A PROJECT REPORT ON WORKING CAPITAL MANAGEMENT AT CROMPTON GREAVES LTD.

LT MOTOR DIVISION, AHMEDNAGAR

SUBMITTED TO CROMPTON GREAVES LTD.

FOR THE PARTIAL FULFILLMENT OF MASTER DEGREE COURSE IN BUSINESS ADMINISTRATION (MBA)

SUBMITTED BY

PANKAJ GITAY
(2008-10) Mula Education Socitiess SAHYADRI INSTITUTE OF MANAGEMENT STUDIES TATHAWADE, PUNE-411033

ACKNOWLEDGEMENT
Success can never be attained without proper guidance A project in an organisation is an experience wherein academic knowledge gained from the institute is applied in a practical manner. I had an opportunity to complete my summer project in Crompton Greaves ltd. The project is great source of learning & a good experience as it made me aware of professional culture & conducts that exist in an organisation. Inspection & guidance are valuable in all aspects of life especially in an academic field. I would like to express my gratitude to Mr.Hajeri Sir who, mentor me for successful completion of this project. Specially thanks to Mr.S.P.Kulkarni (Asst. General Manager -Finance) who gave me an opportunity to do the project in Crompton Greaves Ltd. I express my sincere thanks to Mr.Devendra Joshi, Mr. Vipul Parekh, Mr.Guarav Badve & Mr.Vilas Salunke without their guidance & inspiration; I could not have completed my project. Also I would like to express my heart felt thanks to the staff members of Finance department, who helped me in the successful completion of this project. I will always carry fond memories of these training days.

DECLARATION
In undersigned here declare that the project report on WORKING CAPITAL MANAGEMENT is written & submitted by us to CROMPTON GREAVES LTD, AHMEDNAGAR. Towards the fulfilment for the award of Master Degree of Business Administration ( MBA ) in the year 2008-10. This is my original work and conclusion drawn there are based on material collected by myself. I further declare that to based of my knowledge and belief this project has not been Submitted to this or any other university for the award of any other degree, diploma or equivalent course.

DATE :Gitay

Pankaj

/ / 2009 FINANCE)

(MBA

PREFACE
Summer training cum project is the integral part of MBA programme. Theoretical knowledge only provides basic concepts about the study. It does not quadrates success in taking the problem. But this training gives practical exposure to the study. This from where we learn our flaws before actually starting the work. It adds the knowledge & better understanding of the companies. This project greatly helped me in giving shape to my diligent efforts of understanding about the credit appraisal system. Perhaps, I had no qualification & idea to present such a type of report but I tried to do my best to prepare it. When I started to write to this report I felt it needs more capabilities & experience to do this work that has been assigned to me. But taking this as a change I decided to this. For me presenting this report like voyage in the corporate ocean.

INDEX
Sr. No. Topic Page No.

EXECUTIVE SUMMERY

OBJECTIVE & SCOPE OF THE PROJECT

INTRODUCTION

16

COMPANY PROFILE

28

THEROTICAL BACKGROUND

34

RESEARCH METHDOLOGY

50

DATA ANALYSIS AND INTERPRETATION

53

FINDINGS

54

CONCLUSSION

10

LIMITATION

11

SUGGESSION

12

ANNEXTURE

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

This project relates to the study of changes in current assets and current liabilities and its affect on the net working capital of CROMPTON GREAVES Ltd., one of the leading manufacturing company in India. In fact the first unit of electricity was generated on Crompton Dynamo at Calcutta in 1899.

This project involves the study of data for the past 5 years i.e. 2004-05, 2005-06, 2006-07, 2007-08, and 2008-09. It shows the changes in the percentage of net working capital as a result of changes in the percentage of current assets and current liabilities.

The purpose of taking up this project is to study the effect of current assets, current liabilities and net working capital on profitability and risk and overall analysis of working capital management with the help of financial ratios.

During the period of my study, I learnt about the composition of various current assets and current liabilities in total working capital. I also observed that debtors showed an increasing trend and formed the largest component of working capital followed by loans and advances and bank overdraft.

Working on a project with CROMPTON GREAVES Ltd was quite challenging task for me. It served as a platform which gave me an insight of how manufacturing company manages the resources to meet its working capital needs.

Though i experienced a lot of limitations while working on my project with LT MOTORS division of CGL due to high confidentiality of the data, still it was a good effort on the part of the employees to help me study the intricacies of working capital management of a manufacturing industry.

At CGL utmost importance is given to confidentiality of data. It is growing at the good rate especially the LT motors division is one of the leading businesses making division for the company. The professionalism of the employees and the management of different tasks with proper co-ordination between the departments is the major aspect on which CGL banks.

After analyzing the data collected from the employees I understood that the debtors from major portion of current assets for most of the companies in the manufacturing industry as it has to provide good credit facilities to survive and do business in this field, where competitors are ready to give credit for a longer period to attract clients or customers. To sum up my learning experience at LT Motors division of CGL I understood the basic aspects of various major components of current assets and current liabilities that form a part of the manufacturing industry, its changes and affect on the net working capital. I also learnt about the various tasks performed by the commercial department of LT Motors division, the professionalism and coordination maintained throughout the organisation. During my study I have learnt some aspects that have to be improved and so I have suggested certain changes that need to be made for overall enhancement of the organization.

OBJECTIVE & SCOPE OF THE PROJECT

OBJECTIVES OF STUDY

To Study the concept of Working Capital. To Study the existing Working Capital Management system of Crompton Greaves Ltd. To find out the determinants of Working Capital in Crompton Greaves Ltd. To identified the parameters which are relevant and responsible for taking adhoc financial decision and suggest some measure to control these parameter. To analyze whether the existing cash out flow and inflow could have been manage in better and systematic way.

INTRODUCTION

INTRODUCTION

The analogy has often been made that cash is the life blood of any business. Take it away and business will surely expire. A transfusion will miraculously bring the patient back from brink of death, but only if

The blood is of the right kind. The problem causing the leakage is attended to.

In any firm the finance function covers the flow of funds, procurement of funds as well as there efficient utilisation. The main objective of finance function is either profit maximisation or wealth maximisation. Wealth maximisation refers to the maximisation of the value of enterprise or the price of shares. This means that objectives of firm should be so maximize the market value of its equity shares.

Finance Function: Investments decision. Financing decision. Dividend decision

The Investments Decision involves: Management of current assets. Capital budgeting. Management of mergers, recognitions of disinvestments.

Thus the Total Investments in Business are classified in to 2 parts: Fixed capital. Working capital

The topics focus on the broader issue of operating fund management which include the specific need for working capital as net of current assets and current liabilities. The study examines how the movements are and how to identify the critical financial variables that must be weighted in marketing daily operating decisions. Working capital managements involves the relationships between a companys short term assets and its short term liabilities. The goal working capital management is to ensure that a company is able to continue its operations and that it has sufficient ability to satisfy the both maturing short term debt and up coming operational expenses. The management of working capital involves managing inventories, debtors, creditors, cash management.

Working capital requirement varies with nature of business. In manufacturing industries the operating cycle can clearly identified and the working capital can be planned comparatively easily. This study has been conducted at Crompton Greaves Ltd. Ahmednagar.

COMPANY PROFILE

COMPANY PROFILE

INTRODUCTION:For the last seventy years, Crompton greaves ltd. (CG) has become synonymous with electricity in India. In fact, the first unit of electricity was generated on a crompton dynamo at Calcutta in1899. A pioneering leader since 1937 in the management and application of electrical energy, crompton greaves today, is Indias largest private sector enterprise, extensively engaged in designing , manufacturing and marketing high technology electrical products and services related to power generation, transmission, distribution as well as executing turnkey projects. The company is customer centric in its focus and it is the single largest source for a wide variety of electrical equipments and products. Further, the company is emerging as first choice global supplier for high quality electrical equipments.

HISTORY:The history of CROMPTON GREAVES LTD. goes back to 1878 when col. R.E.B. CROMPTON founded R.E.B. CROMPTON and company. The company merged with F.A Parkinson in the year 1927 to form CROMPTON PARKINSON LTD., (CPL). Greaves cotton and company (GCC) was appointed as there concessionaire in India. In 1937, CPL established its wholly owned Indian subsidiary viz. CPL in Bombay, along with sales organisation, greaves cotton and CROMPTON PARKINSON LTD. in collaboration with GCC. In the year 1947, with the dawn of Indian independence, the company was taken over by Lala karamchand Thapar, an eminent Indian industrialist. CROMPTON GREAVES is headquartered in a self- owned landmark building at Warli, Mumbai.

ACQUISITION CROMPTON GREAVES LTD. PAUWELS ACQUISITION:CROMPTON GREAVES has completed the acquisition of the Belgium-based pauwels on 13th may 2005. The group has manufacturing facilities in Belgium, Ireland, Canada, USA and Indonesia and well spread distribution network across the globe. The acquisition catapults the company amongst top 10 transformer manufacturers in the world. It has truly transformed into an Indian MNC making a long-cherished dream finally come true.

Apart from strengthening its foothold in Indian market, CROMPTON GREAVES acquisition of pauwels group and its transformer manufacturing facilities in 5 countries is expected to provide a significant impetus to companys international presence.

The additional turnover of approximately Rs. 1,380 crore of pauwels groups for its last financial year is expected to increase CROMPTON GREAVES international business to around 50% of its turnover, making the company a force to reckon with, in the international market.

GANZ ACQUISITION:Crompton greaves have also successfully acquired hungarin based ganz (GTV), engaged in the manufacturing of EHV Transformers, Switchgear, Gas Insulated Switchgear (GIS), Rotating Machines and Contracting business and Transverticum Kft (TV), engaged in the supporting areas of design, erection, commissioning and commercial activities on 17th October 2006 , TV being a subsidiary of GTV.

MICROSOL ACQUISITION:-

The acquisition of microsol holdings ltd. (MHL) and its associate companies in may 2007 is yet another significant stride in CGs journey positioning it self as a global T&D Solutions Provider. MHL, based in Ireland with facilities in UK and USA, is engaged in the business of 1 providing sub-station and distribution automation for the utility industry including MV&HV sub-station, new sub-station and retro-fitting solutions for existing sub-stations, with state-of-the-art automation and high end engineering.

MANUFACTURING, MARKETING AND SERVICING NETWORK:CGs business operations consists of 22 manufacturing division spread across in Maharashtra, Gujarat, Goa, Madhypradesh and Karnataka supported by well knitted marketing and service network through 14 branches in various states under overall management of 4 regional sales offices located in Delhi, Calcutta, Mumbai and Chennai. The company has a large customer base, which includes state electricity boards, governments bodies and large companies in private and public sectors.

FUTURE OUTLOOK:The quality of household is enhanced when there money is invested in to products such as fans and lighting for basic comforts. Their lives are literally touched by delight. Similarly, crompton helps electricity boards and other utilities to rich electricity to last home and factory. There fore, every individual in India who uses electricity can be considered as crompton customers. Hence, the company continues to further and consolidate the initiatives that colonel crompton set into motion by focusing on meeting increasing customer demands for products that are eco-friendly, energy efficient and with intelligent monitoring and control system.

All economic indicator point towards the manufacturing sector being the future driver of Indias economic growth. India is today preferred destination for sourcing various engineering goods not only due to low cost but also due to high quality of products. Although, the climate for the manufacturing sector is bright, the concerns is the threat of imminent competition from global players who already in the process of setting up manufacturing facilities in India. The market is expected to remain competitive with an added element of competition from imported products.

However, several measures that the company has already taken and its plans for the future, together with business impact of the pauwels acquisition, will equip the company to respond in adequate measure to this competitive pressure.

CORPORATE INFORMATION

BOARD OF DIRECTORS :-

G Thapar S M Trehan S Bayman O Goswami S Labroow M Pudumjee S P Talwar V Von Massow

CHAIRMAN MANAGING DIRECTOR

B R Jaju W Henriques Dr. J J Patel

CHIEF FINANCIAL OFFICER COMPANY SECRETARY VICE PRESIDENT - GLOBAL R&D

K N Neelkanth

GENERAL MANAGER LT MOTORS DIVISION

Sharp&Tannan Crawford Bayley & co.

AUDITORS SOLICITORS

BANKERS Union bank of India SBI Corporation Bank Canara Bank Bank of Maharashtra IDBI Bank ltd. Standard chartered Bank ABN Amro Bank NA Calyon Bank ICICI Bank ltd.

REGISTERED OFFICE 6th floor, CG House, Dr. Annie Besent Road, worli, Mumbai -400 030.

LANDMARKS

1979:- First AC Motor rolled out on 8th December. 1980:- AC Motors commercial production started in 160-180 frame shifted from worli. 1981:- frame 200-315 shifted from LMD and added to product range. 1991:- ISO 9001 approval received-first in electrical industries. 1994:- BASSEFA approval for FLP Motors for export market first in Indian industry. 1996:- Alternator production started after absorbing technology from EUROGEN Italy. 1997:- DC Motors manufacturing started under license from SIEMENS Germany. 2001:- Relocation of worli operations to Goa and Ahmednagar. 2002:- Expansion of alternator ranges up to 625 kva. 2003:- Addition of gas group IIC FLP Motors in the range-first Indian industry. 2004:- IECEX approval for increased safety motors for export-first in Indian industry. 2005:- Acquisition of the pauwels group in may 2005; company has catapulted itself from being a leading Indian player in power business to becoming a truly global corporation.

Product profile

Consumer products

Industrial system

Power systems

Fans Lighting Pumps Switching Transmission cts

LT Motors HT Motors AC Generators DC Motors Transformers Switchgears Power quality Eng. projects

INTRODUCTION OF AHMEDNAGAR DIVISION

The LT Motors division of CROMPTON GREAVES is largest manufacturer of LT Motors in India offering a range of AC & DC Motors and Alternators ranging from A.C. motors 0.18 k.w. to 510 k.w. and Alternators 7.5 k.v.a. to 625 k.v.a. in various standards in customized configurations which meet the exacting demands of industry. The division has manufacturing facilities in Ahmednagar, Goa plants. These modern plants are maintained in world class condition with regular infusions of the latest technology so as to ensure the highest quality of product. A team of dedicated professionals ensures that customers get the benefit of the range of trouble free products and services based on superior mechanical and product design. The manufacturing facilities are ISO 9001 certified by the BVQI. The standard motors offered by the division are in compliance with the efficiency level 2 of the proposed revision to ISI 2615 in India as well as CEMEP standards.Prevalent in Europe for energy efficient motors. To ensure the highest levels of customer satisfaction, the latest design have been incorporated for the range of LT motors, ensuring better electrical performance as well as versatility in mechanical features. The divisions products are exported to over 30 countries including the quality conscious of USA & Europe.

MAIN ACHIEVEMENTS OF THE DIVISION : Best to practice award 1994. Best division award.(half yearly performance 1996) Best division award 1997. Best cash management division award 1997. Best profit division award 1997.

FIVE VALUES OF CROMPTON GREAVES LTD.:1. PERFORMANCE EXCELLENCE:Performance excellence is about reviewing and raising the performance for self and as a part of a team, for competitive edge, setting and meeting stretch targets, accomplishing and exceeding performance commitment. It means discouraging mediocrity in others and ourselves and confronting status quo. 2. LEADING EDGE KNOWLEDGE:Leading edge knowledge is a necessary ingredient for competitiveness and growth, enhancing capabilities, activity pursuing and applying best practices, continuously upgrading and benchmarking with best in class. It is the key to working hard, a continuous search for alternative and new ways of doing things. 3. NURTURANCE:Nurturance is helping us and others to grow in professional and personal life. It encourages an atmosphere of fairness with participation and a climate of trust as well as trust worthiness, a positive environment for CG to become a learning organization, for connection between CG and its employees. 4. CUSTOMER ORIENTATION:Customer orientation is sensitivity and responsiveness to the market and customer needs for high quality existing as well as new products and services, with deliveries and after sales service as committed. It establishes positive long term relationships with both internal and external customers. 5. INTELLECTUAL HONESTY:Intellectual honesty is honesty to self; doing what we say; making and meeting meaningful commitments. It goes beyond simplistic integrity, financial honesty telling

the truth and includes openness and speaking up in situation when silence would yield an undesired result.

COMPANY PHOTOGRAPHS

Corporate Office, Mumbai

Manufacturing plants of Crompton Greaves in India

Transformers Plant, Mandideep

Transformers Plant, Malanpur

Transformer Plant, Mandideep

Ceiling Fans Plant, Goa

Switchgear Plant, Nashik

Transformers Mumbai

Plant,

Kanjurmarg

Telecommunications Bangalore

Plant,

Jigani

Light Sources Baroda.

Manufacturing

Plant,

AHMEDNAGAR DIVISION (ALTERNATORS & DC MACHINES PLANTS )

ACCOUNTING PROCESS OF CROMPTON GREAVES LTD:Enterprise resource planning (ERP) system is use in CROMPTON GREAVES. ERP includes SAP. CGL starts using SAP in the company since 1998. Till date they are using the new version of SAP i.e. 4.7. Enterprise recourse planning system operates on consumption based accounting. Each business process has corresponding accounting effect in background.

PROCESS FLOW OF ACCOUNTING Purchase order

Material Receipt

Creditors

Quality Check

Rejected Material Sent To Supplier

Confirm by Finance

Issue to Shop

Payment

Production Declared

Selling Activity

Dispatch & Excise Duty payment Billing Debtors

Collection

SECTION OF FINANCE & ACCOUNTS DEPARTMENT AT CGL

The detail of finance dealing with the account of various types & transactions are given below.

Code 1

Description MIS

Brief particulars of the job Preparing monthly accounts & fixed assets accounting Dealings & accounting of sales tax matters. It includes C forms. Journal entries, audit entries

Sales Tax

General ledger

Cash

Cash employee reimbursement & receipt of cash

Purchase accounting

CENVAT credit, sales tax credit, transporters bill, hundi acceptance & payment.

NET PROFIT OF CROMPTON GREAVES LTD.

400 350
313.92

397.09

300 250 NET PROFIT (RS. IN CRORES)200

163.04 192.37

150
114.78

100 50 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

THEROTICAL BACKGROUND

MEANING OF WORKING CAPITAL

Working capital refers to the cash a business requires for its day to day operations or
more specifically for financing the conversion of raw material in to finished goods which the company sales for payment. It is a major of both companies efficiency and its short term financial health. It is calculated by the following formula Net Working Capital = current assets current liabilities

Definition
Working Capital is the excess of current assets over current liabilities of any business at any time.

Concept of working capital:Working capital differs from fixed capital in terms of time required to recover the investment in a given asset. In case of fixed capital or long term assets (such as land & building, plant & machinery etc.) , a firm usually needs several years or more to recover the initial investment. In contrast, working capital is turned over or circulated at a relatively rapid rate. There are two concepts of working capital

Gross concept Net concept

A. Gross concept :-

Gross working capital means the current assets which represent the proportion of investment that circulate from one form to another in the ordinary conduct of business. The gross concept of working capital focuses the attention on two aspects of current assets management.

1. optimum investment in current assets 2. financing of current assets

The level of investments in current assets should be adequate.

B. Net concept :-

Net working capital is a difference between current assets & current liabilities or alternatively portion of current assets financed with long term funds. Net concept of working capital Indicates liquidity position of the firm Suggest the extent to which working capital needs may be finance by permanent source of funds.

In the summery it may be emphasise that gross and net concept of working capital are equally important for the sufficient management of working capital. There is no precise way to determine the exact amount of gross and net working capital for the firm. The data and problems of each company should be analysed to determine the amount of working capital.

MANAGEMENT OF WORKING CAPITAL :Working capital management is concerned with the problems that arise during managing the current assets, the current liabilities and interrelation between them. Current assets are those assets which are converted in cash in the short period and current liabilities are those liabilities which are paid in the short period. Current assets and current liabilities they take in the working of business or in the operation of the business. They are always moving in cycle and effect of such movement is earning the profit.

Usually current assets should be more than current liabilities to take care the effect of contingency. Usually current assets should be double of current liabilities.

Working capital can be defined as the difference between current assets & current liabilities. The level of working capital should sufficient so that day to day operation are perform regularly and the short term payments are paid on time, but working capital should not be very high because in that case working capital will be use inefficiently & major portion of working capital may be blocked in inventories & debtors.

Higher the level of working capital less risk in operation but less profitability. Lower the level of working capital more risk operation but more profitability. The finance manager should maintain the optimum level of working capital so that risk & return is balanced.

Objectives :There are mainly two objectives of working capital management. Profitability Liquidity

These objectives ensures that company satisfies financial obligations & continue as going concern Profitability & Liquidity frequently conflict with each other . a sound working capital policy is one which ensure higher profitability , proper liquidity & sound structural health of organization.

NEED OF WORKING CAPITAL MANAGEMENT

The need for working capital (gross) or current assets can not be emphasized. Given the objective of financial decision making to maximising the shareholders wealth , it is a necessary to generate sufficient profits the extent to which profits can earned will naturally depend among other things , upon the magnitude of sales. A successful sales programme is necessary for earning profit by any business enterprise. However, sales do not converted into cash instantly , there is invariably a time lag between the sales of goods and receipt of cash. There is therefore, a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realisation

of cash against goods sold. Therefore, sufficient working capital is necessary to sustained sales activity. Technically, this is referred to as the operating cycle. The operating cycle can be said to be at the heart of the need for working capital. The continuing flow from cash to suppliers to inventory to account receivable and back in to cash is what is called the operating cycle.

CIRCULATING SYSTEM OF WORKING CAPITAL

The funds are obtained in the business from the issue of share, issue of debenture, other long term arrangements & from operation of business. A huge part of generated funds are use to acquire fixed assets eg. Plant& machinery, land& building etc. while the remaining parts of generated funds are use for day today operation of the business. I.e. to pay creditors for raw material purchase or to pay wages this may possible the stocking of finished goods by whose sales either account receivables or cash is received. In this process profit is generated. A part of profit is use to pay taxes, interest & dividend, while the remaining part is plough back in the business. This cycle goes on constantly through out the life cycle business.

DETERMINANTS OF WORKING CAPITAL

A firm should plan its operations in such a way that it should have neither too much nor too little working capital. The total working capital require is determined by wide Varity of factors. These factors, however, affect different enterprise differently. They vary from time to time in general the following factors are involve in a proper assessment of the quantum of working capital require.

General nature of business Production cycle Business cycle Credit policy Growth & expansion Vagaries in the availability of raw material Profit level Level of taxes Dividend policy Depreciation policy Price level changes Operating efficiency Size of the business

OPERATING CYCLE
Operating cycle can be defined as continuous process which starts at certain point end at the same point operating cycle is a cycle of operations. All the current assets they are transfer from one form to another, this process is continuous & without break. At every stage some time is require for processing. The total time to complete whole cycle is known as operating cycle period.

Cash

Purchase of raw material

Debtors

R.M. &Work in process

Sales

Finished goods

OPERATING CYCLE OF MANUFACTURING COMPANY

In the above diagram we find that cash is used to purchase raw material. Raw material is issued to production shop where it is converted in work in progress. The next stage is finished goods. The finished are sold to customer. And finally customer is pay cash immediately or after some time. Higher is the efficiency less will the operating cycle period more will be no. of cycle per annum and more will be profit per annum.

Formula for the calculation of operating cycle period = Raw material and work in progress holding period + finished goods holding period + debtors collection period creditors credit period.

WORKING

CAPITAL

MANAGEMENT

OF

CROMPTON

GREAVES LTD.:The study of working capital management of CGL is intended to analyze the CGL practice in working capital management performance in this segment of financial management. The efficiency of working capital management is determined by the efficient administration of its various components inventory, account receivable, account payable, cash. The study attempts to determine the efficiency and effectiveness of management in cash segment of working capital. Since, the net concept of working capital has been taken in the present study. The management of both current assets & current liabilities will be critically evaluated. The study of working capital management of CGL in to four parts o o o o

Cash management

Inventory management

Debtors management

Creditors management

CASH MANAGEMENT
Cash is both the beginning and end of working capital cycle. It is the most liquid asset & having vital importance in the business firm. It is known as the life blood of business enterprise. Adequate supply of cash is necessary to meet the requirement of the business, it shortage may stop the business operation or may generated a firm in to a state of technical insolvency even of liquidation. Cash is the most important component of current asset. All other components such as debtors and inventories are ultimately converted in to cash. Therefore for smooth running and maximum profitability, and effective cash management in a business is of paramount importance.

Motives for holding cash

Transaction motive

The transaction motive requires a firm to hold cash to conduct its business in the normal course. The firm needs cash primarily to pay its obligation for purchases, wages, operating expenses, taxes, dividend etc.

Precautionary motive A precautionary is the need to hold cash to meet any contingency in the future .it provides a cushion or buffer to withstand some unexpected emergencies which may be the result of:Floods, strikes & failure of important customers. Earlier presentation of bill for settlement before the due date. Sharp increase in cost of raw materials. Speculative motive

The Speculative motive refers to the desire of the firm to take advantage of opportunity which present themselves at unexpected movements and which are typically outside the normal course of business. The speculative motive helps to take the advantage of An opportunity to purchase raw material at a reduced prise on payment of immediate cash. Any other opportunity. Compensation motive

Compensations to banks for providing loans and & services. Banks provides variety of services to business firms. Such as clearances of cheques, supply of credit, information, transfer of funds and so on.

OBJECTIVE OF CASH MANAGEMENT:The basic objectives of cash management are as follows a. To meet the cash disbursement need. b. To minimise funds committed to cash balances.

Cash Management of CGL:The purpose is to focus on the efficiency on the management with which CGL manage liquidity and cash position. The study of cash management and liquidity in CGL will include the following areas of discussion Size of cash

Cash held by CGL during the period 2004-05 is of increasing trend. In 2004-05 cash in hand and bank was 73.42crores. Then it is increase from 2005 to 2007 as 125.13 to 173.57crores respectively. The cash decrease from 173.57crore in 2006-07 to 157.65crores in 2007-08. Again it increase heavily in 2008-09 & it was 472.51crores.

Components of cash balance

a. Cash in hand

b. Cash at current account

c. Cash in term deposit

In CGL cash at current account is major part of total cash balance through out the period. Cash in hand formed a very little part of total cash balance. Cash in term deposit is less than cash at current account but more than cash in hand. Through out the period.

INVENTORY MANAGEMENT
Inventory is the one of the major current asset. The term inventory refers to the stock pile of the products affirm is offering for sale & the components that make up the product. Inventory is composing of assets that will be sold in future in the normal course of business operations. The assets which firms store as inventory in anticipation of need areA. Raw material B. Work in process(semi finished goods) C. Finished goods

Inventory, as a current asset, differs from other current assets because only financial mangers are not involved. Rather all the functional areas, finance, marketing, production & purchasing.

Objective of the Inventory

The main objective of the inventory management areA. To minimise the investment in inventory. B. To meets the demand for the product by efficiently organising the production & sale operation.

Inventory Management in CGL

Inventory planning and procurement control is through the SAP. In CGL they give the order to his selected vendors on monthly basis. There are 2384 items are in the store of the CGL. And they are codified by combined method. They keep minimum stock of one week of local items. They use JUST IN TIME method for A group items. Company need to purchase items like copper in cash. They purchase copper from STERLIGHT COMPANY.

Techniques:To financial managers should aim at an optimum level of inventory on the basis of the trade off between cost and benefit to maximise the owners wealth. The major problem area that compromise the heart of inventory control are A. The classification to determined the type of control require B. The order quantity problem C. The order point problem D. Safety stock

CLASSIFICATION PROBLEM:-

ABC system:The first step in the inventory control process is classification of different type of inventories to determine the type of degree of control required for each. On the basis of cost involve the various inventory items are according to this system categorised in to three classes A, B & C.

The items included in A group involve the largest investment. Therefore inventory control should be most rigorous, intensive & sophisticated inventory control techniques should applied to these items.

The C group consist of items of inventory which involve relatively small investment although the number of items is fairly large. This item deserves minimum attention. The B group stand midway. It needs less attention than A group items but more than C group items.

A-B-C analysis in CGL:This is carried out in the beginning of every month. This is analysis of items of monthly consumption. Items are classified in to three groups i.e. A,B & C. A group items includes copper, casting & stamping. B group items include Bearings, R.C. rings, gland & cables. C group items include hardware items like nut, bolt, wiser etc.

Order Quantity Problem Economic Order Quantity Model (EOQ):A. Now two questions arise relating to inventory management. B. At what level should the order placed.

EOQ refers to the size of the order which give maximum economic in purchasing any item of raw material or finished product. Its refer to the level of inventory at which total cost of inventory comprising acquisition / ordering / setup cost & carrying cost minimal.

Assumptions
a. Firm knows with certain annual usage or demand of the particular item of inventories. b. The rate at which the firms user the inventories makes sales is constant throughout the year. c. The order for replenishment of inventories is placed exactly when inventories reach the zero level. d. There are two distinguishable cost associated with inventories - cost of ordering & carrying cost.

MATHEMATICAL APPROACH
EOQ = 2 AB/C Where, A = annual usages of inventory B = buying cost per order C = carrying cost per unit.

Order point problem or determination of the re-order level Re-order level is that level of inventory at which the firm should placed an order to replenish the inventory. In case the order is placed at this level new goods will arrived before the firm runes out of goods sale. ASSUMPTIONS

Constant daily usage of inventory Fixed lead time

Re-order point = lead time in days average daily usage of inventory. Where,

Lead time = It refers to the time normally taken inn receiving the delivery of inventory after the order has been placed.

Safety stock
In actual practice, it is almost impossible to correctly predict usage and lead time. The actual usage as well as the lead time may be different from normal usage or normal lead time. In order to guard against such a contingencies they maintains a safety stock. It is defined as the minimum additional inventory to serve as a safety margin or buffer to meet an unanticipated increase in usage is resulting from unusually high demanded & uncontrollable late receipt of incoming inventory. Safety stock = average usage period of safety stock.

STRUCTURE OF INVENTORY
The structure of inventory is usually affected by the nature of business of a firm. In CGL inventory mainly consist of following four categorise

Raw material Stores & spares Semi finished goods Finished goods

Some of the components need high degree of control where as other may not made high degree of control. The inventory of raw material and stores & spares can be reduced to a level it does not hamper the manufacturing process. Therefore an efficient management of inventory must try to allocate fund to each components of inventory in an optimum manner

DEBTORS MANAGEMENT:-

Get them to pay you as soon as possible

Every business needs to know who owns them money how much is owed how long it owes for what it owes There is nothing more important than being paid for a service or product. Customer who does not pay is not a customer. Receivable represent investment.

Definition
Emerson define receivables as, when goods or services are sold under an agreement permitting the customer to pay for them at a later date, the amount due from customer is recorded as account, representing claim to future payments of cash from customer.

Objectives of Receivable Management

To obtain optimum volume of sales. To control cost of credits & keep it as minimum as possible. To maintain the optimum level of investment in receivable. To keep dawn the average collection period. Ensuring prompt and accurate billing.

Need for accounts receivable

Sales expansion. Sales retention.

Management of account receivable is as follows

Credit policy Credit variables Credit terms Credit information

Collection efforts Monitoring accounts receivables

FIVE CS OF CREDIT
Character Capacity Capital Collateral Conditions

Late payments erode profits and can lead to bed debts. If company does not manage debtors, they (debtors) will begin to manage the company. Profit only comes from paid sales. A customer does not paid is not a customer. Account receivables = credit sales per day length of collection period

Tactics for Managing Debtors

Maintain constant contact with the customer Set targets of collection of cash & be committed to them Send invoice out promptly Use the debtors days calculation to determine how quickly you are collecting cash Set the rules that limit the customer who can become the debtors Agree collection terms that encourages customer to pay quickly Limits beyond which legal action will be persuade should be determine

CREDITORS MANAGEMENT

Management of creditors and suppliers is as important as the management of debtors. However, there is a basic difference between the approaches to be adopted by the finance manager in these two cases. Where as the underlining objective in case of accounts receivable is to maximise the acieration of the collection process, the objective in case of accounts payable is to slow down the payment process as much as possible. However, it should be noted that delay in payment of accounts payable may result in saving of some interest cost, but it can prove very costly to the firm in the form of loss of credit in the market. The finance manager has therefore; ensure that the creditors are made at the stipulated period after obtaining the best terms possible. You must maximise the time from when you receive goods or services from your suppliers to when you pay them without damaging your relationship with them.

Tactics for Managing Creditors

Pay as late as possible without infringing invoice payment terms. Agree clear terms of payment with the supplier

Accounts payable process in CGLIn CGL most of the vendors are fixed for the purchase of material. First they introduce the vendor then negotiate with them about the creditability. After negotiation if supplier agrees with terms and condition then purchase transaction process get start. Purchase order gives to the vendor, then on the specific date vendors supplies the material. In the company all the process is in code language through the SAP. When material arrives at gate entry is passed as a 103. Then material is received and checking of quality process starts as 105. Then the document invoice entry is form in the account. After the credit generation all documents comes to the finance department, in the finance department the process of bill booking happen after scrutinising it with the invoice price. After completion of all the process on the due date the message about the payment of bill is displayed on the screen and payment is made through cheque.

RESEARCH METHODOLOGY

REASERCH METHODOLOGY Research:Research is an art of scientific investigation. Research is consider as movement from the know to the unknown. It is actually voyage of discovery. Research is thus an original contribution to the existing stock of knowledge making for its advancements. Sample:An important step in data collection process of selecting representative part of population, studying it and thereby drawing conclusion about the population itself. Sampling is a very important aspect of marketing research and due care has to taken to arrive at the right to be studies. Often it is impossible or to expensive to study the entire population for the decision are the decision maker to understand the market.

Sampling methods:-

Probability sampling Each sample unit in sample frame has equal or know chance of being included as sample. Samples are selected at random from sample frame. In this sampling whenever large sample size is involve. This method is used. Normally this method is used for consumer goods survey. Non probability sampling The chance of each sample unit from sample frame being included as sample can not be estimated. Samples are selected with respect to prior experience or judgement of researcher. For accessing small sample size this method is used. Normally this method is used for industrial goods.

Types of methodology: 1- Primary method Primary data is collected by visiting all the departments and direct talk with the officers in respective departments.

2- Secondary method Secondary data is collected from the financial statements of the Crompton Greaves Ltd. and it also collected through informal discussion with staff.

To analysis the problem of working capital management various techniques a financial management have been used in the present study, such as ratio analysis, fund flow analysis and cash flow analysis so as to rich round conclusion. To present a graphic view and make it easy to understand the problem, few graphs and diagrams have been presented.

DATA ANALYSIS AND INTERPRITATION

COMPARATIVE ANALYSIS OF 5 YEARS WORKING CAPITAL OF CROMPTON GREAVES LTD. (Rs. in Crore)
Particulars (A) Assets, Current loans 2004-05 2005-06 2006-07 2007-08 2008-09

& advances

Inventory Debtors Cash Loans advances Total (A) (B) Current

177.09 541.08 73.42 & 99.24

191.80 659.67 125.13 157.10

247.00 803.89 173.57 236.36

262.95 956.22 157.65 279.40

281.32 1012.26 472.51 319.90

890.83

1133.68

1460.84

1656.22

2085.99

Liabilities Creditors Other liabilities Provisions Total (B) Working 15.67 587.23 303.60 66.10 802.36 331.32 158.03 1047.62 413.22 254.09 1295.29 360.93 224.25 1515.69 570.30 513.91 57.65 539.84 196.41 649.66 239.72 770.96 270.23 847.51 443.93

Capital (A-B)

WORKING CAPITAL STATUS OF CGL

600

570.3

500

413.22

WORKING CAPITAL (RS. IN CRORES)

400

360.93 331.32 303.6

300

200

100

0 2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

Analysis:Net working capital is frequently employed as a measure of a companys liquidity position. Inadequate working capital is first sign of financial problems for firm. Working capital analysis is important to determine the direction and tendency of

working capital. It is a dynamic method of analysis showing changes over a period of time and it helps to indicate the direction in which the business is going.

Working capital of CGL shows that working capital was increase from 303.06 crores in 2004-05 to 331.32 in 2005-06 to 413.22 crores in 2007-08.It was due to heavy increase in the current assets as compared to current liability. Current assets increased heavily only because of heavy increase in the amount of debtors and cash.

Debtors were increase due to increase in the sales, Sales increased from 1972.51 crores in 2004-05 to 3367.60 crores in 2006-07.Cash increased due to increased in the debtors turnover ratio and decrease in the debtors collection period. Debtors turnover ratio increase from 3.64 times in 2004-05 to 4.60 times in 2006-07.Debtors turnover ratio signifies that debtors got converted in cash no. of times in a year. Debtors collection period of the company also declined from 99 days in 2004-05 to 89 days in 2006-07, so this period shows that company recovers his money early from his customers so these two things were responsible for increase in cash and debtors.

But Working Capital declined sharply from 413.22 crores in 2006-07 to 360.93 crores in 2007-08, it was mainly due to increase in the current liability was more than increase in current assets. Current liability increase due to increase in the creditors and provisions. Creditors increased due to increase in credit purchases, it was increase from 1414.63 crores in 2004-05 to 2716.27 crores in 2007-08 and at the same time cash declined.

Again working capital increase from 360.93 crores in 2007-08 to 570.30 crores in 2008-09 and it was due to heavy increase in debtors and cash. Channel financing affect on the increased in cash because debtors collection period comes down and cash collected early.

WORKING CAPITAL RELATED COMPARITAVE FINANCIAL RATIO OF CGL :PARTICULAR 2004-05 2005-06 2006-07 2007-08 2008-09

Working capital turnover ratio Working capital to cost of sales Working capital to net block

6.49

7.60

8.14

10.73

8.08

0.19

0.18

0.21

0.16

0.24

0.86

0.91

0.95

0.70

1.15

Working Capital Turnover Ratio :Working Capital Turnover Ratio = Net Sales / Net Working Capital (RS. in Crore)

PARTICULAR

2004-05

2005-06

2006-07

2007-08

2008-09

Net sales

1972.51

2520.59

3367.60

3875.75

4610.66

Working capital Working capital turnover ratio (times)

303.60

331.32

413.22

360.93

570.30

6.49

7.60

8.14

10.73

8.08

WORKING CAPITAL TURNOVER RATIO

12 10 8
WORKING CAPITALTURNOVER RATIO

10.73 8.41 8.08

7.6 6.49

6 4 2 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

ANALYSIS :The working capital turnover ratio increase from 6.49 times in 2004-05 to 7.60 times in 2005-06 due to increase in the working capital. Both net sales and working capital amount increase. Working capital amount increase due to increase in the current assets.

This ratio again increases from 7.60times in 2005-06 to 8.14 times in 2006-07. This also due to the increase in the working capital and sales. And this is favourable for the company.

Again the ratio increase from 8.24 times in 2006-07 to 10.73 times in 2007-08. But working capital turnover ratio decrease from 10.73 times in 2007-08 to 8.08 times in 2008-09. And this is only due to heavy increase in the working capital as compare to the sales. Though the ratio decrease in the year 2008-09 but it is satisfactory.

Working Capital to Cost of Sales Working Capital to Cost of Sales = Working Capital / Cost of Sales (Rs. in Crore)
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Working capital Cost of sales

303.60

331.32

413.22

360.93

570.30

1535.47

1786.81

1935.54

2141.26

2318.21

Working capital to cost of sales

0.19

0.18

0.21

0.16

0.24

WORKING CAPITAL TO COST OF SALES

0.25 0.2
WORKING CAPITAL TO COST OF SALES

0.24 0.21 0.19 0.18 0.16

0.15 0.1 0.05 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

This ratio slightly decrease from 0.19 in 2004-05 to 0.18 in 2005-06 and this is favourable to the company. But the ratio increase from 0.18 in 2005-06 to 0.21 in 200607 this is mainly due to the heavy increase in the working capital.

Again this ratio decrease from 0.21 in 2006-07 to 0.16 in 2007-08 because of fluctuating nature of working capital. But the ratio again increases from 0.16 in 200708 to 0.24 in 2008-09 because of heavy increase in the working capital. And this is not favourable for the company.

Working Capital to Net Block Working Capital to Net Block = Working capital / Net block (Rs. in Crore)
Particulars 2004-05 2005-06 2006-07 2007-08 2008-09

Working capital Net block

303.60

331.32

413.22

360.93

570.30

351.50

363.79

433.37

515.29

492.71

Working capital to net block

0.86

0.91

0.95

0.70

1.15

Working capital to net block from 0.86 in 2004-05 to 0.91 in 2005-06 to 0.95 in 200607. Increase in the working capital to net block is not favourable for the company. But the ratio decrease from 0.95 in 2006-07 to 0.70 in 2007-08 but the ratio increase in the year 2008-09 & it is 1.15.Increasing ratio signifies that company having policy of more working capital than fixed assets.

WORKING CAPITAL TO NET BLOCK

1.2 1 0.8
WORKING CAPITAL TO NET BLOCK 0.6

1.15 0.91 0.95 0.7

0.86

0.4 0.2 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

INVENTORY MANAGEMENT OF CGL Inventory

turnover ratio

Inventory turnover ratio = Cost of goods sold / Average inventory. Inventory holding period = 365/ Inventory turnover ratio.

(RS. IN CRORES) PARTICULAR 2004-05 Cost of goods 1369.76 sold Opening 174.26 inventory Closing 177.09 inventory Average 175.68 inventory Inventory 7.79 turnover ratio (times) Inventory 47 holding period (In Days)

2005-06 1823.84 177.09 191.80 184.45 9.88

2006-07 2528.50 191.80 247.00 219.40 11.52

2007-08 2800.01 247.00 262.95 254.98 10.98

2008-09 3112.82 262.95 281.32 272.13 11.43

37

32

33

32

INVENTORY TURNOVER RATIO OF CGL

12 10 8
INVENTORY TURNOVER RATIO 6

11.52 9.88 7.79

10.98

11.43

4 2 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

The ratio indicates how fast inventory is sold. Higher the ratio better it is from the viewpoint of liquidity and vice versa, a low ratio signifies that inventory does not sell fast and stays on the shelf or in the warehouse for a long time. Here the ratio increase 7.79:1 in 2004-05 to 9.88:1 in 2005-06 to 11.52:1 in 2006-07 due to increase in turnover is more than increase in inventory. Now the ratio decline from 11.52:1 in 2006-07 to 10.98:1 in 2007-08 because increase in the inventory is more than increase in the turnover. But again ratio rose to 11.43:1 in the year 2008-09. This is favourable for company.

Raw material turnover ratio ( % )

Raw material turnover ratio = raw material consume / gross sales

PARTICULAR

2004-05

2005-06 65.02

2006-07 52.88

2007-08 50.07

2008-09 47.27

Raw material 71.32 turnover ratio

RAW MATERIAL TURNOVER RATIO

80 70 60
RAW MATERIAL TURNOVER RATIO 40 (%)

71.32 65.02 52.88 50.07

50

47.27

30 20 10 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

Raw material turnover ratio shows that continuous fall in the ratio. The ratio falls from 71.32% in 2004-05 to 65.02% in 2005-06 to 52.88% in 2006-07 to 50.07% in 2007-08 to 47.27% in 2008-09. Fall in the ratio is due to heavy increase in the turnover through out the years.

Stores and spares inventory (%)

Stores and spares inventory = store and spare consumption / gross sales PARTICULAR 2004-05 2005-06 6.11 2006-07 5.96 2007-08 6.18 2008-09 6.11

Store and spares 7.32 turnover ratio

STORES & SPARES TURNOVER RATIO

8 7 6
STORES & SPARES5 TURNOVER RATIO 4 (%)

7.32 6.11 5.96 6.18 6.11

3 2 1 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

Stores & spares turnover is decrease from 7.32% in 2004-05 to 6.11% in 200506 to 5.96% in 2006-07 due to heavy increase in the gross sales as compare to store & spare consumption. The ratio increases from 5.96% in 2006-07 to 6.18% in 2007-08 because company raised the consumption the better way to avoid the inventory keeping idle. This lead to increase in the ratio. But again ratio falls from 6.18% in 2007-08 to 6.11% in 2008-09. Due to heavy increase in the gross sales as compare to stores & spares consumption.

Semi finished & finished product to net sales (%)

Semi finished & finished product to net sales = Semi finished or finished product / net sales 100 (RS. IN CRORES)

PARTICULAR 2004-05
Semi finished & 122.63 finished goods Net sales 1972.51 Ratio 6.21

2005-06
138.48 2520.59 5.49

2006-07
175.89 3367.60 5.22

2007-08
163.46 3875.75 4.21

2008-09
177.54 4610.66 3.85

semi finished & finished product to net sales

7 6
SEMI FINISHED & FINISHED PRODUCT TO NET 4 SALES RATIO 3 (%)

6.21 5.49 5.22 4.21 3.85

2 1 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

The semi finished & finished product to net sales decrease from 6.21 % in 2004-05 to 5.49% in 2005-06 to 5.22% in 2006-07 to 4.21% in 2007-08 to 3.85% in 2008-09 due to massive increase in the net sales through out the year. Decrease in semi finished & finished product & net sales depend upon the global market to some extent.

% of inventory to current assets of CGL

(RS. IN CRORES) PARTICULAR 2004-05 Total inventory 177.09 2005-06 191.80 1133.68 16.91 2006-07 247.00 1460.84 16.90 2007-08 262.95 1656.22 16.05 2008-09 281.32 2085.90 13.48

Total current 890.83 assets % of inventory 19.87 to current assets

% of inventory to total current assets of CGL

19.87
20 18 16 14 12 % of inventory to current assets 10 8 6 4 2 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09

16.91

16.9

16.05 13.48

DEBTORS MANAGEMENT Debtors turnover ratio

Debtors turnover ratio = Net credit sales / Average debtors (RS. IN CRORES)

PARTICULAR 2004-05
Net credit sales 1972.51

2005-06
2520.59 600.36 4.19 87

2006-07
3367.60 731.76 4.60 89

2007-08
3875.75 880.05 4.40 83

2008-09
4610.66 984.24 4.68 78

Average debtors 533.96 Debtors turnover 3.64 ratio (times) Debtors 99 collection period(In days)

Debtors turnover ratio of CGL

5 4.5 4 3.5
Debtors turnover 2.5 ratio

4.6 4.19 3.64

4.4

4.68

3 2

1.5 1 0.5 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

The analysis of the debtors turnover ratio supplements the information regarding the liquidity of one item of current assets of the firm. The ratio measures how rapidly receivables are collected. A constantly increasing graph of debtors turnover ratio is a good sign for the company. It represent rapidly the debts are collected. The ratio increase from 3.64 in 2004-05 to 4.19 in 2005-06 to 4.60 in 2006-07 due to heavy increase in sales and decrease in debtors collection period. Debtors collection period decreased from 99 days in 2004-05 to 89 days in 2006-07. The credit sale of the company also increased heavily but the company was able to collect the money early from his customers, so the debtors collection period came down and it affect on the decrease in the percentage of debtors as compared to credit sales. Debtors turnover ratio decreased from 4.60 times in 2006-07 to 4.40 times in 2007-08 but the ratio again increase from 4.40 times in 2007-08 to 4.68 times in 200809.Debtors collection period of the company is of decreasing nature, it decreased from 99 days in 2004-05 to 78 days in 2008-09 . Company introduce financing channel to recover the money from debtors and it become successful. It is good sign for company.

CREDITORS MANAGEMENT Creditors Turnover Ratio Creditors Turnover Ratio = Credit Purchases / Average Creditors

PARTICULAR 2004-05
Credit Purchases Average Creditors Creditors Turnover Ratio (times) Creditors Credit Period (In Days) 1414.63 542.90 2.60

2005-06
1821.42 526.87 3.45

2006-07
2482.77 599.75 4.13

2007-08
2716.27 710.31 3.82

2008-09
3112.84 809.23 3.84

140

106

88

95

95

creditors turnover ratio of CGL

4.5 4 3.5 3
creditors turnover ratio

4.13 3.82 3.45 2.6 3.84

2.5 2 1.5 1 0.5 0 2004-05 2005-06 2006-07

YEARS

2007-08

2008-09

A lower turnover ratio reflects liberal credit terms granted by suppliers, while the high ratio shows that accounts are to be settled rapidly. The extent to which trade creditors are willing to wait for payment can be approximated by the creditors turnover. Creditors turnover ratio increase from 2.60 in 2004-05 to 3.45 in 2005-06 to 4.13 in 2006-07 is mainly due to the high turnover of the company. The ratio decrease from 4.13 in 2006-07 to 3.82 in 2007-08 due to increase in the average creditors is more than increase in credit purchases. Ratio again increases to 3.84 in 2008-09. Creditors credit period is of decreasing nature. It is mainly due to the debtors collection period has been reduced and because of that company is able to pay creditors in time.

OPERATING CYCLE
Operating cycle = Raw material and WIP holding period + finished goods holding period + debtors collection period creditors credit period. Raw Material & WIP Holding Period = Avg. Raw Material + Avg. WIP / Raw Material Consume 365 = 98.34 + 121.73 / 2318.21 365 = 35 days. Finished Goods Holding Period = Avg. Finished Goods / Cost of Goods Sold 365 = 48.76 / 2318.21 365 = 8 days. Debtors Collection Period = Avg. Debtors / Credit Sales 365 = 984.24 / 4610.66 365 = 78 days. Creditors Credit Period = Avg. Creditors / Credit purchasee 365 = 809.23 / 3115.84 365 = 95 days.

Operating Cycle Period = = 35 days + 8 days + 78 days 95 days = 26 days.

Operating cycle period of CGL is 26 days. It means that company needs 26 days to get his money back from the operations. It means that there are 365 / 26 = 14 operating cycles are completed in one year.

RATIO AT A GLANCE

Particular

Units

2004-05

2005-06

2006-07

2007-08

2008-09

Profitability Ratio :G.P. Ratio N.P. Ratio % % 30.55 5.81 27.64 6.46 24.91 5.71 27.73 8.09 32.48 8.61

Leverage Ratio :Debt Equity Ratio Interest Coverage Ratio Times 0.76 0.46 0.40 0.09 0.07

Times

6.40

8.38

11.11

18.91

43.01

Liquidity Ratio :Current Ratio Quick Ratio Times Times 1.52 1.24 1.41 1.27 1.39 1.36 1.28 1.33 1.37 1.39

Turnover Ratio :Inventory Turnover Ratio Working Capital Turnover Ratio Times 7.79 9.88 11.52 10.98 11.43

Times

6.49

7.60

8.14

10.73

8.08

Expenditure Turnover Ratio :-

Raw Material % Ratio Stores & % Spares Ratio Employee % Remuneration Ratio

71.32 7.32 6.61

65.02 6.11 6.11

52.88 5.96 4.76

50.07 6.18 4.75

47.27 6.11 4.63

ANALYSIS Gross Profit Ratio = Gross Profit / Net Sales 100

The gross profit ratio which is high indicates that the organisation is able to produce or purchase at a relative low cost. How ever the reason for the decline in the ratio is due to fall in the selling price and cost of production remaining the same. The company standard is 25% to 35%. The Gross profit ratio decrease from 30.53% in 2004-05 to 27.64% in 2005-06 to 24.91% in 2006-07, but ratio increase to 27.73% in 2007-08 to 32.48% in 2008-09. This ratio is satisfactory for the company.

Net Profit Ratio = Net Profit / Net Sales 100

Net profit ratio of the company increase from 5.81% in 2004-05 to 6.46% in 2005-06, but the ratio decrease to 5.71% in 2006-07 again ratio increase to 8.09% in 2007-08 to 8.61% in 2008-09. Net profit ratio of the company is of increasing nature and it is good sign for company.

Debt Equity Ratio = Total Debt / Share Holders Equity

Higher ratio is not preferred. The D/E ratio is an important tool of financial analysis to appraise the financial structure of the firm. It has important implication from the view point of creditors owners and the firm it self. If the D/E ratio is high it means owners are putting up relatively less money of there own. The ratio in the company is of decreasing nature; it decreases from 0.76 times in 2004-05 to 0.46 times in 2005-06 to 0.40 times in 2006-07 to 0.09 times in 2007-08 to 0.07 times in 2008-09. And it is favourable for the company.

Interest Coverage Ratio = EBIT / Interest

This ratio measures the debt servicing capacity of a firm in so far as fixed interest on long term loan is concerned. Larger the coverage grater is the ability of the firm to handle fixed charge liabilities and more assure is the payment of interest to them. Too high ratio may imply unused debt capacity and low ratio is danger signal that the firm is using excessive debt and does not have the ability to offer assure payment of interest to the lenders. The ratio in the company increase from 6.40 times in 2004-05 to 8.38 times in 2005-06 to 11.11 times in 2006-07 to 18.91 times in 2007-08 to 43.01 times in 2008-09.

Current Ratio = Current assets / Current liability

The current of a firm measures its short term solvency, that is, its ability to meet short term obligations. Conventionally, current ratio of 2:1 is considered satisfactory, but in case of manufacturing company 1.5:1 is satisfactory. Current ratio of the company decrease from 1.52 times in 2004-05 to 1.41 times in 2005-06 to 1.39 times in 2006-07 to 1.28 times in 2007-08 but it increase to 1.37 times in 2008-09. Current ratio is not as per the standard.

Quick Ratio = Quick Assets / Quick Liability Usual standard is 1:1. The ratio increase from 1.24 times in 2004-05 to 1.27 times in 2005-06 to 1.36 times in 2006-07 to 1.33 times in 2007-08 to 1.39 times in 2008-09. The ratio is more than standard and it is good sign. This ratio indicates that company is having more cash.

Employee Remuneration & Benefit Turnover Ratio = Employee Remuneration & Benefit Consumption / Turnover The ratio is of decrease nature. Ratio decrease from 6.61% in 2004-05 to 6.11% in 2005-06 to 4.76% in 2006-07 to 4.75% in 2007-08 to4.63% in 2008-09 due to heavy increase in the turnover. This is favourable for the company.

FINDINGS & CONCLUSION

FINDINGS RELATED TO VARIOUS ELEMENTS OF WORKING CAPITAL Inventory :Inventory includes raw material, working process, finished goods & spare parts. Inventory control is through the SAP in the company. There are 2384 items are in the store of the company and they are codified by combine method, they keep minimum one week stock of local items. The company purchase copper, casting & stamping which are its major raw materials. As the proportion of inventory to total current assets is being reduced on year on year basis, it means that proper inventory control system adopted by the company is satisfactory. As inventory control techniques is satisfactory there is no idle investment of cash & inventory. Inventory turnover ratio is increasing throughout the year. Inventory turnover ratio increased from 7.79 times in 2004-05 to 11.43 times in 2008-09. And inventory holding period of the company is also of decreasing period. Higher the ratio of inventory turnover ratio is better as the viewpoint of company, it means that company selling its inventory very fast. For effective & economical purchasing company has adopted e-sourcing method of electronic buying, this has help to do purchases at competitive cost and its benefits are use effectively for other purposes. Company purchases the raw material on monthly basis & using forward booking system so it reduces the blockage of capital and material get available in time.

Cash :Enough cash is available with the company. Cash payment is made only below Rs. 5000/-. Payment above Rs.5000/- is made through cheque. Cash in hand and at bank is of increasing nature, it increase from 73.42 crores in 2004-05 to 472.51 crores in 200809. Cash increase in the year 2008-09 heavily because the company introduce channel financing in last year so the debtors collection period has been reduced and cash gets early. Most of the purchases and sales are on credit basis but the company needs cash for the purchase of raw material like copper which is very costly. In CGL cash at current

account is major part of total cash balance through out the period. Cash in hand formed a very little part of total cash balance. Cash in term deposit is less than cash at current account but more than cash in hand throughout the period.

Receivables :Debtors form the major part of current assets in the company and it is of increasing nature. Debtors increased from 541.08 crores in 2004-05 to 1012.26 crores in 2008-09, it is mainly due to increase in the sale of the company. Sales increased from 1972.51 crores in 2004-05 to 4610.66 crores in 2008-09. Incresing debtors turnover ratio shows that debtors got converted in cash rapidly. The ratio increased from 3.64 times in 2004-05 to 4.68 times in 2008-09.Debtors collection period of the company is also declined from 99 days in 2004-05 to 78 days in 2008-09 and it is good sign for the company. Company introduce channel financing for the collection of debtors and it is very beneficial for the company because they are getting payments early. Debtors collection period is less than creditors credit period so it is beneficial for the company.

Payables :Improved collection and use of channel financing has help CGL to reduce debtors from 99 days in the year 2004-05 to 78 days in the year 2008-09, this help in timely payment to the creditors. Creditors credit period declined from 140 days in 2004-05 to 95 days in 2008-09. In CGL most of the vendors are fixed for the purchase of material. First they introduce the vendor then negotiate with them about the creditability. After negotiation if supplier agrees with terms and condition then purchase transaction process get start. Purchase order gives to the vendor, then on the specific date vendors supplies the material. In the company all the process is in code language through the SAP. When material arrives at gate entry is passed as a 103. Then material is received and checking of quality process starts as 105. Then the document invoice entry is form in the account. After the credit generation all documents comes to the finance department, in the finance department the process of bill booking happen after scrutinising it with the invoice price. After completion of all the process on the due date the message about the payment of bill is displayed on the screen and payment is made through cheque. CGL is enjoying credit facility with the suppliers by the way of hundi system, letter credit guaranty mechanism. However in case of materials like copper & aluminium major purchases are on cash basis.

Net working capital :-

It is a difference between current assets and current liabilities. The net working capital has increased tremendously since 2004 to 2007. It decreases in the year 2007-08 but again increase in the year 2008-09. This is due to the tremendous rise in the current assets and comparatively slow rise in current liabilities. Current assets increase due to increase in the debtors and cash mainly. Debtors are increases due to increase in the credit sales. Cash is increased because debtors are collected in time and company enjoying good credit facility so the creditors credit period is more than debtors collection period. Higher the level of working capital means less risk involve in the operations but there is less profitability and the lower level of working capital more risk in the operation and profitability. Net working capital of the company has been increased as proportion to the turnover.

FINDINGS RELATED TO WORKING CAPITAL RATIOS Gross Profit & Net Profit Ratio :Company standard for gross profit is 25% to 35% and companys gross profit is as per the standard. it increased from the last year, It shows cost of production of the firm is relatively low and it is beneficial for the company Company standard for net profit is 15% to 25% but companies net profit is not as per the company standard it is extremely below the standard but it is increasing from last years it shows good sign for company. If we compare net profit ratio of the company with competitors we find that it is very good. Kirloskar and Siemens are the competitors of CGL and their net profit ratios are 3.25% & 7.19% respectively.

Current Ratio & Quick Ratio

These ratios have made the liquidity position of the company stronger. Company standard for Current ratio is 1.5:1 and current ratio of the company is not as per the company standard. Company standard for quick ratio is 1:1 and companies quick ratio is more than company standard. It is favourable for the company.

Debt Equity & Interest Coverage Ratio :Debt equity ratio is of decreasing nature it is good sign for the company because company is using his own money in the business.

From the interest coverage ratio it is found that company can pay the interest of the borrowers.

Working Capital Turnover Ratio :Working capital turnover ratio is of increasing nature up to the 2007-08, it decreases in the year 2008-09 but it is satisfactory. Based on the findings they can conclude the following and there by suggests certain remedial measures

CONCLUSSION
The main objective of the research was to study the working capital management of the company. Working capital of the company had gone up from 303.60 crores in 2004-05 to 570.30 crores in 2008-09. In line with increased in turnover of the company from 1972.51 crores in 2004-05 to 4610.66 crores in 2008-09. It indicates that with increase in the sales volume CGL has maintained reasonably good working capital positively by monthly monitoring of working capital. Working Capital turnover ratio of the company is at satisfactory level. We can understand from our research that the organisation is doing well as per as the sales and gross profit are concern and net profit of the company is also increasing year by year.Net profit increase from 114.78 crores in 2004-05 to 397.09 crores in200809.The company has adopted proper inventory control system in the organisation. The company has introduced channel financing to recover the money from debtors and it becomes successful. Debtors collection period declined from 99 days in 2004-05 to 78 days in 2008-09.So the debtors are collected earlier and it results in increase in cash. Cash increased from 73.42 crores in 2004-05 to 472.51 crores in 2008-09.And because of early collection of debtors the company is also able to paid creditors in time. Creditors credit period also declined from 140 days in 2004-05 to 95 days in 2008-09. In todays economic condition cash should be manage with utmost care because it is said that profit is in books & cash is reality.

LIMITATIONS
i. All policy decisions are centralised and taken by the corporate office situated in Mumbai, thus the limiting the sources of information.

ii.

Confidential data was not allowed to be accessed or published in project report.

iii.

Duration of project is restricted to 60 days and thus most important limitation of research is shortage of time. Due to which study was not possible.

iv.

Busy schedules of employees sometimes make difficult to get data from them.

SUGGESTIONS

SUGGESTIONS

In the view of analysis and with the change in industrial scenario it is felt that company must also reorient its policies for betterment.

Inventory : Scrap material, slow moving goods and non moving items should be made moving and alternatives should be tried. Material requirement plan should be prepare two weeks prior to have reasonable lead time, which will ensure availability of raw material when needed. Chang in purchase price and its polices should be periodically checked for raw materials to avoid excess or wrong purchases. The current problem of inflation should also be taken in to consideration and accordingly purchase decision should be taken. Quality of incoming raw material should be properly checked to avoid wastages and also to improve the quality of finished product. Company should not use forward booking of raw material in inflation period.

Cash Management : Company should keep sufficient cash in hand for taking the advantage of market.

For better cash management company should immediately be invested excess cash in short term securities.

Creditors Management : Company should try to look for new alternatives which can provide the raw material at a reasonable price and at better credit terms maintaining the similar quality of raw material. Company should try to convince the supplier for extension of credit period.

Other Suggestion : Company should try to improve his current ratio by increasing current assets or by decreasing current liabilities. The company should manage his working capital. If possible company should try to borrow loans having less interest. Company should try to increase his net profit by way of controlling process cost and material cost. Raw material should be bought in bulk so as to get trade discount.

BIBLIOGRAPHY

BIBLIOGRAPHY

BOOKS REFERRED:M Y Khan & P K Jains FINANCIAL MANAGEMENT. The McGraw-Hill companies 5th Edition 2008. I M Pandays FINANCIAL MANAGEMENT.

WEBSITES:www.cglonline.com www.wikipedia.com www.investopedia.com

ANNUAL REPORTS:2004-05 of CGL 2005-06 of CGL 2006-07 of CGL 2007-08 of CGL 2008-09 of CGL