Name of The Student

VandanaBinwani

Program

MBA (G), Section A

Class Roll Number

A14

Enrolment Number

A0101915232

Name of Faculty Guide

Dr.Ranjit Roy Ghatak

Case Study Title

ICFR, WORKING CAPITAL MANAGEMENT

AND FUTURE PROFIT PREDICTION: A STUDY
ON MINDARIKA PVT. LTD.

Student Declaration
I declare (a) That the work presented for assessment is my own, that it has not previously
been presented for another assessment and that my debts (for words, data, arguments and
ideas) have been appropriately acknowledged (b) That the work conforms to the guidelines
for presentation and style set out in the relevant documentation. (c) The Plagiarism as taken
by Turntinis 5 %.

Date:
VandanaBinwani
(A0101915232)

Dr.Ranjit Roy Ghatak

Assistant Professor
Department of Operations Management

ICFR, WORKING CAPITAL MANAGEMENT AND FUTURE PROFIT

PREDICTION: A STUDY ON MINDARIKA PVT. LTD.

Abstract:
A well designed integrated control is expected to facilitate the efficiency and effectiveness of
operations in the business and also helps to safeguard the assets of the company. ICFR is a
procedure intended to give confirmation with respect to the preparation/arrangement of
statement of finance and dependency of financial reporting.
A well crafted and deployed management of working capital is forecasted to contribute
positively to enterprise to make esteem/value.
Working Capital is the amount invested in components of current assets that are
inventories, receivables, cash and cash equivalents, loans & advances to third parties and
marketable securities. Sufficient working capital must be assured by the management.
Insufficient working capital will bring about income issues like surpassing overdraft limit,
neglecting to pay the suppliers on time, and being unable to claim discounts for prompt
payment.
The financial prediction is necessary for operational planning to help the business to be
successful. Companys can be ready to face problems coming up in future for their business.
The study concentrates on integrated control imposed on operations of the business, main
components of working capital like inventory management, debtors management and
payables management and future prediction of profits of the company. The tool used in this
study includes ratio analysis and trend analysis.

Key words :
Working Capital Management, ICFR, Future Profit Prediction, Working Ratios, Return On
Investment.

Introduction:
Mindarika Pvt. Limited, is Indias largest automotive switch manufacturer. It is a supplier to
all original equipment manufacturer (OEMs) in 4 wheeler and commercial vehicles segment
with plants in Manesar, Pune and Chennai.
Under Internal Financial control, responsibility of directors states that under listed company
directors are required to put down IFC which is to be trailed by the organisations and that
such controls are sufficient and successfully working. Under ICFR , report of auditors
should state that their views regarding adequacy of IFC system in place and operating
efficiency. Under companies act 2013, ICFR is a procedure intended to give confirmation
with respect to the preparation/arrangement of statement of finance and dependency of
financial reporting for external purposes as indicated by the accounting principles for
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generally acknowledged. A company's ICFR comprises those policies and procedures that
1. Are related with the maintenance of records in which details are accurately and
fairly shows the transactions of assets of the company;
2. provide affirmation reasonably that exchanges are recorded as important to permit
financial statements preparations as per the acknowledged accounting standards,
furthermore receipts and uses of the organization are being made just as indicated by
the administration and directors authorisations; and
3. provide affirmation reasonably regarding timely deductions of unapproved buy,
use, or arrangement of the organization's assets that could remarkably affect the
money related proclamations.
Regardless of how viable internal control are, can furnish only with a reasonable
confirmation and not total affirmation on accomplishing organizations operational and
monetary reporting targets. There are sure constraints, such as :

internal controls are not imposed at transactions of abnormal nature, for example, the
human blunder. Carelessness, misunderstanding of instructions and mistakes of
judgements are ought to arise.
There is a possibility to avoid internal controls through collaboration with workers or
with parties outside the association .
There is a possibility that the person can misuse that internal control for which he/she
is responsible, for example, a individual of administration taking an internal control as
most conspicuous than any other consideration.
Judgements required in the financial statements preparation are manipulated by
management.

Working Capital Management: Abundance of current resources over current liabilities is

known as working capital.
Working capital management is worried with the issues emerging while endeavouring to deal
with the current assets, the current liabilities and their relationship. The accounting strategy of
management focus is to maintain adequate levels of current assets and current liabilities.
Administration must ensure that a business ought to have adequate working capital. Deficient
working capital will prompt cash flow issues like surpassing overdraft limit, neglecting to pay
suppliers on time and etc. Over the long haul, with deficient working capital, firm won't have
the capacity to meet its current obligations and will be compelled to close down trading
regardless of the possibility that it stays profitable on sheets/papers. The administration of
working capital helps us to keep up the working capital at desired level by managing with the
current resources and current liabilities. Proper balance between risk, profitability and
liquidity of the firm can be maintained with the help of WC management as the current
liabilities are paid off in time which as a result helps in raw material availability reducing
delay in production process.
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Liquidity Versus Profitability : A Risk Return Trade Off

The working capital policy keep up and provide adequate liquidity to the organisation. The
decision on the working capital amount to be maintained include a trade-off because
extensive working capital reduces the risk of liquidity of the firm and can negatively affect
the cash flows. The organisation should keep up adequate cash balances or other liquid assets
so that it never confronts liability payment problems. The risk - return- involved in the
administration of the organization's working capital is a trade-off between the organisations
liquidity and profitability. The organisation diminishes the chances of (i) production
shutdowns and lost sales from inventory shortages and (ii) the commitment to pay creditors
on time by keeping up a huge investment in current assets such as cash, stocks, etc. However,
as the organisation increases its investment in working capital, the organisation return on
investment reduces as the profits are unaltered.
The organization utilization of current liability versus long term debt likewise includes a risk
return exchange-off. The more prominent the organization depend on the short term debt or
current liabilities to fund its current assets, the more prominent the risk of low liquidity other
things being steady. On the other hand, it can be great utilising current liability as it is
adaptable method for financing and is less immoderate. An organization can decrease its risk
of low liquidity using long debts at the expense of return on investment. The risk return
exchange-off includes an increase risk of low liquidity and the profitability.
The effect of changing levels of current assets on risk - return- can be seen as follows:
If the level of current assets company is increased i.e. the fixed assets will reduce by the same
amount, the organization's liquidity position will increment and it will have the capacity to
meet its payment commitments . In the meantime profit diminishes as the level of fixed assets
has diminished. As such, when the level of current resources is increased, the organization's
liquidity increments, but there is always a cost connected with increased liquidity. More
funds will be obstructed in current resources which are less beneficial and in this way the
profitability of the business will endure .
Now, in order to increase profitability, the organisation diminishes the current assets and thus
increases the fixed assets. Thus, corporate profitability will increment, but liquidity will be
diminished and the organisation will confront more risk of insolvency. The Risk of Return
concept can be summarized as : When liquidity increment, the profitability is diminished and
the risk of insolvency is also diminished. However, when restricted liquidity is there,
profitability increment , the risk of insolvency also increment. Thus, it can be said that the
profitability and risk are highly correlated. The financial manager needs to keep up a balance
among risk and profitability as neither too much risk nor excess profitability is good for the
organisation.
The impact of current liabilities change on the risk-return position of the firm can be
exhibited :
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If the ratio of short -term liabilities to aggregate liabilities increment, the profitability will
increment and the risk also increment. The profitability will increment because of lower costs
connected with the utilisation of more short-term funds and less long-term funds . As shortterm funds (current liabilities) is less expensive than long-term funds , the total cost will
diminish resulting from higher profits. However, as current liabilities increment, then net
working capital increases the overall risk.
Similarly , the reduction in current liabilities will reduce the profitability of the company as a
larger amount of funding will grow with more and more expensive long-term sources of
funds. However , there will be a corresponding decrease in risk also as the net working
capital
increments
because
of
the
decline
in
current
liabilities.
Therefore, the current levels of assets and liabilities affect the composition of the business
risk and profitability. A financial manager should balance these effects and try to achieve a
sound structure of the organisation working capital.

Data Analysis and Interpretation:

Working capital trend analysis

WC INDICES
0
2011-12
-20

2012-13

2013-14

2014-15

-40

WC INDICES

-60
-80
-100
-120

Analysing the graph, it can be said that that the working capital is decreasing from the year
2011-12 to 2013-14. In the year 2011-12, company has funded current assets by their
suppliers where as in the year 2012-13 company have further funded current assets by their
suppliers or have transfer their funds in purchase of fixed assets instead of paying to their
creditors. In year 2013-14, as current liabilities have been decrease compared to last year
because company has paid off some amount to their creditors. In year 2014-15 , there is an
increase in working capital because current assets have been increased and current liabilities
have been decreased.

Return On Investment Or Return On Capital Employed

ROI
4.5
4
3.5
3

ROI

2.5
2
1.5
1
0.5
0
2011-12

2012-13

2013-14

2014-15

From the year 2011-12 to 2013-14 the return on investment is reducing because net sales of
the company is increasing but net profits are decreasing as raw material price is on hike. But
in the year 2014-15, the return on investment increased as net profits increases to rs.
859,03,425 in year 2014-15 from rs. 352,93,447 in year 2013-14. Therefore it can be said that
the company utilised their funds most efficiently in the year 2014-15.

Working capital rations analysis and correlation with return on

investment (ROI)
1. Inventory turnover ratio (ITR)

ITR
9
8.8
8.6
ITR

8.4
8.2
8
7.8
7.6
2011-12

2012-13

2013-14

2014-15

It can be seen in the graph that in 2012-13 the inventory turnover increases then decreases in
the year2013-14 and then again increases in the year 2014-15. ITR shows that maximum
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sales is achieved with minimum amount invested in the inventory. Higher inventory turmoil
in the year 2014-15 shows that sales have been increased and the company have managed
their inventory efficiently.

Correlation between ITR and ROI

Year

2011-12

2012-13

2013-14

2014-15

ITR
ROI

8.1558
3.2766

8.5112
2.2031

8.2681
2.0114

8.9179
4.0011

r =

0.554046124

Correlation between the inventory turnover ratio and return on investment is moderately
related and is positive. Correlation between them is 0.554 which means they are directly
correlated.
2. Receivable Turnover Ratio (RTR)

RTR
9.9
9.8
9.7
9.6
9.5
9.4
9.3
9.2
9.1
9
2011-12

RTR

2012-13

2013-14

2014-15

As seen From the above graph it can be said that debtor turnover ratio increased in the year
2012-13 then decreased in the year 2012-14 and then again increased in 2014-15 to 9.753.
Company must have decreases their average debtors so that there can be increase in
receivable turnover ratio. Increase in debtor turnover ratio indicates that the funds are being
collected more quickly in the year 2012-13 and 2014-15 as compared to the year 2011-12 and
2013-14.

Correlation between RTR and ROI

Year

2011-12

2012-13

2013-14

2014-15

RTR
ROI

9.2801
3.2766

9.802
2.2031

9.4279
2.0114

9.753
4.0011

r =

0.079607783

Relationship between receivable turnover ratio and ROI is not good. Company can face
problems in future in case debtors turned into bad debts. As debtors are increasing which
implies liquidity is increasing but as ROI is decreasing that implies profits on investment is
not there. Debtors are playing significant role in letting funds available to the company but
profits on the investment of the company are not much available.
3. Current Ratio

current ratio
1
0.98
0.96
current ratio

0.94
0.92
0.9
0.88
0.86
2011-12

2012-13

2013-14

2014-15

In the year 2014-15, efficiency of the company to meet short term current liabilities is high.
Short term position of the company is strong as all components of the current assets is
increasing in year 2014-15. In rest of the year company is almost there to achieve ideal ratio
i.e.1:1. The current ratio 1 : 1 shows that funds available from the current assets are sufficient
to pay current liabilities.

Correlation between Current ratio and ROI

Year
current ratio
ROI

2011-12
0.9079
3.2766

2012-13

2013-14

0.9101
2.2031

0.901
2.0114

r =

2014-15
0.9785
4.0011

0.825655258

There is a strong correlation between the current ratio and return on investment. Correlation
between them is 0.825. This implies current assets must be increase so that higher return on
investment can be earned.

Integrated Control Imposed On A System Flow By Mindarika Pvt. Ltd.

Asset requirement assessed by department
Capital indent Justification report prepared by
department and submitted to Accounts for
verification
(NO)
CHECK

(YES)
Approval of CIJ as per Policy

1. 3 quotation are attached

2. If three quotation are
not attached, is
justification attached
3. Budgeted or
Unbudgeted

Copy of approved CIJ given to concern department

& original retained by Accounts for PO release
Concern Department Prepare Purchase requisition
& forward to finance for approval
(NO)
CHECK

1. Is PR raised against
approved CIJ
2. Quantity as per CIJ or
not

(YES)
Asset code is created by Accounts and linked with
PR
Purchase order is created
(NO)
Tax Code Verification
CHECK

(YES)
Order to Vendor

Receipt of goods at Gate

Gate entry done

GRN by store & forward to finance for processing

Whether Cenvatable or not

CHECK

(YES)

Cenvat is Taken

( NO)
MIRO Entry is done

After posting invoice CIJ copy, Purchase order and

Invoice placed in file

FUTURE PROFIT PREDICTION AND ANALYSIS

For operational planning to help the business to be successful, proper financial prediction is
necessary. Companys can be ready to face problems coming up in future for their business.
A P&L account forecast help to predict how much amount business will be earning from
there sales and also profits earning of the business. In favourable times, future profit
prediction ensures that there will be enough amount coming in to business. Therefore, it can
exceed the costs to provide the goods/services to earn profits. In unfavourable times, future
profit prediction can play an essential role. Business can plan to turn the unfavourable
conditions to some ward towards favourable conditions. It can also help business to do
efficient planning so that business could return to breakeven point where it can able to
survive up till better conditions.
Future profit projection done for two years of MINDARIKA PRIVATE LIMITED. Two
consecutive year for which future projection is done are 2015-16 and 2016-17 . balance sheet
as well as profit and loss account have been predicted. To start with first P&L account is
projected and then balance sheet of these years are matched. Maximum components of the
year 2015-16 and 2016-17 are predicted by trend analysis of last 4 years. In balance sheet, all
the components are projected on the basis of trend analysis of last four years except three
components which are trade payables, sundry debtors and inventories. These three
components are projected with the help of formulae.

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To predict future trade payables, formula is :

Trade payables = raw material consumed / 365 *68
Raw material consumed per day will be multiplied by 68 days because it is in companies
policy that company should try not to keep creditors for more than 68 days.
To predict future sundry debtors , formula is
Sundry debtors = net sales / 365 * 43
Sales per day have been multiplied by 43 days because it is in companies policy that
company should try not to keep debtors for more than 43 days.
To predict future inventories, formula is :
Inventories = raw material consumed / 365 *68
Raw material consumed per day will be multiplied by 68 days because it is in companies
policy that company should try not to keep inventories for more than 68 days. They should be
used to produce finished goods as to purchase inventories borrowings have been taken so to
release that this 68 days limitation have be imposed.

CONCLUSION:
Controls imposed on various process of the organisation confirms that the preparation of
statement of finance and dependency of financial reporting are reliable as these controls are
facilitating operations to be effectively done. These controls also reduces the chance of risks
of material misstatement.
After studying the components of working capital management system of Mindarika pvt. Ltd.
Current and quick ratio throws a good light on the short term financial position and policy of
the company. Companys ability to promptly meet its short term liability is good. Therefore
we can conclude that company has a good liquid position. Company is competing well at the
domestic as well as the international level and it is among the leading automobile components
producers in the country only because of its proper management of finance, specially the
short term finance known as the working capital.

Questions:
1. What do you think integrated control do play important role in reducing risk of
mistakes done while preparing a financial report?
2. Does estimating future profit of a company is important? Why?
3. Correlation of Receivable turnover ratio and return on investment should be positive
and show strong relation. Comment?

References:
1. Dr. R.P. Rustogi, (n.d.), Fundamentals of Financial Management (9th edition), Haryana
(India), Taxmanns
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2. Dong. (2010). The Relationship between Working Capital Management and

Profitability: A Vietnam Case. Retrieved from
https://www.researchgate.net/publication/228618956_The_Relationship_between_Wo
rking_Capital_Management_and_Profitability_A_Vietnam_Case
3. Saswata Chatterjee .(2010). The Impact of Working Capital Management on the
Profitability of the Listed Companies in the London Stock Exchange. Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1587249
4. Company profile : Mindarika private ltd. Retrieved from
http://www.unominda.com/index.php?
option=com_content&view=article&id=21&Itemid=24

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