working capital mangement

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A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENTAT NETMAX TECHNOLOGIES

An Industrial training report submitted in partial fulfillment of the

requirement for the degree of BBA

BACHELOR OF BUSINESS ADMINISTRATION

(2009-2012)

Submitted by:

Arun Kumar kanojia

BBAVI (SEM)

Roll No.: 92261011

BABA FARID COLLEGE

D E O N ,

B A T H I N D A


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DECLARATION

I hereby declare that project titled WORKING CAPITAL MANAGEMENT is an

original piece of research work carried out by me under the guidance and supervision of Mr.

SUNIL THAKUR. The information has been collected from genuine & authentic sources.

The work has been submitted in partial fulfillment of the requirement of BBA programme

(Batch 2009-2012) of BABA FARID COLLEGE.

Date: ARUN KUMAR KANOJIA

SIGNATURE BBA 6th semester

ROLL NO - 92261011


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ACKNOWLEDGEMENT

If words are considered as symbol of Approval and Token of appreciation then let the

words play the heralding role of expressing my sincere gratitude and thanks. Any

accomplishment requires the effort of many people and this work is no different. I am

indebted to Mr. Sunil Thakur but for whose guidance and patience I would have not been

able to accomplish this task. I also owe a great thanks to him for providing me an opportunity

to go through summer training, and providing me this golden opportunity to be a part of thesaid esteemed college and letting me work on this project.


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INDEX

S.NO. PARTICULARS PAGE NO.

1 EXECUTIVE SUMMARY 5-6

2 INDUSTRY PROFILE 7-18

2.1 IT INDUSTRY 9

2.2 IT INDUSTRY IN INDIA 10-13

2.3 TOPTEN IT HUBS 15-16

2.4 INDIA IT INDUSTRY 17-18

3 COMPANY PROFILE 19-24

3.1 COURCES AVAILABLE IN NETMAX 23-24

4 WORKING CAPITAL MANAGEMENT 25-57

4.1 IMPORTANCE 25


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4.2 CONCEPTS 27-57

5 OBJECTINES OF STUDY 58

6 RESEARCH METHODOLOGY 59

7 DATA INTERPRETATION 60-85

8 FINDINGS 86

9 SUGGESTIONS 87

10 BIBLIOGRAPHY 88

11 ANNEXTURE 89


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SUMMARY

The research conducted was descriptive in nature. The survey was conducted to analyze the

employee training in NetMax Technologies Bathinda. The survey was to find out most of

employees Satisfy with training provided in the NetMax technologies. With these objectives

in mind, a survey was conducted in the Bathinda region. Questionnaire method was used to

obtain the required information. Convenient sampling was used as the mode of conducting the

survey. Care was taken that the respondents were as diversified as possible, with all the

regions being given equal weight age and the sample size being suitably divided among

various regions.

A sample size of about 50 employees was taken for this purpose. After the survey was

complete, the data was first sorted, and then analyzed on the chosen parameters. This analyzed

data was later converted into various forms of graphs such as pie-charts. This was to make

results easily comprehensible by anyone going through the report. This also made it easy to

draw conclusions based on the research and provide a presentable format of the report. Later

on all this information was compiled in the form of a presentable and comprehensible data.

My Project is the study of working capital management. The study was conducted at the

NetMax technologies Bathinda. During the project I interviewed the executives & staff tocollect the data, & also made use of company records & annual reports. The data collected

were then compiled, tabulated and analyzed.

Working Capital Management is a very important facet of financial management due to:

Investments in current assets represent a substantial portion of total

investment.

Investment in current assets & the level of current liabilities have to be

geared quickly to change sales.

Some the points to be studied under this topic are:

How much cash should a firm hold? What should be the firms credit policy?

How to & when to pay the creditors of the firm?

How much to invest in inventories?

By studying about the company s different areas I came to know certain things like:

Acid test ratio is more than one but it does not mean that

company has excessive liquidity.

Standard current ratio is 2:1 and for industry it is 1.33:1. NetMax

technologies ratios satisfactory. Debtors of the company were high; they were increasing year by year, so


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more funds were blocked in debtors. But now recovery is becoming faster.

Working capital turnover ratio is continuously increasing that shows

increasing needs of working capital

OBJECTIVES

To identify the financial strengths & weakness of the company.Through the net profit ratio & other profitability ratio, understand the

profitability of the company

Evaluating company s performance relating to financial statement analysis.To know the liquidity position of the company with the help of current ratio.To find out the utility of financial ratio in credit analysis & determining the

financial capacity of the firm.


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Industrial Profile

Information Technology is one of the most important industries in the Indian economy. The

IT industry of India has registered huge growth in recent years. India's IT industry grew from150 million US Dollars in 1990-1991 to a whopping 50 billion UD Dollars in 2006-2007. In

the last ten years the Information Technology industry in India has grown at an average

annual rate of 30%.

The liberalization of the Indian economy in the early nineties has played a major role in the

growth of the IT industry of India. Deregulation policies adopted by the Government of India

have led to substantial domestic investment and inflow of foreign capital to this industry. In

1970, high import duties had forced IBM to leave India. However, after the early nineties,

many multinational IT companies, including IBM, have set up their operations in India.

During the ten year period 1992-2002, the Indian software industry grew at double the rate as

the US software industry.

Some of the major reasons for the significant growth of the IT industry

of India are:-

Abundant availability of skilled manpower.

Reduced telecommunication and internet costs.

Reduced import duties on software and hardware products.

Cost advantages.

Encouraging government policies.

Some of the major companies in the IT industry of India are:-

Tata Consultancy Services (TCS)

Infosys

Wipro

IBM

HP

HCL

Cognizant Technology Solutions (CTS)


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India's IT industry caters to both domestic and export markets. Exports contribute around

75% of the total revenue of the IT industry in India. The IT industry can be broadly divided

into four segments:-

IT services

Softwares (includes both engineering and Research

and Development)

ITES-BPO

Hardware


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Information Technology Industry

Information technology, and the hardware and software associated with the IT industry, are

an integral part of nearly every major global industry.

Information technology, and the hardware and software associated with the IT industry, are

an integral part of nearly every major global industry.

The information technology (IT) industry has become of the most robust industries in the

world. IT, more than any other industry or economic facet, has an increased productivity,

particularly in the developed world, and therefore is a key driver of global economic growth.

Economies of scale and insatiable demand from both consumers and enterprises characterize

this rapidly growing sector.

The Information Technology Association of America (ITAA) explains 'information

technology' as encompassing all possible aspects of information systems based on computers.Both software development and the hardware involved in the IT industry include everything

from computer systems, to the design, implementation, study and development of IT and

management systems.

Owing to its easy accessibility and the wide range of IT products available, the demand for IT

services has increased substantially over the years. The IT sector has emerged as a major

global source of both growth and employment

Features of the IT Industry at a Glance:-

Economies of scale for the information technology industry are high. The

marginal cost of each unit of additional software or hardware is insignificant

compared to the value addition that results from it.

Unlike other common industries, the IT industry is knowledge-based.

Efficient utilization of skilled labor forces in the IT sector can help an economy

achieve a rapid pace of economic growth.

The IT industry helps many other sectors in the growth process of the economy including the

services and manufacturing sectors.
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The role of the IT Industry

The IT industry can serve as a medium of e-governance, as it assures easy accessibility to

information. The use of information technology in the service sector improves operational

efficiency and adds to transparency. It also serves as a medium of skill formation.

Information technology in India

TheIndian Information Technology industry accounts for a 5.19% of the country's GDP

and export earnings as of 2009, while providing employment to a significant number of itstertiary sector workforce. More than 2.5 million people are employed in the sector either

directly or indirectly, making it one of the biggest job creators in India and a mainstay of the

national economy. In 2010-11, annual revenues from IT-BPO sector is estimated to have

grown over US$76 billion compared to China with $35.76 billion and Philippines with $8.85

billion. India's outsourcing industry is expected to increase to US$225 billion by 2020. The

most prominent IT hub is Bangalore. The other emerging destinations are Chennai,

Hyderabad, Coimbatore, Kolkata, Kochi, Pune, Mumbai, Ahmedabad , NCR . Technically

proficient immigrants from India sought jobs in the western world from the 1950s onwards as

India's education system produced more engineers than its industry could absorb. India'sgrowing stature in the Information Age enabled it to form close ties with both the United

States of America and the European Union. However, the recent global financial crises has

deeply impacted the Indian IT companies as well as global companies. As a result hiring has

dropped sharply and employees are looking at different sectors like the financial service,

telecommunications, and manufacturing industries, which have been growing phenomenally

over the last few years.

India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata

Group in partnership with Burroughs. The first software export zone SEEPZ was set up here

way back

in 1973, the old avatar of the modern day IT Park. More than 80 percent of the country's

software exports happened out ofSEEPZ, Mumbai in 80s.

Each year India produces roughly 500,000 engineers in the country, out of them only 25% to

30% possessed both technical competency and English language skills, although 12% of

India's population can speak in English. India developed a number of outsourcing companies

specializing in customer support via Internet or telephone connections. By 2009, India also

has a total of 37,160,000 telephone lines in use, a total of 506,040,000 .
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Tertiary_sectorhttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Kochihttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Ahmedabadhttp://en.wikipedia.org/wiki/National_Capital_Region_%28India%29http://en.wikipedia.org/wiki/Information_Agehttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/Telephone_lineshttp://en.wikipedia.org/wiki/Telephone_lineshttp://en.wikipedia.org/wiki/Internethttp://en.wikipedia.org/wiki/English_languagehttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010http://en.wikipedia.org/wiki/European_Unionhttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/United_States_of_Americahttp://en.wikipedia.org/wiki/Information_Agehttp://en.wikipedia.org/wiki/National_Capital_Region_%28India%29http://en.wikipedia.org/wiki/Ahmedabadhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Kochihttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Coimbatorehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Philippineshttp://en.wikipedia.org/wiki/People%27s_Republic_of_Chinahttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Business_process_outsourcinghttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Tertiary_sectorhttp://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/India


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mobile phone connections, a total of 81,000,000 Internet userscomprising 7.0% of the

country's population, and 7,570,000 people in the country have access to broadband

Internet making it the 12th largest country in the world in terms of broadband Internet

users. Total fixed-line and wireless subscribers reached 543.20 million as of November,

2009.

Formative years (till 1991)

The Indian Government acquired the EVS EM computers from the Soviet Union, which were

used in large companies and research laboratories. In 1968 Tata Consultancy Services

established in SEEPZ, Mumbai by the Tata Groupwere the country's largest software

producers during the 1960s. As an outcome of the various policies of Jawaharlal Nehru

(office: 15 August 1947 27 May 1964) the economically beleaguered country was able to

build a large scientific workforce, third in numbers only to that of the United States of

America and the Soviet Union. On 18 August 1951 the minister of education Maulana Abul

Kalam Azad, inaugurated the Indian Institute of Technology at Kharagpur in West Bengal.

Possibly modeled after the Massachusetts Institute of Technology these institutions were

conceived by a 22 member committee of scholars and entrepreneurs under the chairmanship

of N. R. Sarkar.

Relaxed immigration laws in the United States of America (1965) attracted a number of

skilled Indian professionals aiming for research. By 1960 as many as 10,000 Indians were

estimated to have settled in the US. By the 1980s a number of engineers from India were

seeking employment in other countries. In response, the Indian companies realigned wages to

retain their experienced staff. In the Encyclopedia of India, Kamdar (2006) reports on the role

of Indian immigrants (1980 - early 1990s) in promoting technology-driven growth:

The United States technological lead was driven in no small part by the brain power of

brilliant immigrants, many of whom came from India. The inestimable contributions of

thousands of highly trained Indian migrants in every area of American scientific and

technological achievement culminated with the information technology revolution most

associated with CaliforniasSilicon Valley in the 1980s and 1990s.

The National Informatics Centre was established in March 1975. The inception of The

Computer Maintenance Company (CMC) followed in October 1976. Between 1977-1980

the country's Information Technology companies Tata Infotech, Patni Computer Systems and

Wipro had become visible. The 'microchip revolution' of the 1980s had convinced both Indira

Gandhi and her successor Rajiv Gandhi that electronics and telecommunications were vital to

India's growth and development. MTNL underwent technological improvements. Between

1986-1987, the Indian government embarked upon the creation of three wide-area computer

networking schemes: INDONET (intended to serve the IBM mainframes in India), NICNET

(the network for India's National Informatics Centre), and the academic research oriented

Education and Research Network (ERNET).

19912001
http://en.wikipedia.org/wiki/Mobile_phonehttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/Landlinehttp://en.wikipedia.org/wiki/Wirelesshttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Indian_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Kharagpurhttp://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/wiki/Massachusetts_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Encyclopedia_of_Indiahttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/National_Informatics_Centrehttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/MTNLhttp://en.wikipedia.org/wiki/MTNLhttp://en.wikipedia.org/wiki/Rajiv_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Wiprohttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/National_Informatics_Centrehttp://en.wikipedia.org/wiki/Silicon_Valleyhttp://en.wikipedia.org/wiki/Californiahttp://en.wikipedia.org/wiki/Encyclopedia_of_Indiahttp://en.wikipedia.org/wiki/Massachusetts_Institute_of_Technologyhttp://en.wikipedia.org/wiki/West_Bengalhttp://en.wikipedia.org/wiki/Kharagpurhttp://en.wikipedia.org/wiki/Indian_Institute_of_Technologyhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Maulana_Abul_Kalam_Azadhttp://en.wikipedia.org/wiki/Jawaharlal_Nehruhttp://en.wikipedia.org/wiki/Tata_Grouphttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/SEEPZhttp://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/Soviet_Unionhttp://en.wikipedia.org/wiki/Wirelesshttp://en.wikipedia.org/wiki/Landlinehttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/List_of_countries_by_number_of_broadband_Internet_usershttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Broadband_Internethttp://en.wikipedia.org/wiki/Mobile_phone


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Regulated VSAT links became visible in 1985. Desai (2006) describes the steps taken to

relax regulations on linking in 1991:

In 1991 the Department of Electronics broke this impasse, creating a corporation called

Software Technology Parks of India (STPI) that, being owned by the government, could

provide VSAT communications without breaching its monopoly. STPI set up softwaretechnology parks in different cities, each of which provided satellite links to be used by firms;

the local link was a wireless radio link. In 1993 the government began to allow individual

companies their own dedicated links, which allowed work done in India to be transmitted

abroad directly. Indian firms soon convinced their American customers that a satellite link

was as reliable as a team of programmers working in the clients office.

Videsh Sanchar Nigam Limited (VSNL) introduced Gateway Electronic Mail Service in

1991, the 64 kbit/s leased line service in 1992, and commercial Internet access on a visible

scale in 1992. Election results were displayed via National Informatics Centre's NICNET.

The Indian economy underwent economic reforms in 1991, leading to a new era ofglobalization and international economic integration. Economic growth of over 6% annually

was seen between 1993-2002. The economic reforms were driven in part by significant the

internet usage in the country.

The new administration under Atal Bihari Vajpayeewhich placed the development of

Information Technology among its top five priorities formed the Indian National TaskForce on Information Technology and Software Development.

Wolcott & Goodman (2003) report on the role of the Indian National Task Force on

Information Technology an D Software Development:

Within 90 days of its establishment, the Task Force produced an extensive background report

on the state of technology in India and an IT Action Plan with 108 recommendations. The

Task Force could act quickly because it built upon the experience and frustrations of state

governments, central government agencies, universities, and the software industry. Much of

what it proposed was also consistent with the thinking and recommendations of international

bodies like theWorld Trade Organization(WTO), International Telecommunications Union

(ITU), and World Bank. In addition, the Task Force incorporated the experiences of

Singapore and other nations, which implemented similar programs. It was less a task of

invention than of sparking action on a consensus that had already evolved within the

networking community and government.

The New Telecommunications Policy, 1999 (NTP 1999) helped further liberalize India's

telecommunications sector. The Information Technology Act 2000 created legal procedures

for electronic transactions and e-commerce.

Throughout the 1990s, another wave of Indian professionals entered the United States. Thenumber ofIndian Americans reached 1.7 million by 2000. This immigration consisted largely
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of highly educated technologically proficient workers. Within the United States, Indians fared

well in science, engineering, and management. Graduates from the Indian Institutes of

Technology (IIT) became known for their technical skills.

Thus GOI planned to establish new Institutes especially for Information Technology to

enhance this field. In 1998 India got the first IT institute name Indian Institute ofInformation Technology at Gwalior. The success of Information Technology in India not

only had economic repercussions but also had far-reaching political consequences.

India's reputation both as a source and a destination for skilled workforce helped it improve

its relations with a number of world economies. The relationship between economy and

technologyvalued in the western worldfacilitated the growth of an entrepreneurial class

of immigrant Indians, which further helped aid in promoting technology-driven growth.

India is now one of the biggest IT capitals in the modern world.The economic effect of the technologically inclined services sector in Indiaaccounting for

40% of the country's GDP and 30% of export earnings as of 2006, while employing only 25%

of its workforceis summarized by Sharma (2006):

The share of IT (mainly software) in total exports increased from 1 percent

In1990 to 18 percent in 2001. IT-enabled services such as BackOffice operations, remote

maintenance, accounting, public call centers, medical transcription, insurance claims, and

other bulk processing are rapidly expanding. Indian companies such as HCL,TCS, Wipro,

and Infosys may yet become household names around the world.

Today, Bangalore is known as the Silicon Valley of India and contributes 33% of Indian IT

Exports. India's second and third largest software companies are head-quartered in Bangalore,

as are many of the global SEI-CMM Level 5 Companies.

And Mumbai too has its share of IT companies that are India's first and largest, like TCS and

well established like Reliance, Patni, LnT Infotech, i-Flex, WNS, Shine, Naukri, Jobspert etc.

are head-quartered in Mumbai. And these IT and dot com companies are ruling the roost of

Mumbai's relatively high octane industry ofInformation Technology.

Such is the growth in investment and outsourcing; it was revealed that Cap Gemini will soon

have more staff in India than it does in its home market of France with 21,000 personnel+ inIndia.

On 25 June 2002 India and the European Union agreed to bilateral cooperation in the field of

science and technology. A joint EU-India group of scholars was formed on 23 November

2001 to further promote joint research and development. India holds observer status at CERN

while a joint India-EU Software Education and Development Center is due at Bangalore.
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India's IT industry (USD bn)

Particulars FY 2004 FY 2005 FY 2006 FY 2007 FY 2008

IT Services 10.4 13.5 17.8 23.5 31.0

- Exports 7.3 10.0 13.13 18.0 23.1

- Domestic 3.1 3.5 4.5 5.5 7.9

ITES-BPO 3.4 5.2 7.2 9.5 12.5

- Exports 3.1 4.6 6.3 8.4 10.9

- Domestic 0.3 0.6 0.9 1.1 1.6

Engineering services, R&D and

Software products

2.9 3.9 5.3 6.5 8.6

- Exports 2.5 3.1 4.0 4.9 6.4

- Domestic 0.4 0.7 1.3 1.6 2.4

Hardware 5.0 5.9 7.0 8.5 12.0

- Exports 0.5 0.5 0.6 0.5 0.5

- Domestic 4.4 5.1 6.5 8.0 11.5

Total IT industry (including

hardware)

21.6 28.4 37.4 48.0 64.


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Top 10 ITS Hubs in India

ranking City Description

1 Bangalore Popularly known as the capital of the Silicon Valley of India iscurrently leading in Information Technology Industries in

India.

2 Chennai It is the second largest exporter of Software. It has the largest

operations for Indias top software company TCS

3 Hyderabad Hyderabad which has good infrastructure and goodgovernment support is also a good technology base in India.

The Government of AP Has built a separate township for IT

Industry called the HITEC City.

4 Pune Pune, a major industrial point in India.

5 Coimbatore It is the Manchester of South India. Among major metro-

markets Coimbatore (up 31% precent) MAY 11(Bangalore

showed the slowest rate of annual growth at 4 percent driven

by reduced demand in the BPO/ITES sector), It Become an

Upcoming Major IT hub of India.

6 NCR The National Capital Region of India comprising Delhi,Gurgaon, Faridabad, Noida, Greater Noida and Ghaziabad

are having ambitious projects and are trying to do every

possible thing for this purpose.

7 Mumbai Popularly known as the commercial, entertainment, financial

capital ofIndia, This is one city that has seen tremendous

growth in IT and BPO industry, it recorded 63% growth in
http://en.wikipedia.org/wiki/Bangalorehttp://en.wikipedia.org/wiki/Silicon_Valley_of_Indiahttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Chennai,_Indiahttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/HITEC_Cityhttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/Coimbatore,_Indiahttp://en.wikipedia.org/wiki/NCR_Indiahttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Faridabadhttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Greater_Noidahttp://en.wikipedia.org/wiki/Ghaziabad,_Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Ghaziabad,_Indiahttp://en.wikipedia.org/wiki/Greater_Noidahttp://en.wikipedia.org/wiki/Noidahttp://en.wikipedia.org/wiki/Faridabadhttp://en.wikipedia.org/wiki/Gurgaonhttp://en.wikipedia.org/wiki/Delhihttp://en.wikipedia.org/wiki/NCR_Indiahttp://en.wikipedia.org/wiki/Coimbatore,_Indiahttp://en.wikipedia.org/wiki/Punehttp://en.wikipedia.org/wiki/HITEC_Cityhttp://en.wikipedia.org/wiki/Technologyhttp://en.wikipedia.org/wiki/Infrastructurehttp://en.wikipedia.org/wiki/Hyderabad,_Indiahttp://en.wikipedia.org/wiki/Chennai,_Indiahttp://en.wikipedia.org/wiki/Information_Technologyhttp://en.wikipedia.org/wiki/Silicon_Valley_of_Indiahttp://en.wikipedia.org/wiki/Bangalore


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2008. TCS, Patni, LnT Infotech, I-Flex WNS and other

companies are headquartered here.

8 Kolkata Kolkata is a major IT hub in eastern India. All major ITcompanies are present here. The city has tremendous potential

for growth in this sector with upcoming areas like Rajarhat.

9 Trivandrum Famously known as "Gateway of South India. Trivandrum,

the capital of kerala is a green metropolis and tier I city. GOK

provides a good platform for IT development in the city with

India's largest IT park Technopark and dedicated Technocity

SEZs.

10 Jaipur This rapidly growing industrial hub houses a lot of IT/ITES

and BPO giants. Genpact, Connexions IT services, Deutsche

Bank and EXL BPO, Infosyss, Tech Mahindra, and Wipro

are here. There are plans to build the largest IT SEZ in India

by Mahindra under the Mahindra World City.
http://en.wikipedia.org/wiki/Tata_Consultancy_Serviceshttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Larsen_%26_Toubro_Infotechhttp://en.wikipedia.org/wiki/Oracle_Financial_Services_Softwarehttp://en.wikipedia.org/wiki/WNS_Global_Serviceshttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Rajarhathttp://en.wikipedia.org/wiki/Trivandrumhttp://en.wikipedia.org/wiki/Technoparkhttp://en.wikipedia.org/wiki/Technocityhttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Jaipurhttp://en.wikipedia.org/wiki/Technocityhttp://en.wikipedia.org/wiki/Technoparkhttp://en.wikipedia.org/wiki/Trivandrumhttp://en.wikipedia.org/wiki/Rajarhathttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/WNS_Global_Serviceshttp://en.wikipedia.org/wiki/Oracle_Financial_Services_Softwarehttp://en.wikipedia.org/wiki/Larsen_%26_Toubro_Infotechhttp://en.wikipedia.org/wiki/Patni_Computer_Systemshttp://en.wikipedia.org/wiki/Tata_Consultancy_Services


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India IT Industry

The Indian information technology (IT) industry has played a major role in placing India on

the international map. Over the last few years the IT and BPO sector in India has become one

of the major contributors to the country's growth. The IT/ BPO industry in India has

contributed directly and indirectly to the economy by providing employment, generating

revenues and creating value.

The Indian IT industry is mainly governed by IT software and services such as System

Integration, Software experiments, Custom Application Development and Maintenance

(CADM), network services and IT Solutions. According to the findings of National

Association of Software and Service Companies (Nasscom) the revenues of the Indian IT-

BPO industry will aggregate up to US$ 88.1 billion for the FY2011. The IT software and

services sector alone will account for revenues upto US$ 76.1 billion for the same year.

The export revenues earned by the sector will reach US$ 59 billion in FY2011 making the

sector a holder of 26 per cent of market share of the total Indian export industry. The number

of people employed with the sector will also increase to 2 million employees. Within the

realm of exports the IT Services division grew at a rate 22.7 per cent in FY2010. It was the

fastest growing sector accounting to aggregate export revenues of US$ 33.5 billion.

Top IT Companies

As per the latest reports published by Dataquest, The top 20 IT companies in India which

comprise both hardware and software accounted for accumulated revenues of $2 billion in

2009-10.

Top IT Companies in India

Below is a list of the top IT Companies in India in 2010 showing their revenue and growth

rate.


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Company Revenue Growth Rate

Hewlett-Packard India Rs 14,992 crore 16 percent

HCL Infosystems Ltd Rs 11,836 crore -4 percent

Ingram Micro India Rs 8,824 crore -6 percent

Redington Rs 7,024 crore 7 percent

IBM India Rs 5,888 crore 2 percent

Dell India Rs 5,275 crore 24 percent

Wipro Rs 5,268 crore 9 percent

Intel India 4,690 crore Not available

Microsoft India Rs 3,575 crore 14 percent

SAP India: Rs 3,204 crore 46 percent

Acer India Rs 2,749 crore 38 percent

Oracle India Rs 2,700 crore 11 percent

APC-MGE Rs 2,620 crore -1 percent

Emerson Network Power India Rs 2,500 crore NA

Lenovo India Rs 2,396 crore -3 percent

Cisco Systems India Rs 2,324 crore 0 percent

Tulip Telecom Rs 1,965 crore 22 percent

LG India Rs 1,798 crore 39 percent

Samsung India Rs 1,664 crore 29 percent


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Profile of NetMax Technologies

NetMax Technologies is an organization which was established in 2001 in the field of

network training, support & embedded system design solution. Its mission is To provide

world class solution in advance.

NetMax Technologies is a leader in network support, embedded systems, and software &

web development services. NetMax Technologies group of companies is divided into two:

NetMax Technologies (Core) & NetMax Web solutions. It is a private company and its site is

www.netmaxtech.com. Its headquarter is in Sco 198-200 3rd floor sec 34a Chandigarh.

An ISO 9001:2008 Certified Organization providing service in field of Education, Software

Development, Web site Development, Hosting Services since almost a decade now and that

proves our quality service because quality is the only thing that can with stand the test of

time. Its products are

CCNA,CCNP,MCITP,LINUX,PHP,.NET,JAJA,8051,PIC,AVR,PLC,ARM,and REBOTICS.

Net max Web solutions, is an ISO 9001:2008 Certified Web Development and Software

development unit of NetMax Technologies established in 2001 in Chandigarh. We have been

serving a wide variety of clients, ranging from Corporate, Software Development,

Educational Institutions, to other Business houses.

An ISO 9001:2008 Certified Organization providing service in field of Education, Software

Development, Web site Development, Hosting Services since almost a decade now and that

proves our quality service because quality is the only thing that can with stand the test oftime.

Type:- Privately Held

Company Size:- 11-50 employees
http://www.netmaxtech.com/http://www.netmaxtech.com/http://www.netmaxtech.com/


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Website:- http://netmaxtech.com

Industry:- Professional Training & Coaching

Founded:- 2001

Headquarters:-

Sco 198-200 3rd floor

Sec 34a Chandigarh,

Chandigarh 160022(India)

We since then have been the prime institution in the field of Training and Education in

Chandigarh and North India Region. With over 1000 students under going training every yearin field of IT and Electronics we have proven our worth. Only Quality can withstand the test

of time in todays highly demanding market and we expanding since our establishment from

one office to five offices in four different cities since almost a decade ago prove our worth.

With professionals hired to provide training to the student, we aim to give the real industry

environment to the student so that they be ready for it.
http://www.linkedin.com/redirect?url=http%3A%2F%2Fnetmaxtech%2Ecom&urlhash=-XL-http://www.linkedin.com/redirect?url=http%3A%2F%2Fnetmaxtech%2Ecom&urlhash=-XL-


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NetMax Technologies provides industrial training to BTech/MCA/BCA/Diploma students to

make them proficient in following fields

Advance Networking

JAVA development

PHP Programming and Web

Development

Microsoft System Administration

PLC and SCADA Automation

Technologies

.NET development

Embedded systems

Robotics

NetMax Technologies (Core) takes care of IT support, embedded systems R& D &

Implementation services, whereas NetMax web solutions is a web & software development

company that takes care of Software development & web service solutions.

It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana &

Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in northIndia.

NetMax Technologies set up education centre in Chandigarh (Punjab) and followed them

with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In 2005,

NetMax Technologies introduced corporate training programs which as an initiative were

highly appreciated by the industry and corporate alike

We are looking for someone who is smart, innovative, web savvy, hard working and has

strong experience in SEO and internet marketing. The successful candidate will be passionate

about great client service and will show it in their actions, their attitude, and their execution.

NetMax Technologies offers a vast portfolio of IT solutions to customers spread across

Punjab, Haryana & Himachal Pradesh. NetMax Technologies was set up in 2001 by young


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Indian entrepreneurs. It has pioneered the concept of high quality IT education in North India

and has trained over 10,000 plus networking, embedded systems & software professionals in

the country.

Area of Focus:-

NetMax Technologies focus areas include network support, network implementation,

embedded system research & development and robotics. NetMax Technologies addresses the

needs of well-defined industry segments such as BPOs, IT & ITES, and government

Agencies like CSIO & TBRL etc. It has alliances with global IT majors such as Microsoft,

CISCO and Red Hat. Lately; it has started programs like Android Apps. Development in

association with Google along with Cloud computing believed to be the only organization in

India running them on professional level.

Support Area (Network Solutions)

LINUX / UNIX networks SUN networks

CISCO devices (Routers, Switches, Firewalls, Cache Engine, RAS etc)

Bandwidth Manager Software and hardware

Radio Links

Security Solutions

NetMax Provide six weeks, six months and one year industrial training a in various fields.

Each training is designed according to market needs and student requirements. You can

choose from following available options for Industrial Training:

Networking

Software Development

Embedded System

PLC

6 Week Industrial Training is Available in:


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Software Development: JAVA, C Sharp, ASP, .Net, Android, PHP

Network Administration: Cisco, CCNA, Linux, Microsoft MCITP

Electronics & Embedded: 8051, PIC, AVR, ARM, Or CAD

6 Month Industrial Training is Available in:

EMBEDDED: PLC, AVR, ARM

CISCO: CCNP, CCVP,CCIP

.NET: C Sharp, ASP .NET

PHP: Advance PHP & CMS

JAVA: Advance Java, Andriod

Courses available in NetMax

Networking: - NetMax provide the course of CCNA in networking.Natworking is the

practice of linking two or more computing devices together for the purpose of sharing data.

Networks are built with a mix of computer hardware and computer software.

CCNA:-CCNA (Cisco Certified Network Associate) is the Cisco Academy Computer

Networking Course with a curriculum designed to prepare computer networking students topass the CCNA exam, or the ICND 1 and 2 certification exams. Here is an overview of

CCNA and where it fits among the Cisco career certifications.

Software: - Software is a general term for the various kinds ofprograms used to operate

computers and related devices.Netmax provide two courses in software such as PHP and

JAVA (core and advance).

PHP Training

PHP Training and Web Development

PHP stands for PHP: Hypertext Preprocessor, with that PHP standing for Personal

Homepage. PHP is an open-source language, used primarily for dynamic web content and

server-side applications.

Java Training

JAVA is a programming language originally developed by James Gosling at Sun

Microsystems and released in 1995. Java is a high-level, third generation programming

language, like C, FORTRAN, Smalltalk, Perl, and many others. You can use Java to writecomputer applications that crunch numbers, process words, play games, store data or do any
http://www.ehow.com/computers/http://www.ehow.com/computers/http://www.ehow.com/careers/http://searchsoftwarequality.techtarget.com/sDefinition/0,,sid92_gci212834,00.htmlhttp://searchwinit.techtarget.com/sDefinition/0,,sid1_gci211829,00.htmlhttp://www.wisegeek.com/what-is-hypertext.htmhttp://en.wikipedia.org/wiki/Programming_languagehttp://en.wikipedia.org/wiki/James_Goslinghttp://en.wikipedia.org/wiki/Sun_Microsystemshttp://en.wikipedia.org/wiki/Sun_Microsystemshttp://en.wikipedia.org/wiki/Sun_Microsystemshttp://en.wikipedia.org/wiki/Sun_Microsystemshttp://en.wikipedia.org/wiki/James_Goslinghttp://en.wikipedia.org/wiki/Programming_languagehttp://www.wisegeek.com/what-is-hypertext.htmhttp://searchwinit.techtarget.com/sDefinition/0,,sid1_gci211829,00.htmlhttp://searchsoftwarequality.techtarget.com/sDefinition/0,,sid92_gci212834,00.htmlhttp://www.ehow.com/careers/http://www.ehow.com/computers/http://www.ehow.com/computers/


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of the thousands of other things computer software can do. Java technologys versatility,

efficiency, platform portability, and security make it the ideal technology for network

computing. From laptops to datacenters, game consoles to scientific supercomputers, cell

phones to the Internet, Java is everywhere!

Embedded System

An embedded system can be defined as a control system or computer system designed to

perform a specific task. Common examples of embedded systems include MP3 players,

navigation systems on aircraft and intruder alarm systems.NetMax provide the course in

embedded system such as 8051, PIC, ARV, ARM, and REBOTICS.

NetMax Technologies takes care of IT support, embedded systems R& D & Implementationservices, whereas NetMax web solutions is a web & software development company that

takes care of Software development & web service solutions.

It offers a vast portfolio of IT solutions to customers spread across Punjab, Haryana &

Himachal Pradesh. NetMax Technologies is a pioneer in the field of IT education in north

India. NetMax Technologies set up education centre in Chandigarh (Punjab) and followed

them with centers in Patiala, Jalandhar, Ludhiana & Bhatinda in the years that followed. In

2005, NetMax Technologies introduced corporate training programs which as an initiative

were highly appreciated by the industry and corporate alike. NetMax Technologies provides

industrial training to BTech/MCA/BCA/Diploma students in fields like Embedded systems,Robotics ,PLC and SCADA Automation Technologies, Advance Networking

Technologies(CISCO) ,JAVA development, .NET development


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WORKING CAPITAL MANAGEMENT

Management is an art of anticipating and preparing for risks, uncertainties and overcoming

obstacles. An essential precondition for sound and consistent assets management isestablishing the sound and consistent assets management policies covering fixed as well as

current assets. In modern financial management, efficient allocation of funds has a great

scope, in finance and profit planning, for the most effective utilization of enterprise resources,

the fixed and current assets have to be combined in optimum proportions.

Working capital in simple terms means the amount of funds that a company requires for

financing its day-to-day operations. Finance manager should develop sound techniques of

managing current assets.

WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in short terms assets such as cash,

marketable securities. Net current assets or net working capital refers to the current assets less

current liabilities.

Symbolically, it means, Net Current Assets = Current Assets Current Liabilities.

DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:1) Working capital is the difference between the inflow and outflow of funds. In other words

it is the net cash inflow .

2) Working capital represents the total of all current assets. In other words it is the Gross

working capital , it is also known as Circulating capital or Current capital for current assets

are rotating in their nature.

3)Working capital is defined as The excess of current assets over current liabilities and

provisions .In other words it is the Net Current Assets or Net Working Capital .

IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient

working capital, any business organization cannot run smoothly or successfully.

In the business the Working capital is comparable to the blood of the human body. Therefore

the study of working capital is of major importance to the internal and external analysis

because of its close relationship with the current day to day operations of a business. The

inadequacy ormismanagement of working capital is the leading cause of business failures. To meet the


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current requirements of a business enterprise such as the purchases of services, raw materials

etc. working capital is essential. It is also pointed out that working capital is nothing but one

segment of the capital structure of a business.

In short, the cash and credit in the business, is comparable to the blood in the human body

like finance s life and strength i.e. profit of solvency to the business enterprise. Financialmanagement is called upon to maintain always the right cash balance so that flow of fund is

maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance

between liquidity and profitability. Therefore the management of working capital is essential

in each and every activity.

WORKING CAPITAL MANAGEMENT

INTRODUCTION:

Working Capital is the key difference between the long term financial management and shortterm financial management in terms of the timing of cash.

Long term finance involves the cash flow over the extended period of time i.e 5 to 15 years,

while short term financial decisions involve cash flow within a year or within operating

cycle.

Working capital management is a short term financial management.

Working capital management is concerned with the problems that arise in attempting to

manage the current assets, the current liabilities & the inter relationship that exists between

them. The current assets refer to those assets which can be easily converted into cash in

ordinary course of

business, without disrupting the operations of the firm.

Composition of working capital

Major Current Assets

i. Cash

ii. Accounts Receivables

iii. Inventory

iv. Marketable Securities

Major Current Liabilities

Bank Overdraft

Outstanding Expenses

Accounts Payable

Bills Payable

The Goal of Capital Management is to manage the firm s current assets & liabilities, so that

the satisfactory level of working capital is maintained. If the firm can not maintain thesatisfactory level of working capital, it is likely to become insolvent & may be forced into


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bankruptcy. To maintain the margin of safety current asset should be large enough to cover

its current

assets. Main theme of the theory of working capital management is interaction between

the current assets & current liabilities.

CONCEPT OF WORKING CAPITAL:

There are 2 concepts:

Gross Working Capital

Net Working Capital

Gross working capital: - It is referred as total current assets.Focuses on,

Optimum investment in current assets: Excessive investments impairs firm s

profitability, as idle investment earns nothing. Inadequate working capital can

threaten solvency of the firm because of its inability to meet its current obligations.

Therefore there should be adequate investment in current assets.

Financing of current assets: Whenever the need for working capital funds arises,

agreement should be made quickly. If surplus funds are available they should be

invested in short term securities.

Net working capital (NWC) defined by 2 ways,

Difference between current assets and current liabilities Net working capital is that portion of current assets which is financed with long term

funds.

If the working capital is efficiently managed then liquidity and profitability both will

improve. They are not components of working capital but outcome of working capital.

Working capital is basically related with the question of profitability versus liquidity &

related aspects of risk.

Implications of Net Working Capital:

Net working capital is necessary because the cash outflows and inflows do not coincide. In

general the cash outflows resulting from payments of current liability are relatively

predictable. The cash inflows are however difficult to predict. More predictable the cash

NET WORKING CAPITAL = CURRENT ASSETS

CURRENT LIABILITIES


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inflows are, the less NWC will be required. But where the cash inflows are uncertain, it will

be necessary to maintain current assets at level adequate to cover current liabilities that are

there must be NWC.

For evaluating NWC position, an important consideration is trade off between probability andrisk.

The term profitability is measured by profits after expenses. The term risk is defined as the

profitability that a firm will become technically insolvent so that it will not be able to meet its

obligations when they become due for payment. The risk of becoming technically insolvent is

measured by NWC.

If the firm wants to increase profitability, the risk will definitely increase.

If firm wants to reduce the risk, the profitability will decrease.

PLANNING OF WORKING CAPITAL:

Working capital is required to run day to day business operations. Firms differ in their

requirement of working capital (WC). Firm s aim is to maximize the wealth of share holders

and to earn sufficient return from its operations.

WCM is a significant facet of financial management. Its importance stems from two reasons:

Investment in current asset represents a substantial portion of total investment.

Investment in current assets and level of current liability has to be geared quickly to

change in sales.

Business undertaking required funds for two purposes:

To create productive capacity through purchase of fixed assets.

To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers spend a great deal of

time in managing current assets and current liabilities.

The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are

necessary for earning profits. However, sales do not convert into cash instantly; there is

invariably a time lag between sale of goods and the receipt of cash. WC management affect

the profitability and liquidity of the firm which are inversely proportional to each other,

hence

proper balance should be maintained between two.


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To convert the sale of goods into cash, there is need for WC in the form of current asset to

deal with the problem arising out of immediate realization of cash against good sold.

Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or

cash cycle.

A firm requires many years to recover initial investment in fixed assets. On contrary the

investment in current asset is turned over many times a year. Investment in such current

assets is realized during the operating cycle of the firm.


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Each component of working capital (namely inventory, receivables and payables) has two

dimensions ... TIME ......... and MONEY. When it comes to managing working capital -

TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect dues

from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory

levels relative to sales), the business will generate more cash or it will need to borrow lessmoney to fund working capital. As a consequence, you could reduce the cost of bank interest

or you'll have additional free money available to support additional sales growth or

investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer

credit or an increased credit limit; you effectively create free finance to help fund future sales.

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc.

If you do pay cash, remember that this is now longer available for working capital. Therefore,

if cash is tight, consider other ways of financing capital investment - loans, equity, leasing

etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like

water flowing down a plughole, they remove liquidity from the business

If you Then

Collect receivables(debtors) faster.

You release cashfrom the cycle.

Collect receivables(debtors) slower.

Your receivables soakup cash.

Get better credit

(in terms of duration or amount)from suppliers.

You increase your

cash resourses.

Shift inventory (stock) faster. You free up cash.

Move inventory(stock) slower. You consume more cash.

Operating cycle:

The working capital cycle refers to the length of time between the firms paying the cash for

materials, etc., entering into production process/stock & the inflow of cash from debtors

(sales), suppose a company has certain amount of cash it will need raw materials. Some raw

materials will be available on credit but, cash will be paid out for the other part immediately.

Then it has to pay labour costs & incurs factory overheads. These three combined together

will constitute work in progress. After the production cycle is complete, work in progress will

get converted into sundry debtors.

Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be

again used for financing raw material, work in progress etc. thus there is complete cycle from

cash to cash wherein cash gets converted into raw material, work in progress, finished goodsand finally into cash again. Short term funds are required to meet the requirements of funds


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during this time period. This time period is dependent upon the length of time within which

the original

Injection of cash Cash withdrawals

PAYMENTS

To suppliers for raw material

To workers wages

GOODS

PRODUCED

Working capital cycle can be determined by adding the number of days required for each

stage in the cycle. For example, company holds raw material on average for 60 days, it gets

credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is

extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of

working capital. Thus the working capital cycle helps in the forecast,control &

management of working capital. It indicates the total time lag & the relative significance of

its constituent parts. The duration may vary depending upon the business policies. In light of

the facts discusses above we can broadly classify the operating cycle of a firm into three

phases viz.

1 Acquisition of resources.

2 Manufacture of the product and

3 Sales of the product (cash / credit).

First and second phase of the operating cycle result in cash outflows, and be predicted withreliability once the production targets and cost of inputs are known.

CASH

GOOD SOLD

Debtor generated

& then cash received


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However, the third phase results in cash inflows which are not certain because sales and

collection which give rise to cash inflows are difficult to forecast accurately.

Operating cycle consists of the following:

Conversion of cash into raw-materials;

Conversion of raw-material into work-in-progress;

Conversion of work-in-progress into finished stock;

Conversion of finished stock into accounts receivable through sales; and

Conversion of accounts receivable into cash.

In the form of an equation, the operating cycle process can be expressed

as follows:

Operating cycle = R + W + F + D - CR = Raw material storage period

W = Work in progress holding period

F = Finished goods storage period

D = Debtors collection period

C = Credit period availed


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Operating cycle for manufacturing firm

WORK-IN-PROGRESS

Raw materials stock Finished goods stock

Wages & overhead

Sale

Selling exp

Trade creditor

Taxation cash shareholders

Fixed assets Loan creditors

Lease payments

The firm is therefore, required to invest in current assets for smooth anduninterrupted functioning.

Trade debtors


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RMCPRaw Material Conversion Period

WIPCPWork In Progress Conversion Period

FGCPFinished Goods Conversion Period

ICP - Inventory Conversion Period

Payables (PDP)Payables Deferral Period

NOCNet Operating Cycle

GocGross Operating Cycle

Here, the length of GOC is the sum of ICP and RCP.

ICP is the total time needed for producing and selling the products. Hence it is the sum total

of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to collect the

outstanding amount from customers.

Usually, firm acquires resources on credit basis. PDP is the result of such an incidence

and it represent the length of time the firm is able to defer payments on various resources

purchased.

The difference between GOC and PDP is know as Net Operating Cycle and if Depreciation

is excluded from the expenses in computation of operating cycle, the NOC also represents

the cash collection from sale and cash payments for resources acquired by the firm and

during such time interval between cash collection from sale and cash payments for resources

acquired by the firm and during such time interval over which additional funds called

working capital should be obtained in order to carry out the firms operations. In short, the

working capital position is directly proportional to the Net Operating Cycle.

Calculations:

On the basis of financial statement of an organization we can calculate the inventory

conversion period. Debtors / receivables conversion period and the creditors conversion

period and based on such calculations we can find out the length of the operating cycle (in

days) both gross as well as net operating cycle.

As mentioned above, on the basis of information presented in the Balance sheet and CMA

statement of NetMAx Technologies Limited, the length of gross as well as net operating

cycle is calculated as follows:


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Operating Cycle for the year 2009-10

a. RMCP = Average Stock x 360 = 54 days

Annual Consumption

b. WIPCP = Average Stock x 360 = 21 days

Cost of Production

c. FGCP = Average Stock x 360 = 5 days

Cost of Goods Sold

d. Debtors Conversion Period = Average Debtors x 360 = 123 days

Cost of sales

e. Payables Deferral Period = Average Creditors x 360 = 87 days

Particulars 2006-07 2007-08 2008-09 2009-10

MaterialCost

9132.58 11099.03 12084.02 15771.59

Labour

Cost

3597.64 3115.99 3336.02 3681.33

DirectExpenses

-- -- -- --

PrimeCost

12730.22 14215.02 15420.04 19452.52

+Manufacturing Exp

2103.89 1977.51 2080.21 2733.89

Cost ofProduction

14834.11 16192.53 17500.25 22186.81

+Opening WIP

284.22 1003.23 1025.54 1261.56

- ClosingWIP

1003.23 1025.54 1261.56 1327.47

Cost ofGoodsProduced

14115.1 16170.22 17264.23 22120.9

+OpeningFG

286.13 330.66 115.71 260.64

-ClosingFG

330.66 115.71 260.64 315.02

Cost ofGoodsSold

14070.57 16385.17 17119.3 22066.52


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Cost of Goods Sold

Gross operating Cycle = 54 + 21 + 5 + 123 = 203 days

Net Operating Cycle = 203 87 = 116 days


1. RMCP = 59 days

2. WIPCP = 24 days

3. FGCP = 4 days

4. Debtors Conversion Period = 149 days

5. Payable Deferral Period = 132 days.




1 RMCP = 48 days

2 WIPCP = 23 days

3 FGCP= 5 days

4 Debtors Conversion Period = 181 days

5 Payable Deferral Period = 162 days.




a. RMCP = 64 days

b. WIPCP = 27 days

c. FGCP= 9 days


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d. Debtors Conversion Period = 112 days

e. Payable Deferral Period = 137 days.



Types of working capital:

PERMANENT AND

VARIABLE WORKING CAPITAL

The need for current assets arises because of the operating cycle. The operating cycle is

a continuous process and, therefore, the need for current assets is felt constantly. But themagnitude of current assets needed is not always a minimum level of current assets which is

continuously required by the firm to carry on its business operations. This minimum level of

current assets is referred to as permanent, or fixed, working capital. It is permanent in the

same way as the firms fixed assets are. Depending upon the changes in production and

sales, the need for working capital, over and above permanent working capital, will

fluctuate.

For example, extra inventory of finished goods will have to be maintained to support the

peak periods of sales, and investment in receivable may also increase during such periods. On

the other hand, investment in raw material, work-in-process and finished goods will fall if themarket is slack.

The extra working capital, needed to support the changing production and sales activities is

called FLUCTUATING, or VARIABLE, or TEMPORARY working capital. Both kinds of

working capital PERMANENT and TEMPORARY - are necessary to facilitate production

and sale through the operating cycle, but temporary-working capital is created by the firm to

meet liquidity requirements that will last only temporary working capital. It is shown that

permanent working capital is stable over time.

While temporary working capital is fluctuating- sometimes increasing and sometimes

decreasing. However, the permanent capital is difference between permanent and temporary

working capital can be depicted through figure.

BALANCED WORKING CAPITAL POSITION

The firm should maintain a sound working capital position. It should have adequate working

capital to run its business operations. Both excessive as well as inadequate working capital


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positions are dangerous from the firms point of view. Excessive working capital not only

impairs the firms profitability but also result in production interruptions and inefficiencies.

The dangers of excessive working capital are as follows:

It results in unnecessary accumulation of inventories. Thus, chances of inventory

mishandling, waste, theft and losses increase.

It is an indication of defective credit policy slack collections period. Consequently,

higher incidence of bad debts results, which adversely affects profits.

Excessive working capital makes management complacent which degenerates into

managerial inefficiency.

Tendencies of accumulating inventories tend to make speculative profits grow. This

may tend to make dividend policy liberal and difficult to cope with in future when the

firm is unable to make speculative profits.

Inadequate working capital is also bad and has the following dangers:

It stagnates growth. It becomes difficult for the firm to undertake profitable projects

for non- availability of working capital funds.

It becomes difficult to implement operating plans and achieve the firms profit target.

Operating inefficiencies creep in when it becomes difficult even to meet day

commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the

firm s profitability would deteriorate.

The firm loses its reputation when it is not in a position to honour its short-term

obligations.

As a result, the firm faces tight credit terms.

An enlightened management should, therefore, maintain the right amount of working

capital on a continuous basis. Only then a proper functioning of business operations will be

ensured. Sound financialand statistical techniques, supported by judgment, should be used

to predict the quantum of working capital needed at different time periods.

A firm s net working capital position is not only important as an index of liquidity but it is

also used as a measure of the firm s risk.

Risk in this regard means chances of the firm being unable to meet itsobligations on due date.

The lender considers a positive net working as ameasure of safety. All other things being

equal, the more the net workingcapital a firm has, the less likely that it will default in

meeting its currentfinancial obligations. Lenders such as commercial banks insist that the

firmshould maintain a minimum net working capital position.


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DETERMINANTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirements of firms.

A large number of factors, each having a different importance, influence working capitalneeds of firms. Also, the importance of factors changes for a firm over time. Therefore, an

analysis of relevant factors should be made in order to determine total investment in working

capital. The following is the description of factors which generally influence the working

capital requirements of firms.

Nature of Business

Sales and Demand Conditions

Technology and Manufacturing Policy

Credit Policy

Availability of Credit Operating Efficiency

Price Level Changes

Nature of Business:

Working capital requirements of a firm are basically influenced by the nature of its

business. Trading and financial firms have a very small investment in fixed assets, but

require a large sum of money to be invested in working capital. Retail stores, for example,

must carry large stocks of a variety of goods to satisfy varied and continuous demand of

their customers. Some manufacturing business, such as tobacco manufacturers and

construction firm, also have to invest substantially in working capital and a nominal

amount in fixed assets. In contrast, public utilities have a very limited need for working

capital and have to invest abundantly in fixed assets. Their working capital requirements are

nominal because they may have only cash and supply services, not products. Thus, no funds

will be tied up in debtors and stock (inventories). Working capital requires most of the

manufacturing concerns to fall between the two extreme requirements of trading firms andpublic utilities. Such concerns have to make adequate investment in current assets depending

upon the total assets structure and other variables.

Sales and Demand Conditions:

The working capital needs of a firm are related to its sales. It is difficult to precisely

determine the relationship between volume of sales and working capital needs. In practice,

current assets will have to be employed before growth takes place. It is , therefore, necessary

to make advance planning of working capital for a growing firm on a continuous basis.


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A growing firm may need to invest funds in fixed assets in order to sustain its growing

production and sales. This will, in turn, increase investment in current assets to support

enlarged scale of operations. It should be realized that a growing firm needs funds

continuously. It uses external sources as well as internal sources to meet increasing needs

of funds. Such a firm faces further financial problems when it retains substantialportion of its profits. It would not be able to pay dividends to shareholders. It is, therefore,

Imperative that proper planning be done by such companies to finance their increasing needs

for working capital.

Sales depend on demand conditions. Most firms experience seasonal and cyclical fluctuations

in the demand for their products and services. These business variations affect the working

capital requirements, specially the temporary working capital requirement of the firm. When

there is an upward swing in the economy, sales will increase; correspondingly, the firm s

investment in inventories and debtors will also increase. Under boom, additional

investment in fixed assets may be made by some firms to increase their productivecapacity. This act of firm will require further additions of working capital. To meet their

requirements of funds for fixed assets and current assets under boom further additions of

working capital. To meet their requirements of funds for fixed assets and current assets

under boom period, firms generally resort to substantial borrowing. On the other hand, when

there is a decline in the economy, sales will fall and consequently, levels of inventories

and debtors will also fall. Under recessionary conditions, firms try to reduce their short

term borrowings.

Seasonal fluctuations not only affect working capital requirements but also create production

problems for the firm. During periods of peak demand, increasing production may beexpensive for the firm. Similarly, it will be more expensive during slack periods when

the firm has to sustain its working force and physical facilities without adequate production

and sales.

A firm may, thus, follow a policy of steady production, irrespective of seasonal changes

in order to utilize its resources to the fullest extent. Such a policy will mean accumulation of

inventories during off season and their quick disposal during the peak season.

The increasing level of inventories during the slack season will require increasing

funds to be tied up in the working capital for some months. Unlike cyclicalfluctuations, seasonal fluctuations generally conform to asteady pattern. Therefore,

financial arrangements for seasonal working capital requirements can be made in advance.

However, the financial plan or arrangement should be flexible enough to take care of

some abrupt seasonal fluctuations.

Technology and Manufacturing Policy

The manufacturing cycle (or the inventory conversion cycle) comprises of the purchase and

use of raw material the production of finished goods. Longer the manufacturing cycle,

larger will be the firm working capital requirements. For example, the manufacturingcycle in the case of a boiler, depending on its size, may range between six to twenty- four


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months. On the other hand, the manufacturing cycle of products such as detergent

powder, soaps, chocolate etc. may be a few hours.

An extended manufacturing time span means a larger tie- up of funds in inventories.

Thus, if there are alternative technologies of manufacturing a product, the technological

process with the shortest manufacturing cycle may be chosen. Once a manufacturing

technology has been selected, it should be ensured that manufacturing cycle is completed

within the specified period. This needs proper planning and coordination at all levels of

activity. Any delay in manufacturing process will results in accumulation of work- in-

process and waste of time. In order to minimize their investment in working capital, some

firms, especially firm Manufacturing industrial products have a policy of asking for

advance payment from their customers. Non-manufacturing firms, service and financial

enterprises do not have a manufacturing cycle.

A strategy of constant production may be maintained in order to resolve the working

capital problems arising due to seasonal changes in the demand for the firm product. A

steady production policy will cause inventories to accumulate during the off- reason periods

and the firm will be exposed to greater inventory costs and risks. Thus, if costs and risks

of maintaining a constant production policy, varying its production utilized for manufacturing

varied products, can have the advantage of diversified Activities and solve their working

capital problems. They will manufacture the original product line during its increasing

demand and when it has an off- season, other products may be manufactured to utilize

physical resources and working force. Thus, production policies will differ from firm to firm,

depending on the circumstances of individual firm.

Credit Policy

The credit policy of the firm affects the working capital by influencing the level of debtors.

The credit terms to be granted to customers may depend upon the norms of the industry to

which the firm belongs. But a firm has the flexibility of shaping its credit policy within the

constraint of industry norms and practices. The firm should be discretion in granting credit

terms to its customers. Depending upon the individual case, different terms may be given

to different customers. A liberal credit policy, without rating the credit-worthiness ofcustomers, will be detrimental to the firm and will create a problem of collections. A high

collection period will mean tie- up of large funds in book debts. Slack collection procedures

can increase the chance of bad debts.

In order to ensure that unnecessary funds are not tied up in debtors, the firm should follow a

rationalized credit policy based on the credit standing of customers and periodically review

the creditworthiness of the exiting customers.

The case of delayed payments should be thoroughly investigated.

Availability of Credit


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The working capital requirements of a firm are also affected by credit terms granted by

its creditors. A firm will need less working capital if liberal credit terms are available to it.

Similarly, the availability of credit from banks also influences the working capital needs of

the firm. A firm which can get bank credit easily on favorable condition will operate with

less working capital than a firm without such a facility.

Operating Efficiency

The operating efficiency of the firm relates to the optimum utilization of resources at

minimum costs. The firm will be effectively contributing in keeping the working capital

investment at a lower level if it is efficient in mcontrolling operating costs and utilizing

current assets. The use of working capital is improved and pace of cash conversion cycle is

accelerated with operating efficiency. Better utilization of resources improves profitability

and, thus, helps in releasing the pressure on working capital. Although it,may not be possiblefor a firm to control prices of materials or wages of labour, it can certainly ensure efficiency

and effective use of its materials, labour and other resources.

Price Level Changes

The increasing shifts in price level make functions of financial manager difficult.

He should anticipate the effect of price level changes on working capital requirement of

the firm. Generally, rising price levels will require a firm to maintain higher amount of

working capital. Same levels of current as sets will need increased investment when priceare increasing. However, companies which can immediately revise their product price levels

will not face a server working capital problem. Further, effects of increasing general price

level will be felt differently by firm as individual price may move differently. It is

possible that some companies may not be affected by rising price will be different for

companies. Some will face no working capital problem, while working capital problems of

other may be aggravated.


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REQUIREMENTS OF FUNDS

Funds Requirements of company

Fixed Capital Working Capital

Preliminary Expenses Raw Material

Purchase of Fixed Assets Inventories

Establishment work exp Goods in Process

Fixed working capital Others

Every company requires funds for investing in two types of capital i.e. fixed capital, which

requires long-term funds, and working capital, which requires short-term funds.


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SOURCES OF WORKING CAPITAL

Long-term source Short-term source(Fixed working capital) (Temporary working capital)

a) Loan from financial institution a) Factoring

b) Floating of Debentures b) Bill discounting

c) Accepting public deposits c) Bank overdraft

d) Issue of shares d) Trade credit

e) Cash credit

d) Commercial paper

Sources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch

the financial resources of the business. This is called overtrading. Early warning signsinclude:

Pressure on existing cash


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Exceptional cash generating activities e.g. offering high discounts for early

cash payment

Bank overdraft exceeds authorized limit

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages,

pending receipt of a cheque).

LONG TERM SOURCES

ISSUE OF SHARES

Ordinary shares are also known as equity shares and they are the most common form of share

in the UK. An ordinary share gives the right to its owner to share in the profits of the

company (dividends) and to vote at general meetings of the company.

Since the profits of companies can vary wildly from year to year, so can the dividends paid to

ordinary shareholders. In bad years, dividends may be nothing whereas in good years theymay be substantial.

The nominal value of a share is the issue value of the share - it is the valuewritten on the

share certificate that all shareholders will be given by the company in which they own shares.

The market value of a share is the amount at which a share is being sold on the stock

exchange and may be radically different from the nominal value. Wh

working capital mangement

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