A

PROJECT REPORT
ON
WORKING CAPITAL
MANAGEMENT
IN
SEJAL GLASS LIMITED
(SESSION 2018 - 2019)

Submitted in the partial fulfillment of the requirement for the Degree of

Master of Business Administration to
DR. A.P.J. ABDUL KALAM TECHNICAL UNIVERSITY,
LUCKNOW

SUBMITTED TO SUBMITTED By
Dr. MAMTA SHUKLA NIVEDITA SRIVASTAVA
(H.O.D of M.B.A) MBA- II year
ROLL NO.-1752270019

MAHARANA PRATAP COLLEGE OF ENGINEERING MANDHANA,

KANPUR, UTTAR PRADESH
 Certificate of Guide

This is to certify that the thesis entitled “A Study on Working Capital Management” is a record of bonafide
research work carried out by Nivedita Srivastava, during the period of her study under my guidance and
supervision. The thesis has reached the standard of fulfilling the requirements of the regulations relating to
the MBA degree of the A.P.J. Kalam Technical University. The results embodied in this thesis have not
previously formed the basis for the award of any degree, diploma, associate ship, fellowship or similar other
titles and that it is an independent work done by her.

Place: Kanpur Signature of Guide

Date: (Miss Karishma Jain)

 Declaration

I, the undersigned hereby declare that project report entitled “Working Capital Management” with the
special reference to the Maharana Pratap College Of Engineering Kanpur written and submitted by me
to Dr. A.P.J. Abdul Kalam Technical University, Uttar Pradesh, Lucknow in partially fulfillments of the
requirements for the award of degree of Masters Of Business Administration under the guidance of Miss
Karishma Jain, is my original work and interpretations drawn there in are based on material collected by
myself.

Place- Kanpur Nivedita Srivastava

Date- (MBA)
 PREFACE
This project has been prepared in partial fulfillment for the degree of Masters of Business
Administration. A project is a work plan devised through investigation and analysis to achieve a set
object within a specified time period. A student is assigned a topic and required to prepare a report after
making a study of working of any organization. I was assigned to prepare a Dissertation project report
on Working Capital Management of SEJAL GLASS LIMITED.

Financial Management has emerged as interesting and exiting areas for academic studies as well as for the
practical financial managers. Financial Management covers the decision taken by individuals or a business
firm, which have financial implications. In case of corporate form of organization where there is a separation
of ownership and management, as well as in other forms, the financial implications of decisions are evaluated
in terms of maximization of the value of the firm. So the decision process is oriented towards the objective
of maximization of wealth of shareholders as reflected in the market price of the share. Working Capital or
net current assets is the excess of current assets over current liabilities. In a different perspective we can say
Working Capital as that part of current assets financed by long term funds. All organizations have to carry
Working Capital in one form or the other. The efficient management of Working Capital is important from
the point of view of both liquidity and profitability. Poor management of Working Capital means that firms
are unnecessary tied up in idle assets, hence, reducing the liquidity and also reducing the ability to invest in
productive assets such as plant and machinery .
 ACKNOWLEDGEMENT
“Gratitude is the hardest of emotion to express and often does not find adequate ways to convey the entire
one feels.”

Summer training is the one of the important part of MBA program, which has helped me to learn a lot of
experiences which will be beneficial in my succeeding career.

For this with an ineffable sense of gratitude I take this opportunity to express my deep sense of indebtedness
to Respected Dr.Mamta Shukla Head of Director of Maharana Pratap Engineering College. Who has provide
me an opportunity to learn the corporate culture during my MBA course .At the same time I want to thanks
all my faculty members.

I am also very much thankful to Miss Karishma Jain for her interest constructive criticism persistent
encouragement and untiring guidance throughout the project .It has been my great privilege to work under
her inspiring guidance.
 EXECUTIVE SUMMARY
Working capital management or simply the management of capital invested in current assets is the focus of
my study. My topic is to study WORKING CAPITAL MANAGEMENT IN AXIS BANK. Working capital
is the fund invested by a firm in current assets. Now in a cut throat competitive era where each firm competes
with each other to increase their production and sales, holding of sufficient current assets have become
mandatory as current assets include inventories and raw materials which are required for smooth production
runs. Holding of sufficient current assets will ensure smooth and un interrupted production but at the same
time, it will consume a lot of working capital. Here creeps the importance and need of efficient working
capital management. Working capital management aims at managing capital assets at optimum level, the level
at which it will aid smooth running of production and also it will involve investment of nominal working
capital in capital assets.

Working capital is the life-blood of all types of enterprises, manufacturing and trading both. It
isconstantly required to buy raw materials for payment of wages and other day-to-day expenses.Without adequate
working capital, manufacturing operations will be crippled. It is a base on which all the activities of business enterprise
depend. The working capital management refers to the management of working capital, or precisely to the management
of current assets. A firm’s working capital consists of its investments in current assets, which includes short-term
assets— cash and bank balance, inventories, receivable and marketable securities.

The objective of the company now is to increase the scale of its business by increasing its profits and the turnover and
also by venturing into new line of business. It is now targeting to be the World Class Industrial Enterprise from the
present status. It is striving to have a huge global base.
Content of list
 Overview of problem
Sejal Glass limited sold their Float Glass manufacturing plant to Saint Gobain because it was continuous
production plant so company could not have reduced their production where their sales was less because
of more competition. They could not have reduced their fixed cost, so day by day expenditure was
increasing, it was not their cup of tea to reduce the cost therefore they sold the plant.

After selling plant, company facing many problems from suppliers because of low capital they are unable
to make payment on time so more than 50% of suppliers are not supplying on credit basis. So that
company has to make payment in advance and on delivery.

Customers delaying invoice payment was deemed by survey respondents to have had a high or very high
impact on working capital over the past 12 months. Similarly, customers exerting pressure on businesses
to extend their credit and payment terms were also placing high or very high pressure on working capital.

The main problem from suppliers i.e. 80% suppliers are from India from that 70% suppliers allowing 30
- 45 days credit and for rest of them company has to make payment in advance. 20% suppliers from rest
of the country from that 40% of suppliers allowing 60 - 90 days credit and for rest of them company has
to make payment in advance.

Stretching credit period of suppliers is the main source to improve working capital but here it is not there.
So this is one of the cause for working capital. Company spending a lot for unnecessary things therefore
Company’s expenditure is also more than income since 3 years.
 CHAPTER 1

WORKING CAPITAL

INTRODUCTION

Every business whether big, medium or small, needs finance to carry on its operations and to achieve its
target. In fact, finance is so indispensable today that it’s rightly said to be the lifeblood of an enterprise.
Without adequate finance, no enterprise can possibly accomplish its objectives. So this chapter deals with
studying various aspects of working capital management that is necessary to carry out the day-to-day
operations. The term working capital refers to that part of firm’s capital which is required for financing short
term or current assets such as cash, marketable securities, debtors and inventories funds invested in current
assets keep revolving fast and are being constantly converted in to cash and this cash flows out again in
exchange for other current assets. Hence it is known as revolving or circulating capital. On the whole,
Working Capital Management performs a key function and is of top priority for every finance manager. All
managers must, however, keep in mind that their pursuit to liquidity, they should not lose sight of there basic
goal of profitability. They should be able to attain a judicious mix of liquidity and profitability while
managing their working capital.
Working capital management deals with the most dynamic fields in finance, which needs constant interaction
between finance and other functional managers. The finance manager acting alone cannot improve the
working capital situation. In recent times a few case studies regarding management of working capital in
selected companies have been in order to make in-depth analysis of the several experts of working capital
management, The finding of such studies not only throws new lights on the technical loopholes of
management activities of the concerned companies, but also helps the scholars and researchers to develop
new ideas techniques and methods for effective management of working capital.

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. The
goal of working capital management is to ensure that the firm is able to continue its operations and that it has
sufficient cash flow to satisfy both maturing short- term debt and upcoming operational expenses.
 WORKING CAPITAL MANAGEMENT

In simple terms working capital means is that the amount of funds that a company require finance for its day-
to-day operations. Working capital states that the period of debtors, receivables etc for a company to raise
finance from them at the earliest. Finance manager should develop sound techniques of managing current
assets.
Working capital management involves managing the relationship between a firm's short- term assets and its
short-term liabilities. The goal of working capital management is to ensure that the firm is able to continue
its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming
operational expenses.

The following should be effective in working capital management:

 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. Besides this, the lead times in production should be lowered to reduce Work in Process (WIP)
and similarly, the Finished Goods should be kept on as low level as possible to avoid over production.

 Debtors management: Identify the appropriate credit policy, i.e. credit terms, discounts etc. 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. Debtors credit period should be less than 90 days
to achieve good working capital ratio and position of the company.

Working capital management is concerned with the problems arise in attempting to manage the current assets,
the current liabilities and the inter relationship that exist between them. The term current assets refers to those
assets which in ordinary course of business can be, or, will be, turned in to cash within one year without
undergoing a diminution in value and without disrupting the operation of the firm. The major current assets
are cash, marketable securities, account receivable and inventory. Current liabilities ware those liabilities
which intended at their inception to be paid in ordinary course of business, within a year, out of the current
assets or earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-
draft, and outstanding expenses. The goal of working capital management is to manage the firm’s current
assets and current liabilities in such way that the satisfactory level of working capital is mentioned. The
current should be large enough to cover its current liabilities in order to ensure a reasonable margin of the
safety. Definition:-

1. According to Guttmann & Dougall-―Excess of current assets over current liabilities.

2. According to Weston & Brigham - “Working capital refers to a firm’s investment in short term
assets, such as cash amounts receivables, inventories etc.
3. According to Mead, Baker and Malott- Working capital means current assets.
4. According to J.S.Mill- “The sum of the current assets is the working capital of the business”
 OPERATING CYCLE
The operating cycle is the average period of time required for a business to make an initial outlay of cash
to produce goods, sell the goods, and receive cash from customers in exchange for the goods. If a
company is a reseller, then the operating cycle does not include any time for production - it is simply the
date from the initial cash outlay to the date of cash receipt from the customer.

The operating cycle is useful for estimating the amount of working capital that a company will need in
order to maintain or grow its business. A company with an extremely short operating cycle requires less
cash to maintain its operations, and so can still grow while selling at relatively small margins.
Conversely, a business may have fat margins and yet still require additional financing to grow at even a
modest pace, if its operating cycle is unusually long.

In case of a manufacturing company, the operating cycle is the length of time necessary to complete the
following cycle of events –

 Conversion of cash into raw materials

 Conversion of raw materials into work-in-progress

 Conversion of work-in-progress into finished goods

 Conversion of finished goods into accounts receivables

 Conversion of accounts receivable into cash

The above operating cycle is repeated again and again over the period depending upon the nature of
the business and type of product etc. the duration of the operating cycle for the purpose of estimating
working capital is equal to the sum of duration allowed by the suppliers.
 OPERATING CYCLE OF MANUFACTURING BUSINESS

Realization Sales

Accounts Receivable

Cash Cash

Production

Purchases
Production
Raw Materials Work-in-progress
 CONCEPT OF WORKING CAPITAL

Concept of Working
Capital

On the basis of Concept On the basis of Time

Gross Working Net Working Capital

Capital

Permanent or Fixed Temporary or

Working Capital Variable Working
Capital

The concept of working capital includes current assets and current liabilities both. There are two of
working capital they are gross and net working capital.

1. Gross working capital: Gross working capital refers to the firm’s investment in current
assets. Current assets are the assets, which can be converted into cash within an accounting year
or operating cycle. It includes cash, short term securities debtors (account receivables or book
debts), bills receivables and stock (inventory).
Gross Working Capital = Total Current Assets

2. Net working capital: Net working capital refers to the difference between current assets and
liabilities are those claims of outsiders, which are expected to mature for payment within an
accounting year. It includes creditor’s or accounts payables bills payable and outstanding
 expenses. Net working copulate can be positive or negative. A positive working capital will
arise when current assets exceed current liabilities and vice versa.
Net Working Capital = Current Assets – Current Liabilities

1. Permanent or Fixed Working Capital: Permanent or fixed capital is the minimum amount,
which is required to ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. Every firm has to maintain a minimum level of current assets is
called permanent or fixed working capital as this part of working capital is permanently blocked
in current assets. As the business, grow the requirement of working capital also increases due
to increase in current asset.

2. Temporary or Variable Working Capital: -Temporary or variable working capital is the

amount of working capital, which is required to meet the seasonal demands and some special
exigencies. Variable working capital can further be classified as seasonal working capital and
special working capital. The capital required to meet the seasonal need of the enterprise is
called the seasonal working capital. Special working capital is that part of working capital
which is required to meet special exigencies such as launching of extensive marketing
campaign for conducting research etc.

Calculate current assets to fixed asset ratio

A firm needs current and fixed assets to support a particular level of output. However, to support the

same level of output the firm can have different levels of current assets. As the firm’s output and sales

increases, the need for current asset increases. Generally the current assets do not increase in direct

proportion to output ; current assets may increase at a decreasing rate with input. This relationship is

based upon the notion that it takes a greater proportional investment in current assets when only a few

units of output are produced than it does later on when the firm can use its current assets more

efficiently.
The level of the current assets can be measured by relating current assets to fixed assets.
There are three policies

1. Conservative current assets policy:

CA/FA is higher. It implies greater liquidity and lower risk.
2. Aggressive current assets policy:

CA/FA is lower . it implies higher risk and poor liquidity

3. Moderate current assets policy:

CA/FA ratio falls in the middle of conservative and aggressive policies.
 OBJECTIVES
Every company has their own objectives of working capital that is they try to keep company position at
upper level through working capital. Company may get good position by giving less credit period to
debtors, receivables, etc. and by taking more credit period from creditors, payables etc. Its main objective
is to get back cash in short term period and meets companies day to day operations. Effective working
capital helps a company to borrow short term funds and long term funds from public, banks, investment
banking and financial institutions.

The overall financial management objectives of an organization could be summarized in terms of

the following five objectives:
 To ensure that the organization always has enough cash to meet its legal obligations and
avoid illiquidity- that is, to maintain adequate short-term financial flexibility.
 To arrange to obtain whatever funds are required from external sources at the right
time, in the right form, and on the best possible terms.
 To ensure that the organization’s assets and liabilities – current and long-term, financial
and operating are utilized as effectively as possible.
 To forecast and plan for the financial requirements of future operations.

 To make all decisions and recommendations on the basis of one primary criterion:
maximizing the long-term value of the organization. This objective is attained in a publicly
owned corporation through maximization of the wealth of the owners (stockholders) by
maximizing stock price.

The last point is particularly important; without this requirement, financial executives could find
many suboptimal solutions to problems. It would be easy, for example, to satisfy the first
requirement by maintaining enormous cash balances or investing very large sums in readily salable
short –term securities; but such a policy would normally not be in the best interests of the
stockholders of a typical corporation.
 IMPORTANCE

Proper management of working capital is very important for the success of an enterprise. “It aims at
protecting the purchasing power of assets and maximizing the return on Investment. The manager of
administration of current assets to a very large extent determines the success of the operations of a firm.
Constant management is required to maintain appropriate levels in the various working capital accounts.
A study of working capital is of major importance to internal and external analysis because of its close
relationship to current day-to-day operations of business, Inadequacy or mismanagement of working
capital is the leading cause of business failures. Shortage of working capital, so often advanced as the
main cause of failure of Industrial concerns, is nothing but the clearest evidence of mismanagement,
which is so common. The current assets and current liabilities flow round in a business like an electric
current. The working capital plays the same role in the business as the role of the heart in the human
body. Just as the heart gets blood and circulated the same in the body, in the same enterprise, adequate
amount of working capital is pre-requisite. The adequacy of cash and current assets together with their
efficient handing virtually determine the survival or demise of a concern. Inadequate working capital is
a business ailment as compared to the availability of excess working capital may lead carelessness.

About costs and therefore, to inefficiency of operations. Many a times business failure takes place due
to lack of working capital. If a concern maintains an adequate amount of working capital, it enjoys a
good credit rating and gets discount on payment. It will ensure proper functioning of the business
operations and help in the maximization of threat of return. A business house can maximize its rate of
return on the capital invested provide in keeps pace with the scientific and technological developments
taking place in the field to which it pertains. As soon as some technological and scientific development
takes place, a business enterprise in order to accelerate its profitability should immediately introduce the
same to its productive process. In reality, however the sufficiency of working capital will determine the
course of decision in this regard.

Working capital helps to operate the business smoothly without any financial problem for making the
payment of short-term liabilities. Purchase of raw materials and payment of salary, wages and overhead
can be made without any delay. Adequate working capital helps in maintaining solvency of the business
by providing uninterrupted flow of production. Quick payment of credit purchase of raw materials
ensures the regular supply of raw materials from suppliers. Suppliers are satisfied by the payment on
time. It ensures regular supply of raw materials and continuous production. A firm having adequate
working capital, high solvency and good credit rating can arrange loans from banks and financial
institutions in easy and favorable terms.