capital can also change by Changing in Cash Conversion period. Cash conversion
period is a period in which company changes current assets into cash or bank.
4. Working capital can also positive by increasing growth rate of company. If company does not
invest more money and increase profit, the same amount will increase in the cash position of
company and with cash company can increase their working capital position.
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Importance of Working Capital
Some time, If creditors demands their money from company, at this time company's high
working capital saves company from this situation . You know that selling of current assets are
easy in small period of time but Company can not sell their fixed assets with in small period of
time. So, If Company have sufficient working capital , Company can easily pay off the creditors
and create his reputation in market . But If a company have zero working capital and then
company can not pay creditors in emergency time and either company becomes bankrupt or
takes loan at higher rate of Interest . In both condition , it is very dangerous and always
Company's Account Manager tries to keep some amount of working capital for creating goodwill
in market .
Positive working capital enables also to pay day to day expenses like wages, salaries, overheads
and other operating expenses. Because sufficient working capital can not only pay maturity
liabilities but also outstanding liabilities without any more delay.
One of advantages of positive working capital that Company can do every risky work without
any tension of self security.
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Introduction of Working Capital Management
Working capital management is the device of finance. It is related to manage of current assets
and current liabilities. After learning working capital management, commerce students can use
this tool for fund flow analysis. Working capital is very significant for paying day to day
expenses and long term liabilities.
Meaning and Concept of Working Capital and its management
Working capital is that part of company’s capital which is used for purchasing raw material and
involve in sundry debtors. We all know that current assets are very important for proper working
of fixed assets. Suppose, if you have invested your money to purchase machines of company and
if you have not any more money to buy raw material, then your machinery will no use for any
production without raw material. From this example, you can understand that working capital is
very useful for operating any business organization. We can also take one more liquid item of
current assets that is cash. If you have not cash in hand, then you can not pay for different
expenses of company, and at that time, your many business works may delay for not paying
certain expenses. If we define working capital in very simple form, then we can say that working
capital is the excess of current assets over current liabilities.
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Types of Working Capital
1. Gross working capital
Total or gross working capital is that working capital which is used for all the current assets.
Total value of current assets will equal to gross working capital.
2. Net Working Capital
Net working capital is the excess of current assets over current liabilities.
Net Working Capital = Total Current Assets – Total Current Liabilities
This amount shows that if we deduct total current liabilities from total current assets, then
balance amount can be used for repayment of long term debts at any time.
3. Permanent Working Capital
Permanent working capital is that amount of capital which must be in cash or current assets for
continuing the activities of business.
4. Temporary Working Capital
Sometime, it may possible that we have to pay fixed liabilities, at that time we need working
capital which is more than permanent working capital, then this excess amount will be temporary
working capital. In normal working of business, we don’t need such capital.
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In working capital management, we analyze following three points
Ist Point
What is the need for working capital?
After study the nature of production, we can estimate the need for working capital. If company
produces products at large scale and continues producing goods, then company needs high
amount of working capital.
2nd Point
What is optimum level of Working capital in business?
Have you achieved the optimum level of working capital which has invested in current assets?
Because high amount of working capital will decrease the return on investment and low amount
of working capital will increase the risk of business. So, it is very important decision to get
optimum level of working capital where both profitability and risk will be balanced. For
achieving optimum level of working capital, finance manager should also study the factors which
affects the requirement of working capital and different elements of current assets. If he will
manage cash, debtor and inventory, then working capital will automatically optimize.
3rd Point
What are main Working capital policies of businesses?
Policies are the guidelines which are helpful to direct business. Finance manager can also make
working capital policies.
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1st Working capital policy
Liquidity policy
Under this policy, finance manager will increase the amount of liquidity for reducing the risk of
business. If business has high volume of cash and bank balance, then business can easily pays his
dues at maturity. But finance manger should not forget that the excess cash will not produce and
earning and return on investment will decrease. So liquidity policy should be optimized.
2nd Working Capital Policy
Profitability policy
Under this policy, finance manger will keep low amount of cash in business and try to invest
maximum amount of cash and bank balance. It will sure that profit of business will increase due
to increasing of investment in proper way but risk of business will also increase because liquidity
of business will decrease and it can create bankruptcy position of business. So, profitability
policy should make after seeing liquidity policy and after this both policies will helpful for
proper management of working capital.
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Corporate finance is the area of finance dealing with monetary decisions that business
enterprises make and the tools and analysis used to make these decisions. The primary goal of
corporate finance is to maximize shareholder value while managing the firm's financial risks.
Although it is in principle different from managerial finance which studies the financial
decisions of all firms, rather than corporations alone, the main concepts in the study of corporate
finance are applicable to the financial problems of all kinds of firms.
The discipline can be divided into long-term and short-term decisions and techniques. Capital
investment decisions are long-term choices about which projects receive investment, whether to
finance that investment with equity or debt, and when or whether to pay dividends to
shareholders. On the other hand, short term decisions deal with the short-term balance of current
assets and current liabilities; the focus here is on managing cash, inventories, and short-term
borrowing and lending (such as the terms on credit extended to customers).
The terms corporate finance and corporate financier are also associated with investment
banking. The typical role of an investment bank is to evaluate the company's financial needs and
raise the appropriate type of capital that best fits those needs. Thus, the terms ―corporate finance‖
and ―corporate financier‖ may be associated with transactions in which capital is raised in order
to create, develop, grow or acquire businesses.
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Capital investment decisions
Capital investment decisions are long-term corporate finance decisions relating to fixed assets
and capital structure. Decisions are based on several inter-related criteria. (1) Corporate
management seeks to maximize the value of the firm by investing in projects which yield a
positive net present value when valued using an appropriate discount rate in consideration of
risk. (2) These projects must also be financed appropriately. (3) If no such opportunities exist,
maximizing shareholder value dictates that management must return excess cash to shareholders
(i.e., distribution via dividends). Capital investment decisions thus comprise an investment
decision, a financing decision, and a dividend decision.
The investment decision
Management must allocate limited resources between competing opportunities (projects) in a
process known as capital budgeting. Making this investment, or capital allocation, decision
requires estimating the value of each opportunity or project, which is a function of the size,
timing and predictability of future cash flows.
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Project valuation
In general, each project's value will be estimated using a discounted cash flow (DCF) valuation,
and the opportunity with the highest value, as measured by the resultant net present value (NPV)
will be selected (applied to Corporate Finance by Joel Dean in 1951; see also Fisher separation
theorem, John Burr Williams#Theory). This requires estimating the size and timing of all of the
incremental cash flows resulting from the project. Such future cash flows are then discounted to
determine their present value (see Time value of money). These present values are then summed,
and this sum net of the initial investment outlay is the NPV. See Financial modeling.
The NPV is greatly affected by the discount rate. Thus, identifying the proper discount rate –
often termed, the project "hurdle rate" – is critical to making an appropriate decision. The hurdle
rate is the minimum acceptable return on an investment — i.e. the project appropriate discount
rate. The hurdle rate should reflect the riskiness of the investment, typically measured by
volatility of cash flows, and must take into account the project-relevant financing mix. Managers
use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular
project, and use the weighted average cost of capital (WACC) to reflect the financing mix
selected. (A common error in choosing a discount rate for a project is to apply a WACC that
applies to the entire firm. Such an approach may not be appropriate where the risk of a particular
project differs markedly from that of the firm's existing portfolio of assets.)
In conjunction with NPV, there are several other measures used as (secondary) selection criteria
in corporate finance. These are visible from the DCF and include discounted payback period,
IRR, Modified IRR, equivalent annuity, capital efficiency, and ROI. Alternatives (complements)
to NPV include MVA / EVA (Joel Stern, Stern Stewart & Co) and APV (Stewart Myers).
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Valuing flexibility
In many cases, for example R&D projects, a project may open (or close) various paths of action
to the company, but this reality will not (typically) be captured in a strict NPV approach.
[6]
Management will therefore (sometimes) employ tools which place an explicit value on these
options. So, whereas in a DCF valuation the most likely or average or scenario specific cash
flows are discounted, here the ―flexible and staged nature‖ of the investment is modelled, and
hence "all" potential payoffs are considered. The difference between the two valuations is the
"value of flexibility" inherent in the project.
The two most common tools are Decision Tree Analysis (DTA) and Real options analysis
(ROA); they may often be used interchangeably:
DTA values flexibility by incorporating possible events (or states) and consequent management
decisions. (For example, a company would build a factory given that demand for its product
exceeded a certain level during the pilot-phase, and outsource production otherwise. In turn,
given further demand, it would similarly expand the factory, and maintain it otherwise. In a DCF
model, by contrast, there is no "branching" – each scenario must be modelled separately.) In the
decision tree, each management decision in response to an "event" generates a "branch" or "path"
which the company could follow; the probabilities of each event are determined or specified by
management. Once the tree is constructed: (1) "all" possible events and their resultant paths are
visible to management; (2) given this ―knowledge‖ of the events that could follow, and assuming
rational decision making, management chooses the actions corresponding to the highest value
path probability weighted; (3) this path is then taken as representative of project value. See
Decision theory#Choice under uncertainty.
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ROA is usually used when the value of a project is contingent on the value of some other asset or
underlying variable. (For example, the viability of a mining project is contingent on the price of
gold; if the price is too low, management will abandon the mining rights, if sufficiently high,
management will develop the ore body. Again, a DCF valuation would capture only one of these
outcomes.) Here: (1) using financial option theory as a framework, the decision to be taken is
identified as corresponding to either a call option or a put option; (2) an appropriate valuation
technique is then employed – usually a variant on the Binomial options model or a bespoke
simulation model, while Black Scholes type formulae are used less often; see Contingent claim
valuation. (3) The "true" value of the project is then the NPV of the "most likely" scenario plus
the option value. (Real options in corporate finance were first discussed by Stewart Myers in
1977; viewing corporate strategy as a series of options was originally per Timothy Luehrman, in
the late 1990s.)
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Quantifying uncertainty
Further information: Sensitivity analysis, Scenario planning, and Monte Carlo methods in
finance
Given the uncertainty inherent in project forecasting and valuation, analysts will wish to assess
the sensitivity of project NPV to the various inputs (i.e. assumptions) to the DCF model. In a
typical sensitivity analysis the analyst will vary one key factor while holding all other inputs
constant, ceteris paribus. The sensitivity of NPV to a change in that factor is then observed, and
is calculated as a "slope": ΔNPV / Δfactor. For example, the analyst will determine NPV at
various growth rates in annual revenue as specified (usually at set increments, e.g. -10%, -5%,
0%, 5%....), and then determine the sensitivity using this formula. Often, several variables may
be of interest, and their various combinations produce a "value-surface", (or even a "value-
space"), where NPV is then a function of several variables. See also Stress testing.
Using a related technique, analysts also run scenario based forecasts of NPV. Here, a scenario
comprises a particular outcome for economy-wide, "global" factors (demand for the product,
exchange rates, commodity prices, etc...) as well as for company-specific factors (unit costs,
etc...). As an example, the analyst may specify various revenue growth scenarios (e.g. 5% for
"Worst Case", 10% for "Likely Case" and 25% for "Best Case"), where all key inputs are
adjusted so as to be consistent with the growth assumptions, and calculate the NPV for each.
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Note that for scenario based analysis, the various combinations of inputs must be internally
consistent (see discussion at Financial modeling), whereas for the sensitivity approach these need
not be so. An application of this methodology is to determine an "unbiased" NPV, where
management determines a (subjective) probability for each scenario – the NPV for the project is
then the probability-weighted average of the various scenarios.
A further advancement is to construct stochastic or probabilistic financial models – as opposed to
the traditional static and deterministic models as above. For this purpose, the most common
method is to use Monte Carlo simulation to analyze the project’s NPV. This method was
introduced to finance by David B. Hertz in 1964, although it has only recently become common:
today analysts are even able to run simulations in spreadsheet based DCF models, typically using
an add-in, such as @Risk or Crystal Ball. Here, the cash flow components that are (heavily)
impacted by uncertainty are simulated, mathematically reflecting their "random characteristics".
In contrast to the scenario approach above, the simulation produces several thousand random but
possible outcomes, or "trials"; see Monte Carlo Simulation versus ―What If‖ Scenarios. The
output is then a histogram of project NPV, and the average NPV of the potential investment – as
well as its volatility and other sensitivities – is then observed. This histogram provides
information not visible from the static DCF: for example, it allows for an estimate of the
probability that a project has a net present value greater than zero (or any other value).
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Continuing the above example: instead of assigning three discrete values to revenue growth, and
to the other relevant variables, the analyst would assign an appropriate probability distribution to
each variable (commonly triangular or beta), and, where possible, specify the observed or
supposed correlation between the variables. These distributions would then be "sampled"
repeatedly – incorporating this correlation – so as to generate several thousand random but
possible scenarios, with corresponding valuations, which are then used to generate the NPV
histogram.
The resultant statistics (average NPV and standard deviation of NPV) will be a more accurate
mirror of the project's "randomness" than the variance observed under the scenario based
approach. These are often used as estimates of the underlying "spot price" and volatility for the
real option valuation as above; see Real options valuation: Valuation inputs. A more robust
Monte Carlo model would include the possible occurrence of risk events (e.g., a credit crunch)
that drive variations in one or more of the DCF model inputs.
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The financing decision
Achieving the goals of corporate finance requires that any corporate investment be financed
appropriately. The sources of financing are, generically, capital self-generated by the firm as well
as debt and equity financing sourced form outside investors. As above, since both hurdle rate and
cash flows (and hence the riskiness of the firm) will be affected, the financing mix will impact
the valuation of the firm (as well as the other long-term financial management decisions). There
are two interrelated decisions here:
Management must identify the "optimal mix" of financing — the capital structure that results in
maximum value. (See Balance sheet, WACC, Fisher separation theorem; but, see also the
Modigliani-Miller theorem.) Financing a project through debt results in a liability or obligation
that must be serviced, thus entailing cash flow implications independent of the project's degree of
success. Equity financing is less risky with respect to cash flow commitments, but results in a
dilution of share ownership, control and earnings. The cost of equity is also typically higher than
the cost of debt (see CAPM and WACC), and so equity financing may result in an increased
hurdle rate which may offset any reduction in cash flow risk.
Management must attempt to match the long-term financing mix to the assets being financed as
closely as possible, in terms of both timing and cash flows. Managing any potential asset liability
mismatch or duration gap entails matching the assets and liabilities according to maturity pattern
("Cashflow matching") or duration ("immunization"); managing this relationship in the short-
term is a major function of working capital management, as discussed below. Other techniques,
such as securitization, or hedging using interest rate- or credit derivatives, are also common. See
Asset liability management; Treasury management; Credit risk; Interest rate risk.
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One of the main theories of how firms make their financing decisions is the Pecking Order
Theory, which suggests that firms avoid external financing while they have internal financing
available and avoid new equity financing while they can engage in new debt financing at
reasonably low interest rates. Another major theory is the Trade-Off Theory in which firms are
assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when making their
decisions. An emerging area in finance theory is right-financing whereby investment banks and
corporations can enhance investment return and company value over time by determining the
right investment objectives, policy framework, institutional structure, source of financing (debt
or equity) and expenditure framework within a given economy and under given market
conditions. One last theory about this decision is the Market timing hypothesis which states that
firms look for the cheaper type of financing regardless of their current levels of internal
resources, debt and equity.
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The dividend decision
Whether to issue dividends, and what amount, is calculated mainly on the basis of the company's
unappropriated profit and its earning prospects for the coming year. The amount is also often
calculated based on expected free cash flows i.e. cash remaining after all business expenses, and
capital investment needs have been met.
If there are no NPV positive opportunities, i.e. projects where returns exceed the hurdle rate, then
– finance theory suggests – management must return excess cash to investors as dividends. This
is the general case, however there are exceptions. For example, shareholders of a " growth stock",
expect that the company will, almost by definition, retain earnings so as to fund growth
internally. In other cases, even though an opportunity is currently NPV negative, management
may consider ―investment flexibility‖ / potential payoffs and decide to retain cash f lows; see
above and Real options.
Management must also decide on the form of the dividend distribution, generally as cash
dividends or via a share buyback. Various factors may be taken into consideration: where
shareholders must pay tax on dividends, firms may elect to retain earnings or to perform a stock
buyback, in both cases increasing the value of shares outstanding. Alternatively, some companies
will pay "dividends" from stock rather than in cash; see Corporate action. Today, it is generally
accepted that dividend policy is value neutral – i.e. the value of the firm would be the same,
whether it issued cash dividends or repurchased its stock (see Modigliani-Miller theorem).
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Working capital management
Decisions relating to working capital and short term financing are referred to as working capital
management. These involve managing the relationship between a firm's short-term assets and its
short-term liabilities. In general this is as follows: As above, the goal of Corporate Finance is the
maximization of firm value. In the context of long term, capital investment decisions, firm value
is enhanced through appropriately selecting and funding NPV positive investments. These
investments, in turn, have implications in terms of cash flow and cost of capital. The goal of
Working Capital (i.e. short term) management is therefore to ensure that the firm is able to
operate, and that it has sufficient cash flow to service long term debt, and to satisfy both
maturing short-term debt and upcoming operational expenses. In so doing, firm value is
enhanced when, and if, the return on capital exceeds the cost of capital; See Economic value
added (EVA).
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Decision criteria
Working capital is the amount of capital which is readily available to an organization. That is,
working capital is the difference between resources in cash or readily convertible into cash
(Current Assets), and cash requirements (Current Liabilities). As a result, the decisions relating
to working capital are always current, i.e. short term, decisions. In addition to time horizon,
working capital decisions differ from capital investment decisions in terms of discounting and
profitability considerations; they are also "reversible" to some extent. (Considerations as to Risk
appetite and return targets remain identical, although some constraints – such as those imposed
by loan covenants – may be more relevant here).
Working capital management decisions are therefore not taken on the same basis as long term
decisions, and working capital management applies different criteria in decision making: the
main considerations are (1) cash flow / liquidity and (2) profitability / return on capital (of which
cash flow is probably the more important).
The most widely used measure of cash flow is the net operating cycle, or cash conversion cycle.
This represents the time difference between cash payment for raw materials and cash collection
for sales. The cash conversion cycle indicates the firm's ability to convert its resources into cash.
Because this number effectively corresponds to the time that the firm's cash is tied up in
operations and unavailable for other activities, management generally aims at a low net count.
(Another measure is gross operating cycle which is the same as net operating cycle except that it
does not take into account the creditors deferral period.)
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In this context, the most useful measure of profitability is Return on capital (ROC). The result is
shown as a percentage, determined by dividing relevant income for the 12 months by capital
employed; Return on equity (ROE) shows this result for the firm's shareholders. As above, firm
value is enhanced when, and if, the return on capital, exceeds the cost of capital. ROC measures
are therefore useful as a management tool, in that they link short-term policy with long-term
decision making.
Management of working capital
Guided by the above criteria, management will use a combination of policies and techniques for
the management of working capital. These policies aim at managing the current assets (generally
cash and cash equivalents, inventories and debtors) and the short term financing, such that cash
flows and returns are acceptable.
Cash management. Identify the cash balance which allows for the business to meet day
to day expenses, but reduces cash holding costs.
Inventory management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials – and minimizes reordering costs – and
hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order
quantity (EOQ); Economic production quantity (EPQ).
Debtors management. Identify the appropriate credit policy, i.e. credit terms which will
attract customers, such that any impact on cash flows and the cash conversion cycle will be
offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and
allowances.
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Short term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it
may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through
"factoring".
Relationship with other areas in finance
Investment banking
Use of the term ―corporate finance‖ varies considerably across the world. In the United States it
is used, as above, to describe activities, decisions and techniques that deal with many aspects of a
company’s finances and capital. In the United Kingdom and Commonwealth countries, the terms
―corporate finance‖ and ―corporate financier‖ tend to be associated with investment banking –
i.e. with transactions in which capital is raised for the corporation. These may include
Raising seed, start-up, development or expansion capital
Mergers, demergers, acquisitions or the sale of private companies
Mergers, demergers and takeovers of public companies, including public-to-private deals
Management buy-out, buy-in or similar of companies, divisions or subsidiaries –
typically backed by private equity
Equity issues by companies, including the flotation of companies on a recognised stock
exchange in order to raise capital for development and/or to restructure ownership
Raising capital via the issue of other forms of equity, debt and related securities for the
refinancing and restructuring of businesses
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Financing joint ventures, project finance, infrastructure finance, public-private
partnerships and privatizations
Secondary equity issues, whether by means of private placing or further issues on a stock
market, especially where linked to one of the transactions listed above.
Raising debt and restructuring debt, especially when linked to the types of transactions
listed above
Financial risk management
Risk management is the process of measuring risk and then developing and implementing
strategies to manage that risk. Financial risk management focuses on risks that can be managed
("hedged") using traded financial instruments (typically changes in commodity prices, interest
rates, foreign exchange rates and stock prices). Financial risk management will also play an
important role in cash management.
This area is related to corporate finance in two ways. Firstly, firm exposure to business and
market risk is a direct result of previous Investment and Financing decisions. Secondly, both
disciplines share the goal of enhancing, or preserving, firm value.
It is common for large corporations to have risk management teams. While it is impractical for
many small firms to have formal risk management teams, many still practice risk management
principles through informal teams. There is a fundamental debate on the value of "Risk
Management" and shareholder value that questions a shareholder's desire to optimize risk versus
taking exposure to pure risk (a risk event that only has a negative side, such as loss of life or
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limb). The debate links value of risk management in a market to the cost of bankruptcy in that
market.
Derivatives are the instruments most
commonly used in financial risk management. Because
unique derivative contracts tend to be costly to create and monitor, the most cost-effective
financial risk management methods usually involve derivatives that trade on well-established
financial markets or exchanges. These standard derivative instruments include options, futures
contracts, forward contracts, and swaps. More customized and second generation derivatives
known as exotics trade over the counter aka OTC.
Personal and public finance
Corporate finance utilizes tools from almost all areas of finance. Some of the tools developed by
and for corporations have broad application to entities other than corporations, for example, to
partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and
personal wealth management. But in other cases their application is very limited outside of the
corporate finance arena. Because corporations deal in quantities of money much greater than
individuals, the analysis has developed into a discipline of its own. It can be differentiated from
personal finance and public finance.
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Alternate Approaches
A standard assumption in Corporate finance is that shareholders are the residual claimants and
that the primary goal of executives should be to maximize shareholder value.
Recently, however, legal scholars (e.g. Lynn Stout) have questioned this assumption, implying
that the assumed goal of maximizing shareholder value is inappropriate for a public corporation.
This criticism in turn brings into question the advice of corporate finance, particularly related to
stock buybacks made purportedly to "return value to shareholders," which is predicated on a
legally erroneous assumption.
Ratio-analysis is a concept or technique which is as old as accounting concept. Financial
analysis is a scientific tool. It has assumed important role as a tool for appraising the real worth
of an enterprise, its performance during a period of time and its pit falls.
Financial analysis is a vital apparatus for the interpretation of financial statements. It also helps
to find out any cross-sectional and time series linkages between various ratios.
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Unlike in the past when security was considered to be sufficient consideration for banks and
financial institutions to grant loans and advances, nowadays the entire lending is need-based and
the emphasis is on the financial viability of a proposal and not only on security alone.
Further all business decision contains an element of risk. The risk is more in the case of decisions
relating to credits. Ratio analysis and other quantitative techniques facilitate assessment of this
risk.
Ratio-analysis means the process of computing, determining and presenting the relationship of
related items and groups of items of the financial statements. They provide in a summarized and
concise form of fairly good idea about the financial position of a unit.
They are important tools for financial analysis.
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Table1:
Balance Sheet
Ratio
P&L Ratio or Income/Revenue
Statement Ratio
Balance Sheet and Profit & Loss Ratio
Financial Ratio Operating Ratio Composite Ratio
Current Ratio
Quick Asset
Ratio
Proprietary
Ratio
Debt Equity
Ratio
Gross Profit Ratio
Operating Ratio
Expense Ratio
Net profit Ratio
Stock Turnover Ratio
Fixed Asset Turnover Ratio,
Return on Total Resources Ratio,
Return on Own
Funds Ratio,
Earning per Share Ratio,
Debtors’ Turnover Ratio
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Table2:
LIABILITIES ASSETS
NET WORTH/EQUITY/OWNED
FUNDS
Share Capital/Partner’s
Capital/Paid up Capital/ Owners
Funds
Reserves ( General, Capital,
Revaluation & Other Reserves)
Credit Balance in P&L A/c
FIXED ASSETS : LAND & BUILDING, PLANT &
MACHINERIES
Original Value Less Depreciation
Net Value or Book Value or Written down value
LONG TERM
LIABILITIES/BORROWED
FUNDS : Term Loans (Banks &
Institutions)
Debentures/Bonds, Unsecured
Loans, Fixed Deposits, Other Long
Term Liabilities
NON CURRENT ASSETS
Investments in quoted shares & securities
Old stocks or old/disputed book debts
Long Term Security Deposits
Other Misc. assets which are not current or fixed in
nature
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CURRENT LIABILTIES
Bank Working Capital Limits such
as CC/OD/Bills/Export Credit
Sundry /Trade
Creditors/Creditors/Bills Payable,
Short duration loans or deposits
Expenses payable & provisions
against various items
CURRENT ASSETS : Cash & Bank Balance,
Marketable/quoted Govt. or other securities, Book
Debts/Sundry Debtors, Bills Receivables, Stocks &
inventory (RM,SIP,FG) Stores & Spares, Advance
Payment of Taxes, Prepaid expenses, Loans and
Advances recoverable within 12 months
INTANGIBLE ASSETS
Patent, Goodwill, Debit balance in P&L A/c,
Preliminary or Preoperative expenses
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Current Ratio : It is the relationship between the current assets and current liabilities of a
concern.
Current Ratio = Current Assets/Current Liabilities
If the Current Assets and Current Liabilities of a concern are Rs.4,00,000 and Rs.2,00,000
respectively, then the Current Ratio will be : Rs.4,00,000/Rs.2,00,000 = 2 : 1
The ideal Current Ratio preferred by Banks is 1.33 : 1
Net Working Capital : This is worked out as surplus of Long Term Sources over Long Tern
Uses, alternatively it is the difference of Current Assets and Current Liabilities.
NWC = Current Assets – Current Liabilities
ACID TEST or QUICK RATIO : It is the ratio between Quick Current Assets and Current
Liabilities. The should be at least equal to 1.
Quick Current Assets : Cash/Bank Balances + Receivables upto 6 months + Quickly realizable
securities such as Govt. Securities or quickly marketable/quoted shares and Bank Fixed Deposits
Acid Test or Quick Ratio = Quick Current Assets/Current Liabilities
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RESEARCH
METHODOLOGY
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The conceptual framework of the summer training project. It has been explained under the
following subhead:
Objective of selection of this topic
Source of data
Instruments and methods of data collection
Tabulation, processing and trend analysis of data
Objective
To know the working capital management of t-series.
To know the earning capacity and efficiency of t-series company.
To know the performance efficiency and managerial ability by the management of the
t- series company.
To know the short term and long term solvency of the t-series company.
To know about the financial position and ability to pay of the concern seeking loans and
credits.
To know the profitability and future prospectus of the t- series company.
To know the future potential of the t-series company.
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Research Method Used:
Descriptive Method
Source of data
Secondary data: collected from the following ways :
Studying and analyzing the data obtained from the organization which include the
financial statement , different literature and its website.
Studying the annual reports, prepared by the organization.
Use of external sources of information such as reference on working capital management.
Related website on the internet, etc.
Applying various ratio analysis techniques.
Data analysis based on the study carried.
Study would be mainly focused on the analysis and use of secondary data. Extensive use
of various journals, magazines and different online resources would be used to construct the
analysis pattern. Various analysis tools are used to generate report.
Resource used
Technical resource
Computer software(ms office)
Human resource
Data analysis
The data collected through annual report of the company, balance sheet was further analyzed
using the financial data as gross profit, net profit ,share holders funds etc.
Then the Trend analysis is done.
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METHOD OF LEAST SQUARES:
The method of least square is very useful for fitting mathematical function to a given set of data.
The method is objective, and therefore gives correct and accurate estimation of trend, once the
form of eqation representing trend is determined.
An examination of graphical plot of the time series often provides an adequate basis for deciding
the functional form of the trend. Some of the common curves used for representing trend are:
(1) Y= a+bx , Linear or straight line trend
(2) Y=a+bx+cx2 ,
Parabolic or quadratic trend
(3) Y=abx , Exponential trend
Fitting linear or straight line trend
The simplest type of trend equation is the linear equation of the form
Y= a + b x …………………(1)
Where x represents time and y the value of the variable. Here y is the dependent and x is an
independent variable.
Now for the set of given data (x1, y1), (x2, y2)….., ( xN , yN)the constant a and b are determined
by solving simultaneously the equations:
∑y = Na + b ∑x
∑x y =a ∑x + b ∑x2
…………(2)
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The equation in (2), called normal equation for the least square line in (1), gives
A= (∑y)( ∑x2)-( ∑x) ( x y )/N ∑x)2 .............(3)
B=N ∑x y - ( ∑x)( ∑y)/N ∑x2-( ∑x)2 ………….(4)
If the values of x are equidistant, the calculation involved in the estimation of a and b can be
further simplified by shifting the origin to the appropriate mid- point in time, so that ∑x=0.
Obviously, the normal equation in (2) becomes.
∑y = Na
∑x y = ∑x
2
………………(5)
Therefore, a = ∑y/y and b = ∑x y/ ∑x2 ………………..(6)
Substituting the estimated values of a and b in (1), the fitted linear trend will be
Y = a + b x. ……………..(7)
We can find the trend values, say, y by putting different values of x in (7). When writing the
trend equation, the origin and unit of time must be clearly specified, as an equation without such
specification will be useless.
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LIMITATIONS
Every scientific study has certain limitations and the present study is no more
exception. These are: -
1. Interviewing of the executive of top echelon position who are making
recruitment is busy in the Organization State of affair. So it is not possible
to contact all of those every busy executives.
2. The terminology used in the subject is highly technical in nature and creates
a lot of ambiguity.
3. Confidentiality of the management is the strongest hindrance to the
collection of data and scientific analysis of the study.
4. All the secondary data are required were not available.
In spite of all these limitations, the investigator has made an humble attempt
to present an analytical picture of the study with some suggestion for the
long run implementation.
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ANALYSIS
&
INTERPRETATION
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RATIO ANALYSIS
Working capital analysis with the help of ratio’s may be undertaken with an objective to
examine the following.
a) Efficiency in the use of working capital
b) Liquidity of working capital elements
c) Structure health of working capital
LIQUIDITY RATIO
Liquidity refers to the ability of a concern to meet its current obligations as and when these
become due. Liquidity ratios are calculated to measure short term financial soundness of the
business. The short term obligation is met by realizing amounts from current, floating or
circulating assets.
To measure the liquidity of a firm, the following ratio’s can be calculated.
1- Current ratio or working capital ratio
2- Quick or acid test or liquid ratio
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SCHEDULE OF WORKING CAPITAL CHANGES
This technique is based on current item, i.e., current assets and current liability only. As
mentioned earlier net working capital is defined using only current items as excess of current
assets over current liability. Thus,
Net working capital= current assets – current liability
Significance:
Accounting point of view working capital represents the excess of current assets over current
liability.
Net working capital of the t-series-
Table3(a) (Rs. In crore )
Particulars FY-2006 FY-2007 FY-2008 FY-2009 FY-2010
Net
working
capital
28 38 60 80 96
INTERPRETATION:
Over the years the net working capital of the t- series is increasing and this is good for the
company.
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Table3(b)
Year
X
Net working
capital(in
crores) Y
x=(X-2008)/1 xY x2
Values
bx
= 60.4 + 17.8 x
2006
28 -2 -56 4 24.8
2007
38 -1 -38 1 42.6
2008
60 0 0 0 60.4
2009
80 1 80 1 78.2
2010
96 2 192 4 96
N=5 ∑Y=302 ∑x=0 ∑xY= 178 ∑x2=10
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Let the trend line to be fitted be Y = a + bX
For suitably shifting the origin, we use the transformation
x=(X-2008)/1
Thus, the transformed trend line becomes
Y = a + bx
The normal equations giving the values of a and b are
∑Y= Na + b∑x
∑xY = a∑x + b∑x2
Putting the values from the table in above equations , one gets
302=5a
a = 60.4
178= 10b
b = 17.8
Thus the fitted trend line is obtained by putting the values of a and b in
Y= a + b x
Y= 60.4 + 17.8 x
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Graph1.1 Trend of working capital
0
20
40
60
80
100
120
2006 2007 2008 2009 2010
actual data Linear (actual data)
X axis: time in years
Y axis: net working capital in crores
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EFFICIENCY OF OVERALL WORKING CAPITAL
Two accounting ratio which may be used for causing the efficiency in the use of overall working
capital are:
working capital turnover= cost of sales or sales net/working capital
SIGNIFICANCE:
Accounting point of view working capital turnover indicates the rate of working capital
utilization in the company.
.
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(Table: 4a)
Working capital turnover of t-series
INTERPRETATION
Over the years the working capital turnover of T-SERIES limited raising
No. of years Sales Working capital
Working capital
turnover=net
sales/working capital
2006 56 28 56/28=2
2007 95 38 95/38=2.5
2008 180 60 180/60=3
2009 220 80 220/80=2.75
2010 336 96 336/96=3.5
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Table4(b)
YearX
w.capital
turnoverY
x=(X-
2008)/1
xY x2
Trend Values
Y= a+bx
Y= 2.75 + 0.325 x
2006
2.0 -2 -4 4 2.1
2007
2.5 -1 -2.5 1 2.425
2008
3.0 0 0 0 2.75
2009
2.75 1 2.75 1 3.075
2010
3.5 2 7.0 4 3.4
N= 5 ∑Y= 13.75 ∑x=0 ∑xY=3.25
∑x2=10
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Let the trend line to be fitted be Y = a + bX
For suitably shifting the origin, we use the transformation
x=(X-2008)/1
Thus, the transformed trend line becomes
Y = a+bxThe normal equations giving the values of a and b are
∑Y= Na + b∑x
∑xY= a∑x + b∑x2
Putting the values from the table in above equations , one gets
13.75=5a
a = 2.75
3.25= 10b
b = 0.325
Thus the fitted trend line is obtained by putting the values of a and b in
Y= a + b x
Y= 2.75+ 0.325 x
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X axis: time in years
Y axis: working capital turnover
0
0.5
1
1.5
2
2.5
3
3.5
4
2006 2007 2008 2009 2010
graph2 Trend of working capital turnover
Actual data Linear (Actual data)
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CURRENT ASSETS TURNOVER= COST OF SALES OR SALES NET
CURRENT ASSETS
SIGNIFICANCE:
A higher ratio is generally considered as indicator of better efficiency and a lower ratio may be
indicative of efficiency or poor efficiency.
Current assets turnover ratio of t- series-
Table:5a
Current assets turnover of t-series
No. of years Sales Current asset
Current asset
turnover=net
sales/current asset
2006 56 37 56/37=1.5
2007 95 48 95/48=1.9
2008 180 84 180/84=2.1
2009 220 122 220/122=1.8
2010 336 153 336/153=2.1
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INTERPRETATION
Over the years the current assets turnover ratio is fluctuated during the year 2009 it was low. So
we can say that it is not satisfactory.
Table5(b)
YearX
Current assets
turnoverY
x = (X-
2008)/1
xY x2
Trend Values
Y= a+bx
Y= 1.88 + 0.11 x
2006
1.5 -2 -3 4 1.66
2007
1.9 -1 -1.9 1 1.77
2008
2.1 0 0 0 1.88
2009
1.8 1 1.8 1 1.99
2010
2.1 2 4.2 4 2.1
N=5 ∑Y=9.4 ∑x=0 ∑xY= 1.1 ∑x2=10
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Let the trend line to be fitted be Y = a + bX
For suitably shifting the origin, we use the transformation
x=(X-2008)/1
Thus, the transformed trend line becomes
Y = a+bx
The normal equations giving the values of a and b are
∑Y= Na + b∑x
∑xY= a∑x + b∑x2
Putting the values from the table in above equations , one gets
9.4 =5a
a = 1.88
1.1= 10b
b = 0.11
Thus the fitted trend line is obtained by putting the values of a and b in
Y= a + b x
Y= 1.88 + 0.11 x
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X axis: time in years
Y axis: current assets turnover
0
0.5
1
1.5
2
2.5
2006 2007 2008 2009 2010
graph3 Trend of current assets turnover
Actual data Linear (Actual data )
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QUICK RATIO
Quick ratio represents the ratio between quick assets to the current liability. It is
rigorous measure and superior to the current ratio.
Quick ratio = Quick Assets or current assest-stock
Quick Liability overdraft
The ideal quick ratio is said to be 1:1
OBJECTIVE
The objective of computing this ratio is to measure the ability of the firm to meet its short
term obligation as and when due its without relying upon the realization of stock.
SIGNIFICANCE
The quick ratio or acid teat ratio takes into consideration the liquidity level of the components of the
current assets. It can also be used by establishing the relationship between quick assets and quick
liability. Quick assets mean current assets reduced by inventories and prepaid expenses.
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Table: 6a
Quick ratio of t-series
INREPRETATION
The quick ratio of the t-series group shows that the financial condition of the enterprise is
round and very good. As it continued to increase but during the year 2007 it is found
maximum. But it also represent that more liquid assets are blocks within the company
which should be avoided.
No. of years stock Over draft
Quick ratio = current assets-
stock /current liabilities-over
draft
2006 2,59,00000 27,00000 34,41,00000/8,73,00000=3.94
2007 3,36,00000 30,0000044,64,00000/9,70,00000=4.6
2008 5,88,00000 72,00000
78,12,00000/23,28,00000=3.35
2009 8,54,00000 1,26,00000113,46,00000/40,74,00000=2.78
2010 10,72,00000 1,71,00000
142,28,00000/55,29,00000=2.57
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Table6(b)
Year
X
Quick ratio
Y
x = (X-
2008)/1
xY x2
Trend Values
Y=a+bx
Y= 3.448 -0.456 x
2006
3.94 -2 -7.88 4 4.36
2007
4.6 -1 -4.6 1 3.904
2008
3.35 0 0 0 3.448
2009
2.78 1 2.78 1 2.992
2010
2.57 2 5.14 4 2.536
N=5 ∑Y= 17.24 ∑x=0 ∑xY = -
4.56
∑x2=10
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Let the trend line to be fitted be Y = a + bX
For suitably shifting the origin, we use the transformation
x=(X-2008)/1
Thus, the transformed trend line becomes
Y = a+bx
The normal equations giving the values of a and b are
∑Y= Na + b∑x
∑xY= a∑x + b∑x2
Putting the values from the table in above equations , one gets
17.24=5a
a = 3.448
-4.56= 10b
b = -0.456
Thus the fitted trend line is obtained by putting the values of a and b in
Y= a + b x
Y= 3.448 -0.456 x
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X axis: time in years
Y axis: quick ratio
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2006 2007 2008 2009 2010
graph4 Trend of quick ratio
Actual data Linear (Actual data)
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Current ratio
This ratio establishes a relationship between current assets and current liability Objective-
the objective of computing this ratio is to measure the ability of the firm to meet its short
term obligations and to reflect the short term financial strength/solvency of a firm. In other
words the objective is to measure the safety margin available for short term creditors.
Current ratio= Current assets
Current liability
As a general rule which is internationally accepted that the relationship between current
assets and current liability must be 2:1.
SIGNIFICANCE
A satisfactory current ratio indicates a firm’s ability to meet its obligation, even if the value of
the current assets declines. It is however a quantitative index of liquidity, as it does not
differentiate between the components of current assets, such as cash and inventories (which are
not equally liquid).
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Table: 7a
Current ratio of t-series
INTERPRETATION
The current ratio of the t-series shows the situation of the company is good and favorable
because company has better liquidity to pay its current liabilities.
No. of years Current assets Current liabilities
Current
ratio=current assets
/current liabilities
2006 37 9 37/9=4.1
2007 48 10 48/10=4.8
2008 84 24 84/24=3.1
2009 122 42 122/42=2.9
2010 153 57 153/57=2.6
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Table7(b)
Year
X
Current ratio
Y
x =(X-
2008)/1
xY x2
Trend Values
Y= a+bx
Y=3.598-0.476
x
2006
4.11 -2 -8.22 4 4.55
2007
4.8 -1 -4.8 1 4.074
2008
3.5 0 0 0 3.598
2009
2.9 1 2.9 1 3.122
2010
2.68 2 5.36 4 2.646
N=5 ∑Y=17.99 ∑x = 0 ∑xY =
-4.76
∑x2=
10
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Let the trend line to be fitted be Y = a + bX
For suitably shifting the origin, we use the transformation
x=(X-2008)/1
Thus, the transformed trend line becomes
Y = a+bx
The normal equations giving the values of a and b are
∑Y= Na + b∑x
∑xY= a∑x + b∑x2
Putting the values from the table in above equations , one gets
17.99=5a
a = 3.598
-4.76= 10b
b = -0.476
Thus the fitted trend line is obtained by putting the values of a and b in
Y= a + b x
Y= 3.598 -0.476 x
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X axis: time in years
Y axis: current ratio
0
1
2
3
4
5
6
2006 2007 2008 2009 2010
Actual data Linear (Actual data)
Graph 5 Trend of Current Ratio
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FINDINGS
o T-series has an appropriate working capital.
o The company can pay the current debts because its have optimum level of the current
assets.
o The length of the manufacturing cycle of firm’s is short term, so it is not demand more
working capital because the time gap or interval between production and sales is not take
more time.
o The cost of financial through current liabilities is less than the cost of financing through
long term funds, so as such the profitability point of view, the proportion of current
liabilities in total liabilities is higher.
o The liquidity position of the company is good by this Company can easily evaluate the
risk and save the loss of risk.
Thus it can be said that t-series enjoys a round financial position. The company has an
appropriate working capital and the management of the working capital is good the overall
performance of the company is satisfactory and it will further improve when the facilities at the
disposal of the company are fully utilized however the management must remain cautions
towards the financial position of the company. The management should take all possible steps in
the near future to improve the financial position of the company.
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Table8: SWOT ANALYSIS
STRENGTH
Has appropriate working capital.
Has optimum level of current assets.
Liquidity position is good.
Large brand basket.
WEAKNESS
Wide brand- basket which might lead
to conflicts of interest unless effectively
managed.
OPPORTUNITIES
Avenues for expansion in the untapped
market for mobile phones/tv displays in
India.
Acquisitions/ tie-ups with other MNCs
in the consumer electronics segment
looking to enter the Indian market.
THREATS
From competitors
From technology advancements.
Fall in market demand due to economic
recession.
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SUGGESTIONS
The management should try to improve more working capital which is beneficial for the
future.
The company should take the advantage of financial position very carefully as it also
increase financial risk.
Company has better liquidity so company can take risk.
Company can improve the manufacturing cycle of the production cycle and sales
company can increase the sales volume and turnover of the working capital.
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CONCLUSION
o T-Series has an effective working capital management strategy. The trend analysis show an
increasing trend. Thus the company has better liquidity so company can take risk.
o The length of the manufacturing cycle of firm’s is short term, so it is not demand more
working capital because the time gap or interval between production and sales is not take
more time.
o The cost of financial through current liabilities is less than the cost of financing through long
term funds, so as such the profitability point of view, the proportion of current liabilities in
total liabilities is higher.
o The liquidity position of the company is good by this Company can easily evaluate the risk
and save the loss of risk.
Thus it can be said that t-series has a round financial position. The company has an appropriate
working capital and the management of the working capital is good the overall performance of
the company is satisfactory and it will further improve when the facilities at the disposal of the
company are fully utilized however the management must remain cautions towards the financial
position of the company. The management should take all possible steps in the near future to
improve the financial position of the company.
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BIBLIOGRAPHY
BOOKS REFERRED
Financial Management --- I.M PANDAY
Financial Management --- A.K RUSTOGI
Financial Management --- KHAN & JAIN
Ratio Analysis --- S.P GUPTA
WEBSITE REFERRED
www.t-series.com
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―Thanking you‖