WORKING CAPITAL OF VIM DYE CHEM

Particulars

2013(Rupee

2014(Rupee

2015(Rupee

s in Lacs)

s in Lacs)

s in Lacs)

Inventories

1320.87

1538.22

1570.55

Debtors

926.02

1326.32

1240.60

Cash & Bank Balances

7.93

3.59

59.85

Other Current Assets

12.58

19.03

28.15

Loans & Advances and Others

73.76

76.48

56.70

Total Current Assets

2341.16

2963.64

2955.85

Current Liabilities

1857.78

2503.36

2328.85

Net Working Capital

483.38

460.28

627.00

CURRENT ASSETS

Less

working capital
700
600
500
400

Column2

300
200
100
0

2013

2014

2015

the working capital is increasing every year so it is good for the company, which is
necessary for running the business smoothly.
Working Capital management is a significant facet of financial management. Its importance
stems from two reasons: Investment in current assets represents a substantial portion of total
investment.
Investment in current assets and the level of current liabilities have to gear
quickly to changes in sales. To be sure, fixed assets investment and longterm financing are also responsive to variation in sales. However, this
relationship is not as close and direct as it is in the case of working capital
components.

The objective of working capital management is to maintain the optimum balance of each of the
working capital components.
Working capital analysis has two procedures:

i.

Ratio analysis can be used to monitor overall trends in working capital and to identify
areas requiring closer management.

ii.

The individual components of working capital can be effectively managed by using

various techniques and strategies.

Financial ratio analysis calculates and compares various ratios of amounts and balances taken
from the financial statements.

The main purposes of working capital ratio analysis are:

To indicate working capital management performance; and
To assist in identifying areas requiring closer management.

Three key points need to be taken into account when analyzing financial ratios:

The results are based on highly summarized information. Consequently, chances are
present that situations which require control might not be apparent, or situations which do
not warrant significant effort might be unnecessarily highlighted;
Different departments face very different situations. Comparisons between them, or with
global "ideal" ratio values, can be misleading;
Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable
results are usually significant.
CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital Gross and Net

Gross working capital refers to the firms investment in current assets. Current assets are the
assets which can be converted into cash within an accounting year and include cash, shortterm securities, debtors, (accounts receivable or book debts) bells receivable and stock
(inventory).

Net working capital refers to the difference between current assets and current liabilities.
Current liabilities are those claims of outsiders which are expected to mature for payment
within an accounting year and include creditors (accounts payable), bills payable, and
outstanding expenses. Net working capital can be positive or negative. A positive net working
capital will arise when current assets exceed current liabilities. A negative net working capital
occurs when current liabilities are in excess of current assets.

OPERATING AND CASH CONVERSION CYCLE

Operating cycle is the time duration required to convert sales, after the conversion of resources
into inventories, into cash. The operating cycle of a manufacturing company involves three
phases:
Acquisition of resources such as raw material, labor, power and fuel etc
Manufacture of the product which includes conversion of raw material into work-inprogress into finished goods.
Sale of the product either for cash or on credit.
We know that a firm should aim a maximizing the wealth of its shareholders. In its endeavor to
do so, a firm should earn sufficient return from its operations. Earning a steady amount of profit
requires successful sales activity. The firm has to invest enough funds in current assets for
generating sales. Current assets are needed because sales do not convert into cash
instantaneously. There is always an operating cycle involves the conversion of sales into cash.

COMPONENT OF WORKING CAPITAL

All current assets are the components of working capital. The following are the principal
components of current assets.
Cash management
Inventory
Bill receivables
Debtors
Prepaid expenses
Short term securities
These components are explained below as a cash management inventory management accounts
receivables

WORKING CAPITAL

Working capital is concern with the many problem of decision making like the investment in
various current asset, the regard to firms liquidity and trade-off between risk and profitability.

Management of Cash Balance

The Cadmach machinery done buying and selling on cash or credit to its regular costumer
and they do many transactions thorough the bank. Its cash policy is managed in such a way
that a firm will never fell scarcity of cash. The firm manages its payment very carefully.

Management of Account Receivable

Cadmach machinery sales its product on cash. Collecting against Performa invoice, prior
dispatching the machines. If the unit sales on credit the payment will be made within short time
period.

Management of Inventories
Cadmach machinery purchases the raw material on cash and credit basis. And also selling
finish goods on cash and credit basis. Due to multi product and long process period raw
material, work-in-process, finished goods inventory is maintained as bellows;
Raw material - 2-3 months
Work-in-process 3-4 months
Finished goods - 8-10 days

SOURCES OF WORKING CAPITAL

TRADE CREDIT
Trade credit expenses by the suppliers of goods and receives into normal courses of transaction.
Credit from supplier for payment of raw material is 3 month.

BANK CREDIT
Cadmach machinery has cash credit for working capital with bank of Baroda.

 ADVANCES FROM CUSTOMERS

Company books the order up to 10 to 50 % advances from customers. Deafens upon the clients
and product.

INTRODUCTION
A firm is required to invest in current assets for a smooth uninterrupted production
and sale. How much a firm will invest in current assets will depend on its operating
cycle. Operating cycle is defined as the time duration which the firm requires to
manufacture and sell the product and collect cash.
Thus operating cycle refers to the acquisition of resources, conversion of raw
materials into work in process into finished goods, conversion of finished goods into
sales and collection of sales. Larger the operating cycle, larger the investment in
current assets. In practice, firms are allowed to acquire resources on credit to that
extent. Firms need to raise working finance is reduced. The term net operating cycle
is used for the difference between operating cycle (and gross operating cycle) and the
payment deferral period (or the period (for which creditors remain outstanding).

MEANING
There is a difference between current and fixed assets in terms of their liquidity. A
firm requires many years to recover the initial investment in fixed assets such as
plant and machinery or land and buildings. On the contrary, investment in current
assets is turned over many times in a year. Investment in current assets such as
inventories and debtors (account receivables) is realized during the firms operating
cycle which is usually less than a year.

What is an Operating Cycle?

Operating Cycle is the time duration required to convert sales after the conversion
of resources into inventories.
The operating cycle of a manufacturing company involves five phases:

1. Conversion of cash into raw materials.

2. Conversion of raw materials into work in progress.
3. Conversion of work in progress into finished goods.
4. Conversion of finished goods into receivables.
5. Conversion of receivables in cash.

In case of trading firm the operating cycle will include the length of the time
required to convert-

 [1.] Cash into inventories. &

[2.] Inventories into receivables.

ADVANTAGES OF OPERATING CYCLE

It helps management in maintaining the optimum liquidity at all time in the firm.
It reduces overall cost of servicing current assets and quinsy quaintly improving the
profitability to concern.
Operating cycle helps management to plan in the production in units in advance.
It helps in taking a decision about funds to be blocked in permanent.
It helps measures the precise period of the working capital cycle & determines and
shows crystal clearly the amount required for each component of working capital.
Operating cycle is also helps the management n controlling and maintaining a
balance between different working capital components.

FACTORS AFFECTING OPERATING CYCLE

There are various factors affecting of operating cycle these are as follows:

It is a components procedure and only technical people can understand it.

 Its consumer time and money to prepare In advance.

A certain degree of forecasting is necessary which may not make the forecasts
totally.
A degree of subjective ness is in horrent in the process of preparation of operating
cycle.

OBJECTIVE OF THE STUDY

Research objective help me to achieve the task of operating cycle easily. The
research on operating cycle, project can be evaluated based on research objective of
operating cycle. Thus, it is at most important to define the research objective on
operating cycle.

To find out the operating cycle process on income of product holding per day or
month at both the level primary and secondary.
To find out the short period of operating cycle by the description of product on the
respective group.
To find out the profitability income from the process of operating cycle of the
product.
To find out the serviced provided in collection in operating cycle of a product
holding per day of month.
To find out the contribution on collection charges of a particular product on the
respective group.
One of the objectives of operating cycle research is also to find out the total time of
recovery of cash from investment of cash.

 To find out the working capital requirement.

SCOPE OF THE STUDY

The term scope over here is dictated that extend of the area of data related to subject
to subject matter that something deals with or to which it is relevant in the operating
cycle.
The main scope over here is to observing or examining of the operating cycle.
The scope of research in operating cycle is like debtors collection research, creditors
collection research, raw-material storage period research, etc.
In present day complex business environment research has several applications
which have developed specific approach with special future.
Also one of the scope is to maintain the finished stock storage period research,
export research, transport services, etc.

RESEARCH METHODOLOGY
WHAT IS RESEARCH?
Research is done in to gain some knowledge so as to it may aid in understanding the
information gathered on specific topic. It is a scientific & systematic topic way of
understanding information on specific investigation to understanding the cause and

effects as well as the reasons through investigation. It is an academic activity & it is

to be used in technical activity.
Today complication and marbles both have expanded. The company every now and
then cannot afford to undertake research activities when it perceiver that something
is going wrong or a particular problem, so research activity cannot be summarized in
a sentence.
Thus, research is any systematic attempts to get information useful in solving problem &
making decision.

There also firms operating cycle is to be research by a qualified researcher. Here at

first research in the previous data which are to be disrupted or collect the whole
process or period of operating cycle of a firm. They finding problems its the period
of operating cycle is more than the other than what reasons behind it. After they
select an objective to solve those problems for making short period of the operating
cycle. They also research on whole collection like debtors collection period, rawmaterial storage period, finished stock storage best short period of an operating cycle
and trying to make an operating cycle of a firm in a very best short period. In going
profitability in every year of a firm, and for this purpose research is being use in an
operating cycle of a firm.

TYPES OF RESEARCH VIEW

There are various types of research these are as follows:

Descriptive vs. Analytical.

Quantitative vs. Qualitative.
Conceptual vs. Empirical.
In my research study I have used descriptive vs. analytical research. This research
includes surveys and fact finding enquires of different kinds. The major purpose of
descriptive research is descriptive of the state of affairs as it exists at present. The
main characteristic of this research is that the researcher has no control over the
variables; he can only report what has happened or what is happening. The methods
of research utilized in descriptive research are survey methods of all kinds including
comparative and co relational methods.

In analytical research on the other hand, I have used facts or information already available
and analyze there to make a critical evaluation of the material.

METHODOLOGY USE IN COMPANY

Research methodology is not only the research methods but also consider the logic
behind the methods use in the context of our research stud and explain why are using
a particular method or technique and why are not using others so that research result
are capable of being evaluate either by the researcher himself or by others.
Source of Data
The data collected for the study was primary in nature as well as secondary data.
Research Instrument
Research tools were like depth interview of company employees.
Sample Unit
Data collection from various departmental heads including Managers and executives.
Sampling procedure
Non-probability judgment sample was selected for accurate information.
RESEARCH DESIGN

A research design is a type of blueprint prepared depending on various types

of blueprints available for the collection, measurement and analysis of data. A
research design calls for developing the most efficient plan of gathering the needed
information. The overall an operational pattern or framework of this project that
stipulates what information is to be collected from which source?
Different research design can be conveniently described, if we categorize them as,
Research design in case of formulates research studies.
Research design in case of descriptive and diagnostic.
.
DATA COLLECTION
In dealing with any real life problem it is often found that data at hand are inadequate,
and hence, it becomes necessary to collect data that are appropriate data.
There are two ways of collecting the appropriate data.

[1.] Primary data.

&
[2.] Secondary data.

Primary Data
The primary source means the data are collected for the first time directly from the
sample or population as per the requirement. This are collected from consumers, salesman
& middleman through field surveys or observation.
In this project report I have used secondary data because this is secondary research.

Secondary Data

The secondary data source are those which have already been collected by someone else
and which have already passed through statistical process like information available from
newspaper, magazine, journals, websites, book or periodical reports, data services and
computer data, etc As the gathering of secondary data is easier and less time
consuming. This may be much more convenient and economical than assigning a staff
person to do it.
Here in secondary data of operating cycle is done by me with the help of server method.
Server means examine and record the future data to produces or given a description about
the particular topic. So I have also choose the server method of operating cycle for data
collection to identify the last 3 years data and given an idea for choosing short period for
the next year.