working capital 0f jsl
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ASSIGNMENT
OF
“WORKING CAPITAL MANAGEMENT ”
ON
Jindal Drilling & Industries Ltd.
SUBMITTED TO
PROF. CHAND TANDON
SUBMITTED BYSAURABH ANEJA
MBA II YEAR
2009-2011
NEW DELHI INSTITUTE OF MANAGEMENT
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attempting to manage the current assets, current liabilities and
the relationship that exists between them.
Positive working capital means that the company is able to pay
off its short-term liabilities. Negative working capital means that
a company currently is unable to meet its short-term liabilities
with its current assets. A negative working capital is a sign of
managerial inefficiency in a business with low inventory and
accounts receivable. In any other situation, it is a sign of a
company may be facing bankruptcy or serious financial trouble.
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Types of working capital
The type, kinds of a thing are depending upon the different
utilization of working capital. It prominently works in the
direction of performing different functions in different
situation and in the context of divergent variables. Sofollowing are some important types of working capital.
.
1) Net Working Capital:
Term Net working capital can be define in two way
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Net Working
Capital Gross Working
Capital
Permanent
Working capital
TemporaryWorking Capital
Types of
Working Capital
Balance Sheet
Working Capital
Cash Working
Capital
Negative
Working Capital
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i) It is the difference between current assets and
current liabilities.
ii) Amount left for operational requirement.
2) Gross Working Capital:
Gross working capital means the total current assets.
3) Permanent Working Capital:
It is the minimum amount of the current assets, which are
needs to conduct the business even during the dullest season
of the year. This amount varies from year to year depending
upon the growth of a company and stage of the business cycle
in which it operates. It is the amount of funds required to
produce the goods and services, which are necessary to
satisfy demand at a particular point.
It represents the current assets, which are required on acontinuing basis over the year. It is maintain as the medium
to carry on operation at any time. Permanent working capital
has following features:
i) It is classified on the basis of the time factor.
ii) Its size increase with the growth of the business.
iii) It constantly shifted from one assets o another and
continues to remain in the business process.
4) Temporary Working Capital:
It represents the additional assets, which are required at
different times during the operating year. Seasonal working
capital is the additional amount of current assets particularly
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cash, receivables, and inventory which is required during the
more active business seasons of the year. It is the temporary
investment in the current assets and possesses he following
features:
a) It is not always gainfully employed, though is
May also shift from one asset to another as
permanent working capital does.
b) It is particularly suited to business of seasonal
on cyclical nature.
5) Balance Sheet Working Capital:
The balance sheet working capital is one, which is
calculated from the items appearing in the balance sheet.
Gross working capital, which is represented by the excess of
current assets over current liabilities, is example of the balance sheet working capital.
6) Cash Working Capital:
It is one, which is calculated from the items appearing in
he Profit and Loss Account. It shows the real flow of money
or value at a particular time and considered to be most
realistic approach in working capital management. It is the
basic of he operation cycle concept, which has assumed a
great importance in financial management in recent year. The
reason is that the cash working capital indicates he adequacy
of he cash flow which is an essential pre requisite of a
business.
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7) Negative Working Capital:
It emerges when current liabilities exceeds current assets,
such a situation is absolutely theoretical and occurs when a
firm is nearing a crisis of some magnitude.
Methods of Calculation of
Required Working
Capital
The methods of calculation of required working capital are as
follows:
Working Capital Cycle:
The working capital cycle is also known as operating cycle. It
refers to the duration between the firm’s payment of cash for
raw material, entering into production and inflow of cash from
debtors and realization of receivables. Simply speaking,
operating cycle is the duration between the outflow of cash and
inflow of cash and this may be evidenced from the following
working capital cycle.
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Receivables
Finished Goods
Raw Material Work In Process
Cash
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The above and network diagram may offer a clear picture of a
complete working capital i.e. it is a cash phenomenon. In the
diagram, raw material, stock refers to material only. In work
in process, components involve are raw material, wages, and
overhead more specifically manufacturing overheads.
Finished stock consists components of material, wages and
overheads inclusive of factory, office and administration and
selling and distribution. Debtors include material, wages,
overheads and profits. Credit involves for the components of
raw material, etc. something a contingency margin is also
given while estimating the working capital requirement.
The operating cycle consists of him following events, which
continues throughout his life of a firm remaining engaged in
commercial activities.
Avg. Stock of Raw Material
1) Raw Material Holding Period =
Avg. Cost of Consumption per day
Avg. Stock of Work in Process
2) Work in Process Holding Period =
Avg. Cost of Production per day
Avg. Stock of Finished Goods
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3) Finished Goods Holding Period =
Avg. Cost of Goods Sold per day
Avg. Book Debt
4) Receivables Collection Period =
Avg. Credit Sales per day
Avg. Trade Creditors
5) Creditors Collection Period =
Avg. Credit Purchased per day
In the form of a simple equation working capital cycle or
operating cycle can be represented as bellow:
O = R+W+F+D-C
where, O = Operating Cycle (In Days)
R = Raw Materials Holding Period
W = Work in Process Holding Period
F = Finished Goods Holding Period
D = Receivables Collection Period
C = Creditors Collection Period.
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Components of Working Capital:
Current Assets:
i) Stock of Raw Material (for…month consumption)
ii) Work In Process (for…Month)
a) Raw Materials
b) Direct Labour
c) Overheads
iii) Stock of Finished Goods (for…month sales)
iv) Sundry Debtors or Receivables (for…month sales)
v) Payments in Advance (if any)
vi) Balance of Cash (required to meet day-to-day Expenses)
vii) Any Other (if any)
Less: Current Liabilities:
i) Creditors (for…month purchase of raw materials)
ii) Outstanding Expenses (for month)
iii) Others (if any)
Amount
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Working Capital (CA – CL)
Add: Provision/ Margin for contingencies
Net Working Capital Required
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Evaluation of workingcapital
The working capital management needs attention of all the
finance head/ working capital management is important for
avoiding unnecessary blockage of fund. Like that liquidity is
important at it refer to the short-term financial strength of
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company. It is very important to have proper balance in regard
to the liquidity of the firm.
Table I - Statement of Working CapitalRequirement
Rs. InCrores)
Particulars
Mar'10
Mar'09
Mar'08
Mar'07
Mar'06
A. Current Assets
Inventories 11.93 13.25 7.23 6.88 3.73
Sundry Debtors 252.8 299.7126.7
1 90.31 43.98
Cash And Bank 1.12 17.04 56.77 1.96 2.31
Loans And Advances135.2
3140.8
5 70.3 26.6 14.18
Total Current Assets
401.0
8
470.8
4
261.0
1
125.7
5 64.2 B. CurrentLiabilities
Liabilities213.2
8306.5
1119.5
4 86 45.75
Provisions 5.4 3.67 3.81 0.72 2.97
Total Current Liabilities218.
68310.
19123.
35 86.7248.7
2
Net Working Capital
Requirement (A-B)
182.4
160.65
137.66 39.03
15.48
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Table II - Statement of Changes in Working
Capital
(Rs. In Crores)
Effect onWorkingCapital
ParticularsMar'09
Mar'10 Increase
Decrease
A. Current Assets
Inventories 13.25 11.93 1.32
Sundry Debtors 299.7 252.8 46.9Cash And Bank 17.04 1.12 15.92
Loans And Advances140.8
5135.2
3 5.62
Total Current Assets470.8
4401.0
8
B. Current Liabilities
Liabilities306.5
1213.2
8 93.23
Provisions 3.67 5.4 1.73
Total Current Liabilities310.
19218.
68
Net Working Capital
Requirement (A-B)
160.65
182.4 21.75
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Graph Showing Working
Capital
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Graph Showing Working
Capital movement
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Table I: -
It is observed that current asset and the current liabilities has
been increase from 2006-10. Working capital of JDI Ltd. shows
a fluctuation of current liabilities and current assets.
Table II: -
Statement of changes in the working capital is preparedto show the changes in the working capital between the two
balance sheet dates. This statement is prepared with the help of
the current asset and current liabilities derived from the 2
balance sheets
So,
i) An increase in current asset increases working capital
ii) A decrease in current assets decreases in working
capital
iii) An increase in current liabilities decreases working
capital.
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iv) A decrease in current liabilities increase working capital
It is worth noting that schedule of changes in working capital
is prepared only from current assets and current liabilities and
the other information is not of any use for preparing this
statement.
Profit & Loss - Jindal Drilling &
Industries Ltd. (Rs. InCrores.)
Mar'10
Mar'09
Mar'08
Mar'07
Mar'06
12Months
12Months
12Months
12Months
12Months
INCOME:
Sales Turnover1,195.
37777.8
3412.7
6304.4
9223.8
3
Excise Duty 0 0 0 0 0
NET SALES1,195.
37777.8
3412.7
6304.4
9223.8
3
Other Income 0 0 0 0 0
TOTAL INCOME1,200.
81782.5
8414.7
7306.2
5225.7
1
EXPENDITURE:
ManufacturingExpenses 962.3
645.84
339.47
227.89
174.23
Material Consumed 43.58 22.7 16.29 19.41 18.11
Personal Expenses 37.11 26.1 12.15 6.31 4.31
Selling Expenses 0 0.67 0.52 0.86 0.23AdministrativeExpenses 15.75 9.08 7.06 6.58 5.24ExpensesCapitalised 0 0 0 0 0
Provisions Made 0 0 0 0 0
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TOTALEXPENDITURE
1,058.73 704.4
375.49
261.05
202.12
Operating Profit 136.64 73.43 37.27 43.44 21.72
EBITDA 142.07 78.18 39.28 45.2 23.6
Depreciation 12.1 12.81 8.95 10.04 11.26Other Write-offs 0 0 0 0 0
EBIT129.9
8 65.37 30.33 35.16 12.33
Interest 1.87 2.66 3.27 4.11 1.39
EBT 128.11 62.71 27.06 31.05 10.94
Taxes 43.97 20.02 10.47 11.25 1.47Profit and Lossfor the Year 84.14 42.69 16.59 19.8 9.47
Non RecurringItems 0 -5.48 1.78 -1.79 -2.49Other Non CashAdjustments 0.01 0.12 0 0 0
Other Adjustments 0 0 0 0 0
REPORTED PAT 84.14 37.33 18.37 17.95 6.98
Balancesheet- JindalDrilling &IndustriesLtd.
(RS. InCrores)
ParticularsMar'1
0Mar'0
9Mar'0
8Mar'0
7Mar'0
6
Liabilities
12Mont
hs
12Mont
hs
12Mont
hs
12Mont
hs
12Mont
hs
Share Capital 11.47 11.47 11.47 10.27 10.27
Reserves & Surplus339.6
8258.8
8224.6
9 60 42.65
Net Worth351.1
5270.3
5236.1
5 70.27 52.92
Secured Loans 19.05 39.5 40.36 21.27 62.65
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Unsecured Loans 0 0 0 3.55 8.56
TOTAL LIABILITIES 370.2309.8
5276.5
2 95.09124.1
2
Assets
Gross Block129.4
1127.4
8102.3
3 56.41 46.1
(-) Acc. Depreciation 54.75 43.53 32.63 25.3 16.08
A. Net Block 74.66 83.95 69.69 31.1 30.02B. Capital Work inProgress. 0.83 0.39 4.32 0 78.45
C. Investments.112.3
2 64.85 64.85 24.94 0.17
Inventories 11.93 13.25 7.23 6.88 3.73
Sundry Debtors 252.8 299.7126.7
1 90.31 43.98
Cash And Bank 1.12 17.04 56.77 1.96 2.31
Loans And Advances135.2
3140.8
5 70.3 26.6 14.18Total CurrentAssets
401.07
470.85
261.01
125.76 64.2
Current Liabilities 213.28 306.51 119.54 86 45.75
Provisions 5.4 3.67 3.81 0.72 2.97Total CurrentLiabilities
218.68
310.19
123.35 86.72 48.72
D. NET CURRENTASSETS
182.39
160.66
137.66 39.04 15.48
Misc. Expenses 0 0 0 0 0TOTAL ASSETS(A+B+C+D) 370.2
309.85
276.52 95.09
124.12