project (ibm nitu)
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FUNDING AND WORKING CAPITAL MANAGEMENT
PROJECT REPORT
ON
Project Funding and Working Capital
Management for The New Age Creation.
Submitted By
NITU KUMARI
Roll No. - 92
Master of Business Administration
Of
BATCH: 2009-2011
Institute of Business Management, Bela,
Darbhanga, Bihar
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PROJECT
ON
Project Funding and Working Capital
Management for The New Age Creation.
In Partial Fulfillment of the requirement of MBA Program of
Institute of Business Management, Bela
TABLE OF CONTENTS
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S.No Particulars
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5.
6.
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10.
11.
12.
13.
CERTIFICATE
CERTIFICATE
ACKNOWLEDGEMENT
CHAPTER 1 INTRODUCTION
CHAPTER 2 OBJECTIVE AND SCOPE
CHAPTER 3 METHODOLOGY
CHAPTER 4 DATA COLLECTION
CHAPTER 5 DATA ANALYSIS
CHAPTER 6 FINDINGS
CHAPTER 7 CONCLUSIUONS
CHAPTER 8 RECOMMENDATIONS
APPENDICES AND ANNEXURES
BIBLOGRAPHY
CERTIFICATE
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This is to certify that the project entitled Project Funding and Working Capital
Management for The New Age Creation Is a bonafied work done by Nitu Kumari under my
supervision towards partial fulfilment of the management program course (MBA) of Institute of
Business Management, Bela, Darbhanga Bihar.
Place : Noida Mr. Santosh Kumar Jha
Date: Project Guide
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This study is an integral part of ourMBA program and to do this project in a short period Was a
heavy task. Intention, dedication, concentration and hard work are very much Essential to complete
any task. But still it needs lot of support, guidance assistance, co- Operation of people to make it
successful.
I bear to imprint of my people who have given me their precious ideas and times to Enable me to
complete the research and the project report. I want to thank them for their Continuous support at my
research and writing efforts.
First of all I would like to offer special thanks and gratitude to Mr. Santosh Kumar Jha ( Manager
Finance/Accounts) for his meaningful instructions, guidance, encouragement and Supervision to
complete this project.
I also offer my sincere thanks to all the respondents who spared their invaluable time for Survey and
especially Mr. K.C.Agrawal (Author and Industrialist) Internal Guide, who gave me his
invaluable Suggestion for preparing this report.
With Regards
(Nitu Kumari)
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CHAPTER 1
INTRODUCTION
CHAPTER 1
INTRODUCTION
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The Role of Apparels & Accessories in India GDP has been phenomenon. The Apparels &
Accessories one of the fastest growing sectors in India. The increase in the demand for
garments and their accessories, powered by the increase in the income is the primary
growth driver of the Garments industry in India. The introduction of tailor made finance
schemes, easy repayment schemes has also helped the growth of the this sector.
Clothing can serve as protection from the elements. Clothes can also enhance safety during
hazardous activities such as hiking and cooking, by providing a barrier between the skin
and the environment. Further, clothes can provide a hygienic barrier, keeping toxins away
from the body and limiting the transmission of germs.
It can be said that there are four primary factors in clothing comfort, identifiable as the '4 Fs of
Comfort' (1) fashion (2) feel (3) fit and (4) function. In hot climates, clothing provides
protection from sunburn or wind damage, while in cold climates its thermal insulation properties are
generally more important. Shelter usually reduces the functional need for clothing. For example,
coats, hats, gloves, shoes, socks, and other superficial layers are normally removed when entering a
warm home, particularly if one is residing or sleeping there. Similarly, clothing has seasonal and
regional aspects, so that thinner materials and fewer layers of clothing are generally worn in warmer
seasons and regions than in colder ones.
LAYOUT OF THE PROJECT REPORT
The Project repot has been presented in eight chapters as per the following details :
CHAPTER 1: INTRODUCTION
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It introduces the subject of research and brief about the garments industry in india and historical
background and milestones achieved by The New Age Creation.
CHAPTER 2: OBJECTIVE AND SCOPE
It gives the back drop, objectives of the research and lays down its scope, classification of working
capital management. Also it gives the reason, why I have chosen this topic for research and why it is
important for the company.
CHAPTER 3: METHODOLOGY
This chapter provides the methodology for conduct of the study, the research tools used, sampling
details and means of collecting primary and secondary data.
CHAPTER 4: DATA COLLECTION
Records the empirical data obtained from the responces to the questionnaire and structured
interviews.
CHAPTER 5: DATA ANALYSIS
This chapter analyses the collected data from various angles and other inputs to the project research
to bring out logical deductions.
CHAPTER 6: FINDINGS
Records the finding arrived at after the analysis done in chapter 5.
CHAPTER 7: CONCLUSION
This concludes the project report and takes a stock of achievements with reference to the objectivesof the project.
CHAPTER 8: RECOMMENDATIONS
Based on the findings obtained, this chapter recommends specific actions for improving the working
capital management at The New Age Creation.
ORGANIZATIONAL PROFILE:
The New Age Creation
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1.1 Background
The New Age Creation was incorporated in Sec- 58, Noida in May 2007 and company
commenced its manufacturing operations from a leased factory in Phase -2 , Noida in June
2007.
Starting with a modest equity base of Rs.17.50 lacs, and a first year sales turnover of just
Rs.50 lacs in 2008-09, the company grew at a healthy pace to the level of Rs.8 Crores at the
close of year 2010, marking an average annual growth rate of 210%.
During the first year, the main business consisted that of Engaged in offering a wide range of
Design and Washing, which is widely demanded by our customers across the national market.
Company range includes Jeans, Denim & Non- Denim, Complete Garment Processing Unit,
Washing and Finishing, Spray and Damaging Scraping. These are at par with the defined industry
norms and standards. Moreover, these are available with in a number of sizes, colours, designs and
patterns to meet the specific requirements of the clients.
By the year 20010, the unit at Noida, an ISO 9001 certified factory, reached saturation levels
in terms of achieving almost full potential in the selected market segments as well as in
terms of lack of factory space and production capacity to diversify into allied areas. At that
time we were into the following product segments.
Jeans, Denims & Non-Denims
Complete Garment Processing Unit
Washing And Finishing
P.P.Sprey
Damaging Scraping
Moulding
Crincal jeans
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The New Age Creation vision is to passionately satisfy the Indian consumers needs in
fashion, style and value, across wearing occasions, in apparels and accessories, by
anticipating trends and creating markets with the ultimate purpose of delivering superior
value to all stakeholders.
The company aims to be the undisputed leader in the lifestyle industry, delivering
continued value growth for all stakeholders by honouring:
Transparency and trust
Human touch
Empowered teams
Promises always honoured
Responsive to customer needs
Ownership for partner success
Merchandise and design leadership
Simple and speedy processes that enable quick decisions
Effective communication
Our values
Integrity
Commitment
Passion
Seamlessness
Speed
1.2 Purpose of the Study
The purpose of the study is to understand the benefits that The New Age Creation have achieved
from different marketing channels in last two - three years, mainly to identify the fashion, style
and value trends, to estimate the future potential of Funding and Working Capital Management.
1.2 Objectives of the Study
To understand the significance of Funding and Working Capital Management.
To find out which are the major marketing channels for concern sector.
To identify the emerging garments trends in different age group.
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To identify the garments adoption trend in different age group.
To estimate the future potential of garments.
1.4 Scope of the Study
To evaluate the awareness about the services among business houses.
To help Expert to decide about the pricing & the overall marketing campaign about for their
product.
The study will be confined to the Noida Branch of The New Age Creation..
1.5 Duration of the Study
The duration of the study is 8 Weeks.
1.6 Limitations of the Study
Duration of the study is very small for in-depth study on this topic.
Sampling error may be there
Information related to Funding and Working Capital Management may not be complete or
100% correct as most of the companies provide approximate figure
We need to collect information through telephonic interview as per the company policy,
respondents either dont give enough time to collect information or disconnect the line
without listening.
Company sales are growing at steady pace however margin are under pressure as
customers are demanding cost cutting and inputs costs are increasing. In order to create
value for our customers we are trying to improve profitability and reduce input cost. Major
Input as raw material at present is chemicals which company is sourcing from market,
now company has decided to manufacture chemicals in house by putting up a chemicals
manufacturing unit.
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Current financials of The New Age Creation :: (INR in MM)
FINANCIAL PARAMETERS 31/03/08 31/03/09 31/03/10 31/03/11
(A) (A) (A) (P)
Net Sales (net of VAT/tax) 50 65 80 115
Non operating income - - - -
EBITDA 13 11 15 27
Depreciation 3.59 3.84 4.04 5.50
Net Cash Accruals 6 5 8 17
Interest paid(to Banks and NBFCs) 6 5.30 5.93 7.25
PBT 4 2 6 15
PAT 2 2 4 11
Total Debt Service obligation
(Interest and Principal paid for the year)
6.04 10.34 13.24
Short Term Borrowings (working
capital) 21.50 18.40 25.83 44.00
Term Debt (other than working capital) 5 2.18 2.07 19.00
Total Debt 26 38.25 46.47 75.62
Adjusted Tangible Net Worth(ATNW) 16 20 21 32
Net Fixed Assets 22.77 25.61 35.00
Current Assets 83 68.29 107.63 176.10
Current Liabilities 84 69.04 110.53 160.48
Current Ratio 0.98 0.99 0.97 1.10
EBIDTA Margins 5.6 5.0 5.3 6.5
DSCR - 2.25 2.36 3.48
Total Debt/ATNW 1.5 0.98 1.20 1.84
Total Debt/EBIDTA 1.94 1.81 2.36
TOL/ATNW 5.57 3.62 5.55 5.74
Total holding days for stock + debtors 124.03 120 132 156
Net Working Cycle(days) 5.49 4.17 27.77
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CHAPTER 2:
OBJECTIVE AND SCOPE
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CHAPTER 2
OBJECTIVE AND SCOPE
WORKING CAPITAL - Meaning of Working Capital
Capital required for a business can be classified under two main categories via,
1) Fixed Capital
2) Working Capital
Every business needs funds for two purposes for its establishment and to carry out its day- to-
day operations. Long terms funds are required to create production facilities through purchase of
fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that
part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds
are also needed for short-term purposes for the purchase of raw material, payment of wages and
other day to- day expenses etc.
These funds are known as working capital. In simple words, working capital refers to that
part of the firms capital which is required for financing short- term or current assets such as cash,
marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving
fast and are being constantly converted in to cash and this cash flows out again in exchange for other
current assets. Hence, it is also known as revolving or circulating capital or short term capital.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
2. Net working capital
The gross working capital is the capital invested in the total current assets of the enterprises
current assets are those
Assets which can convert in to cash within a short period normally one accounting year.
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CONSTITUENTS OF CURRENT ASSETS
1) Cash in hand and cash at bank
2) Bills receivables
3) Sundry debtors
4) Short term loans and advances.
5) Inventories of stock as:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6. Temporary investment of surplus funds.
7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.
In a narrow sense, the term working capital refers to the net working. Net working capital
is the excess of current assets over current liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES.
Net working capital can be positive or negative. When the current assets exceeds the
current liabilities are more than the current assets. Current liabilities are those liabilities,
which are intended to be paid in the ordinary course of business within a short period of
normally one accounting year out of the current assts or the income business.
CONSTITUENTS OF CURRENT LIABILITIES
1. Accrued or outstanding expenses.
2. Short term loans, advances and deposits.
3. Dividends payable.
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4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.
The gross working capital concept is financial or going concern concept whereas net working capitalis an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount of working capital at correct time.
2. Every management is more interested in total current assets with which it has to operatethen the source from where it is made available.
3. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
4. This concept is also useful in determining the rate of return on investments in workingcapital. The net working capital concept, however, is also important for following reasons:
It is qualitative concept, which indicates the firms ability to meet to its operating
expenses and short-term liabilities.
IT indicates the margin of protection available to the short term creditors.
It is an indicator of the financial soundness of enterprises.
It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds.
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CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified in to ways:
o On the basis of concept.
o On the basis of time.
On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:
Permanent or fixed working capital.
Temporary or variable working capital
PERMANENT OR FIXED WORKING CAPITAL
Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to
maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This
minimum level of current assts is called permanent or fixed working capital as this part of working is
permanently blocked in current assets. As the business grow the requirements of working capital
also increases due to increase in current assets.
TEMPORARY OR VARIABLE WORKING CAPITAL
Temporary or variable working capital is the amount of working capital which is required to meet
the seasonal demands and some special exigencies. Variable working capital can further be classified
as seasonal working capital and special working capital. The capital required to meet the seasonal
need 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 for conducting research, etc.
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3. Excessive working capital implies excessive debtors and defective credit policy which
causes higher incidence of bad debts.
4. It may reduce the overall efficiency of the business.
5. If a firm is having excessive working capital then the relations with banks and otherfinancial institution may not be maintained.
6. Due to lower rate of return n investments, the values of shares may also fall.
7. The redundant working capital gives rise to speculative transactions
DISADVANTAGES OF INADEQUATE WORKING CAPITAL
Every business needs some amounts of working capital. The need for working capital arises due to
the time gap between production and realization of cash from sales. There is an operating cycle
involved in sales and realization of cash. There are time gaps in purchase of raw material and
production; production and sales; and realization of cash.
Thus working capital is needed for the following purposes:
For the purpose of raw material, components and spares.
To pay wages and salaries
To incur day-to-day expenses and overload costs such as office expenses.
To meet the selling costs as packing, advertising, etc.
To provide credit facilities to the customer.
To maintain the inventories of the raw material, work-in-progress, stores and spares and
finished stock.
For studying the need of working capital in a business, one has to study the business under
varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size of
the company and ambitions of its promoters. Greater the size of the business unit, generally
larger will be the requirements of the working capital.
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The requirement of the working capital goes on increasing with the growth and expensing of the
business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.
There are others factors also influence the need of working capital in a business.
FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS
1. NATURE OF BUSINESS: The requirements of working is very limited in public utility
undertakings such as electricity, water supply and railways because they offer cash sale
only and supply services not products, and no funds are tied up in inventories and
receivables. On the other hand the trading and financial firms requires less investment in
fixed assets but have to invest large amt. of working capital along with fixed investments.
2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.
3. PRODUCTION POLICY: If the policy is to keep production steady by accumulating
inventories it will require higher working capital.
4. LENGTH OF PRODUCTION CYCLE: The longer the manufacturing time the raw
material and other supplies have to be carried for a longer in the process with progressive
increment of labor and service costs before the final product is obtained. So working
capital is directly proportional to the length of the manufacturing process.
5. SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season.
6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the
requirement of working capital.
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DEBTORS
CASH FINISHED GOODS
RAW MATERIAL
WORK IN PROGRESS
7. RATE OF STOCK TURNOVER: There is an inverse co-relationship between the
question of working capital and the velocity or speed with which the sales are affected. A
firm having a high rate of stock turnover wuill needs lower amt. of working capital as
compared to a firm having a low rate of turnover.
8. CREDIT POLICY: A concern that purchases its requirements on credit and sales its
product / services on cash requires lesser amt. of working capital and vice-versa.
9. BUSINESS CYCLE: In period of boom, when the business is prosperous, there is need
for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion
of business, etc. On the contrary in time of depression, the business contracts, sales
decline, difficulties are faced in collection from debtor and the firm may have a large
amt. of working capital.
10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall require large
amt. of working capital.
11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning
capacity than other due to quality of their products, monopoly conditions, etc. Such firms
may generate cash profits from operations and contribute to their working capital. The
dividend policy also affects the requirement of working capital. A firm maintaining a
steady high rate of cash dividend irrespective of its profits needs working capital than the
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firm that retains larger part of its profits and does not pay so high rate of cash dividend.
12. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital.
Others FACTORS: These are:
Operating efficiency.
Management ability.
Irregularities of supply.
Import policy.
Asset structure.
Importance of labor.
Banking facilities, etc.
MANAGEMENT OF WORKING CAPITAL
Management of working capital is concerned with the problem that arises in attempting to
manage the current assets, current liabilities. The basic goal of working capital management
is to manage the current assets and current liabilities of a firm in such a way that a
satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as
both the situations are bad for any firm. There should be no shortage of funds and also no
working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a
firm has a great on its probability, liquidity and structural health of the organization. So
working capital management is three dimensional in nature as
1. It concerned with the formulation of policies with regard to profitability, liquidity and
risk.
2. It is concerned with the decision about the composition and level of current assets.
3. It is concerned with the decision about the composition and level of current liabilities.
WORKING CAPITAL ANALYSIS
As we know working capital is the life blood and the centre of a business. Adequate amount
of working capital is very much essential for the smooth running of the business. And the
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most important part is the efficient management of working capital in right time. The
liquidity position of the firm is totally effected by the management of working capital. So, a
study of changes in the uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business. This involves the need
of working capital analysis.
The analysis of working capital can be conducted through a number of devices, such as:
1. Ratio analysis.
2. Fund flow analysis.
3. Budgeting.
1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or working capital position of a
firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.
6. Payable turnover ratio.
7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.
2. FUND FLOW ANALYSIS
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Fund flow analysis is a technical device designated to the study the source from which
additional funds were derived and the use to which these sources were put. The fund flow
analysis consists of:
a. Preparing schedule of changes of working capital
b. Statement of sources and application of funds.
It is an effective management tool to study the changes in financial position (working capital)
business enterprise between beginning and ending of the financial dates.
3. WORKING CAPITAL BUDGET
A budget is a financial and / or quantitative expression of business plans and polices to be
pursued in the future period time. Working capital budget as a part of the total budge ting
process of a business is prepared estimating future long term and short term working capital
needs and sources to finance them, and then comparing the budgeted figures with actual
performance for calculating the variances, if any, so that corrective actions may be taken in
future. He objective working capital budget is to ensure availability of funds as and needed,
and to ensure effective utilization of these resources. The successful implementation of
working capital budget involves the preparing of separate budget for each element of
working capital, such as, cash, inventories and receivables etc.
ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm to
meet its obligations in time. The short term obligations of a firm can be met in time only
when it is having sufficient liquid assets. So to with the confidence of investors, creditors,
the smooth functioning of the firm and the efficient use of fixed assets the liquid position of
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the firm must be strong. But a very high degree of liquidity of the firm being tied up in
current assets. Therefore, it is important proper balance in regard to the liquidity of the
firm. Two types of ratios can be calculated for measuring short-term financial position or
short-term solvency position of the firm.
1. Liquidity ratios.
2. Current assets movements ratios.
A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current, floating
or circulating assts. The current assets should either be liquid or near about liquidity. These
should be convertible in cash for paying obligations of short-term nature. The sufficiency
or insufficiency of current assets should be assessed by comparing them with short-term
liabilities. If current assets can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met out of the current
assets then the liquidity position is bad. To measure the liquidity of a firm, the following
ratios can be calculated:
1. CURRENT RATIO
2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO
1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general liquidity and its
most widely used to make the analysis of short-term financial position or liquidity of a
firm. It is defined as the relation between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
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CURRENT LIABILITES
The two components of this ratio are:
1) CURRENT ASSETS
2) CURRENT LIABILITES
Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses, bill
payable, dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid and has the ability to
pay its current obligations in time. On the hand a low current ratio represents that the
liquidity position of the firm is not good and the firm shall not be able to pay its current
liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double
the current liabilities is considered to be satisfactory.
CALCULATION OF CURRENT RATIO
(Rupees in crore)
e.g.
Year 2008 2009 2010
Current Assets 1.5 3 5
Current Liabilities 1 2 3
Current Ratio 1.5:1 1.5:1 1.66:1
Interpretation:-
As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the
company for last three years it has increased from 2006 to 2008. The current ratio of
company is more than the ideal ratio. This depicts that companys liquidity position is
sound. Its current assets are more than its current liabilities.
2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be
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defined as the relationship between quick/liquid assets and current or liquid liabilities. An
asset is said to be liquid if it can be converted into cash with a short period without loss of
value. It measures the firms capacity to pay off current obligations immediately.
QUICK RATIO = QUICK ASSETS
CURRENT LIABILITES
Where Quick Assets are:
1) Marketable Securities
2) Cash in hand and Cash at bank.
3) Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms liquidity
position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if
quick assets are equal to the current liabilities then the concern may be able to meet its
short-term obligations. However, a firm having high quick ratio may not have a satisfactory
liquidity position if it has slow paying debtors. On the other hand, a firm having a low
liquidity position if it has fast moving inventories.
CALCULATION OF QUICK RATIO
e.g. (Rupees inCrore)
Interpretation :
A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is more than
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Year 2008 2009 2010
Quick Assets 1.5 3 5Current Liabilities 1 2 3
Quick Ratio 1.5:1 1.5:1 1.66:1
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ideal ratio. This shows company has no liquidity problem.
3. ABSOLUTE LIQUID RATIO
Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in
time. So absolute liquid ratio should be calculated together with current ratio and acid test
ratio so as to exclude even receivables from the current assets and find out the absolute
liquid assets. Absolute Liquid Assets includes :
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS
CURRENT LIABILITES
ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.
e.g. (Rupees in Lakh)
Year 2008 2009 2010
Absolute Liquid Assets 20 10 25
Current Liabilities 100 200 300
Absolute Liquid Ratio .0.2 : 1 0.05 : 1 .0.0833 : 1
Interpretation :
These ratio shows that company carries a small amount of cash. But there is nothing to
be worried about the lack of cash because company has reserve, borrowing power & long
term investment. In India, firms have credit limits sanctioned from banks and can easily
draw cash.
B) CURRENT ASSETS MOVEMENT RATIOS
Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales. The better
the management of assets, large is the amount of sales and profits. Current assets
movement ratios measure the efficiency with which a firm manages its resources. These
ratios are called turnover ratios because they indicate the speed with which assets are
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converted or turned over into sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :
1. Inventory Turnover Ratio
2. Debtors Turnover Ratio
3. Creditors Turnover Ratio
4. Working Capital Turnover Ratio
The current ratio and quick ratio give misleading results if current assets include high amount
of debtors due to slow credit collections and moreover if the assets include high amount of
slow moving inventories. As both the ratios ignore the movement of current assets, it is
important to calculate the turnover ratio.
1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :
Every firm has to maintain a certain amount of inventory of finished goods so as to
meet the requirements of the business. But the level of inventory should neither be
too high nor too low. Because it is harmful to hold more inventory as some amount of
capital is blocked in it and some cost is involved in it. It will therefore be advisable to
dispose the inventory as soon as possible.
INVENTORY TURNOVER RATIO = COST OF GOOD SOLD
AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is converted into
sales. Usually a high inventory ratio indicates an efficient management of inventory
because more frequently the stocks are sold ; the lesser amount of money is required
to finance the inventory. Where as low inventory turnover ratio indicates the
inefficient management of inventory. A low inventory turnover implies over
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investment in inventories, dull business, poor quality of goods, stock accumulations
and slow moving goods and low profits as compared to total investment.
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK/2
(Rupees in Lakh)
Year 2008 2009 2010
Cost of Goods sold 50 150 225
Average Stock 35 70 125
Inventory Turnover Ratio 1.4 times 2.14times 1.8 times
Interpretation :
These ratio shows how rapidly the inventory is turning into receivable through sales. In
2007 the company has high inventory turnover ratio but in 2008 it has reduced to 1.75
times. This shows that the companys inventory management technique is less efficient as
compare to last year.
2. INVENTORY CONVERSION PERIOD:
INVENTORY CONVERSION PERIOD = 365 (net working days)
INVENTORY TURNOVER RATIO
e.g.
Year 2008 2009 2010
Days 365 365 365
Inventory Turnover Ratio 1.5 2.8 1.8
Inventory Conversion Period 243 days 130 days 202 days
Interpretation :
Inventory conversion period shows that how many days inventories takes to convert
from raw material to finished goods. In the company inventory conversion period is
decreasing. This shows the efficiency of management to convert the inventory into cash.
3. DEBTORS TURNOVER RATIO :
A concern may sell its goods on cash as well as on credit to increase its sales and a
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liberal credit policy may result in tying up substantial funds of a firm in the form of trade
debtors. Trade debtors are expected to be converted into cash within a short period and are
included in current assets. So liquidity position of a concern also depends upon the quality
of trade debtors. Two types of ratio can be calculated to evaluate the quality of debtors.
a) Debtors Turnover Ratio
b) Average Collection Period
DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)
AVERAGE DEBTORS
Debtors velocity indicates the number of times the debtors are turned over during a
year. Generally higher the value of debtors turnover ratio the more efficient is themanagement of debtors/sales or more liquid are the debtors. Whereas a low debtors
turnover ratio indicates poor management of debtors/sales and less liquid debtors. Thisratio should be compared with ratios of other firms doing the same business and a trendmay be found to make a better interpretation of the ratio.
AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
2
e.g.
Year 2008 2009 2010
Sales 166.0 151.5 169.5Average Debtors 17.33 18.19 22.50
Debtor Turnover Ratio 9.6 times 8.3 times 7.5 times
Interpretation : This ratio indicates the speed with which debtors are being converted orturnover into sales. The higher the values or turnover into sales. The higher the values of
debtors turnover, the more efficient is the management of credit. But in the company the
debtor turnover ratio is decreasing year to year. This shows that company is not utilizing itsdebtors efficiency. Now their credit policy become liberal as compare to previous year.
4. AVERAGE COLLECTION PERIOD :
Average Collection Period = No. of Working Days
Debtors Turnover Ratio
The average collection period ratio represents the average number of days for which a
firm has to wait before its receivables are converted into cash. It measures the quality of
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debtors. Generally, shorter the average collection period the better is the quality of debtors
as a short collection period implies quick payment by debtors and vice-versa.
Average Collection Period = 365 (Net Working Days)
Debtors Turnover Ratio
Year 2008 2009 2010
Days 365 365 365
Debtor Turnover Ratio 9.6 8.3 7.5
Average Collection Period 38 days 44 days 49 days
Interpretation : The average collection period measures the quality of debtors and it helps
in analyzing the efficiency of collection efforts. It also helps to analysis the credit policy
adopted by company. In the firm average collection period increasing year to year. It shows
that the firm has Liberal Credit policy. These changes in policy are due to competitors
credit policy.
5. WORKING CAPITAL TURNOVER RATIO :
Working capital turnover ratio indicates the velocity of utilization of net working
capital. This ratio indicates the number of times the working capital is turned over
in the course of the year. This ratio measures the efficiency with which the working
capital is used by the firm. A higher ratio indicates efficient utilization of working
capital and a low ratio indicates otherwise. But a very high working capital turnover
is not a good situation for any firm.
Working Capital Turnover Ratio = Cost of Sales
Net Working Capital
Working Capital Turnover = Sales
Networking Capital
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e.g
Year 2008 2009 2010
Sales 166.0 151.5 169.5
Networking Capital 53.87 62.52 103.09
Working Capital Turnover 3.08 2.4 1.64
Interpretation : This ratio indicates low much net working capital requires for sales. In
2008, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the companyrequires 60 paisa as working capital. Thus this ratio is helpful to forecast the working
capital requirement on the basis of sale.
INVENTORIES
(Rs. in Lakh)
Year 2007-2008 2008-2009 2009-2010
Inventories 57.15 95.69 125.01
Interpretation :
Inventories is a major part of current assets. If any company wants to manage its
working capital efficiency, it has to manage its inventories efficiently. The graph shows
that inventory in 2005-2006 is 45%, in 2006-2007 is 43% and in 2007-2008 is 54% of their
current assets. The company should try to reduce the inventory upto 10% or 20% of current
assets.
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RESEARCH METHODOLOGY
The methodology, I have adopted for my study is the various tools, which basically analyze critically
financial position of to the organization:
I. COMMON-SIZE P/L A/C
II. COMMON-SIZE BALANCE SHEET
III. COMPARTIVE P/L A/C
IV. COMPARTIVE BALANCE SHEET
V. TREND ANALYSIS
VI. RATIO ANALYSIS
The above parameters are used for critical analysis of financial position. With the evaluation of
each component, the financial position from different angles is tried to be presented in well and
systematic manner. By critical analysis with the help of different tools, it becomes clear how the
financial manager handles the finance matters in profitable manner in the critical challenging
atmosphere, the recommendation are made which would suggest the organization in formulation of a
healthy and strong position financially with proper management system.
ANALYSIS OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS:
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Financial statement is a collection of data organized according to logical and consistent accounting
procedure to convey an under-standing of some financial aspects of a business firm. It may show
position at a moment in time, as in the case of balance sheet or may reveal a series of activities over
a given period of time, as in the case of an income statement. Thus, the term financial statements
generally refers to the two statements
(1) The position statement or Balance sheet.
(2) The income statement or the profit and loss Account.
OBJECTIVES OF FINANCIAL STATEMENTS:
According to accounting Principal Board of America (APB) states
The following objectives of financial statements: -
1. To provide reliable financial information about economic resources and obligation of a business
firm.
2. To provide other needed information about charges in such economic resources and obligation.
3. To provide reliable information about change in net resources (recourses less obligations) missing
out of business activities.
4. To provide financial information that assets in estimating the learning potential of the business.
LIMITATIONS OF FINANCIAL STATEMENTS:
Though financial statements are relevant and useful for a concern, still they do not present a final
picture a final picture of a concern. The utility of these statements is dependent upon a number of
factors. The analysis and interpretation of these statements must be done carefully otherwise
misleading conclusion may be drawn.
Financial statements suffer from the following limitations: -
1. Financial statements do not given a final picture of the concern. The data given in these statements
is only approximate. The actual value can only be determined when the business is sold or
liquidated.
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2. Financial statements have been prepared for different accounting periods, generally one year,
during the life of a concern. The costs and incomes are apportioned to different periods with a view
to determine profits etc. The allocation of expenses and income depends upon the personal judgment
of the accountant. The existence of contingent assets and liabilities also make the statements
imprecise. So financial statement are at the most interim reports rather than the final picture of the
firm.
3. The financial statements are expressed in monetary value, so they appear to give final and
accurate position. The value of fixed assets in the balance sheet neither represent the value for which
fixed assets can be sold nor the amount which will be required to replace these assets. The balance
sheet is prepared on the presumption of a going concern. The concern is expected to continue in
future. So fixed assets are shown at cost less accumulated deprecation. Moreover, there are certain
assets in the balance sheet which will realize nothing at the time of liquidation but they are shown in
the balance sheets.
4. The financial statements are prepared on the basis of historical costs Or original costs. The value
of assets decreases with the passage of time current price changes are not taken into account. The
statement are not prepared with the keeping in view the economic conditions. the balance sheet loses
the significance of being an index of current economics realities. Similarly, the profitability shown
by the income statements may be represent the earning capacity of the concern.
5. There are certain factors which have a bearing on the financial position and operating result of the
business but they do not become a part of these statements because they cannot be measured in
monetary terms. The basic limitation of the traditional financial statements comprising the balance
sheet, profit & loss A/c is that they do not give all the information regarding the financial operation
of the firm. Nevertheless, they provide some extremely useful information to the extent the balance
sheet mirrors the financial position on a particular data in lines of the structure of assets, liabilities
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etc. and the profit & loss A/c shows the result of operation during a certain period in terms revenue
obtained and cost incurred during the year. Thus, the financial position and operation of the firm.
FINANCIAL STATEMENT ANALYSIS
It is the process of identifying the financial strength and weakness of a firm from the available
accounting data and financial statements. The analysis is done
CALCULATIONS OF RATIOS
Ratios are relationship expressed in mathematical terms between figures, which are connected with
each other in some manner.
CLASSIFICATION OF RATIOS
Ratios can be classified in to different categories depending upon the basis of classification
The traditional classification has been on the basis of the financial statement to which the
determination of ratios belongs.
These are:-
Profit & Loss account ratios
Balance Sheet ratios
Composite ratios
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COST OF THE PROJECT
The Cost of the proposed project is estimated at Rs.100.25 lacs as per details given here under: -
LAND
The company purchased the open land measuring 2.265 acres at Dighot village in Noida district at a cost of Rs.40 lacs. The land
purchased is need based considering the size and volume of operations proposed by the unit for future expansion. The location beingconnected to main highways and shall leverage best to connect with entire NCR area which is developing as centre for production of
major garments and existing and future customers of the unit are located.
BUILDING
The company proposes to construct working shed measuring 1900 sq mtrs. using prefab structure technology for production of electriccables with inbuilt office area and canteens etc. Adequate provision for boundary wall, open area flooring, faced work, rain water
harvesting etc has been kept in the project. The cost of building estimated at Rs 10 lacs.
PLANT AND MACHINERY
It is proposed to purchase latest technology, high performance and quality machines manufacturing of Garments & Chemicals asdetailed in annexure. The plant & machinery proposed includes both imported as well as indigenous machines a .The detail of the
plant and machinery is annexed herewith. The total cost of plant & machinery including utilities e.g. DG Sets, Compressors Lifts EOTcranes etc has been estimated @ Rs 50 lacs.
The plant & machinery has been identified considering the proposed product range, precision and quality standards required and it isconsidered sufficient to undertake projects to targeted turnover and capacity.
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RS IN
LACS
DETAILS OF PROPOSED PLANT AND MACHINERY (INDIGENOUS)
. PARTICULARS SUPPLIER QTY. UNIT PRICE
IN USD
CONVERSION
FACTOR
UNIT PRICE COST EXISE
DUTY
CST OTHER
EXP, IFANY.
TOTAL
COST
1 MULTI WIRE
DRAWING INDIA
SCOPE
NEIHOFF
INDIA
1 20.25 2.5 2.76 0.00 21.25
2 DOUBLE TWIST 630MM, BUNCHER
NEIHOFFINDIA
2
3 ARCH 630 R, PAY OFF
STANDS
NEIHOFF
INDIA
SET
4 WIRE DRAWING DIES WALSON
WOODBUR
N WIRE DIE
PVT LTD
1 2.24 2.24 0.23 0.05 0.00
5 TOOLINGS FOREXTRUDER &
BUNCHING MACHINES
SELFFABRICATE
D
1 2.25 0.00 0.00 0.00 0.00
6 BIG BUNCHER WITH
PAY OFF STATION(SELF FAB)
NEWMAX
ENGINEERS
1 5.50 5.50 0.55 0.12 0.00
1 2.00 2.00 0.00 0.00 0.00
7 QC/QA LAB ARUNINDUSTRIE
S
L.S. 1
8 DG SET 385 KVA SVAMPOER
PLANTS
LTD
1 19.22 19.22 1.98 0.42 0.00 2
9 MAINTINANCE TOOLROOM
OPENMARKET
1 1
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4. ELECTRICALS
A provision of Rs 50 lacs has been made under this head meeting the cost of of transformer,
cabling from DHVBN supply point to transformer, to Main Controls & Distribution Panelsand there from to each machinery unit. Cost of CTPT, Machinery Control and monitoring
panels, cost of earthling. Generator lines, Switch gears etc on turnkey basis.
5. CONTINGENCIES
A provision of 5 % of the cost of building and machinery has been kept to meet any cost
escalation during project implementation period as entire cost is unconfirmed at present.
6. MISC. FIXED ASSETS
A provision of Rs 20.0 lacs has been estimated under this head towards the cost of furniture
& Fixture, office equipment & firefighting equipment and transport and material handlingequip. and vehicles.
7. PRELIMINARY & PREOPERATIVE EXPENSES
A provision of Rs 71.16 lacs has been kept in order to meet the cost of profession charges,
loan processing fee, and interest during construction period and to meet the other startup
expenses.
8. MARGIN MONEY FOR WORKING CAPITAL
Working capital requirements have been worked out for the entire operations including the
new project and hence this has not been shown in the project cost.
MEANS OF FINANCE
The total cost of the proposed project estimated at Rs.3044.77 lacs will be financed as under:
PARTICULARS AMOUNT (RS. IN LACS)
Share Capital 42.00
Internal Accruals 38.89
Unsecured Loans 28.00
Term Loan Bank 50.00
Total 158.89
PRODUCTION FACTORS AND UTILITIES
SITE:
The proposed site of the new project is situated in a strategic location and well connected with good
road to NH2 where all the infrastructure facilities are available.
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RAW MATERIAL
The major raw material required is Copper, PVC, etc. All the material is easily available in the NCR
region and promoters have tie-ups with leading suppliers in the region.
POWER
The total power requirement has been estimated at 750 KW for running the plant and machinery and
electrical load of the unit the same shall be met from DHVBN supply. however provision of stand byDG set of equivalent capacity has been kept in the project.
WATER
Water is required for human consumption and for sanitation purposes. The unit will meet its waterrequirements from underground sources.
MANPOWER
The concern proposed to generate employment of 50 persons for running the unit. People experienceand skills are easily available in the region and company shall not face any problem of manpower.
CONSUMABLE STORESThe company shall require oil, lubricant, high speed diesel etc as consumables these are easily
available in Delhi and NCR market.
EFFLUENT
The unit will not generate any health hazardous effluents.
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CHAPTER 3
METHODOLOGY
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CHAPTER 3
RESEARCH METHODOLOGY
INTRODUCTION
The present chapter describes the research methodology which was applied for conducting this research.
The various aspects of the research methodology were described into the various specified sections
which are; design of the research, data collection, data analysis, and validity and reliability.
RESEARCH DESIGN
Research methodology details the procedures necessary for obtaining the information needed to
structure and/or solve research problems. Although a broad approach to the problem had already been
developed, the research design specified the details the nuts and bolts of implementing that approach.
The design of research was determined by the nature of the problem that has to be explored and the
research question that is formulated. The statement regarding the nature of the problem identified
concepts that had to be explored and that would have influenced the data collection methods, the
subsequent data analysis and reporting.
According to the philosophy of research design, research can be exploratory or conclusive.
Exploratory research- The primary objective of exploratory research was to provide insights into, and
an understanding of, the problem. Exploratory research is used in cases when one must define the
problem more precisely, identify relevant courses of action, or gain additional insights before an
approach can be developed.
Conclusive research- Conclusive research is typically more formal and structured than exploratory
research. It is based on large, representative samples, and the data obtained are subjected to quantitative
analysis. The findings from this research are considered to be conclusive in nature in that they are used
as input into managerial decision-making .
So far as the present research was concerned, the research was exploratory in nature as it had been
conducted on the basis of a problem confronted. This problem was identified as Project Funding and
Working Capital Management for The New Age Creation.
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Banks use credit rating to analyze the credit worthiness of any proposed customers (borrower). And then based up on the
credit rating and the risk appraisal the bank decides up on the rate on interest or the charge to be levied up on a
particular finance. Thus, it is an issue of key concern for any organization to understand the norms based up on which the
banks frame this credit rating policy. Credit Rating agencies both internal as well as external, pay keen interest and base to
certain macro as well micro environmental elements, this is basically because of the fact that not just the financials but also
the economic and non economic environmental factors determine the over all credit worthiness of any financial
organization, a few of these most crucial elements are:
Management
Institutional Arrangement
Capital Adequacy and Asset Quality
Resources
Operational Effectiveness
Scalability and Sustainability
Transparency & disclosure
Value Creation and distribution Banking organizations also look in to various risk and credit policies before framing their
policies. The main concern of any bank before framing the credit ratings is to analyze and achieve a perfect customer
(borrower) whose credit worthiness would be sound enough to avoid the NPA or risk coherence of the lending. Credit
Ratings most of give ranks or grades to institutions and organizations based up on their financial and economic feasibility,
thus for any organization it is an issue of keen consideration to understand the credit rating policy of any banking
organization. Other than this key issues considered while framing a credit rating policy for any banking organization.
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CHAPTER 4
DATA COLLECTION
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CHAPTER 4
DATA COLLECTION
The two most common data that are collected for exploratory research are primary and secondary data.
Primary data is original data using an accepted research methodology and secondary data is already
available data as it is collected for other research purposes. In research projects where original primary
data is collected, secondary data establish what work has been undertaken in a particular area before is a
necessary precursor to research design . In accordance with the above academic establishments, the
present research included both primary and secondary data, where the purpose of collecting primary data
was to generate new data regarding the research problem, and purpose of collecting secondary data was
to compare and contrast the new data with the previous one.
Secondary Data
Secondary data is the data that has been gathered previously for a project other than the particular one.
The most important advantage of secondary data is that it can be collected from various sources rather
quickly and cheaply than the primary data. However, the most significant limitation of secondary
sources lies in the fact that someone else collected the data for his/her own purposes. Therefore, as the
information may meet specific needs, definitions or units of measure may be different and may not be
appropriate for evaluation in another project. Moreover, it is difficult to evaluate the accuracy of any
information provided because little is known about the research design used or any other condition
under which the research took place. Finally, it is doubtful that data collected long time ago would be
relevant presently.
Despite all these reasons, secondary data may be useful as a reference base to compare research
findings. Thus, even for a relatively unique research situation scanning the secondary data would
possibly offer much useful insight. In order to collect secondary data, various libraries, and websites
(online library) were visited. The secondary data in this research is presented in form of literature
review.
The main purpose of critically reviewing the literature was to explore the data and findings and
subsequently related them to the existing literature on the subject matter concerned. Thus, a critical
review of the literature regarding service quality helped achieve the same. According to Saunders et al
(2000) this approach is known as inductive approach.
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Primary Data
Besides the below information which was taken from the company for assessment of financials like:
Last 3 years audited financial statements along with
Tax Audit report/3CB-3CD
Directors report
Notes to accounts
All schedules attached
Break up of unsecured loans
Break up of investments
Break up loans and advances appearing in liability and assets.
Nature of contingent liability if any.
Provisional financials of current year.
Last 2 years ITRs of all promoters and company.
Advance tax challans for the latest years to ensure sales.
Group company audited financials
Sanction letter for all major existing working capital facilities availed by the company.
Statements of all banks for last six months.
Debtors & Creditor list for current year.
Order in hands/copy of all agreements.
Copy of pollution license/Vintage proof.
Details of all immovable property which are offered as collateral.
For obtaining the primary data for my project, I propose to use self questionnaire method on directors
and promoters of the company. A standardized interview will be conducted to gather information on
setting up a backward integration unit for manufacturing of cables and other means of finance. Interview
will include related and unrelated expenses and future outlook of the company.
The Questionnaire - Questionnaires are an inexpensive way to gather data from a potentially large
number of respondents. Often they are the only feasible way to reach a number of reviewers large
enough to allow statistical analysis of the results. A well-designed questionnaire that is used effectively
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can gather information on both the overall performance of the test system as well as information on
specific components of the system. If the questionnaire includes demographic questions on the
participants, they can be used to correlate performance and satisfaction with the test system among
different groups of users.
It is important to remember that a questionnaire should be viewed as a multi-stage process beginning
with definition of the aspects to be examined and ending with interpretation of the results. Every step
needs to be designed carefully because the final results are only as good as the weakest link in the
questionnaire process. Although questionnaires may be cheap to administer compared to other data
collection methods, they are every bit as expensive in terms of design time and interpretation. The
questionnaire in this research consisted 22questions (close-ended).
Types of Question- There are basically two types of question open and closed. The closed question
restricts the answers to a small set of responses and requires the questionnaire designer to have a fair
knowledge of the range of options the subjects might have in this area. It does however generate precise
answers, while open-ended question have the merit of not imposing restrictions as to the possible answer
but are harder to aggregate and computerize. It has the merit of offering richer and deeper responses.
The present study limited the use of only close-ended questions in the questionnaire. The questionnaire
consisted of 22 close-ended questions.
Sampling-In the words of Clark et al. (2003), a sample is a sub-set of a larger grouping, a population.Samples are frequently studied in order to learn something of the characteristics of the larger groups of
which they are a part of. Such samples, if selected in certain ways can be used as a legitimate basis for
drawing inferences about the populations from which they were drawn from in essence, within certain
boundaries.
The sample in this research consisted promoters of The New Age Creation. These are director and
Managers of the company. The response rate was also 100 percent.
The above-mentioned persons were chosen because they were known and it was easy to arrange
interviews in the respective office. The employees were approached directly with the help of the
manager staff. The employees were selected conveniently.
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Data selection procedure- The data was collected from the CAs and accounts manager of the company.
Respondents were initially led to engage in a general conversation and thereafter the questionnaires were
asked to be filled. Interestingly, all the questionnaires that distributed were positively responded.
CHAPTER 5
DATA ANALYSIS
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CHAPTER 5
DATA ANALYSIS
Data was analyzed systematically. Findings from data were related to aspects of the methodology
wherever appropriate, and effects arising from the choice of methods were recognized and commented
upon. Wherever the research was an extended literature review or a theoretical critique of existing
research, competing and complementary positions in the debate concerned were clearly explained,
compared and contrasted, and an assessment of the relative merits of these positions were given together
with a clear statement of their implications for the topic under scrutiny. Such an approach of content
analyzing of qualitative data is suggested by Hamel (1993). Keeping in mind of these norms, the
collected data was analyzed in accordance with the objectives of the research.
VALIDITY AND RELIABILITY
To ensure validity, questionnaire were pre-tested and debugged before widespread distribution. The
format of the questionnaire, the wording and sequence of questions, affects the validity of the responses
and in the case of mail questionnaires, the number of responses received. For ensuring validity, the
wording and sequencing of questions was done sensitively. Further, the questionnaire was also pre-
tested. Reliability refers to the consistency with which the technique measures what it does measure.
This consistency was maintained to greatest possible extent.
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DATA ANALYSIS
INTRODUCTION
This chapter includes the analysis of data collected from the sample size of promoters.
Questionnaire was prepared to collect the primary data, which included a total of 22 questions.
Questionnaire was divided into Eight sections:
1. View on garment segment and its future.2. Quality Perceptions
3. Self belief and promoters commitments towards business
4. Customer Loyalty and relationship
5. Any future to brought P.E.(Private equity) investor.
6. Banking and relationships with other financials institutions.
7. Views About Yourself
8. Demographics
PROJECTED CASH FLOW STATEMENT AND BALANCE SHEET
The detailed cash flow statement projections and balance sheet are annexed herewith along with .The
company will generate sufficient cash accruals to pay off its debts and meet its working capital cycle.
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PROJECTIONS OF PERFORMANCE, COST OF PRODUCTION AND PROFITABILITY
(RS. IN LACS)
2010-
2011
2011-2012 2012-
2013
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
SALES 385.98 437.39 547.09 768.79 13747.81 16077.67 18823.13 22061.28 25883.88
SALES 385.98 437.39 547.09 768.79 13747.81 16077.67 18823.13 22061.28 25883.88
5. LESS EXCISE 0.00 47.02 57.31 73.69 2098.53 0.00 0.00 0.00 0.00
6. NET SALES 385.98 450.37 589.78 895.10 11649.28 16077.67 18823.13 22061.28 25883.88
7. OTHER INCOME 79.72 89.81 99.86 118.27 143.80 145.69 176.77 214.31 259.61
8. TOTAL INCOME 465.70 540.18 689.64 1013.37 11793.08 16223.36 18999.91 22275.59 26143.49
B. COST OF PRODUCTION
9. RAW MATERIAL CONSUMED 3106.35 4336.66 6080.61 7469.17 8784.88 10342.35 12187.38 14374.60 16969.23
10. CONSUMABLE STORES 54.36 59.27 69.65 83.62 100.78 121.43 146.27 176.14 212.07
11. POWER AND FUEL 18.63 65.68 110.39 137.75 151.52 166.68 183.34 201.68 221.84
12. WAGES AND SALARIES 369.98 425.02 440.59 532.27 647.78 787.58 956.66 1161.07 1408.07
13. REPAIRS AND MAINTENANCE 11.85 12.68 13.57 14.92 16.41 18.06 19.86 21.85 24.03
14. FACTORY OVERHEADS/ OTHER 93.67 111.81 135.99 165.81 199.03 238.90 286.74 344.17 413.09
MANUFACTURING EXPENSES
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C. TOTAL (B9 TO B15) 3654.84 5011.12 6850.80 8403.55 9900.41 11674.98 13780.26 16279.51 19248.32
LESS: CLOSING W.I.P. 100.13 126.55 163.21 198.70 235.96 280.37 333.34 396.55 471.99
3554.71 4884.56 6687.58 8204.84 9664.45 11394.61 13446.92 15882.96 18776.34
ADD: OPENING W.I.P. 47.72 100.13 126.55 163.21 198.70 235.96 280.37 333.34 396.55
15. NET COST OF PRODUCTION 3602.43 4984.70 6814.13 8368.06 9863.16 11630.57 13727.29 16216.30 19172.88
26.42 36.66 35.49 37.25
PROJECTIONS OF PERFORMANCE, COST OF PRODUCTION AND PROFITABILITY
(RS. IN LACS)
2010-
2011
2011-2012 2012-
2013
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
16. ADMINISTRATIVE EXPENSES 134.17 156.26 178.90 212.98 257.62 311.43 376.27 454.39 548.47
17. SELLING AND PACKAGING EXPENSES 40.66 63.85 100.17 123.63 144.24 168.49 197.03 230.66 270.33
18. RENT, RATES AND TAXES 1.44 2.70 2.97 3.27 3.60 3.96 4.35 4.79 5.27
19. PRELIMINARY EXPENSES WRITTEN OFF 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
20. REMUNERATION TO DIRECTORS 127.40 151.40 166.54 183.19 201.51 221.66 243.83 268.21 295.04
D. TOTAL 3906.09 5385.32 7299.38 8926.62 10507.38 12336.11 14548.77 17174.36 20291.99
LESS: CLOSING FINISHED GOODS 195.30 232.19 281.59 339.01 405.14 484.34 579.20 692.83 828.96
3710.79 5153.14 7017.79 8587.61 10102.25 11851.77 13969.57 16481.53 19463.04
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ADD: OPENING FINISHED GOODS 71.58 195.30 232.19 281.59 339.01 405.14 484.34 579.20 692.83
E. TOTAL 3782.37 5348.44 7249.97 8869.21 10441.25 12256.90 14453.91 17060.73 20155.87
F. PROFIT/(LOSS) BEFORE INTEREST 283.33 718.15 976.33 1179.66 1389.08 1645.07 1948.76 2309.22 2737.23
AND DEPRECIATION
G. INTEREST
a) ON TERM LOAN 17.65 53.75 72.08 54.23 40.87 29.60 18.32 7.05 0.00
b) ON WORKING CAPITAL 36.39 127.01 169.01 169.01 169.01 169.01 169.01 169.01 169.01
c) ON UNSECURED LOANS & OTHERS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
H. DEPRECIATION 57.97 157.81 137.46 119.83 104.55 91.29 79.77 69.77 61.07
I. PROFIT/(LOSS) BEFORE TAXATION 171.32 379.58 597.77 836.58 1074.65 1355.17 1681.65 2063.39 2507.14
J. PROVISION FOR TAXES 42.83 58.28 149.44 209.14 268.66 338.79 420.41 515.85 626.79
K. NET PROFIT 128.49 321.30 448.33 627.43 805.98 1016.38 1261.24 1547.54 1880.36
L. NET CASH ACCRUALS 186.46 479.11 585.79 747.27 910.53 1107.66 1341.01 1617.31 1941.43
10.26 10.37 10.47
0.03 0.05 0.05 0.05 0.06 0.06 6.64 6.95 7.19
665.57
CASH FLOW STATEMENT
(RS. IN
LACS)
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2010-
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2011-2012 2012-
2013
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
A. SOURCES OF FUNDS
1. PROFIT BEFORE INTEREST, 283.33 718.15 976.33 1179.66 1389.08 1645.07 1 948.76 2 309.22 2737.23
DEPRECIATION AND TAXES
2. INCREASE IN CAPITAL 100.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
3. INCREASE IN LONG TERM 346.25 390.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
LOANS DEBENTURES
4. INCREASE IN BANK BORROWINGS 342.65 728.45 369.92 0.00 0.00 0.00 0.00 0.00 0.00
FOR WORKING CAPITAL
5. INCREASE IN CREDITORS 14.99 - 247.12 -127.90 0.00 0.00 0.00 0.00 0.00 0.00
6. INCREASE IN UNSECURED LOANS 170.00 105.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL SOURCES (A) 1257.23 1694.48 1218.35 1179.66 1389.08 1645.07 1948.76 2309.22 2737.23
B. DISPOSITION OF FUNDS
1. PRELIMINARY & PREOPERATIVE EXP. 17.79 53.37 0.00 0.00 0.00 0.00 0.00 0.00 0.00
2. INCREASE IN CAPITAL EXPENDITURE 537.00 532.17 25.00 0.00 0.00 0.00 0.00 0.00 0.00
3. INCREASE IN CURRENT ASSETS
a) ADVANCES, INVESTMENTS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
& OTHER ASSETS
b) OTHERS 542.89 721.62 410.65 0.00 0.00 0.00 0.00 0.00 0
4. DECREASE IN LONG TERM LOANS/ 48.37 93.75 194.39 153.72 103.94 102.50 102.50 102.50 0.00
DEBENTURES
5. INTEREST 54.04 180.76 241.09 223.25 209.89 198.61 187.34 176.06 169.01
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6. TAXATION 42.83 58.28 149.44 209.14 268.66 338.79 420.41 515.85 626.79
7. DECREASE IN UNSECURED LOANS 24.80 24.80 0.00 0.00 0.00 0.00 0.00 0.00 0.00
8. DIVIDENDS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
TOTAL DISPOSITION (B) 1267.72 1664.76 1020.58 586.11 582.49 639.90 710.25 794.41 795.80
C. OPENING BALANCE 21.36 10.87 40.59 238.36 831.91 1638.50 2643.66 3882.18 5396.99
D. NET SURPLUS (A-B) -10.49 29.72 197.77 593.55 806.59 1005.16 1238.51 1514.81 1941.43
E. CLOSING BALANCE 10.87 40.59 238.36 831.91 1638.50 2643.66 3882.18 5396.99 7338.41
PROJECTED BALANCE SHEET
(RS. IN
LACS)
PARTICULARS 2010-
2011
2011-2012 2012-
2013
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018 2018-2019
A. LIABILITIES
1. SHARE CAPITAL 140.01 140.01 140.01 140.01 140.01 140.01 140.01 140.01 140.01
2. RESERVE & SURPLUS /P & L ACCOUNT 341.27 662.57 1110.90 1738.34 2544.32 3560.70 4821.94 6369.48 8249.84
3. TERM LOANS 318.57 614.82 420.44 266.72 162.78 60.28 -42.22 -144.72 -144.72
4. UNSECURED LOANS 194.80 275.00 275.00 275.00 275.00 275.00 275.00 275.00 275.00
5. BANK BORROWINGS FOR W.CAPITAL 551.31 1279.76 1649.68 1649.68 1649.68 1649.68 1649.68 1649.68 1649.68
6. OTHER CURRENT LIABILITIES 862.03 614.91 487.01 487.01 487.01 487.01 487.01 487.01 487.01
TOTAL 2408.00 3587.07 4083.04 4556.76 5258.80 6172.68 7331.42 8776.46 10656.82
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B. ASSETS
1. GROSS BLOCK 965.79 1497.96 1522.96 1522.96 1522.96 1522.96 1522.96 1522.96 1522.96
2. DEPRECIATION 230.64 388.45 525.92 645.75 750.30 841.59 921.36 991.13 1052.20
3. NET BLOCK 735.15 1109.51 997.04 877.21 772.66 681.38 601.61 531.84 470.77
4. NON CURRENT ASSETS 37.56 90.93 90.93 90.93 90.93 90.93 90.93 90.93 90.93
5. CURRENT ASSETS 1597.81 2307.43 2715.08 2715.08 2715.08 2715.08 2715.08 2715.08 2715.08
6. CASH AND BANK BALANCE 10.87 40.59 238.36 831.91 1638.50 2643.66 3 882.18 5 396.99 7338.41
7. ADVANCES & OTHER CURRENT ASSETS 26.62 38.62 41.62 41.62 41.62 41.62 41.62 41.62 41.62
TOTAL 2408.01 3587.08 4083.04 4556.76 5258.80 6172.68 7331.42 8776.46 10656.82
CURRENT RATIO 1.12 1.20 1.28 1.57 1.96 2.41 2.96 3.64 4.72
TOL/TNW 2.71 2.54 1.78 1.17 0.80 0.57 0.41 0.30 0.23
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CHAPTER 6
FINDINGS
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CHAPTER 6
FINDINGS
All throughout this project, there were several learning experiences, both on floor and off floor, based up on those lea
experiences, certain findings and suggestions have been laid. It is not possible to list all those valuable information and know
gained from the project, but some of the corporeal knowledge acquired is listed below:
Findings:
1. To finance their major working capital requirements, organizations prefer banking solutions to other options as the
more economic and easily available.
2. Thus know how of various lending policies, credit policies and risk structures of various banks are extremely essential
3. For assessment of the working capital requirements companies follow aspecific regime of process, ranging from colle
of information to planning to budget to preparing financials for the required funds
Findings from data were related to aspects of the methodology wherever appropriate, and effe
arising from the choice of methods were recognized and commented upon. Wherever the resea
was an extended literature review or a theoretical critique of existing research, competing a
complementary positions in the debate concerned were clearly explained, compared and contrast
and an assessment of the company for lending.
Methods of lending:
Like many other activities of the banks, method and quantum of short-term finance that can
granted to a corporate was mandated by the Reserve Bank of India till 1994. This control w
exercised on the lines suggested by the recommendations of a study group headed by Shri Praka
Tandon.
The study group headed by Shri Prakash Tandon, the then Chairman of Punjab National Bank,
was constituted by the RBI in July 1974 with eminent personalities drawn from leading banks,
financial institutions and a wide cross-section of the Industry with a view to study the entire
gamut of Bank's finance for working capital and suggest ways for optimum utilisation of Bank
credit. This was the first elaborate attempt by the central bank to organise the Bank credit. The
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NO. OF 2010-11 2011-12 2012-13
DAYS
REQUIRED
1. CURRENT ASSETS
i) RAW MATERIAL 282.40 344.36 373.95
ii) OTHER CONSUMABLE SPARES 13.40 16.59 18.16
iii) STOCK-IN-PROCESS 110.75 175.44 198.72
iv) FINISHED GOODS 195.30 272.25 302.60
v) RECEIVABLES 995.95 1498.79 1821.65
vi) OTHER CURRENT ASSETS 0.00 12.00 15.00
TOTAL CURRENT ASSETS (I) 1597.81 2319.43 2730.08
NO. OF 2010-11 2011-12 2012-13
DAYS
REQUIRED
II. CURRENT LIABILITIES
i) CREDITORS FOR PURCHASE OF RAW 762.03 489.91 352.01
MATERIAL, STORES AND CONSUMABLE
SPARES
ii) OTHER CURRENT LIABILITIES 100.00 125.00 135.00
TOTAL CURRENT LIABILITIES (II) 862.03 614.91 487.01
III WORKING CAPITAL GAP (I-II) 735.77 1704.52 2243.07
IV MARGIN ON WORKING CAPITAL 184.46 424.76 593.39
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V BANK BORROWINGS (III-IV) 551.31 1279.76 1649.68
CALCULATION OF BREAK EVEN POINT
AT CAPACITY UTILISATION = 90
S.NO. PARTICULARS Rs. IN
LACS
A. SALES RECEIPTS 9547.09
VARIABLE COSTS:-
(a) RAW MATERIAL 6080.61
(b) CONSUMABLE STORES/SPARES 69.65
(c) POWER & FUEL 110.39
(d) INTT. ON WORKING CAPITAL 169.01
BORROWINGS
(e) DIRECT WAGES 440.59
(f) SALES EXPENSES 100.17
(h) MISC. FACTORY EXPENSES 135.99
B. TOTAL OF VARIABLE COSTS 7106.41
C. SURPLUS (A-B) 2440.68
FIXED COSTS:-
(a) REPAIR & MAINTENANCE 113.73
(b) INDIRECT SALARIES 166.54
(MANAG. & SUPERVISORY)
(c) DIRECTOR'S SALARY/REMUNERATION 166.54
(d) INTT. ON TERM LOAN 72.08
(e) INTT. ON LONG TERM (LTL) 0.00
(f) DEPRECIATION 137.46
(g) ADMINISTRATIVE EXPENSES 178.90
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D. TOTAL OF FIXED COSTS 835.25
(a) BREAK EVEN POINT AT UTILISED 34.22 %
CAPACITY (D/C % 100)
(b) BREAK EVEN POINT AT INSTALLED 30.80 %
CAPACITY
CAPACITY
DRAWING CAPACITY BUNCHING CAPACITY
NO OF DRAWING MACHINE 1.00 NO OF MACHINE 3.00
NO OF HRS PER DAY 24.00 NO OF HRS PER DAY 24.00
NO OF DAY PER ANNUM 300.00 NO OF DAY PER ANNUM 300.00
NO OF MACHINE HRS 7200.00 NO OF MACHINE HRS 21600.00
LOADING FACTOR(OEE) 0.80 LOADING FACTOR(OEE) 0.80
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MACHINE RUNNING HOURS 5760.00 MACHINE RUNNING HOURS 17280.00
EFFECTIVE DRAWING HOURS 5760.00 EFFECTIVE RUNNING HOURS 17280.00
PROCESSING CAPACITY 186.00 KG/HR PROCESSING CAPACITY 65.00
INSTALLED CAPACITY 1071.36 INSTALLED CAPACITY 1123.20
UTILISED CAPACITY YR I @ 60% 642.82 UTILISED CAPACITY YR I @ 60 % 673.92
UTILISED CAPACITY YR II @ 70% 749.95 UTILISED CAPACITY YR II @ 70 % 786.24
OPTIMUM UTILIZATION YR III 90 % 964.22 OPTIMUM UTILIZATION YR III 90 % 1010.88
SALES AT INSTALLED CAPACITY
PARTICULARS LENGTH/ANNUM SALE RATE SALE VALUE
AV CLASS 21988.05 9258.00 2035.65 CU 1071.36 340000.00 3642.62
AVF & AVSF 24717.00 2450.00 605.57 PVC 619.92 60000.00 371.95
AVSS,FLRY 84048.30 3050.00 2563.47 4014.58
130753.35 5204.69
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CHAPTER 7
CONCLUSION
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CHAPTER 7
CONCLUSION
To conclude this project on Project analysis and working capital seems to be a new beginning, towards
analyzing the fund management done by corporate, constituting of analyzing fund requirement