PROJECT REPORT

ON
“WORKING CAPITAL” AT
ThinkNEXT TECHNOLOGIES PVT.LTD

RAYAT BAHRA INSTITUTE OF MANAGEMENT (BOHAN,

HOSHIARPUR)
In partial fulfilment of requirement for the degree of
BACHELOR OF BUSINESS ADMINISTRATION (BBA)

SUPERVISED TO: SUBMITTED BY:

Mr. Davinder Singh Shamsher Singh

(ASSISTANT PROFESSOR ) OMCA/FAA/DBM/4thSem

Roll No. 1719768

 CERTIFICATE
Acknowledgement is an art; one can writing lib stanza without meaning a word on
the other hand one can make a single expression of gratitude”. It gives me a great
pleasure to submit this project. I take this opportunity with great pleasure to
present before this project on “Working Capital Management” which is result of
co-operation, hard work & good wishes of many people. The most pleasant part
of any project is to express the gratitude towards all those who have contributed to
the success of RAYAT BAHRA INSTITUTE OF MANAGEMENT
HOSHIARPUR. I would like to thanks NEETU MAM who has been by my
mentor for this project. It was only through her excellence assistance & good
suggestions that I have been able to complete this project.

I am deeply grateful to DAVINDER SINGH for their everlasting support or

guidance on the ground of which I have acquired a new field of knowledge the
course structure created for curriculum has benefited with inclusion of recent
development in an organizational & management aspects.

I am thankful to all the members of ThinkNext Technologies who have given me

valuable information in the part of my project. Above all, I would like to thank all
contacted persons of firm who took out their valuable times to answer my queries
& give me full information related to my project.

I extent my sincere gratitude towards my parents who have always encouraged

me & give suggestion as how to work on project .they always stand by me in
solving all my enquiries. Their support has always motivated me.

SHAMSHER SINGH
 DECLARATION

I SHAMSHER SINGH declare that I myself worked on the topic “WORKING

CAPITAL” under ThinkNEXT Technologies Pvt .Ltd Mohali, Submitted by me,
towards partial fulfilment my FAA diploma under the guidance of MS Neetu.
Project guide is an original work done by me and it has not been submitted to any
other university or published any time before.

Signature of the Student:

Place: Mohali

Date:
 INDEX

S No. Topic Page No.

Chapter-1 Introduction

1.1 Company Profile 1-13

1.2 Introduction to working capital 14-25

Research methodology 26-28

Chapter-2 Review of Literature 28-31

Chapter-3 Objectives of the study 32

Chapter-4 Analysis& Interpretation 33-40

Chapter-5 Findings 41-42

Chapter-6 Suggestions 43-44

Chapter-7 Conclusion 45-46

Bibliography 47-48

Annexure 49-52
 CHAPTER- 1

1.1 COMPANY PROFILE:

ThinkNEXT Technologies Private Limited (Formerly Brilliant Software Solutions)

is an ISO 9001:2008 certified software development company founded in August
2009 and it is approved from Ministry of Corporate Affairs which deals in
University/College/School ERP Solutions, Android / iPhone Applications
development, Web designing, Web development, Discount Deals
(www.thinknextcard.com, www.tricitydeal.com), Bulk SMS, Voice SMS, Bulk
Email, Biometric Time Attendance, Access Control, SEO/SMO, Database
Solutions, Payment Gateway Integration, E-Mail Integration, Industrial Training,
Corporate Training and Placements etc. Thinknext Technologies provides software
solutions using latest technologies e.g. Smart Card, NFC, Biometrics, GPS,
Barcode, RFID, SMS, Auto SMS (Short code), Android, iPhone, Web, Windows
and Mobile based technologies.

Thinknext has wide expertise in .NET, Crystal Reports, Java, PHP, Android,
iPhone, Databases (Oracle and SQL Server), Web Designing, Networking, Web
Server configurations, various RAID Levels etc.

Thinknext Technologies has also setup its offices in USA, Delhi, Shimla and
Bathinda for its software support. Thinknext has its own multiple Smart Card
printing, encoding and barcode label printing machines to provide better and
effective customer support solutions.

Thinknext has also setup its own placement consultancy and is having numerous
placement partner companies to provide best possible placements in IT industry.

ThinknextTechnologies has developed for the first time in northern region cloud
computing based Cloud Campus 4.0 to facilitate knowledge and placement centric
services. It is a unique concept for effective and collaborative learning.

1. Thinknext deals exclusively in campus automation through Smart Campus ERP

Solutions. Therefore we have better experience in handling large group of
institutions through proper time-tested policies and procedures.
2. First Company of India who has Launched NFC Technology (The Future) for
Smart Campuses through NFC Smart Cards.
3. First Company of India who has launched Android Version of Smart Campus
ERP Solutions for Mobiles and Tablet PCs.
4. First company of India who has developed SMS Opt-In Technology so that
Institutes/Colleges can send Transactional SMS with SMS Sender ID and
without SMS Template approval.
5. First company of Punjab, Haryana, Himachal, J&K (Northern region) who
launched Smart Cards (Contact Type), Smart Cards (Contactless) in Punjab for
campus automation.
6. First company of India which has launched its Thinknext Smart Card as
Discount Card in more than 120 enterprises.
7. Established own multiple Smart Card Designing, Smart Card Printing, Smart
Card Lamination and Oyster
8. Multiple SMS Gateway Support.
 1.2 INTRODUCTION OF WORKING CAPITAL
Working capital management is significant in financial management. It plays a
vital role in keeping the wheel of the business running. Every business requires
capital, without it can’t be promoted. Investment decisions is concerned with
investment in current assets and fixed assets .Working capital plays a key role in a
business enterprise just as the role of heart in human body. It acts as grease to run
the wheels of fixed assets Its effective provision can ensure the success of
business while its inefficient management can lead not only to loss but also
to the ultimate downfall of what otherwise might be considered as a promising
concern. Efficiency of a business enterprise depends largely on its ability to its
working capital. Working capital management is one of the important facts of a
firms overall financial management.

For increasing shareholder’s wealth a firm has to analyze the effect of fixed assets
and current assets on its return and risk. Working capital management of current
assets. The management of current assets on the basis of the following points:

 Current assets are for short period while fixed assets are for more than one
year.
 The large holding of current assets ,especially cash, strengthens liquidity
position but also reduce overall profitability ,and to maintain an optimal level
of liquidity and profitability, risk return trade off is involved holding current
assets.
 Only current assets can be adjusted with sales fluctuating in the short run. Thus
the firm has greater degree of flexibility in managing current assets. The
management of current assets help a firm in building a good market reputation
regarding its business and economic conditions.
Meaning of working capital
Capital required for business can be classified under two main categories

1. Fixed capital

2. Working capital

Every business needs funds for two purposes-For its establishment and to carry its day to day
activities. Long term funds (fixed capital) are required to create production facilities through
purchase of fixed assets such as plant, machinery, land etc. funds are also needed for short term
purposes (working capital) for the purchase of raw materials, payment of wages and other day to
day expenses.

In other words working capital refers to that part of the firm’s capital which is required for
financing short term or current asset such as cash, marketable securities, debtors and inventories.

Defining Working Capital

Working capital refers to the cash a business requires for day-to-day operations, or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are levels of
inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a
company's efficiency and financial strength.
ACCORDING TO SHUBIN “Working Capital Is Amount Of Funds Necessary To
Cover The Cost Of Operating The Enterprise.”

The term working capital refers to the amount of capital which is readily available
to an organisation. That is, working capital is the difference between resources in
cash or readily convertible into cash (Current Assets) and organisational
commitments for which cash will soon be required (Current Liabilities).

Thus:

WORKING CAPITAL = CURRENT ASSETS - CURRENT

LIABILITIES
Major Current Assets are:

1) Cash

2) Accounts Receivables

3) Inventory

4) Marketable Securities

Major Current Liabilities:

1) Bank Overdraft

2) Outstanding Expenses

3) Accounts Payable

4) Bills Payable

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the
satisfactory level of working capital is maintained. If the firm cannot maintain the satisfactory
level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To
maintain the margin of safety current asset should be large enough to cover its current assets.
Main theme of the theory of working capital management is interaction between the current
assets & current liabilities.

CONCEPT OF WORKING CAPITAL:

The concept of working capital includes current assets and current liabilities both. There are two
types 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).

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 creditors 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.

NATURE OF WORKING CAPITAL

Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and the inter-relationship that exists between them. The
term current refers to those assets which in the ordinary course of business can be or will be
converted into 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,
accounts receivables and inventory. Current liabilities are those liabilities, which are intended at
their inception, to be paid in the ordinary course of business, within a year out of the current or
the earning of the concern .The basic current liabilities are accounts payable, bills payable, bank
overdrafts and outstanding expense. The goal of working management is to manage the firm’s
assets and liabilities in such a way that a satisfactory level of working capital is maintained. This
is because if the firms cannot maintain a satisfactory level of working capital, it is likely to
become insolvent and may even be forced into bankruptcy. The current assets should be large
enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of
the short term sources of financing must be continuously managed to ensure that they are
obtained and used in the way. Interaction between current liabilities is, therefore the main theme
of the management of working capital.

IMPORTANCE OF WORKING CAPITAL

 Solvency of the Business: Adequate working capital helps in maintaining the solvency
of the business by providing uninterrupted of production.
 Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.

 Easy loans: Adequate working capital leads to high solvency and credit standing can

arrange loans from banks and other on easy and favourable terms.
 Cash Discounts: Adequate working capital also enables a concern to avail cash discounts
on the purchases and hence reduces cost.
 Regular Supply of Raw Material: Sufficient working capital ensures regular supply of
raw material and continuous production.
 Regular Payment of Salaries, Wages and Other Day TO Day Commitments: It
leads to the satisfaction of the employees and raises the morale of its
employees, increases their efficiency, reduces wastage and costs and enhances
production and profits.
 Exploitation Of Favourable Market Conditions: If a firm is having adequate working
capital then it can exploit the favourable market conditions such as purchasing its
requirements in bulk when the prices are lower and holdings its inventories for higher prices.
 Ability to Face Crises: A concern can face the situation during the depression.

 Quick And Regular Return On Investments: Sufficient working capital enables a

concern to pay quick and regular of dividends to its investors and gains confidence of the
investors and can raise more funds in future.
 High Morale: Adequate working capital brings an environment of securities, confidence
and high morale.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate amount of working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortages of working capital. Both excess as well as short working capital positions are bad for
any business. However, it is the inadequate working capital which is more dangerous from the
point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

1. 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.

2. Redundant working capital leads to unnecessary purchasing and accumulation of

inventories.

3. Excessive working capital implies excessive debtors and defective credit policy which
causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and other
financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions

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.

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.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

 NATURE OF BUSINESS: The requirements of working is very limited in public utility

undertakings such as electricity, water supply and railways because they offer cash sale only
and supply services not products, and no funds are tied up in inventories and receivables. On
the other hand the trading and financial firms requires less investment in fixed assets but
have to invest large amt. of working capital along with fixed investments.
 SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.
 PRODUCTION POLICY: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
 LENGTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive increment
of labour and service costs before the final product is obtained.
 SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season
 WORKING CAPITAL CYCLE: The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the
requirement of working capital.
 RATE OF STOCK TURNOVER: There is an inverse co-relationship between the question
of working capital and the velocity or speed with which the sales are affected. A firm having
a high rate of stock turnover will needs lower amt. of working capital as compared to a firm
having a low rate of turnover.
 CREDIT POLICY: A concern that purchases its requirements on credit and sales its product
/ services on cash requires lesser amt. of working capital and vice-versa.
 BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need for
larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of
business, etc. On the contrary collection from debtor and the firm may have a large amt. of
working capital. In time of depression, the business contracts, sales decline, difficulties are
faced in.
 RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large
amt. of working capital.
 EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
capacity than other due to quality of their products, monopoly conditions, etc. Such firms
may generate cash profits from operations and contribute to their working capital. The
dividend policy also affects the requirement of working capital. A firm maintaining a steady
high rate of cash dividend irrespective of its profits needs working capital than the firm that
retains larger part of its profits and does not pay so high rate of cash dividend.
 PRICE LEVEL CHANGES: Changes in the price level also affect the working
capital requirements. Generally rise in prices leads to increase in working
capital.
Others FACTORS: These are:

 Operating efficiency.
 Management ability.
 Irregularities of supply.
 Import policy.
 Asset structure.
 Importance of labour
 Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management is to
manage the current assets and current liabilities of a firm in such a way that a satisfactory level
of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations
are bad for any firm. There should be no shortage of funds and also no working capital should be
ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its
probability, liquidity and structural health of the organization. So working capital management is
three dimensional in nature as

 It concerned with the formulation of policies with regard to profitability, liquidity and risk.
 It is concerned with the decision about the composition and level of current assets.
 It is concerned with the decision about the composition and level of current liabilities

Determinants of working capital:

There are not set rules or formulae to determine the working capital requirements of firms. A
large number of factors, each having a different importance, influence working capital of the
firm. The importance of factors also changes for a firm over time. Therefore, an analysis of
relevant factors should be made in order to determine total investment in working capital. The
following is the description of factors which generally influence the working capital
requirements of firm.
 Nature of business

 Market and Demand conditions

 Credit Policy
 Availability of Credit
 Operating Efficiency
 Price Level Changes
 Manufacturing cycle
 Seasonal variation
 Sale growth
 Condition of supply
 Nature of business: Working capital requirements of a firm are basically influenced by
the nature of Business. Trading and financial firms have a very small investment in fixed
assets, but require a large sum of money to be invested in working capital. Retail stores, for
example, must carry large stocks of a variety of goods to satisfy varied and continuous
demands of their customers. A large departmental store like Wal-Mart may carry, say, over
20,000 items. Some manufacturing businesses, such as tobacco manufacturers and
construction firms, also have to invest substantially in working capital and a nominal amount
in fixed assets. In contrast, public utilities may have limited need for working capital and
have to invest abundantly in fixed assets. Their working capital requirements are normal
because they may have only cash sales and supply services, not products. Thus no funds will
be tied up in debtors and stock (inventories). For the working capital requirements most of
the manufacturing companies will fall between the two extreme requirements of trading firms
and public utilities. Such concerns have to make adequate investment in current assets
depending upon the total assets structure and other variables
 Market and demand conditions:.
The working capital needs of a firm are related to its sales. However, it is difficult to precisely
determine the relationship between volumes of sales and working capital needs in practice,
current assets will have to be employed before growth takes place. Therefore it is necessary to
make advance planning of working capital for a growing firm on continuous basis.
Growing firms may need to invest funds in fixed assets in order to sustain growing production
and sales. This will in turn, increase investment in current assets to support enlarged scale of
operations. Growing firms need funds continuously. They use external sources as well as internal
sources to meet increasing needs of funds. These firms face further problems when they retain
substantial portion of profits, as they will not be able to

Pay dividends to shareholders. It is, therefore, imperative that such firms do proper planning to
finance their increasing needs of working capital.

Sales depend upon demand conditions. Large number of firm’s experience seasonal and cyclical
fluctuations in the demand for their products and services. These business variations affect the
working capital requirement, specially the temporary working capital requirement of the firm.
When there is an upward swing in the economy, sales will increase; correspondingly the firm’s
investment in inventories and debtors will also increase. Under boom, additional investment in
fixed assets may be made by some firms to increase their productive capacity. This act of firms
will require additions of working capital. To meet their requirements of funds for fixed assets
and current assets under boom period firms generally resort to substantial borrowing. On the
other hand, when there is decline in the economy sales will fall and consequently, levels of
inventories and debtors will also fall under recession firm try to reduce their short term
borrowings.

Seasonal fluctuations not only affect working capital requirement but also create production
problems for the firms. During peak periods of demand increasing production may be expensive
for the firm. Similarly it will be more expensive during the slack periods when the firm has to
sustain its working force and physical facilities without adequate production and sales. A firm
may thus follow a policy of level production irrespective of seasonal changes in order to utilize
its resources to the fullest extent. Such a policy will mean accumulation of inventories during off
season and their quick disposal during the peak season.

The increasing level of inventories during the slack season will require increasing funds to be
tied up in the working capital for some months. Unlike cyclical fluctuations, seasonal
fluctuations generally conform to a steady pattern. Therefore financial arrangements for seasonal
working capital requirements can be made in advance.
 Technology and manufacturing policy: The manufacturing cycle comprise of the
purchase and use of raw materials and the production of finished goods. Longer the
manufacturing cycle, larger will be the firms working capital requirements therefore the
technological process with the shortest manufacturing cycle may be chosen once a
manufacturing technology has been selected, it should be ensured that manufacturing
cycle must be completed within the specified period. This needs proper planning and
coordination at all levels of activity any delay in the manufacturing process will result in
the accumulation of WIP and waste of time. In order to minimize their investment in
working capital, some firms, specifically those manufacturing industrial products have a
policy of asking for advance payments from their customers. Non-manufacturing firms’
services and financial enterprises do not have a manufacturing cycle.

 Credit policy: The credit policy of the firm affects the working capital by influencing
the level of debtors. The credit terms to be granted to customers may depend upon the
norms of the industry to which the firm belongs. But a firm has the flexibility of shaping
its credit policy within the constraint of industry norms and practices. The firm should
use discretion in granting credit terms to its customers. Depending upon the individual
case different terms may be given to different customers. A liberal credit policy without
rating the credit worthiness of customers will be detrimental to the firm and will create a
problem of collection later on. The firm should be prompt in making collections. A high
collection period will mean tie up of large funds in debtors. Slack collection procedures
can increase the chance of bad debts. In order to ensure that unnecessary funds are not
tied up in debtors, the firm should follow a rationalized credit policy based on the credit
standing of customers and other relevant factors. The firm should evaluate the credit
standing of new customers and periodically review the credit worthiness of the existing
customers. The case of delayed payments should be thoroughly investigated.

 Availability of credit from suppliers: The working capital requirements of a firm

are also affected by credit terms granted by its suppliers. A firm will needless working
capital if liberal credit terms are available to it from suppliers. Suppliers’ credit finances
the firm’s inventories and reduces the cash conversion cycle. In the absence of suppliers’
credit the firm will borrow funds for bank.
The availability of credit at reasonable cost from banks is crucial. It influences the working
capital policy of the firm. A firm without the suppliers’ credit, but which can get bank credit
easily on favourable conditions, will be able to finance its inventories and debtors without much
difficulty.

 Operating efficiency: The operating efficiency of the firm relates to the optimum
utilization of all its resources at minimum costs. The efficiency in controlling operating
costs and utilizing fixed and current assets leads to operating efficiency. The use of
working capital is improved and pace of cash conversion cycle is accelerated with
operating efficiency. Better utilization of resources improves profitability and thus helps
in releasing the pressure on working capital. Although it may not be possible for a firm to
control prices of materials or wages of labour it can certainly ensure efficient and
effective utilization of materials, labour and other resources.

 Price level changes: The increasing shift in price level make functions of financial
manager difficult. He should anticipate the effect of price level changes on working
capital requirement of the firm. Generally rising price levels will require a firm to
maintain a higher amount of working capital. Same levels of current assets will need
increased investment when prices are increasing. However, companies that can
immediately revise their product prices with rising price levels will not face a severe
working capital problem. Further,

Firms will feel effects of increasing general price level differently as prices of individual
Products move differently. Thus, it is possible that some companies may not be affected by
rising prices while others may be badly hit.

 Manufacturing Cycle: The manufacturing cycle also creates the need of working
capital. Manufacturing cycle starts with the purchase and use of Raw Material and
completes with the production of finished goods. If the manufacturing cycle will be
longer more working capital will be required or vice versa.

 Seasonal variation: In certain industries like VPL raw material is not available
throughout the year. They have to buy raw material in bulk during the season to ensure an
 uninterrupted flow and process them during the year. Generally, during the busy season, a
firm requires large working capital than in the slack season.

 Sales Growth: Working capital requirement is directly related with sales growth. If the
sales are growing, more working capital will be needed due to arises need of more Raw
Material, finished goods and credit sales.

 Condition of Supply: The inventory of raw material, spares and stores depends on the
condition of supply. If the supply is prompt the firm can manage with small inventory.
However if the supply is unpredictable then the firm to ensure continuity of production,
should acquire stocks as and when they are available and have to carry larger inventory
on an average.

Ratio analysis: Ratio analysis is a technique of analysis and interpretation of financial

statements. It is the process of establishing and interpreting various ratios for helping in making
decisions. It only means of better understanding of financial strengths and weaknesses of a firm.
The main emphasis has been on calculating the ratios related to a working capital management

Ratio Formulae Result Interpretation

On average, you turn over the value of your entire stock

every x days. You may need to break this down into
Average Stock * product groups for effective stock management.
Stock Turnover
365/ = x days Obsolete stock, slow moving lines will extend overall
(in days)
Cost of Goods Sold stock turnover days. Faster production, fewer product
lines, just in time ordering will reduce average days.
 It takes you on average x days to collect monies due to

Receivables you. If your official credit terms are 45 days and it takes
Debtors * 365/ you 65 days... why?
Ratio = x days
Sales One or more large or slow debts can drag out the average
(in days)
days. Effective debtor management will minimize the
days.

On average, you pay your suppliers every x days. If you

negotiate better credit terms this will increase. If you pay
earlier, say, to get a discount this will decline. If you
Creditors * 365/
Payables Ratio simply defer paying your suppliers (without agreement)
Cost of Sales (or = x days
(in days) this will also increase - but your reputation, the quality
Purchases)
of service and any flexibility provided by your suppliers
may suffer.

Current Assets are assets that you can readily turn in to

cash or will do so within 12 months in the course of

Total Current business. Current Liabilities are amount you are due to

Assets/ = x pay within the coming 12 months. For example, 1.5

Current Ratio times means that you should be able to lay your hands on
Total Current times
Liabilities $1.50 for every $1.00 you owe. Less than 1 time e.g.
0.75 means that you could have liquidity problems and
be under pressure to generate sufficient cash to meet
oncoming demands.

(Total Current
Assets - Inventory)/ = x Similar to the Current Ratio but takes account of the fact
Quick Ratio
Total Current times that it may take time to convert inventory into cash.
Liabilities

Working Capital (Inventory + As % A high percentage means that working capital needs are
Ratio Receivables pa - Sales high relative to your sales.
Payables)/
Sales
 RESEARCH METHODOLOGY

4.1 Research

Research in common parlance refers to a research for knowledge. It is also defined as a scientific
and systematic search for pertinent information collection on a specific topic. In fact it is an art
of scientific investigation. Research is not only concerned to the decision of .the fact but also
building up to date knowledge and to discover the new facts involved through the process of
dynamic change in the society.

 Research Design

A research design is the arrangement of conditions for collection and analysis of data in manner
that aims to combine relevance to the research purpose with economy in procedure. In fact the
research design is the conceptual structure within which research is conducted; it constitutes the
blueprint for the collection, measurement and analysis of the data. As such the design includes an
outline of what the researcher will do from writing the hypothesis and its operational
implications to the final analysis of the data.

 Descriptive Research: Descriptive research includes surveys and fact-finding enquiries of

different types. The major purpose of descriptive research is description of the state of affairs
as it exists at present. The main characteristic of this method is that the researcher has no
control over the variables: he can only report what has happened or what is happening.
 Conclusion Oriented Research: Under this project the research design is descriptive in
nature. Study is a part of conclusive research design under which we make a design, which
would provide us some relevant result in regard to question or the problem At hand. In our
research statistical are used to a large number of responders. The emphasis of this project is
to “A study on ratio analysis”. Information was received from the respondents through
questionnaires containing structured as well as un-structured questions. Initially a try-out was
prepared which was pre-tested on a small sample of respondents to identify problems if any.
Relevant changes were made in the questionnaire before it was finalized. Questionnaires was
 developed and used for the While doing conclusion oriented research a researcher is free to
pick up a problem, redesign the enquiry as he proceeds and is prepared to conceptualize as he
wishes.
 collection of the data for the subjects in the feedback process.

RESEARCH METHODOLOGY

Research methodology is the process used to collect the data and others types of information for
use in making business decisions. Examples of these types of methodology include interviews,
surveys and research of publications. All of these types include the use of present and historical
information.

Data collection:-

The methodology, I have adopted secondary data collection for my study and the various tools
for secondary data collection are:-

1. Consolidated Balance Sheets of two financial years I.e. Mar’15and Mar’17

2. Consolidated P/L Accounts of two financial years i.e. Mar’15 and Mar’17
3. Ratio Analysis
4. Fund Flow Analysis

The above parameters are used for critical analysis of financial position. With the evaluation of
each component, the financial position from different angles is tried to be presented in well and
systematic manner. By critical analysis with the help of different tools, it becomes clear how the
financial manager handles the finance matters in profitable manner in the critical challenging
atmosphere, the recommendation are made which would suggest the organization in formulation
of a healthy and strong position financially with proper management system

4.2 LIMITATIONS OF THE STUDY

The study conducted and done is analytical, subject to the following limitations
1) The study is mainly carried out based on the secondary data provided in the financial
statements.

2) This study is based on the historical data and information provided in the annual reports
therefore it may not be a future indicator.

3) There may be some fractional differences in the calculated ratios.

As the study was for short span and due to lack of time other areas could not be well focused.

CHAPTER-2

REVIEW OF LITERATURE

Review of Literature

The full text of this Author(s): Harsh Pratap Singh(Department of Management

Studies, Malaviya National Institute of Technology, Jaipur, India)

SatishKumar(Department of Management Studies, Malaviya National

Institute of Technology, Jaipur, India)

Citation:

Harsh Pratap Singh, Satish Kumar, (2014) "Working capital management: a

literature review and research agenda", Qualitative Research in Financial
Markets, Vol. 6 Iss: 2, pp.173 - 197

DOI:

http://dx.doi.org/10.1108/QRFM-04-2013-0010

Downloads:

document has been downloaded 754 times since 2014

Abstract: Purpose

The purpose of this paper is to review research on working capital management

(WCM) and to identify gaps in the current body of knowledge, which justify future
research directions. WCM has attracted serious research attention in the recent
past, especially after the financial crisis of 2008.

1. Design/methodology/approach
Using systematic literature review (SLR) method, the present study reviews 126
articles from referred journal and international conferences published on WCM.

2. Findings
Detailed content analysis reveals that most of the research work is empirical and focuses mainly
on two aspects, impact of working capital on profitability of firm and working capital practices.
Major research work has concluded that WCM is essential for corporate profitability. The major
issues with prior literature are lack of survey-based approach and lack of systematic theory
development study, which opens all new areas for future research. The future research directions
proposed in this paper may help develop a greater understanding of determinants and practices of
WCM.

4.Practical implications
Till date, literature on classification of WCM has been almost non-existent. This paper reviews a
large number of articles on WCM and provides a classification scheme in to various categories.
Subsequently, various emerging trends in the field of WCM are identified to help researchers
specifying gaps in the literature and direct research efforts.

5. Originality value
This paper contains a comprehensive listing of publications on the WCM and their classification
according to various attributes. The paper will be useful to researchers, finance professionals and
others concerned with WCM to understand the importance of WCM. To the best of the authors’
knowledge, no detailed SLR on this topic has previously been published in academic journals.
CHAPTER-3

OBJECTIVES OF THE STUDY

3.2 Objectives of the study

Working capital is the most widely used and powerful technique of financial analysis .The main
objective of the present study is to know the financial condition of the company.

 To find out the financial stability and soundness of the business enterprise.
 To estimate and evaluate the fixed assets, stock etc., of the concern.
 To estimate and determine the possibilities of future growth of business.
CHAPTER-4

( ANALYSIS AND INTERPRETATION OF STUDY )

FINANCIAL ANALYSIS

Effects on Working
Capital

Particulars Previous Current year Increase Decrease

year

Current Assets:

Cash in Hand 248000.00 295000 47000 -

Sundry Debtors 985000.00 1185000.00 200000 -

Inventories 265000 345000 80000 -

Total Current Assets 1498000 1825000

Current Liabilities:

Sundry Creditors 120000 150000 30000

Other Current 100000 180000 80000 -

Liabilities
200000 250000 50000 -
Short Term Provisions

Total Current 420000 580000

Liabilities

Working Capital 1078000 1245000

Net Increase/Decrease 487000
in Working Capital

Interpretation It is found that in thinkNEXT Technologies Mohali, their

working capital for the previous year was -42649.95and that for current year is -
393205.71There is a net increase in working capital of the organisation with
137863939.05.
5.2 RATIO ANALYSIS

Several ratios calculated from the accounting date, can be grouped into various classes
according to financial activity or function to be evaluated. As stated earlier, the parties interested
in financial analysis are short and short and long-term creditors, owners and management.

Classification of Ratios

A. Liquidity Ratio
B. Current Ratio
C. Quick or Acid test or Liquid ratio

Current Ratio = Current Assets

Current Liabilities

Year Current assets Current Current Ratio

liabilities
2015-2016 164848.05 207498 0.79
2016-2017 351693.29 774899 0.45
-

Interpretation: A ratio equal to the rule of thumb of 1:1 i.e. current asset is equal
to current liabilities is considered to be satisfactory. As per the above table current
ratio of ThinkNEXT is not satisfactory as it is less than 1:1 for the year 2015-2016
and 2016-2017.

Quick/ Liquid/Acid test ratio:

Quick ratio = Quick or liquid assets

Current liabilities

Year Quick assets Current liabilities Quick ratio

 2015-2016 164848.05 207498 0.79
2016-2017 339353.29 774899 0.43

Quick / liquid Ratio

100%

80%

60%

40%

20%

0%

2015-2016
2016-2017

Series 1

Interpretation: As a rule of thumb or as a convention quick ratio 1:1 considered satisfactory.

Above table shows that quick ratio of ThinkNEXT for the year 2015-2016 and 2016-2017.

A. Solvency Ratio:

1. Proprietary Ratio
1. Fixed Asset to Total Long term Funds
1. Proprietary or Equity Ratio:

Proprietary Ratio = Shareholder’s Fund

Total Assets
 Proprietary Ratio = Equity + Preference + Reserve & Surplus

Year Proprietary Ratio Total Assets Ratio (%)

2015-2016 144391.00 329224.05 0.43
2016-2017 323085.74 1029912.74 0.31

Interpretation: This ratio indicates that in year 2015-2016 proprietary Ratio is 0.43
and in 2016-2017 it decreased to 0.31.

1. Fixed Asset to Total Long term Funds

Fixed Assets Ratio = Fixed Assets

Total long term funds
Long term funds = Shareholder’s + long term borrowings

Year Fixed Assets Total long term fund Ratio (%)

2015-2016 164376.00 372622.05 0.44
2016-2017 678219.45 1134219.74 0.59
 n
n Fixed Asset Ratio
n
n 100%
b
90%
v
n 80%
f 70%
g 60%
g 50%
b
40%
b
30%
I
n 20%
t 10%
e 0%
r
p 2015-2016
r 2016-2017

I Series 1
n
Interpretation The Ratio indicates the extent to which the totals of fixed assets are
financed by long – term funds of the firm. Generally the total of fixed assets should be
equal to the total of long term funds.

Gross Profit Ratio = Gross Profit * 100

Net Sales

Year Gross Profit Net Sales Gross Profit Ratio (%)

2015-2016 1103249 1353350 81.5
2016-2017 2187445 2583425 84.6
 Gross Profit Ratio

100%

80%

60%

40%

20%

0%

2015-2016
2016-2017

Series 1

Interpretation: There is no standard form for gross profit ratio but it should be adequate to
provide for fixed charges, dividends and accumulation of reserves. Higher the gross profit ratio is
better in the results.
 CHAPTER-5
FINDINGS
 It was find that the total increase in cash is 3775024.

 Increase in sundry debtors is 17030.

 Net increase in inventories is 1340

 Current assets as on 31-03-2016 are 167848.05 and on 31-03-2017 are

351693.29.

 There is a decrease in sundry creditors amounting to 68304.00.

 There is a increase in other current liabilities amounting to 581305.

 Increase in short term provisions is 64400.

 Total current liabilities as on 31-03-2016 are 207498 and on 31-03-2017 are

744899.

 Working capital as on 31-03-2016 is amounting o 42649.9 and on 31-03-

2017 is 39320.7.

 The all over increase is 66885.24 and total decrease is 683404.0

 CHAPTER-6

SUGGESTIONS

Suggested the company should follow the present working capital.

1. The company spends reasonable amount on inventory so that it should be

followed.

2. The current ratio is maintained at a satisfied level. So that company peruses

this much of current assets to meet the objective of the firm.

3. Company is maintaining high quick assets to overcome current liabilities for

better results.

4. For better results company has to maintain cash inflows to overcome current
liabilities of the firm.

5. To gain good profits company has to improve the sales through inventory
management.

6. The company should try to reduce external liabilities, having paid high EPS
& DPS.

7. The company should make arrangement of receivables and cash.

 CHAPTER-7

CONCLUSION
Any change in the working capital will have an effect on a business's cash flows. A positive
change in working capital indicates that the business has paid out cash, for example in
purchasing or converting inventory, paying creditors etc. Hence, an increase in working capital
will have a negative effect on the business's cash holding. However, a negative change in
working capital indicates lower funds to pay off short term liabilities (current liabilities), which
may have bad repercussions to the future of the company. A firm must have adequate working
capital, i.e. ; as much as needed the firm. It should be neither excessive working capital means
the firm has idle funds which earn no profits for the firm. Inadequate working capital means the
firms does not have sufficient funds for running its operations.
 BIBLIOGRAPHY

1. The source of data regarding ThinkNEXT Technologies Profile Details is

collected from the annual reports of ThinkNEXT Technologies and some part
of the profile is also taken from the following websites

 https://en.wikipedia.org/wiki/Working_capital

 http://www.investopedia.com/terms/w/workingcapitalmanagement.asp

 https://www.efinancemanagement.com/working-capital-
financing/objectives-of-working-capital-management

 http://accountlearning.blogspot.in/2011/06/need-and-importance-of-
working-capital.html

 http://smallbusihness.chron.com/importance-working-capital-
management-avoiding-bankruptcy-39031.html

2. The of data is also collected from the books :

 Gupta, Shashi K, Management Accounting; Kalyani Publishers, Ed. 2003

 Kothari, C.R, Research Methodology; Wishwa Parkashan, Ed. 2004

 Moyer, R. C., Mcguigan, J. R., &Kretlow, W. J. (2003). Contemporary

Financial Management (Ninth Ed.). United States of America: Thomson.

 Annual General Report of the company

 Documents & files of Verka Milk Plant Patiala

 Magazine of the company

 Annexure:

THINKNEXT TECHNOLOGIES PRIVATE LIMITED SCF 113, PHASE 11,

MOHALI

BALANCE SHEET AS ON 31 MARCH 2016

Particulars Note As on 31-03- As on 01-
No. 2016 04-2015
 I. Equity and Liabilities
(1) Shareholder’s Funds
(a) Share Capital 3 100000.00 100000.00
(b) Reserve and Surplus 4 223085.74 44391.05
(c) Money received against 0.00 0.00
share Warrants
(2) 0.00 0.00
Share Application
(3) Money Pending
(a) Allotment 0.00 0.00
(b) 5 36235.00 20733
(c) Non-Current Liabilities 0.00 0.00
(d) Long-Term Borrowings 0.00 0.00
Deferred Tax Liabilities
(4) (Net)
(a) Other Long Term 0.00 0.00
(b) Liabilities 6 0.00 68304.00
(c) Long Term Provisions 7 697880.00 126575.00
(d) 8 77019.00 12619.00
Current Liabilities 1134219.74 372622.05
Short-term Borrowings
Trade Payables
(A) Other Current
(a) Liabilities 9 678219.45 164376.00
Short-Term Provisions 0.00 0.00
i. Total Equity & 0.00 0.00
ii. Liabilities 0.00 0.00
iii. ASSETS 0.00 0.00
(b) Non-Current Assets 0.00 0.00
(c) Fixed Assets 0.00 0.00
(d) Tangible Assets 10 104307.00 43398.00
(e) Intangible Assets
Capital Work in
(2) progress 0.00 0.00
(a) Intangible Assets under 11 12340.00 0.00
(b) development 12 260730.00 90000.00
(c) Non-Current 13 78623.29 74848.05
(d) Investment 0.00 0.00
(e) Deferred Tax assets 0.00 0.00
(f) (net) 1134219.74 372622.05
Long Term Loans and
(g) advances
Other Non-Current
Assets

Current Assets
Current Investment
(a) Inventories
Trade Receivables
 Cash and Cash
(b) equivalents
Short-Term loans and
(c) advances
Other Current Assets
Total Assets

(d) Long term loans and advances

(e) Other non-current assets -

(2) Current assets

(a) Current investments -
(b) Inventories (as certified by directors) 6,693,555.00
(c) Trade receivables 7 4,142,695.42
(d) Cash and cash equivalents 8 218,038.53
(e) Short-term loans and advances 9 633,198.68
(f) Other current assets
Total 22,864,632.50

PLACE: MOHALI
DATE: