PROJECT REPORT ON:

WORKING CAPITAL

MANAGEMENT:COMPANY OVERVIEW
A training report submitted in partial fulfillment of the requirement for the degree of

BACHELOR OF BUSSINESS ADMINISTRATION (2011-2014)

Submitted by: Shilpa Batra
BBA-5th (SEM) ROLL NO: 112261052

BABA FARID COLLEGE DEON BATHINDA

ACKNOWLEDGMENT

This humble endeavor bears the imprint of many persons who were in one way or the other helpful in the completion of my project report. I would like to take this opportunity to present my vote of thanks to my guides who acted as lighting pillars to enlighten my way through out this project. This project would not have been possible without the kind assistance and guidance of many people who indeed were helpful, cooperative and kind during the entire course of my project.

The acknowledgment would not be complete without expressing my indebtedness to my revered and learned faculty guide Miss Jia Dhingra who guided me in this project and was the constant source of reference for us and showed full interest at each and every step of our project.

CERTIFICATE

This is to certify that the project entitled, Working capital management: company overview submitted for the degree of BBA, for the Baba Farid College, a bonafide research work carried out by under my supervision and no part of this project has been submitted for any other degree.

This assistance and help received during the course investigation have been fully acknowledged.

Miss. Jia Dhingra

DECLARATION

I hereby declare that this final project report titled Working capital management: company overview in Airsoft Infosys, is the result of my own effort in the training which I did as a part of the curriculum, for the fulfillment of BACHELOR OF BUSINESS ADMINISTRATION (BBA) degree. It has not been duplicated from any other earlier works and all information provided in this report is genuine.

This report is submitted for the partial fulfillment of BBA program. It has not been submitted to any other university or for any other degree.

SHILPA BATRA ROLL NO: 112261052 BBA IV Semester

Table of content

SR NO.

PARTICULARS

PAGE NO.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Title

1 2 3 6 8 11 41 42 67 68 69 70

Certificate Declaration Executive summary Company Profile Introduction To The Topic Research Methodology Data analysis & Interpretations Findings Suggestions Bibliography Annexure

Executive summary:
The company name is Airsoft Infosys. It is an Engineering company. I have done research In this company I want to see that how the company finance their project and how they manage working capital in their company. I have done summer internship in this company and some time they face shortage of funds so I want to know that why and when they face shortage of funds and how can they overcome from this problem.

The research conducted was descriptive in nature. The survey was conducted to know the working capital management of the company. With this objectives in mind, a survey was conducted in the Chandigarh region. Questionnaire method was used to obtain the required information. Convenient sampling was used as the mode of conducting the survey. Care was taken that the respondents were as diversified as possible, with all the regions being given equal weight age and the sample size being suitably divided among various regions. A sample size of about 80 employees was taken for this purpose. After the survey was complete, the data was first sorted, and then analyzed on the chosen parameters. This analyzed data was later converted into various forms of graphs such as pie-charts. This was to make results easily comprehensible by anyone going through the report. This also made it easy to draw conclusions based on the research and provide a presentable format of the report. Later on all this information was compiled in the form of a presentable and comprehensible data. My Project is the study of working capital management. The study was conducted at the Airsoft Infosys, Mohali. During the project I interviewed the executives & staff to collect the data, & also made use of company records & annual reports. The data collected were then compiled, tabulated and analyzed. Working Capital Management is a very important facet of financial management due to: Investments in current assets represent a substantial portion of total investment. Investment in current assets & the level of current liabilities have to be geared quickly to change sales. Some the points to be studied under this topic are: How much cash should a firm hold? What should be the firms credit policy? How to & when to pay the creditors of the firm? How much to invest in inventories?

By studying about the company s different areas I came to know certain things like: Acid test ratio is more than one but it does not mean that company has excessive liquidity. Standard current ratio is 2:1 and for industry it is 1.33:1. Airsoft Infosys ratios satisfactory. Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtors. But now recovery is becoming faster. Working capital turnover ratio is continuously increasing that shows increasing needs of working capital.

PROFILE OF THE COMPANY INTRODUCTION TO AIRSOFT INFOSYS

Is an organization headquartered in Australia , India,(A reputable name in the Web World by providing a full services of WEBSOLUTION products.) A 2-year old, distinguished web development company offering website design and web programming services, Airsoft Infosys assists a global clientele, across 7 continents and 60countries, with fully customized and comprehensive services at the most competitive rates. 2012 Operation Head

1About Company Airsoft Infosys, is at present, the most rapidly growing online web solutions company in Australia and India, providing IT enabled services, consultation and outsourcing to companies spread in more than 60 countries across 7 continents. Our advanced delivery model blends technology practices with functional expertise to help you improve your business processes and boost performance.
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Our professional website design, Website development, logo design, Flash design, and SEO Services, among others, can go a long way in determining the success of your business. Custom Creation also includes, but is not limited to, incorporating images, video and other interactive Content into your site, apart from the usual text element. They offer our clients a repertoire of services like ecommerce website creation and portal Development, brand marketing on leading ad networks, digital marketing, web analytics and Much more. Our talented and experienced team of professionals comprises Web 2.0 development Executives who offer advanced solutions for publishers and advertisers. We create professional And dynamic pages for you using intelligent and smart practices. They also double up as a digital marketing agency that serves leading brands, corporate clients, as Well as other players. Our cost-effective and customized web development and online media Solutions are tailor-made to suit your specific needs and requirements.

Services that company offer-:

Client-server applications Security Applications Enterprise applications Communication applications Entertainment applications Utility and productivity applications Multimedia applications Social Media applications

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INTRODUCTION TO THE TOPIC

WORKING CAPITAL MANAGEMENT
Management is an art of anticipating and preparing for risks, uncertainties and overcoming obstacles. An essential precondition for sound and consistent assets management is establishing the sound and consistent assets management policies covering fixed as well as current assets. In modern financial management, efficient allocation of funds has a great scope, in finance and profit planning, for the most effective utilization of enterprise resources, the fixed and current assets have to be combined in optimum proportions. Working capital in simple terms means the amount of funds that a company requires for financing its day-to-day operations. Finance manager should develop sound techniques of managing current assets.

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. Symbolically, it means, Net Current Assets = Current Assets + Current Liabilities.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital: 1) Working capital is the difference between the inflow and outflow of funds. In other words it is the net cash inflow . 2) Working capital represents the total of all current assets. In other words it is the Gross working capital , it is also known as Circulating capital or Current capital for current assets are rotating in their nature. 3)Working capital is defined as The excess of current assets over current liabilities and provisions .In other words it is the Net Current Assets or Net Working Capital .

IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient working capital, any business organization cannot run smoothly or successfully. In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of
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its close relationship with the current day to day operations of a business. The inadequacy or Mis-management of working capital is the leading cause of business failures. To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business. In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.

WORKING CAPITAL MANAGEMENT INTRODUCTION:

Working Capital is the key difference between the long term financial management and short term financial management in terms of the timing of cash. Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years, while short term financial decisions involve cash flow within a year or within operating cycle. Working capital management is a short term financial management. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities & the inter relationship that exists between them. The current assets refer to those assets which can be easily converted into cash in ordinary course of business, without disrupting the operations of the firm. Composition of working capital Major Current Assets i. Cash ii. Accounts Receivables iii. Inventory iv. Marketable Securities

Major Current Liabilities Bank Overdraft Outstanding Expenses Accounts Payable Bills Payable
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The Goal of Capital Management is to manage the firm s current assets & liabilities, so that the satisfactory level of working capital is maintained. If the firm can not maintain the satisfactory level of working capital, it is likely to become insolvent & may be forced into bankruptcy. To maintain the margin of safety current asset should be large enough to cover its current assets. Main theme of the theory of working capital management is interaction between the current assets & current liabilities.

CONCEPT OF WORKING CAPITAL:

There are 2 concepts: Gross Working Capital Net Working Capital

Gross working capital: - It is referred as total current assets. Focuses on, Optimum investment in current assets: Excessive investments impairs firm s profitability, as idle investment earns nothing. Inadequate working capital can threaten solvency of the firm because of its inability to meet its current obligations. Therefore there should be adequate investment in current assets. Financing of current assets: Whenever the need for working capital funds arises, agreement should be made quickly. If surplus funds are available they should be invested in short term securities. Net working capital (NWC) defined by 2 ways, Difference between current assets and current liabilities Net working capital is that portion of current assets which is financed with long term funds.

NET WORKING CAPITAL = CURRENT ASSETS _ CURRENT LIABILITIES

If the working capital is efficiently managed then liquidity and profitability both will improve. They are not components of working capital but outcome of working capital. Working capital is basically related with the question of profitability versus liquidity & related aspects of risk.

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Implications of Net Working Capital: Net working capital is necessary because the cash outflows and inflows do not coincide. In general the cash outflows resulting from payments of current liability are relatively predictable. The cash inflows are however difficult to predict. More predictable the cash inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will be necessary to maintain current assets at level adequate to cover current liabilities that are there must be NWC. For evaluating NWC position, an important consideration is trade off between probability and risk. The term profitability is measured by profits after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligations when they become due for payment. The risk of becoming technically insolvent is measured by NWC. If the firm wants to increase profitability, the risk will definitely increase. If firm wants to reduce the risk, the profitability will decrease.

PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ in their requirement of working capital (WC). Firm s aim is to maximize the wealth of shareholders and to earn sufficient return from its operations.

WCM is a significant facet of financial management. Its importance stems from two reasons: Investment in current asset represents a substantial portion of total investment. Investment in current assets and level of current liability has to be geared quickly to change in sales. Business undertaking required funds for two purposes: To create productive capacity through purchase of fixed assets. To finance current assets required for running of the business. The importance of WCM is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are
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necessary for earning profits. However, sales do not convert into cash instantly; there is invariably a time lag between sale of goods and the receipt of cash. WC management affect the profitability and liquidity of the firm which are inversely proportional to each other, hence proper balance should be maintained between two. To convert the sale of goods into cash, there is need for WC in the form of current asset to deal with the problem arising out of immediate realization of cash against good sold. Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or cash cycle. A firm requires many years to recover initial investment in fixed assets. On contrary the investment in current asset is turned over many times a year. Investment in such current assets is realized during the operating cycle of the firm.

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Each component of working capital (namely inventory, receivables and payables) has two dimensions. TIME. and MONEY....When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales. It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plughole, they remove liquidity from the business

If you
Collect receivables (debtors) faster. Collect receivables (debtors) slower. Get better credit (in terms of duration or amount) from suppliers. Shift inventory (stock) faster. Move inventory(stock) slower.

Then
You release cash from the cycle. Your receivables soak up cash. You increase your cash resourses.

You free up cash. You consume more cash.

Operating cycle: The working capital cycle refers to the length of time between the firms paying the cash for materials, etc., entering into production process/stock & the inflow of cash from debtors (sales), suppose a company has certain amount of cash it will need raw materials. Some raw materials will be available on credit but, cash will be paid out for the other part immediately. Then it has to
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pay labor costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds during this time period. This time period is dependent upon the length of time within which the original

Injection of cash

Cash withdrawals

CASH

GOOD SOLD Debtor generated & then cash received To suppliers for raw material To workers wages

PAYMENTS

GOODS PRODUCED

Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of working capital. Thus the working capital cycle helps in the forecast, control & management of working capital. It indicates the total time lag & the relative significance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above
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we can broadly classify the operating cycle of a firm into three phases viz.

1. Acquisition of resources. 2. Manufacture of the product and 3. Sales of the product (cash / credit). First and second phase of the operating cycle result in cash outflows, and be predicted with reliability once the production targets and cost of inputs are known. However, the third phase results in cash inflows which are not certain because sales and collection which give rise to cash inflows are difficult to forecast accurately. Operating cycle consists of the following: Conversion of cash into raw-materials; Conversion of raw-material into work-in-progress; Conversion of work-in-progress into finished stock; Conversion of finished stock into accounts receivable through sales; and Conversion of accounts receivable into cash. In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D - C R = Raw material storage period W = Work in progress holding period F = Finished goods storage period D = Debtors collection period C = Credit period availed

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Managing working capital

Working capital management is concerned with decision making involving current involving current assets and current liabilities. Current assets, as we know, are acquired with an intention of sale or conversion into finished goods for sale and include cash and bank balance, raw material, work in progress, finished goods and accounts receivables. In simple words working capital also refers to the funds required for carrying out the day- today operation. The term working capital normally denotes investment in current assets, and is also used with different connotation like: Gross working capital - It is concerned with the total investment in current assets Net working capital It refers to current assets less current liabilities Working capital management includes many aspects for example operating cycle, inventory management, and receivable management also.

NEED FOR LIQUIDITY

Day to day transactions Precautionary balances Compensating balances Obtaining discounts Acid tests Favourable opportunities Overall avoiding bankruptcy

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Estimation of working capital

The estimation of working capital is not an easy task. Every business is confronted with the problem of determining the right amount of working capital. Working capital should be sufficient to meet the operational needs of the enterprise. DETERMINANTS OF WORKING CAPITAL There are no set rules or formula to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. Also, the importance of factors changes for a firm over time. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors which generally influence the working capital requirements of firms. Nature of Business Sales and Demand Conditions Technology and Manufacturing Policy Credit Policy Availability of Credit Operating Efficiency Price Level Changes

Nature of Business:

Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for example, must carry large stocks of a variety of goods to satisfy varied and continuous demand of their customers. Some manufacturing business, such as tobacco manufacturers and construction firm, also have to invest substantially in working capital and a nominal amount in fixed assets. In contrast, public utilities have a very limited need for working capital and have to invest abundantly in fixed assets. Their working capital requirements are nominal because they may have only cash and supply services, not products. Thus, no funds will be tied up in debtors and stock (inventories). Working capital requires most of the manufacturing concerns to fall between the two extreme requirements of trading firms and public utilities. Such concerns have to make
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adequate investment in current assets depending upon the total assets structure and other variables. Sales and Demand Conditions: The working capital needs of a firm are related to its sales. It is difficult to precisely determine the relationship between volume of sales and working capital needs. In practice, current assets will have to be employed before growth takes place. It is , therefore, necessary to make advance planning of working capital for a growing firm on a continuous basis. A growing firm may need to invest funds in fixed assets in order to sustain its growing production and sales. This will, in turn, increase investment in current assets to support enlarged scale of operations. It should be realized that a growing firm needs funds continuously. It uses external sources as well as internal sources to meet increasing needs of funds. Such a firm faces further financial problems when it retains substantial portion of its profits. It would not be able to pay dividends to shareholders. It is, therefore, Imperative that proper planning be done by such companies to finance their increasing needs for working capital. Sales depend on demand conditions. Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. These business variations affect the working capital requirements, specially the temporary working capital requirement of the firm. When there is an upward swing in the economy, sales will increase; correspondingly, the firm s investment in inventories and debtors will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of firm will require further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom further additions of working capital. To meet their requirements of funds for fixed assets and current assets under boom period, firms generally resort to substantial borrowing. On the other hand, when there is a decline in the economy, sales will fall and consequently, levels of inventories and debtors will also fall. Under recessionary conditions, firms try to reduce their short term borrowings. Seasonal fluctuations not only affect working capital requirements but also create production problems for the firm. During periods of peak demand, increasing production may be expensive for the firm. Similarly, it will be more expensive during slack periods when the firm has to sustain its working force and physical facilities without adequate production and sales. A firm may, thus, follow a policy of steady production, irrespective of seasonal changes in order to utilize its resources to the fullest extent. Such a policy will mean accumulation of inventories during off season and their quick disposal during the peak season. The increasing level of inventories during the slack season will require increasing funds to be tied up in the working capital for some months. Unlike cyclical fluctuations, seasonal
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fluctuations generally conform to asteady pattern. Therefore, financial arrangements for seasonal working capital requirements can be made in advance. However, the financial plan or arrangement should be flexible enough to take care of some abrupt seasonal fluctuations.

Technology and Manufacturing Policy

The manufacturing cycle (or the inventory conversion cycle) comprises of the purchase and use of raw material the production of finished goods. Longer the manufacturing cycle, larger will be the firm working capital requirements. For example, the manufacturing cycle in the case of a boiler, depending on its size, may range between six to twenty- four months. On the other hand, the manufacturing cycle of products such as detergent powder, soaps, chocolate etc. may be a few hours. An extended manufacturing time span means a larger tie- up of funds in inventories. Thus, if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chosen. Once a manufacturing technology has been selected, it should be ensured that manufacturing cycle is completed within the specified period. This needs proper planning and coordination at all levels of activity. Any delay in manufacturing process will results in accumulation of work- in- process and waste of time. In order to minimize their investment in working capital, some firms, especially firm Manufacturing industrial products have a policy of asking for advance payment from their customers. Non-manufacturing firms, service and financial enterprises do not have a manufacturing cycle. A strategy of constant production may be maintained in order to resolve the working capital problems arising due to seasonal changes in the demand for the firm product. A steady production policy will cause inventories to accumulate during the off- reason periods and the firm will be exposed to greater inventory costs and risks. Thus, if costs and risks of maintaining a constant production policy, varying its production utilized for manufacturing varied products, can have the advantage of diversified Activities and solve their working capital problems. They will manufacture the original product line during its increasing demand and when it has an off- season, other products may be manufactured to utilize physical resources and working force. Thus, production policies will differ from firm to firm, depending on the circumstances of individual firm.

Credit Policy The credit policy of the firm affects the working capital by influencing the level of debtors. The credit terms to be granted to customers may depend upon the norms of the industry to which the firm belongs. But a firm has the flexibility of shaping its credit policy within the constraint of industry norms and practices. The firm should be discretion in granting credit terms to its
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customers. Depending upon the individual case, different terms may be given to different customers. A liberal credit policy, without rating the credit-worthiness of customers, will be detrimental to the firm and will create a problem of collections. A high collection period will mean tie- up of large funds in book debts. Slack collection procedures can increase the chance of bad debts. In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a rationalized credit policy based on the credit standing of customers and periodically review the creditworthiness of the exiting customers. The case of delayed payments should be thoroughly investigated. Availability of Credit The working capital requirements of a firm are also affected by credit terms granted by its creditors. A firm will need less working capital if liberal credit terms are available to it. Similarly, the availability of credit from banks also influences the working capital needs of the firm. A firm which can get bank credit easily on favorable condition will operate with less working capital than a firm without such a facility.

Operating Efficiency The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient in mcontrolling operating costs and utilizing current assets. The use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency. Better utilization of resources improves profitability and, thus, helps in releasing the pressure on working capital. Although it,may not be possible for a firm to control prices of materials or wages of labour, it can certainly ensure efficiency and effective use of its materials, labour and other resources. Price Level Changes The increasing shifts in price level make functions of financial manager difficult. He should anticipate the effect of price level changes on working capital requirement of the firm. Generally, rising price levels will require a firm to maintain higher amount of working capital. Same levels of current as sets will need increased investment when price are increasing. However, companies which can immediately revise their product price levels will not face a server working capital problem. Further, effects of increasing general price level will be felt differently by firm as individual price may move differently. It is possible that some

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companies may not be affected by rising price will be different for companies. Some will face no working capital problem, while working capital problems of other may be aggravated.

Source of working capital

Working capital represents the funds invested in day to expenses. However a sound business principle is that a part of working capital needs should be financed out of the long term source. Various sources of funds are:

Long term source of funds are

1. 2. 3. 4. 5. Retained earning Fresh issue of shares Raising of long term debt Proceed from the long term assets debentures

Short-term source of funds

1. 2. 3. 4. 5. 6. Credit from suppliers Public deposits Bank borrowings Inter corporate deposits Short term loan from financial institution Bank overdraft

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Approaches to meet the financing needs of the working capital

We can meet financing need of working capital through long term capital and through short term capital. There are three approaches of combination long term capital and short term capital to meet the financing needs of working capital. These approaches are discussing below one by one:

1. Matching approaching approach

Under this approach permanent working capital are financed with the long term funds like equity and long term debt, while fluctuating working capital is financed with short term debt. This approach is not easy to implement due to the uncertainty associated with the lives of individual assets.

Fluctuating W. C. Short term debt

Assets

Permanent W. C. Fixed assets Long term sources

Time

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Matching approach

2. Conservative approach
In this approach relatively high proportion of long term funds are utilized to reduce the risk for refund the short term debt. Under this approach fixed assets, permanent working capital and a part of fluctuating working capital are financed from long term funds. This approach results in lower profitability.

Fluctuating W. C.

Short term debt

Assets

Permanent W. C. Fixed assets

Long term sources

Time

Conservative approach

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3. Aggressive approach
In this approach a relatively high proportion of short term debt is used to finance a part of permanent working capital. Under this approach, the firm has to plan its financing so as to arrange for refund more frequently and that increase the risk associated with greater fluctuation in interest expenses. However this approach brings in a higher profitability to off -set the higher risk.

Fluctuating W. C. Short term debt

Assets

Permanent W. C. Fixed assets Long term sources

Time

Aggressive approach

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Types of working capital:

PERMANENT AND VARIABLE WORKING CAPITAL

The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and, therefore, the need for current assets is felt constantly. But the magnitude of current assets needed is not always a minimum level of current assets which is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent, or fixed, working capital. It is permanent in the same way as the firms fixed assets are. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example, extra inventory of finished goods will have to be maintained to support the peak periods of sales, and investment in receivable may also increase during such periods. On the other hand, investment in raw material, work-in-process and finished goods will fall if the market is slack.

The extra working capital, needed to support the changing production and sales activities is called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of working capital PERMANENT and TEMPORARY - are necessary to facilitate production and sale through the operating cycle, but temporary-working capital is created by the firm to meet liquidity requirements that will last only temporary working capital. It is shown that permanent working capital is stable over time. While temporary working capital is fluctuating- sometimes increasing and sometimes decreasing. However, the permanent capital is difference between permanent and temporary working capital can be depicted through figure.

BALANCED WORKING CAPITAL POSITION The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view. Excessive working capital not only impairs the firms profitability but also result in production interruptions and inefficiencies.
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The dangers of excessive working capital are as follows: It results in unnecessary accumulation of inventories. Thus, chances of inventory mishandling, waste, theft and losses increase. It is an indication of defective credit policy slack collections period. Consequently, higher incidence of bad debts results, which adversely affects profits. Excessive working capital makes management complacent which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers: It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non- availability of working capital funds. It becomes difficult to implement operating plans and achieve the firms profit target. Operating inefficiencies creep in when it becomes difficult even to meet day commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firm s profitability would deteriorate. The firm loses its reputation when it is not in a position to honour its short-term obligations. As a result, the firm faces tight credit terms. An enlightened management should, therefore, maintain the right amount of working capital on a continuous basis. Only then a proper functioning of business operations will be ensured. Sound financial and statistical techniques, supported by judgment, should be used to predict the quantum of working capital needed at different time periods. A firm s net working capital position is not only important as an index of liquidity but it is also used as a measure of the firm s risk. Risk in this regard means chances of the firm being unable to meet its obligations on due date. The lender considers a positive net working as a measure of safety. All other things being equal, the more the net working capital a firm has, the less likely that it will default in meeting its current financial obligations. Lenders such as commercial banks insist that the firm should maintain a minimum net working capital position.
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Sources of Additional Working Capital

Sources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

Cash management
Cash is the most liquid asset, is the necessary to honor obligation and commitments. Cash balance here includes cash in the banks. With a geographical dispersal of business enterprises cash management has acquired added significance as cash balance in regional office are to be optimized. There are many reasons to held cash. Following are the three primary reasons for holding cash:

1. Transaction motive
Here cash is needed to meet the needs arising due to business activity. Since cash inflows and outflows are non-synchronizing in nature, a cash balance is necessary to serve as a buffer between thee flows.

2. Precautionary motive
This refers to the cash requirement necessary to meet the unexpected requirements of cash due to uncertain future cash flows and the uncertainty of additional borrowing at a notice
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3. Speculative motive
Many a time, cash is held to take advantage of the changes in the prices of products. Effective cash management optimizes the cash balance and reduces the time spam between the time the customers pays the cheque and the time the cash is collected. The period during the which the cheque remain uncollected is known as float. And efficient cash management aims at minimizing the float.

Some techniques of cash management are 1. Concentration banking

With an objective of spending up the collection of cheque from customers, straight collection centers are established, in different region. There has to be a trade off between the cost and the benefits of opening collection centers.

2. Lock box system

An arrangement sometimes is made with the local post office wherein the customers are requested to deposit the cheques. The local bank arranges to collect the cheques from the lock box and it reduce the cheque promising float.

3. Central banking system

In a multi division company, bank balances are centrally controlled and the balances in regional offices are transferred to the central office. The regional offices do not normally have any control over the cash inflows, and they are provided with separate funds, depending upon their needs, to meet their commitments.

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Inventory management
Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc. The key is to know how quickly your overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold. Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Nowadays, many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stock-holding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management The key issue for a business is to identify the fast and slow stock movers with the objectives of establishing optimum stock levels for each category and, thereby, minimize the cash tied up in stocks

Factors to be considered when determining optimum stock levels:

What are the projected sales of each product? How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without compromising best sellers? Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges.

The various cost involved with the inventory

1. Material cost 2. Ordering cost the cost of placing an order like typing the order, inspection of goods receipts 3. Carrying cost: a) Storage cost
32

b) Insurance c) Obsolescence and spoilage d) Damage or theft 4. Cost of funds tied up in the inventory 5. Cost of running out of stock and losing the an order

The various cost associated with the different levels would be

Total cost

Cost

Carrying cost

Ordering cost

L Stock level OL is the level of inventory which has the lowest cost

Firm can determine its order size at which the cost involved is minimal
33

Formula for determining the order size

EOQ

2(A)(C) (CC%)(P)

Here : EOQ A C P CC%

= Economic order quantity = Total consumption in units during the year = Cost of placing each order = Price of each unit of the inventory = inventory carrying cost expressed as a % of the average value of the inventory

If company remains its order size equal to Economic order quantity than the ordering cost will be lowest.

34

Handling receivable/debtors management

Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed. Handling receivable is a very important thing and late payment from debtor is very harmful for business. There is very famous saying for that: Late payments erode profits and can lead to bad debts.
Slow payment has a crippling effect on business , in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors: 1. Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 2. Establish clear credit practices as a matter of company policy. 3. Make sure that these practices are clearly understood by staff, suppliers and customers. 4. Be professional when accepting new accounts, and especially larger ones. 5. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 6. Establish credit limits for each customer... and stick to them. 7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 8. Keep very close to your larger customers. 9. Invoice promptly and clearly. 10. Consider charging penalties on overdue accounts. 11. Consider accepting credit /debit cards as a payment option. 12. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old.

35

Few ideas that may help you in collecting money from debtors:

Develop appropriate procedures for handling late payments. Track and pursue late payers. Get external help if your own efforts fail. Don't feel guilty asking for money, it is yours and you are entitled to it. Make that call now. And keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder. It lessens the problem.

When asking for your money, be hard on the issue - but soft on the person. Don't give the debtor any excuses for not paying.

Make it your objective is to get the money - not to score points or get even.

Debtors Turnover ratio

The birth of the debtors comes from credit sales. Total debtors include the bills receivables also. The bills receivables are the written promise of the trade debtors. It is included in current assets. It is calculated as follows: DTO = (Debtor+BR) * Number of working days

Credit sales

2,51,80,983 11,48,88,235

* 365

= 80

Debtors turnover ratio is 80 days. It convert into cash into cash.

36

Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Creditors can affect the working capital in the company a lot. So managing the payables is the one of the part of the working capital management

Here we should consider following point:

Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people? Are purchase quantities geared to demand forecasts? Do you use order quantities which take account of stock-holding and purchasing costs? Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier. How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers? If a supplier of goods or services lets you down can you charge back the cost of the delay Can you arrange (with confidence !) to have delivery of supplies staggered or on a justin-time basis

Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble).

37

Creditors turnover ratio

The birth of the creditors comes from credit purchases. Total creditors include the bills payables also. The bills payables are the written promise of the company to the trade creditors. It is included in current liabilities. It is calculated as follows:

CTO

(creditors+BP) * Number of working days

Credit Purchase

1,43,10,076 7,46,16,824

* 365

70 days

Creditors turnover ratio is 70 days. It means averagely we pay for our every credit in 70 days.

Liquidity ratios
The formula for the working capital is Current assets minus current liabilities and so for working capital management we have to make comparison of current assets and current liabilities. So we have to calculate current ratios. There are two types of Liquidity ratios Current ratio and quick ratio

38

Current ratio
Current ratio is the comparison of current assets with current liabilities.
Formula for current ratios is current assets divided by current liabilities.

Current assets Current liabilities

Current assets includes: Cash, bank balance, debtor, inventories Current liabilities includes: creditors, bills payable, bank overdraft, short term loans

Current Assets Current liabilities

= =

61,92,79,735 18,09,62,795

Current ratio =

61,92,79,735 18,09,62,795

= 3.42 times

39

Quick ratio or Liquid ratio

Quick ratio is a kind of current ratio. It is comparison of quick assets and current liabilities. Quick assets are the assets which are so liquid means which are cash and most nearest to cash. They are mostly same as current assets but they doesnt include inventories.

Formula for Quick ratio

Quick Assets Current Liabilities

Quick Assets

Current Assets Inventories

61,92,79,735 15,00,000

Rs 61,77,79,735

Quick Ratio

61,77,79,735 18,09,62,795

= 3.4 Times

40

RESEARCH METHODOLOGY

It is a kind of descriptive research. Here I have gathered data through both primary and secondary ways, and analyze the data. I have asked the relevant information from the accounts department and from the management and from purchase department also.

Research Design
Data collection method:
SOURCES OF DATA

Primary and secondary

1) Primary Data Source 2) Secondary Data Source

Both primary and secondary data sources have been used for data collection. Primary Data Source-The major source of data was the Primary source Primary data was collected from: Depth Interview Survey-Questionnaire Secondary source Secondary data was collected from companies accounts and purchase department. Secondary data taken from the financial statement of the company like income statement, balance sheet.

Sampling method: Convenient sampling

41

Data analysis and interpretation

RATIO ANALYSIS

Quick Assets
ACID TEST RATIO =

Quick Liabilities
Particulars Q.A Q.L A.T.R 2008-09 12136.80 8385.47 1.45 2009-10 12051.57 7917.32 1.52 2010-11 10880.77 8431.19 1.29 2011-12 10423.08 8605.39 1.21 2012-13 10996.5 9336.43 1.17

42

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008-09 2009-10 2010-11 2011-12 2012-13 AR

INTERPRETATION: A quick ratio of 1:1 or more is considered as satisfactory or of sound liquidity position. In the year 2009-10, compared to previous year, quick assets and current assets decreased but the decreased rate of current liabilities is greater than the decreased rate of quick ratios, so quick ratio increased from 1.45 to 1.52. In 2010-11 and 11-12 there was a decrease in quick assets and increase in current liabilities, so quick ratio decreased from 1.52 to 1.29 and 1.29 to 1.21 in 2010-11 and 11-12 respectively. And It has further decreased to 1.17 in 2012-13.

INVENTORY HOLDING PERIOD

12 Months Inventory holding period = Inventory turnover ratio Particulars I.T.R Rs (in Lacs) 2008-09 6.26 2009-10 5.30 2010-11 4.94 2011-12 5.26 2012-13 3.31

43

Period in 12.00 Months Rs (In Lacs) I.H.P 1.92

12.00

12.00

12.00

12.00

2.26

2.43

2.28

3.63

I.H.P
4 3.5 3 2.5 2 1.5 1 0.5 0 2008-09 2009-10 2010-11 2011-12 2012-13 I.H.P

INTERPRETATION: -

In the year 2009-10 there was a decrease in inventory turnover ratio.This shows an increase in inventory holding period. In 2010-11 there was an increase in holding period and in 2011-12 it was 2.28 that suggests that there was an increase in sales and decrease in inventory turnover ratio. In the year 20 year 2012-13 it is 3.63.
44

DEBTORS COLLECTION PERIOD

12 Months Debtors Collection Period = Debtors Turnover Ratio

Particulars Period months DT ratio D.C.P month

2008-09 in 12 1.8 in 6.59

2009-10 12 2.15 5.58

2010-11 12 2.4 5

2011-12 12 3 4.04

2012-13 12 3 4

D.C.P IN MONTH
7 6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12 2012-13 D.C.P IN MONTH

45

INTERPRETATION: -

There is an increase in both debtors and sales, so avg. collection period is decreasing year by year. That shows that recovery from debtors is improving.

CREDITORS TURNOVER RATIO

12 MONTHS CREDITORS PAYMENT PERIOD= CREDITOR TURNOVER RATIO Particulars Periods in months C.T.R C.P.P 2008-09 12 1.10 10.90 2009-10 12 1.49 8.05 2010-11 12 2.24 5.35 2011-12 12 2.95 4.07 2012-13 12 3.43 3.50

46

12

10

6 C.P.P

0 2008-09 2009-10 2010-11 2011-12 2012-13

INTERPRETATION: In case of Airsoft Infosys. There is continuous increase in purchases and continuous decrease in creditors, so payment period is decreasing year by year.

47

DEBT TO EQITY RATIO

Total Debts Debt to equity ratio = Equity (SH. CAP. + R & S)

Particulars Equity Total Debt D.T.E.R

2008-09 3323.58 7696.52 2.32

2009-10 3360.63 7377.36 2.20

2010-11 3446.27 6599.12 1.91

2011-12 3586.83 5421.12 1.51

2012-13 4636.39 4003.93 0.86

D.T.E.R
2.5

1.5 D.T.E.R 1

0.5

0 2008-09 2009-10 2010-11 2011-12 2012-13

INTERPRETATION: The D/E ratio is 1:1; it implies that for every rupee of outside liability. In case of our organization there is an improvement in the D/E ratio year by year. There is continuous decrease in total debt and there is continuous increase in shareholder s equity (i.e. Reserves and Surpluses)
48

with increasing rate so the ratio is decreasing from 2.32 to 2.20 in 2009-10, to 1.91 in 2010-11 and to 1.51 in 2011-12, and to 0.86 in 2012-13

GROSS PROFIT MARGIN

Gross Profit Gross Profit Marin = Sales X 100

Particulars G.P Sales G.P Margin

2008-9 265.74 17267.61 1.54

2009-10 339.70 19396.94 1.75

2010-11 376.53 21646.75 1.74

2011-12 386.67 26173.86 1.48

2012-13 1489.78 30365.16 1.90

G.P MARGIN

0 2008-09 2009-10 2010-11 2011-12 2012-13

49

INTERPRETATION: In the year 2009-10 there was an increase in sales as well as increase in gross profit so ratio of GP increased from 1.54 to 1.75, in the year 2010-11 there was decrease in sales and in gross profit, (percentage of increase in gross profit is lower than the percentage of increase in sales), so the ratio of GP and sales has slightly decreased from 1.75 to 1.74 and in the year 2011-12 similar to 2002-03 there was an increase in sales and a decrease in gross profit, so ratio of GP has decreased from 1.74 to 1.48 and in the year 2012-13it has shot up to 4.90.

NET PROFIT RATIO

Net Profit (After Tax & Interest) Net Profit Ratio = Sales X 100

Particulars P.A.T Sales N. Profit (loss) Margin

2008-09 918.77 17267.61 5.32

2009-10 48.99 19396.94 0.250

2010-11 95.31 21646.75 0.440

2011-12 152.78 26414.22 0.578

2012-13 1066.20 30365.16 3.500

50

N.Profit (Loss) Margin

6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12 2012-13

N.Profit (Loss) Margin

Interpretation: Net profit ratio is increasing year after year, except for 2008-09, where there was a loss. After that there is a continuous increase in PAT as well as in sales from 2009-10 to 2012-13. Therefore, it shows a continuous increase

TOTAL ASSETS TURNOVER RATIO

Net Sales Total Assets Turnover Ratio = Average Total Asset

51

Particulars Total F.A (OP- CL) AVG. F.A (A) Total C.A (OP+CL) AVG C.A (B) AVG. TOTAL ASSETS SALES T.A.T.R

2008-09 3036.27 1518.14 22574.65 11287.33 1280.46

2009-10 4295.38 2147.693 30223.54 15111.77 17259.46

2010-11 3895.62 1947.81 30170.04 15085.02 17032.83

2011-12 3821.93 1910.97 29790.71 14895.36 16806.32

2012-13 4486.98 2243.49 29277.35 14638.67 8441.08

17267.61 1.35

19396.94 1.12

21646.75 1.27

26173.86 1.56

30365.16 3.59

Sales

2008-09 2009-10 2010-11 2011-12 2012-13

52

INTERPRETAION:
There is a continuous increase in sales. In the year 2009-10 there was an increase in average total assets, so the ratio decreased from 1.35 to 1.12, in 2010-11 and 2011-12 there is a change in average assets and decrease in average total assets, so ratio increased from 1.12 to 1.27 and from 1.27 to 1.55 respectively. For the year 2012-13 ratio is 3.59.

Fixed Assets turnover ratio:

Net Sales Fixed Assets Turnover Ratio = Avg. Fixed Assets

Particulars

2008-09

2009-10 4295.38 2147.69 19396.94 9.03

2010-11 3895.62 1947.81 21646.75 11.11

2011-12 3821.93 1910.97 26173.86 13.70

2012-13 4486.98 2243.49 30365.16 13.53

Total Of F.A 3036.27 (OP+CL) Avg Fixed Assets Sales F.A.T.R 1518.14 17267.61 11.37

53

F.A.T.R
16 14 12 10 8 6 4 2 0 2008-09 2009-10 2010-11 2011-12 2012-13 F.A.T.R

Interpretation: Here we have seen there has been a continuous increase in sales. In the year 2009-10, there was an increase in average fixed assets as well as in sales but the growth rate of average fixed assets was higher, so ratio decreased from 11.37 to 9.03. In the year 2010-11 and 2011-12 there was a decrease in average fixed assets and an increase in sales, so ratio increased from 9.03 to 11.11 and from 11.11 to 13.70 respectively. But it is slightly decreasing in 2012-13.

54

CURRENT ASSETS TURNOVER RATIO

Sales Current Assets Turnover Ratio = Avg. Current Assets

Particulars Sales Current Assets Avg. current Assets C.A.T.R

2008-09 17267.6 22574.651 11287.33 1.53

2009-10 19396.94 30223.54 15111.77 1028

2010-11 21646.75 30170.04 15085.02 1.43

2011-12 26173.86 29790.71 14895.36 1.76

2012-13 30365.16 29277.35 14638.67 2.07

C.A.T.R
2.5

1.5 C.A.T.R 1

0.5

0 2006-07 2007-08 2008-09 2009-10 2010-11

55

Interpretation:A better current assets turnover ratio is always good for a firm and in case of our organization, the turnover ratio is moving positively during the past 4 years. Current assets had decreased in 2009-10 and 2011-12 and increased in 2010-11, but as the growth rate of sales is higher when compared to decreased rate of current assets so the ratio has decreased from 1.53 to 1.28 in 200809 to 2009-10. Further it has increased to 1.43 in 2010-11 and to 2.07 in 2012-13.

WORKING CAPITAL TURNOVER RATIO

Net Sales Working Capital Turnover Ratio = Net Working Capital

Particulars Sales Working Capital W.C.T.R

2008-09 17267.61 6846.03

2009-10 19396.94 7074.22

2010-11 21646.75 6746.81

2011-12 26173.86 6007.32

2012-13 30365.16 5328.20

2.52

2.74

3.21

4.36

5.7

56

W.C.T.R
6 5 4 3 2 1 0 2008-09 2009-10 2010-11 2011-12 2012-13

W.C.T.R

INTERPRETATION:A high working capital turnover ratio indicates efficiency in utilization of resources and the ratio has improved from 2.52 in 2008-09 to 5.7 in 2012-13. Hence we can see that the component of working capital is consistently reducing which is considered as a positive sign from the point view of the finance.

57

PROFIT AND LOSS ACCOUNT

Particular Year (A)INCOME SALES ADD:OTHERINCOME TOTAL INCOME (B) EXPENDITURE Materials Consumed:Materials Consumed: Stores & spaces consume: Manufacturing Expenses: Employee's Emoluments: Interest & other Fin. Charges Sundry Expenses: Depreciation: Total Expenditure 20607.62 Net Profit before Tax (A-B) Provision for Tax Net Profit After Tax -918.76 46.77 95.17 152.81 212.16 -916.56 19991.58 52.85 22362.8 96.92 26879.83 155.84 30807.59 294.16 8870.04 505.99 9376.03 1636.51 3597.64 1458.91 4037.1 277.49 10866.21 593.58 11459.79 1424.12 3115.99 852.9 2722.47 223.68 12412.56 688.84 13101.4 1443.96 3336.03 587.35 4060.27 214.74 15817.46 895.23 16712.69 1913.07 3681.32 521.05 3946.17 225.8 4718.76 249.37 18690.34 3250.81 3598.01 488.42 17573.95 1116.39 Amount (RS. lacs) 2008-09 Amount (RS. lacs) 2009-10 Amount (RS. lacs) 2010-11 Amount (RS. lacs) 2011-12 Amount (RS. lacs) 2012-13

17058.47 2633.59 19691.06

19360.52 683.91 20044.43

21624.68 835.02 22459.72

26414.22 621.45 27035.67

30365.16 736.58 31101.75

2.2

6.08

1.75

3.03

82

58

BALANCE SHEET
A SOURCES OF FUNDS Shareholders funds: a) Capital b) Reserve & Surplus

2008-09

2009-10

2010-11

2011-12

2012-13

128422345 203935113

128443380 207620112

128443380 216184117

128443380 230239120

128443380 335195910

Loan Funds: a) Secured loans b) Unsecured loans TOTAL

663645876 106008244

640463151 97272888

581576924 78335147

514380917 27727313 900790730

380016497 20376994 864032781

1102011578 1073799531 1004539568

B APPLICATION 1
OF FUNDS: Fixed asset: a) Gross Block b) LessDepreciation Net block Capital WIP exp. To date Total Technical Know-how Investment Current Asset, Loans & Advances 1) Inventories 2) Sundry Debtors 3) Cash & Bank balance

749985197 529139497 220845700 2764184 223609884

745342117 542178336 203163781 2764184 205927965 9816315

717930907 537061079 180869828 2764184 183634012 30106210

718557289 524722052 193835237 4723646 198558883 27037298

777226949 533470985 243755964 6384589 250140553 23968386

2 3 4

72534904

61043727

55600632

42967882

36106881

309469261 849477102 22043337

294045465 875751450 26143472

429724069 884099843 8159330

418963322 897711768 5590022

366814500 904486832 74504328

59

4) Loans & advances

342161013

303263771

195816844

139006705

120658554

1) Liabilities 2) Provisions Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted Deferred revenue expenditure in respect of VRS Pension scheme TOTAL Less - Current Liabilities & provisions

820733336 17812993 684604384

774132429 17600025 707471704

842943606 175000 674681480

860236799 303000 600732018

918023088 15620580 532820546

118562406

89539820

60517234

31494649

20996415

2700000

NIL

NIL

NIL

NIL 864032781

1102011578 1073799531 1004539568 900790730

60

Statement of changes in working capital (2007-2009)

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets Decrease in working capital

2007-08

2008-09

Increase

Decrease

3094.70 8494.77 220.43 3421.61 15231.50

2940.45 8757.51 261.43 3032.66 14992.03

154.25 262.74 41.00 388.95

8207.33 178.12 8385.46 6846.04

7741.32 176.00 7917.32 7074.71

466.01 2.12

771.87 228.67

543.20 228.67

61

STATEMENT OF CHANGES IN WORKING CAPITAL (2008-10).

Particular A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities 7917.32 Net Current Assets Decrease in working capital 327.9 6560.94 8431.19 6746.81 1614.53 327.9 1942.43 2008-09 2009-10 Increase Decrease

2940.45 8757.51 261.43 3032.64

4297.24 8841.00 81.59 1958.17

1356.79 83.49 179.84 1074.47

14992.03 7741.32 176.00

15178.00 8429.44 1.75 688.12 174.25

Interpretation:
This statement shows the decrease in Working Capital in the year 2008-2010 by decrease in cash & bank balance & loans & advances

62

Statement of changes in working capital (2009-11).

Particular A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets 6746.81 Decrease in working capital 136.12 739.49 Interpretation: The statement shows the decrease in Working Capital in the year 2009-11 by decrease in cash & Bank balance, inventories, loans & advances. 739.49 875.61 6007.32 2009-10 2010-11 Increase Decrease

4297.24 8841.00 81.59 1958.17

4189.63 8977.12 55.9 1390.07

107.61 136.12 25.69 568.1

15178.00

14612.72

8429.44 1.75 8431.19

8602.37 3.03 8605.4

172.93 1.28

63

Statement of changes in working capital (2010-12).

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets

2010-11

2011-12

Increase

Decrease
521.49

4189.63 8977.12 55.9 1390.07 14612.72 8602.37 3.03 8605.4 6007.32

3668.14 9044.86 745.04 1206.58 14664.64 9180.23 156.20 9336.43 5328.20

67.74 689.14 183.49

577.86 153.17

756.88 Decrease in working capital 679.12 679.12

1436.01

Interpretation: This statement shows the increase in Working Capital in the year 2010-12 by increase in cash & bank balance, inventories & debtors. In the final analyses.

64

Projection of changes in working capital (2011-13).

Particulars A) Current Assets a) Inventories b) Sundry debtors c) Cash and bank d) Loans & advances Total Current Assets B) Current Liabilities a) Sundry creditors b) Provisions. Total Current Liabilities Net Current Assets

2011-12

2012-13

Increase
344.33 235.67

Decrease

3668.14 9044.86 745.04 1206.58 14664.64 9180.23 156.20 9336.43 5328.21

4012.47 9280.53 108.02 1238.00 14639.01 7254.00 167.00 7421.00 7218.01

637.02 31.42

1926.23 10.80

2537.65 Increase in working capital 1889.81

647.82 1889.81

65

Statement showing Net Current Assets / Net Working Capital Particulars

A] C. Assets a) Inventories b) S. Debtors c) Cash & bank balance. d) Loans & Advances Total Amt. B] C. Liabilities a) Creditors b) Provisions Total Amt. Net Current liabilities [A-B] 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13

3094.70 8494.77 220.43 3421.61

2940.45 8757.51 261.43 3032.64

4297.24 8841.00 81.59 1958.17

4189.63 8977.12 55.9 1390.07

3668.14 9044.86 745.04 1206.58

4012.47 9280.53 108.01 1238.00

15231.50 8207.33 178.12 8385.46 6846.04

14992.03 7741.32 176.00 8431.19 6606.57

15178.00 14612.72 8429.44 1.75 8431.19 6746.81 8602.37 3.03 8605.4 6007.32

14664.64 14639.01 9180.23 156.20 9336.43 5328.20 7254.00 167.00 7241.00 7398.01

Interpretation:
This table shows the Working Capital position for the last 5 years & the projected Working Capital for 2012-13.

66

FINDINGS
1) Defense sales order of rs. 9 corers was not there for the first quarter of 2009-10, so the sales has decreased. 2) Standard current ratio is 2:1 and for industry it is 1.33:1. Airsoft Infosys ratios satisfactory. 3) Acid test ratio is more than one but it does not mean that company has excessive liquidity. 4) Debtors of the company were high; they were increasing year by year, so more funds were blocked in debtors. But now recovery is becoming faster. 5) Inventory turnover ratio is improving from 2005-06 to 2009-10, which means inventory is used in better way so it is good for the company. 6) Debtors turnover ratio is improving from 2005-06 to 2009-10 .increase in ratio is beneficial for the company because as ratio increases the number of days of collection for debtors decreases. 7) Working capital turnover ratio is continuously increasing that shows increasing needs of working capital. 8) Interest coverage ratio is increasing from last four years.

9) Production capacity is not utilized to the full extent

67

SUGGESTIONS

1) It can be said that overall financial position of the company is normal but it is required to be improved from the point of view of profitability. 2) Net operating cycle is increasing that means there is a need to make improvements in receivables/debtors management. 3) Company should stretch the credit period given by the suppliers. 4) Company should not rely on Long-term debts. 5) Company should try to increase Volume based sales so as to stand in the competition.

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BIBLIOGRAPHY

1) Financial Management Prassanna Chandra. 2) Website of Airsoft Infosys. 3) Google. 4) Financial Management ,Satish Inamdar. 5) Annual reports Airsoft Infosys.

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ANNEXTURE

BALANCE SHEET
A SOURCES OF FUNDS Shareholders funds: a) Capital b) Reserve & Surplus

2006-07

2007-08

2008-09

2009-10

2010-11

128422345 203935113

128443380 207620112

128443380 216184117

128443380 230239120

128443380 335195910

Loan Funds: a) Secured loans b) Unsecured loans TOTAL

663645876 106008244

640463151 97272888

581576924 78335147

514380917 27727313 900790730

380016497 20376994 864032781

1102011578 1073799531 1004539568

B APPLICATION 1
OF FUNDS: Fixed asset: a) Gross Block b) LessDepreciation Net block Capital WIP exp. To date Total Technical Know-how Investment Current Asset, Loans & Advances 1) Inventories

749985197 529139497 220845700 2764184 223609884

745342117 542178336 203163781 2764184 205927965 9816315

717930907 537061079 180869828 2764184 183634012 30106210

718557289 524722052 193835237 4723646 198558883 27037298

777226949 533470985 243755964 6384589 250140553 23968386

2 3 4

72534904

61043727

55600632

42967882

36106881

309469261

294045465
70

429724069

418963322

366814500

2) Sundry Debtors 3) Cash & Bank balance 4) Loans & advances

849477102 22043337 342161013

875751450 26143472 303263771

884099843 8159330 195816844

897711768 5590022 139006705

904486832 74504328 120658554

1) Liabilities 2) Provisions Net Current Assets Miscellaneous Expenditure (To the extent not written off or adjusted Deferred revenue expenditure in respect of VRS Pension scheme TOTAL Less - Current Liabilities & provisions

820733336 17812993 684604384

774132429 17600025 707471704

842943606 175000 674681480

860236799 303000 600732018

918023088 15620580 532820546

118562406

89539820

60517234

31494649

20996415

2700000

NIL

NIL

NIL

NIL 864032781

1102011578 1073799531 1004539568 900790730

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74

75

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Recommendation
It is a manufacturing company and the operating cycle is big. So they should borrow the short term funds for the period of app. 24 month This should borrow before the peak season which is 1st quarter. Means they should borrow it in the month of march for the period of 24 months it. It includes two peak seasons and one down season. It can reduce the borrowing cost if we take it for short term because if we borrow for short term the interest rate will be lower than borrow for long term. Operating cycle is about 8 to 18 months approx. averagely it is of 13 months so they should borrow for 24 month and then they will not face any shortage of funds. They start earning after 13 month and they can repay the loan in 24 months approx. it will reduce the borrowing cost. For the purpose if turbines and other machinery and other capital assets they should borrow for more than 5 years Turbines and other machinery are very costly which takes huge investment. It takes time to repay that much of loan. Averagely they start earning after 13 month. After that they have to pay short term loans first which they have to repay within 24 months. So after that they can start repay the long term loan. So it should be for more than five years. It should be for 5 to 8 years.

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Bibliography:
Companys website Companys booklet Project files in the company Annul financial statement of the company Book of Finance and Accounts written by K S Shastri Book of Working capital management written by Hrishikes Bhattacharya (IIM Calcuta) Company employees

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Limitation
1. 2. 3. 4. There are many projects but I am taking three projects. I will take feedback from some project manager not from all. Time limit- I will study only for a year not for more than one. Geographical area may be the one of the limitation of my research

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Appendix
Research Proposal

Dissertation Proposal

Submitted to: Skyline Business School Submitted by: Aniket Pundir SMU Roll no: 520828049

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(L2S1, Sec-B) Finance

Title
Study the working capital of company and financing of the projects

Case study
On Sai Engineering Foundation working in Himachal Pradesh

Reason for choosing the topic

Sometime company faces shortage of funds. So I want to know that what reasons are for that.

Literature review
Dr. Sorab Sadri, Research Professor & Director Rai Business School, Navi Mumbai Too little working capital increases profit but reduces liquidity, as current assets are more expensive than fixed assets. For instance if a management feels that worker training is a cost they will apportion less funds for it. If on the other hand a management sees it as an investment in manpower, the funds allocated would increase substantially If at a point of time the organization does not have sufficient funds to meet its short-term debts such as creditors and salaries as well as day-to-day expenses it may become technically insolvent. On the other hand, if it is very conservative it will have a surplus of working capital, which will adversely affect profits. So it is easy to appreciate that the ratio of fixed assets to current assets is a good measure of the balance to be maintained.
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There is no specific thumb rule. It varies from industry to industry and the nature of business. Some industry norms are given below.

Proportion of current assets to fixed assets INDUSTRY PROPORTION

HOTELS

10-20% 20-30% 30-40% 40-50% 60-70% 80-90%

ELECTRITY DISTRIBUTION ALUMINIUM & SHIPPING IRON STEEL & CHEMICALS COTTON TEXTILES TRADING

The ideal mix thus depends on the nature of the industry. Now we shall very briefly take each component of working capital and see what are the best practises adopted by industry in managing them.

in 1991, Richard Coase received a Nobel Prize in economics for a theory of the firm, based mainly on the concept of transaction cost - i.e. the overriding reason for a firms existence is because there are costs of putting together different market participants, costs that might be lower within a single firm structure than in the broader market. With this realization, supply chain management and co-operation become much more important, with better technology and information facilitating the change

The number one way to prevent business failure is to properly manage the working capital. Working capital management is a critical management issue for growing
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businesses or medical practices. By adopting a few working capital management strategies, a person can make his or her assets work, without becoming beholden to banks. Source: University of Wisconsin

Objective of research
1. 2. 3. 4. 5. 6. 7. How company maintain working capital Source of short term funds What is the peak month in which requirement for money is high In which month there is shortage of funds Reason for shortage of funds In which source company should raise funds at minimum cost Where should they use short term funds and where long term funds

Research methodology
It is a kind of descriptive research. Here I will take the financial data from the company and analyze the data. I will ask the relevant information from the accounts department and also from the management.

Research Design
Data collection method: Primary and secondary

Sampling method: Convenient sampling Sampling size: Three projects Data analysis:

Limitation
5. There are many projects but I am taking three projects. 6. I will take feedback from some project manager not from all. 7. Time limit- I will study only for a year not for more than one.
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Bibliography
Companys website Companys booklet Project files in the company Annul financial statement of the company Book of Finance and Accounts written by K S Shastri Book of Working capital management written by Hrishikes Bhattacharya (IIM Calcuta) Company employees

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Questionnaire

1. a) b) c) d)

What are the sources of short term fund? Bank loan Income from running project Other borrowings Profits of previous years

2. a) b) c) d)

What are the sources of long term fund? Bank loan Income from running project Other borrowings Profits of previous years

3. a) b) c) d) 4. a) b) c) d)

What are the factors where most of the long term capital uses? Plant and machinery Building Labor Land owners What are the factors where most of the short term capital uses? Labors Power and fuels Electric material Blast material

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5. a) b) c) d) 6. a) b) c) d)

What is the peak season? 1st quarter (April to June) 2nd quarter (July to Sep.) 3rd quarter (Oct. to Dec.) 4th quarter (Jan. to March) When there is shortage of funds? 1st quarter (April to June) 2nd quarter (July to Sep.) 3rd quarter (Oct. to Dec.) 4th quarter (Jan. to March)

7. a) b) c) d)

When there is excess of funds? 1st quarter (April to June) 2nd quarter (July to Sep.) 3rd quarter (Oct. to Dec.) 4th quarter (Jan. to March)

8. a) b) c) d)

How much the operating cycle? Three months Six months One year More than one year

9. a) b) c) d)

Who are the main suppliers? Only one main supplier for many product Only one main supplier for one product Many suppliers for many product Many suppliers for one product

10. How much time you got credit from your supplier? a) Nil
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b) c) d) e)

Less than one month One to three month Three to six month More than six month

11. How much time credit you give to your customers? a) Nil b) Less than one month c) One to three month d) Three to six month e) More than six month

12. How much your credit sale in percentage of total sale? a) Less than 20% b) 20 to 40% c) 40 to 60% d) 60 to 80%

13. How much your credit purchase in percentage of total purchase? a) Less than 20% b) 20 to 40% c) 40 to 60% d) 60 to 80%

14. Do you want to give any suggestion about the financing of the project? ----------------------------------------------------------------------------------------------------------

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