Working Capital Management Rinl

Table of Content

WORKING CAPITAL MANAGEMENT OF Sathe Synthetics PROJECT REPORT Submitted in partial fulfillment of the requirement for the award of Two year full time, Masters in Business Administration. By Karan veer Singh DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA (2009-2011) Page 1 Acknowledgement Whatever we do and whatever we achieve during the course of our limited life is just not done only by our own efforts, but by efforts contributed by other people associated with us indirectly or directly. I thank all those people who contributed to this from the very beginning until its successful end.

I sincerely thank Mr. Subodh kr. Teotia (Personnel manager, Sathe Synthetics, Ghaziabad), person of amiable personality, for assigning such a challenging project work which has enriched my work experience and getting me acclimatized in a fit and final working ambience in the premises of Sathe Synthetics. I acknowledge my gratitude to Mr. Nitin Dhir (Lovely Professional University), for his extended guidance, encouragement, support and reviews without whom this project would not have been a success. Last but not the least I would like to extend my thanks to all the employees at Sathe Synthetics, Ghaziabad (prop.

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Rakesh fuel pvt. Ltd. ) and my friends for their cooperation, valuable information and feedback during my project. KARAN VEER SINGH Page 2 TABLE OF CONTENTS 1. EXECUTIVE SUMMARY 2. INDUSTRY PROFILE 3. ABOUT THE COMPANY a. Company profile b. Mission & Vision c. Company Leadership d. Company Products e. SCOT Analysis of Sathe synthetics 4. OBJECTIVES OF THE STUDY 5. REVIEW OF LITERATURE 6. RESEARCH METHODOLOGY 7. WORKING CAPITAL MANAGEMENT a. Introduction b. Working Capital Analysis c. Nature & importance of working capital d. The importance of Good Working Capital e.

Working Capital Cycle 8. OPERATING CYCLE OF SATHE SYNTHETICS a. Gross operating cycle b. Net operating cycle Page 3 9. SCHEDULE CHANGE IN WORKING CAPITAL & ANALYSIS 10. WORKING CAPITAL RATIOS OF SATHE SYNTHETICS a. Receivable Ratio b. Payable Ratio c. Inventory Ratio d. Current Ratio e. Quick Ratio f. Working capital turnover ratio 11. ANALYSIS OF THE STUDY a. Analysis of various components b. Inventory c. Sundry Debtors d. Cash & Bank Balance e. Current Liability f. Provision Analysis 12. CONCLUSION 13. SUGGESSATIONS & RECOMMENDATIONS 14. BIBLIOGRAPHY & REFRENCES 15.

ANNEXURES Page 4 Executive Summary The project on Working Capital Management has been a very good experience. Every manufacturing company faces the problem of Working Capital Management in their day-to-day processes. An organization¶s cost reduced and the profits increased only if it is able to manage its Working Capital efficiently. At the same time, the company can provide customer satisfaction and hence can improve their overall productivity and profitability. This project is a sincere effort to study and analyze the Working Capital Management of Sathe Synthetics, GZB.

The project focused on making a financial overview of the company by conducting a Working Capital analysis of SATHE group for the years 2005 to 2009 and Ratios & various components of working capital & format emphasizing on Working Capital. The internship is a bridge between the institute and the organization. This made me to be involved in a project that helped me to employ my theoretical knowledge about the myriad and fascinating facets of finance. Moreover, in the process I could contribute substantially to the organization¶s growth.

The experience that I gathered over the past two months has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future. Page 5 INDUSTRY PROFILE HISTORY OF THE INDIAN TEXTILE INDUSTRY: The human need is to eat well for to be alive and shelter to protect them from discomforts of nature and a place to live in. Human beings also need something to cover their body to protect from diverse climates and to add the appearance. Earlier there was a time when the human being known nothing about the cloth to wear.

The human beings first use plant barks, leaves and animal skin to wrap around them. Then as the development of brain took place, they started to explore other possibilities and invent more in this area. There is constant search for clothing and it led to the knowledge of sources from vegetation i. e. Cotton and from animals i. e. wool, which could be knitted and woven to manufacture clothes to wear. The commercial development of man-made fiber began late in the 19th Century, experienced much growth during the 1940¶s, expanded rapidly after world War ± II and in the 1970¶s was still the subject of extensive Research and Development.

The spinning and weaving both are very common and attached with each other in all parts of the world. We talk of the ancient times, when maximum work like weaving of the clothes was done manually, but all the things were being done for the right perspectives. From time to time in this world development had taken place, which has been found to be a continuous process. Similarly considering the developments in the Spinning and Weaving lot of improvements has come-up. Because earlier too was the Cotton crop was grown by the farmers, but its end use was not done in an effective way, which seems good.

So much thick fiber was produced and accordingly its impact for the fabric preparation. Page 6 APPARATUS USED FOR SPINNING & WEAVING DURING PRE-INDEPENDENCE Before Independence we talk of the political leaders like Mahatma Gandhi, who had always insisted to use Khadi Clothes and even self-spinning and weaving. It is also called as selfdependence for all needs. Such a good initiatives had come-up at India level amongst the followers of the Leader ± Mahatma Gandhi. On the other side too such initiatives had been proved very good and had attracted many other western countries to follow such practices and show their excited ness.

Though in case we talk of the English rule before the Independence i. e. 1947, it was not appreciated by the English Rulers, but after the freedom these leaders had got very good appreciation particularly for the self spinning and weaving and in an overall manner this sector of Spinning and Weaving was industrialized even after the independence too on the basis of Indian cotton growers. Page 7 It is needless to mention here that throughout India, cotton grower¶s belts are available and after independence, even English people take their raw material from here and had established themselves with the Spinning and weaving industries.

Overall In India no such preferences for the Spinning and Weaving industries were made, however the Library research reveals that the first Cotton mill had been established in India during 1854 named as Bombay Spinning and Weaving company. Though the Cotton industry had progressed a lot, but in case we say that India alone is heading this world, it is wrong. Though in India Textile Machine manufacturers are there and one or two decades ago they were the market leaders, but with the help of the other parts/people of world i. e. Germany, Switzerland etc. India had made a very good recognition in the yarn market. Because Indian Industrial Organizations have also initiated towards the most modernized machinery produced by Schlafhorsts ± Germany, Luwa ± Humidification systems, Switzerland. This is just the example of the development, that in India too the most modern machinery is being installed. However, it is an evident that the Indian yarn is always running on the development trend since its Inception of first unit in Bombay, but its position in the international market has not appeared so good.

Because many other countries like China as Cotton Textiles has went ahead. Though till today India has achieved a lot in the Textile Industry and almost 700 Textile units are working successfully, because India is having at present more than 20 Million spindles and a weaving capacity of more than 2. 5 Lac looms and the total output value of the same is around Rs. 1500 Cores, employing more than 10 Lac of workers directly. The invention and production of manmade thirty three fibers that is synthetic fibers like Nylon, Acrylic fibers, Polyester Fiber, Viscose, S. Sament yarns, Melange yarn, etc. which ultimately had given a good blow to grow for the Cotton Textile Industry and know occupy a major part of consumer acceptance. About 50 countries have been importing such material from India and the description of the Spinning and weaving industry had remained incomplete without referring to the woolen industry. Page 8 COMPANY PROFILE Sathe Synthetics Introduction Company was started in 1995 as Production capacity of 40 tons per month of p. p. multifilament yarn in various deniers of FDY ranging from 210 deniers to 1200 deniers in all colors & naturals. The company is the largest P.

P. Yarn manufacturer in the country. Our Mission- We work with a mission to become world leader in narrow fabrics and webbings products by successfully adopting latest manufacturing techniques and offering innovative range of products that are used for various applications. The company Sathe Synthetics (Prop. Rakesh fuel PVT. LTD) divided in two units, situated in Ghaziabad and other one is in Sikandrabad. The company is governed and controlled by three brothers and partners named asMr. Ravi Mohan ± DIRECTOR GENERAL, HEAD OF TECHNICAL & MAINTENANCE DEPARTMENT Mr.


Uses – For Swing Thread Belt Lasses Tape Filter cloth Fabrics Housosry And many things FDY Use of Crimp Yarn Undergarments Socks Lasses Tie And many more things more PRESENT CAPACITIES Presently the group has following production capacity and product range at its different manufacturing facilities. Location Installed Capacity (spindles) Sathe synthetics, Ghaziabad 10500 10Tons / Day POLYPROPYLENE MULTIS. SAMENT YARN POLYPROPYLENE MULTIS. SAMENT YARN, & NON-WOVEN FABRICS Production Capacity Product Range UNI-2, Sikandrabad 8000 6. 5 Tons/Day Page 10

USTERIZED CERTIFICATION The unit had been awarded USTER certificate by Uster technologies AG CH-8610 Uster/ Switzerland on April 10, 2007. Sathe synthetics, Ghaziabad / India fulfill all conditions for using the brand USTERIZED and will be checked regularly at once per year basis. PRODUCTION The unit is producing different types of yarn both for Domestic consumption and Export purpose. The production department is headed by General Manager (G. M. ). The SATHE SYNTHETICS has two units. The unit- I is concerned with the production of POLYPROPYLENE MULTIFILAMENT YARN.

The unit-II expansion is concerned with production of POLYPROPYLENE MULTIFILAMENT YARN & NON WOVEN FABRICS. Production capacity of unit ±I is 10 ton per day and unit-II is 6. 5 tons per day. MARKETING For Marketing of different product, the unit is having a modern marketing department headed by experienced team which covers all the activities for conversion of finished goods into cash. It keeps vigil on the market feed-back on the level competition, market, trend, changing customer needs and modifications. The marketing department deals with domestic sales, while export department of the group manages export sales.

The SATHE SYNTHETICS, Having the export and domestic ratio is 34:66. The unit is having different channels for distribution of its products. 1. 2. 3. Selling agents at Ghaziabad, Delhi, Mumbai and Lucknow. Branches at Delhi and Utter Pradesh. Direct Dispatches are also made by the units. ORGNISATION STRUCTURE A chart showing the organizational structure of SATHE SYNTHETICS, Ghaziabad is given on the next page. It shows the various hierarchical levels of the organization. It is a department line organization which is divided into various department headed by their respective department heads.

All departments operate under the ultimate control of Chief Executive Sh. Rakesh Mohan. The orders flow directly from unit head to different departmental heads down the line to respective department subordinates. Page 11 Manufacturing Process Flow Chart of S. S 100% COTTON CARDED/COMBED YARN GREY CHIPS GREY-CHIPS PP*/PE*/NYLON PPP*P*/PE*/NYLON EXTRUDER POLYMER-MENT SCREEN-S. STER METERING-S. STER SPINNERETTE DIE-PLATE MASTER-BATCH (COLOURED CHIPS) MULTIFILAMENT YARN QUENCHING (FAST COLLING) SPIN FINISH APPLICATION TAKE UP/WINDER FDY/HE/POY D-TEX M/C TWISTING TWISTING PACKING DESPATCH Page 12

MANUFACTURING PROCESS IN SATHE SYNTHETICS , GHAZIABAD Poy Spinning Polyester Polypropylene chips are fed in the feeding hopper with the help of electric hoist and are conveyed from feeding hopper to DPG from where they are further conveyed to the Storage Silos with the help of compressed air. From the Silos, the chips enter the blender for proper blending to avoid variation. Control Room The chips, after blending, are stored in a Wet Chips Hopper. The level of chips in this hopper is automatically controlled from where these are transferred to the drying system through rotary air lock. Rotary air lock does not allow the air to

Page 13 leak during the chips entry from WCH to drying system. Dryer system dries the chips with the help of hot air to control the moisture level of the chips to make it suitable for spinning. From the dryer, chips enter the Dry Chips Hopper before feeding to the Extruder. Production Lines From the Dry Chips Hopper, chips are conveyed to the extruder where chips are melted and mixed to give homogenous molten polymer with the help of electrical heaters. The same is thereafter filtered through continuous polymer filter. After filtration, the melt is distributed to 4 nos. of spinning beams via manifold.

The temperature of the spinning beams and manifold is maintained by special type of heat transfer media. Melt is purified by means of metallic and sand filters before being extruded to filament through spinnerets. The extruder has a capacity to melt and deliver 800 kgs of chips/hr. at high pressure up to 250 bars. Molten polymer in spinning beam is extruded through the spinnerets via polymer pump. The speed of polymer pump is controlled by production computers to ensure uniform flow of melt to produce quality of yarn. The speed of polymer pump may be changed to produce different kind of deniers. Page 14

Quality Control Polymer melt passing through the spinnerattes comes out in the form of yarn at a temperature of 280-290 ° C. The yarn is then cooled to solidify in the cooling chamber and after the cooling, finish oil is applied to yarn to lubricate the same for further processing. The yarn is, thereafter, taken on the winder for winding on paper tubes. The speed of the winder is controlled by the computers and can be varied as per the process requirement to produce different kind of deniers. The POY thus produced is checked on automatic machines called Tensorapid and Uster Tester-3 for checking of thickness and uniformity properties.

Packaging Twisting POY is thereafter transported from the POY department to texturising section. It is then taken on creel and fed to the texturising machines and heaters. After the necessary heat setting and cooling, the texturised yarn is collected on paper tubes and thereafter, packed in corrugated boxes and sent to the market. FINAL PRODUCT OF SATHE SYNTHETICS Page 15 Sathe Synthetics Address: D-27, Industrial Area, Kavi Nagar Ghaziabad-201001, (U. P. ) Phone: 91-120-2700336, 2700386 Fax: 91-120-2703172 E-mail: sathesynthetics@indiatimes. com Contact Person: Mr. L. C.

Sharma Page 16 SCOT Analysis of Sathe Synthetics Strengths Experienced promoters with over 40 years of experience in the industry Successfully implemented various expansion schemes in the past with in-house expertise Consistently achieved capacity utilization over 90% in respect of POY in the past. Products are well accepted in the market With the implementation of the proposed project, the company will reap the benefits of economies of scale due to optimum utilization of the existing facilities. Satisfactory organizational set-up with experienced and well-qualified employees.

Strong marketing network with low selling and distribution costs Challenges The prices of raw materials and finished goods move in tandem with international prices, which, in turn, have positive correlation with the prices of petrochemical products. A major portion of the manufacturing capacity originates from second hand equipment. S. S adopts the technology of spinning POY from polyester chips which are an intermediate and may put S. S at a comparatively disadvantages position due to relatively higher cost vis-a-vis the other players who manufacture POY directly from PTA/DMT/MEG.

Company is taking planning to putting up its own captive poly- condensation facility. Opportunities With no major capacity increase being created in the recent past / being planned in the near future, the existing players are well positioned to take advantage of the emerging scenario where demand is expected to exceed supply. Potential growth in exports of POY / PFY. With quantitative restrictions on textile exports being dismantled under the aegis of World Trade Organization (WTO) from 2005, it is expected that low cost producers like India will benefit.

With tariffs proposed to come down in India over a period of time, it is expected that raw material costs will be comparable to those prevailing in the international markets. Potential growth in domestic demand for POY due to increase in share of non-cotton fabric. Page 17 Threats Likely expansion by large players like Reliance Industries, Indo Rama Synthetics, Century Enka Ltd. , etc. India has concluded / is in the process of concluding Free Trade Agreements (FTA) with a number of countries like Sri Lanka, Thailand, China, etc.

This will lead to lower tariffs all round and may affect Indian textile units, including S. S. Post WTO, when India would be exposed to international competition. S. S¶s position is expected to be vulnerable vis-a-vis those companies with global size and modern facilities. Page 18 OUTLINE OF THE STUDY The management of working capital is very important. It involves the study of day-to-day affairs of the company. The motive behind the study is to develop an understanding about the working capital management in the running business organization and to help the company in developing the efficient orking capital management. Therefore, it helps in future planning and control decisions. OBJECTIVES OF THE STUDY The objectives of the study are as follows: To analyze the working capital management of the company. To determine the gross and net operating cycle of the unit. To know the future need of working capital in the running organization. To render recommendations for the effective management of working capital. SCOPE OF THE STUDY The study is conducted at ? SATHE SYNTHETICS, Ghaziabad? for 6 weeks duration. The study of W. C. anagement is purely based on secondary data and all the information is available within the company itself in the form of records. To get proper understanding of this concept, I have done the study of the balance sheets, profit and loss A/C¶s, cash accounts, trial balance, and cost sheets. I have also conducted the interviews with employees of accounts and finance department and stores department. So, scope of the study is limited up to the availability of official records and information provided by the employees. The study is supposed to be related to the period of last five years.

Page 19 REVIEW OF LITERATURE 1- The research done by Pass C. L. , Pike R. H. , ? An overview of working capital management and corporate financing? ,(1984) describes that over the past 40 years major theoretical developments have occurred in the areas of longer-term investment and financial decision making. Many of these new concepts and the related techniques are now being employed successfully in industrial practice. By contrast, far less attention has been paid to the area of short-term finance, in particular that of working capital management.

Such neglect might be acceptable were working capital considerations of relatively little importance to the firm, but effective working capital management has a crucial role to play in enhancing the profitability and growth of the firm. Indeed, experience shows that inadequate planning and control of working capital is one of the more common causes of business failure. 2- The research done by Herrfeldt B. , ? How to Understand Working Capital Management? describes 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. In essence, the purpose of that function is to make certain that the company has enough assets to operate its business. Here are things you should know about working capital management. 3- The research done by, Samiloglu F. and Demirgunes K. , ? The Effect of Working Capital Management on Firm Profitability: Evidence from Turkey? 2008) describes that the effect of working capital management on firm profitability. In accordance with this aim, to consider statistically significant relationships between firm profitability and the components of cash conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the period of 1998-2007 has been analysed under a multiple Page 20 regression model. Empirical findings of the study show that accounts receivables period, inventory period and leverage affect firm profitability negatively; while growth (in sales) affects firm profitability positively. – The research done by, Appuhami, Ranjith B A, ? The Impact of Firms’ Capital Expenditure on Working Capital Management: An Empirical Study across Industries in Thailand? , International Management Review,(2008), The purpose of this research is to investigate the impact of firms’ capital expenditure on their working capital management. The author used the data colleted from listed companies in the Thailand Stock Exchange. The study used Shulman and Cox’s (1985) Net Liquidity Balance and Working Capital Requirement as a proxy for working capital measurement and developed multiple regression models.

The empirical research found that firms’ capital expenditure has a significant impact on working capital management. The study also found that the firms’ operating cash flow, which was recognized as a control variable, has a significant relationship with working capital management. 5- The research done by, Hardcastle J. , ? Working Capital Management? ,(2007) describes that Working capital, sometimes called gross working capital, simply refers to the firm’s total current assets (the short-term ones), cash, marketable securities, accounts receivable, and inventory.

While long-term financial analysis primarily concerns strategic planning, working capital management deals with day-to-day operations. By making sure that production lines do not stop due to lack of raw materials, that inventories do not build up because production continues unchanged when sales dip, that customers pay on time and that enough cash is on hand to make payments when they are due. Obviously without good working capital management, no firm can be efficient and profitable. 6- The research done by, Thachappilly G. , ? Working Capital Management Manages Flow of Funds? (2009) describes that Working capital is the cash needed to carry on operations Page 21 during the cash conversion cycle, i. e. the days from paying for raw materials to collecting cash from customers. Raw materials and operating supplies must be bought and stored to ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must be paid for converting the materials into finished products. Customers must be allowed a credit period that is standard in the business. Only at the end of this cycle does cash flow in again. The research done by, Beneda, Nancy; Zhang, Yilei, ?

Working Capital Management, Growth and Performance of New Public Companies?. 7- The research done by, Dubey R. ,? Working Capital Management-an Effective Tool for Organisational Success? (2008) describes that The working capital in a firm generally arises out of four basic factors like sales volume,technological changes,seasonal , cyclical changes and policies of the firm. The strenghth of the firm is dependent on the working capital as discussed earlier but this working capital is inteslf 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. 8- The research done by, McClure B. , ? Working Capital Works? describes that Cash is the lifeline of a company. If this lifeline deteriorates, so does the company’s ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company’s cash flow health is essential to making investment decisions.

A good way to judge a company’s cash flow prospects is to look at its working capital management (WCM). Cash is king, especially at a time when fund raising is harder than ever. Letting it slip away is an oversight that investors should not forgive. Analyzing 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. Page 22 9- The research done by, Gass D. , ? How To Improve Working Capital Management? (2006) “Cash is the lifeblood of business” is an often repeated maxim amongst financial managers.

Working capital management refers to the management of current or short-term assets and short-term liabilities. Components of short-term assets include inventories, loans and advances, debtors, investments and cash and bank balances. Short-term liabilities include creditors, trade advances, borrowings and provisions. The major emphasis is, however, on short-term assets, since short-term liabilities arise in the context of short-term assets. It is important that companies minimize risk by prudent working capital management. 10- The research done by, Maynard E. Rafuse, ?

Working capital management: an urgent need to refocus? Management Decision, (1996) Argues that attempts to improve working capital by delaying payment to creditors is counter-productive to individuals and to the economy as a whole. Claims that altering debtor and creditor levels for individual tiers within a value system will rarely produce any net benefit . Proposes that stock reduction generates systemwide financial improvements and other important benefits . Urges those organizations seeking concentrated working capital reduction strategies to focus on stock management strategies based on ? ean supply-chain? techniques. 11- Impact of Working Capital Management Policies on Corporate Performance? An Empirical Study Sushma Vishnani, Bhupesh Kr. Shah (2007) It is felt that there is the need to study the role of working capital management policies on profitability of a company. Conventionally, it has been seen that if a company desires to take a greater risk for bigger profits and losses, it reduces the size of its working capital in relation to its sales. If it is interested in improving its liquidity, it increases the level of its working capital.

However, this policy is likely to result in a reduction of the sales volume, therefore of profitability. Hence, a company should strike a balance between liquidity and profitability. In this paper an effort has been made to make an empirical study of Indian Consumer Electronics Industry for assessing the impact of working capital policies & practices on profitability during the period 1994±95 to 2004±05. The impact of working capital policies Page 23 on profitability has been examined by computing coefficient of correlation and regression analysis between profitability ratio and some key working capital policy indicator ratios. 2- Working Capital and Financial Management Practices in the Small Firm Sector Michael J. Peel, Nicholas Wilson (2008) MICHAEL J. PEEL IS A LECTURER IN accountancy and finance at Cardiff Business School, University of Wales and Nicholas Wilson is Professor of Credit Management at the University of Bradford, England. Very little research has been conducted on the capital budgeting and working capital practices of small firms. The purpose of this paper is to present the results of a preliminary study on the working capital and financial management practices of a sample of small firms ocated in the north of England. In general, the results of the survey indicated that a relatively high proportion of small firms in the sample claimed to use quantitative capital budgeting and working capital techniques and to review various aspects of their companies’ working capital. In addition, the firms which claimed to use the more sophisticated discounted cash flow capital budgeting techniques, or which had been active in terms of reducing stock levels or the debtors’ credit period, on average tended to be more active in respect of working capital management practices.

It hoped that the issues raised would stimulate further theoretical and empirical contributions on this neglected and important area of small business research. Page 24 RESEARCH METHODOLOGY The term research refers to the systematic method consisting of enunciating the problem , formulating a hypothesis collecting the data , analyzing the facts and reaching the certain conclusions either in the form of solution towards the concern problem or in certain generalization for some theoretical formulation . Research Methodology is a way to solve systematically the research problem .

It may be understood as a science of studying how research is done scientifically. Time Period of the study: The present study was undertaken during Six weeks from 14th June – 26th July. Research Design: Descriptive research procedure is used for describing the recent situations in the organization and analytical research to analyze the results by using research tools. Page 25 Descriptive Research: Descriptive research, also known as statistical research, describes data and characteristics about the population or phenomenon being studied.

Descriptive research answers the questions who, what, where, when and how… Although the data description is factual, accurate and systematic, the research cannot describe what caused a situation. Thus, Descriptive research cannot be used to create a causal relationship, where one variable affects another. In other words, descriptive research can be said to have a low requirement for internal validity. In short descriptive research deals with everything that can be counted and studied. But there are always restrictions to that.

Your research must have an impact to the lives of the people around you. For example,finding the most frequent disease that affects the children of a town. The reader of the research will know what to do to prevent that disease thus, more people will live a healthy life. Data Source & Collection Methods: There are two types for collecting data 1. Primary data 2. Secondary data Secondary Data: Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process.

The Secondary data consist of reality available compendices already complied statistical statements. Secondary data consists of not only published records and reports but also unpublished records. Here we done the analysis on basis of secondary data, which included Balance sheet of company Profit and loss A/C of Sathe Synthetics Page 26 Cost sheets, & Trail balance of five years Purpose: The purpose of this paper is to properly analysis of the working capital management of Sathe synthetics, Ghaziabad over the period 2005-2009.

Tools used: I used the different tools to analyze the working capital management of Sathe Synthetics Analysis through Working capital ratios Analysis through Schedule change in working capital Analysis through Gross operating cycle & Net operating cycle Analysis through Various components of working capital LIMITATIONS OF THE STUDY As central purchase office, purchase raw material and central marketing yarn make sales. Information that is so more detailed cannot be received about these. Cash from debtors a collected by the corporate office through commission agents.

So efforts for collection of debtors cannot be clearly known from SATHE SYNTHETICS, Ghaziabad. Investment of funds are also made by corporate office, so it becomes difficult to know that how much investment is made in different ways for continuous availability of funds. Page 27 Page 28 THEORETICAL BACKGROUND OF WORKING CAPITAL MANAGEMENT MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them.

The basic goal is working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i. e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for business. MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT There are two major decisions management relating to working capital management:1. 2. What should be ratio of current assets to sales? What should be the appropriate mix of short term financing and long term financing for financing these current assets? . Current assets in relation to sales:If the firm can forecast accurately the factors, which effect the working capital, the investment in current assets, can be designed uniquely. When uncertainty characteristics the above factors, as it usually does the investment in current assets cannot be specified uniquely. In case of uncertainty, the outlay on current assets should consist of base component meant to meet normal requirement and a safety component meant to cope with unusual requirement. The safety component depends upon low conservative or aggressive in the current assets policy of a firm.

If the firm purchases a very conservative current asset policy it would carry a high level of current assets in relation to sales. If a firm adopts a moderate current assets policy it would carry Page 29 moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive current assets policy, it would carry a low level of current assets in relation to sales. SATHE SYNTHETICS is following current assets policy showing moderate level of current assets in relation to sales as is evident from ratio analysis. 2.

Determining a Short Term and Long Term Financing Mix for Financing of current assets:There are three approaches in this regard, which are discussed below: HEDGING APPROACH: This approach is also called matching approach. In this approach there is a proper matching of expected life of asset with the duration of fund. Usually, according to this approach, long-term sources are used for financing permanent current assets and fixed assets & short-term sources are used for financing temporary current assets: Temporary current assets Short term financing A term financing S S Permanent current assets Long-term financing

ASSETS E T Time CONSERVATIVE APPROACH: – Page 30 In this approach there is more reliance on long-term financing in comparison to shortterm financing. Even some part of the temporary current comparison to finance from long-term sources because long-term sources are less risky in comparison to short-term sources. Temporary Current Assets A S S E T Short-term financing Fixed Assets Permanent Current Assets Time Long-term financing AGGRESSIVE APPROACH In this approach there is more reliance on short term financing and even a part of permanent current assets is financed from short-term finance.

Temporary current assets A S S E T Short term financing Permanent current assets Long term financing Fixed Assets Time Page 31 In SATHE SYNTHETICS, the current assets are financed from short term sources as well as long term sources, so they follow conservative approach. WORKING CAPITAL ANALYSIS 1. OPERATING CYCLE ANALYSIS Operating cycle refers to the time period which starts from the raw material purchases and ends with realization of receivable. So it is total time gap between raw material purchases to total debtors¶ collection.

This is also known as working capital cycle. Operating cycle is therefore expressed in terms of months or weeks or days. The higher the operating cycle period, higher the working capital requirement. It comprises of raw material conversion period, WIP conversion period, FG conversion period and debtors¶ conversion period and creditors period. The basic reason for calculating operating cycle is to find out the means for reducing the duration of operating cycle because if duration of operating cycle will be less than working capital requirement will be less. Page 32

OC = R + W + F + D ± C Where, R = raw material conversion period F = finished goods conversion period C = creditors payment period (1) Raw Material Conversion Period (RMCP) = Average Raw Material Stock Average Raw Materials consumed during the year PARTICULARS 2008-09 Average raw 33065118 2007-08 33352213. 5 2006-07 20819151 2005-06 13076062. 5 2004-05 9471720. 12 W = work in process period D = debtor collection period material stock Raw material 314166. 03 213093. 45 107464. 04 218371. 65 121729. 46 consumed during the year RMCP 105. 25 156. 52 193. 73 59. 88 77. 80 250 200 156. 52 150 105. 25 100 59. 8 50 0 2009 2008 2007 2006 2005 77. 8 RMCP 193. 73 Page 33 (2) Work in Progress Conversion Period (WIPCP) = Average stock in progress Average Cost of Production PARTICULARS 2009 Average stock in 7834151. 50 progress Avg. Cost of 190952. 86 2008 8313099. 5 2007 5586013 2006 4818821. 5 2005 3634639. 5 211273. 02 194248. 64 180015. 22 136824. 55 production WICP 41. 03 37. 93 28. 75 26. 77 26. 56 45 40 35 30 25 20 15 10 5 0 41. 03 37. 93 28. 75 26. 77 26. 56 WICP 2009 2008 2007 2006 2005 (3) Finished Goods Conversion Period (FGCP) = Average finished goods inventory X 360 X 360 Average Cost of goods sold Page 34

PARTICULARS Average finished inventory Cost of goods sold FGCP 9 8 7 6 5 4 3 2 1 0 2009 7. 63 2009 14911159 2008 13149905. 5 2007 5004497 2006 6396225 2005 5858384. 5 goods 1955523. 98 1648540. 72 1398222. 17 1260173 989215. 18 7. 63 7. 98 7. 98 3. 58 5. 08 5. 92 5. 92 5. 08 3. 58 FGCP 2008 2007 2006 2005 (4) Debtors¶ Conversion Period (DCP) = Days in year company operating Debtors¶ turnover PARTICULARS Days in 20009 2008 360 2007 360 2006 360 2005 360 year 360 company operating Debtors¶ turnover DCP 21. 66 16. 62 22. 89 15. 72 18. 41 19. 55 15. 82 22. 76 18. 38 19. 59 Page 35 25 20 16. 62 15 10 5 0 2009 2008 2007 15. 2 19. 55 22. 76 19. 59 DCP 2006 2005 (5) Credit Conversion Period (CCP) = Days in year company operating Creditors¶ turnover PARTICULARS Days in 2009 2008 360 2007 360 2006 360 2005 360 year 360 company operating Creditors¶ turnover 27. 15 26. 02 13. 84 39. 50 9. 11 22. 77 15. 81 23. 30 16. 14 Avg. consumption 13. 26 period OR CCP Page 36 18 16 14 12 10 8 6 4 2 0 15. 81 13. 26 13. 84 16. 14 9. 11 CCP 2009 2008 2007 2006 2005 GROSS OPERATING CYCLE FOR SATHE SYNTHETICS: YEAR 2009 2008 2007 2006 2005 300 245. 61 250 200 150 100 50 0 2009 2008 2007 2006 2005 170. 53 114. 49 129. 87 GOC RMCP 105. 25 156. 52 193. 3 59. 88 77. 80 WICP 41. 03 37. 93 28. 75 26. 77 26. 56 FGCP 7. 63 7. 98 3. 58 5. 08 5. 92 DCP 16. 62 15. 72 19. 55 22. 76 19. 59 GOC 170. 53 217. 84 245. 61 114. 49 129. 87 217. 84 Page 37 NET OPERATING CYCLE: YEAR 2009 2008 2007 2006 2005 250 204. 31 200 157. 27 150 113. 73 98. 68 100 50 0 2009 2008 2007 2006 2005 NOC GOC 170. 53 217. 84 245. 61 114. 49 129. 87 236. 5 CCP OR APP 13. 26 13. 84 9. 11 15. 81 16. 14 NOC 157. 27 204. 31 236. 5 98. 68 113. 73 ANALYSIS It claimed that gross operating cycle of SATHE SYNTHETICS is increasing in year 2004-05 and in the year 2005-06 it decreasing up to certain extent.

In year 2004-05, it is 129. 87 days then it decreased to 114. 49 days in year 2005-06 due to contraction in raw material. In 2006-07, it is on the highest point of 245. 61 days. The main reason of increasing gross operating cycle in 2006-07 is due to more availability of raw material in the stores. In year 2006-07 the company purchased a bulk of raw material due to market variations the GOC is increased. However, when we came to year 2007-08 the GOC for S. S has shown a significant decrement of 204. 31 days from the year 2006-07 to 245. 61. When in next year 2008-09, it came out to be 170. 53 days.

The GOP for Page 38 satisfactory as it Varies as the market requirements and changes in form of meet the customer¶s requirements largely. But when we came to the NOC of Sathe Synthetics it we can see that Creditor¶s payment period OR Average payment period of S. S is on a average of 15 days in each (5) five years so does not make more effect on GOC. Therefore, it is somehow near of the GOC. That is why the company¶s NOC 113. 73, 98. 68, 236. 5, 204. 31, and 157. 27 in the years 2005, 2006, 2007, 2008 and 2009. Therefore, we can say that there is a significant change in the NOC of the Sathe Synthetics. 1.

RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making decisions. It only means of better understanding of financial strengths and weaknesses of a firm. The main emphasis has been on calculating the ratios related to a working capital management. LIQUIDITY RATIOS: -These are the ratios which measures the short term solvency or financial position of a firm. In other words, it refers to the ability of a concern to meet its current obligations as and when these become due.

To measure the liquidity of a firm, the following ratios can be calculated. CURRENT RATIO: ± It may be defined as the relationship between current assets and current liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its current obligations in time as and when they become due. A ratio equal or near to the rule of thumb of 2:1 i. e. current assets double the current liabilities is considered to be satisfactory. Current Ratio = Current Assets Page 39 Current Liabilities

YEAR CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 2009 2008 2007 2006 2005 115612673. 56 141934492. 00 97761075. 20 72335450. 22 72171734. 06 18528617. 22 35172584. 20 12343214. 74 13758132. 09 21676428. 69 6. 24 4. 04 7. 92 5. 26 3. 33 9 8 7 6 5 4 3 2 1 0 2009 2008 4. 04 6. 24 7. 92 5. 26 3. 33 CR 2007 2006 2005 ANALYSIS The current ratio of the Sathe synthetics is above the standard and it guarantees the payment of dues in time. The current ratio of the company has been considerably high because they had made over investment in inventories, which is the main reason for the high ratio of current assets.

Inventories are high because of seasonal availability of raw material. The overall position of current ratio for Sathe synthetics is satisfactory. Page 40 The current ratio of dye house has shown a remarkable increment from 3. 33 in 2004-05 to 5. 26 in 2005-06 and then to 7. 92 in 2006-07. Initially in 2004-05, the ratio was not satisfactory but it is quite satisfactory for the years after 2008-09 and especially for the year 2006-07. LIQUID RATIO ±This ratio is also known as quick ratio or acid test ratio. It is a more rigorous test of liquidity than the current ratio.

It is based on those current assets which are highly liquid. Inventory and prepaid expenses are excluded because they are deemed to be least liquid component of current assets. A high quick ratio is the indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand low ratio represents liquidity position is not good. Quick Ratio = Quick or Liquid Assets Current Liabilities Quick Assets = Current Assets ± Inventory ± Prepaid Expenses YEAR LIQUID ASSETS CURRENT LIABILITIES 18528617. 22 35172584. 20 12343124. 74 13758132. 09 21676428. 69 LIQUID RATIO 009 2008 2007 2006 2005 71845029. 56 74081279. 00 56583851. 20 50693352. 22 45231614. 06 3. 88 2. 11 4. 58 3. 68 2. 09 Page 41 5 4. 5 4 3. 5 3 2. 5 2 1. 5 1 0. 5 0 4. 58 3. 88 3. 68 2. 11 2. 09 LR 2009 2008 2007 2006 2005 Analysis According to rule of thumb, it should be 1:1. For Sathe synthetics, the liquid ratio present a uneven change over the past four years. It was 2. 09 in 2004-05 and increased to 4. 58 in 2006-07 and then to 2. 11 in 2007-08. The decrement in the ratio is not satisfactory, however the ratio 2. 11 in 2007-08 is more than the rule of thumb but it should be quite more than the rule of thumb. WORKING CAPITAL TURNOVER RATIO ± Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital is being used by a firm. Working Capital Turnover Ratio = COGS OR Sales Net Working Capital YEAR SALES NET WORKING CAPITAL 97084056. 34 106761907. 80 85417950. 46 453662278. 70 50495305. 37 WCTR 2009 2008 2007 2006 2005 703988634. 61 593474659. 66 503359979. 46 453662278. 70 356117465. 20 7. 25 5. 56 5. 89 7. 74 7. 05 Page 42 9 8 7 6 5 4 3 2 1 0 2009 2008 2007 2006 2005 WCTR 7. 74 7. 25 5. 56 5. 89 7. 05

ANALYSIS This ratio indicates the number of times the working capital is turned over in the course of a year. A high working capital ratio indicates the effective utilization of working capital and less working capital ratio indicates less utilization. For Sathe synthetics, the ratio is quite same for the past five years. It is 7. 05 in 2004-05, 7. 74 in years 2005-06 and in2006-07 there was a slight change came over here and the ratio decreased to 5. 89. And in the next year in 2007-08 the ratio stand at 5. 56 For Sathe synthetics, the ratio is increasing once more in the very next year in 2008-09, It shows increment to 7. 4. the ratio of the company is satisfactory. STOCK TURNOVER RATIO This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i. e. , how many times on an average, inventory is turned over or sold during the year. STOCK OR INVENTORY TURNOVER RATIO = COGS OR SALES AVERAGE STOCK Page 43 YEAR SALES AVERAGE STOCK 55810428. 5 23981268. 5 31409661 24291109 18964744. 11 STR or ITR 2009 2008 2007 2006 2005 30 703988634. 61 593474659. 66 503359979. 46 453662278. 70 356117465. 20 12. 61 24. 75 16. 03 18. 68 18. 78 24. 75 25 20 16. 3 15 10 5 0 2009 2008 2007 2006 2005 12. 61 STR 18. 68 18. 78 ANALYSIS: By analyzing the five-year data it seen, that it follows an uneven trend. We see that from the year 2005 to 2006 & 2006 to 2007, it moves on a slow pace means, the ratio is increased in very nominal figures i. e. (. 10) times and (2) times, which has been rectified in the year 2008. In 2008 there is a huge increase in inventory due to this ratio the company maintains is very high in 2008 and the company is required to take measures to lower down this ratio as it affects the working capital cycle of company and the flow of cash in the company.

In 2009, we saw company take measure to lower down its ratio which is good for company because a low stock turnover ratio reveals undesirable accumulation of obsolete stock. Page 44 DEBTORS¶ TURNOVER RATIO: DEBTORS¶ TURNOVER RATIO = CREDIT SALES AVERAGE DEBTORS¶ YEAR CREDIT SALES AVERAGE DEBTORS¶ 32503373 25923481. 52 27348823. 87 28677098. 13 19374123. 96 DTR 2009 2008 2007 2006 2005 703988634. 61 593474659. 66 503359979. 46 453662278. 70 356117465. 20 21. 66 22. 89 18. 41 15. 82 18. 38 25 21. 66 20 15 10 5 0 2009 22. 89 18. 41 15. 82 18. 38 DTR 2008 2007 2006 2005

ANALYSIS Generally a low debtor¶s turnover ratio implies that it considered congenial for the business as it implies better cash flow. The ratio indicates the time at which the debts are collected on an average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter Page 45 collection period which indicates prompt payment made by the customer. Now if we analyze the five year data we can say that it holds a good position while receiving its money from its debtors. The ratios are in variation trend, which implies that recovery position is good and company should maintain these positions.

CREDITORS¶ TURNOVER RATIO: Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditor¶s turnover ratio implies favorable since the firm enjoys lengthy credit period. CREDITORS¶ TURNOVER RATIO = NET CREDIT PURCHASE AVERAGE CREDITORS¶ YEAR CREDIT PURCHASE 567750535. 58 505412322. 46 421557817. 32 358037616. 35 300672597. 42 AVERAGE CREDITORS¶ 20914713. 21 19426820. 02 10672311. 95 15724391. 01 12906200. 48 CTR 2009 2008 2007 2006 2005 27. 15 26. 02 39. 50 22. 77 23. 30 Page 46 45 40 35 30 25 20 15 10 5 0 2009 2008 27. 5 26. 02 39. 5 22. 77 23. 3 CTR 2007 2006 2005 ANALYSIS Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally, a low creditor¶s turnover ratio implies favorable since the firm enjoys lengthy credit period. Now if we analyze the three years data we find that in the year 2007 the ratio was very high which means that its position of creditors that year was not good only in the year 2007, when we turn ahead the other years creditor¶s turnover ratio is in pretty good position. In the all four ears it has followed, a decreasing trend, which is very good, sign for the company. Therefore, we can say it enjoys a very good credit facility from the suppliers. Page 47 ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL PARTICULARS CURRENT ASSETS: Inventories S. debtors Cash & Bank Balances Loans & Advances Total current assets (A) CURRENT LIABILITIES: S. creditors Provisions Security deposits & Retention money Total current liabilities (B) Working capital (A-B) Net increase in working capital 2005-06 2006-07 INCREASE DECREASE 21642098. 00 30359548. 69 3407307. 32 41177224. 0 22158429. 16 2297697. 88 19535126 8201119. 53 1109609. 44 16926496. 21 32127724. 16 15201227. 95 72335450. 22 97761075. 20 11585162. 05 2072970. 04 100000 9759461. 84 2483662. 90 100000 1825700. 21 410692. 86 ———- 13758132. 09 12343124. 74 58577318. 13 85417950. 46 36562054. 16 9721421. 83 26840632. 33 26840632. 33 85417950. 46 85417950. 46 36562054. 16 36562054. 16 Page 48 ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL PARTICULARS CURRENT ASSETS: Inventories S. debtors Cash & Bank Balances Loans & Advances Total current assets (A) CURRENT LIABILITIES: S. reditors Advance from customers Provisions Security deposits & Retention money Total current liabilities (B) Working capital (A-B) Net Decrease in working capital 106761907. 8 29094178. 20 2439050 12735248. 22 722054 16358929. 98 1716996 67853213 27508864 3665403. 60 43767644 37497882 6891449. 29 9989018 3226045. 69 24085569 2007-08 2008-09 INCREASE DECREASE 42907011. 40 27455698. 27 15451313. 13 141934492. 00 115612673. 56 3539356. 00 100000. 00 4971315. 00 100000 —– 1431959 —– 35172584. 20 18528617. 22 106761907. 8 97084056. 34 31290989. 67 40968841. 13 9677851. 46 677851. 46 106761907. 8 40968841. 13 40968841. 13 Page 49 FOR YEARS 2006 AND 2007: As we have a look on the schedule of changes in working capital for the Sathe synthetics over the years 2005-06 and 2006-07, we find that, among current assets, inventories, loans and advances have shown increment from year 2005-06 to year 2006-07. The sundry debtors and cash & bank balances have decreased in the same years. Among the current liabilities, the sundry creditors and other liabilities have decreased and provisions were increased. Therefore, the overall net working capital has increased.

FOR YEARS 2007-08 AND 2008-09: Among the current assets, debtors and cash & bank balances have increased and inventories and loans & advances have shown decrement. The total current assets have increased. Among the current liabilities, sundry creditors and other liabilities have decreased which made a positive effect on networking capital and it increases, on the other hand, the provision increased which not directly but overall made a good effect on company. Therefore, the net working capital has also increased. Page 50 ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL INVENTORY ANALYSIS Inventory is total amount of goods and materials.

Inventory means stock of three:1. Raw materials 2. Semi finished goods. 3. Finished goods. Position of inventory in Sathe synthetics: PARTICULARS Raw material W. I. P Finished goods TOTAL 2009 28833211 5912280 9022153 43767644 2008 37297025 9756023 20800165 67853213 2007 29407402 6270176 5499646 41177224 2006 12230900 4901850 4509348 21642098 2005 13921225 4735793 8283102 26940120 80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2009 2008 2007 2006 2005 STOCK INTERPRETATION: By analyzing the 5 years data we see that the inventories are increased/decreased year by year.

We can look increasing pattern in inventories. We can see that inventories are grown in 06-07 and 07-08 respectively from previous year in figures it increases up to19535126 in2007 and inyear2008 it increases to 26675989 in comparison of 2007. By this growth we can say that the company is growing. A company uses inventory when they have demand in market and Sathe Synthetics is having a demand in industry market. That is biggest reason for increase in Inventories. From other point of view we can say that the liquidity of firm is blocked in inventories but to stock is very good due to uncertainty of availability of raw material in time.

Page 51 SUNDRY DEBTORS ANALYSIS Debtors or an account receivable is an important component of working capital and fall under Current assets. Debtors will arise only when credit sales made. Position of Sundry Debtors in Sathe synthetics PARTICULARS DEBTS O/S FOR A PERIOD OF SIX MONTHS OTHER DEBTS TOTAL 2009 0. 00 2008 203547. 00 2007 118028. 00 2006 85124. 00 2005 262290. 00 37497882. 00 37497882. 00 27305317. 00 27508864. 00 22040401. 16 22158429. 16 30274424. 69 30359548. 69 26732357. 57 26994647. 57 40000000 35000000 30000000 25000000 20000000 DEBTORS 15000000 10000000 5000000 0 2009 2008 2007 2006 2005

INTERPRETATION In the table and figure, we see that there are continuous variations in the debtors of Sathe Synthetics in five (5) successive years. A simple logic is that debtors increase only when sales increase and if sales increases it is good sign for growth. We can see that in the year 2006-07 the Debtors are at minimum level. Moreover, in next two years in 2008 & 2009 the debtors are continuously increasing. We can say that it is a good sign as well as negative also. Company policy of debtors is very good but a risk of bad debts is always present in high debtors.

When sales are increasing with a great speed the profit also increases. If company decreases the Debtors, they can use the money in many investment plans. So, this variation is good from the firm prospect Page 52 CASH AND BANK BALANCE ANALYSIS Cash called the liquid asset and vital current assets; it is an important component of Working capital. In a narrow sense, cash includes notes, bank draft, cheque etc. Position of Cash and Bank Balance in Sathe synthetics: PARTICULARS 2009 Cash & Bank 6891449. 29 TOTAL 6891449. 29 2008 3665403. 60 3665403. 60 2007 2297697. 88 2297697. 88 2006 3407307. 2 3407307. 32 2005 6617777. 19 6617777. 19 8000000 7000000 6000000 5000000 4000000 3000000 2000000 1000000 0 2009 2008 2007 2006 2005 CASH & BANK INTERPRETATION If we analyze the above table and chart we find that it follows an increasing trend. In the year 2005, it had maintained a huge amount of cash and bank balance which has decreases in the year 2006, 2007 and 2008. Although company¶s cash position in the year2006, 2007 & 2008 was not sound so, this is not a very good sign for company. The analysis shows that the fix deposits of company are rapidly fallen in the year as 42. % in 06- 07 respectively from year 2005 that is why company is have minimum balance in 2007 in comparison of all. Through analysis, we got that company is utilizing the fixed cash for exploding the Projects that is good for growth. LOANS AND ADVANCES ANALYSIS Loans and Advances here refers to any to amount given to different parties, company, employees For a specific period of time and in return they will be liable to make timely repayment of that Page 53 Amount in addition to interest on that loan. PARTICULARS 2009 LOANS & 27455698. 27 ADVANCES TOTAL 27455698. 27 2008 42907011. 40 42907011. 0 2007 32127724. 16 32127724. 16 2006 16926496. 21 16926496. 21 2005 11619189. 30 11619189. 30 50000000 45000000 40000000 35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2009 2008 2007 2006 2005 LOANS & « INTERPRETATION If we analyze the table and the chart we can see that it follows an increasing trend which is a Good sign for the company. We can see that the increase of loans and advances are increases year by year except the year 2009. In the year 2008 there is more than Rs 4 crore given as loan, due to this a lot of amount was blocked. But it used for expansion of business.

The increasing pattern shows that company is giving advances for the expansion of plants and Machinery which is good sign for better production. Although company¶s cash is blocked but This is good that company is doing modernization of plan competitors in market. CURRENT LIABILITIES ANALYSIS Current liabilities are any liabilities that are incurred by the firm on a short term basis or current Liabilities that has to be paid by the firm within one year. Page 54 CREDITORS: PARTICULARS 2009 SUNDRY 12735248. 22 CREDITORS TOTAL 12735248. 22 30000000 25000000 20000000 15000000 10000000 5000000 0 2009 2008 2007 2006 2005 CREDITORS 008 29094178. 20 29094178. 20 2007 9759461. 84 9759461. 84 2006 11585162. 05 11585162. 05 2005 19863619. 97 19863619. 97 INTERPRETATION If we analyze the above table then we can see that it follow an uneven trend in the sundry creditors and other liabilities. In 2006 it decreased by 75% and in 2007 it further decreased by more then100%. In 07-08 it was increased because of growth in other liabilities. This is done because in the year2008 company purchased a bulk of raw material due to market variations. When company has minimum liabilities it creates a better goodwill in market.

High current liabilities indicate that company is using credit facilities by creditors. PROVISIONS ANALYSIS Position of Other Provisions in Sathe synthetics PARTICULARS 2009 PROVISIONS 4971315. 00 TOTAL 4971315. 00 2008 3539356. 00 3539356. 00 2007 2483662. 90 2483662. 90 2006 2072970. 04 2072970. 04 2005 1812808. 72 1812808. 72 Page 55 6000000 5000000 4000000 3000000 PROVISIONS 2000000 1000000 0 2009 2008 2007 2006 2005 INTERPRETATION From the above table we can see that provision shows a growing trend and the huge amount is Being kept in these provisions.

Though the profits of the company are increased, income tax is Also increased. Therefore, there is a great need of maintaining proper provisions, which is good that company is creating in time. The provisions are increasing as the tax increases. Although company is paying more income tax that is why because company also earning more. This is good sign for Company. Page 56 Page 57 By conducting the study about working capital management, I found out that working capital management of SATHE SYNTHETICS is good.

SATHE SYNTHETICS has sufficient funds to meet its current obligation every time, which is due to sufficient profits and efficient management of SATHE SYNTHETICS. Raw material for all the units of SATHE SYNTHETICS purchased by corporate office in bulk, which is a major problem for the company as it increases the inventory cost. Company is cash rich but as there are expansion and diversification plans under the pipeline, company is not utilizing these funds. For meeting the working capital needs and capacity expansion needs, it has borrowed from banks. Lack of advertisement can be considered to be a weak point for the Sathe Synthetics. The amount of stock is increasing per year, which is a good sign, as it would help them in the tough competition coming ahead. Firm profitability can be increase by shortening accounts receivables and inventory periods. Page 58 SUGGESTIONS Management should make the proper use of inventory control techniques like fixation of minimum, maximum and ordering levels for all the items for less blockage of money. The company should also adopt proper inventory control like ABC analysis etc. This inventory system can make the inventory management more result oriented.

The EOQ should also follow in stores. The company should train its work force properly, which would enable the company to utilize its resources properly and in the interim help in minimizing wastage, and hence result in the expansion of its market share. Due to competition, prices are market driven and for earning more margin company should give the more concentration on cost reduction by improving its efficiency. The investments of surplus funds made by the corporate office and the units are not generally involved while taking decisions with regard to structure of investment of surplus funds.

The corporate office should involve the units to better ascertain the future requirements of funds and accordingly the investments made in different securities. The company is losing its overseas customers due to decrease in exports so; the sufficient amount of exports should the maintained. Company¶s Average debtor collection period of company is 19 days. Therefore, it would be the one of the positive point for company and company should maintain it for future. Page 59 Page 60 Measures to Improve Working Capital Management at SATHE SYNTHETICS: The essence of effective working capital management is proper cash flow forecasting.

This should take into account the impact of unforeseen events, market cycles, loss of a prime customer and actions by competitors. So, the effect of unforeseen demands of working capital should be factored by company. This was one of its reasons for the variation of its revised working capital projection from the earlier projection. It pays to have contingency plans to tide over unexpected events. While market-leaders can manage uncertainty better, even other companies must have risk-management procedures. These must be based on objective and realistic view of the role of working capital. Addressing the issue of working capital on a corporate-wide basis has certain advantages. Cash generated at one location can well be utilized at another. For this to happen, information access, efficient banking channels, good linkages between production and billing, internal systems to move cash and good treasury practices should be in place. An innovative approach, combining operational and financial skills and an allencompassing view of the company¶s operations will help in identifying and implementing strategies that generate short-term cash.

This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They could be then held accountable for delivering, encouraged to be enterprising and to act as change agents. Effective dispute management procedures in relation to customers will go along way in freeing up cash otherwise locked in due to disputes. It will also improve customer service and free up time for legitimate activities like sales, order entry and cash collection. Overall, efficiency will increase due to reduced operating costs. Working capital management is an important yardstick to measure a company operational and financial efficiency. This aspect must form part of the strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiencies and improve customer satisfaction. Page 61 Page 62 WEBSITES:- Lazaridis, Ioannis and Tryfonidis, Dimitrios, Relationship between Working Capital Management and Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial Management and Analysis, Vol. 19, No. , January-June 2006. Available at SSRN: http://ssrn. com/abstract=931591 http://papers. ssrn. com/sol3/papers. cfm? abstract_id=931591&rec=1& srcabs=966188 http://www. emeraldinsight. com/Insight/ViewContentServlet? contentType=Article&S. Se name=/published/emeraldfulltextarticle/pdf/2910030202. pdf BOOKS AND JOURNALS Anand, M. 2001. ?Working Capital performance of corporate India: An empirical survey? , Management & Accounting Research, Vol. 4(4), pp. 35-65 Berryman, J. 1983. ?Small Business Failure and Bankruptcy: A survey of the Literature? European Small Business Journal, 1(4), pp47-59 Bhattacharya, H. 2001. Working Capital Management: Strategies and Techniques, Prentice Hall, New Delhi. Grablowsky, B. J. 1976. ?Mismanagement of Accounts Receivable by Small Business? , Journal of Small Business, 14, pp. 23-28 Grablowsky, B. J. 1984. ?Financial Management of Inventory? , Journal of Small Business Management, July, pp. 59-65 Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful Student Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-334. Page 63 ANNEXURES BALANCE SHEET AS AT

PARTICULARS SOURCES OF FUNDS SHRI GANESH JI SHRI LAXMI JI SHARE CAPITAL RESERVE AND SURPLUS LOAN FUNDS SECURED LOANS DEFERED TAX LIABILITY UNSECURED LOANS TOTAL APPLICATION OF FUNDS FIXED ASSETS A: GROSS BLOCK B: less DEPRICIATION C: NET BLOCK D:CURRENT ASSETS INVENTORY SUNDRY DEBTORS CASH IN HAND & BANK LOANS AND ADVANCES E:CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE FROM CUSTOMERS/DLR¶S PROVISIONS (D-E)NET CURRENT ASSETS MISCELLANEOUS EXPENSES TOTAL 2008-09 2007-08 2006-07 2005-06 2004-05 52. 25 51. 00 19901000. 00 345519604. 82 52. 25 51. 00 19901000. 00 29625127. 98 52. 25 51. 0 19901000. 00 15253853. 53 52. 25 51. 00 19901000. 00 21829192. 29 52. 25 51. 00 19901000. 00 20785949. 94 72686105. 58 3383097. 00 43486673. 00 88539002. 13 3449412. 00 46947616. 00 94535519. 74 3080483. 00 28872233. 00 55323395. 23 662332. 00 15703501. 00 54399581. 72 ——–14408414. 70 173976583. 65 188462261. 36 171643192. 52 113419523. 77 109495049. 61 178453951. 93 172240571. 18 164888412. 68 126570061. 76 123370584. 96 101561424. 62 90540217. 62 78663170. 62 71729938. 62 64380715. 62 76892527. 31 81700353. 56 86225242. 06 54840123. 14 58989869. 34 43767644. 00 37497882. 00 6891449. 9 27455698. 27 67853213. 00 27508864. 00 3665403. 60 42907011. 40 41177224. 00 24338099. 04 2297697. 88 32127724. 16 21642098. 00 30359548. 69 3407307. 32 16926496. 21 26940120. 00 26994647. 57 6617777. 19 11619189. 30 12735248. 22 822054. 00 4971315. 00 97084056. 34 ——— 29094178. 20 2539050. 00 9759461. 84 100000. 00 11585162. 05 100000. 00 2072970. 04 58577318. 13 2082. 50 19863619. 97 ————-1812808. 72 50495305. 37 9874. 90 3539356. 00 2483662. 90 106761907. 80 85417950. 46 —————- 173976583. 65 188462261. 36 171643192. 52 113419523. 77 10945049. 61 Page 64 Page 65

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