malvik project

8/6/2019 Malvik Project

1/95

INTRO DUCTION

Finance

Finance studies and addresses the ways in which individuals, businesses , and

organizations raise, allocate, and use monetary resources over time, taking into

account the risks entailed in their projects. The term finance may thus incorporate any

of the following:

The study of money and other assets ; The management and control of those assets; Profiling and managing project risks; As a verb, "to finance" is to provide funds for business .

The activity of finance is the application of a set of techniques that individuals and

organizations (entities) use to manage their financial affairs, particularly the

differences between income and expenditure and the risks of their investments.

An entity whose income exceeds its expenditure can lend or invest the excess income.

On the other hand, an entity whose income is less than its expenditure can raise

capital by borrowing or selling equity claims, decreasing its expenses, or increasing

its income. The lender can find a borrower, a financial intermediary, such as a bank or

buy notes or bonds in the bond market. The lender receives interest, the borrower pays

a higher interest than the lender receives, and the financial intermediary pockets thedifference.

A bank aggregates the activities of many borrowers and lenders. A bank accepts

deposits from lenders, on which it pays the interest. The bank then lends these

deposits to borrowers. Banks allow borrowers and lenders of different sizes to

coordinate their activity. Banks are thus compensators of money flows in space since

they allow different lenders and borrowers to meet, and in time, since every borrower,

in theory, will eventually pay back.

Page 1
http://en.wikipedia.org/wiki/Businesseshttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Riskshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Businesseshttp://en.wikipedia.org/wiki/Factors_of_productionhttp://en.wikipedia.org/wiki/Riskshttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Business


2/95

A specific example of corporate finance is the sale of stock by a company to

institutional investors like investment banks, who in turn generally sell it to the

public. The stock gives whoever owns it part ownership in that company. If you buy

one share of XYZ Inc, and they have 100 shares outstanding (held by investors), you

are 1/100 owner of that company. You own 1/100 of the net difference between assets

and liabilities on the balance sheet. Of course, in return for the stock, the company

receives cash, which it uses to expand its business in a process called "equity

financing". Equity financing mixed with the sale of bonds (or any other debt

financing) is called the company's capital structure.

Finance is used by individuals (personal finance), by governments (public finance),

by businesses (corporate finance), etc., as well as by a wide variety of organizations

including schools and non-profit organizations. In general, the goals of each of the

above activities are achieved through the use of appropriate financial instruments,

with consideration to their institutional setting.

Finance is one of the most important aspects of business management. Without proper

financial planning, a new enterprise cannot even start, let alone be successful. As

money is the single most powerful liquid asset, managing money is essential to ensure

a secure future, both for an individual as well as an organization.

Business finance

In the case of a company, managerial finance or corporate finance is the task of

providing the funds for the corporations' activities. It generally involves balancing

risk and profitability. Long term funds would be provided by ownership equity and

long-term credit , often in the form of bonds . These decisions lead to the company's

capital structure . Short term funding or working capital is mostly provided by banks

extending a line of credit.

On the bond market, borrowers package their debt in the form of bonds. The borrower

receives the money it borrows by selling the bond, which includes a promise to repay

the value of the bond with interest. The purchaser of a bond can resell the bond, so the

Page 2
http://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Capital_structurehttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Corporate_financehttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Capital_structurehttp://en.wikipedia.org/wiki/Working_capital


3/95

actual recipient of interest payments can change over time. Bonds allow lenders to

recoup the value of their loan by simply selling the bond.

Another business decision concerning finance is investment, or fund management . An

investment is an acquisition of an asset in the hopes that it will maintain or increase its

value. In investment management - in choosing a portfolio - one has to decide what ,

how much and when to invest. In doing so, one needs to

Identify relevant objectives and constraints: institution or individual - goals -

time horizon - risk aversion - tax considerations Identify the appropriate strategy: active vs. passive - hedging strategy Measure the portfolio performance

Financial management is duplicate with the financial function of the Accounting

profession . However, Financial Accounting is more concerned with the reporting of

historical financial information, while the financial decision is directed toward the

future of the firm.

Financial statements (or financial reports ) are formal records of a business'

financial activities. These statements provide an overview of a business' profitability

and financial condition in both short and long term. There are four basic financial

statements:

1. Balance Sheet - also referred to as statement of financial condition, reports on a

company's assets, liabilities and net equity as of a given point in time.

2. Income Statement - also referred to as Profit or loss statement, reports on acompany's results of operations over a period of time.

3. Cash Flow Statement - reports on a company's cash flow activities, particularly its

operating, investing and financing activities.

4. Statement of Retained Earnings - explains the changes in a company's retained

earnings over the reporting period.

Page 3
http://en.wikipedia.org/wiki/Fund_managementhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/List_of_finance_topics#Investment_managementhttp://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Accounting_professionhttp://en.wikipedia.org/wiki/Accounting_professionhttp://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Balance_Sheethttp://en.wikipedia.org/wiki/Balance_Sheethttp://en.wikipedia.org/wiki/Income_Statementhttp://en.wikipedia.org/wiki/Cash_Flow_Statementhttp://en.wikipedia.org/wiki/Statement_of_Retained_Earningshttp://en.wikipedia.org/wiki/Fund_managementhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/List_of_finance_topics#Investment_managementhttp://en.wikipedia.org/wiki/Portfolio_(finance)http://en.wikipedia.org/wiki/Accounting_professionhttp://en.wikipedia.org/wiki/Accounting_professionhttp://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Balance_Sheethttp://en.wikipedia.org/wiki/Income_Statementhttp://en.wikipedia.org/wiki/Cash_Flow_Statementhttp://en.wikipedia.org/wiki/Statement_of_Retained_Earnings


4/95

Because these statements are often complex, an extensive set of Notes to the Financial

Statements and management discussion and analysis is usually included. The notes

will typically describe each item on the Balance sheet , Income statement and Cash

flow statement in further details. Notes to Financial Statements are considered an

integral part of the Financial Statements.

Users of Financial Statements

Financial statements are used by a diverse group of parties, both inside and outside a

business. Generally, these users are:

1. Internal Users: are owners, managers, employees and other parties who are

directly connected with a company.

Owners and managers require financial statements to make important business

decisions that affect its continued operations. Financial analysis are then

performed on these statements to provide management with a more detailed

understanding of the figures. These statements are also used as part of management's report to its stockholders, as it form part of its Annual Report.

Employees also need these reports in making collective bargaining agreements

(CBA) with the management, in the case of labor unions or for individuals in

discussing their compensation, promotion and rankings.

2. External Users: are potential investors, banks, government agencies and other

parties who are outside the business but need financial information about the businessfor a diverse number of reasons.

Prospective investors make use of financial statements to assess the viability

of investing in a business. Financial analysis are often used by investors and is

prepared by professionals (Financial Analysts), thus providing them with the

basis in making investment decisions.

Page 4
http://en.wikipedia.org/wiki/Notes_to_the_Financial_Statementshttp://en.wikipedia.org/wiki/Notes_to_the_Financial_Statementshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Financial_analysishttp://en.wikipedia.org/wiki/Collective_bargaininghttp://en.wikipedia.org/wiki/Labor_unionshttp://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Financial_analysishttp://en.wikipedia.org/wiki/Notes_to_the_Financial_Statementshttp://en.wikipedia.org/wiki/Notes_to_the_Financial_Statementshttp://en.wikipedia.org/wiki/Balance_sheethttp://en.wikipedia.org/wiki/Income_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Cash_flow_statementhttp://en.wikipedia.org/wiki/Financial_analysishttp://en.wikipedia.org/wiki/Collective_bargaininghttp://en.wikipedia.org/wiki/Labor_unionshttp://en.wikipedia.org/wiki/Investorshttp://en.wikipedia.org/wiki/Financial_analysis


5/95

Financial institutions (banks and other lending companies) use them to decide

whether to grant a company with fresh working capital or extend debt

securities (such as a long-term bank loan or debentures ) to finance expansion

and other significant expenditures.

Government entities (Tax Authorities) need financial statements to ascertain

the propriety and accuracy of taxes and other duties declared and paid by a

company.

Media and the general public are also interested in financial statements for a

variety of reasons.

Page 5
http://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bank_loanhttp://en.wikipedia.org/wiki/Debentureshttp://en.wikipedia.org/wiki/Taxeshttp://en.wikipedia.org/wiki/Working_capitalhttp://en.wikipedia.org/wiki/Securitieshttp://en.wikipedia.org/wiki/Bank_loanhttp://en.wikipedia.org/wiki/Debentureshttp://en.wikipedia.org/wiki/Taxes


6/95


7/95

income for the 12 months by capital employed; Return on equity (ROE) shows

this result for the firm's shareholders. Firm value is enhanced when, and if, the

return on capital, which results from working capital management, exceeds the

cost of capital , which results from capital investment decisions as above. ROC

measures are therefore useful as a management tool, in that they link short-

term policy with long-term decision making. See Economic value added

(EVA).

Net Working Capital = Gross Working capital (current assets) Current Liabilities

Working Capital Operating Cycle

Working capital refers to that part of firms capital which is required for financing

short term or current assets cash, marketable securities, debtors and inventories. Funds

thus invested in current assets keep revolving fast and are being constantly converted

into cash and this cash flows out again in exchange for other current assets. Hence, it

is also known as circulating capital. The circular flow concept of working capital is

based upon this operating or working capital cycle of a firm. The cycle starts with the

purchase of raw materials and other resources and ends with the realization of cash

from the sale of finished goods. It involves purchase of raw material and stores, its

conversion into stock of finished goods through work in progress with progressive

increasment of labour and service costs, conversion of finished stock into sales,

debtors and receivables and ultimately realization of cash and this cycle continues

again from cash to purchase of raw material and so on.the speed/time duration

required to complete one cycle determines the requirements of working capital-longer

the period of cycle, larger is the requirement of working capital.

Net operating cycle period= Gross operating cycle period - Payable deferral

period

Page 7
http://en.wikipedia.org/wiki/Return_on_equityhttp://en.wikipedia.org/wiki/Cost_of_capitalhttp://en.wikipedia.org/wiki/Economic_value_addedhttp://en.wikipedia.org/wiki/Return_on_equityhttp://en.wikipedia.org/wiki/Cost_of_capitalhttp://en.wikipedia.org/wiki/Economic_value_added


8/95

Operating Cycle

Kinds of Working Capital

Cash

Debtors

RawMaterials

SalesFinished

Goods

Work inProgress

Kinds of Working Capital

On The BasisOf Time

On The BasisOf concept

Gross WorkingCapital

Net WorkingCapital

Permanent or Fixed

Temporary or Variable

Regular

Reserve

Seasonal

SpecialPage 8


9/95

Classification or kinds of working capital

Working capital may be classified in two ways:

(a) on the basis of concept

(b) on the basis of time

On the basis of concept, working capital is classified as gross working capital and net

working capital. This classification is important from the point of view of the

financial manager. On the basis of time, working capital may be classified as:

1. Permanent or fixed working capital.

2. Temporary or variable working capital.

1. Permanent or fixed working capital: 1. Permanent or fixed working capital

is the minimum amount which is required to ensure effective utilization of

fixed facilities and for maintaining the circulation of current assets . there is

always a minimum level of current assets which is continuously required by

the enterprise to carry its normal business operations. For example, every firm

has to maintain a minimum level of raw materials, work in progress, finished

goods and cash balance. This minimum level of current assets is called

permanent or fixed working capital as this part of capital is permanently

blocked in current assets. The permanent working capital also increases due to

the increase in current assets. The permanent working capital can further be

classified as regular working capital and reserve working capital required to

ensure circulation of current assets from cash to inventories, from inventoriesto receivables and from receivables to cash and so on. Reserve working capital

is the excess amount over the requirement for regular working capital which

may be provided for contingencies that may arise at unstated periods such as

strikes, rise in prices, depression, etc.

2. Temporary or variable working capital: temporary or variable working

capital is the amount of working capital which is required to meet theseasonal demands and some special exigencies. Variable working capital can

Page 9


10/95

be further classified as seasonal working capital and special working capital.

Most of the enterprises have to provide additional working capital to meet the

seasonal and special needs. The capital required to meet the seasonal needs of

the enterprise is called seasonal working capital. Special working capital is

that part of working capital which is required to meet special exigencies such

as launching of extensive marketing campaigns for conducting research, etc.

Temporary working capital differs from permanent working capital in the

sense that it is required for short periods and cannot be permanently employed

gainfully in the business.

Importance or advantages of adequate working

capital

Working capital is the life blood and nerve centre of a business. Just as circulation of

blood is essential in the human body for maintaining life, working capital is very

essential to maintain the smooth running of a business. No business can be

successfully without an adequate amount of working capital. The main advantages of

maintaining an adequate amount of working capital are as follows:

1. Solvency of business : adequate working capital helps in maintaining solvency

of the business by providing uninterrupted flow of production

2. Goodwill : sufficient working capital enables a business concern to make

prompt payments and hence helps in maintaining and creating goodwill.

3. Easy loans : a concern having adequate working capital, high solvency and

good credit standing can arrange loans from banks and others on easy andfavorable terms.

4. Cash discounts : adequate working capital also enables a concern to avail cash

discounts on the purchases and hence it reduces costs.

5. Regular supply of raw materials : sufficient working capital ensures regular

supply of raw materials and continuous production.

6. Regular payment of salaries, wages, and other day to day commitments : a

company which has ample working capital can make regular payment of salaries, wages, and other day to day commitments which raises the morale of

Page10


11/95

employees, increases their efficiency, reduces wastages and costs and

enhances production and profits.

7. Exploitation of favorable market conditions : only concerns with adequate

working capital can exploit favorable market conditions such as purchasing its

requirement in bulk when the prices are lower and by holding its inventories

for higher prices

8. Ability to face crises : adequate working capital enables a concern to face

business crisis in emergencies such as depression because during such periods,

generally, there is much pressure on working capital

9. Quick and regular returns on investments : every investor wants a quick andregular return on his investments. Suffiency of working capitals enables a

concern to pay quick and regular dividends to its investors as there may not be

much pressure to plough back profits. This gains the confidence of its

investors and creates a favourable market to raise additional funds in the

future.

10. High morale : adequacy of working capital creates an environment of

security, confidence, and high morale and creates overall efficiency in a business.

Page11


12/95

Excess or inadequate working capital

Every business concern should have adequate working capital to run its business

operations. It should have neither redundant nor excess working capital nor

inadequate or shortage of working capital both excess as well as short working capital

positions are bad for any business. However, out of the two, it is the inadequacy of

working capital which is more dangerous from the point of view of the firm.

Disadvantages of redundant or excessive working

capital

1. Excessive working capital means idle funds which earn no profits for the

business and hence the business cannot earn a proper rate of return on its

investments.

2. When there is a redundant working capital, it may lead to unnecessary

purchasing and accumulation of inventories causing more chances of theft,

waste and losses.

3. Excessive working capital implies excessive debtors and defective credit policy

which may cause higher incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with banks and other

financial institutions may not be maintained.

6. Due to low rate of return on investments, the value of shares may also fall.

7. The redundant working capital gives rise to speculating transactions.

Disadvantages or dangers of inadequate working

capital

Page12


13/95

1. A concern which has inadequate working capital cannot pay its short term

liabilities in time. Thus, it looses reputation and shall not be able to get good credit

facilities.

2. It cannot buy its requirements in bulk and cannot avail of discounts, etc.

3. It becomes for the firm to exploit favourable market conditions and undertake

profitable projects due to lack of working capital

4. The firm cannot pay day to day expenses of its operations and it creates

inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to nonavailability of liquid funds.

6. The rate of return on investments also falls with the shortage of working

capital.

Factors determining the working capital

requirements

The working capital requirements of a concern depend upon a large number of factors

such as nature and size of business, the character of their operations, the length of

production cycles, the rate of stock turnover and the state of economic situation. It

isnt possible to rank them because all such factors are of different importance and

influence of individual factors changes for a firm over time. However, the following

are the important factors generally influencing the working capital requirements.

1. Nature or character of business : the working capital requirements of a firm

basically depend upon the nature of its business. Public utility undertakings

like Electricity, Water supply and railways need very limited working capital

because they offer cash sales only and supply services, not products, and as

such no funds are tied up in inventories and receivables. On the other hand

trading and financial firms require less investment in fixed assets but have to

invest large amounts in current assets like inventories, receivables and cash; assuch they need large amount of working capital. The manufacturing

Page13


14/95

undertakings also require sizable working capital along with fixed

investments.

2. Size of business or scale of operations : the working capital requirements of a

concern are directly influenced by the size of its business which may be

measured in terms of scale of operations. Greater the size of business unit,

generally larger will be the requirements of working capital.

3. Production policy : in certain industries the demand is subject to wide

fluctuations due to seasonal variations. The requirements of working capital in

such cases depend upon the production policy. The production could be kept

either steady by accumulating inventories during slack periods with a view tomeet high demand during the peak season or the production could be curtailed

during the slack season and increased during the peak season. If the policy is

to keep production steady by accumulating inventories, it will require higher

working capital.

4. Manufacturing process/ Length of production cycle : in manufacturing

business the requirements of working capital increase in direct proportion to

length of manufacturing process. The longer the manufacturing time, the rawmaterials and the other supplies have to be carried for a longer period in the

process with progressive increment of labor and service cost before the

finished product is finally obtained.

5. Seasonal variations : in certain industries raw material is not available

throughout the year. They have to buy raw materials in bulk during the season

to ensure an uninterrupted flow and process them during the entire year. A

huge amount is, thus, blocked in the form of material inventories during suchseason, which gives rise to more working capital requirements.

6. Working capital cycle : in a manufacturing concern , the working capital

cycle starts with the purchase of raw materials and ends with the realization of

cash from the sale of finished products. The speed with which the working

capital completes one cycle determines the requirements of working capital

longer the period of the cycle, larger is the requirement of working capital.

7. Rate of stock turnover : There is a high degree of inverse co relationship

between the quantum of working capital and the velocity or speed with which

Page14


15/95

the sales are affected. A firm having a high rate if turnover will need lower

amount of working capital as compared to a firm having a low rate of

turnover.

8. Credit policy : the credit policy of a concern in its dealings with debtors and

creditors influence considerably the requirements of working capital. A

concern that purchases its requirement on credit and sells its products on cash

requires lesser amount of working capital. On the other hand, a concern

buying its requirements for cash and allowing credit to its customers shall

need larger amount of working capital as very huge amount of funds are

bound to be tied up in debtors or bills receivables.9. Business cycles : business cycle refers to alternate expansion and contraction

in general business activities. In a period of boom there is a need of larger

amount of working capital due to increase in sales , rise in prices , optimistic

expansion of business, etc .On the contrary, in the times of depression, the

business contracts, sales decline, difficulties are faced in collection from

debtors and firms may have a large amount of funds lying idle.

10. Rate of growth of business : the working capital requirements of a concernincrease with the growth and expansion of its business activities. For normal

rate of expansion in the volume of business, we may have retained profits to

provide for more working capital, but in fast growing concerns, we shall

require larger amount of working capital.

11. Earning capacity and dividend policy : some firms have more earning

capacity than others due to quality of their products, monopoly conditions, etc.

Such firm with high earning capacity may generate cash profits fromoperations and contribute to their working capital. The dividend policy of a

concern also influences the requirements of its working capital.

12. Price level changes : changes in the price level also affect the working capital

requirements. Generally the rising prices will require the firm to maintain

larger amount of working capital as more funds will be required to maintain

the same current assets and vice-versa.

13. Other factors : certain other factors as operating efficiency, management

ability, irregularity in supply, import policy, asset structure , importance of

Page15


16/95

labor, banking facilities, etc. also influence the requirements of working

capital.

Management of working capital

Guided by the above criteria, management will use a combination of policies and

techniques for the management of working capital. These policies aim at managing

the current assets (generally cash and cash equivalents, inventories and debtors ) and

the short term financing, such that cash flows and returns are acceptable.

Cash management . Identify the cash balance which allows for the business to

meet day to day expenses, but reduces cash holding costs.

Inventory management . Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials - and

minimizes reordering costs - and hence increases cash flow; see Supply chain

management ; Just In Time (JIT); Economic order quantity (EOQ); Economic

production quantity (EPQ).

Debtors management . Identify the appropriate credit policy , i.e. credit terms

which will attract customers, such that any impact on cash flows and the cash

Page16
http://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Debtorhttp://en.wikipedia.org/wiki/Cash_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Just_In_Timehttp://en.wikipedia.org/wiki/Economic_order_quantityhttp://en.wikipedia.org/wiki/Economic_production_quantityhttp://en.wikipedia.org/wiki/Economic_production_quantityhttp://en.wikipedia.org/wiki/Credit_(finance)http://en.wikipedia.org/wiki/Asset#Current_assetshttp://en.wikipedia.org/wiki/Cashhttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Debtorhttp://en.wikipedia.org/wiki/Cash_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Supply_chain_managementhttp://en.wikipedia.org/wiki/Just_In_Timehttp://en.wikipedia.org/wiki/Economic_order_quantityhttp://en.wikipedia.org/wiki/Economic_production_quantityhttp://en.wikipedia.org/wiki/Economic_production_quantityhttp://en.wikipedia.org/wiki/Credit_(finance)


17/95

conversion cycle will be offset by increased revenue and hence Return on

Capital (or vice versa ); see Discounts and allowances.

Short term financing . Identify the appropriate source of financing, given the

cash conversion cycle: the inventory is ideally financed by credit granted by

the supplier; however, it may be necessary to utilize a bank loan (or overdraft),

or to "convert debtors to cash" through " factoring ".

Cash Management

Introduction

Cash management has assumed importance because it is the most significant of all the

current assets. It is required to meet business obligations and it is unproductive when

not used.

Cash Management deals with the following:

(i) Cash inflows and outflows.

(ii) Cash flows within the firm

(iii) Cash balances held by the firm at a point of time.

Cash Management needs strategies to deal with various facets of cash. Following are

some of its facets:

(a) Cash Planning:

Page17
http://en.wikipedia.org/wiki/List_of_Latin_phrases#Vhttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Factoring_(trade)http://en.wikipedia.org/wiki/List_of_Latin_phrases#Vhttp://en.wikipedia.org/wiki/Discounts_and_allowanceshttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Factoring_(trade)


18/95

Cash Planning is a technique to plan and control the use of cash. A projected cash

flow statement may be prepared, based on the present business operations and

anticipated future activities. The cash inflows from various sources may be

anticipated and cash outflows will determine the possible uses of cash.

(b) Cash Forecasts and Budgeting:

A cash budget is a most important device for the control of receipts and payments of

cash. A cash budget is an estimate of cash receipts and disbursements during a future

period of time. It is an analysis of flow of cash in a business over a future, short or

long period of time. It is a forecast of expected cash intake and outlay. The short-termforecasts can be made with the help of cash flow projections. The finance manager

will make estimates of likely receipts in the near future and the expected

disbursements in that period. Though it is not possible to make exact forecasts even

then estimates of cash flows will enable the planner to make arrangement for cash

needs. It may so happen that expected cash receipts may fall short or payments may

exceed estimates. A financial manager should keep in mind the sources from where he

will meet short-term needs. He should also plan for productive use of surplus cash for short periods.

The long-term cash forecasts are also essential for proper cash planning. These

estimates may be for three, four, five or more years. Long-term forecasts indicate

companys future financial needs for working capital, capital projects, etc.

Both short-tem and long-term cash forecasts may be made with the help of following

methods:

(i) Receipts and disbursements method(ii) Adjusted net income method

(i) Receipts and Disbursements Method:

In this method the receipts and payments of cash are estimated. The cash receipts

may be from cash sales, collections from debtors, sale of fixed assets, receipts of

dividend or other incomes of all the items; it is difficult to forecast sales. The sales

may be on cash as well as credit basis. Cash sales will bring receipts at the time of

sale while credit sales will bring cash later on. The collection from debtors (credit

Page18


19/95

sales) will depend upon the credit policy of the firm. Any fluctuation in sales will

disturb the receipts of cash. Payments may be made for cash purchases, to creditors

for goods, purchase of fixed assets, for meeting operating expenses such as wage bill,

rent, rates, taxes or other usual expenses, dividend to shareholders etc.

The receipts and disbursements are to be equaled over a short as well as long periods.

Any short fall in receipts will have to be met from banks or other sources. Similarly,

surplus cash may be invested in risk free marketable resources. It may be easy to

make estimates for payments but cash receipts may not be accurately made. The

payments are to be made by outsiders, so there may be some problem in finding outthe exact receipts at a particular period. Because of uncertainty, the reliability of this

method may be reduced.

(ii) Adjusted Net Income Method:

This method may also be known as sources and users approach. It generally has there

sections: sources of cash, users of cash and adjusted cash balance. The adjusted net

income method helps in projecting the companys need for cash at some future date

and to see whether the company will be able to generate sufficient cash. If not, then it

will have to decide about borrowing or issuing shares , etc. in preparing its statementsthe items like net income, depreciation , dividends, taxes, etc. can easily be

determined from companys annual operating budget. The estimation of working

capital movement becomes difficult because items like receivables and inventories

are influenced by factors such as fluctuations in raw material costs, changing demand

for companys products and likely delays in collection. This method helps in keeping

a control on working capital and anticipating financial requirements.

Page19


20/95

Receivables Management

Introduction

A sound managerial control requires proper management of liquid assets and

inventory. These assets are a part of working capital of the business. An efficient use

of financial resources is necessary to avoid financial distress. A receivables result

from credit is required to allow credit sales in order to expand its sales volume. It is

not always possible to sell goods on cash basis only. Sometimes, other concerns in

that line might have established a practice of selling goods on credit basis. Under

these circumstances, it is not possible to avoid credit sales with out adversely

affecting sales. The increase in sales is also essential to increase profitability. After a

Page20


21/95

certain level of sales the increase in sales will not proportionately increase production

costs. The increase in sales will bring in more profits.

Thus, Receivables constitute a significant portion of current assets of a firm. But for

investment in receivables, a firm has to incur certain costs. Further, there is a risk of

bad debts also. It is, therefore, very necessary to have a proper control and

management of receivables.

Meaning

Receivables represent amounts owed to the firm as a result of sale of goods or

services in the ordinary course of business. These are claims of the firm against its

customers and form part of its current assets. Receivable are also known as accounts

receivables, trade receivables, customers receivables, or book debts. The receivables

are carried for the customers. The period of the credit and extent of receivables

depends upon the credit policy followed by the firm. The purpose of maintaining or

investing in receivables is to meet competition, and to increase the sales profits.

Meaning and objectives of receivable management

Receivable management is the process of making decision relating to investment in

trade debtors. We have already stated that certain investment in receivable is

necessary to increase the sales and the profits of a firm. But at the same timeinvestment in this asset involves cost considerations also. Further, there is always a

risk of bad debts too. Thus, the objective of receivables management is to take a

sound decision as regards in debtors. In the words of Bolton, S.E., the objective of

receivables management is to promote sales and profits until that point is reached

where the return on investment in further funding of receivables is less than the cost

of funds raised to finance that additional credit.

Page21


22/95

Factors Influencing the Size of Receivables

Besides sales, a number of other factors also influence the size of receivables. The

following factors directly and indirectly affect the size of receivables:

(1) Size of Credit Sales. The volume of credit sales is the first factor

which increases or decreases the size of receivables. If a concern

sells only on cash basis, as in the case of Bata Shoe Company, then

there will be no receivables, the higher the part of credit sales out

of total sales, figures of receivables will also be more or vice versa.

(2) Credit Policies. A firm with conservative credit policy will have a

low size of receivables while a firm with liberal credit policy will

be increasing this figure. The vigor with which the concern collects

the receivables also affects its receivables. If collections are prompt

then even if credit is liberally extended the size of receivables will

remain under control. In case receivables remain outstanding for a

long period, there is always a possibility of bad debts.(3) Terms of Trade. The size of receivables also depends upon the

terms of trade. The period of credit allowed and rates of discount

given are linked with receivables. If credit period allowed is more

then receivables will also be more. Sometimes trade policies of

competitors have to be followed otherwise it becomes difficult to

expand the sales. The trade terms once followed cannot be changed

without adversely affecting sales opportunities.(4) Expansion Plans. When a concern wants to expand its activities, it

will have to enter new markets. To attract customers, it will give

incentives in the form of credit facilities. The periods of credit can

be reduced when the firm is able to get permanent customers. In

the early stages of expansion more credit becomes essential and

size of receivables will be more.

(5) Relation with Profits. The credit policy is followed with a view toincrease sales. When sales increase beyond a certain level the

Page22


23/95

additional costs incurred are less than the increase in revenues. It

will be beneficial to increase sales beyond a point because it will

bring more profits. The increase in profits will be followed by an

increase in the size of receivables or vice-versa.

(6) Credit Collection Efforts. The collection of credit should be

streamlined. The customers should be sent periodical reminders if

they fail to pay in time. On the other hand, if adequate attention is

not paid towards credit collection then the concern can land itself

in a serious financial problem and efficient credit collection

machinery will reduce the size of receivables. If these efforts areslower then outstanding amounts will be more.

(7) Habits of Customers. The paying habits of customers also have a

bearing on the size of receivables. The customers may be in the

habit of delaying payments even though they are financially sound.

the concern should remain in touch with such customers and should

make them realize the urgency of their needs.

Inventory Management

Introduction

The investments in inventory are very high in most of the undertakings engaged in

manufacturing, whole-sale and retail trade. The amount of investment is sometimes

more in inventory than in other assets. In India, a study of 29 major industries has

Page23


24/95

revealed that the average cost of materials is 64 paisa and the cost of labor overheads

36 paisa in a rupee. In industries like sugar, the raw materials cost is as high as 65.75

per cent of the total cost. About 90 percent of working capital is invested in

inventories. It is necessary for every management to give proper attention to inventory

management. A proper planning of purchasing, handling, storing and accounting

should form a part of inventory management. An efficient system of inventory

management will determine (a) what to purchase (b) how much to purchase (c) from

where to purchase (d) where to store, etc.

There are conflicting interests of different departmental heads over the issue of inventory. The finance manager will try to invest less in inventory because for him it

is an idle investment, whereas production manager will emphasize to acquire more

and more inventory as he does not want any interruption in production due to shortage

of inventory. The purpose of inventory management is to keep the stocks in such a

way that neither there is over-stocking nor under-stocking. The over-stocking will

mean a reduction of liquidity and starving of other production processes; under-

stocking, on the other hand, will result in stoppage of work. The investments ininventory should be kept in reasonable limits.

Objectives of inventory management

The main objectives of inventory management are operational and financial. The

operational objectives mean that the materials and spares should be available in

sufficient quantity so that work is not disrupted for want of inventory. The financial

objective means that investments in inventories should not remain idle and minimum

working capital should be locked in it. The following are the objectives of inventorymanagement:

Page24


25/95

(1) To ensure continuous supply of materials, spares and finished goods so

that production should not suffer at any time and the customers demand

should also be met.

(2) To avoid both over-stocking and under-stocking of inventory.

(3) To maintain investments in inventories at the optimum level as required by

the operational and sales activity.

(4) To keep material cost under control so that they contribute in reducing cost

of production and over all costs.

(5) To eliminate duplication in ordering or replenishing stocks. This is

possible with the help of centralizing purchasing.(6) To minimize losses through deteriorations, pilferage, wastages and

damages.

(7) To design proper organization for inventory management. Clear cut

accountability should be fixed at various levels of the organizational.

(8) To ensure perpetual inventory control so that materials shown in stock,

ledgers should be actually lying in the stores.

(9) To ensue right quality goods at reasonable prices. Suitable qualitystandards ensure proper quality of stocks. The price-analysis, the cost-

analysis and value analysis will ensure payment of proper price.

(10) To facilitate furnishing of data for short-term and long-term planning

and control of inventory.

Tools and Techniques of Inventory Management

Effective inventory management requires an effective control system for inventories.

A proper inventory control not only helps in solving the acute problem of liquidity but

also increases profits and causes substantial reduction in the working capital of the

Page25


26/95

concern. The following are the important tools and techniques of inventory

management:

1. Determination of stock levels

2. Determination of safety stocks.

3. Selecting a proper system of ordering for inventory.

4. Determination of economic order quantity.

5. A.B.C. analysis.

6. VED analysis.

7. Inventory turn over ratios.

8. Aging schedule of inventories.9. Classification and codification of inventories.

10. Preparation of inventory reports.

11. Lead time.

12. Perpetual inventory system.

13. JIT control system.

1. Determination of stock levelsCarrying of too much and too little of inventories is determined to the firm. If the

inventory level is too little, the firm will face frequent stock-outs involving heavy

ordering cost and if the inventory level is too high it will be unnecessary tie-up of

capital. Therefore, an efficient inventory management requires that a firm should

maintain an optimum level of inventory where inventory costs are the minimum and

at the same time there is no stock-out which may result in loss of sale or stoppage of

production. Various stock levels are discussed as such:(a) Minimum Level.

(b) Re-ordering Level.

(c) Maximum Level.

(d) Danger Level.

(e) Average Stock Level.

2. Determination of Safety Stocks

Page26


27/95

Safety stock is a buffer to meet some unanticipated increase in usage. The usage of

inventory cannot be perfectly forecasted over a period of time. The demand for

materials may fluctuate and delivery of inventory may also be delayed and in such a

situation the firm can face a problem of stock-out. The stock-out can prove costly by

affecting the smooth working of the concern. In order to protect against the stock out

arising out of usage fluctuations, firms usually maintain some margin of safety or

safety stocks. The basic problem is to determine the level of quantity of safety stocks.

Two coasts are involved in the determination of this stock i.e. opportunity cost of

stock-outs and the carrying costs. The stock-outs of raw materials cause production

disruption resulting into higher cost of production. Similarly, the stock-outs of finished goods result into the failure of the firm in competition as the firm cannot

provide proper customer service. If a firm maintains low level of safety frequent

stock-outs will occur resulting into the larger opportunity costs. On the other hand,

the larger quantity of safety stocks involves higher carrying costs.

3. Ordering Systems of Inventory

The basic problem of inventory is to decide the re-order point. The point indicateswhen an order should be placed. The re-order point is determined with the help of

these things: (a) average consumption rate, (b) duration of lead time, (c) economic

order quantity, when the inventory is depleted to lead time consumption, the order

should be placed. There are three prevalent systems of ordering and a concern can

choose any one of these:

(a) Fixed order quantity system generally known as economic order quantity (EOQ)

system ;(b) Fixed period order system or periodic re-ordering system or periodic review

system ;

(c) Single order and scheduled part delivery system.

4. Economic Order Quantity (EOQ)

A decision about how much to order has great significance in inventory management.

The quantity to be purchased should neither be small nor big because buying and

carrying materials are very high. Economic order quantity is the size of the lot to be

purchased which is economically viable. This is the quantity of materials which can

Page27


28/95

be purchased at minimum costs. Generally, economic order quantity is the point at

which inventory carrying costs are equal to order costs. In determining economic

order quantity it is assumed that cost of managing inventory is made up solely of two

parts i.e., ordering costs and carrying costs.

5. A-B-C Analysis

The materials are divided into a number of categories for adopting a selective

approach for material control. It is generally seen that in manufacturing concern, a

small percentage of items contribute a large percentage of value of consumption and a

large percentage of items contribute a small percentage of value. In between these twolimits there are some items which have almost equal percentage of value of materials.

Under A-B-C analysis, the materials are divided into three categories viz., A, B and

C.

6. VED Analysis

The VED analysis is used generally for spare parts. The requirements and urgency of

spare parts is different from that of materials. A-B-C analysis may not be properlyused for spare parts. The demand for spares depends upon the performance of the

plant and machinery. Spare parts are classified as Vital (V), Essential (E) and

Desirable (D).

7. Inventory Turnover Ratios

Inventory turnover ratios are calculated to indicate whether inventories have been

used efficiently or not. The purpose is to ensure the blocking of only requiredminimum funds in inventory. The Inventory Turnover Ratio also known as stock

velocity is normally calculated as Sales/Average Inventory or Cost of goods

sold/Average inventory cost.

8. Aging Schedule of Inventories

Page28


29/95

Classification of inventories according to the period of their holdings also helps in

identifying slow moving inventories thereby helping in effective control and

management of inventories.

9. Classification and Codification of Inventories

The inventories of a manufacturing concern may consist of raw materials, work in

progress, finished goods, etc. All these categories may have their sub divisions. The

raw materials used may be 3-4 types, finished goods may also be of more than 1 type,

space might be of a number of types and so on. For a proper recording and control of

inventory, a proper classification of various types of items is essential. The inventoryshould first be classified and then code numbers should be assigned for their

identification.

10. Inventory Reports:

From effective inventory control, the management should be kept informed with the

latest stock position of different items. This is usually done by preparing periodical

inventory reports. These reports should contain all information necessary for managerial action.

11. Lead Time:

Is the period that elapses between the recognition of need and its fulfillment. There is

a direct relationship between lead time and inventories. The level of inventory of an

item depends upon its lead time. During lead time there will be no delivery of

materials and consuming departments will have to be served from the inventoriesheld.

12. Perpetual inventory System:

Page29


30/95

The stock taking may either be done annually or continuously. In the latter method,

the stock taking continues throughout the year. A schedule is prepared for stock

taking of various bins. One bin is selected at random and the goods are checked as per

shown in the bin card. Then some other bin is selected at random and so on.

13. Just in time inventory control system

Just in time philosophy, which aims at eliminating waste from every aspect of

manufacturing and its related activities, was first developed in Japan. The term JIT

refers to a management rule that helps to produce only the needed quantities at needed

time. JIT control system involves the purchase of materials in such a way thatdelivery of purchased material is assured just before their use or demand. This system

implies that the firm should maintain a minimum (or zero level) of inventory and rely

on suppliers to provide materials just in time to meet the requirements.

Page30


31/95

Sources of working capital

The working capital requirements of a concern can be classified as:

(a) Permanent or fixed working capital requirements.

(b) Temporary or variable working capital requirements.

Sources of Permanent Capital : Shares

Debentures Public Deposits

Ploughing Back of Profits

Loans from Financial Institutions

Sources of Temporary or Variable Capital : Indigenous Bankers

Trade Credit Installment Credit

Advances

Accounts receivable credit or Factoring

Accrued Expenses

Deferred Incomes

Commercial Paper

Commercial Banks

Page31


32/95

Research design

Introduction :

Business organization get funds from various sources and apply them into long term

and short term assets. The funds applied to meet the short term needs of the

organization are generally referred to as working capital. A study on working capital

management enables us to understand short term financial position and performance

of the company.

Statement of Problem :

Working capital is considered as the life blood of the business. Its effective provision

can do much to ensure the success of a business enterprise. The firm should maintain

a sound working capital position and should have adequate funds to run the business

operations. A company with a favorable working capital is always in a position to

take advantage of any beneficial business opportunity that may arise at any given

point of time. Hence the purpose of this study is to review the management of

working capital at Pantaloon Retail India Limited.

Objective of the study :

1. To study the working capital management of the company with respect to 3

years cash, inventory and receivables management.

2. To study the performance of the company for the given 3 years with the help

of ratio analysis.

3. To identify liquidity, collection time and turn over in terms of stock and

working capital.

4. To study the method of financing of working capital and to find flow of funds.

Page32


33/95

5. To identify, understand and interpret the problems of working capital and put

forward suggestions.

Research methodology :

Three years of Balance Sheet and Profit & Loss Account stated in the annual reports

were used for analysis. Working capital and concerned ratios were used as a tool of

analysis. Based on the computation, the financial position and performance of the business was evaluated and suggestions were made. Regarding the financing of

working capital, both the methods were evaluated by extracting information from the

balance sheet of 3 years, then the best alternative was chosen on which the companys

position regarding the financing of working capital was known.

Reference period :

The study period covered in this case study is for 3 financial years i.e., from

2005 2006

2006 2007

2007 2008

Scope of study :

The study of working capital management is limited to the specific company,

Pantaloon Retail India Limited.

Page33


34/95

Data Collection :

The requirement of data for the study was collected from the secondary sources of

information. The secondary data has been obtained from the financial statement of thecompany in the form of Balance sheet and Profit and Loss Account. The secondary

data has also been collected from the business journals, magazines, internet and other

published information. The analysis and interpretation has been thus derived with the

help of secondary data available. There was use of primary data in the case of

financing of working capital through paper work and discussions held with the senior

financial manager.

Tools of Analysis :

Ratios Analysis, Percentages and Fund Flow Analysis were used as tools of analysis

in study.

Limitation of the Study :

1. The prime limitation is that the study uses mainly secondary data for the

analysis of the performance of the company.

2. Limited time was also a hindrance in the detailed study.

3. Only general tools of financial analysis are used for the study.

4. The study also suffers from cost constraints.

Page34


35/95

Chapter Scheme :

Chapter No . Chapter Name

1 Introduction

2 Research Design

3 Company Profile

4 Analysis & Inference

5 Management of Cash, Receivables & Inventory Management

6 Fund Flow Statement

7 Summary of Findings

8 Suggestions and Conclusions

Page35


36/95

INDUSTRY PROFILE

India represents an economic opportunity on a massive scale, both as a global base

and as a domestic market. Indian Retail sector consists of small family-owned stores,

located in residential areas, with a shop floor of less than 500 square feet. At present

the organized sector accounts for only 2 to 4% of the total market although this is

expected to rise by 20 to 25% on YOY basis.

Retail growth in the coming five years is expected to be stronger than GDP growth,

driven by changing lifestyles and by strong income growth, which in turn will be

supported by favorable demographic patterns and the extent to which organized

retailers succeed in reaching lower down the income scale to reach potential

consumers towards the bottom of the consumer pyramid. Growing consumer credit

will also help in boosting consumerdemand.

The structure of retailing will also develop rapidly. Shopping malls are becomingincreasingly common in large cities, and announced development plans project at

least 150 new shopping malls by 2008. The number of department stores is growing

much faster than overall retail, at an annual 24%. Supermarkets have been taking an

increasing share of general food and grocery trade over the last two decades.

However, Distribution continues to improve, but it still remains a major inefficiency.

Poor quality of infrastructure, coupled with poor quality of the distribution sector,results in logistics costs that are very high as a proportion of GDP, and inventories,

which have to be maintained at an unusually high level. Distribution and marketing is

a huge cost in Indian consumer markets. It's a lot easier to cut manufacturing costs

than it is to cut distribution and marketing costs.

Page36


37/95

Also, government has relaxed regulatory controls on foreign direct investment (FDI)

considerably in recent years, while retailing currently remains closed to FDI.

However, the Indian government has indicated in 2005 that liberalization of direct

investment in retailing is under active consideration. It has allowed 51% FDI in

"singlebrand"retail.

The next cycle of change in Indian consumer markets will be the arrival of foreign

players in consumer retailing. Although FDI remains highly restricted in retailing,

most companies believe that will not be for long. Indian companies know Indian

markets better, but foreign players will come in and challenge the locals by sheer cash power, the power to drive down prices. That will be the coming struggle.

According to this years Global Retail Development Index India is positioned as the

leading destination for retail investment. This followed from the saturation in western

retail markets and we find big western retailers like Wal-mart and Tesco entering into

Indian market. Indias retail industry accounts for 10 percent of its GDP and 8 percent

of the employment to reach $17 billion by 2010. There are about 300 new malls,1,500 supermarkets and 325 departmental stores being built in the cities very soon.

A shopping revolution is ushering in India where, a large population between 20-34

age groups in the urban regions is boosting demand by 11.1 percent in 2007-08 to an

Rs 23,308 purchasing power. This has resulted in huge international retail investment

and a more liberal FDI.

Page37


38/95

The changing face of Indian Consumerism

The Indian consumers lifestyle and profile is also evolving rapidly. India has one of

the youngest populations in the world with 54% of the population below the age of

25. Discretionary spending has seen a 16% rise for the urban upper and middle classes

and the number of high income households has grown by 20% year on year since

1995-96.

There is an increasing shift from price consideration to design and quality, as there is

a greater focus on looking and feeling good (apparel as well as fitness). At the same

time, the new Indian consumer is not beguiled by retailed products which are high on

price but commensurately low on value or functionality. There is an easier acceptance

of luxury and an increased willingness to experiment with mainstream fashion. This

results in an increased tendency towards disposability and casting out - from apparel

to cars to mobile phones to consumer durables. The self-employed segment of the

population has replaced the employed salaried segment as the mainstream market.

40% of primary wage earners in the top 2-3 social classes in towns with a population

of 1 million or more are self employed professionals and businessmen. This hasdriven growth in consumption of productivity goods, especially mobile phones and

two and four-wheelers. Finally, credit friendliness, drop in interest rates and easy

availability of finance have changed mindsets. Capital expenditure (jewellery, homes,

and cars) has shifted to becoming redefined as consumer revenue expenditure, in

addition to consumer durables and loan credit purchases.

Page38


39/95

What do Indians buy ?

The 4 major organized retail sectors are Food & Grocery, Clothing, Consumer

Durables and Books & Music. In 2003-04, private consumption expenditure in India

amounted to Rs 1,690,000 crores (USD 375 billion) of which, retail sales constitute

about 61% (USD 230 billion). The retail industry is constituted by different sector in

the following proportion: ales Pie - 2005

Durables 4%

Clothing 7%

Food & Grocery 77%

Books & music 1%

Footwear 1%

Jewelry & accessory 4%

Home furnishings 2%

Health & beauty 2% Medical services 2%

Source: Industry

Food & Grocery (USD154 billion) contributes about 41% of private consumption

expenditure and about 77% of total retail sales. However, this segment is largely

controlled by the unorganized small outlet sector - penetration of organized retail is

about 1% in this segment. This is one of the primary reasons for Indias low organizedretail penetration rate. The sector is defined by low gross margins, but there is a

tremendous growth potential in the organized sector in the form of hypermarkets,

supermarkets and hard discount chains. In such a scenario, pricing and network will

be the key to success.

Clothing is the second largest segment in terms of retail sales.

Page39


40/95

COMPANY PROFILE

Pantaloon Retail (India) Limited , is India's leading retail company with presence

across multiple lines of businesses. The company owns and manages multiple retail

formats that cater to a wide cross-section of the Indian society and is able to capture

almost the entire consumption basket of the Indian consumer. Headquartered in

Mumbai (Bombay), the company operates through 4 million square feet of retail

space, has over 140 stores across 32 cities in India and employs over 14,000 people.

The company registered a turnover of Rs 2019 crore for FY 2005-06.

Pantaloon Retail forayed into modern retail in 1997 with the launching of fashion

retail chain, Pantaloons in Kolkata. In 2001, it launched Big Bazaar, a hypermarket

chain that combines the look and feel of Indian bazaars, with aspects of modern retail,

like choice, convenience and hygiene. This was followed by Food Bazaar, food and

grocery chain and launch Central, a first of its kind seamless mall located in the heart

of major Indian cities. Some of its other formats include, Collection i (homeimprovement products), E-Zone (consumer electronics), Depot (books, music, gifts

and stationary), aLL (fashion apparel for plus-size individuals), Shoe Factory

(footwear) and Blue Sky (fashion accessories). It has recently launched its etailing

venture, futurebazaar.com.

The group's subsidiary companies include, Home Solutions Retail India Ltd,

Pantaloon Industries Ltd, Galaxy Entertainment and Indus League Clothing. Thegroup also has joint venture companies with a number of partners including French

retailer Etam group, Lee Cooper, Manipal Healthcare, Talwalkar's, Gini & Jony and

Liberty Shoes. Planet Retail, a group company owns the franchisee of international

brands like Marks & Spencer, Debenhams, Next and Guess in India.

Page40
http://futurebazaar.com/http://futurebazaar.com/


41/95

Future Group

Pantaloon Retail is the flagship enterprise of the Future Group, which is positioned to

cater to the entire Indian consumption space. The Future Group operates through six

verticals: Future Retail (encompassing all retail businesses), Future Capital (financial

products and services), Future Brands (management of all brands owned or managed

by group companies), Future Space (management of retail real estate), Future

Logistics (management of supply chain and distribution) and Future Media

(development and management of retail media).

Future Capital Holdings, the group's financial arm, focuses on asset management and

consumer finance. It manages two real estate investment funds (Horizon and Kshitij)

and consumer-related private equity fund, Indivision. It also plans to get into

insurance, consumer credit and other consumer-related financial products and services

in the near future.

Future Group's vision

"Deliver Everything, Everywhere, Every time to Every Indian Consumer in the most

profit manner." One of the core values at Future Group is, 'Indianess' and its

corporate credo is Rewrite rules, Retain values.

Page41


42/95

Future groups mission

We share the vision and belief that our customers and stakeholders shall be served

only by creating and executing future scenarios in the consumption space leading to

economic development.

We will be the trendsetters in evolving delivery formats, creating retail realty,

making consumption affordable for all customer segments for classes and for

masses.

We shall infuse Indian brands with confidence and renewed ambition.

We shall be efficient, cost- conscious and committed to quality in whatever we do.

We shall ensure that our positive attitude, sincerity, humility and united

determination shall be the driving force to make us successful.

Core Values

Indianness: confidence in ourselves.

Leadership: to be a leader, both in thought and business.

Respect & Humility: to respect every individual and be humble in our

conduct.

Introspection: leading to purposeful thinking. Openness: to be open and receptive to new ideas, knowledge and information.

Valuing and Nurturing Relationships: to build long term relationships.

Simplicity & Positivity: in our thought, business and action.

Adaptability: to be flexible and adaptable, to meet challenges.

Flow: to respect and understand the universal laws of nature.

Page42


43/95

Major Milestones

1991 Launch of BARE, the Indian jeans brand.

1992 Initial public offer (IPO) was made in the month of May.

1994 The Pantaloon Shoppe exclusive menswear store in franchisee format

launched across the nation. The company starts the distribution of branded

garments through multi-brand retail outlets across the nation.

1995 John Miller Formal shirt brand launched.

1997 Pantaloons Indias family store launched in Kolkata.

2001 Big Bazaar, Is se sasta aur accha kahi nahin - Indias first hypermarket

chain launched.

2002 Food Bazaar, the supermarket chain is launched.

2004 Central Shop, Eat, Celebrate In The Heart Of Our City - Indias first

seamless mall is launched in Bangalore.

2005 Fashion Station - the popular fashion chain is launched

aLL a little larger - exclusive stores for plus-size individuals is

launched

2006 Future Capital Holdings, the companys financial arm launches real estate

funds Kshitij and Horizon and private equity fund Indivision. Plans forays

into insurance and consumer credit.

Multiple retail formats including Collection i, Furniture Bazaar, Shoe

Factory, EZone, Depot and futurebazaar.com are launched across the

nation. Group enters into joint venture agreements with ETAM Group and

Generali.

Board of Directors

Mr. Kishore Biyani, Managing Director:

Page43


44/95

Kishore Biyani is the Chief Executive Officer of Future Group and Managing

Director, Pantaloon Retail India Ltd. He started off his entrepreneurial career with

manufacturing and distribution of branded mens wear products.

Mr. Gopikishan Biyani, Wholetime Director

Mr. Rakesh Biyani, Wholetime Director

Mr. Ved Prakash Arya Director, Operations & Chief Operating Officer

Mr. Shailesh Haribhakti, Independent Director

Mr. S Doreswamy, Independent Director

Dr. D O Koshy, Independent Director

Ms. Anju Poddar, Independent Director

Ms. Bala Deshpande, Independent Director

Mr. Anil Harish, Independent Director

Page44


45/95

Lines of Business

E-tailing

Futurebazaar.com

Futurebazaar.com offers the widest range of products at lowest prices everyday!

Having pioneered the retailing business in India, PRIL has now decided to

revolutionize the consumer e-commerce business in India. It intends to provide

customers with a streamlined, efficient and world class personalized shopping

experience, which will be supported with the best technology platform.

Buying products is a 3 step simple process. All one has to do is Search, Register and

Buy. Here you can expect a shopping experience akin to shopping at an actual bazaar

but with added simplicity & everyday low prices and an assurance of 'your product'

will be delivered within 7 days of purchase.

Foods

Food Bazaar

Ab Ghar Chalaana Kitna Aasaan

Food Bazaar invites you for a shopping experience, unique by its ambience. At Food

Bazaar you will find a hitherto unseen blend of a typical Indian Bazaar and

International supermarket atmosphere.

Flagged off in April02, Food Bazaar is a chain of large supermarkets with a

difference, where the best of Western and Indian values have been put together to

ensure your satisfaction and comfort while shopping.

Page45


46/95

The western values of convenience, cleanliness and hygiene are offered through pre

packed commodities and the Indian values of "See-Touch-Feel" are offered through

the bazaar-like atmosphere created by displaying staples out in the open, all at very

economical and affordable prices without any compromise on quality.

The best of everything offered with a seal of freshness and purity will definitely

make your final buying decision a lot easier.

Cafe Bollywood

Cafe Bollywood brings to you the flavour of Bollywood served on a platter.

Cafe Bollywood is a national chain of eateries that serve fast food at delicious prices.

Located in and around our various formats these joints carry a distinct Bollywood

flavour that reflects in the ambience and the offerings.

Mouth-watering Indian street food, burgers, pizzas, juices and lots more, served in a

traditional chaat-bhandaar like atmosphere make this place absolutely irresistible.

The smell and the sounds of the food being prepared add to the ambience of the place.

The hygiene levels are maintained high while the prices lie low. So next time when

youre out shopping, dont forget to grab a bite at PRIL's very own Cafe Bollywood.

Sports Bar

A bistro focused on the world of sport, the Sports Bar is complimented with an

unrivalled ambience. With features like giant screen, regular television sets, a

basketball court, pool tables, punching bags and dart boards, you will feel the

adrenaline rush that only a true sports enthusiast can describe.

Prominent sports celebrities like Kapil Dev, Sunil Gavaskar, Anil Kumble, Rahul

Dravid, Leander Paes, Mahesh Bhupati, Bhaichung Bhutia to name a few have

honoured the Sports Bar with their presence.

Page46


47/95

FashionBrand Factory

Brand Factory brings to the Indian consumers the promise of revolutionizing value

shopping by offering the best Indian and International brands at Smart Prices

Brand Factory promises its customers that value shopping is not about seconds

experience, its not about a garage sale environment and its not about buying cheap.Instead, its all about an amazing experience of Buying Smart .

Gini & Jony

Freedom Wear

Gini and Jony is a lifestyle brand with a radical approach to kids fashion. The brand

caters to an age group of 2 to 16 years, that is uber chic, style conscious and stresseson a head to toe fashion concept.

Gini and Jony Freedom wear, GJ Jeans UnLtd. and Palmtree are three brands under

the Gini and Jony brand umbrella. With creativity and dynamism as the central brand

idea, and a rich history of 25 years, Gini and Jony has emerged as the trendsetter of

childrens wear in India.

Page47


48/95

Pantaloons

Celebrate the Fresh Look, Fresh Feel & Fresh Attitude at Pantaloons Fresh

Fashion !

Fashion is all about the now. Why, then should people not see a fresh look every time

they walk into a Pantaloons store? That is the thought behind 'Fresh Fashion'. An

idea that has captured the imagination of young India. With a focus on the youth of

today, Pantaloons offers trendy and hip fashion that defines the hopes and aspirations

of this demography.

Pantaloons Fresh Fashion stands out as a fashion trendsetter, on the lines of how

fashion is followed internationally. The look and whats in today for the season is

sacrosanct.

Pantaloons takes its promise of 'fresh fashion' very seriously making available to its

customers the latest in fashion every week!

All Pantaloons stores reflect the new ideology -- Fresh Feeling, Fresh Attitude, Fresh

Fashion. The stores offer fresh collections and are visually stimulating thanks to

appealing interiors and attractive product display!

The first Pantaloons was opened in Gariahat in 1997. Over the years, it has

undergone several transitions. When it was first launched, this store mostly sold

external brands. Gradually, it started retailing a mix of external brands while at the

same time introduced its own private brands. Initially positioned as a family store, it

finally veered towards becoming a fashion store with an emphasis on 'youth' and

clear focus on fresh fashion.

Today, the fashion store extends to almost all the major cities across the

country. Pantaloons has established its presence with stores not just in the metros, but

also in smaller towns. Pantaloons stores have a wide variety of categories like casual

Page48


49/95

wear, ethnic wear, formalwear, party wear and sportswear for Men, Women and

Kids.

General Merchandise

BigBazaar

Big Bazaar is not just another hypermarket. It caters to every need of your family.

Where Big Bazaar scores over other stores is its value for money proposition for the

Indian customers.

At Big Bazaar, you will definitely get the best products at the best prices -- thats

what we guarantee. With the ever increasing array of private labels, it has opened the

doors into the world of fashion and general merchandise including home furnishings,

utensils, crockery, cutlery, sports goods and much more at prices that will surprise

you. And this is just the beginning. Big Bazaar plans to add much more to complete

your shopping experience.

Central

Shop, Eat and Celebrate

Launched in May'04 at Bangalore, Central is a showcase, seamless mall and the first

of its kind in India. The thought behind this pioneering concept was to give customers

an unobstructed and a pure shopping experience and to ensure the best brands in the

Indian market are made available to the discerning Indian customer.

Central offers everything for the urban aspirational shopper to shop, eat and celebrate.

Located in the heart of the city, Central believes its customers should not have to

travel long distances to reach us; instead we must be present where customers

frequently visit.

Central houses over 300 brands across categories, such as apparels, footwear and

accessories for women, men, children and infants, apart from a whole range of Music,

Page49


50/95

Books, Coffee Shops, Food Courts, Super Markets (Food Bazaar), Fine Dining

Restaurants, Pubs and Discotheques. The mall also has a separate section for services

such as Travel, Finance, Investment, Insurance, Concert/Cinema Ticket Booking,

Bill Payments and other miscellaneous services. In addition, Central houses Central

Square, a dedicated space for product launches, impromptu events, daring displays,

exciting shows, and art exhibitions. Central is an integral part of the city and in the

long run a City should become part of Central!

Wellness & Beauty

Star & Sitara

Salon & Beauty Parlour

Star & Sitara, a unique beauty salon for men and women, introduces many new

features and products for the first time in India. At Star & Sitara we aim to

democratise salon services for easy access to all and deliver quality service at very

affordable prices

Star & Sitara, evokes a theme of Bollywood and promises to make you a Star (Sitara

in Hindi)! Glamour as a theme is an essential ingredient in the world of cinema and

we do not disappoint you on that note. The space, dcor, lighting is reminiscent of

movies and will transport you from the ordinary world to that of the reel world.

Books & Music

Depot

Books, Music & Gifts

Page50


51/95

Depot is one of the youngest brands from the Pantaloon stable and is a tribute to our

freedom of thought, speech and expression shared in a novel fashion with customers

as books, multimedia, toys, stationary and gifts.

Home & Electronics

Collection i

Collection i, a lifestyle furniture store is built on the concept of ideas for home dcor,

offering the trendiest and latest in furniture, furnishings and home accents.

e-zone

e-Zone brings to you the trendiest in electronics, at the lowest prices. Technology

changes at a rapid pace and so does our merchandise.

Home Town

A one-stop destination for every need of the aspirational Indian home-owner, Home

Town, brings together a vast range of products and services under one roof.

Leisure & Entertainment

Bowling Co.

There is something for everyone at this state-of-the-art premium family entertainment

centre, offering multiple, novel and unique leisure and entertainment options.

20 championship-play bowling lanes and a huge video arcade are some of the unique

features that you can witness here.

F 123

Page51


52/95

An entertainment zone, F 123 is a leisure solution for all age groups. F 123 aims to

put an end to the value seekers quest for leisure and entertainment.

Analysis and Inference

I. Liquidity Ratios:

Liquidity means the ability of a firm to meet its current liabilities. Therefore

liquidity ratios try to establish a relationship between current liabilities, which

are an obligations soon becoming due and current assets, which presumably

provide the source from which these obligations will be met. The failure of a

company to meet its obligations due to lack of adequate liquidity will result in

bad credit ratings, loss of creditors confidence or even in law suits against the

company.

1. Current Ratio:

This ratio is most commonly used to perform the short-term financial analysis.

Also known as the working capital ratio, this ratio matches the current assets of

the firm to its current liabilities.

Formula: Current Ratio = Current assets

Current liabilities

Table: 4.1

(Rs. in crores)

2005-2006 2006-2007 2007-2008

Current Assets 884.12 1,751.44 2,655.76

Page52


53/95

Current Liabilities 291.94 417.42 732.69

Current Ratio 3.02 4.19 3.62

Graph no. 4.1

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2006 2007 2008

CURRENT RATIO

Interpretation: The current ratio in first year is 3.02, second year is 4.19 and third

year is 3.62. As conventional rules, a current ratio of 2:1 or more is considered

satisfactory. The higher the current ratio, the greater the margin of safety, the larger the amount of current assets in relation to current liabilities, the more the items ability

to meet its current obligations. The ratio has dropped in the first year, regained in the

second year; however has a downfall in the third year. Taking into consideration all

the three years, the average ratio is above the satisfactory level, thus the company has

a favorable current ratio.

Page53


54/95

2. Quick Ratio:

This ratio is also known as acid test ratio or liquid ratio. It is a more

severe test of liquidity of a company. Its shows the ability of a business to

meet its immediate financial commitments. It is used to supplement the

information given by the current ratio.

Formula: Quick Ratio = Quick liquid assets

Quick liabilities

Table: 4.2 (Rs. in crores)

2005-2006 2006-2007 2007-2008

Quick Liquid Assets 357.10 865.48 1315.48

Quick Liabilities 291.94 417.42 732.69

Quick Ratio 1.22 2.07 1.79

Graph no. 4.2

Page54


55/95

0

0.5

1

1.5

2

2.5

2006 2007 2008

QUICK RATIO

Interpretation: The quick ratio in the first year is 1.22, in the second year is 2.07 and

the third year is 1.79. By conversion a quick ratio of 1:1 is considered satisfactory. Itis considered that if quick assets equal to current liabilities, then the concern can meet

its obligations. The first year companys quick ratio was comparatively lower, in the

second year it was above the expected standards, however there is a downfall in the

third year. Taking into consideration all the years the companys Quick Ratio is above

malvik project

Documents