A STUDY ON WORKING CAPITAL MANAGEMENT AT

SUNDRAM FASTENERS LTD, CHENNAI WITH SPECIFIC

FOCUS ON INVENTORY CONTROL OF RAW MATERIALS
By

R.SATHIYA RAMANAN
Reg.No. 71103631041
Of

KONGU ENGINEERING COLLEGE,

Perundurai, Erode 638 052.

A PROJECT REPORT
Submitted to the

FACULTY OF MANAGEMENT SCIENCES

In partial fulfillment of the requirements

For the award of the degree
Of

MASTER OF BUSINESS ADMINISTRATION

JUNE, 2005

ii

BONAFIDE CERTIFICATE
Certified that this project report titled A STUDY ON WORKING
CAPITAL MANAGEMENT AT SUNDRAM FASTENERS LTD, CHENNAI WITH
SPECIFIC FOCUS ON INVENTORY CONTROLOF RAW MATERIALS is the
bona fide work of Mr. R.SATHIYA RAMANAN who carried out the research
under my supervision. Certified further, that to the best of my knowledge the work
reported herein does not form part of any other project report or dissertation on
the basis of which a degree or award was conferred on an earlier occasion on
this or any other candidate.

DIRECTOR

SUPERVISOR

Viva Voce held on ___________________

Internal Examiner

External Examiner

iii

ABSTRACT
The study of the research entitled A study on working capital
management at Sundram Fasteners Ltd, Chennai with specific focus on
inventory control of raw materials. The details regarding the history, finance and
inventory policies of the company were collected through discussion with the
company officers. The secondary data collected from records, reports and profile
of the company. Data analysis was carried out and findings are listed down.
Suitable suggestions have been provided.
The tools used in this study where Liquidity ratios, inventory turnover ratio,
debtors turnover ratio, current asset turnover ratio, cash to current asset ratio,
receivables to current assets ratio, Inventory holding, Average credit period given
to the customers, Average period of credit availed from supplier and Operating
cycle, all these for three years and ABC analysis for the one year.
The company is following a liberal credit policy with respect to its
customers. On the other hand, the credit enjoyed from its supplier has come
down significantly. This has resulted in increase in the operating cycle and
working capital requirements. The study recommends tight credit norms for better
working capital management.
ABC analysis of raw materials has been carried out. It is recommended
that by tightening the norms for B class items and relaxation of norms for C
class items, inventory control management can improve.

iv

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v
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vi

ACKNOWLEDGEMENT
I am greatly indebted to many personalities for their kind help,
encouragement and guidance for me to prepare and finish this project
successfully. I take this opportunity to thank all of them.
I here by acknowledge my sincere gratitude to the Kongu Vellalar
Institute of Technology Trust and to the principal of Kongu Engineering College
Dr.A.M.NATARAJAN B.E., M.Sc.,(Engg.) Ph.D., and the management for
providing me an opportunity to undergo M.B.A Degree course and to undertake
this project work.
I wish to express my deep sense of gratitude to our Director Prof.
P.SURESH KUMAR M.Sc.,(Agri)M.B.A., I wish to express my hearty thanks to
Mr.R.SOMASUNDARAM M.E., PGDM., PGDFTM., faculty of management
studies for his valuable advice and guidance to carryout the project work
successfully.
I express my sincere thanks to Mr.S.G.NARAYANAMOORTHI,
senior officer Finance, SUNDRAM FASTENERS LTD, PADI CHENNAI, for his
kind guidance in the project.
I also extend my thanks to all the other faculty members for sending
their helping hands to complete this project effectively. Finally, I would like to
profoundly thank all the respondents who helped me in collecting the necessary
information in completing this project.

vii

TABLE OF CONTENTS
PARTICULARS

PAGE NO.

ABSTRACT

iii

LIST OF TABLES

viii

LIST OF FIGURES
LIST OF ABBREVIATIONS

ix
ix

CHAPTER 1 INTRODUCTION
1.1 INTRODUCTION OF THE STUDY

1.2 LITERATURE REVIEW

1.3 PROFILE OF THE COMPANY

2
14

CHAPTER 2 OBJECTIVES, SCOPE AND LIMITATIONS

2.1 OBJECTIVES FOR THE STUDY

18

2.2 SCOPE OF THE STUDY

2.3 LIMITATIONS OF THE STUDY

19
20

CHAPTER 3 RESEARCH METHODOLOGY

3.1 RESEARCH DESIGN

21

3.2 DATA COLLECTION

21

3.3 PERIOD OF STUDY

21

CHAPTER 4 ANALYSIS AND INTERPRETATIONS

22

CHAPTER 5 INVENTORY CONTROL OF RAW MATERIALS

IN SFL FOR THE YEAR 2003-04
CHAPTER 5 FINDINGS, SUGGESTIONS AND CONCLUSION
APPENDIX
REFERENCES

38
46

viii

LIST OF TABLES
TABLE
No.
4.1.1.1

CURRENT RATIO

22

4.1.2.1

QUICK RATIO

23

4.1.3.1

CASH RATIO

24

4.2.1.1

INVENTORY TURNOVER RATIO

25

4.2.2.1

DEBTORS TURNOVER RATIO

26

4.2.3.1

CURRENT ASSET TURNOVER RATIO

27

4.3.1.1

CASH TO CURRENT ASSETS RATIO

28

4.3.2.1

RECEVABLES TO CURRENT ASSETS RATIO

29

4.3.3.1

INVENTORY TO CURRENT ASSETS RATIO

30

4.4.1

TITLE

PAGE No.

INVENTORY HOLDING EXPRESSED AS

WEEKS OF CONSUMPTION

4.5.2

31

AVERAGE CREDIT PERIOD GIVEN TO

CUSTOMERS

4.6.1

32

AVERAGE PERIOD OF CREDIT AVAILED

FROM SUPPLIERS

33

4.7.1.1

STATEMENT OF WORKING CAPITAL

34

4.7.2.1

ANALYSIS OF WORKING CAPITAL

35

4.7.3.1

OPERATING CYCLE CALCULATION FOR SFL

36

5.1.1

ABC ANALYSIS

38

5.1.3

CLASS A-ITEMS OPENING AND CLOSING

BALANCE

5.1.4

41

CLASS B-ITEMS OPENING AND CLOSING

BALANCE

5.1.5

42

CLASS C-ITEMS OPENING AND CLOSING

BALANCE

5.2.1
5.2.3

43

INVENTORY HOLDING FOR A CLASS,

CLASS AND C CLASS ITEMS

44

INVENTORY HOLDING B AND C CLASS ITEMS

45

LIST OF FIGURES

ix

Chart
No.

Particulars

Page

4.1.1.2

CURRENT RATIO

No.
22

4.1.2.2

QUICK RATIO

23

4.1.3.2

CASH RATIO

24

4.2.1.2

INVENTORY TURNOVER RATIO

25

4.2.2.2

DEBTORS TURNOVER RATIO

26

4.2.3.2

CURRENT ASSET TURNOVER RATIO

27

4.3.1.2

CASH TO CURRENT ASSETS RATIO

28

4.3.2.2

RECEVABLES TO CURRENT ASSETS RATIO

29

4.3.3.2

INVENTORY TO CURRENT ASSETS RATIO

30

4.4.2

INVENTORY HOLDING EXPRESSED AS

WEEKS OF CONSUMPTION

4.5.2

AVERAGE CREDIT PERIOD GIVEN TO

CUSTOMERS

4.6.2

31
32

AVERAGE PERIOD OF CREDIT AVAILED

FROM SUPPLIERS

33

ANALYSIS OF WORKING CAPITAL

35

5.1.2

ABC ANALYSIS

40

5.2.2

INVENTORY HOLDING FOR A CLASS, B

4.7.2.2

CLASS AND C CLASS ITEMS

5.2.3

44

INVENTORY HOLDING B CLASS AND C

CLASS ITEMS

LIST OF ABBREVIATIONS

45

SFL - SUNDRAM FASTENERS LIMITED

HNF HOT NUT FORMER
SSU SMALL SCREWS UNIT
SPM SPECIAL PURPOSE MACHINES
OEM ORIGINAL EQUIPMENTS MANUFACTURER
RCD RADIATOR CAP DIVISION
GM GENERAL MANAGER
SGM SENIOR GENERAL MANAGER
AGM ASSISTANT GENERAL MANAGER
USI USER SUPPLIER INTER FACE
D & D DASIGN AND DEVELOPMENT
SM SENIOR MANAGER