A REPORT

ON

DISTRIBUTION AND SALES OF FINANCIAL

PRODUCTS AND ANALYSIS OF WORKING
CAPITAL MANAGEMENT OF
SHRIRAM FORTUNE SOLUTIONS LIMITED
By:-

NAME: GOPAL SINGH

ENROLLMENT NO.:
15BSP0448

GURGAON
BATCH 2015-17

ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the
kind support and help of many individuals and organizations. I would like to extend my
sincere thanks to all of them.

First of all, I would thank Mr. S.C. Sharma, Director of ICFAI Business School for
providing me the opportunity to work at a reputed corporate house.

I would also thank Prof. A .K. Mitra for his guidance and constant supervision as well as for
providing necessary information regarding the project & also for his support in completing
the project.

I would like to express my gratitude towards my parents & Mr. Deepak S. Sisodiya ,
Business Partner and my trainer at Shriram Fortune for their kind co-operation and
encouragement which helped me in completion of this project.

I would like to express my special gratitude and thanks to industry persons for giving me
such attention and time.

My thanks and appreciations also go to my colleague in developing the project and people
who have willingly helped me out with their abilities.

DECLARATION

I hereby declare that the project work entitled EVALUATION OF WORKING CAPITAL
MANAGEMENT IN SHRIRAM LIFE INSURANCE submitted to the IBS Gurgaon, is a
record of an original work done by me under the guidance of A.K.MITRA, faculty member,
from IBS GURGAON.

I further declare that this project is the result of my own efforts.

Place:

GOPAL SINGH

Date:

EXECUTIVE SUMMARY

India is the one of the fastest growing economy of the world and the financial sector plays
an important part in the development of the economy.
For the purpose of practical training through Summer Internship Program I worked with
Shriram Fortune Solutions Ltd. In financial sector I had to do the project on financial
planning and portfolio management of various clients. The main purpose of financial
planning and portfolio management is to know the customer where his/her interest is to
invest. My training at Shriram Fortune Solutions started from 16-02-2016 to 20-05-2016. I
learned about various financial products and all the concepts which were required for the
project. The training was divided into 4 module. First part was regarding the basic financial
products, second was about marketing activity and sales, third was specialization in finance
or marketing and last part was best performer will get an additional 1 weeks of internship
under a CA.

TABLE OF CONTENTS
S.No

1
2
3
4
4.1
4.2
4.3
4.4
4.5
4.6
4.7
5.1
5.2
5.3
5.4
5.5
5.6
6
7
8

PARTICULARS
Authorisation
Acknowledgement
Declaration
Executive Summary
Introduction
Objective
Scope
Company Profile
Working Capital
Gross Working Capital
Net Working Capital
Objectives of Working Capital
Importance of Working Capital
Determinants of Working Capital
Financing of Working Capital
Approaches of Working Capital
Components of Current Assets
Components of Current Liabilities
Working Capital of SFSL
Current Ratio
Cash and bank balance to Current Assets
Cash and bank balance to Total Deposits
Table
Table
Table
Findings
Conclusion
Limitations

PAGE
NUMBER
i
ii
iii
iv
6-7
8
9
10-14
15-17
18-21
22-23
24
24-25
26-28
29
30-32
33
34-35
36-37
38
39-40
41-42
43
44
45
46
47
48

INTRODUCTION
The overall success of the company depends upon its working capital position. So it should
be handled properly because it shows the efficiency & financial strength of a company.
WCM is highly important in firms as it is used to generate further returns for the
stakeholders.
Working Capital Management is a very important fact 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.
The working capital is the life blood & nerve canter of a business firm. The importance of
working capital in any industry needs no special emphasis. No business can run effectively
without a sufficient quantity of working capital.
It is crucial to retain right level of working capital. WCM is one of the most important
functions of corporate management. A business enterprises with ample working capital is
always in a position to avail advantages of any favourable opportunity either to buy raw
material or to implement a special order or to wait for enhanced market status.
Working capital can be utilized for operating costs that are involved in the everyday life of
business. Even very successful business owners may need working capital funds when the
unexpected circumstances arise.
WCM is highly important in firms as it is used to generate further return for the
stakeholders. When working capital is managed improperly, allocating more than enough of

it will render management non-efficient & reduce the benefits of short term investments. On
the other hand, if working capital is too low, the company may miss a lot of profitable
investment opportunities or suffer short term liquidity crises, leading to degradation of
company credit, as it cannot respond effectively to temporary capital requirement. Some of
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?

OBJECTIVES

The objectives of project on evaluation of working capital are as follows:

1. To study concept of working capital & components of working capital.
2. To study change of working capital.
3. To analyze profitability, liquidity & working.

SCOPE
8

The management of working capital helps us to maintain the working capital at a satisfactory
level by managing the current assets and current liabilities. It also helps to maintain proper
balance between profitability, risk and liquidity of the business significantly.
By managing the working capital, current liabilities are paid in time. If the firm makes payment
to its creditors for raw material in time, it can have the availability of raw material regularly,
which does not cause any obstacles in production process. Adequate working capital increases
paying capacity of the business but the excess working capital causes more inventory, increases
the possibility of delay in realization of debts. On the other hand, absence of adequate working
capital leads to decrease in return on investment. The goodwill of the firm is also adversely
affected due to the inability to pay current liabilities in time.
Hence, the management of working capital helps to manage all the factors affecting the working
capital in the most profitable manner.

COMPANY PROFILE
9

The company was started by Mr. R. Thyagarajan (Founder chairman) in 2006Shriram Fortune
solutions Ltd. Is one of the leading integrated financial services company of India Backed by
Shriram group of Chennai.
Shriram Fortune Solutions Ltd. Is a premier financial Distributions company and ranks among
the top players in the business segment.
SFSL offers financial planning solutions which are facilitated through four products, mutual
funds, life insurance, deposits. These products and solutions are supported by knowledge,
expertise and experience of 80,000 loyal business associates and 1200 employees.
SFSL has a direct presence through more than 100 branches and an indirect presence in more
than 330 locations throughout the country.
The company taps into the 40-lakh strong Pan-India customer base of the Shriram Group, as well
as new clients through newer channels creating a huge demand for Investment & Insurance
products.

Our Goals is to become one of the top distributors of financial products. We are aggressively
growing our business, market share, and our sales and support teams.
Our philosophy is to provide producers with exciting, revenue-generating ideas that successfully
translate into wealth planning solutions for customers.
With the strong support of the entire Shriram Group and a robust working model, SFSL is on the
way to achieve the vision To become the most successful and admired Financial Services
distribution Super Power House.

Vision:
To be the first choice insurer for customers
To be the preferred employer for staff in the insurance industry
To be the number one insurer for creating shareholder value

Mission:

10

As a responsible, customer focused market leader, we will strive to understand the insurance
needs of the consumers and translate it into affordable products that deliver value for money.

Our Achievements:
Sriram Fortune has received IAAA rating, From ICRA Limited, an associate of Moodys
Investors Service, for Claims Paying ability. This rating indicates highest claims paying ability
and a fundamentally strong position.

Sources of data
This study is based on Secondary data:The secondary data are those, which have been collected by some other and which
have been processed. Generally speaking secondary data are information, which have been
previously collected by some organization to satisfy his own need. But the department under
reference for an entirely different reason is using it.
For this project secondary sources used are:
1. Annual reports of the company.
2. Company website
3. Books
4. Other company documents

SAMPLING DESIGN
1

Sampling unit

: Financial Statements & Audit Reports

Sampling Size

:Last four years financial statements

INTODUCTION
11

In Shriram Fortune Solutions Ltd., I have been introduced about the company and their working
pattern.
In the first week of internship, I have been taught about capital market, money market, fixed
income market, Introduction of financial planning, ratings of all securities, rating agencies etc.
In the second week, Detail information of financial products of the company.
In the third week, I have been assign with the marketing activity where we have to promote these
financial products to various clients.
All the information regarding these financial products had been given to us. Then we have to
generate clients for the company by preparing future requirements through income, so that we
can suggest the financial products that best fit for their future requirements.
We were provided with the Fact Finding Form which helps to analyse the clients income and
expenses. On that Basis Company follows 3 Simple steps:
1. Identifying Needs.
2. Quantifying Needs.
3. Prioritizing Needs.

We were introduced with two financial products :

1. Shriram life Assured Income Plan
2. Shriram New Shri Life Plan

1. Shriram Life Assured Income Plan:12

Shriram life assured income plan (UNI-128N053V01) is a non-linked and non-participating plan.
Shriram Life Assured Income Plan is easy to obtain and affordable financial products which
gives security to our loved ones.
Plan at a Glance:1. Age at entry: 30 days- 50 years
2. Policy Term: 8 years/10 years
3. Minimum Annual Premium: Rs 15,000/4. Maximum Annual Premium: Rs 5,00,000/5. Basic sum assured: Policy term * Annual premium
It pays a Lump sum Amount in case of unfortunate death. It gives fixed return in different ways:
1. Annual
2. Half-yearly
3. Quarterly
4. Monthly
Client pay annual premium for 10 years and will start getting returns from the company for next
10 years which is approximately 160% of the amount invested. Company also provides
additional Benefits to their clients like,
Accidental Benefit
Disability Benefit
Death Benefit
Most importantly in this plan if the policy holder dies during the time of premium then the
company will pay his/her total assured amount with maturity.

2. Shriram New Shri Life Plan:13

Shriram New Shri Life Plan (UNI-128N047V01) is a non-linked participating Endowment Plan.
This Plan gives reliable protection to your family and helps in future.
Shriram New Shri Life Plan gives bonus to your life cover and it automatically get added year
after year.
Plan at a Glance:1. Plan which combines an individuals risk coverage and saving option.
2. Age at entry: 30 days- 65 years
3. Term: 10/15/20/25 years.
4. Limited and regular pay options.
5. Minimum Sum Assured: Rs 50,000
6. Maximum Sum Assured: Subject to underwriting conditions
After completing marketing activity we were shifted to the next module that is specialization I
opted Finance as my major so currently I am working on Working Capital Management.

WORKING CAPITAL:
14

Introduction:
Financial management looks after two types of capital need: for fixed capital to invest it tings
such as buildings, plants & equipments and working capital principally to pay for stock and to
cover the amount of credit extended to customers. Fixed capital, as the name implies, tends not
vary in the short but to move up or down in jumps when major investment decisions are made (or
assets sold). Working capital on the other hand, is much more fluid and fluctuates with level of
business.
Working capital is a furnish investment in short term assets. Working capital is the firms
investment in short term assets cash, short term securities. Account receivables and inventories.
Working capital management is the important branch of the financial management which gives
answers the questions such as:
1. How much should we invest in each category of current assets?
2. How should we finance this investment in current assets i.e. appropriate mix of short and
long term sources to finance?

In most business, funds are deployed in assets which are in the form of cash or bank deposits or
will be turned into cash in a relatively short period as part of normal business activities. In short
the working capital is the sources of financing current assets and it includes short as well as long
term financing.
The management of the funds of business can be described as financial management. Financial
management is mainly concerned with two aspects. Firstly, Fixed assets and fixed liabilities, in
other words, long term investment and sources of funds. Secondly, current assets and current
liabilities. Both of these types of funds play a vital role in business finance.
Management of working capital usually involves management or administration of current
assets, namely cash, marketable securities, account receivables and inventories and also the
administration of current liabilities such as creditors, account payable, notes and bills payables,
15

bank overdraft, outstanding expenses, temporary loans and provisions. A firm should always
maintain the right cash balance so that flow of funds is maintained at a desirable speed not
allowing slowdowns or stoppage. Thus, the enterprises can have a balance between liquidity and
profitability.
The term working capital is often used to refer the firms current assets like primarily cash,
marketable securities, account receivables and inventories. Working capital refers to the fact that
most of its components have their impact over weeks and month rather than years. For this
reason, working capital management is often referred to as short-term finance. The term working
capital is closely related to the term funds and has two common meaning. It is used to mean
current assets of current assets means current liabilities.
Working capital management is concerned with the problems that arise in attempting to manage
the current assets. The term current assets refers to those assets which is ordinary course of
business can be or will be turned into cash within one year without undergoing a diminution in
value and with our disrupting the operations of the firm. The major current assets are cash,
marketable securities, account receivables and inventory.
Current liabilities are those liabilities, which are intended at their inception to be paid in the
ordinary course of business within a year, out of the current assets of earnings of the concern.
The basis current liabilities are accounts payable, bank overdraft and outstanding expenses. The
goal of working capital management is to management the firms current assets and current
liabilities in such a way that a satisfactory level of working capital is maintained.
This is so because if the firm cannot maintain to satisfactory level of working capital, it is likely
to become insolvent and may be forced into bankruptcy. The current assets should be large
enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the
current assets must manage efficiently in order to maintain the liquidity of the firm while not
keeping too high level of any of them. Each of the short-team sources of financing must be
continuously managed to ensure that they are abstained and used in the best possible way. The

interaction between current assets and current liabilities is, therefore, the main theme of the
theory of working capital management.

16

Working capital may be defined more particularly as the assets held for current use within a
business less the amount due to those who await settlement in short term in whatever form.
Working capital is an important aspect manufacturing compares that have so far developed
country. Among all available options proper management of working capital is the only best
possible option to improve their operational viability. Working capital is the financial
management practice in manufacturing enterprises. Working capital represents portion that
circulates from one form to another in the ordinary conduct of business. This idea embraces
recurring transaction from cash to inventories to receivable to cash that forms the conventional
chain of business operations.
Fund deployed for short term are mainly for working capital or operational purpose. Towards the
day-to-day operation, a firm will have to provide money towards the purchase of raw materials,
payment of wage and salaries to extend credit to buyers of goods as well as to meet other day to
day operations.
By analysing about the working capital, we concluded that, all the corporations. Weather public
or private, manufacturing or non-manufacturing have just adequate working capital to serve in
competitive market. It is because excessive or inadequate working capital is dangerous from the
firms point of view. Excessive investment on working capital affects a firms profitability just
idle investment, yields nothing. In the same way, inadequate investment on working capital
affects the liquidity position of the company and leads to financial embarrassment and failure of
the company.
It is therefore, recognized fact that any mistake made in management of working capital can lead
to adverse effects in business and reduced the liquidity, turnover, profitability and increases the
cost of financing of the enterprises.

17

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

CONCEPTS OF WORKING CAPITAL:

There are two concepts of working capital:- gross & net. Gross working capital, simply called
working capital, refers to the firms investment in current assets. Current assets are the assets
which can be converted into cash within an accounting period (or operating cycle) and cash,
short-term securities, receivables, debtors and stock (inventory) are included in current assets.
Net working capital refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders, which are expected to mature for payment within an
accounting period and include creditors, bills payable and outstanding expenses.

4.1) Gross working capital:

According to this concept, total current assets are working capital which presents both owned
capital as well as loan capital used for financing current assets. It includes cash, short-term
securities and receivables inventories. These assets can be converted into cash within a year.
Generally, when it comes to current assets, cash is the most valuable element because it is
18

immediately available to settle bills and debtors are more value than stock which is nearer to
being turned into cash. The gross concept of working capital refers to the amount funds invested
in short-term assets that are employed in the enterprise. Gross working capital is the firms total
current asset and net working capital is current assets minus current liabilities.
Another name of gross working capital is circulating capital. Circulating capital means circular
flow of cash. This is also called operating cycle in case of manufacturing firm. This cycle starts
with which is used to pay for raw materials . Raw materials are converted into work-in progress
which is again converted into finished goods. When it is ready for sale, it is a circular cash-flow
from cash into inventories to receivables and back to cash, this cycle will be repeat again for the
whole life of the firm.
The value represented by current assets circulates from one working capital to another working
capital from purchase accounts to goods manufacturing accounts. From inventory accounts to
sales accounts, from sales accounts to cash accounts, this is described as circulating nature of
current assets of in other work working capital has circulating nature. The speed of circulating of
working capital of the turnover of current assets is an indicator of degree of efficiency of the
management. The faster the turnover shows the higher degree of efficiency.

The working capital cycle can be presented in the diagram as:

19

CASH

CREDITORS

COLLECTION

PAYMENTS

RAW MATERIALS
DEBTORS

SALES
PRODUCTION
WORK-INPROGRESS
FINISHED GOODS
VALUE ADDED CONVERSION
Figure: 4.1 The working capital cycle of manufacturing firms.
If the business is profitable the firms assets at the end of each cycle will be greater than the
original investment. In this manner, each cycle will produce a gross profit, and the amount of net
earnings for the year will depend. In part, on number of times the cycle occurs or how measured
by the ratio of sales to current assets. The higher the ratio, the more efficiency the operations,
fewer current assets are needed to support each dollar of sales.
The flow of working capital does not always proceeds as it is pre- planned when it moves
through different stage of cash cycle, for example, sales may decline due to can in consumer
taste, slow economy and receivable become more difficult to collect the working capital cycle
will be interrupted. This leads to decline in profitability and firm could suffer bankruptcy if this
adverse situation prevails for sometimes.

20

There is also a much shorter cycle of activity where in goods and materials are held for
manufacture and sale, and credit is advanced to customers for rapid conversion into cash to
provide the funds with which to continue in business and to make a profit distribution possible.
The working capital cycle shown in figure 4.1 is the operating cycle for non- manufacturing firm
where, cash is required to purchase raw materials which are needed to convert into work-inprogress, which is again converted into finished goods. Are sold for cash and credit and
ultimately debtors will be realized.
The non- manufacturing firms such as wholesalers and retailers do not manufacture goods. So,
they have the direct conversion of cash into stock of finished goods into debtors and then into
cash. This can be shown graphically as:

CASH

DEBTORS
STOCK OF FINISHED GOODS

Figure: 4.2 Operation cycle of non-manufacturing firms.

Sometimes service and financial concerns may not have any inventory. In this case the
operations cycle will be shortest as follows:

21

CASH

DEBTORS
Figure: 4.3 Operating cycle of service and financial firms.

The gross capital working capital focuses on two aspects of current assets management:
a) Optimum investment in current assets: As state earlier, both excessive and inadequate
investment is harmful for the business. This aspects thus, emphasis on the optimum
adequate level of current assets, working capital depends upon the business activated. It
also changes with the change in business activities. This may cause excess or shortage of
working capital frequently. The management should be active and alert to correct the
imbalance.
b) Financing of current assets: This aspect focus on the need of arranging funds to finance
current assets when more working capital is required due to the increase in business
activities. Then the arrangement should be made quickly. Similarly, when surplus funds
arise, then they should be invested in short term securities.

4.2) Net working capital:

Net working capital comprises short term net assets: stock, debtors and cash less creditors.
Working capital management then is to do with management of all aspects of both current
assets and current liabilities, so as to minimize the risk of insolvency while maximizing
return on assets.
Net working capital represents the excess of total current assets over total current liabilities. It is
a qualitative concept which shows the financial soundness of current financial position. Net
working capital may be positive or negative according to the size of current assets and current
liabilities. Current assets should be sufficiently in excess of current liabilities for the positive
working capital. This concept lives idea about the case and cost of raising working capital to the
management.

22

Not only for the management, is it also a major importance to investors and lenders. They
always like a company to maintain current assets should be two fold of current liabilities and
these concepts is measured by the current ratio via current assets current liabilities. Which
should be 4:1. A large ratio indicates greater solvency and makes it unsafe and unsound. A
negative working capital denotes negative liquidity which is also dangerous for the company.
Management should always be alert to improve the imbalance in the liquidity position of the
firm. Mathematically, it is presented as:
Net working capital Current assets Current liabilities
An alternatives definition of net working capital is that portion of a firms current assets
financed with long term funds.
For every firm today, minimum portion of working capital is financed with the permanent
sources of funds such as owners capital, debentures, long-term debt, and preference capital
or retained earnings; this portion of working capital which is financed with long term funds is
called permanent working capital. Management must therefore, decide the extent to which
current assets should be financed with equity capital or/ and borrowed capital.
Both the concepts of working capital, gross and net, are not mutually exclusive, however.
They are equally important from the management point of view in the gross concept points
out two important aspects of current assets: (i) Optimum investment in each of the
component of current assets and (ii) Financing of these current assets; while the net concept
indicates (i) The liquidity position and (ii) The extent to which working capital may be
financed by permanent sources of funds. Both the concepts have their own advantages and
disadvantages, which concept to choose depend upon the purpose of the firm. The concept of
gross capital is a financial concept where as that of net concept is an accounting concept.
Management is interested in current assets to operate the business with efficiency. To
evaluate the efficiency, gross concept is appropriate. On the other hand interest of investors
and lenders is in concept of net working capital because it helps in the judgment if liquidity
position of the enterprise.

23

4.3) Objective of Working capital:

Even profitability companies fail if they have inadequate cash flow. Liabilities dare settled
with cash and net profits. The primary objective of working capital management is to ensure
that sufficient cash is available to:

Meet day to day cash flow needs;

Pay wages and salaries when they fall due;
Pay creditors to ensure continued suppliers of goods and services;
Pay government taxation and providers of cash dividends; and
Ensure the long term survival of the business entity.

4.4) 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
its close relationship with the current day to day operations of a business. The inadequacy or
Mismanagement 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 workings.

Growth and Expansion Activities

As a company grows, logically, larger amount of working capital will be needed, though it is
difficult to state any firm rules regarding the relationship between growth in the volume of a

24

firm's business and its working capital needs. The fact to recognize is that the need for increased
working capital funds may precede the growth in business activities, rather than following it. The
shift in composition of working capital in a company may be observed with changes in economic
circumstances and corporate practices. Growing industries require more working capital than
those that are static.

Operating Efficiency

Operating efficiency means optimum utilization of resources. The firm can minimize its need for
working capital by efficiently controlling its operating costs. With in-creased operating
efficiency the use of working capital is improved and pace of cash cycle is accelerated. Better
utilization of resources improves profitability and helps in relieving the pressure on working
capital.

Price Level Changes

Generally, rising price level requires a higher investment in working capital. With increasing
prices the same levels of current assets need enhanced investment. However, firms which can
immediately revise prices of their products upwards may not face a severe working capital
problem in periods of rising levels. The effects of increasing price level may, however, be felt
differently by different firms due to variations in individual prices. It is possible that some
companies may not be affected by the rising prices, whereas others may be badly hit by it.

Other Factors
There are some other factors, which affect the determination of the need for working capital. A
high net profit margin contributes towards the working capital pool. The net profit is a source of

25

working capital to the extent it has been earned in cash. The cash inflow can be calculated by
adjusting non-cash items such as depreciation, out-standing expenses, losses written off, etc,
from the net profit, (as discussed in Unit 6).
The firm's appropriation policy, that is, the policy to retain or distribute profits also has a bearing
on working capital. Payment of dividend consumes cash resources and thus reduces the firm ',s
working capital to that extent. If the profits are retained in the business, the firm 's working
capital position will be strengthened.
In general, working capital needs also depend upon the means of transport and communication.
If they are not well developed, the industries will have to keep huge stocks of raw materials,
spares, finished goods, etc. at places of production, as well as at distribution outlets.

4.5) Determinants of working capital:

There are no hard and fast rules or certain formulae to determine the working capital requirement
of the firm. The importance of efficient working capital management is an aspect of overall
financial management. Thus a firm plans its operations with adequate working capital
requirement or it should have neither too excess nor too inadequate working capital. A number of
factors affect the working capital. Generally, the following factors affect the working capital
requirement of the firm.
i)

Nature and size of business:

The working capital requirement of a firm is basically related size and nature of the business. If
the size of the firm is bigger, then or requires more working capital whereas small firm needs
less working capital relatively to public utilities.

26

ii) Manufacturing Cycle:

Working capital requirement of an enterprise are also influenced by the manufacturing or
production cycle. It refers to the time involved to make finished goods from the raw materials.
During the process of manufacturing cycle funds are tied up longer the manufacturing cycle, the
larger will be working capital requirement and vice-versa.
iii) Production Policy:
Working capital requirement is also determined by its production policy. If a firm produces
seasonal foods, the its production and sales volume fluctuate with different seasons. This type of
fluctuating policy affects the working capital policy of the firm.
iv) Credit Policy:
Credit policy affects the working capital of a firm. Working capital requirement depends on
terms of sales. Different term may be followed by different customers according to their credit
worthiness. If the firm follows the liberal credit policy, then it requires more working capital.
Conversely, if a firm follows the stringent policy, it requires less working capital.
v) Availability of Credit:
Availability of credit facility is another factor that affects the working capital requirement. If the
creditors avail a liberal credit terms then the firm will need less working capital and vice-versa.
In other works, the firm can get credit facility easily on favorable conditions. Thus, it requires
less working capital to run the firm otherwise more working capital is required to operate the
firm smoothly.
vi) Growth and Expansion:
Growth and expansion also affects the working capital requirement of firm. However, it is
difficult to precise; determine the relationship between the growth and expansion of the firm and
working capital needs, however, the other things being the same growing firms needs more
working capital than those static ones.

27

vii) Price level Change:

Price level change also affects the working capital requirement of a firm. Generally, a firm
requires maintaining the higher amount of working capital, if the price level rises. Because the
same level of current assets needs more due to the increasing price. In conclusion, the
implications of changing price level of working capital position will vary from firm to firm
depending on the nature and another relevant consideration of the operation of the concerned
firm.
viii) Operating Efficiency:
Operating efficiency is also an important factor, which influences the working capital
requirements of the firm. It refers to the efficient utilization of available resources at minimum
cost. Thus, financial manager can contribute to strong working capital position through operating
efficiency. If a firm has strong operation efficiency then it needs lesser amount of working capital
and vice-versa.
ix) Profit Margin:
The level of profit margin differs from firm to firm. It depends upon the nature and quality of
product has a sound marketing management and enjoy the monopoly power in the market then it
earns quite high profit and vice-versa. Profit is sources of working capital because it contributes
towards the working capital as a pol by generating more internal funds.
x) Level of Taxes
The level of taxes also influences working capital requirement of firm. The amount of taxes to be
paid in advances is determined by the prevailing tax regulations. But the firms profit is not
constant, or can note be predetermined. Tax liability in a sense of short-term liquidity is payable
in cash. Therefore, the provision for tax amount is one of the important aspects of working
capital planning. If tax liability increase, it needs to increase the working capital and vice-versa.

28

4.6) Financing of Working Capital:

The firms working capital assets policy is never set in a vacuum; it is always established in
conjunction with the firms working capital policy. Every manufacturing concern of industry
requires additional assets whether they are instable or growing conditions. The most important
function of financial manager is to determine the level of working capital and to decide how it is
to financed. Financial of any assets is concerned with two major factors- cost and risk. Therefore,
the financial manager must determine an appropriate financing mix, or decide how current
liabilities should be used to finance current assets. However, a number of financing mixes are
available to the financial manager. He can resort generally there kinds of financing.

i) Long-term financing:
Long-term financing has high liquidity and low profitability, Ordinary share, Debenture,
Preference share; retained earnings and long-term debt of financial institution are major
sources of long-term finance.
ii) Short-term financing:
A firm must arrange its short-term credit in advance. The sources of short-term financing of
working capital are trade credit and bank borrowing.
Bank credit: Bank credit is the primary institutional sources for working capital financing for
the purpose of bank credit, amount of working capital requirement has to be estimated by the
borrowers and banks are approached with the necessary supporting data.
After availability of this data, bank determines the maximum credit based on the margin
requirements of the security. The types of loan provided by commercial banks are loan
arrangement, overdraft arrangement, commercial paper etc.

4.7) APPROACHES TO MANAGING WORKING CAPITAL

29

Two approaches are generally followed for the management of working capital: (i) the
conventional approach, and (ii) the operating cycle approach.

The Conventional Approach

This approach implies managing the individual components of working capital (i.e. inventory,
receivables, payables, etc.) efficiently and economically so that there are neither idle funds nor
paucity of funds. Techniques have been evolved for the management of each of these
components. In India, more emphasis is given to the management of debtors because they
generally constitute the largest share of the investment in working capital. On the other hand,
inventory control has not yet been practised on a wide scale perhaps due to scarcity of goods (or
commodities) and ever rising prices.

The Operating Cycle Approach

This approach views working capital as a function of the volume of operating expenses. Under
this approach the working capital is determined by the duration of the operating cycle and the
operating expenses needed for completing the cycle. The duration of the operating cycle is the
number of day involved in the various stages, commencing with acquisition of raw materials to
the realization of proceeds from debtors. The credit period allowed by creditors will have to be
set off in the process. The optimum level of working capital will be the requirement of operating
expenses for an operating cycle, calculated on the basis of operating expenses required for a year.
In India, most of the organizations use to follow the conventional approach earlier, but now the
practice is shifting in favour of the operating cycle approach. The banks usually apply this
approach while granting credit facilities to their clients.

ADEQUACY OF WORKING CAPITAL

30

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.

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.
Paucity of working capital funds render the firm unable to avail attractive credit
opportunities etc.
The firm loses its reputation when it is not in a position to honor its short-term
obligations.

31

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 firms 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.

In this study three years data ( 2012 to 2015 have been presented and analysed. It covers to
analyse the ratio as well trend and composition of working capital, which means current assets,
current liabilities, liquidity, turnover, leverage and profitability of SFSL.

5.1) Components of current assets:

For the day to day business operation different types of current assets are required. Current assets
refer those assets that are cash or can be converted into cash within a year. The composition of
32

current assets or the main components of current assets at SFSL are cash and bank balance, loan
and advances and government securities. Miscellaneous current assets are also a component of
current assets. Prepaid expenses, outstanding income like interest receivable and other current
assets are also included in miscellaneous current assets. The following table shows the amount of
cash and bank balance, money at call or short notice, loan and advanced government securities
and other current assets of Shriram fortune solutions limited.

Table 1 :

Current Assets
Fiscal Year

Sundry
Debtors

Cash and
balance

Bank Loan
advance

2012/13

64,39,653

30,30,038

7,345

14,21,061

108,98,097

2013/14

99,43,968

30,78,370

12130

15,09,928

145,44,396

2014/15

156,04,922

31,28,638

18,458

16,11,099

203,63,117

Source:- Annual Report of SFSL From 2012/13 to 2014/15

Current assets of the company increase in all three years.

33

and Other C.A

Total

6,000,000
5,000,000
4,000,000
Cash&Bank balance
Loan&advance

3,000,000

Other C.A
Total

2,000,000
1,000,000
0
2012/13

2013/14

2014/15

INTERPRETATION 1 :
As stated in above figure the current assets of SFSL increases all the three year from FY 2012/13
t0 2014/15. In the cash of FY 2012/13, the increasing trend is low from FY 2012/13. But the
overall increasing trend of current assets is higher.

5.2) Component of Current Liabilities:

Current liabilities is a short-term obligation which is payable within a year. The composition of
current liabilities or the main components of current liabilities. Tax provision, staff bonus,
proposed dividend payable and other liabilities are included in other current liabilities. The
following table shows the amount of deposit and other accounts, short term loan, bills payable
and other current liabilities of SFSL.

34

Table 2 :
Current Liabilities

In

Fiscal Year

Creditors

Deposit

Bills Payable

2012/13

35,00,000

65,08,226

2013/14

35,00,000

97,05,019

1,86,305

133,91,324

2014/15

35,00,000

146,65,838

2,26,784

183,92,622

1,29,653

Total
101,37,879

the

above table, the component of current liabilities which consists deposits. Source annual report of
company .

250000

200000

150000
Creditors
Deposit
100000

Bills Payable

50000

0
2012/13

2013/14

2014/15

35

INTERPRETATION 2 :
In the above figure shows that the current liabilities of the company is increasing In fiscal year
2012/13 the total amount of current liabilities Rs. 101,37,879 for the increasing impact of
deposits and other current liabilities. In all three year deposits and other current liabilities are
increased.

5.3) Working capital of SFSL:

Working capital is required to run business smoothly and efficiently in the context of set
objectives. It is no doubt that no organization can achieve its goal without proper use of working
capital. It means money invested on working capital should be neither more nor less because
both the position of working capital affects not only liquidity but also profitability of the
organization. The investment decision should be made on any type of current assets by
considering their role in company and determining which one is more beneficial to the company
and which is not. The following table shows the amount of working capital of SFSL of the study
period.

Table 3 :
Working capital of Company
Fiscal Year

Total C.A

Total C.L

WC= CA-CL

2012/13

108,98,097

101,37,879

7,60,218

2013/14

145,44,396

133,91,324

11,53,072

2014/15

203,63,117

183,92,622

19,70,495

Sources: Annual Report of company.

36

working capital
25000000
20000000
15000000
10000000
5000000
0

2012/13

2013/14

2014/15

INTERPRETATION 3:
In the above figure we clearly show the current assets, current liabilities and working capital
condition of SFSL from fiscal year 2012/13 to 2014/15. Working capital condition of the
company is at satisfactory level. All the year of the study period the working capital of the
company is positive.

Liquidity Ratio:
Liquidity ratios measures ability of the firms to meet its short-term obligations. Liquidity
of any business organization is directly related with working capital or current assets and
current liabilities of that organization. In other words, one of the main objectives of
working capital management is keeping sound liquidity position. Company is a different
organization which is engaged in Mobilization of funds. So, without sound liquidity
position of ability to meet its short-term obligation various liquidity ratios are calculated
and to know the trend of liquidity are trend analysis of major liquidity ratios have been
considered.

37

5.4) Current Ratio:

This ratio indicates the short-term solvency position of bank. In other words current ratio
indicates better liquidity position. It is calculated as follows:
Current assets (CA)
Current liabilities (CL)

The following table shows the current ratio to compare the following capital management of
SFSL.

Table 4 :
Current ratio

Fiscal Year

Total CA

Total CL

Current ratio

2012/13

108,98,097

101,37,879

1.07

2013/14

145,44,396

133,91,324

1.08

2014/15

203,63,177

183,92,622

1.10
Average=1.803

Sources: Annual Report of SFSL from 2008/09 to 2012.

38

Current Ratio of SFSL

Ratio %
1.11
1.1

1.1

1.1
1.09
1.09
1.08

1.08

1.08
1.07
1.07

1.07

1.06
1.06

2012/13

2013/14

2014/15

INTERPRETATION 4 :
The above table shows the CA, CL and current ratio of the SFSL. The current ratio of the SFSL
is fluctuating over the year. The highest current ratio is in fiscal year 2014/15 1.10. And in all
year it is increasing. The average ratio is 1.803.

5.5) Cash and bank balance to Current Assets:

The cash and bank balance is almost liquids from the current assets, this ratio shows the
percentage of readily available fund within the banks. It can be calculated by dividing cash and
bank balance by current assets, which is given below.

39

Cash and bank balance

Current assets

This ratio shows that the percentage of current assets cover cash and bank balance. The
following table and figure shows the cash and bank balance to current assets ratio of SFSL over
the study period.

Table 5 :
Cash and Bank to Current Assets Ratio of SFSL

Fiscal Year
2012/13

Cash& Bank
Balance
30,30,038

Current Assets

Ratio (%)

108,98,097

0.27

2013/14

30,78,370

145,44,396

0.21

2014/15

31,28,638

203,63,117

0.15

Sources: Annual Report of Company

40

Ratio %
0.3
0.25
0.2
0.15
0.1
0.05
0
2012/13

2013/14

2014/15

INTERPRETATION 5 :
Cash and Bank balance to current assets ratio of the company is in 2012/13 increased and in
2013/14 it decreased and again in 2014/15 is decreased.

5.6) Cash and Bank Balance to Total deposit:

The ratio shows the ability of bank immediate funds to cover their deposits. It can be calculated
by dividing cash and bank balance by deposits. The ratio can be expressed as:
The following table and figure shows the cash and bank balance to total deposits ratio of the
SFSL over the study period.

Table 6 :
Cash and Bank balance to total Deposit Ratio of SFSL
Fiscal Year

Cash& Bank
Balance

Deposit

41

Ratio

2012/13

30,30,038

65,08,226

0.46

2013/14

30,78,370

97,05,019

0.31

2014/15

31,28,638

146,65,838

0.21

Sources: Annual report of Company

Ratio%
3140000
3120000
3100000
3080000
3060000
3040000
3020000
3000000
2980000

2012/13

2013/14

2014/15

INTERPRETATION 6 :
The above figure depicts that the cash and bank balance to total deposit of SFSL has been
slightly increasing in FY 2012/13, 2013/14, 2014/15.

42

Table 1 :
Statement of changes in working Capital for the year 2012/13
Particulars

31-3-2012

31-3-2013

Increase

Sundry debtors

23,88,447

40,51,205

16,62,758

Cash& bank balance

14,49,509

15,80,529

1,31,020

Loan& advance

2,973

4,372

1,399

Other C.A

5,73,907

7,47,154

1,73,247

Current assets

Total 44,14,836

63,83,260

Current Liabilities

43

Decrease

Sundry creditors

17,50,000

17,50,000

Deposit

25,58,491

39,49,735

13,91,244

Bills payable

23,697

82,259

Total 43,32,188

1,05,956
58,05,691

Table 2 :
Statement of changes in working Capital for the year 2013/14
Particulars

31-3-2013

31-3-2014

Increase

Sundry debtors

40,51,205

58,92,763

18,41,558

Cash& bank balance

15,80,529

14,97,841

Loan& advance

4,372

7,758

3,386

Other C.A

7,41,154

7,62,774

21,620

Decrease

Current assets

Total 63,83,260

82,688

81,61,136

Current Liabilities
Sundry creditors

17,50,000

17,50,000

44

Deposit

39,49,735

Bills Payable

1,05,956
Total 58,05,691

57,55,284

18,05,549

80,349

25,607

75,85,633

Table 3 :
Statement of changes in working Capital for the year 2014/15
Particulars

31-3-2014

31-3-2015

Increase

Sundry debtors

58,92,763

97,12,159

38,19,396

Cash& bank balance

14,97,841

16,30,793

1,32,952

Loan& advance

7,758

10,700

2,942

Other C.A

7,62,774

8,48,325

85,551

Current assets

Total 81,61,136

122,02,004

Current liabilities

45

Decrease

Sundry creditors

17,50,000

17,50,000

Deposit

57,55,284

89,10,554

31,55,270

80,349

1,46,435

66,086

Bills payable

Total 75,85,633

108,06,989

FINDINGS

1. Current assets for the year 2012/13 is increases and its application for the company and
current liabilities of the company is increased and by putting formula (W.C= C.AC.L)working capital of the company for year 2012/13 is 7,60,218.
2. Current assets for the year 2013/14 is increases and it is good condition for the company
and current liabilities of the company is increased by 17,79,942 thats shows working
capital of company decreased. Here debtors decreased thats good for company it shows
cash of company increased.
3. Current ratio (C.R) of fiscal year 2012/13 to 2014/15 showed slightly increase i.e. 1.07 to
1.10.
4. Cash and Bank balance to current assets ratio of the company is in 2012/13 increased and
in 2013/14 it increased and again in 2014/15 is increased.
5. The above figure depicts that the cash and bank balance to total deposit of SFSL has been
slightly increasing in FY 2012/13, 2013/14, 2014/15.

46

CONCLUSION

At the end it is stated that the working capital management is a part of money invested in the
business. Working capital may be regarded as lifeblood of a business. Its effective provision can
do much to ensure the success of a business.
The Working Capital Management contributes much in the overall management of the
organization affairs, efficiency of organization operations depend on how it manages its short
term business dealings. Working Capital management contributes for the firm efficiency as well
as the finance manager is proper utilizing the available wealth and maintaining the required
liquidity.
Working capital is considered to be an important tool for progress. Working capital
management techniques are playing significant role in assisting the management for decision
making. The study of working capital management at Shriram fortune solutions limited . Is found
to be very effective. The working capital contains the management of Cash, Debtors, and
creditors. The SFSL. Ltd has profit oriented company .The profit of the company will be
increases every year .The company has able to the repay the amount of the creditor. The
company has more working capital and also sale has increases year to year.
47

Limitation of the study:

The scope of the present study has been limited interns of period of study as well as sources and
nature of data. The period covered by the study extends over 3 years from F.Y 2012/13 to
2014/15. At the time of study, the data could be available up to 2014/15. The limitations of this
study are as follows:

1. The study is mainly on secondary data. It is cone mostly on the basis of and published
financial documents, like balance sheet, profit and loss account and other related journals,
magazines and books etc.
2. The study follows with specific tools financial ratio analysis.
3. The lack of sufficient time and resources is another limitation of the study. The study is
fully based on the students financial resources and is to be completed within limited
time. The report has taken only 3-years data for the study from year 2012/13 to 2014/15
4. The study is limited from the point of view of submission on partial fulfillment of the
requirement for the Master degree in Business Administration(MBA).
48

49