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ON
“WORKING CAPITAL ANALYSIS
OF COSMO FERRITES LIMITED” at COSMO
FERRRITES LIMITED Undertaken at, Jabli
No task is a single man’s effort. Any kind of job cannot be accomplished without the
assistance of others.
My sincere thanks to Mr. Puran Chand. Assistant Manager, Cosmo Ferrites Ltd,
Jabli. For his cordial support and cooperation throughout the course of my training
at their organization.
I thank the H.O.D of commerce department Dr. SARIKA MAHENDRU for providing
me with such wonderful opportunity.
I am obliged to the staff members of COSMO FERRITES LIMTED, JABLI, for the
valuable information provided by them in the respective fields. I am grateful for the
cooperation during the period of my report.
Lastly, I would also like to pay my sincere gratitude to my family, friends and all other
persons who encouraged and guided me throughout this project.
STUDENT DECLARATION
PROJECT COORDINATOR
TABLE OF CONTENTS
CHAPTER TITLE PAGES
CHAPTER 1 INTRODUCTION OF COSMO FERRITES LTD. 1-7
1.2 HISTORY
1.3 PRODUCT
1.4 APPLICATIONS
4.7 LIMITATIONS
CHAPTER 5 ANALYSIS AND INTERPRETATION OF DATA 36 - 51
BIBLIOGRAPHY
CHAPTER – 1
INTRODUCTION
1.1 COMPANY PROFILE
COSMO FERRITES LIMITED is one of the leading manufacturer and exporter of
SOFT FERRITES, was established in 1986 with its state of art manufacturing
facility in the foothills of Himalaya. Since Inception Cosmo has maintained
product and Quality leadership in both the Domestic and Export segments. With a
belief of constant growth and innovations, they upgraded their production
capacity from 500 MT to 3600 MT over the time and consequently are ranked
#1in India in terms of capacity.
The focus on quality, productivity and environment made it eligible for ISO
certifications ISO 9001:2008, ISO 14001:2004 & ISO/TS 16949:2009. All Input
Raw materials and manufactured Ferrite materials comply with RoHS norms as
per EU Standards and Epoxy coating material is UL94 V-0 approved.
The production facility is equipped with best German, Taiwan made equipment
supported by finest Indian Technical team. With over 300 employees involved in
production & dispatch, ensuring a high degree of quality control at every stage of
production. Its commitment towards adhering quality in product, process, and
parameters helps us in ensuring smile on customers face.
In 1981 visionary leader Mr. Ashok Jaipuria, put the first founding stone of Cosmo
Films marked the beginning of Cosmo Group. Cosmo Film is a pioneer of BOPP
manufacturing in India.
Later, in year 1986 second member of Cosmo Group - Cosmo Ferrites founding
stone was kept, adding another golden feather in Cosmo Group. Cosmo Ferrites
is also a pioneer of Soft Ferrites manufacturer in India.
BOARD OF DIRECTORS
The board of directors of the company comprises of an optimum combination of
Executive and Non Executive Directors headed by an Executive Chairman and
more than fifty percent independent directors.
SALES SHARE
Export 55%
Domestic (India) 45%
PRODUCT RANGE
MHz Ferrite Components (EE, EC, ETD, EER, EI, EFC, UU, TOROIDS,
EP, RM, PQ, Pot, Planar, PTS, I Bar, EFF, EVD and EED)
Pre-Calcined Ferrite Powder
ANNUAL CAPACITY
1.3 PRODUCT
About Soft Ferrites:
MINOR DEFECTS: These defects do not have a severe effect on the function
of wound component. Often, they have a negative effect on the visual
appearance of the product.
Cosmo lot acceptance criteria permit 0.4 AQL for minor defects.
TRACEABILITY
A 7-digit batch number written on each label stuck on each Box and allows to
get information about:
LIGHTING:
POWER CONDITIONING:
UPS/Inverter transformers.
Welding transformers.
Switch Mode Power Supplies.
Medical Electronics.
Telecom Power supplies.
Induction Heating Applications.
EMI FILTERS/CHOKES/SENSORS:
EMI/EMC Chokes.
Energy Meters.
SOLAR INVERTER
ULTRA-SONIC APPLICATIONS
AUTOMOTIVE:
EMI EMC Suppressions.
Sensors.
PROXIMITY SWITCHES
1.6 MISSION AND VALUES
MISSION:
COSMO FERRITE LIMITED endeavours to be an organization which delivers
outstanding Customer service, respect all individuals working with it, always
encourages Initiative & Innovation.
CORE VALUES:
1. FIXED CAPITAL
2. WORKING CAPITAL
Every business needs funds for two purposes-for its establishment and to carry
out its day to day operations.
Long term funds are required to create production facilities through purchase of
fixed assets such as plant and machinery, land, building, furniture, etc.
Investments in these represent that part of firms’ capital which is blocked on a
permanent or fixed basis and is called FIXED CAPITAL.
Funds are also needed for short term purpose for the purchase of raw material,
payment of wages and other day to day expenses, etc. These funds are known
as WORKING CAPITAL.
In short, working capital is the excess of current assets over current liabilities.
Funds required and acquired by a business may be invested in two types of
assets:
A. FIXED ASSETS
B. CURRENT ASSETS
Working capital is the difference between the current assets and the current
liabilities.
The basic calculation of the working capital is done based on the gross current
assets of the firm.
WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIES
Current assets are those assets which in the ordinary course of business can be
converted into cash within a short period of normally one accounting year.
Current liabilities are those liabilities which are intended to be paid in the ordinary
course of business within a short period of normally one accounting year.
COMPOSITION OF WORKING CAPITAL
CURRENT ASSETS
Current assets are those assets which in ordinary course of business can be
converted into cash within a short period normally one accounting period.
Examples of current assets are:
1. Cash in hand and bank balances.
2. Bills Receivables.
5. Inventories of stock, as
a. Raw materials,
b. Work in progress,
d. Finished goods.
7. Prepaid expenses.
8. Accrued Incomes.
CURRENT LIABILITIES
Current liabilities are those claims of outsiders, which are expected to mature for
payment within an accounting year.
1. Bills payable.
5. Dividend payable.
6. Bank overdraft.
2) Size of Business — Greater the size of a business unit, generally larger will
be the requirements of working capital. So, it is concern with the size of business
which may be measured in term of scale of operations.
8) Credit Policy — The firm's credit policy directly affects the working
requirements. If the firm has liberal credit policy, hence the more credit policy
period will be provided to the debtors, so this will lead to more working capital
requirements. With the liberal credit policy operating cycle length increases and
vice versa.
10) Price Level Changes — Changes in price level also affect the working
capital requirements. Generally, rise in prices leads to increase in working capital.
Other Factors
Operating efficiency.
Import policy.
Asset structure.
Management ability.
Importance of labour.
Banking facilities, etc.
ADVANTAGES OF ADEQUATE WORKING CAPITAL
Excessive working capital means idle fund which earn no profits for the
business and hence the business cannot earn a proper rate of return on its
investments.
It may result into overall inefficiency of organization.
Due to low rate of return on investment, the value of share may also fall.
The redundant working capital gives rise to speculative speculations.
ADEQUATE/ INADEQUATE WORKING CAPITAL
Every business needs adequate amount of working capital. to run its business
operations. It should have neither redundant or excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short
working capital positions are bad for any business. However, it is the inadequate
working capital which is more dangerous from the point of view of the firm.
Every business needs some amount of working capital. The need for working
capital arises due to the time gap between the production and realization of cash
from sales. There is an operating cycle involved in sales and realization of cash.
There are time gaps in purchase of raw material and production; production and
sales; and realization of cash.
However, a firm may acquire some resources on credit and thus defer payments for
certain period. In that case, net operating cycle period can be calculated as below:
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐫𝐞𝐜𝐞𝐢𝐯𝐚𝐛𝐥𝐞𝐬
Receivables Conversion Period = 𝐱𝟑𝟔𝟓
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐒𝐚𝐥𝐞𝐬
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
Payables Deferral Period = 𝐱𝟑𝟔𝟓
𝐍𝐞𝐭 𝐂𝐫𝐞𝐝𝐢𝐭 𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞
2.3 CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified on two bases
Focuses on,
2.4.1 MANAGEMENT
Management will use a combination of policies and techniques for the
management of working capital. The policies aim at managing the current assets
(generally cash and cash equivalents, inventories and debtors) and the short-
term financing, such that cash flows and returns are acceptable.
Cash Management - Identify the cash balance which allows for the
business to meet day to day expenses, but reduces cash holding costs.
Inventory Management - Identify the level of inventory which allows for
uninterrupted production but reduces the investment in raw materials—and
minimizes reordering costs—and hence increases cash flow. Besides this,
the lead times in production should be lowered to reduce Work in Process
(WIP) and similarly, the Finished Goods should be kept on as low level as
possible to avoid over production.
Debtors Management - Identify the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows and
the cash conversion cycle will be offset by increased revenue and hence
Return on Capital (or vice versa); see Discounts and allowances.
Short-term Financing - Identify the appropriate source of financing,
given the cash conversion cycle: the inventory is ideally financed by credit
granted by the supplier; however, it may be necessary to utilize a bank
loan (or overdraft), or to "convert debtors to cash" through "factoring".
2.4.2 IMPORTANT FACTORS FOR OPTIMIZING
WORKING CAPITAL
2. Inventory Management
Inventory Management
Cash and Liquidity Management refers to a broad area of finance involving the
collection, handling, and usage of cash. It involves assessing market liquidity,
cash flow, and investments
Cash management is a marketing term for certain services related to cash flow
offered primarily to larger business customers. It may be used to describe all
bank accounts (such as checking accounts) provided to businesses of a certain
size, but it is more often used to describe specific services such as cash
concentration, zero balance accounting, and clearing house facilities. Sometimes,
private banking customers are given cash management services.
HERZFELD B (1990), studied that “Cash is King” …. So, say the money
managers who share the responsibility of running this country’s businesses.
And with banks demanding more from their 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. The purpose of that
function is to make the certain that the company has enough assets to operate
its business. Here are the things you should know about working capital
management.
McCLAREB (2007), “Working Capital Works” describes that cash is the lifeline of
a company. If the lifeline deteriorates, so does the company’s ability to fund
operations reinvest and meet capital requirements and payment. Understanding
a company’s cash flow health is essential to making investment decisions. A
good way to judge company’s cash flow prospects is to look at its working capital
management. Cash is king, especially at a time when fund raising is harder than
over. Letting it slip way is an oversight that investors should not forgive.
Analysing a company’s working capital can provide excellent insight into how well
a company handles its cash and whether it is likely to have any on hand to fund
growth and contribute to shareholder value.
DUBEY R. (2008), studied the working Capital in a firm generally arises out of
four basic factors like sales volume, technological changes, seasonal changes,
cyclical changes, and policies of the Firm. The strength of the firm is dependent
on the working capital as discussed earlier but this working capital is itself
dependent on the level of sales volume of the firm. The firm requires current
assets to support and maintain operational or functional activities. By current
assets we mean the assets which can be converted readily into cash say within a
year such as receivables, inventories and liquid cash. If the level of sales is
stable and towards growth the level of cash, receivables and stock will also be on
the high.
Research Methods refer to all the techniques that have been used to conduct the
research. The science of methods is termed as RESEARCH METHODOLOGY. It
refers to the process of conducting the research. Research methodology not only
describes the steps involved in conducting the research, but also justifies the
choice of various methods, states the limitations of research and brings out the
presuppositions and consequences of conducting the research.
“Exploratory study” was done for understanding the variable involved and to gain
insights of the problem and “Descriptive study” was done to know the details
status in the areas where research is being carried out.
2. To make comparison between the working capital for the years 2014, 2015,
2016, 2017
PRIMARY DATA are those which are collected for the first time. It is collected for
some special purpose and source of primary data can be external and internal.
SECONDARY DATA are those which have already been collected by someone
for some other purpose. Thus, data is collected from previous findings.
SECONDARY DATA
This report is basically based on SECONDARY DATA. It consists of valuable
cooperation and continuous support of the associates and staff members.
Thus, the data is collected from the Annual Reports, Financial Statements and
various books and documents of Cosmo Ferrites Limited, Jabli.
Mainly comprised of :
A. SAMPLING UNIT
It includes the “COSMO FERRITES LIMITED, JABLI HIMACHAL
PRADESH”
B. SAMPLING METHOD
Statistical technique is used for the calculation of working capital.
Convenience Sampling is used for sample collection
C. SAMPLING SIZE
The present study deals with the collection from the Annual Financial
Reports of Cosmo Ferrites Limited for the period 2013-2014 to 2016-2017.
The study has been conducted for the years 2013-2014, 2014-2015, 2015-2016
and 2016-2017.
PERCENTAGES
TABLES
BAR GRAPHS
RATIOS
LINE GRAPHS
4.7 LIMITATIONS
This study deals only with the data made available. Hence the results
cannot judge the actual position of the company.
Some items of the information are not available in the published annual
reports, for analysis.
The analysis made on the working capital management is for a period the
current assets and current liabilities will change for an analysis made at any
other time.
As the information is collected from the secondary data so it is possible that
the data used may be biased.
CHAPTER – 5
ANALYSIS AND
INTERPRETATION OF DATA
SYSTEM OF WORKING CAPITAL MANAGEMENT IN
COSMO FERRITES LIMITED
Based on research, the working capital are managed in the organisation in the
following manner:
Since working capital is equal to current assets minus liabilities, it can be either a
positive or a negative number. Positive working capital is always preferable
because it means a company has more money than it needs at a given moment.
However the net working capital figure changes over time, even a healthy
company may experience periods where its working capital is negative if it has
unexpected short-term expenses.
Conversely, a company that has consistently excessive working capital may not
be making the most of its assets. While positive working capital is always a good
thing, having a lot of cash on hand may mean the company is not investing in
extra funds in the most lucrative manner possible.
PARTICULARS as at as at
CURRENT ASSETS
CURRENT LIABILITIES
PARTICULARS as at as at
(Amount in Lacs) 31.03.2016 31.03.2017
CURRENT ASSETS
Inventories 967.34 1,113.94
CURRENT LIABILITIES
From the above information it is clear that Cosmo Ferrites Ltd. is operating its
business in negative working capital and it is drastically increasing in past 4
years.
A company actually prefers to see a working capital ratio of 1 to 1.5 times, which
means there is at least one dollar of current asssets for every one dollar of
current liabilities. This assures the company that it can generate sufficient cash
over the short term to cover supplier and payroll obligations.
CURRENT ASSETS (IN LACS)
3000
2774.91
2652.58
2500
2231.46 2192.01
2000
1500
1000
500
0
2013-2014 2014-2015 2015-2016 2016-2017
YEARS
2500 2369.55
2000
1500
1000
500
0
2013-2014 2014-2015 2015-2016 2016-2017
YEARS
There is an overall increase which is good for the business. The reason here is
that, continuous increase in current assets will automatically have an effect on its
current liabilities, which have to be paid at an appropriate time. The continuous
increase in the current assets of the company shows the positive aspect of the
company but on the other hand continuous increase in the current liabilities
shows the negative aspect of the company.
-400
-600
-800
-873.99
-1000 -952.57
-1200
-1226
-1400
INTERPRETATION
From the above chart, it is clearly visible that the working capital of Cosmo
Ferrites is negative as its current liabilities are more than its current assets. The
working capital in the year 2013-2014 was (138.19) which decreased in year
2014-2015 to (873.99), in 2015-2016 to (952.57) and further to (1226) in the year
2016-2017.
Negative working capital indicates that the company may not be able to meet its
short term obligations as its accounts payable are more than account receivable.
-10
-15
-20
WORKING CAPITAL
-25 TURNOVER RATIO
-30
-35
-40
-45
INTERPRETATION
From the above chart it is clear that the working capital turnover ratio is negative.
It indicates the company’s ineffectiveness in using its working capital. In the year
2013-2014 the ratio was (41.08) which increased to (6.189) in 2014-2015, further
decreased to (6.24) in 2015-2016 and then increased to (5.391) in 2016-2017.
1. CASH BUDGET
Current Assets includes those assets which can be convertible into cash within a
year.
SIGNIFICANCE
According to the accounting principles, a current ratio of 2:1 is considered to be
an ideal ratio. It means that the current assets of the business should be at least
twice of its current liabilities. Higher the analysis indicates better the liquidity
position, and the firm will be able to pay its current liability more easily.
Table 5.2.1 showing current positions in the following years.
CURRENT RATIO
1
0.9
0.8
0.7
0.6
0.5
CURRENT RATIO
0.4
0.3
0.2
0.1
0
2013-2014 2014-2015 2015-2016 2016-2017
INTERPRETATION
The current ratio of Cosmo Ferrites is below 1 that means its current liabilities are
more than the current assets. Current Ratio below 1 indicates the that the company
is not in good financial health.In year 2013-2014 the ratio was 0.9417, which
decreased to 0.7149 in 2014-2015, further it increased to 0.7358 in 2015-2016 and
then decreased to 0.6936 in the year 2016-2017.
5.2.2 LIQUID ASSETS: CURRENT LIABILITIES POSITION
In finance, the Liquidity Position measures the ability of a company to use its
near cash or quick assets to extinguish or retire its current liabilities immediately.
SIGNIFICANCE
An ideal liquid analysis is said to be 1:1. If it is more than the ideal position it is
considered to be better. This position or analysis is a better test of short-term
financial position of the company than the current ratio. It only considers those
assets which can be easily converted into cash.
0.6
0.5
0.4
LIQUIDITY RATIO
0.3
0.2
0.1
0
2013-2014 2914-2015 2015-2016 2016-2017
INTERPRETATION
The liduidity ratio under 1 indicates that a company’s liabilities are greater
than its assets and company would be unable to pay off its obligations at
some point. In the year 2013-2014 the liquidity ratio was 0.6005 which
decreased to 0.4518 in 2014-2015, further it increased to 0.4675 in 2015-2016
and again it decreased in year 2016-2017. Steps need to be taken to control
its liabilities.
5.3 Inventory Management
Inventory management refers to the process of ordering, storing and using a
company's inventory: raw materials, components and finished products.
(Amount in lacs)
Raw material 199.91 72.76 120.57 159.86
1000
800
600
TOTAL INVENTORY
400
200
0
2013-2014 2014-2015 2015-2016 2016-2017
INTERPRETATION
The level of inventory is increasing drastically expect in the year 2014-2015. The
company has taken effective measures thus the level of inventory is controlled in
the year 2016-2017 and also has seen an increase.
The inventory turnover ratio is an efficiency ratio that shows how effectively
inventory is managed by comparing cost of goods sold with average inventory for
a period. In other words, it measures how many times a company sold its total
average inventory dollar amount during the year.
6.8
6.7
6.6
6.5
INVENTORY TURNOVER
6.4 RATIO
6.3
6.2
6.1
6
2013-2014 2014-2015 2015-2016 2016-2017
INTERPRETATION
This ratio indicates the effectiveness and efficiency of the inventory management.
The chart shows the changing ratios from the year 2013-2014 to 2016-2017. The
ratio is least in the year 2016-2017. The company should try to maintain the ratio.
CHAPTER – 5
FINDINGS AND
RECOMMENDATIONS
SUMMARY OF FINDINGS
The Short term Borrowings of the company have increased from 1186.82
lakhs in the year 2013-2014 to 2423.76 lakhs in year 2016-2017. Also the
Current Liabilities have increased from 2369.55 to 4000.91
The current assets have increased from the year 2015-2016 to 2,774.91
lakhs.
The Working Capital of the company is Negative which means that the current
liabilities are more than the current assets. The negative working capital has
changed to 1226 in year 2016-2017 from 138.19 in year 2013-2014.
The increase in current liabilities is more than the increase in current assets
from year 2013-2014 to 2016-2017. The current liabilities increased from
2369.55 to 4000.91 lakhs whereas current assets increased from 2231.46 to
2774.91 lakhs.
The Current ratio and the liquidity ratio are below 1. This indicates the
company is not in a good financial position.
The inventory has increased from 808.46 to 1113.94 in the span of four years.
SUGGESTIONS
2. INTERNET SOURCES
www.google.com
www.cosmoferrites.com
www.investopedia.com
www.wikipedia.org
3. JOURNALS
Herzfeld B: “How to understand working capital management” (1990)
Maynard E. Refuse, “Working Capital Management: An urgent need to
refocus Management Decision” (1996)