INTRODUCTION

Financial management is the financial activity of accounting cycle,

where key financial decisions are taken on the basis of clearly analyzed,
summarized and manipulated accounting according to the required needs. In
practice the entire process of financial management is performed by two
different functional people, up to preparation and analysis of financial
statements comes under accounting departments basing on this information
other functional people i.e., management takes decisions.

Financing management essentially optimizes the output from the

given input of funds. It attempts to use the funds in the most productive
manner. In a country like ours where resources are scarce and the demand
on funds are many, the need for proper financial management is enormous.
If proper financial management techniques are used, most of our enterprises
can reduce their capital employed and improve their return on investment.

The Financial Management implies the management of fixed and

current assets. The emphasis in the study is on different financial aspects.
The management is concerned not only with the total quantum of
investment in fixed and current assets but the make up of assets.

The analysis of financial statements plays an important role in

determining the financial strengths and weaknesses of a company relative to
that of other companies in the same industry. The analysis also reveals
whether the company’s financial position has been improving or
deteriorating over time.

This study is an attempt to analyze the performance of the TECHNO

POWER COMBINES PVT LTD. with reference to working capital.
 WORKING CAPITAL

The management and control of working capital is of vital

importance to companies and form a major workload function of the finance
manager and accountant. Apart from the efficient operation and control
these assets, the finance manager will be faced with numerous alternative
sources, both the short term and long term. Short term financing is generally
shown under the heading of current liabilities and includes items such as
bank overdraft and credit received from suppliers.

Typical components of current liabilities, besides that mentioned

above include accrued expenses, proposed dividends, short term loans, tax
payments due, etc…, The major components of current assets are
inventories, accounts receivables, prepaid expenses, short term investments
and cash and bank balances. The investment in these current assets is the
gross working capital needed. But the net working capital needed by a
company is the total of all current assets minus current liabilities and
provisions.

Working capital management refers to all aspects of

administration of both current assets and current liabilities. In other words
working capital management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the
interrelationships that exist between them.
DEFINITION

The term working capital can be defined in two ways:

“The most common definition of net working capital (NWC) is the difference
between current assets and current liabilities”

“The working capital is the amount of funds necessary to cover the cost of
operating the enterprise”.

The formula for computing working capital is;

Working Capital = Current Assets - Current

Liabilities

One of the main advantages of looking at the working capital

position is being able to foresee any financial difficulties that may arise.
Even a business that has billions of dollars in fixed assets will quickly find
itself in bankruptcy court if it can't pay its monthly bills. Under the best
circumstances, poor working capital leads to financial pressure on a
company, increased borrowing, and late payments to creditor - all of which
result in a lower credit rating. A lower credit rating means banks charge a
higher interest rate, which can cost a corporation a lot of money over time.

Companies that have high inventory turns and do business on a cash

basis (such as grocery store) need very little working capital. These types of
businesses raise money every time they open their doors, they turn around
and plow that money back into inventory to increases sales. Since cash is
generated so quickly, managements can simply stock pile the proceeds from
their daily sales for a short period of time if a financial crisis arises.

SCOPE OF STUDY

Working capital is the life blood and never center of a business. No

business can be run successfully without an adequate amount of working
capital.

Continuous production

Adequate working capital ensures regular supply of raw materials

and continuous production.

Solvency and Goodwill

Adequate working capital enables prompt payment to creditors. This

helps in creating and maintaining goodwill.

A concern having sufficient working capital enjoys high liquidity and

good credit standing.

Hence if can secure loans from banks and others on easy and
favorable terms.

Cash discounts

Adequate working capital enables a concern to avail cash discounts

on the purchase, leading to a reduction in cost.

Regular payment of expenses

 A company which has ample working capital can make regular
payment of salaries, wages and other day-to-day commitments such prompt
payment rises the morale of employees and increases their efficiency. As a
result costs are minimized and profit increase.

Exploitation of Market Conditions

A concern with adequate working capital can exploit favorable

market conditions. It can buy its requirements of raw materials in bulk when
the market price is lower. Similarly, it can hold stock of finished goods of
realize better prices.

Ability to crisis

Adequate working capital enables a concern to face business crisis

such as depression because during such periods there is much pressure on
working capital.

High return on investments

Adequacy of working capital facilitates continuous production and

effective utilization of fixed assets. Because of this, the concern is able to
generate more profits and ensure higher return to its owners.
 METHODOLOGY

Aim of the study

The aim of the study is to find out the position of working

capital in TECHNO POWER COMBINES PVT LTD.

Primary data

Primary data has been collected through personal contact with

the accounts department of the company.

Secondary data

The methodology comprises of secondary data collected from

the reports of the company, references from the books and internet.

Period of study

The data was collected from a sample of 4yrs from TECHNO

POWER COMBINES PVT LTD.

The data was classified, analyzed, tabulated & interpreted.

Ratio method, graphical representation & bar diagram were used for the
study.

Preparation of report

The analysis was made based on the information provided by the

company.
 CONCEPT OF WORKING CAPITAL

Working capital, also called net current asset, is the excess of current
asset over current liabilities. All organization have to carry working capital is
one from or another.

The term working capital refers to current asset it may be defined

as,

i. Which are convertible to cash over equivalent with in a period of one

year

ii. Which are required to meet day to day operations of business, the
fixed asset affect the long time profitability of the business while the current
asset affect the short term liquidity position of the business.

There are two types or concepts of working capital:

a. Gross working capital

It is the firm investment in the current asset. Current asset which can
be converted into cash within an accounting year (or operating cycle)
includes cash, short term security, debtors, bills receivable and stock.

b. Net working capital

 It is the difference between the current asset and current liabilities.
Current liabilities include creditors, bills payable and outstanding expenses.

The working capital will be positive or negative

• Positive working capital = current asset > current liabilities

• Negative working capital = current asset < current liabilities

Components of Current Assets and Current Liabilities

Current Assets Current Liabilities

∗ Cash
∗ Bills Payables
∗ Bills Receivables
 ∗ Sundry Debtors ∗ Sundry creditors

∗ Short Term Investments

∗ Outstanding Expenses
∗ Stock

∗ Prepaid Expenses
∗ Short Term Loans Payables
∗ Outstanding incomes

∗ Dividend/Tax payables

∗ Bank Over Draft

NEED FOR WORKING CAPITAL IN THE FIRM

The following factors are normally, examined to determine the

amount of working capital needs.

1. Size of the firm

Normally, the size of a firm will determine the quantum of working

capital. A small firm may use an extra current asset as a cushion against
cash flow interruptions. Large scale units with many sources of funds may
need less working capital as compared to total assets or sales.

2. Activities of the firm

If a firm must stock a heavy volume of inventory or sell on relatively

easy credit terms, it has greater needs for working capital than firms
providing services or making cash sales.

3. Availability of credit

A firm with readily available credit from banks can get less working
capital than a firm without such credit.

4. Attitude toward profit

Since all funds have a cost, a relatively large amount of current

assets trends to reduce a firm’s profit. Some firms want extra working capital
and are willing to suffer small cost.
 CLASSIFICATION OF WORKING CAPITAL

I. Permanent working capital

Minimum amount to be invested in various current assets is called

permanent working capital. Every firm has to maintain minimum quality of
raw materials, semi finished goods and minimum amount of cash to meet
operating expenses. Minimum amount invested in current asset such as
minimum stock, minimum cash balance etc. is called permanent working
capital.
II. Temporary working capital

Amount of working capital required to meet seasonal or special

situation is called temporary working capital.

ADVANTAGES OF WORKING CAPITAL

1. It helps for continuous supply of raw material which leads to

uninterrupted production.

2. It helps for prompt payment for wages, salaries and other day to day
expenses and it also increase the goodwill of the firm

3. It helps to utilize the favorable market condition.

4. It helps for reduction of cost, ie purchase at the cheaper rate reduce

the cost of production.

5. It helps for maintaining the solvency to the business

6. It helps for raising short term loans especially from banks.

7. It also helps for prompt supply of finished goods by which the brand
loyal customers can be maintained.

8. It also helps for the prompt payment of dividend, results in maintaining

or increasing the market value of the share and makes raising additional
capital easily.

9. It creates morale and provides job security for the employee.

DISADVANTAGES OF WORKING CAPITAL

1. Possibility of under utilization of available fixed facilities.

2. It may result in non-payment or delay in payment of day to day

expenses and other short term liabilities.

3. Exploitation of favorable market condition and reduction of overall cost

may not be possible.

4. Under utilization of fixed facilities will result in low rate of return, which
may result in reduction of the market value of shares.

MANAGEMENT OF WORKING CAPITAL

The term working capital generally stands for excess of current assets
over current liabilities.

Working capital management, therefore, refers to all aspects of the

administration of both current assets and current liabilities. In other words
working capital management is concerned with the problems that arise in
attempting to manage the current assets, the current liabilities and the
interrelationships that exist between them.

The basic objective of working capital management is to manage the

company’s current assets and current liabilities in such a way that the
satisfactory level of working capital is maintained, i.e., it is neither
inadequate nor excessive.

The current assets should be sufficient enough to cover current

liabilities in order to maintain a reasonable safety margin. Moreover,
different components of working capital are to be properly balanced. In the
absence of such a situation, the financial position in respect of the
company’s liquidity may not be satisfactory in spite of satisfactory liquidity
ratio.

Working capital management policies have a great effect on

company’s profitability, liquidity and its structural health. A finance manager
should, therefore, chalk out appropriate working capital management
policies in respect of each of the components of working capital
management policies in respect of each of the components of working
capital so as to ensure higher profitability, proper liquidity and sound
structure of health of the organization.

ESTIMATING WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by a

company, a number of factors Via., production policies, nature of business,
length of manufacturing process, credit policy, rapidity of turn-over,
seasonal fluctuations, etc., are to be considered by the finance manager.
Financial manager can appear any of the following techniques fir assessing
the working capital requirements of a company.

Sources of working capital

Following are the various sources of working capital,

1. Depreciation 1. Trade credit 1. Issue of shares

2. Provision of tax 2. Bank credit 2.Issue of

debentures

3. Proposed dividend 3. Customer advance 3. Retained

earnings

4. Outstanding expenses 4. Accounts receivable 4. Long term loans

5. Public deposit

COMPANY PROFILE
 TECHNO POWER COMBINES PVT LTD was started in the year 1995
as dealers and sellers of Air conditioners, Stabilizers and other electronic
components.

Particular of organization

a) Year of start:1995

b) Type of the company: partnership

c) Nature of the company: Dealer and seller

d) Activity: dealer in Ac, voltage stabilizer, Ac compressor, electrical and

electronic components.

The firm has been established to carry out the objectives specified in
the article of association of the firm.

The key promoter of the company Mr. D. Ravikumar has more than
two decades of experience in the line of activity.

BANKERS OF TECHNO POWER COMBINES PVT LTD

• Central bank of India

• ICICI bank

• State bank of India

At present the company is enjoying OD limit of rupees 25 lakhs.

They have well trained competent technical man power, staff and workers
who provide efficient product marketing sales and after sale services.
Achievements

The companies achievements and performance during last two years

are as follows,

COMPANIES PERFOMANCE DURING THE LAST TWO YEARS

2004-05 2005-06

Gross turnover 112.15 165.92

Gross profit 9.64 18.23

Operating profit -2.79 0.81

Net profit after tax 0.53 0.18

Deprecation 0.95 1.46

Cash accrual 1.48 1.64

TNW 5.99 15.23

They are the dealers for voltas, Videocon, & also have a agreements
for marketing air conditioners manufactured by other leading companies.
 OBJECTIVES

 To find out the statement showing changes in working capital of

TECHNO POWER COMBINES PVT LTD from the year 2004-2007.

 To suggest measures to improve the company’s working capital

position.