1

A
Project Report
On
“WORKING CAPITAL MANAGEMENT”
With Special Reference to
“SILVER JUBILEE MOTORS”
PUNE.
Submitted to
University of Pune.

MASTER OF COMMERCE
2019-2020
By

SNEHA SATYAWAN MHASKE

Under the Guidance of
“Prof. SUNIL DANDEKAR”

R.J.S.P.M’S Arts, Commerce & Science Collage

Landewadi, bhosari
Pune. 411039

1
 CERTIFICATE

This is to certify that Mrs. SNEHA SATYAWAN MHASKE, student of

Rajmata Jijau Shikshan Prasarak Mandal’s of Art’s, Commerce & Science
College,Landewadi, Bhosari, Pune – 411039.Completed his work on
The Study Of “WORKING CAPITAL MANAGEMENT” on
SILVER JUBILEE MOTORS Bhosari

He has submitted the same work partial fulfilment of

the M.Com II Course of the Savitribai Phule University
For the academic Year 2019 - 2020

Date : Seat no. :

PROF. SUNIL DANDEKAR Dr. GAUTAM BHONG

(Project Guidance) (Principal)

INTERNAL EXAMINER EXTERNAL EXAMINER

 SILVER JUBILEE MOTORS
Bhosari Pune - 411039

CERTIFICATE
We are clearly defined this is to certify that,
SNEHA SATYAWAN MHASKE
Completed his project work on
“WORKING CAPITAL MANAGEMENT”
For the partial fulfilment of the
M.com – II Course

Savitribai Phule University Of Pune

Year : 2019 – 2020

For SILVER JUBILEE MOTORS

Authorized Signatory
 DECLARATION

I the undersigned, hereby declare that the Project Report

title “WORKING CAPITAL MANAGEMENT” with special
reference to the SILVER JUIBILLE MOTORS LTD. PUNE,
is written and submitted by me to UNIVERSITY OF PUNE,
in partial fulfillment of the requirement for the award of
degree of MASTER OF COMMERCE (M.COM) Under the
guidance of Prof. Sunil Dandekar. This is my original work
and the conclusions drawn are based on the material collected
by myself.

Place: Pune

Date:

SNEHA SATYAWAN MHASKE

 Acknowledgement

Every Successful work is successful, when somebody

guides it in proper way. I take this opportunity to express my
deep gratitude to “SILVER JUBILEE MOTORS. PUNE.
Which offered me this opportunity,

This project bear the imprint of many persons co-

operation and it has given me great pleasure to express my
heartiest gratitude towards them.

It is a pleasure for me to acknowledge here the assistance

extended by various persons in the completion of this study.

I thank to the Management of. SILVER JUBILEE

MOTORS .PUNE. For granting me the permission to conduct
this study. I am extremely thankful to my project guide for her
valuable guidance and constant encouragement to complete
this study.

I must express my depth of gratitude to Mr.uthkarsh

mungale, Mr. Parsuram shnide (Accounts Head), Mr.kisan sir
(engineer & designer), ms.sangita madam (supervisor), and
other staff members of the SILVER JUBILEE MOTORS.

A mention must be made of my parents, friends who

gave me kind support and encouraged for completion of this
project.

SNEHA SATYAWAN
MHASKE.
 INDEX

Serial Number Particular Page no

1. Synopsis

2. Company profile

3. Objective of study

4. Research Methodology

5. Theoretical Background
of working capital
management
6. Data Analysis And
Interpretation
7. Finding And
Observation
8. Conclusions

9. Bibliography
Synopsis
 SYNOPSIS
1.1) INTRODUCTION TO STUDY :
Finance is the life blood of organization. The finance is most important
function of the organization. We cannot imagine a business without finance.
Because it plays a very important role in all business activities.

Working capital is that amount which is required to carry out the day to day
operations of an enterprise whether big or small. It may also be regarded as that
portion of a company’s total capital which is employed in its short term operations.
This operations consist of primarily such items as raw material, semi processed
goods, sundry debtors, finished products, short term investment etc. Thus working
capital also refers to all short term assets used in day to day operations of an
enterprise.

The financial management has too broad areas, responsibility of long

term capital and has short term funds or working capital management. The
exact
 Definition of working capital "Excess of current assets over current
liabilities".

The fixed assets of the business are to be utilized to their fullest capacity
and business operation should result in maximum profitability adequate and constant
flow of working capital is necessary. In the absence of adequate and timely supply of
working capital, the organization cannot carry out its regular operations like purchase
of raw material, stores, goods and payment of routine expenses.

Every business requires working capital to pay off its short term obligations.
Every firm needs working capital because it is not possible that production, sale, cash
receipts and payments are occurring in an instant. The management policies about
payment of dividend, discount, prices, stock reserve etc. affects the requirement of
working capital. An efficient management can speed up to the turnover and maintain a
smooth flow of cash and receivables.
1.2) RATIONAL OF THE STUDY:

The management of working capital which constitutes a major of decision making

for financial managers is continuous function, following are main rational of this
study.

● Adequate working capital gives a feeling of security and confidence.

● Adequate working capital is required for marinating solving of business

concern

● Goodwill of the business concern can be maintained and increased by prompt

payment.

● Cash discount can be earned by prompt payment

● If there is constant supply of raw materials study work is supplied to

workers then efficiency can be increased because time is not wasted.

Also the researcher will study how an organization which generally runs on
government policies and which does have a yearly production that means
maximumproduction take place for Eight months only manages its working capital.
1.3) DESCRIPTION OF RESEARCH WORK:

Research Methodology Adopted:

To fulfill the set objective regarding study of working capital the necessary
data will be collected by historical method.

1) Source of data collection:

Two main sources of data collection are as follows:

a) Primary data
b) Secondary data

a) Primary data:
The primary data is collected through observation and discussion with
departmental heads and their assistants.

b) Secondary data:
The sources of secondary data includes
i) Annual report of the organization
 ii) Text book of the respected subject under study

iii) Other financial record of the organization

1.4) EXPECTED CONTRIBUTIONS:

1) The study will help to improve the financial position of the business.
2) With the help of this study the finance manager will feel confident to make decisions
regarding current assets and current liabilities.

3) Also this study will provide necessary guidance to the finance manager to
maintain the standard current ratio (that is 2:1).

4) This study will guide the finance manager for effective utilization of working
capital i.e. better cash management and inventory management will improve the
working capital ratio and will give help to maintain proper liquidity position

The project was of 2 months duration. During the project I interviewed the executives
and staff to collect the data andalso made use of company records and annual reports.
The data collected were then compiled, tabulated and analyzed. Working capital
management is very important facet of financial management due to:
 ❖ Investment in current assets represents a substantial portion of total
investment.

❖ Investment in current assets and the level of current liabilities have to be

geared quickly to change sales.

Some of the points to be studied under this topic are:

● How much cash should a firm hold?

● What should be the firm’s credit policy?

● How to and when to pay the creditors of the firm?

● How much to invest in inventories?

1.5) OBJECTIVES OF STUDY:

● To know the concept of working capital

management and performance analysis.

● To study liquidity position of the firm with the help of working capital
management.
 ● To forecast working capital requirements with the help of operating cycle.
● To understand credit policy of the firm.
● To study the factors affecting working capital.

1.6) SCOPE OF THE STUDY :

The present study covers the study of working capital of SILVER JUBILEE
MOTORS. For the period of five years i.e. from 2005 – 06 to 2009-10. It covers
analysis of liquidity profitability and efficiency of the factory.

1.7) LIMITATIONS OF THE STUDY:

1) The study is limited to SILVER JUBILEE MOTORS), Pune.

2) The summer project Period (i.e. 60 days) was not sufficient to study all
the aspects.

3) The study is limited to working capital management.

 COMPANY PROFILE

Since its inception in 1935, SILVER JUBILEE MOTORS LTD., has been the Preferred
Dealer in Maharashtra state for Mahindra & Mahindra Vehicles. In the last 7 decades,
Silver Jubilee Motors Ltd has fulfilled its motto to serve its customers with the commitment
of 'QUALITY, SERVICE & VALUE'.

Over the years, Silver Jubilee Motors Ltd has come to represent high quality and reliable
service. Adhering to commitments in top priority and we set high internal standards and
deliver commitments through Precision Planning and Efficient Budgeting. We aim at
success without compromising on ethical business standards. We strongly maintain that
quality is the key to delivering customer satisfaction.
Our Mission: - The SILVER JUBILEE MOTORS GROUP is
committed to provide a highly

profitable, socially responsible, environmentally friendly Sustained Growth in profit

and market share in all products through superior customer service and commitment;
where we have to be efficient and effective for consistent long-term
growth in sales & service after sales. Project of Silver jubilee motors ltd. proved to be High
quality sales with best after sales service for customers and also to provide fulfilment and
prosperity for employees, dealers and suppliers.

SILVER JUBILEE MOTORS LTD is the flagship company of SILVER JUBILEE GROUP.
We are the dealer for range of Mahindra & Mahindra vehicles, serving the Mahindra patrons
since 1958. Our company is the number one dealer of Mahindra in Western Maharashtra.
Mahindra & Mahindra Ltd. is India’s leading company in supplying the premier Utility
Vehicles (UV) and we are assisting the global customer base in realizing their dreams by
owning Mahindra cars or commercial vehicles which are rugged, reliable and fuel efficient.

The company was incorporated in year 1935, commencing its business with the dealership
of Ford Motors. Later in year 1938 the Dealership Agreement with Caltex Petroleum was
entered which subsequently got transferred to Indian Oil Corporation Limited. After being
successful in automobile and petroleum dealership; in year 1940, with a diversification
attempt, Silver Jubilee Motors commenced Pune’s pioneer city bus services; which were
later taken over by Pune Municipal Corporation (PMC) due to its highly acclaimed success.
Ford Motors dealership was discontinued. In year 1958 Mahindra & Mahindra Dealership
was commenced for maintaining a more profitable position in Indian Markets.
Currently we are running two successful
dealerships -M&M IOCL

Our Vision: - Made by highly skilled employee for our highly valuable
customers

"For us excellence does not mean better it means best" Our Beginning

The company was incorporated in year 1935, commencing its business with the dealership
of Ford Motors .SILVER JUBILEE MOTORS LTD is the flagship company of SILVER
JUBILEE GROUP. We are now the dealer for range of Mahindra & Mahindra vehicles,
serving the Mahindra patrons since 1958. Our company is the number one dealer of
Mahindra in Western Maharashtra. Mahindra & Mahindra Ltd. is India’s leading company
in supplying the premier Utility Vehicles (UV) as well as Commercial vehicles and we are
assisting the global customer base in realizing their dreams by owning Mahindra cars or
commercial vehicles which are rugged, reliable and fuel efficient.

We Silver jubilee Family Doing excellence for the past 72 year where we have conquered
hearts of million Puneri people and we have the family of countless people who trust us from
all over the region.
 For past years our company’s performance is appreciable and this is not by our only work
but through a long and steady devotion and positive action for our customer for giving them
family satisfaction.

Brief synopsis is as follows

1935- Silver Jubilee Motors, Pune Camp was incorporated and Started Dealership for
Ford Motor Company, USA

1938- Became dealer for Caltex Petroleum of USA which was subsequently transferred to
Indian Oil Corporation.

1940- Started Pune’s first city bus service which was a success and was later on
taken over by Pune Municipal Corporation.

1958- The year in which our relationship with Mahindra & Mahindra started

1982- Inaugurated Baramati Branch

1984- Opened Pimpri Branch with a modern workshop with special machines for
servicing, body repairs & painting

2007- Purchased approx. 9 Acres of Land in Hadapsar forWorkshop and

servicing of the vehicles with modern amenities
 Our Achievements

1. Silver Jubilee Motors Limited has booked highest sales in western zone for Mahindra
& Mahindra Limited

2. Silver Jubilee Motors Limited has recorded highest sell of Scorpio model all over
India in consecutive two year in (1056 Vehicles) & in 2013-14 (1147 Vehicles)

3. Silver Jubilee Motors Limited is the first amongst 280 Mahindra dealers in India where
crusade is launched. Crusade is known for the customer centric approach of the dealer.

4. Silver Jubilee Motors Limited was ranked 2nd all over India for corporate retail. It is
pertinent to note that sale of XUV 500 was major in the said achievement.

5. Silver Jubilee Motors Limited had recorded highest billing of 1000 vehicles all over
India in the month of October 2012.

6. We are equipped with latest equipments like CRS with electronic measurement
system, 3D wheel Aligner.

7. Vast Experience of Silver Jubilee Motors extends all stages of dealership Business
cycles by providing services across value chain
8. We have a qualified and well motivated executives who in the process convert each
customer into a member of Silver Jubilee Motors family by providing excellent services.

9. We have strong financial backup and infrastructure facilities.

11. We have been in the automobile industry for more than 75 years with good reach
within top, elite and exclusive segments/individuals of Pune along with other cities of
Maharashtra.

12. Expanding at a rapid pace by expanding market reach through continuous development
in manpower and infrastructure and achieving a turnover of Rs. 400 Cr. In 2014 from Rs.
55.89 Cr. in 2003

13. "Got recognition as No.1 dealer of Mahindra in western Maharashtra

14. CRISIL SME 2 rating of High Level of Creditworthiness.
15. NSIC Crisil Rating SE 1B for highest Performance Capability & Financial
Strength

16. Achieved the No.2 position in the prestigious PAN India contest of Mahindra in
2011 and moving on to become the No.1 dealer in November 2014

17. No.1 achiever of Grand Maratha contest of Mahindra & Mahindra in West Zone for
highest billing and retail during the last 11 years.
 OBJECTIVES OF STUDY

The primary objective of working capital management is to ensure a smooth operating

cycle of the business. Secondary objectives are to optimize the level of working capital
and minimize the cost of such funds.

The superior objective of financial management is wealth maximization and that can be
gained by profit maximization accompanied by sustainable growth and development. For
sustainable growth and development, the objectives of all the stakeholders including
customers, suppliers, employees, etc should be aligned to the growth of the organization.

● Objectives of Working Capital Management

1. Smooth Working Capital Operating Cycle-

This implies that the operating cycle i.e. the cycle starting from the acquisition of raw
material to its conversion to cash should be smooth. It isnot easy; it is as good as
circulating 5 balls with two hands without dropping a single one. If the following 6
points can be managed, this operating cycle can be managed well.

● It means raw material should be present on the requirement and it should not be a
cause to stoppages of production.
● All other requirements of production should be in place before time.
● The finished goods should be sold as early as possible once they are produced and
inventoried.
● The accounts receivable should be collected on time.
● Accounts payable should be paid when due without any delay.
● Cash should be available as and when required along with some cushion.
2. Lowest working capital-
Working capital here refers to the current assets less current liabilities (net working
capital). It should be optimized because higher working capital means higher interest
cost and lower working capital means a risk of disturbance of the operating cycle.

3. Minimize Rate of Interest or Cost of Capital-

The cost of capital utilized in working capital should be minimized so as to achieve
higher profitability. If the investment in working capital involves bank finance,
interest rates should be negotiated with the bank.

The cost can be minimized by utilizing long-term funds but in a proper mix. While
deciding the mix of working capital, the fundamental principle of financial
management should be kept in mind that fixed assets and permanent assets should be
financed by long term sources of finance of approximately same maturity and short-
term or temporary assets should be financed by short-term sources of finance.
4. Optimal Return on Current Asset Investment -
The return on the investment made in current assets should be more than the
weighted average cost of capital so as to ensure wealth maximization of the owners.
In other words, the rate of return earned due to investment in current assets should be
more than the rate of interest or cost of capital used for financing the current assets.
 RESEARCH METHODOLOGY

Understanding "Research And Its

Importance "

Research is a systematic, controlled, empirical and critical investigation of hypothetical

propositions about the presumed relationships among natural phenomenon. Research may
mean the first small step in an endeavor to better understand the change occurring at times
forced upon us as individuals or as a society.
Research as process involves-defining and redefining problems, hypothesis formulation,
organizing and evaluating data, deriving deductions, inferences and conclusions after careful
testing.
Thus Research is……….

● Any systematic activity carried out in the pursuit of truth.

● A purposive investigation.

● The application of scientific method to add to recent pool of knowledge.

● An endeavor to arrive at answer to intellectual and practical problems by

the application of scientific method.

● An activity that extends corrects or verifies knowledge.

● An organize enquiry designed and carried out to provide information for solving
significant and pertinent problems.

● A way of finding new ways of looking at familiar things in order to explore ways of
changing
The research methodology followed for the project study was as follows:

1) Defining Problem:
“Management of working capital requirement and analysis of financial
performance of the firm with the help of various ratios and trends”.

2) Research Design:
“Explorative Research Design”.

In the research design followed, the emphasis was given to understand the
problem and is carried out in some unstructured passion.

3) Data Collection:
Data are facts, figures, and other related materials, pasts and present serving as
a basis for study and analysis. The data for the study was collected by two
means that is

i) Primary data
ii) Secondary data

Primary Data :-The primary data is basically collected by the way of observation and personal
interview of the finance manager. The information gathered here is about firm, understanding the
business and policies of firm related to finance.
Secondary Data:-
The secondary data is collected with help of documents available with the
company.

The sources of secondary data includes

i) Annual reports of the organization.

ii) Prospectus of the organization.

iii) Text book of the repected subject under study.

iv) Other financial records of the organization.

4) Data processing And Analysis:

This is the next step in study where the collected data was arranged in
sequential and appropriate manner.Here, data is first edited followed by data
classification and tabulation.

5) Interpretation of Data:
In interpretation of data, inferences were drawn from data analyzed. It has
added value to another wise amorphous data, by lending meaning to what lies
within the data. It has helped to explain the abstract principles that operate
beneath the findings and also helped to draw the final
THEORETICAL

BACKGROUND OF

WORKING

CAPITAL

MANAGEMENT
CONCEPTUAL BACKGROUND

4.1) MEANING:
Capital required for a business can be classified under two main categories via,

1) Fixed Capital

2) Working Capital

Every business needs funds for two purposes for its establishment and to
carry out its day- to-day operations. Long terms funds are required to create production
facilities through purchase of fixed assets such as plant & machinery, land, building,
furniture, etc. Investments in these assets represent that part of firm’s capital which is
blocked on permanent or fixed basis and is called fixed capital. Funds are also 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. In simple words, working capital
refers to that part of the firm’s capital which is required for financing short- term
orcurrent assets such as cash, marketable securities, debtors & inventories. Funds, thus,
invested in current assts 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 also
known as revolving or circulating capital or short term capital.
4.2) DEFINITION OF WORKING CAPITAL:
a) Awin B. Malett: “Working capital means current assets”

b) Guttmann & Daugall: “Working capital is the excess of current assets over
current liabilities.”

Two equations of working capital:

Gross working capital = Total Current Asset.

Net working capital = Current Assets – Current liabilities.

4.3) COMPONENTS OF WORKING CAPITAL:

The Gross and Net working capital is ascertained with the help following components
as shown below:

Current Assets:

1) Cash in hand and cash at bank xxx

2) Bills receivables xxx

3) Sundry debtor’s xxx

4) Short term loans and advances. xxx
5) Inventories of stock as:

● Raw material xxx

● Work in process xxx

● Stores and spares xxx

● Finished goods xxx

6) Temporary investment of surplus funds. xxx
7) Prepaid expenses
xxx
8)Accrued incomes.
xxx
9) Marketable securities. xxx

Gross Working Capital

x xx

Less
Current Liabilities:

1. Accrued or outstanding expenses. xxx

2. Short term loans, advances and deposits. xxx

3. Dividends payable. xxx

4. Bank overdraft. xxx

5. Provision for taxation , if it does not amt. to app. of profit. xxx

6. Bills payable. xxx

7. Sundry creditors. xxx

Net Working Capital:

xxx

4.4) CLASSIFICATION OF WORKING CAPITAL:

Working capital

Permanent or Fixed
Variable

Regular Reserve Marginal Cushion

Seasonal Special
1) Permanent / Fixed Working Capital:
This is the amount of working capital, which is permanently invested in some
minimum balances of raw material, finished goods, cash, bank balances are kept.

The amount invested in keeping these minimum balances is permanent working

capital. It is divided into:

⮚ Regular Working Capital:

This is required to keep minimum balance of stock, cash, bank etc.

⮚ Reserve / cushion:
The amount required in excess or regular working capital in reserve working
capital. Sometimes to face some emergent condition more money and more
stocks are required, e.g. during the period of peak or boom.

2) Variable Working Capital: Variable working capital is the amount which changes
with the volume of business. E.g. when volume of business is large, more working is required and
vice versa. It is divided as:
 ⮚ Seasonal Working Capital:
The amount, which is seasonally required, is seasonal working capital. In some
industries the amount of working capital changes according to change in season.
Some seasons are busy seasons when more working capital is required and some
seasons are off seasons when low working capital is sufficient e.g. sugar
industry.

⮚ Special Working Capital:

It is the amount of working capital which is required for financing special
operations, such as extensive advertisement for a new product, the experiments
with production and selling methods etc.

4.5) NEED OF WORKING CAPITAL:

The need for working capital cannot be over emphasized.Given the objective of the
financial decision making tomaximize the shareholders wealth. It is necessary to
generate sufficient profits. The extent to which profit can be earned will naturally
depend among other things upon the magnitude of the sales. A successful sales
programmer is in other words necessary for earning profit by any business enterprises.
However sales do not convert into cash instantly. There is invariably a time lag between the
sales of goods and the receipt of cash. There is therefore a need for working capital in the
form of current assets to deal with the problem arising out of the lack of immediate
realization of cash against goods sold. Therefore sufficient working capital is necessary to
sustain sales activity. Technically this is referred to an operating cycle. The operating cycle
can be said to be at the heart of the need for working capital. The continuing how from cash
to supply to inventory to accounts receivables and back into cash is what is called the
operating cycle. In other words the term cash cycle refers to the length of time necessary to
complete the following cycle of events.

⮚ Conversion of cash into inventory

⮚ Conversion of inventory into receivables

⮚ Conversion of receivables into cash.

4.6)IMPORTANCE OR ADVANTAGE OF ADEQUATE 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 favorable 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 materials andcontinuous production.
●
● Exploitation Of Favorable Market Conditions: If a firm is having adequate working
capital then it can exploit the favorable 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,
high morale which results in overall efficiency in a business.
4.7) DISADVANTAGES OF REDUNDANT OR
EXCESSIVE WORKING CAPITAL:-

i) 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.

ii) Redundant working capital leads to unnecessary purchasing and accumulation of

inventories.

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

iv) It may reduce the overall efficiency of the business.

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

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

vii) The redundant working capital gives rise to speculative transactions

4.8) OPERATING CYCLE:
The concept of operating cycle implies the time period that is required from the time cash is
put in the business along with other inputs to the time it is recovered from the amount ofsales
made by the firm. A firm puts cash as an input and the inputs like raw materials are
purchased with the help of cash. The raw material is converted into finished products and for
this additional cash may be required. The finished product is converted into sale and if the
sale is made for cash, the operating cycle is complete as cash is recovered back. On the other
hand, if sales are on credit, sales are converted into debtors and debtors are converted into
cash.

The length of the operating cycle depends upon several factors. These factors are as follows:

1) Length of the manufacturing Process:

If the manufacturing process is quite lengthy, the operating cycle will be prolonged.
On the other hand, if the manufacturing process is of shorter duration, the length of
the operating cycle will also be of a shorter duration.

2) Holding Period of Inventories:

On an average for how long the firm holds inventory is also one of the factors
affecting operating cycle. If the firm holds inventory of raw material for a longer
duration due to safety precautions, operating cycle is
prolonged. Firms following hand to mouth policies regarding inventories of raw
material will have shorter operating cycle. Similarly in case of work in progress, if the
time duration is long before being converted into finished product, operating cycle
will be of a longer period. In case of a finished goods inventory also, the same
principle exists. If finished goods are quickly converted into sales operating cycle will
be shorter but if finished goods inventory is not converted sales quickly and liberal
credit is extended to the customers operating cycle become lengthy.
4.9) RATIO ANALYSIS OF WORKING CAPITAL
The ratio analysis of working capital can be used by management as a means of checking
upon the efficiency with which working capital is being used in the enterprise.

The following are the important ratios of working capital:

a) Working capital Turnover Ratio:

Net Sales

Working capital Turnover Ratio = ---------------------

Net Working Capital

It can be calculated as net sales divided by average net working capital. The turnover
of working capital ratio measures the role of working capital utilization. The ratio
shows how many times working capital turns over in trading transactions.

b) Current Ratio:

Current Asset

Current Ratio = ---------------------------------

--
 Current Liabilities The
current ratio is
measure of the firms short term solvency and the ideal

ratio is 2:1. It indicates the availability of current assets in Rupees for every one
rupees of current liability. A ratio of greater than one means that the firm has more
current assets than claim against them.

c) Quick or Acid Test Ratio:

Quick Asset

Quick Or Acid Test Ratio = ---------------------------------

Quick Liabilities

Quick ratio establishes a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately or reasonably
soon without a loss of value. Cash is the most liquid asset. Inventories are considered
to be less liquid. If the companies quick ratio 1:1 then the company is able to meet its
obligations.
d) Inventory Turnover Ratio:

Cost of goods sold

Inventory Turnover Ratio = ---------------------------------

Average Inventory

Inventory turnover ratio indicates the efficiency of the firm in producing and selling
its products. The average inventory is the average of opening and closing balance of
inventory. In a manufacturing company inventory of finished goods is used to
calculate inventory turnover.

e) Debtor Turnover Ratio:

Credit Sales

Debtors Turnover Ratio: ---------------------------------

Average Debtors

Debtors turnover ratio indicates the number of times debtors turnover each year.
Generally the higher the value of debtors’ turnover the more efficient is the
management of credit. To outside analyst information
 about the credit sales and opening and closing balance of debtors may not be
available. Therefore debtor’s turnover ratio is calculated by dividing total sales by the
year end balance of debtors.

f) Average Debt Collection Period:

Sundry Debtors

Average Debt Collection Period = ---------------------------

---------- * 365 days

Sales

The average debt collection period generally calculated to calculate the days required
to collect the debt of the company. It is between sundry debtors and sales.

g) Debt Equity Ratio:

Total Debt

Debt Equity Ratio = -------------------------------

Net Worth
 The lenders contribution for each rupee of the owners contribution is called as debt
equity ratio. Debt equity ratio is directly computed by dividing total debt by net
worth.

h) Fixed Assets Turnover Ratio:

Sales

Fixed Assets Turnover Ratio = ---------------------------

--

Net Fixed Assets

The ratio indicates the efficiency with which the firm is utilizing its fixed assets such
as land, building and machinery etc. The use of depreciated value of fixed assets
turnover may renders comparison of firm’s performance over a period.

i) Current Asset Turnover Ratio:

Sales

Current Asset Turnover Ratio = ---------------------------

--

Current Assets
A firm’s ability to produce large volume of sales for a given amount of current assets
is the most important aspects of operating performance. The ratio helps to know the
firms efficiency of utilizing current assets.
DATANALYSIS

AND

INTERPRITATION
 DATA ANALYSIS & INTERPRETATION

5.1) EQUATION OF WORKING CAPITAL

1.) Gross Working Capital = Total Current Assets

2.) Net Working Capital = Current Assets – Current Liabilities

5.2) POSITION OF CURRENT ASSETS:

Table No. 5.1:

Showing Current Assets of the universal manufacturing company. From 2005 – 06
to2009-10.

Sr. No. Year Current Assets

1 2005-2006 7525626.00
2 2006-2007 9114731.00
3 2007-2008 8222389.00
4 2008-2009 9214782.00
5 2009-20010 7329432.00
 Chart No. 5.1

INTERPRITATION:

The table no 5.1 and chart no. 5.1 shows the position of current assets of last 5 years. The
current assets have been increased in the year 2006 – 07 but in the year 2007-08 it has gone
down and again it increased and decreased in the year 2008 – 09 and 2009-010
respectively. This is because of increase and decrease of Advances, Debtors and Other
Current Assets.

5.3) POSITION OF CURRENT LIABILITIES:

Table No. 5.2:
Showing Current Liabilities of the universal manufacturing company. From 2005 – 06 to 2009-10.

Sr. No. Year Current Liabilities

1 2005-2006 3009490.00
2 2006-2007 3653250.00
3 2007-2008 2922992.00
4 2008-2009 3689575.00
5 2009-2010 2898625.00

Chart No.2

INTERPRITATION:

The no. 5.2 and Chart no. 5.2 shows position of current liabilities for last 5 years.It
has observde that current
liabilities are fluctuating throughout. But in the year 2007- 2008 it has gone down because of
decrease in short term loans and current liabilities. And it has suddenly increased in 2008-
2009 due to increase in short term loans and sundry creditors.

5.4) POSITION OF GROSS AND NET WORKING CAPITAL:

Table No.5.3

Showing Gross and Net Working Capital of the universal manufacturing company.
From 2004-05 to 2008-09.

Sr. No. Year Gross Working Net Working

Capital Capital
1 2005-2006 7525626.00 4516136.00
2 2006-2007 9114731.00 5461481.00
3 2007-2008 8222389.00 5299397.00
4 2008-2009 9214782.00 5525207.00
5 2009-2010 7329432.00 4430807.00
 Chart No.5.3

INTERPRETATION:

The Table 5.3 and Chart no.5.3 shows the Gross and Net Working Capital for last 5 years. It
has been found that Gross Working Capital of organization is more as compare to Net
Working Capital. So industry has to work upon its Net Working Capital to get good
financial position.

5.5) RATIO ANALYSIS:

In this chapter analysis of Working Capital has been making with some relevant ratio of
working capital. Ratio analysis is the process of determining and interpreting
numericrelationship based on financial statement. Ratio analysis given as insight into the
operational and financial aspects of the firm for one year is compare with those of another.
The major ratios for calculating working capital are:-

1) Working Capital Turnover Ratio:

2) Current Ratio

3) Quick and acid Test Ratio

4) Inventory Turnover Ratio

5) Debtor Turnover Ratio

6) Average Debt Collection Period

7) Debt Equity Ratio

8) Fixed Assets Turnover Ratio

9) Current assets Turnover Ratio

5.5.1) WORKING CAPITAL TURNOVER RATIO:

Sales

Working Capital Turnover Ratio= ------------------------

------------
Working Capital
Table no: 5.4

working capital turnover ratio

Sr. Year Net Annual Net Ratio

Sales Workin (in
No. g times)
Capital
1 2005- 15910511
4516136.00 3.
2006
5
2 2006- 18783330
5461481.00 3.
2007
4
3 2007- 17332299
5299397.00 3.
2008
3
4 2008- 18980986
5525207.00 3.
2009
4
5 2009- 19155426
4430807.00 4.
2010
3
 Chart No 5.4

INTERPRETATION:

The Table no.5.4 and Chart no 5.4 shows working capital turnover ratio of last 5 years. It
shows consistency during 2005-2006 to 2008-2009 and the ratio increased in 2009-2010 due
to increase in sales.

5.5.2) CURRENT RATIO:

Current Ratio = Current Assets

--------------------------
 Current Liabilities

Table no. 5.5

Current Ratio

Sr. Year Current Current Ratio (in

No. Asset Liabilities times)
1 2005- 7525626.00 3009490.00
2006 2.
5
2 2006- 9114731.00 3653250.00
2007 2.
5
3 2007- 8222389.00 2922992.00
2008 2.
8
4 2008- 9214782.00 3689575.00
2009 2.
5
5 2009- 2898625.00
2010 7329432.00 2.
5
 Chart No.5.5

current ratio
2.8
2.75
2.7
2.65
2.6
2.55
2.5
2.45 current ratio
2.4
2.35

2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETATION:

The table no 5.5 and chart no 5.5 shows the current ratio of last 5 years. As we know the
ideal current ratio is 2:1, but actually industry having relatively more current ratio as
compare with ideal one. It shows the good liguidity position of the company.In year 2007-
2008 current ratio increased due to increase in loans and advances

5.5.3) QUICK OR ACID TEST RATIO:

Quick or Acid Test Ratio = Quick Assets

-----------------------

Quick Liabilities
Table No.5.6

Quick or Acid Test ratio

Sr. Year Quick Asset Quick Ratio (in times)

No. Liabilities
1 2005- 5991335 3009490.00
2
2006
2 2006- 8012494 3653250.00
2.1
2007
3 2007- 8811570 2922992.00
3
2008
4 2008- 8167534 3689575.00
2.2
2009
5 2009- 6749030 2898625.00
2.3
2010
Chart No.5.6

quick ratio
3

2.5

1.5
quick ratio

0.5

0
2005-06 2006-07 2007-08 2008-09 2009-10

INTERPRETAION:

The Table No.5.6 and chart no. shows Quick or Acid Test Ratio for last 5 years. The ideal
Quick or Acid Test ratio is 1:1 but we found that industry having more Acid Test Ratio. It
means have greater solvency and liquidity position.
 5.5.4) INVENTARY TURNOVER RATIO:

Inventory Turnover Ratio= Cost of Goods sold

---------------------
Average Inventory

Table No.5.7

Inventory Turnover
Ratio.
Sr. Yea Average Inventory
Net
No. r Inventor Turnover
Sales
y Ratio.
1 200 1591051
5- 1
200 481073 3.3
6 5
2 200 1878333
6- 0
200 579424 3.2
 7 4
3 200 1733229 524018
7- 9 9

2008 3.3
4 2008- 1898098
545403 3.5
2009 6
9
5 2009- 1915542
477383 4.0
2010 6
8
Chart No.5.7

inventory turnover ratio

4
3.5
INTERPRITATION
3 :
2.5
2
The table no. 5.7 and chart no.5.7 shows Inventory Turnover Ratio of last 5 years. The
ratio indicates how fast the inventory is moving. But the ratio is increasing all the times.
inventory turnover ratio
this reveals
1.5 that the inventory is moving fast and helping the company to get quick sales.
1
0.5
0

2005-06 2006-07 2007-08 2008-09 2009-10

5.6) STATEMENT OF CHANGE IN WORKING CAPITAL:

Current Assets:-

1. If the current assets increase, working capital also increases.

2. If the current assets decrease, working capital also decreases.

Current Liabilities:

1. If the current liabilities increase, working capital also decreases.

2. If the current liabilities decrease, working capital also increases.

 FINDINGS AND
OBSERVATIONS

After carefully studying all the aspects relating to working capital management, it can be concluded
that for the efficient running go any firm, successful handling of working capital is must otherwise there
have been cares where the companies are declared bankrupt, only because it failed to manage its
working capital. This indicates that no company should neglect this aspect as it may lead shortage of
funds. Thus shortage of funds
creates problems for purchase of raw material as well as payment of its creditors.
Every company must bear in mind the fact that for effective management of working
capital, the management of inventories & debtor play a vital role.
With the effective implementation of latest enterprise resource planning system, the paper
work of the company is reduced to the maximum extent & it also reduces the time &
efforts of the employees.
The working capital of the company is efficiently & effectively managed by maintaining
optimum cash balance, lower level of inventories & perfect timing between account payable &
account receivable. Thus by this can maintain a continue cash flow.
 CONCLUSIONS

● In any organization, there is need and importance to have adequate and sufficient
working capital to run the business smoothly. Ratio analysis is one of the tools used to
show the performance of the firm and which helps stakeholders know about the firm

● In conclusion of this project report as followsTo use of working capital management

and performance analysis.
● SILVER JUIBILE MOTORS. PUNE Possesses a very good image in the market.
Although the financial year 2009-10 has registered growth. The Company has
achieving high standard quality with consistency and economy.
● To study liquidity position of the firm with the help of working capital management.
During the year company has rich good liquidity position because of current ratio more
than that ideal one (current ratio=2.5/1)
● Credit policy of the company. A company purchases its requirements on credit and sales
its product / services on cash require lesser amount of working capital and vice-versa.
● On the basis of factors affecting working capital and such Working capital management
parameters valued opinion about the performance and position of the company could be
formed and that in no way lose important than the true and fair view as reported by the
auditors.
 BIBLIOGRAPHY

● BOOKS:
1) Financial Management:- Ravi Kishor.

2) Financial management : - Dr. N.M.Vechalekar

● Internet Websites:
1) www.googal.c
om

● Annual Reports of the SILVER JUIBILE MOTORS. PUNE for the last 5 years
form 2005-2006 to 2009- 2010.