A PROJECT REPORT ON WORKING CAPITAL MANAGEMENT

Undertaken at

Unit: CPM Fort: Songadh

Submitted by :- JIGNESH L GAMIT MBA Submitted to :- Mr.VIJENDRA GUPTA

The project report on JK Paper Ltd. has been prepared as per the topic Working Capital Management of JK Paper Ltd. prescribed by Mandvi education society, to me. Understanding of both practical and theoretical knowledge is essential in this competitive world. Training is an important aspect of the study. The basic aim of training in the management field is to know how to apply management theories in practice. Practice makes man perfect; therefore practical study is very important for management students. Practical training helps in comprehending the theory of subject taught in classroom. This is more applicable in case of management education. My training at JK Paper Ltd. has such effect to acquire the practical knowledge of Finance Management and others. Thus, it is our moral and obligatory duty to take part of our studies with great enthusiasm and seriousness and give them due importance. Last but not the least I received all required information and co-operation from the Accounts Department and HR Department. I hope that this report will meet the educational requirement.

Success is not merely a question of luck of genius it depends on hard work, sustained toil and most important of all his guidance. I am greatly thankful to JK Paper Ltd. for giving me an opportunity to work on this project at their company. I wish to express my sincere thanks to Mr.VIJENDRA GUPTA, Lecturer of MANDAVI EDUCATION SOCIETY,MANDAVI who gave me chance to undertake this project report under JK Paper Ltd.

SR NO.

CHAPTER PREFACE

PG NO. 03 04 07 10 19 21 55 59 62

1 2 3 4 5 6 7

ACKNOWLEDGEMENT COMPANY PROFILE INTRODUCTION PRODUCT PROFILE ORGANIZATIONAL STRUCTURE RESEARCH METHODOLOGY LITERATURE REVIEW THEORITICAL BACKGROUND (WCM) ANALYSIS OF WORKING CAPITAL MANAGEMENT 8.1) 8.2) 8.3) 8.4) Working Capital Analysis Ratio Analysis Inventory Management Receivable Management

67

9 10 11 12

8.5) Cash Management FINDINGS SUGGESTION CONCLUSION BIBLOGRAPHY

95 98 99 100

JK PAPER LTD. UNIT: CPM

INTRODUCTION TO ORGANISATION & MILL

COMPANY PROFILE

JK GROUP
JK owes its name as an Industrial entity and was conceived by the two great visionaries Late Lala Juggilal Singhania and his son Late Kamlapat Singhania. They dreamt of an Industrial India and founded the JK Organization as their contribution towards realization of that dream.

About JK Organization

The name JK Organization, which today is one of the leading Private Sector Groups in India, was founded over 100 years ago. JK owes its name as an industrial entity and was conceived by two great visionaries Late Lala Juggilal Singhania & his son Lala Kamlapat Singhania. They dreamt of an Industrial

India

and

founded

JK

Organi

zation, as their contribution towards realization of that dream. For J.K. Organization it's been a century of multi-business, multi-product and multi-location business operation. The companies in the Group have a diverse portfolio, including Automotive Tyres & Tubes, Paper & Pulp, Cement, V-Belts, Oil Seals, Power Transmission Systems, Hybrid Seeds, Woolen Textiles, Readymade Apparels, Sugar, Food & Dairy Products, Cosmetics, etc.

Companies that are member of JK organization are: JK Tyres JK Paper JK Lakshmi Cement JK Seeds JK Sugar Fenner (India) Umang Dairies

CliniRx Research

With its operations spread in almost every state of India, the Group employs over 30,000 people. JK Group constantly strives to achieve excellence and its products and processes and is conscious about the imperative need to maintain competitive age in Business. JK Organization is one of the Indias top Industrial houses with diversified interests and assets exceeding US $ 16 Billion.

Excellence comes not from mere words or procedures. It comes from an urge to strive and deliver the best every time. A mindest that says when it is good enough, improve it. It is a way of thinking that comes only from a drive within.
-Hari Shankar Singhainia
(President, JK Organisation)

JK Group started its paper business way back in year 1938 with a board mill in Bhopal, but now JK Paper Ltd. is Indias 6th largest paper manufacturer, produces 1,80,000 tones of paper and pulp in a year.

JK Paper Ltd..., Indias largest producer of branded papers is a leading player in printing and writing segment. JK Paper Ltd. Ranks 15th among global paper producers. JK Paper has two large integrated paper manufacturing plants JK Paper Mills in the Eastern part in the state of Orissa with 1, 25,000 TPA coated , uncoated and pulp manufacturing capacity ; and Central Pulp Mills in the Western part in Gujarat state with 55,000 TPA paper and pulp manufacturing capacity and 60,000 TPA packaging Board manufacturing capacity. Both Mills manufacture premium grade writing and printing papers, largely branded. Both plants are ISO 9001 2001, OHSAS - 18001 and ISO 14001 certified and operate around 120% capacity utilization.

About JK Paper Mills, Rayagada

JK PAPER MILLS, Rayagada (Orrisa)

JK Paper Mills is a premier integrated pulp and paper mill located at Jayakapur, Dist.: Rayagada, Orissa. JKPM has strived for excellence and consistently set high standards in quality, productivity, conversation of energy and water, industrial safety as well as pollution control and environment protection which are indicated by achievements like: First Mill in India to get ISO 9001 and ISO 14001 certification. Adjudged first Greenest Paper Mill in India in 1999. Most modern and largest pulp mill in India.

JKPM was commissioned in the year 1962 with an integrated pulp and paper plant with 15000 TPA installed capacity for manufacturing high quality writing and printing papers. Over the years the production capacity has been enhanced to a level of 1,27,000 TPA with the addition of 4 more

paper machines manufacturing diversified product range from 29 GSM to 300 GSM of different grades of paper.

The company was a pioneer to introduce in market, a surface sized finished paper JK Maplitho equivalent to uncoated woodfree printing paper in international parlance. Since then JKPM has further consolidated its position in the market and has established itself as a brand leader in different varieties of writing and printing papers like JK Copier, JK Copier Plus, JK Bond, JK Excel Bond, Super Hibrite (SHB) Maplitho and JK Cote premium coated paper and board. And the Journey still continues

Central Pulp Mills, Songadh At a Glance

Central Pulp Mills, Songadh

On the western coast of India, i.e. at Fort Songadh in the State of Gujarat is located Central Pulp Mills, the other Unit of JK Paper Ltd. It is also an integrated pulp and paper plant with a capacity of 55,000 TPA. It has two paper machines and manufactures premium grade papers in writing and printing paper segment.

During 1992, JK acquired CPM which was a sick unit, but JK Group turned it around. CPM was commissioned in year 1962 and commercial production for

JK Paper was started in year 1993. In the Year 2003, the unit was accredited to ISO 14001 Environment Management Systems and ISO 9001 Quality management Systems by DNV, Netherlands and in the year 2006 OHSAS 18001.

Vision, Mission and Core Values of the Company :

Vision
To be a dynamic benchmark and leader in the Indian Paper Industry.

Mission
To be a world class company by achieving growth and leadership through; JK Brand Equity Customer Obsession Technological Innovation Cost Competitiveness Environmental and Social Care

while continuously enhancing shareholder Value.

Core Values
Caring for People Integrity, including intellectual honesty, openness, fairness and trust Commitment to excellence

Objectives

Goal

To be among top 3 paper manufacturers by achieving breakthrough in PQCDSM.

ERP System in JK Paper Ltd. (Enterprise Resource Planning)

Through ERP System Management of JK Paper is connected through internet. This system was implemented from 1st April, 2008 in the paper business of JK Group. The Company has taken a major initiative to deliver world-class service through implementation of an Enterprise Resource Planning (ERP) system. This transformational technology has brought in best practices across all functions of the organization to deliver highest value to all external and internal customers. Customer obsession is at the core of JK Papers mission statement. Passion to deliver highest value to all our external and internal customers has led the Company to take major initiatives in the direction of implementing Enterprise Resource Planning (ERP) system in the organization. This ERP System has tiedup the total supply chain, enabling seamless flow of information in Real time. It has opened a transparent dialogue between the supplier and the customer, bringing in greater of efficiency, responsibility and effectiveness to the entire system at JK Paper. This system is of JD Edward Enterprise and the server of the system is in the Delhi at the Corporate Office of JK Paper. ERP system was implemented from 1st July, 2005 in other businesses of JK Organization.

About Various Policies

 Environmental, Occupational Health and Safety (EHS) Policy

We at JK Paper Ltd, Unit: Central Pulp Mills Are committed to: Comply with applicable environmental, occupational health and safety (EHS) legislation and other requirements Prevent and control population and work place occupational health and safety hazards Demonstrate continual improvement in our EHS performance

We shall strengthen our EHS performance by: Integration of EHS criteria in all our planning and operational activities Adoption of cleaner technologies processes and resource

conversation A forestation through social and form forestry by cloned technology Enhancing skill and competence of our employees, contractors and their workmen through ongoing training, involvement and motivation. Periodically reviewing the stability, adequacy and effectiveness of our EHS management systems.

Quality Policy
To provide Customer Delight both internal and external - through our products and services at competitive cost by continual improvement in processes, productivity, quality and maintenance systems.

 Total Productivity Maintenance (TPM) Policy

We at Central Pulp Mills, in our continuous pursuit of being globally competitive and achieving customer delight through world class quality standards are committed to maximize overall equipment effectiveness by: Aiming for Zero Accidents Zero Breakdowns Zero Defects Lowest cost of production with everyones participation Nurturing team work and continuous development of individual skills at all levels; and Creating lively, energetic, healthy and safe work environment

Eight Pillars of TPM

Achievements
2010-11:
Greentech Safety Gold Award 2011 Greentech Environment Gold Award - 2010 Excellence in Consistent TPM Commitment Award 2009 National Energy Conversation Award 2009 Greentech Environment Gold Award 2009

2009-10:

Greentech Safety Award 2009

2008-09: 2007-08: 2006-07: 2006-07: 2004-05:

SGCCI Award for Research & Development - 2009 Greentech Environment Silver Award - 2008 OHSAS 18001:1999 certification from DET NORSKE VERITAS (DNV) JIPM TPM Excellence 1st Category Award Winner of National Award for Excellence in Energy Management Winner of National Safety Award 2004 Best Paper Mill of the Year Award from Indian Paper Manufacturers Association ISO 14001 Certification from DET NORSKE VERITAS (DNV) ISO 9001:2000 Certification from DET NORSKE VERITAS (DNV) Outstanding Pollution Control Programme from Southern Gujarat Chamber of Commerce and Industry Outstanding achievement in Productivity in Chemical Industry from Southern Gujarat Chamber of Commerce and Industry. Outstanding Export Performance in Chemical Industry from Southern Gujarat Chamber of Commerce and Industry

2003-04: 2002-03:

1999-00:

1998-99:

1996-97:

Award for Energy Conservation (Large Mills) from Indian Paper Manufacturers Association, New Delhi.

About the Products :

JK Paper Ltd. offers range of office documentation papers from Economy to Premium grades. They include Photocopy and Multi Purpose Papers for use in

Desktop, Inkjet and Laser Printers, Fax Machines, Photocopiers and Multifunctional Devices. Premium Watermarked and Laid marked Business Stationery Papers are also being marketed to satisfy the varied needs of Corporate and Individuals. Papers produced can be classified into following types:

JK Copier Plus
Ideal for Quality Photocopying, Project Reports, Resumes, Inkjet & LaserJet printers, Presentation copies or any aesthetic job.

Sparkle Copier
Ideal for photocopying & desktop printing.

JK Easy Copier
Ideal for Photocopying.

SS Maplitho
SS Maplitho is ideal for trouble free printing as it has excellent smoothness and dimensional stability. It is used for printing books, calendars, maps, making Diaries, Notepads, Scribble Pad, and Exercise Book.

JK Excel Bond
Ideal for Letterheads, Brochures, Certificate, Presentations, Project Reports, Envelopes, Pamphlets, Manuscript writing, Corporate Stationery.

 JK Savannah Suitable for Corporate Stationery, Reports, Certificates, Presentations, Resumes, Invitation Cards, Hotel/Airline Menu Cards, Personal Letterheads.

JK MICR Cheque Paper

MICR (Magnetic Ink Circumstance Register) paper is the high quality papers, used for making Cheque books and Demand Drafts.

 List of Departments
Production Department Bamboo Yard Chipper House Pulp Mill Paper Machine Process Paper Machine I & II Stock Paper Machine I & II Rewinder & Cutter Finishing House Works Office HRD Centre Personnel Department

 Accounts Department Forest Department (Raw Mat.) Sales & Stock (Marketing) Stores Purchase Other Departments Transport Security & Fire Fighting Administration Information Technology Turbine Recovery Works Office h. Laboratory i. Instrument j. Civil k. Electrical l. Plantation m. Pulp Mill Maintenance n. Paper Machine Maintenance

Personnel Department is the bedrock of any business organization. Success and Failure of any organization depends on quality of personnel they have. The

aim of personnel department is to bring people together and develop into an effective organization. Personnel management can be defined as the process of accomplishing organizational objective by acquiring, retaining, terminating and properly using the human resource in an organization. Management of human resource is a continuous process. It includes human resource functions like human resource planning, recruitment, selection, placement, induction and orientation, promotion, transfer, demotion, training and development, performance appraisal, labor relation activities, welfare activities, wages and salary administration etc. So it is a never ending process. In short Personnel Management is the task of dealing with human relationship within an organization and maintains healthy and smooth relationship within as well as outside the organization. JK Paper believes that the most significant resource is its human resource and JK Paper Ltd. success depends very much on quality of their Human Resource. Human Resource comprise the aggregate of employee attributes including knowledge, skill, experience and health, which are presently and potentially available to the organization for the achievement of its goal and objectives along with serving best to the society and its stakeholders. At JK Paper they recognize the power of knowledge. Hence, extensive investments are made towards people and people practices. Fostering the spirit of entrepreneurship among these professionals has enabled JK Paper to establish the role of true leadership guiding the future growth and

development of the industry. The talent pool at JK Paper would rank among the very best in the Indian Paper Industry today. Human Resource Department, at JK Paper Ltd. is divided into 3 parts.

Personnel Department Human Resource Development Centre Administration Department

Mission and Vision :

To motivate all employees for best performance for getting optimum production To provide excellent services to our internal and external customers for their satisfaction To achieve cordial Human Relations with employees including union and association To create awareness amongst employees about companys system and personnel policies

Organization Chart :

Roles of Personnel Department :

Personnel Roles IR and Legal Roles Welfare Roles Social Responsibilities Legislations The Factory Act, 1948 The Payment of Bonus Act, 1965 The Payment of Wages Act, 1936 The Minimum Wages Act, 1948

The Contract Labor Act, 1972 The Workmen Compensation Act, 1923 Recruitment Sources Of Recruitment Selection VRS Scheme Performance Appraisal Internal Sources External Sources

Human Resource Development is the frameworks for helping employees develop their personal and organizational skills, knowledge, and abilities. Human Resource Development includes such opportunities as employee training, employee career development, performance management and development, coaching, succession planning, key employee identification, tuition assistance, and organization development. The focus of all aspects of Human Resource Development is on developing the most superior workforce so that the organization and individual employees can accomplish their work goals in service to customers. Mission and Vision : Vision :To achieve internal customer delight through planning and implementation of need Human Resource Development and TPM promotion services at Optimum cost. Mission :To excel in design, delivery, evaluation and continuous improvement of Human Resource department and TPM promotion activities by setting stretch taught and achieving them on time.

Organization Chart (HRD Centre) : Asst. Executive (HRD TPM) Executive (HRD) Vacant Asst Executive (HRD) Jr. Exe. Trainee (CSR) Sr. Mgr (HRD)

SR. DGM (HRD CSR)

Mission and Vision :

 Proper checking of outgoing vehicles. Proper checking of incoming/outgoing persons Minimum time utilization for incoming/outgoing vehicles Enforcement of proper security system Instant access of firefighting equipments to take timely action to extinguish fire.

Organization Chart :

Roles of Administration Department : Transportation Facilities Guest House Facility Medical Assistance Communication Facilities Colony Accommodation and Maintenance

Postage Facility Executive Hostel

Production is the process concerned with the conversion of inputs (raw materials, machinery, information, manpower and other factors of production) in to output (semi finished and finished goods and services) with the help of certain process (planning, scheduling and controlling). Manufacturing of goods is highly complex process. The

company makes the best use of man, materials and machinery for that sole purpose of economical delivery of quality goods to customers. Production Management is concerned with decision making related to manufacturing process. It makes the best utilization of raw materials available and does necessary processing on it and converts it into utility. Production Management is concerned with planning, organizing, controlling and co-ordination of manufacturing process, so that expectations cost of production and selling cost of resulting goods and services can be reduced. JK Paper Ltd., Indias largest producer of Branded papers is a leading player in the Printing and Writing segment. Both the plants of JK Paper are ISO 90012001 and ISO 14001 certified and operate at around 120% capacity utilization. The aggregate annual output is over 180,000 tons per year of Paper and Pulp, using contemporary technology. Over the last decade the constant endeavour of JK Paper has been to upgrade its manufacturing processes at grass-root levels to help create customer value. Be it the most modern Pulp Mill or an automatic cut-size line for branded products, it has been a saga of continuous process development with an eye on the customer. JK Paper Ltd. has always leveraged technology for constant product upgradation and has been a pioneer in many arenas, of the paper industry. Some of the

landmarks which JK Paper achieved much before the rest of the Indian paper companies are: First to introduce Surface Sized Wood free Paper First Paper Mill to get ISO 9001 certification. First Paper Mill to get ISO 14001 certification

These pioneering moves have given JK Paper pride of place as the change leader, ushering in a phase of complete makeover in the Indian paper market. On the pathway of moving focus from commodity to branded and high value categories, JK Paper Ltd. has undergone major technical upgradation in the machines and processes for manufacturing paper. JK Paper has setup state-of-the-art Packaging Board Plant at its Central Pulp Mills Unit, Songadh at a substantial Rs.235 crore investment. This plant of 60,000 TPA capacity is equipped with the most modern technology sourced from global leaders like Voith of Germany and several other leading names in the paper board machinery sector. Once again, technology is the key driver to revolutionize packaging in India.

Organization Chart (Production Process)

Production Process (Flow Chart) :

CHIPPER HOUSE

CHIPS SCREENING

CHIPS WASHING

DIGESTER

WASHING & BLEACHING OF PULP

STOCK PREPARATION

PAPER MACHINE

REWINDING & CUTTER

FINISHING

Now-a-days the importance of marketing department in every sector is increasing. Every business organization uses marketing to promote their product. Marketing is an ongoing process of planning and executing the marketing mix (Product, Price, Place, and Promotion) for products, services or ideas to create exchange between individuals and organizations. According to Philip Kotler, Marketing is the social process by which individuals and groups obtain what they need and want through creating and freely exchanging goods and services of value with others. In JK Paper too marketing department is given access importance. Thats why marketing department is at their corporate office in Delhi and not at their production units in Rayagada and Songadh. JK Paper has only Sales & stock department at their production units. And marketing department of the company operates from Delhi which heads four zonal offices; Mumbai (West Zone), Delhi (North Zone), Chennai (South Zone), Kolkata (East Zone).

Sales & Stock Department looks after availability of stock, transportation, loading of goods in trucks etc. it also looks after day to day sales, keeps information about dealers, wholesalers, transporters, customers, etc.

Marketing Network :

Countries in which JK Paper Exports : Abu Dhabi Bangladesh Ethiopia Kenya Maldives Oman Sri lanka South Africa Brazil Ghana Labuan Mauritius Sharjah Syria Australia Dubai Iran Libya Nepal Singapore Turkeys

Yemen Jordan South Korea

Austria Malaysia Vganda

Egypt Nigeria

Organization Chart (Sales & Stock Department)

Mission and Vision : Proper inventory keeping system Avoid small losses and peace meal material Advance logistics programme Zero complaint from dispatch area To have clean and safe environment Avoid detention of trucks Avoid access documentation

Order Processing System :

Completes in 15 Days

Distribution Channel

Collection of Receivables Terms & Conditions : Cash discount of 2% is given if payment mede in 20 days

Cash discount of 2.5% is given if payment is done in advance No discount is given if payment done within 30 days Interest at 24% P.A. is taken if payment made after 30 days Value Added Tax : 4% Excise duty : 8% CST : 3%

Organization Chart

Functions of Account Department : Bill Passing Payment approval Payment Advice Payment Release

Management Information System :

The top management is sent a one page report daily which contain,

Production Data Stock Position Information regarding sales Variable cost for power, feul, chemical, etc.

Organizational Chart (Purchase Dept )

Chart 11: Organization Chart (Purchase Department)

Mission and Vision :

Vision
To become purchaser of quality products with cost effectiveness to meet the plant requirement.

Mission
To endeavor, to locate best suppliers in the market and create long term relationship to meet future challenges in dynamic global environment.

Issue of Purchase Orders :

Completes in 13-15 Days

Purchase Bills Passing System :

Major Purchase Items Spares and Tools Chemicals Equipments

 Packaging Materials Lubricants Coal and Fuel

Organization Chart (Stores Department)

Objectives and Goals Minimum retrieval time Prevention /condition monitoring

Optimum inventory

Functions of Stores Department : Proper Storage Inventory Control Raising of Purchase requisition Receipt of material Arranging inspection of inward materials Issue of materials Material Handling contract Stores Accounting (Quantity) Disposal of scrap and surplus equipment through tender public auction

Classification of Stores Items : Raw materials (Bamboo, wood, etc.) Coal and Fuel Spares and stores Chemicals Machine clothing Packaging materials Lubricants

 Stores Issue System : Issue voucher raised by the department It is duly signed by authorised person Material is drawn from stores Custodians of stores are checked

Inventory Management System :

Minimum / maximum stock level is fixed time to time based on consumption level Review of high value stock items on day to day basis for regulating the suppliers as per the available stock Review of purchase requisition by department before planning the orders Providing details of materials received and lying in stock against department purchase requisition and non lifted by them

Forest Department looks after the procurement of Bamboo and hardwood form the forest as well as form the market. Bamboo is procured from nearby forests in Gujarat, from the open market of Gujarat, Maharastra, Madhya Pradesh, Assam, Uttar Pradesh, etc. Wood is procured from Gujarat, Maharastra, Madhya Pradesh, Uttar Pradesh, Haryana, Karnataka, Andhra Pradesh, etc. Transportation of raw materials is done by railways from Assam and by road form other states. The Company sources nearly 60% of its raw material requirement from man-made plantations. Side by side, it also promotes social/farm forestry within a radius of 200 KMs from its plants. Till date, in excess of 48,000 Ha of land has been planted with high yielding pulpwood species by the farmers in the adjoining areas of mill locations with the assistance of the Company. Every year it adds another 4500/5000 Ha by distributing 30 million

saplings to the farmers. Through its dedicated R&D wing, the Company has been able to develop 6 JK Super clones for Eucalyptus, which gives 2-3 times higher yield to the farmer. The Companys plantations, driven by in-house research programme, have covered more than 45,000 hectares of land over the years. By providing farmers high quality plant species through the Companys plantation research centre, it is helping the farmers to improve their economic well being. Very large number of farmers in the states of Orissa, Chhattisgarh, West Bengal, Andhra Pradesh, Gujarat and Maharashtra are benefitting from this programme. The plantation with its superior quality plants contribute towards a strong base for high quality raw materials. Company has its own nurseries in Surat, Narmada, Dhulia, Nandubar, Navsari, Tapi, Bharuch, Baroda and Panchmahal districts.

Organization Chart (Forest Department) :

Roles of Forest Department To observe affective office TPM To conduct meetings with field managers and staff by GM to review the achievement of target for bamboo procurement from forest.

 To ensure procurement of quality raw materials at lower cost. To satisfy the internal customers(stores) with regard to arrangement of required raw material at the right time and right manner To satisfy the external information regarding quantity and quality of the raw materials supplied by them and arrange timely payment to suppliers and transporters.

Organization Chart :

Total Security Guards 51 Contract Security Guards from RDSL 2 JK Paper Employees Fire Jeep 1 Fire Tanker - 2 (5000 Ltrs Capacity Each) Fire Trailor pump - 1 Fire Exhausters 300

Roles of Fire fighting and Security Department Proper checking of incoming / outgoing vehicles Proper checking of incoming / outgoing persons Checking of Workers Weight checking of incoming truck Ensure that incoming vehicle is ok or not Checking for liesence of Driver Protecting Raw material from fire Protection of company premises Safety precautions Enfrocement of proper security equipments Instant access to fire fighting equipments to take timely action to extinguish fire.

The term research refers to the systematic method consisting of enunciating the problem, formulating the hypothesis collecting data, analyzing the facts and reaching the certain conclusions either in the form of solution towards the concern problem or in certain generalization for some theoretical formulation. Research methodology is a way to solve systematically the research problem. It may be understood as a science of studying how research is done scientifically. Time period of the study :

The present study was undertaken during six weeks from 1st June - 15th July. Research Design :

Descriptive research procedure is used for describing the recent situations in the organization and analytical research to analyze the result by using research tools.

Descriptive Research : Descriptive research, also known as statistical research, describes data and

characteristics about the population and phenomenon being studied. Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Therefore descriptive research cannot be used to create a casual relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity. Data Source & Collection Method : Primary data Secondary data

Primary data : To collect the primary data I have collected the information by informal discussion held with various department heads. Information pertaining to receivables, cash, inventory, and creditors were collected from the respective departments in the units. Secondary data : Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. The Secondary data consist of reality available compendices already complied statistical statements. Secondary data consist of not only published records and reports but also unpublished records. Here I have done the analysis on the basis of secondary data, which includes : Balance Sheet of company

Profit / Loss of JK Paper Ltd.

Purpose : The purpose of this paper is to properly analysis of the working capital

management of JK Paper Ltd., Songadh over the period 2007-2010 OBJECTIVE OF THE STUDY : The management of Working Capital is very important. It involves the study of day to day affairs of the company. The motive behind the study to develop the understanding about working capital management in the running business organization and to help the company in developing the efficient working capital management. Therefore, it helps in future planning and control decision. To analyze the working capital management. To determine the gross operating and net operating cycle of the unit. To know the future need of working capital in the running organization. To render recommendations for the effective management of working capital.

SCOPE OF THE STUDY : The study is conducted at JK Paper Ltd., Songadh for 6 weeks duration. The study of working capital management is purely based on secondary data and all the information is available within the company itself in the form of records.

To get proper understanding of concepts, I have done the study of balance sheet, profit/ loss A/cs, cash accounts.

I have also conducted the interview with employees of accounts department. So scope of the study limited up to the availability of official records and information provided by the employees. The study is supposed to be related to the period of last four years.

Analysis through working capital ratios. Analysis through schedule change in working capital. Analysis through gross operating cycle and net operating cycle. Analysis through various components of working capital. Receivable Management Inventory Management Cash Management

Limitation of Study : Generally the company does not allow the finance project to have any study or research work. Therefore getting a project work in the company itself was very difficult.

The time span of the project was very short 6 weeks, which was a major constraint, so study and analysis on this topic within limited period was not sufficient.

The organizations do not disclose all the data which is an obstacle for the detail study. Due to the busy schedule, some of the staff members were not in a position to spare time for guiding the topic or giving any information.

As the organization policies were very strict regarding using actual figures due to which approximately values were used for analysis. Hence the result also reveals approximate values.

Maximum secondary data is used.

The research done by Herrfeldt B., How to understand Working Capital Management describe that Cash is king so say the money managers who share the responsibility of running this countrys businesses. And with banks demanding more from there prospective borrowers, greater emphasis has been placed on those accountable for so-called working capital management. Working capital management refers to the management of current or short term assets and short term liabilities. In essence, the purpose of that function is to make certain that the company has enough assets to operate its business.

The research done by, Samiloglu F. and Demirgunes K., Effect of Working Capital Management on firm Profitability : Evidence of Turkey (2008) describe that the effect of working capital management on firm profitability. In accordance with this aim, to consider statistical significance relationship between firm profitability and the component of cash conversion cycle at length a sample consisting of Istanbul Stock Exchange (ISE) listed manufacture firms for the period of 1998-2007 has been analyzed under multiple regression models. Empirical findings the study show that accounts receivable period, inventory period and leverage affect firms

profitability negatively; while growth (in sales) affects on firm profitability positively.

Michael J Peel, Nicholas Wilson (2008), very little research has been conducted on the capital budgeting and working capital practices of small firms. The result of survey indicates that a relatively high proportion of small firm in the sample claimed to use quantitative capital budgeting and working capital technique and to review various aspect of the companies working capital. In addition, the firms which claim to use quantitative capital budgeting and working capital technique and to review various aspects of their companies working capital. In addition, the firms which claim to use more sophisticated discounted cash flows capital budgeting techniques, or which had been active in terms of reducing stock level

The research done by Hardcastle J., Working Capital Management, (2007) describe that the working capital sometimes called gross working capital, simply refers to the firms total current assets (the short term ones), cash, marketable securities, account receivables and inventory. While long term finance analysis primarily concern strategic planning, working capital management deal with day-to-day operations. By making sure that the production line do not stop due to lack of raw material, that inventories do not build up because production continue unchanged when sales dip that customer pay on time and that have enough cash is on hand to make payments when they are due. Obviously good working capital management, no firm can be efficient and profitable.

The research done by Thachappilly G., Working Capital Management manages Flow of Fund, (2009) describe that the Working Capital is the cash needed to carry on operation during the cash conversion cycle, i.e. the days for paying for raw material to collecting cash from customers. Raw material and operating supplies must be brought and stores to ensure uninterrupted production. Wages, salaries, utility charges and other incidents must be paid for converting the material into finished goods.

Customers must be allowed a credit period that is standard in the business. Only at the end of cycle does cash flow in again.

The research done by, Gass D., How to improve Working Capital Management (2006) Cash is the lifeblood of the business is an often repeated maxim amongst financial manager. Working capital management refers to the management of current or short-term assets and short-term liabilities. Component of short-term assets include inventories, loans and advance, debtors, investment and cash & bank balances. Short-term liabilities include creditors, trade advances, borrowing and provisions. The major emphasis is, however, on short-term assets, since short-term liabilities arise in the context of short-term assets. It is important that companies minimize risk by prudent working capital management.

Meaning And Nature of Working Capital Management : The management of working capital is concerned with two problems that arising in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them. The basic goal is working capital management is to manage current assets and current liabilities of the firm in such way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for business. A business which is fully equipped with all types of fixed assets required is bound to collapse without (i) Adequate supply of raw material processing, (ii) Cash to pay for wages, power and other costs, (iii) Creating a stock of finished goods to feed the market demand regularly and (iv) The ability to grant credit to its customers. All these require working capital. Working capital is thus like the lifeblood of business. Working capital cycle involves conversions and rotation of various component of the working capital. Initial cash is converted into raw material. Subsequently, with the usage of fixed assets resulting in value addition, the raw material get converted into working in progress and then into finished

goods. When sold on credit, the finished goods assume the form of debtor who give the business cash on due date. Thus the cash assume its original

CREDITORS CASH

Value Addition Value Addition

FINISHED GOODS WORK IN PROCESS

form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result they rotate and business operation continues. Thus the working capital cycle involves rotation of various constitute of working capital.

Sources of Additional Working Capital : Source of additional working capital include the following Existing cash reserves Profits ( When you secure it as cash ) Payables ( Credit from Supplier ) New equity or loans from shareholders Bank overdrafts or lines of credit Long term loans

Classification of Working Capital : Working capital can be classified in two ways. On the basis of concept On the basis of time

On the basis of concept working capital can be classified Gross Working Capital

Net working capital.

On the basis of time working capital may be classified Permanent or fixed working capital Temporary or variable working capital

Types of Working Capital : There are mainly two types of working capital. Permanent Working Capital Temporary Working Capital Permanent Working Capital:-

The need for current assets arises because of operating cycle. The operating cycle is continuous process and therefore the need for current assets is felt constantly. But the magnitude of current assets needed is not always the same. It increases and decreases over time. However there is always a minimum level of current assets, which are continuously required, by firm to carry or its business operations is called permanent or fixed working capital. This minimum level of working capital is necessary on the regular basis even if the management of working capital is done efficiently in the organization. As this type of working capital is minimum necessary for the business at all points of time, it is financed by the long-term sources.

Temporary Working Capital :-

The amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. The need for such type of working arises because of fluctuations in production and sales. The additional requirement may be during more active season when the volume of production and sales more goes up necessitating extra blockage of funds temporarily in current assets like Bank Balance, inventory, debtors, etc. The temporary working capital is the additional funds required. Whose volume is different at different points of time and hence it is financed by short-term sources.

Both concepts are depicted in the following figure: -

A M O U N T O F W.

C.

Temporary Working Capital

Permanent working Capital

Time

However when the business is growing, the level of permanent working capital also grows. The working capital graph will be rising one as given in figure below:
A M O U N T O F W. C.

Temporary Working Capital

Permanent Working Capital

Time

Working Capital Assembly : Particular 2009-10 YEAR 2007-08 2006-07

2008-09 Current Assets

Inventories Sundry Debtors Cash & Bank Balances Loans & Advances Others Current Assets TOTAL CURRENT ASSETS (A) Less : Current Liabilities Current liabilities & Provisions TOTAL CURRENT LIABILITIES (B) NET WORKING CAPITAL (A-B)

126.89 104.49 7.87 160.98 -400.23

117.11 107.15 34.22 162.24 -420.72

120.34 110.87 3.50 131.74 41.70 408.15

96.41 107.24 4.83 176.8 0 -385.28

184.31 184.31 215.92

152.95 152.95 267.77

171.09 171.09 237.06

177.65 177.65 207.63

Operating Cycle Analysis

Operating cycle refers to the time period which starts from raw material purchases and ends with realization of receivable. So it is total time gap between raw material purchases to total debtors collection. This is also known as working capital cycle. Operating cycle is therefore expressed in terms of months or weeks or days. The highest the operating cycle period, higher the working capital requirement. It comprises raw material conversion period, WIP conversion period, FG conversion period and debtors conversion period and creditors period. The basic reasons for calculating operating cycle is to find out the means for reducing the duration of operating cycle because if duration of operating cycle will be less than the working capital requirement will be less. OC = R + W + F + D C

Where, R = Raw material conversion period F = Finished goods conversion period C = Creditors payment period W = Work in process period D = Debtors collection period

Raw Material Conversion Period (RMCP) = Raw Material Stock -------------------------------------------------- 360 Raw Material Consumed during the year Rs. In Lac (0.1 Million) 2008-2009 2007-2008 3174.20 28,143.37 41 Days 4660.08 15,053.88 111 Days

Particular Raw Material Stock

2009-2010 5334.87

2006-2007 3,322.07 17,485.50 66 Days

Raw Material 28,678.95 Consumed during the year 67 Days RMCP

Interpretation :The raw material conversion period is the average time period taken to convert material in to work - in process. Smaller the raw material conversion period higher the efficiency of production. Here, we can see that year 2009-10 the raw material conversion period is 67 days which is high as compare to previous year. It is high because both the level of consumption and inventory level has been increase, so it is not good for the company. Work in Process Conversion Period (WIPCP)

= Stock in Process ------------------------ 360 Cost of Production Particular Stock In Process Cost of Production WIPCP 2009-2010 8.35 988.45 3 Days 2008-2009 11.13 938.45 4 Days 2007-2008 14.73 504.88 11 Days 2006-2007 8.01 620.98 4 Days

4 11 4 3

Interpretation :It indicate the work in process inventory (can say semi finished good) converted into finished goods. Its also contain the production cost holding by it. Here, we can say that for the year 2009-10 due to low work in process inventory. Work in process conversion period is low even though the cost of production is too high compare to others. Finished Goods Conversion Period = Finished Goods Inventory ----------------------------------- 360 Cost of Goods Sold

Particular Finished Goods Inventory Cost of Goods Sold FGCP

2009-2010 26.54 994.63 10 Days

2008-2009 32.71 927.88 13 Days

2007-2008 22.15 505.27 16 Days

2006-2007 22.54 620.63 13 Days

13 16 13 10

Interpretation :It indicates the finished goods inventory converted in to sold or distributed to the end user. Its also containing the production cost holding by it. If finished goods conversion period is lower, the efficiency of company is higher. In case of this company for the year 2009-10 finished goods conversion period is 10 days which is lower than the previous year 2008-09, it indicates good efficiency of the company.

Debtors Conversion Period

Debtors ------------------ 360 Credit Sales

Rs. In Crore (10 Million) Particular Debtors Credit Sales DCP 2009-2010 104.49 1299.57 29 Days 2008-2009 107.15 1268.34 30 Days 2007-2008 110.87 749.31 53 Days 2006-2007 107.24 932.55 41 Days

41 53

Interpretation :This conversion period measures the quality of debtors. A short collection period implies without delay in payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors. Here, we can say that for the year 2009-10, debtors conversion period is low as compare to previous years. So companies management is efficient in collection on cash and they have not more provision for bad debts.

Creditors Conversion Period Creditors ----------------------- 360 Particular 2009-2010 2008-2009 =

2007-2008 114.78 480.95 86 days

2006-2007 109.26 614.18 64 days

Creditors Purchase CCP

115.71 874.47 48 days

100.13 941.68 38 days

Purchase

64 86 38 48

Interpretation :Creditors conversion period an indication of a companys credit worth in the eyes of its supplies and creditors, since it shows how long they are willing to wait for payment. Within reason, the higher the number the better, because all companies want to converse cash. A company that is especially slow to pay its bills may be a company having trouble generating cash or one trying to finance its operations with its suppliers funds. Here, we can say that for the year 2009-10, Creditor conversion period is high as compare to previous year. Companys credit worth is increase so company can able to manage cash for the payment of their suppliers. YEAR RMCP WIPCP 2009-2010 67 3 2008-2009 41 4 2007-2008 111 11 2006-2007 66 4 Gross Operating Cycle FGCP 10 13 16 13 DCP 29 30 53 41 GOC 109 days 88 days 191 days 125 days

Interpretation :Gross operating cycle is total inventory conversion period and debtors conversion period. As we can see in the year 2009-10 gross operating cycle periods is 109 days which is high in the above data because gross operating cycle as well as payable deferral period is high in year 2009-10. Net Operating YEAR 2009-2010 2008-2009 2007-2008 2006-2007 Cycle GOC 109 88 191 125

CCP 48 38 86 64

NOC 61 days 50 days 105 days 61 days

Interpretation :Net operating cycle also represents the cash conversion cycle. It is net time interval product and cash payment for resources acquired by the firm. It also represents the time interval over which additional funds, called working capital, should be obtained in order to carry out the firms operations. The firm has to negotiate working capital from sources such as commercial banks. If net operating cycle of a firm increase, it means further need for negotiable working capital. As we can see in the year 2009-10 Net Operating Cycle period is 61 days which is highest in the above taken data because gross operating cycle as well as payable deferral period is high in 2009-10 compare to previous year. Here, initially net operating cycle of a firm increase as compare to previous year, so which gives bad indication.

Analysis through Working Capital Ratios : A study of the causes of changes in uses and sources of Working Capital is necessary to observe that whether working capital is serving the purpose for which it has been created or not. In this technique, for each aspect of analysis certain ratios are computed and then results are compared with standard ratio or industry average.

The ratio analysis provides guides and clues especially in sporting trends towards better or poorer performance and in finding out significant deviation for any average or relatively applicable standards. The following are the important ratios to measure the efficiency of working capital: Current Ratio: It is most common measure for measuring liquidity. It is also called Working Capital Ratio. It expresses relationship between current assets & current liabilities. High current ratio indicates firm is liquid and has the ability to pay its current obligation in time and when they become due. A ratios equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory. Current Assets Current Ratio = ---------------------Current Liabilities

Rs. In Crore (10 Million) YEAR CURRENT ASSETS CURRENT LIABILITY 184.31 152.95 171.09 177.65 CURRENT RATIOS 2.171 2.751 2.385 2.169

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

400.23 420.72 408.15 385.28

2.171 2.751 2.169 2.385

Interpretation:Higher the current ratio, the larger is the amount of rupees available per rupee of current liabilities, the more is the firms ability to meet current obligation and greater is safety of fund of short term creditors. From the above calculation we can say that current ratio of 2009-10 is 2.171 : 1 which is comparatively lower than the previous year. It indicates the company is quite not satisfactory with their current affair as compare to previous years.

Net Working Capital Ratio Net Working Capital is difference between current assets and current liabilities. This ration measure firms potential reservoir funds relate to net assets.

Net Working Capital Ratio = Net Working Capital ----------------------------

Net Assets Year 2009-10 2008-09 2007-08 2006-07 Net W.C. 215.92 267.77 237.06 207.63 Net Assets 142.37 150.20 168.34 172.08 Ratio (in times) 1.52 1.78 1.41 1.21

1.21 1.41 1.78 1.52

Interpretation :The difference current assets and current liabilities excluding short term bank borrowing is called net working capital or net current assets. Net current assets are sometimes used as a measure of a firms liquidity. It is considered that the firm having the large networking capital has the greatest ability to meet its current obligation. As shown in the calculation net working capital of 2009-10 is low as compares to previous year because firm had used its cash & bank balance to meet its current obligation. Here we can say that as compare to previous net working capital is low which is good for the company.

Liquid Ratios This ratio is also known as quick ratios or acid test ratios. It is more rigorous test of liquidity than the current ratios. It is based on those current assets which are highly liquid. Inventory and prepaid expenses are excluded because they are deemed to be least liquid component of current assets. A high quick ratios indicate that the firm is liquid and has the ability to meet its current assets in time and on the other hand low ratios represent liquidity position is not good.

Quick Ratio = Quick or Liquid Ratio _____________________ Current Liabilities LIQUID ASSETS CURRENT LIABILITIES 273.34 184.31 303.61 152.95 287.81 171.09 288.87 177.65

YEAR 2009-10 2008-09 2007-08 2006-07

LIQUID RATIOS 1.483 1.985 1.682 1.626

1.626 1.682 1.985 1.483

Interpretation :Usually high liquid ratios an indication that the firm is liquid and has the ability to meet its current or liquid liabilities in time and on the other hand a low liquidity ratio represents that the firm's liquidity position is not good. According to rule of thumb, it should be 1:1. The liquid ratios present an uneven change over the past four year. It was 1.626 in 2006-07 and increased to 1.985 in 2008-09 and then to 1.483 in 2009-10. The decrement in ratios is not satisfactory, however the ratios 1.483 in 200910 is more than the rule of thumb but the ratios of four year is quite more than the rule of thumb.

Working Capital Turnover Ratios Working capital turnover ratios indicates the velocity of the utilization of the net working capital. This ratio measures the efficiency with which the working capital is being used by the firm.

Working Capital Turnover Ratios = COGS or Sales ____________________ Net Working Capital

YEAR 2009-10 2008-09 2007-08 2006-07

SALES 1299.57 1268.34 749.31 932.55

NET WORKING CAPITAL 215.92 267.77 237.06 207.63

WCTR 6.019 4.737 3.161 4.491

4.491 3.161 4.737 6.019

Interpretation :Working capital turnover ratio measures the firms efficiency that how a firm manages and utilize its working capital as we can see from the above calculation of year 2009-10 has a higher working capital turnover ratio which is higher than the previous year 2008-09. So we can say that in 2009-10 working capital efficiency is more than the previous year 2008-09. The ratio of the company is satisfactory.

Stock Turnover Ratios This ratios tell the story by which stock is converted into sales. A high stock turnover ratios reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year.

Stock or Inventory Turnover Ratio = COGS or Sales _____________________ Average Stock

YEAR

SALES

AVERAGE INVENTORY 122.00

STOCK TURNOVER RATIO 10.65

2009-10

1299.57

2008-09 2007-08 2006-07

1268.34 749.31 932.55

178.90 156.58 137.81

7.09 4.78 6.77

6.77 10.65 7.09 4.78

Interpretation :Stock turnover ratio measures how quickly inventory is sold. It is a test of efficient inventory management. To judge whether the ratio of a firm is satisfactory or not, higher ratio shows efficient use of inventory. As we can see from the graph that in the year 2009-10 ratio is 10.65 : 1 which is higher than all previous years, so we can say that inventory is converted into finished goods highest in this year which indicate the highest efficient use of the inventory.

Debtors Turnover Ratios

Debtors Turnover Ratio = Credit Sales ______________ Average Debtor YEAR SALES AVERAGE DEBTORS 105.82 164.40 162.68 170.60 DEBTOR TURNOVER RATIO 8.60 5.40 3.23 3.83

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

909.70 887.84 524.52 652.79

3.83 3.231 5.40 8.60

Interpretation :The analysis of the debtors turnover ratio supplements the information regarding the liquidity of one item of current asset of the firm. The ratio measure how rapidly debts are collected. A higher ratio is indicator of shorter time lag between credit sales and cash sales. As we can see in the year 2009-10 debtors turnover ratio is highest that is 8.60 : 1 which is higher than 2008-09. So we can say that company has not faced problem in collecting the money in this year of 2009-10. So this ratio is good for the converting credit sales into cash sales for the company.

Inventory constitute major portion of current asset of public Ltd. Companies in India .The manufacturing companies hold inventories in the form of Raw material, work-in-process and finished goods.

There are at least three motives for holding inventories : To facilitate smooth production and sales operation (Transaction motive) To guard against the risk of unpredictable changes in usage rate and delivery time (Precautionary Motive) To take advantage of price fluctuations. (Speculative Motive)

Inventories represent investment of a firms funds and that is why management of inventory is necessary for the maximization of the value of the firm. The firm should therefore consider (a) Costs (b) Return (c) Risk

evaluation of inventory management performance: -

Ratio analysis has been used for making evaluation of Inventory management performance. As the raw material used in the company is pig iron, proper planning and handling is required for the purpose of achieving the right quality of output.

The ratios for last four years have been worked out and compared. The various figures are given in the table.

INVENTORY MANAGEMENT
Rs. In Crore (10 Million) ITEM 2009-10 2008-09 2007-08 2006-07

(1) Average Inventory (2) Total Current Assets (3) Cost of Goods Sold

122.00 400.23

178.90 420.72

156.58 408.15

137.81 385.28

994.63

927.88

505.27

620.63

Ratio (%) a) Inventory to Gross Working Capital (1/2) b) Inventory Turnover (3/1) c) Inventory Conversion Period (365/b) days 45 Days 70 Days 113 Days 81 Days 8.15 5.18 3.23 4.50 0.30 0.43 0.38 0.36

Interpretation :Inventory conversion period means, time taken to convert raw material into finished goods to goods sold. It indicates how effectively and efficiently an

inventory is controlled. Lesser the inventory conversion period more efficient and effective use of inventory. Here we can see that for the year 2009-10 inventory conversion period is 45 days which is less than the rest of year. As we can see from the graph for the year 2008-09 inventory conversion period is 70 days which is highest among the collected data. So we can say that they are able to substantially reduce the inventory holding period from 70 to 45 days i.e. 25 days. It may happen because the average inventory holding period has been decrease and also the cost of goods sold increase.

When firm sell goods for cash, payments are received immediately and therefore no receivables are created. However when a firm sells goods or services on credit, payments are received only at a future date and receivables are created. It is an essential marketing tool in modern business trade. Credit creates receivables, which the firm is expected to collect in near future. A firm grants credit to its customers so that its sales are its customers so that its sales are not lost to competitors. Account receivable constitutes a significant portion of the total current assets of the business after inventories. The receivables arising out of credit has three characteristics. It involves an element of risk, which should be carefully analyzed. It is based on economic value. To the buyer, the economic value goods or services pass immediately at the time of sale, white the seller expects an equivalent value to be received later on. It implies futurity. The customers from whom receivables have to collected in future are called debtors and represents the firms claim or asset.

Debtors Collection Period : -

Indicates the average time taken to collect debts. In other words, a reducing period of time is an indicator of increasing efficiency. Debtor Collection Period` = (Average Debtors / Credit Sales) * 365 ( = No. of days)

Credit Sales are all sales made on credit (i.e. excluding cash sales) . A firm sells goods on credit and cash basis. When firm extends credit to its customers, book debts are created in firms A/c debtors expected to convert in to cash over short period and thus included in current assets. It is used to measure liquidity of the receivables or to find out period over, which receivables remain uncollected. Receivable Collection Period = Debtors ---------------------- x 360 Credit sales (assume)

Year

Sales

Debtors

Collection Period

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

1299.57 1268.34 749.31 932.55

104.49 107.15 110.87 107.24

29 days 30 days 53 days 41 days

Receivable Management

41 53 30 29

4.81 8.14 8.60

Interpretation :The collection period represents the average number of days for which a firm has to wait before its debtors are converted into cash. A short collection period implies without delay in payment by debtors. It reduces the chances of bad debts. Similarly, a longer collection period implies too liberal and inefficient credit collection performance. It is difficult to provide a standard collection period of debtors. If it is longer than those terms, than this indicates some insufficiency in the procedures for collection debts. Here we can say that for the year 2009-10 the debtors collection period is quite low as compare to previous years. So companies management is efficient in collection on cash within their decided well specified period and company has sufficient control over receivable management.

Cash in the important current assets for the operations of the business. Cash is the basic input needed to keep the business running on continues basis, it is also the ultimate output expected to be realized by selling the service or product manufactured by the firm. The firm should keep sufficient cash, neither more or less. Cash shortage will disrupt the firms manufacturing operation while excessive cash will simply remain idle, without contributing anything towards firms profitability. Thus, a major function of the financial managers is to maintain a sound financial position. Cash management involves following four factors: -

Ascertainment of the minimum cash balance and controlling the levels of cash. Controlling cash in flows Controlling cash outflows Optimum utilization of surplus cash. Cash is required to meet a firms transactions and precautionary needs. A firm needs cash to make payment for acquisition of resources and services for the normal conduct of business. It keeps additional funds to meet any emergency situation. Some firms maintain cash for taking advantages of speculative changes in price of input and output.

evaluation of cash management performance: The following ratios have been used to evaluate different aspects of cash management. Cash to Current Assets Ratio. Cash turnover Ratio.

CASH MANAGEMENT Rs. In Lac (0.1 Million) ITEM (1) Cash & Bank Balance (2) Total Current Assets (3) Cash balance ratio 2009-10 793.81 400.23 313.37 2008-09 3422.17 420.72 145.5 2007-08 349.95 408.15 181.58 2006-07 482.53 385.28 199.67

a) Cash to Current Asset Ratio (1/2)

1.98

8.13

0.86

1.25

b) Cash Turnover in (365/3) days

46 days

65 days

60 days

112 days

Interpretation :In current assets cash is the most significant and the least productive asset that a firm holds. It is significant because it is used to pay the firms obligation. Here we can see that the year 2009-10 cash turnover is 46 days which is low as compare to previous year. The company has to extend its creditors credit policy period so they can able to payable the bills.

From the study I come to know there is net decrease in working capital. It was observed that sources and application are managed in J K Paper Ltd.

WORKING CAPITAL OPERATING CYCLE :-

YEAR 2009-10 Raw material conversion period 67 days Work in progress conversion Period Finished goods conversion period Gross Operating cycle 10 days 13 days 16 days 13 days 3 days 4 days 11 days 4 days 2008-09 41 days 2007-08 111 days 2006-07 66 days

109 days 88 days

191 days 125 days

Net Operating Cycle

61 days 50 days

105 days

61 days

RATIO ANALYSIS :YEAR 2009-10 Current ratio Net working capital ratio Liquidity ratio Working capital turnover ratio Stock turnover ratio Debtors turnover ratio 2.17 : 1 1.52 : 1 1.48 : 1 6.02 : 1 10.6 : 1 8.60 : 1 2008-09 2.75 : 1 1.78 : 1 1.99 : 1 4.74 : 1 7.09 : 1 5.40 : 1 2007-08 2.39 : 1 1.41 : 1 1.68 : 1 3.16 : 1 4.78 : 1 3.23 : 1 2006-07 2.17 : 1 1.21 : 1 1.63 : 1 4.49 : 1 6.77 : 1 4.50 : 1

INVENTORY MANAGEMENT :-

YEAR 200910 Inventory Conversion Period 45 days 2008-09 70 days 2007-08 113 days 200607 81 days

RECEIVABLE MANAGEMENT :-

YEAR 2009-10 2008-09 2007-08 2006-07

Debtors collection period

29 days

30 days

53 days

41 days

CASH MANAGEMENT :YEAR 2009-10 Cash collection period 46 days 2008-09 65 days 2007-08 60 days 2006-07 112 days

From the working capital management, I have found that it is very difficult task to manage working capital in such big organization. Inventory conversion period shows a downward trend for year 2009-10 because the average inventory holding period has been decrease and also the cost of goods increase. From the data available we can see that there is very big fluctuation in net working capital and for that JK Paper Ltd., have to improve the method of maintaining working capital. JK Paper Ltd., strongly follows the credit policy and so that they are able to recover their receivable which is good sign. Liquidity position of a company can be ensured by current ratio, it can be said that if the ratio is 2 : 1 then the companys liquidity position is sound.

In case of JK Paper Ltd., while analysis of data from last four financial years, it arrived that the company have more than double current assets compare to current liabilities.

Net operating cycle period is increased in the financial year 2009-10. So here company not properly maintaining of raw material conversion period, while debtors conversion period and finished goods conversion period is maintain properly.

After the analysis I have come to the conclusion that the current assets should be managed efficiently.

After understanding and applying the Working Capital Management theory, my suggestion are as below : In case of JK Paper Ltd., they need to change their credit policy because in this case we can see that the average creditors credit period (Bills Payable) is 48 days which they need to negotiate with over creditors to increase the credit period.

So that they can increase working capital and get in smooth running of the business.

It is possible because JK Paper Ltd., is the company who is producing Board Paper and also has second biggest paper plant in over India.

We can say they have the Monopoly in Board Paper and also they are the market leader in case of paper plant.

So either they can increase the period of creditors credit period or decrease the debtors credit period, they can shorten collection period.

The Gross working capital is increasing over the years 2009-10 but the major proportion of current assets comprise of inventories. The company should try to reduce investment in inventory.

Here, raw material conversion is increase which should be decreased.

 Where finished goods conversion is decrease which is good sign. Here, company should increase its credit period by this they can able to pay the bills to their creditors properly. From the above data we can say that there is decrease in net working capital which company has to improve. After completing six weeks training I am able to understand and learn different finance strategy, accounting practices and

procedures. I can also develop good interpersonal skills and managerial skills. With the help of this training I can get good exposure of real life situation.

Name of Book

Author

Publisher

Financial Management

I. M. Pandy

Vikash Publication Tata McGrawhill S. Chand & Publication

Financial Management

Khan & Jain

Management Accounting

Pillai & Baghavathi

Annual Reports of Company http://www.google.com http://www.jkpaper.com