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INTRODUCTION

The success of any organization is mainly dependent upon the four

functional areas of management, namely finance, production, marketing, and

personnel management. Finance is defined as a provision of money at the time

it is required. Therefore, every enterprise, whether it is big, medium or small

needs finance to carry on its operations and to achieve its goals.

Working capital may be regarded as the lifeblood of the business. A study

of working capital is so important because of its close relationship with the

current day-to-day operations of a business, such as for purchasing of raw

material, for meeting day to day expenditure on salaries, wages, rents,

advertising etc.,

Working capital is defined as excess of current assets over current liabilities.

Current assets are those assets, which will be converted into cash with in the

current accounting period or with in the next year as a result of the ordinary

operations of a business.

As pointed out by

“Ralph Kennedy and Steward Mc Muller”: Working capital is very

essential to maintain smooth running of a business. No business can run

successfully without an adequate amount of working capital.

The goal of working capital management is to manage the firm’s

current assets and current liabilities in such a way that a satisfactory level of

working capital is maintained.

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There is always an operating cycle involved in the conversion of sales

into cash. The firm should maintain a sound working capital position. It should

have adequate working capital to run its business operations. Both excessive as

well as inadequate working capital positions are dangerous from the firm’s

point of view. Excessive working capital means ideal funds, which earn no

profits for the firm.

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NEED FOR THE STUDY

Ø The study has great significant and provides benefits to various parties

whom directly or indirectly interact with the company.

Ø It is beneficial to management of the company by providing crystal clear

picture regarding important aspects like liquidity, leverage, activity and

profitability.

Ø The study is also beneficial to employees and offers motivation by

showing how actively they are contributing for company’s growth.

Ø The investors who are interested in investing in the company’s shares

will also get benefited by going through the study and can easily take a

decision whether to invest or not to invest in the company’s shares.

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OBJECTIVES OF THE STUDY

The present study Nandi Pipes Nandyal has been undertaken to evaluate the

working capital management of the organization by establishing the following

objectives.

1. To review the progress and organization efficiency of Nandi Pipes.

2. To find out the working capital position of the company through

financial ratios.

3. To know about cause of changes in working capital from time to time.

4. To find out the sources of working capital finance of the company.

5. To give suggestion to company for improvements of working capital

position.

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METHODOLOGY OF THE STUDY

DATA COLLECTION

The data collection of the study consists of two kinds of data.

Primary source of data:

This is first hand in nature, and is collected through.

o Officers of accounts sections.

o Executives and staff of finance and accounts department.

o Meeting with concerned people

o Personal observation.

Secondary data:

o Annual reports of SUJALA PIPES Pvt. Ltd.

o Financial management textbooks.

o Printed materials

o Journals & magazines.

o News papers

o Text books

o World Wide Web.

o Company maintained reports.

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SCOPE OF THE STUDY

The scope of study is limited to collecting the data published in the

reports of the company and opinions of the employees of the organization with

reference to the objective stated above and theoretical frame work of the data

with a view to suggest solutions to various problems relating to working capital

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LIMITATIONS OF THE STUDY

In spite of honest and sincere efforts, there are certain discrepancies and

inconsistencies.

The limitations are:

§ The study is restricted to limited period.

§ The firm refused to disclose some confidential information.

§ The company has restricted to give the information for

more than five years.

§ The study was conducted with the data available and the

analysis was made accordingly.

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PLASTIC PIPES INDUSTRY

INTRODUCTION

Plastic is a common name for polymers. Materials are made of long

strings of carbon and other elements. Each unit in a string is called a monomer

and is a chemical usually derived from oil.

The monomer is made into polymer by chain-linking reactions. This is

like making a daisy chain. Instead of flowers, carbon atoms are joined together.

The appearance of the daisy chain will be different you use different colored

flowers, and so will polymers.

There are many different types of plastics, depending on the starting

monomer selected, the length of polymer chains, and the type of modifying

compounds added. Each plastic has been developed for a special purpose.

PVC pipes poly vinyl chloride have become synonymous, with modern

living it is undoubtedly a product which has deeply penetrated into common

man’s life no wonder the industry has achieved remarkable capabilities and

manufacturing of machinery equipment sophistication.

This versatile materials with superior qualities such as light weight, easy

processing corrosion resistance, energy conservative, etc. many substitute to a

large estimate of many conventional and costly industrial materials like wood,

glass, metal and leather, etc. in the future the manifold applications of plastics

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in the field of automobiles, electronics, electrical, packaging and agricultural

gives its immense utility in PVC plastics.

At present as percent of total requirement of raw materials and most all

type of plastic machines required for the industry are not adequate available.

The present investment in all the three segments of industry namely production

of raw materials, expansion and diversification of raw materials.

On account of their inherent advantage in properties and versatile in

adoption and use, plastics have come to play vital of applications the world

over. In our country plastics are used in making essential consumer goods

which are daily use for common man. Such as baskets, carry bags, bottles,

pipes, pens, etc. they also have application in agriculture, building

construction, Water management resources, engineering and electronics.

PROSPECTS

The production of various plastics a raw material in the country is

expected to double by the end of seventh plan, the consumption of commodity

plastics including LDPE, HDPE, PP, PS & PVC is immense scope for the use

of plastics in agriculture, electronics, automobile, telecommunication and

irrigation and thus, the plastic industry is on the threshold of an explosive

growth.

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ROLE OF PLASTICS IN THE NATIONAL ECONOMY

Plastics are got perceived as just simple colorful household products in

the mind so common man. A dominant part of the plastics of the percent and

future their utilization in the areas Agriculture, forestry and water –

management.

Ø Automobile and transportation

Ø Electronics and telecommunications buildings, construction and

Ø Food processing and packaging

Ø Power and gas distributor.

We shall look at the data plastics and particularly their properties, which

are of use in practical working with plastic, are man made materials. The oldest

raw materials for producing plastic are carbon materials obtained from coal tar.

Today the majority of raw materials of raw materials are obtained from

petrochemical sources and they can be economically produced in large

quantities.

Please have changed our world day – by – day. They are becoming more

& more important. They owe their success to a whole series of advantages,

which they have over conventional materials such as,

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Ø LIGHT WEIGHT

Ø EXCELLENT MOULD ABILITY

Ø ATTRACTIVE COLORS

Ø LOW ENERGY REQUIREMENTS FOR CONVERSION

Ø LOW LABOUR

Ø LESS COST OF MANUFACTURING

Ø LOW MAINTENANCE

Ø HIGH STRENGTH OF MANUFACTURING

Ø CORROSION RESISTANT

Ø AESTHETICS WITHOUT SURFACE TREATMENT

Ø COMPATIBILITY WITH REINFORCING MATERIALS

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EMERGENCE OF PVC CONCEPT AND ITS

SOCIALIZATION

Growing domestic, agricultural and industrial requirements of the

modern world, the quest for a new substance, which could serve the needs and

wants of the today’s man, became irrepressible. Although metals were meeting

major chunk of the fabrication demands of the modern world, rework ability,

formability and weight constraints were real impediments. In light of this

situation, the substance called plastics, which has got all the desired

characteristics to serve the modern man, was discovered. This carbonaceous

substance with excellent rework ability and physical stability could replace

most of the earlier used metals, wood, etc.

Although acceptance and socialization of this new innovation was slow

it has shown a steady encroachment into the life of today’s man. Now plastics

are omnipresent and serving numerous fields. Agriculture, heavily modernized

communication sector, fiber equipment are only few applications among the

multifarious uses of the plastics.

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PVC PIPES AND ITS ECONOMIC ROLE

Chief occupation in India is agriculture. For the developing countries

like, India, modernization of the agriculture practices assumes pivotal place

improving the economic status and the processes of the modernization includes

usage of high productive, plastics that supplement to greater extent

manufacturing of tools required for new agricultural practices.

The usage of poly vinyl chloride pipes in agricultural fields, lessen water

seepage, which was predominant in earlier practices. With the services of

P.V.C pipes, water can be transported efficiently with lesser losses, from the

place of higher water potential to the lower water potential. Presently

revolutionary triad in management speaks much about drip irrigation, which

developed in Israel and is practiced by all agricultural based nations in the

world. Drip irrigation greatly uses P.V.C pipes as core tools of implementation

with the services of this sort, P.V.C pipes one way or other strength the hands

of country’s economy.

Apart from the referred uses, P.V.C pipes supplemented with fittings are

used in houses for electric connections, sewage connection and other domestic

purposes. Apart from these two applications, it has got wide applications even

in industrial sector. P.V.C pipes with much unique heat, chemical and physical

characteristics serve many industrial purposes. They are even positively used

as conduits for industrial gases. Even the characteristics of weight and low

price attract many more applications.

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Rigid P.V.C pipes have been manufactured in India from the sixties on

imported extrusion lines and there after indigenous plans were also available.

There were few pipe manufacturers up to 1978 – 1979 and large production

capacity was created during 1979 – 1983, when many extrusion line were

imported from Batten field, Cincinnati, krausmaffi etc. the government allowed

the imports of sophisticated and high output plans which were not available

indigenously.

It is essential for the company to carryout continuous research and

development to update technology, higher output, loss energy cost per Kg of

output, quality of products of etc.

POLY VINYL CHLORIDE (PVC)

Production of PVC pipes in 1961, against first production of PVC in the

world. In 1927 at present there are 6 units manufacture of PVC resins. PVC

pipes have been synonymous; with modern living it is undoubtedly a product,

which has deeply penetrated in to common man’s life. No wonder the industry

has achieved remarkable progress in the terms of supply of raw materials and

diversification of processing capabilities and manufacturing of machinery and

ancillary equipment sophistication. This versatile material with superior

qualities such as light weight easy processing corrosion resistance, energy

conservative, non taxis, etc may substitute to a large estimate of many

conventional and costly industrial materials like wood, glass, metal and leather,

etc in future the manifold applications of plastics in the field of automobiles,

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electronics, electrical, packaging and agriculture give its immense utility in

PVC plastics.

At present as percent of total requirement of raw material and almost all

type of plastic machines required for the industry are not adequate available,

the present investment in all the three segments of industry namely production

of raw materials, expansion & diversification of raw materials. Expansion and

diversification of processing capacities, manufacturing of processing

machinery, equipment is 1250crores and it provides employment at more than

8lakhs peoples.

Plastics have been subjected to leaves not only at the central level but

also the state and local government. These levels have effected in the price of

the plastic products adversely.

The per capita consumption of plastics is very low at 0.5Kg as against

the world average of 11Kgs. The per-capita consumption is 68Kgs in

FRANCE, 33Kgs in UK, and even in Asian countries like South Korea it is

8.5Kgs.

These PVC pipes are widely sued by the farmers their farming and

agriculture for water supply in their fields through PVC pipelines. The property

of UV stability is incorporated into other wise rigid PVC resin by mixing butyl

tin stabilizer. This property is important in tropical countries like ours were

high temperature fluctuations in the daily temperature are quite common. The

UV stabilizer prevents expansion and contradiction longitudinally in the pipes.

When expansion and contraction takes place in the pipes they bend. As a result

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the joints get loosened because they are fixed to walls with the help of the

clamps. This results in the subsequent leakage. This is prevented in PVC swr

pipes. In PVC swr products, fittings are of two types they are injection blow

molded and sealed ring cab fittings; the groups are inherent in the mould. In

seal ring cap fittings, the groove is formed when a seal ring cap is made to fit

over a plain-ended pipe coupling as well as rubber ring pipe coupling. It is a

multi purpose product.

Another variety of plastics that requires artificial manufacturing relates

to true engineering plastics, which is used as an alternative to or replacement of

metals in load needing applications. Modified P.P.O Nylon, Polycot,

Polycarbonates, and Polyester (PBT/PET) phendic are same of the plastics

materials following under the category of engineering plastics. Engineering

plastics are being increasingly used for various applications in automatic,

electronic, telecommunication and other industries. The plastics are classified

into two major classes.

The plastics are classified into two major classes.

• Thermo plastics

• Thermostats

The thermo plastics become sufficiently soft as the applications of heart.

The thermostats are the initial application of heart and pressure of heat and

pressure subjected to fire. But up on further application of heat pressure. They

cured to hard price, which cannot be resofted, the reheating.

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LDPE: LOW DENSITY POLY ETHYLENE

Production of LDPE was stated in the year in 1955 at present there are 3

units manufacturing LDPE with a total capacity of 1.15lakh tones. Products

targeted for LDPE by the end of 1999 are placed at 1.86lakh tones.

HDPE: High Density Poly Ethylene

Production of HDPE in India commenced in 1968, at present there is a

unit (play defines industries limited.) in India producing HDPE by the end of

1989-1990 was producing 1.25lakh tones.

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IMPORTANCE OF PIPES INDUSTRY

PVC products have found wide acceptance in India and abroad. PVC is

one of the most versatile plastics. It can be extruded, molded, calendared, or

thermoform into a multitude of furnished products. The PVC resin can be

formulated to give a wide range of propertied from hard, tough materials for

products as diverse as wires and insulation and sheathing and flooring.

We shall look at the basic data about plastics and particularly those

properties, which are of using practical working with plastics. Plastics are man

made materials, the oldest raw materials for producing plastics are

carbonaceous materials obtained from stagnant at around Rs.60-70crores per

annum double to Rs.129crores.The plastic industry as taken up the economy of

achieving an export target of Rs.7crores.

Major export markets for plastics related products are Australia,

Bangladesh, Canada, Egypt, Hong Kong, Hungary, Italy, Kuwait, Sri Lanka,

Federal Republic of Germany, Sweden, Taiwan, U.K., U.S.A., & Russia.

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PROSPECTS

The production of various plastics raw materials in the country is

expected to double by the end of the 2010. The consumption of the commodity

plastics including LDPE, HDPE, & PVC is immense scope for the use of

plastics in agriculture, electronics, automobiles, telecommunications &

irrigation & thus, the plastics industry on the threshold of the explosive growth.

UTILITIES OF PVC PRODUCTS:

PVC products cater to both interiors and exteriors.

Ø Interiors are as follows:

In interiors it can be used for

1. Floorings

2. Profile and cable trays

3. Wall covering

4. Modular office systems

5. House & furniture

Ø Exteriors are as follows

For exterior it can be used for

1. Doors & windows

2. Fencing partitions & paneling

3. Roofing & rain system

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The other external applications are:

§ In the field of irrigation

§ Portable water supplies and public water supplies

In the field of irrigation there are several methods to irrigate the fields.

There are major and minor irrigation projects apart from the individual sources

like wells, tube wells, & bore wells. Major irrigation projects will have canals

and lift irrigation schemes etc. like pipelines; cement and GGI pipes were

conventional methods of irrigation in the lift irrigation schemes. Now a days

PVC pipes replaced the conventional pipes and they constitute almost 90% in

this respect.

Drip irrigation has become a wide concept in agricultural sector

especially in the field of horticulture, commercial cropping and green and poly

houses. The drip irrigation concept is becoming more popular with its

advantages like high yield, water conservation, less labour cost, fewer

fertilizers, less pest management cost, less power cost and many more. The

demand for this concept is increasing at a pace of 30% to 40% per annum.

Agriculture, a sunrise industry in India economy is essentially on PVC

for the seawater suction and pumping to their aqua ponds. They are using

pipelines of 4-5 kg of 10-16 diapipes.

The state and central governments are using these pipelines for the

public water supply schemes. The state government of A.P is using PVC pipes

for the irrigation water supplies for the past few years. The state govt. is

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providing pipes through APSIDC (Andhra Pradesh state irrigation development

schemes). These pipes can be sued for the main distributors, sub-distributors

and individual connections.

TECHINICAL DETAILS ABOUT P.V.C.PIPES:

1. P.V.C. resin (poly vinyl chloride)

2. D.B.L.S. (die basic lead sulphate)

3. T.B.L.S. (tri basic lead sulphate)

4. L.S. (lead steric)

5. C.S. (calcium steric)

6. STEARIC ACID

7. HYDRO CARBON

8. CALCIUM CARBONATE (ca ca3)

9. TITANIC DIOXIDE

MANUFACTURING PROCESS

Hot forward extrusion is employed for the manufacture of P.V.C. pipes

resign with weighted amounts of other ingredients, which are carried to the hot

chambers. The high temperature of hot chamber melts ingredients and contents

and then given forward transit to hallow pipes of required dimension. As the

pipe comes out of the hot chamber, cool water jet is directed towards it to cool

the pipe immediately. Pipes of desired length are cut with the aid of stop and

power hacksaw. Production is made in various sizes ranging from 1/2’’ to 10”

according to usage.

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REINFORCED PLASTICS

Although plastics have high strength to weight ratio, they are not as

strong as metals and deform permanently under load. They cannot bear

extremely high or low temperature like metals and other materials such as

refractory bricks. Modern invention of glass of carbon black as reinforcing

fillers has a way for making high strength beating plastics and replace steel.

ALLOYS

Physical mixture of two or more polymer is termed as alloys. Physical

blending of two polymers is needed because every polymer has certain set of

good properties. Design of a special product, which should have specific set of

properties, may not be obtained if it is made only from one polymer. By

blending two polymers we can get the required combination of properties. For

example, polystyrene is highly amorphous and rigid but has low impact

strength. It is blended with a rubbery material, product will be of high strength,

and shall also have high impact properties.

Thus by allowing wide range of products can be made, although alloys

are physical mixture of polymers. Sometimes hydrogen bonds are formed

between some special ionic groups with hydrogen atom of the carbon chain.

Such a bond is very useful in alloy formation because it impacts processing

flexibility with and use of cross-linked products.

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PVC POLY VINYL CHLORIDE

Production of PVC started in 1961, against first production of PVC in

the world, 1927. At present there six units manufacture of PVC resins. The

total installed capacity comes to 1.7lakhs tones. The production target of PVC

by the end of 1989-1990 is placed of 2.33lakhs tones.

POLYSTYRENE

Polystyrene was first manufactured in India in May 1987. The

production target of polystyrene by end of 1989-1990 is set out to 29,000

tones.

POLY PROPYLENE

The first production of polypropylene in India commenced in 1978. The

end of 1993-1994 achieves the production target of 36,000 tones.

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EXPORT OF PLASTICS GOOD

Plastics have excellent potentialities. Our country is equipped with all

kind of processing machinery and skilled labor and undoable, and extra to

boost export, finished plastics products, which yield rich dividend.

Today India exports plastic products to as many as 80 countries all over

the world. The exports, which are stagnant at ground, rest 60 to70 cores per

annum double to 129 creators. The plastic industry has taken up the challenge

of achieving an export target of Rs.17cores.

Major – export markets for plastic products and linoleum are Australia,

Bangladesh, Canada, Egypt, Hong Kong, Italy, Kuwait, Federal Republic of

Germany, Sri Lanka, Sweden, Taiwan, U.K., U.S.A., and Russia.

With view to boosting the export, the plastics and linoleum’s export

promotion council has urged the government to reduce import duty of plastics

raw materials, supply indigenous raw materials at international prices, fix duty,

draw backs on weighted average basis and charge freight rate on plastic

products on weight basis instead of volume basis.

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PROBLEMS

Raw material is always being a problem to be recorded with the plastics

industry. The situation was slightly improved and is expected to charge

considerably by commissioning the major petrol chemical project in the

pipeline by the year 1990, the Maharastra gas cracker complex. Haldia petrol

chemical & reliance petrol chemicals together with the expansion of existing

giants will go a long way to mitigate the long problems. By the terminal year

the plan the install capacity is targeted are almost 8lakh tones.

The step rise in the way material as the result of imposition of duties and

taxed poses another problem to the plastic industry. On account of this

domestic price of finished goods are higher than the rest of world. Apart from

this the administrated prices for basic raw materials have not been

implemented with a balanced view to accommodating the interest of both

consumers and manufacturers. And chloride 85% of the polymers it made from

naphtha feedstock. Hence the pricing naphtha by the government has a

cascading effect.

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COMPANY PROFILE

Rayalaseema, an economically backward area in Andhra Pradesh, was

rarefied region for industries. A dynamic entrepreneur Sri.S.P.Y. Reddy who

is basically a mechanical engineer started a unit at Nandyal, which

manufactures black pipes in 1977. The determination and hard work of

Sri.S.P.Y.Reddy helped him to overcome the problems.

Later the company started manufacturing of PVC pipes, which

terminated the manufacturing of black pipes. This resulted in the formation of

a private limited called “NANDI PIPES PVT.LTD.” with Sri. S.P.Y. Reddy as

the managing director

GROWTH

Nandi Pipes Pvt Ltd. is commissioned with the objectives of catering to

the agricultural needs of the region. In earlier days, tools used for water flow

were very ineffective with high percentage of loses. To counter this drawback

P.V.C. pipes were favorably welcomed. This has been the mission of Nandi

pipes Pvt. Ltd., the major irritants in agricultural practice like lack of rainfall,

ground water lifting. Water transport within the fields has provided

magnificent thrust to P.V.C. Pipes market. These factors helped Nandi pipes

ltd., to record an excellent growth since 1977 onwards. Quality is the

dominating factor in the growth of sales. Well-equipped laboratory and quality

control office looks after the quality. The department people are always

striving to improve the quality.

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The company has now only improved the brand name but is also

undertaking takeovers of the competitor’s brands. In 1977 the company took

over the Sagar brand. The manufacturing plant of Sagar brand was at Medak

district. The Nandi pipes has not stopped with that victory, the company has

taken over another main competitors brand i.e., monarch in 1999. The

manufacturing plant of monarch plant lies in East Godavari District.

The threats of the old companies are turned to opportunities to the

company by its excellent management. After the change of management the

brand image of these brands has improved. At present Nandi Pipes Pvt. Ltd.,

stands in the market leader position. The only major competitor to the company

is Sudhakar Pipes, Maharaja Pipes. The only backdrop to it is the competition

from local brands

As the majority of customers belong to farmer, they consider price above

quality. The company has to create awareness of the company’s quality

standards to them.

M\S Somali Pipes Private Limited, which is now the premier company

in the Nandi group, was started with a capital of Rest 10lakh in the year 1988

Nandi group has group in the size and emerged as the leading industrial group

in Andhra Pradesh in the past 18 years. It has made rapid strides in its growth

and been maintaining its fair name for its quality and standard products

throughout south India and in the other states. Most of the products enjoy ISI

and ISO recognition.

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VISION AND MISSION

Vision

To serve people through providing good quality products at reasonable

cost.

Mission

Ø To achieve company’s growth innovation and development of resources

to meet organizational goals.

Ø To provide products and services of best value possible to customers,

thereby gaining their respects.

TECHNICAL INFORMATION

ITL rigid PVC pipes are manufactured in accordance with Indian

standards specification 4985:1998 and other international specification. The

company also manufactures special ranges of commercial pipes under different

ranges to satisfy the customer requirements. ITL PVC pipes are normally

manufactured in uniform length of 6 meters with plain ends both the sides also

with self-socked one side. Varied length can be manufactured according to the

customer requirements. Integrated Thermoplastics Limited is manufacturing

rigid PVC pipes from 20mm to 400mm in conformity to ISI 4985: 2000 and

other international specification.

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QUALITY CONTROL ASSURANCE

Integrated Thermoplastics Limited is having well equipped quality

testing machines in their labs as per the ISI standards for testing of all diameter

and gets excellent result. We at ITL pipes are proud to say that we follow

world – class QCM (Quality Control Management) techniques is our quality

control lab to achieve the best quality. Stringent quality control tests are

regularly conducted to ensure top quality production of PVC products.

MAINTENANCE AND SERVICE

This company is better equipped with excellent workshop to provide

maintenance and service of machinery in electrical, mechanical, and civil lines

all the time. We assure service at any time to enable our equipment and

machinery to perform efficiently, thus reducing production down time.

EXPLORING NEW HORIZONS: EXPORTS

Integrated Thermoplastics Limited is trying hard in exploring their

products like rigid PVC pipes of water, electrical conduits, and SWR pies to

Middle East, Europe, Africa, and other Asian countries. Taking an example

our esteemed overseas customers, we are proud to say that we are associate

with “CEYLON ELECTRICITY BOARD – SRILANKA” supplying electrical

conduits to there project requirements.

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GENERATING EMPLOYMENT

The integrated Thermoplastics Limited has the work force of more than

400 workers working at our manufacturing plant located at Manoharbad

Village, Toopran Mandal, and Medak District. In this way the company

generates employment to several people.

DYNAMIC WORK FORCE

The dynamic work force is the strong base for the success of the

company. The administrative as well as the technical staff are well qualified

and skilled. The company follows the specialization of work, which helps the

company to assign the right job to right person.

The technical staff at the manufacturing units is well versed in the field of

production, which generates new innovative ideas and concepts. All the

workers are dedicated to work and responsible for their job work done.

DISTRIBUTION NETWORK

One of the most important parts of the company’s effective functioning

in the competitive market is its distribution network. The company has its own

dealer’s network with a number of nearly more than 100 dealers through out

the state.

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The company has its own vehicles for transportation, which helps the

sales department to cater the needs of the customers at the right time at the

right place.

REGIONS COVERED IN INDIA

Andhra Pradesh

Southern States of Karnataka,

Goa,

Pondicherry,

Maharastra,

Orissa,

Kerala,

Gujarat,

Chattisgarh, &

Thailand. Are in ambit of Nandi groups

There has been expansion of product base from him alone PVC pipes and

presently the group’s products include follows

PRODUCT LINE

UPVC potable water pipes,

UPVC SWR pipes,

UPVC blue sensing pipes,

Submersible pipes,

Rigid Electrical conduits,

HDPE pipes,

Garden pipes,

Suction pipes,

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Water tanks Agricultural & SWR fittings,

Drip Irrigation equipment,

Cement, Milk products, Mineral water, Solvent Cement & Plastics.

This group also has successfully into trading business and been

maintaining Super Bazaar departmental stores and Hardware at the group’s

principal place, Nandyal.

The group had over 200 transport vehicles and heavy earth moving

equipment facilitating easy and planning to expand its business further and is

poise to touch the Rs1000crores mark annual turn – over in the next 4-5 years.

The group has floated a public company of ethanol and industrial

Alcohol with a capital of Rs14500 liters per day using maize and other agro

products as raw materials at the New Industries Estates, Nandyal at a capital

outlay of Rs156crores. The company is confident of commissioning the

project as early as possible.

SIZES

Various sizes ranging from ½” to 10” are offered to customers. Even pipes

with different gauges and sizes are manufactured to suit specific conditions.

PACKING

Packing plays less important role in the products like PVC pipes because

the hollow space inside can be utilized. For the purpose of cubic space

utilization in trucks while transport, organization is adopting the technique like

pipe in pipe

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WARRANTIES

No written warranties are given to customers except an assurance that

the product is reliable.

PAYMENT PERIOD

For Mandy brand the company adopts zero credit policy and goods are

not delivered unless cash remittances are made. For Monarch and Sagar

brands credit is entitled up to a week. The difference between these brines is

due to brand image.

CHANNELS OF DISTRIBUTION

Mandy pipes Pvt.Ltd. has got zero level, one level channels distribution

for Monarch and Sagar,

MANUFACTURER CUSTOMER

MANUFACTURER DEALER CUSTOMER

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Nandi pipes Pvt. Ltd. Has an extensive network of 300 dealers in Andhra

Pradesh who are directly serviced by company sales force and 500 dealers in

South India.

TRANSPORTATION

Transportation of Nandi pipes Pvt. Ltd. is very admirable. This unique

strength of the organization enables the delivery system to be efficient. This

even helps the dealers to reduce inventory levels to the minimum. Thus dealers

are also supplemented with the dealers to reduce inventory levels to the

minimum. Thus dealers are also supplemented with the benefit of the lower

tied – up capital in the form of inventory.

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GENERAL INFORMATION ABOUT THE COMPANY

The company is equipped with sophisticated laboratory to carry on the

tests to ascertain outgoing quality level of the pipes. Nandi pipes have got ISI

Trademark, which speaks for itself for the quality of the pipes. Numbers of

statistics quality control techniques are applied to sustain the quality level of

the product.

Managers at the company are dynamic and well qualified. Supervisory staff or

intermediate managerial staff is adept in tackling their area though not highly

qualified. Most of the skilled or unskilled labours are duty minded. Company

E.S.I. (Employment State Insurance) and provident fund facilitates to all its

employees. Uniqueness of workers of Nandi pipes Pvt. Ltd. Is their non-

indulgence in trade union activities.

As the company is located in the industrial estate of Nandyal, it is

facilitated with good communication networks, which includes telex, fax

machine and Internet. Company has also got the Electronic Data Processing.

The company’s major strength is considered to be transportation

vehicles. Huge investment is made on transportation vehicles; a unique cash

outflow justifies itself by providing good reputation for the company through

improved customer service.

36

ORGANIZATIONAL CHART

CHAIRMAN

MANAGING DIRECTOR

GM(FINANCE) GM(PRODUCTION) GM(MARKETING) GM (ENGINEERING)

ACCOUNTS PRODUCTION MARKETING HR MANAGER

FOREMAN MANAGER MANAGER

MANAGER

CLERKS SUPERVISORS EXECUTIVES EXECUTIVES

MECHANICS OPERATORS

37

FINANCIAL DEPARTMENT

Though initially the company approached the external sources of

financial aid, now the financial status of the company is very sound and is

being run only with self financial excepting for loans taken on hypothecation of

machinery and stock from SBI, Nandyal.

The financial manager with the help of accounts and other clerks of the

department head the financial department. The company follows cash & carries

policy for Nandi brand. The products are not delivered until the cash is paid

and financial department with the help of marketing department looks after

these transactions.

MARKETING DEPARTMENT

Marketing manager who reports to the executive Director, an Assistant

marketing Manager who reports to the Marketing Manager and 20 salesmen

headed by 30 sales representatives who are headed by an Assistant Marketing

Manager, heads the marketing department.

Marketing mix and advertising particulars of Nandi pipes Pvt. Ltd. Indicate the

department’s effectiveness of the Marketing Department in the organization.

38

PERSONNEL DEPARTMENT

The personnel department consist the details of the executives and

workers of the organization. The organization is formed with Sri.S.P.Y.Reddy

as the managing director and executive director. Two Marketing Managers,

financial manager, a public relations officer and a quality control officer all of

whom report to the Executive Director. Other than Executives there are 1000

works in the all organization.

A panel consisting of Managing Director, Executive Director and Manger of

the concerned departments makes the recruitment and selection of personnel.

Apart from the attractive salaries, the company provides health card facility

etc.

PURCHASING DEPARTMENT

The perplexing situation that is confronted by the manufactures of the

PVC pipes is scarcity of resin. Though the Government of India has taken

various steps to improve supply conditions of PVC resin, the Indian

manufacturers could meet only 50% of demand and remaining 50% is met

from imports.

The major petrochemical companies are:

Ø Sri Ram Vinyl Ltd.

Ø Chem. – plast Ltd

Ø Reliance perto Chemicals

Ø National Organic Chemical Industries Ltd.Indian perto

Chemical industries Ltd.

39

INTRODUCTION TO FINANCE

Finance is a specialized, functional field under the general classification

of business administration. The term “Finance” can be defined as the

management of the flows of money through as organization whether it is a

corporation, bank, Govt., agency; etc. Finance concerns itself with the actual

flows of money, as well as any claims against money. As a business discipline,

finance can be differentiated from accounting and economics. Accounting is

concerned with the recording, reporting and measuring of business transaction,

where as finance uses the information provided by the accounting system to

make decision to help organizations to achieve their objectives. Economies are

concerned with analyzing the allocation of resources in a society. It studies

transactions, among people involving in a society. It studies transaction, among

people involving goods and services with or without the exchange of money.

Individual businesses are face problems dealing with the acquisition of funds to

carry on their activities and with the determination of optimum methods of

employing funds. In competitive market place, businessman must actively

manage their funds to achieve their goals. The financial tools help the

management.

Determine which sources offer the lowest cost of funds and which activities

will provide the greatest return on invested capital. A successful business

manager for enterprise uses a goal oriented financial structure.

The financial manager performs certain tasks that help to achieve its

operating objective. The important goals of financial management are:

Ø Wealth maximization of shareholders.

Ø Liquidity.

Ø Profitability of the firm.

40

FUNCTIONS OF FINANCIAL MANAGEMENT

Although it may be difficult to separate the finance functions from

production, marketing and other functions, yet the functions themselves can be

readily identified. The functions of raising funds, investing in assets and

distributing returns earned from assets, shareholders respectively known as

financing, investment and dividend decision. While performing these

functions, a firm attempts to balance cash inflows and cash outflows. This is

called liquidity decision and we add it to the list of important finance decisions

or functions.

Ø Investment or long-term asset mix decision.

Ø Financing or capital mix decision

Ø Dividend or profit allocation decision.

Ø Liquidity or short term asset mix decision.

A firm performs finance functions simultaneously and continuously in the

normal course of the business. They do not necessarily occur in a sequence.

Finance function call for skillful planning, control and exception of a firm’s

activities. Let us note that outset that share holders are made better off by a

finance decision, which increase value of their shares. Thus while performing

the finance functions, the financial manager should strive to maximize the

market value of shares.

41

INVESTMENT DECISION

Investment decision or capital budgeting involves the decision of

allocation of capital or commitment of funds to long-term assets, which would

yield, benefits in future. Its one very significant aspect is the task of measuring

the prospective profitability of new investments. Future benefits are difficult

future; capital budgeting decision involves risk. Investment proposals should,

therefore be evaluated in terms of both expected return and risk, besides the

decision to commit funds in new investment proposal; capital budgeting also

involves decision of recommitting funds when an asset becomes less

productive or non profitable.

FINANCING DECISION

Financing decision is the second important function to be performed by

the financial manager. Broadly, he must decide when, where and how to

acquire funds to meet the firm’s investment needs, the central issue before him

is to determine the proportion of equity and debt. The mix of debt and equity is

known as the firm’s capital structure. The financial manager must strive to

obtain the best financing mix or the optimum capital structure for this firm.

DIVIDEND DECISION

Dividend decision is the third major financial decision. The financial

manager must decide whether the firm should distribute of all profits, or retain

them, or distribute a portion and retain the balance. Like the Debt policy, the

42

dividend policy should be determined in terms of its impact on the shareholders

value. The optimum dividend policy is one, which maximizes the market value

of the firm’s shares. Thus, if shareholders are not in different to the firm’s

dividend policy, the financial manager must determine the optimum dividend-

pay out ratio.

LIQUIDITY DECISION

Current assets management, which affects a firm’s liquidity, is yet

another important finances function, in addition to the management of long-

term assets. Current assets should be managed efficiently for safeguarding the

firm.

Against the dangers of insolvency, investment in current asset affects

firm’s profitability, liquidity and risk. A conflict exists between profitability

and liquidity while managing current assets. If the firm does not invest

sufficient funds in current assets, it may become illiquid. But it would lose

profitability, as idle current assets would not earn anything. Thus, a proper

trade-off must be achieved between profitability and liquidity. In order to

ensure that neither insufficient nor unnecessary funds are invested in current

assets, the financial manager should develop sound techniques of managing

current assets and make sure that funds would be made available.

43

WORKING CAPITAL MANAGEMENT

INTRODUCTION

Every business needs funds for two purposes for its establishment and to

carry out its day-to-day operations. Working capital refers to that part of the

firm’s capital, which is required for financing short term or current assets such

as cash, marketable securities, debtors and inventories.

The goal of working capital management is to manage the firm’s current

assets and current liabilities in such a way that a satisfactory level of working

capital is maintained. Working capital is the difference between the inflow and

outflow of funds. Net cash inflow defines as the excess of current liabilities

over current assets. Working capital is also revolving or circulating capital or

short-term capital.

DEFINITIONS

“Working capital is defined as the difference between current assets and

current liabilities”. -I.M.PANDEY

“Working capital is the amount of funds necessary to cover the cost of

operating the enterprise”. –SHUBIN

“Circulating capital means current assets of a company that are changed in the

ordinary course of business from one form to another as for example, cash to

inventories, inventories to B/R, B/R to cash. Working capital is also called as

revolving and short-term capital”. _ GENESTEN BERG

44

OPERATING CYCLE CONCEPT

A company operating cycle typically consists of three primary activities

purchasing resources, producing the product and distributing (selling) the

product. These activities create funds flows that are both unsynchronized and

uncertain. They are uncertain because future sales and costs, which generate

the respective receipts and disbursement, cannot be forecasted with complete

accuracy. If the firm is to maintain liquidity and function properly it has to

invest funds in various short-term assets (working capital) during this cycle. It

has to maintain a cash balance to pay the bills as they come due. In addition,

the company must invest in inventories to fill customer orders promptly and

finally the company invests in accounts receivables to extend to its customers.

RAW MATERIALS → WORK-IN-PROGRESS → FINISHEDGOODS

→ SALES → DEBTORS → CASH → RAW MATERIALS

The operating cycle is equal to the length of the inventory and receivables

conversion periods.

OPERATING CYCLE

Inventory conversion period + Receivables conversion period.

The inventory conversion period is the length of time required to produce and

sell the products it is defined as follows.

Inventory conversion period = Average inventory cost of sales / 365.

The receivable conversion period or average collection period represents

the length of time required to collect the sales receipts it is calculated as

follows.

45

Receivables conversion period = Account receivable

Account receivable = Annual Credit sales / 365.

The payables deferred period is of the time the firm is able to differ payment

on its various resource purchases

(For example materials, wages, and taxes) equation is used to calculate the

payables deferral period.

Payables deferral period = A/C’s payable + salaries, benefits and

payroll &taxes payable.

(Cost of sales + selling general and administration. expenses) / 365

Finally, the cash conversion cycle represents the net time interval

between the collections of cash receipts from product sales and the cash

payments for the companies various receipts purchases. It is calculated as

follows cash conversion cycle operating cycle-payables deferral period.

DEBTORS

SALES FINISHED GOODS

CASH RAW MATERIA

WORK-IN-PROGRESS

46

TYPES OF WORKING CAPITAL

• Gross working capital.

• Net working capital.

Gross working capital

It is the broad sense the term working capital refers to the gross working

capital and represents the amount of funds invested in the current assets. Thus,

the gross working capital is the capita; invested in total current assets of the

enterprise which in the ordinary course of business can be converted into cash

within a short period of time.

Gross working capital = total current assets.

Net working capital

This refers to the difference between current assets and current

liabilities. Net working capital can be either positive or negative. A positive

net working will arise when current assets exceed current liabilities. A negative

working capital occurs when current liabilities are in excess of current assets.

Net working capital = Total of current assets – Total of current Liabilities.

MEASURING THE WORKING CAPITAL

Working capital is very essential to maintain the smooth running of a

business. No business can run successfully without an adequate amount of

working capital. However, it must also be noted that working capital is a means

to run the business smoothly and profitably, and not an end. Thus, concept of

47

working capital has its own importance in a going concern. The analysis of

working capital can be conducted through a number of devices, such as

Ø Ratio Analysis.

Ø Funds flow analysis.

Ø Capital Budgeting.

LIST OF CURRENT ASSETS AND CURRENT LIABILITIES:

Current Assets:

Ø Cash in hand.

Ø Cash at bank.

Ø Bills receivables

Ø Sundry debtors

Ø Stock.

Ø Prepaid expenses.

Ø Accrued income.

Ø Short-term investment.

Current Liabilities:

Ø Bills payable.

Ø Sundry creditors.

Ø Accrued expenses.

Ø Short term loans.

Ø Dividends payable.

Ø Bank overdraft.

Ø Provision taxation.

48

OBJECTIVES OF WORKING CAPITAL

The need for working capital cannot be over emphasized. Every business

needs some amount of working capital. The need for working capital arises due

to the time gap between production and realization of cash from sales.

Ø For the purchase of raw materials, components and spares.

Ø To pay wages and salaries.

Ø To incur day-to-day expenses and overheads costs such as fuel, power

and office expenses, etc.

Ø To meet the selling costs as packing, advertising, etc.

Ø To provide credit facilities to the customers.

Ø To maintain the inventories of raw materials, work-in-progress, store and

spares and finished stock.

SOURCE OF WORKING CAPITAL

There are two sources of working capital they are:

Permanent or Fixed working capital

The fixed proportion of working capital should be generally financed from the

fixed capital sources like:

Ø Shares, debentures

Ø Public deposits.

Ø Plugging back of profits.

Ø Loans from financed institutions.

49

Temporary or Variable working capital

Variable or temporary working capital requirements of a concern may be

met from the short-term sources of capital like:

Ø Commercial bankers.

Ø Indigenous bankers.

Ø Trade creditors.

Ø Advances.

Ø Accrued expenses

Ø Commercial papers.

Ø Accounts receivables.

USES OF WORKING CAPITAL

Ø Losses from business operations.

Ø Purchases on non-current assets.

Ø Redemption of debentures and / or preference shares.

50

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in two ways:

Ø On the basis of concept,

Ø On the basis of time,

ON THE BASIS OF CONCEPT

• Gross working capital.

• Net working capital

ON THE BASIS OF TIME

A. Permanent or Fixed working capital.

Regular Working Capital.

Reserve working capital.

B. Temporary or Variable working capital.

Seasonal working capital.

Special working capital.

51

DETERMINANTS OF WORKING CAPITAL

Nature of size of business

These kinds of institutions require limited working capital to produce goods

and services. (Ex: public utility organization)

Ø These are the institutions, which require of working capital turnover.

(Ex: trading concerns)

Ø This kind of institutions issues shares into orders to moderate the capital

(Ex: manufacturing concern.)

Manufacturing cycle

The manufacturing comprises as a purchase and use of raw materials and

the production of finished goods, larger will be the firm’s working capital

requirements.

Firms’ 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.

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.

52

REQUIREMENTS OF THE FIRM

1. Operating efficiency

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

resources at minimum cost. The firm will be effectively contributing in keeping

the working capital investment at a lower level; it is efficient in controlling

operating cost and utilizing current assets.

2. Earning capacity and dividend policy

Earning capacity more in quality and monopoly conditions operates high

working capital; high profits in it have required influencing dividend policy.

3. Rate of stock turnover

Stock turnover depends upon size and growth business expansion. If

small size organization requires little working capital, if it is larger size

requires high working capital.

4. Business Cycle

In case of boom requires low capital, in case of depression requires high

capital. In 1991 India’s position in market level will face inflation.

Estimating working capital needs

The most appropriate method of calculating the working capital needs of

a firm is the concept of operating cycle. However we shall illustrate here three

approaches, which have been successfully applied in practice.

53

Current assets holding period

To estimate the working capital requirements on the basis of average

holding period of current assets and relating them to cost based on the

companies experience in the previous years. This method is essentially based

on operating cycle concept.

Ratio of sales

To estimate working capital requirements as ratio of sales on the

assumption that current assets change with sales.

Rate of fixed investment

To estimate working capital requirements as percentage of fixed

investments.

Financing of working capital

The current assets of the firm are supported by spontaneous current

liabilities (trade creditors and provisions others etc) short-term bank financing

and long-term sources of finance (mainly debentures and equity) the working

capital policy of the firm has to decide between two alternatives.

Ø Current asset financing policy.

Ø Conservative Aggressive current assets financing policy.

A conservative current assets financing policy relies less on short term bank

financing and more on long-term sources such as debentures and internal

sources like reserves and surpluses. The highly conservative policy may seek to

replace even long-term debt by equity.

An aggressive current asset financing policy relies on short-term bank finance

and seeks to reduce dependence on long-term financing.

54

The consequence of those policies is that the conservative current asset

financing policy reduces the risk of the firm from being unable to repay or

replace its short-term debt periodically. But it may result in enhanced cost of

financing as the long-term sources finances debt and equity have an associated

with them. An aggressive current asset financing on the other hand may have

opposite effects; it exposes the firm to higher of risk but minimizes the average

cost financing.

The working capital policy adopted by a firm can be broadly

conservative, moderate or aggressive with conservative or aggressive current

asset financing policy. The choice of overall working capital policy depends on

the risk disposition of the management.

55

ADEQUACY OF WORKING CAPITAL

Working capital should be adequate for the following reasons,

Ø It protects the business from the adverse effects of shrinkage in the value

of current assets.

Ø It is possible to pay all the current obligations promptly and to take

advantage of cash discounts.

Ø It ensures to greater extent the maintenance of a company’s credit

standings & provides for such emergencies like strike floods etc.

Ø It permits the carrying of inventories at a level that would enable a

business to serve satisfactory.

Ø It enables a company to extend factorable credit terms to customers.

Ø It enables a company to operate its business more efficiently become

there is no delay in obtaining materials etc, business of credit difficulties.

Ø It enabled a business firm to withstand in periods of depression

smoothly.

Ø There may be operating losses or decreased retained earnings.

Ø There may be excessive non-operating or extraordinary loses.

Ø The management may fail to obtain funds from other sources for purpose

of extension.

Ø There may be an unwise dividend policy.

Ø Current funds may be invested in non-current assets.

56

DANGER OF INADEQUATE WORKING CAPITAL

Ø It is not possible for it to utilize production facilities fully for want of

working capital.

Ø A company may not be able to take advantage of cash discount facilities.

Ø A company may not be able to take advantage of profitable business

opportunities.

Ø The modernization of equipment and even routine repairs and maintains

facilities may be difficult to administer

Ø A company will not be able to pay its dividend because of the non-

availability of funds.

Ø A company cannot afford to increase its credit sales and may have to

restrict its activity to cash sales.

Ø A company may have to borrow funds at excessive rate of interest.

Ø Its low liquidity may head to low profitability in the same way as low

profitability leads to low liquidity.

Ø Low liquidity would positively threaten the solvency of the business.

Ø A company is considered illiquid where it is unable to pay its debts on

maturity.

57

DANGERS OF EXCESSIVE WORKING CAPITAL

Ø Too much working capital is dangerous as too little of it. Excessive

working capital raises the following problems.

Ø A company may be tempted to over trade and lose heavily.

Ø A company may keep very big inventories and tie up its funds

unnecessarily.

Ø There may be an imbalance between liquidity and profitability.

Ø A company may enjoy high liquidity and at the some time suffer from

low profitability.

58

ISSUES IN WORKING CAPITAL MANAGEMENT

The financial manager must determine the levels and composition of current

assets. He must see that right resources are tapped to finance the current assets

and current liabilities are paid in time. There are many aspects of working

capital management can be which make it an important function of financial

manager.

Ø Time

Ø Investment

Ø Criticality

Ø Growth

Time

Working capital management requires much of the financial manager’s time.

Investment

Working capital management requires the large portion of total investments in

assets

Criticality

Working capital management has great significance for all firms but it is very

critical for small firms.

Growth

The need for working capital is directly related to the firm’s growth.

59

RATIO ANALYSIS

One of the techniques of analysis of financial statements is to calculate

ratios. Ratio is a numerical or arithmetic relationship between two figures. It is

expressed when one figure is divided by another.

Absolute figures are valuable but they standing alone convey no meaning

unless compared with another. Accounting ratios show inter-relationships,

which exist among various accounting data. When relationships among various

accounting data supplied by financial statements are worked out, they are

known as accounting ratios.

DEFINITION OF RATIO

According to Webster “A Ratio shows the relationship between two or

more things”, the relationship between two accounting figures, expressed

mathematically, is known as “financial Ratio”

NATURE OF RATIO ANALYSIS

A Ratio is known as “the indicated quotient of two mathematical

expressions”. Ratio analysis is a powerful tool of financial analysis. In

financial analysis, a ratio is used as a benchmark for evaluating the financial

position and performance of firm. The absolute accounting figures reported in

the financial statements do not provide a meaningful understanding of the

performance and financial position of a firm. An accounting figure conveys

meaning when it is related to some other relevant information.

60

Ratio help to summaries large quantities of financial data and make

quantitative judgment about the firm’s financial performance for example,

consider current ratio. It is calculated by dividing current asset by current

liabilities; the ratio indicates a relationship- a qualified judgment- to be formed

about the firm’s ability to meet its current obligations. It measured about the

firm’s liquidity. The greater the ratio, the greater the firms liquidity and vice

verse. The point to note is that a ratio reflecting a quantitative relationship

helps to form a quantitative judgment-such is the nature of all financial ratios.

SIGNIFICANCE OF RATIO ANALYSIS

Ratios are significant both in vertical and horizontal analysis. The

vertical analysis, ratios help the analyst to form a judgment whether

performance of the corporation at a point of time is good, questionable or poor.

Likewise, use of ratios in horizontal analysis indicates whether the financial

condition of the corporation is improving or deteriorating and whether the cost,

profitability or efficiency is showing and upward or downward trend analysis

of ratio involves two types of comparisons.

61

CLASSIFICATION OF RATIOS

Ratios may be classified in a number of ways keeping in view the

particular purpose. Several ratios calculated from the accounting data, label

grouped into various classes according to the financial activity or function to be

evaluated. The parties, which generally undertake financial analysis, are short

and long-term creditors, owners and management.

Ø Profitability ratios.

Ø Coverage ratios.

Ø Turnover ratios.

Ø Financial ratios.

Ø Leverage ratios.

The most common ratios are,

CURRENT RATIO

This ratio is most widely used ratio. It is the ratio of current assets to

current liabilities. It shows a firm’s ability to cover its current liabilities with its

current assets. It is expressed as follows:

Current ratio=current assets/current liabilities

Generally 2:1 is considered ideal for concern i.e. current assets should be

twice of the current liabilities. If the ratio is less than two, difficulty may be

experienced in the payment of current liabilities and day-to-day operations of

62

the business may suffer. If the ratio is higher than two, it is very comfortable

for the creditors but for the concern, it is indicator of idle funds and a lack of

enthusiasm for work.

QUICK RATIO

This ratio establishes a relation ship between quick or liquid assets and

current liabilities and current assets is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most liquid

asset other assets, which are considered to be relatives liquid and included in

quick assets, are book debts marketable securities. Inventories are considered

to be less liquid. Dividing the total of the quick assets by total current liabilities

forms the quick ratio.

Quick ratio = current assets - (inventories+prepaid

expenses)/current liabilities

1:1 ratio is considered ideal ratio for a concern because it is wise to keep the

liquid assets at least equal to the liquid liabilities at all times.

CASH RATIO

Since cash is the most liquid asset, a financial analyst may examine cash

ratio and its equivalent to current liabilities. Trade investment or marketable

securities are equivalent of cash; therefore, they may be included in the

computation of cash ratio.

63

Cash + Marketable security Cash Ratio = ------------------------------------------------ Current liabilities.

INVENTORY TURNOVER RATIO

This ratio indicates the efficiency of the firm in selling its product. It is

calculated by dividing the cost of goods sold by the average inventory. The

higher the ratio, the more efficient the marketing of inventories and vice versa.

Inventory turnover ratio = sales/inventory

NET WORKING CAPITAL RATIO

The difference between current assets and current Liabilities is called

Net working capital. Networking capital is used as a measure of a firm’s

liquidity. Net working capital measures the firm’s potential reserving of funds.

It can be related assets or capital employed.

Networking Capital Networking ratio = ------------------------------- Net Asset. RECEIVABLES TURNOVER RATIO

Receivables (or) debtors constitute an important constitute of current

assets and therefore the quality of receivables to a great extent determines the

firm’s liquidity.

Receivables turnover ratio=sales/receivables

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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET

WORKING CAPITAL OF THE SUJALA PIPES FOR THE YEAR

2005 & 2006

ASSETS 2005 2006 INCREASE DECREASE

Inventory 3065.56 3443.01 377.45 -

Debtors 6238.55 5564.41 - 674.14

Cash & Bank balance 1031.21 1747.02 715.81 -

Loans & Advances 885.29 881.26 - 4.03

Total Current Assets 11220.61 11635.7

LIABILITIES

Current Liabilities 3373.80 2716.03 657.77 -

Provision 156.37 499.89 - 343.52

Total Current Liabilities 3530.17 3215.92

Working Capital

(CA – CL)

7690.44 8419.78

Increase in Working

Capital

729.34 - 729.34

NET WORKING

CAPITAL

8419.78 8419.78 1751.03 1751.03

INTERPRETATION

Inventory and cash & bank balance has been increased in 2005. Debtors

and loans & advance have been decreased. Current liabilities have been

decrease. Finally there is increase in working capital.

65

THE FOLLOWING TABLE IS A STATEMENT SHOWING NET

WORKING CAPITAL OF SUJALA PIPES FOR THE

YEAR 2006 & 2007

PARTICULARS 2006 2007 INCREASE DECREASE

ASSETS

Inventory 3443.01 3316.98 - 126.03

Debtors 5564.41 6581.79 1017.38 -

Cash & Bank balance 1747.02 1208.69 - 538.33

Loans & Advances 881.26 945.47 64.21 -

Total Current Assets 11635.7 12052.93

LIABILITIES

Current Liabilities 2716.03 3862.57 - 1146.54

Provision 499.89 385.72 114.17 -

Total Current Liabilities 3215.92 4248.29

Working Capital (CA – CL) 8419.78 7804.64

Decrease in Working Capital - 615.14 615.14

NET WORKING CAPITAL 8419.78 8419.78 1810.9 1810.9

INTERPRETATION

There is decrease in inventory and cash & bank balances, where debtors

and loans & advances have been increased therefore current liabilities have

increased. Finally there is decrease in working capital.

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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET

WORKING CAPITAL OF THE SUJALA PIPES FOR THE

YEAR 2007 & 2008

PARTICULARS 2007 2008 INCREASE DECREASE

ASSETS

Inventory 3316.98 5318.73 2001.75 -

Debtors 6581.79 11502.3 4920.51 -

Cash & Bank balance 1208.69 1238.7 30.01 -

Loans & Advances 945.47 1090.38 144.91 -

total current assets 12052.93 19150.11

LIABILITIES

Current Liabilities 3862.57 5671.67 - 1809.1

Provision 385.72 484.67 98.95

Total Current Liabilities 4248.29 6156.34

Working Capital (CA – CL) 7804.64 12993.77

Increase in Working Capital 5189.13 - 5189.13

NET WORKING CAPITAL 12993.77 12993.77 7097.18 7097.18

INTERPRETATION

The current assets have been increased in the year of 2007 .The current

liabilities have been increased. The working capital position has been

increased when compared to previous table. Finally there is increase in

working capital.

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THE FOLLOWING TABLE IS A STATEMENT SHOWING NET

WORKING CAPITAL OF SUJALA PIPES FOR THE

YEAR 2008& 2009

PARTICULARS 2008 2009 INCREASE DECREASE

ASSETS

Inventory 5318.73 6767.92 1449.19 -

Debtors 11502.3 13834.34 2332.04 -

Cash & Bank balance 1238.7 2471.74 1233.04 -

Loans & Advances 1090.38 1902.97 812.59 -

total current assets 19150.11 24976.97

LIABILITIES

Current Liabilities 5671.67 6491.81 - 820.14

Provision 484.67 7232.30 - 6747.63

Total Current Liabilities 6156.34 13724.11

Working Capital (CA – CL) 12993.77 11252.86

Decrease in Working Capital - 1740.91 1740.91 -

NET WORKING CAPITAL 12993.77 12993.77 7567.77 7567.77

INTERPRETATION

The current assets and current liabilities have been increased in 2008

than 2007 so there are fewer requirements for source of working capital hence

there is decrease in working capital.

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CURRENT RATIO

Current Ratio = Current Assets

Current Liabilities

0

0.5

1

1.5

2

2.5

3

3.5

4

2005 2006 2007 2008 2009

Current Ratio

Interpretation

There is fluctuation in year by year. By 2008 it has reduced from 3.18

to 1. 82. In 2005 is best as the whole.

YEAR CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT RATIO

2005 11220.61 3530.17 3.18:1

2006 11635.7 3215.92 3.62:1

2007 12052.93 4248.29 2.84:1

2008 19150.11 6156.34 3.11:1

2009 24976.97 13724.11 1.82:1

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QUICK RATIO

Quick Ratio = Current Assets - Inventory

Current Liabilities

YEAR QUICK RATIO

2005 2.31:1

2006 2.55:1

2007 2.06:1

2008 2.25:1

2009 1.33:1

0

0.5

1

1.5

2

2.5

3

2005 2006 2007 2008 2009

QUICK RATIO

Interpretation

Quick ratio establishes relationship between quick assets & current

liabilities. It is found that the company is maintaining the quick ratio more

than 1 for last five years.

Generally quick ratio is in the form of 1:1

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NET WORKING CAPITAL

Net Working Capital = Current Assets – Current Liabilities

0

2000

4000

6000

8000

10000

12000

14000

2005 2006 2007 2008 2009

QUICK RATIO

Interpretation

The net working capital shows the result positively. The net working

capital has been increased slowly and decreased at the end of 2008. At the end

of 2008, SUJALA PIPES net working capital was 11252.86 where current

assets are more than current liabilities.

YEAR NET WORKING CAPITAL

2005 7690.44

2006 8419.78

2007 7806.64

2008 12993.77

2009 11252.86

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INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio = Sales / Inventory

4.7

4.8

4.9

5

5.1

5.2

5.3

5.4

5.5

2005 2006 2007 2008 2009

Inventory Turnover

Interpretation:

The inventory turnover ratio is showing positive results. In inventory

turnover it is reflecting growth stage.

Year Sales Inventory InventoryTurnover

Ratio

2005 15213.49 3065.56 4.97

2006 17760.69 3443.01 5.19

2007 17111.34 3316.98 5.16

2008 28598.66 5318.73 5.38

2009 37092.11 6767.92 5.48

72

DEBTORS TURNOVER RATIO:

Debtors Turnover Ratio = Sales / Debtors

0

0.5

1

1.5

2

2.5

3

3.5

2005 2006 2007 2008 2009

Debtors tunoverRatio

Interpretation

Debtors Turnover Ratio has been increased from 2.44 to 2.68 in the

last five years. The ratio was very high during the year of 2005.

YEAR Sales Debtors Debtors Turnover

Ratio

2004 15213.49 6238.55 2.44

2005 17760.69 5564.41 3.19

2006 17111.34 6581.79 2.60

2007 28598.66 11502.3 2.49

2008 37092.11 13834.34 2.68

73

Cash Management:

Cash is the most important factor in financial management. It is also the most

important current assets for the operation of the business. Every activity in an

enterprise revolves round the cash. Since cash is limited in every enterprise and it

cannot be raised as and when required. It is therefore, desirable that available cash

must be management properly.

Cash is the most liquid asset, is of vital importance to the daily operations of

the business. While the proportion of corporate assets held in the form of cash is

very small often in between 1% to 3%, its efficiency management is crucial to the

solvency of the business because in a very important sense cash is the focal point of

hand in business. In view of its importance, it is generally referred to as the lifeblood

of a business enterprise.

Meaning of Cash:

The term ‘cash’ is used in two senses. In a narrower sense it includes coins.

Currency not, cheques, bank drafts held by a firm with it and the demand deposits

held by it in banks. In a broader sense it also includes near cash assets such

marketable securities and time deposits with bank.

Here are two main reasons for a firm hold cash:

1. To me needs of day-to-day transactions.

2. To protect the firm against uncertainties characterizing its cash flows.

While cash serves these functions, it is can idle resource which has an

opportunity cost. The liquidity provided by cash holding is at the expense of profits

sacrificed by foregoing alternative opportunities. Hence, the finance manager should

carefully plan and control cash.

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Objectives of Cash Management:

There are two basic objectives of cash management.

1. To meet the cash disbursement need as per the payment schedule i.e. the first

basic objective of cash management is to meet the payments schedule. In

other words the firm should have sufficient cash to meet the various

requirements of the firm at different period of time.

2. The second basic objective of cash management is to minimize the amount

locked up as cash balances. In the process of minimizing the cash balances,

the finance manager is confronted with two conflicting aspects. A higher cash

balance ensures proper payment will all its advantages. But this will result in

a large balance of cash in failure of the firm to meet the payment schedule.

Motives for holding cash:

Cash is the most liquid asset, but it does not earn any substantial return for the

business. Nobody earns any income on the cash balance or currently being

maintained however some interest income may be earned on short-term deposits but

still everybody and every firm maintain some cash balance. The three motives of

holding cash are

• Transaction motive

• Precautionary motive

• Speculative motive

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• Transaction motive: Business firms as well as individuals keep cash because they require it for

meeting demand for cash flow arising out of day-to-day transactions.

• Precautionary motive: It is the need to hold cash to meet contingencies in the future. It provides a

cushion (or) buffer to withstand some unexpected emergency.

The precautionary amount of cash depends upon the predictability of cash flows.

• Speculative motive: The Speculative motive relates to the holding of cash for investing in profit

making opportunities us and when they arise. The opportunity to make profit

may arise when the security process change.

Cash Management Basic Problems: The problems associated with the cash management are:

1. Control ‘0’ level of cash:

Level of cash can be fixed by taking into account the following considerations:

• Predictable discrepancies through the technique of cash budget.

• Unpredictable discrepancies.

• Sources of funds-external as well as internal

• Relations with banks.

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2. Controlling inflow of Cash: It is necessary to check the fraudulent diversion of cash receipts and to collect

the receipts speedily. Fraudulent diversion can be controlled by internal check

system. Speedily collection of receipts may be arranged through.

• Lock box system and

• Regional offices of the company.

3. Controlling outflow of Cash: Controlling of outflow of cash is equally important. For this purpose,

centralized payments, avoidance of early payments, float and accruals should be

taken recourse.

4. Investment of Surplus Cash: Investment of surplus cash available with the company depends upon the

discretion of the executive of the company. Investment made on Temporary basis

and on Permanent basis. In taking investment decisions.

Following points are usually given weightage.

Ø Security

Ø Liquidity

Ø Yield

Ø Maturity

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Advantages of Ample Cash Funds:

Firms having ample cash reserves may derive the following advantages:

• A shield for technical inefficiency.

• Maintenance of goodwill.

• Availing of cash discount.

• Good bank – relations.

• Exploitation of business opportunities.

• Encouragement to new investment.

• Increase in efficiency.

• Overcoming abnormal financial situations.

Factors of Cash Management:

The following are the four factors of cash management

1. Cash Planning:

Cash inflows and outflows should be planned to project ash surplus or deficit

for each period of planning period. “Cash planning is a technique to plan for and

control the use of cash”. Cash plans are very crucial in developing the overall plans

of the firm. Cash planning may be done on daily, weekly or monthly basis. Cash

budget is prepared for this purpose.

78

2. Managing the Cash Flows:

The flow of cash should be properly managed for efficient use of cash. The

cash inflows should be accelerated while, as far as possible decelerating the cash

outflows.

3. Optimum Cash Level:

The firm should decide about the appropriate level of cash balance. The cost

of excess cash and danger of cash deficiency should be matched to determine the

optimum level of cash balances.

4. Investment Surplus Cash:

The surplus cash balance should be properly invested to earn profits. The firm

should decide about the division of such cash balance between bond deposits,

marketable securities and corporate lending.

Tool of Cash Planning:

These include methods, which establish the future level in a firm.

1. Net Cash Forecast:

Forecast of net cash means forecast of cash inflows and outflows for a given

period. There are two methods of forecasting cash position.

• Cash flow method, which plots out, estimated receipts and payments.

• Adjusted earning method, on the basis of estimate inflow of cash, expenditure

or cash inflow is planned.

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2. Cash Budget: Cash budget is the second toll of cash planning. It is a systematic forecast of

cash requirements i.e., forecast or cash inflows and outflows and thus shows the

probable surplus or deficiency of cash.

In forecasting the cash flow, policies regarding other functions such as sales,

production, marketing, personnel etc. are taken into consideration.

Method of Preparing Cash Budget: 1. Receipt and payments method: Cash budget is divided in two parts showing cash receipts and cash payments.

Total cash receipts are estimated taking into account the cash received from business

operations, from non-estimated likewise, in preparing cash budget total receipts are

added to and disbursements deducted from the opening cash balance.

• Profit and loss adjustment method.

• Balance sheet method.

2. Forecasting on Overall Working Capital Position: Forecast of the overall working capital position is also an important tool of

cash planning. Working capital analysis forecast the value of current assets and

current liabilities to know the cash position of business.

Inventory Management:

Inventories constitute the most significant part of current assets of a large

majority of companies in India. The term inventory refers to the stock pile of the

product. The assets which firms store as inventory are:

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• Raw materials:

Inputs that are converted into finished products through manufacturing process.

• Work in progress:

Semi finished products that require more work before they are for sale.

• Finished goods:

Goods which are completely manufactured products and/or ready for sale.

Need to hold inventories:

There are three general motives for holding inventories

• The Transaction Motive:

Which emphasis the need to maintain inventories to facilitate smooth production

and sales operation.

• The Precaution Motive:

Which necessitates holding of inventories to guard against the risk of

unpredictable changes in demand and supply forces and other factors.

• The Speculative Motive:

Which influences the decision to increase or reduce inventory level to take

advantage of price fluctuation.

81

Receivable Management:

Account receivable constitutes a significance portion of the total current assets

of the business. They are direct consequences of “trade credit”. Which has become

as essential marketing tool in modern business.

Meaning of Receivable:

Receivable are asset accounts representing amounts owned to the firm as a

result of sale of goods or services in the ordinary course of business.

Meaning of Receivables Management:

It may be define as the process of making decision relating to the investment

of fund on this aspect, which will result in maximizing the overall return on the

investment of the firm.

The problem of management of receivables is basically a problem of

balancing profitability and liquidity. Soft credit terms are attraction for higher sales

and hence longer the time a company allows its customers to pay, resulting in greater

sales as higher profits. However, on the other hand the longer the period of credit,

the greater the risk, greater the level of debt and greater the strain on the liquidity of

the company.

Characteristics of Maintaining Receivables:

• Expansion of Sales

• Increased Profit

• Financing Receivables

• Administrative Expenses

• Cost of Collection

• Bad debt

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SUMMARY

Proper allocation of funds in current asset is necessary to increase the

productivity and to achieve the target sales.

Working capital is needed for its day-to-day workings in business

without any breakouts. In Sujala Pipes the working capital position is good.

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FINDINGS

Ø In financial year 2006, the firm is satisfactory regarding the position of

working capital.

Ø Working capital management of SUJALA PIPES is increased in every

year.

Ø The current ratio is more than one in five financial years, so current

assets are high compared to current liabilities.

Ø Debtor turnover ratio was in the peak during the year 2005 due to high

sales and decreased debtors in the year 2005.

Ø Profit of SUJALA PIPES is increasing it indicate that company is

working with high performance and better management.

Ø The company overall financial performance both in long run and short

run is adequate and acceptable.

84

SUGGESTIONS

Ø As the firms networking capital increase or decrease in relation to sales

value. There is need to concentrate on control over current assets and

current liabilities.

Ø In SUJALA PIPES, net working capital shows increasing trend.

Ø The company overall financial performance both in long and short run is

acceptable

Ø Current ratio of the company has been fluctuating this is due to change

in liability.

85

BIBLOGRAPHY

REFERENCE AUTHORS FINANCIAL MANAGEMENT I.M.PANDEY FINANCIAL MANAGEMENT PRASANNA CHANDRA RESEARCH METHODOLOGY R.C.KOTHARI WEBSITES: WWW.NANDIPIPES.COM WWW.SUJALAPIPES.COM

86

BALANCE SHEET OF SUJALA PIPES PRIVATE LIMITED AS ON 31ST MARCH

Particulars 2005 2006 2007 2008 2009 sources

Share holders funds Share capital 2007.23 2007.23 2007.23 2007.23 2007.23 Reserves & surplus 6993.56 7726.03 8177.41 9672.46 16822.61

Loan funds Secured loans 5087.87 5704.15 4964.5 9283.23 11852.69 Unsecured loans 944.73 1245.34 1328.17 1938.13 2153.81

Deferred tax Deferred income tax 244.5 314 478.45 671.08 766.22

TOTAL 15277.89 16996.75 16955.76 23572.13 33605.56 Application of funds Fixed assets 8021.77 9517.98 10980.26 12693.18 16157.47 (-)depreciation 1675.53 2095.11 2575.47 3138.53 3803.59 Net fixed assets 6346.24 7422.87 8404.79 9554.65 12353.88 Capital works in progress

690.78 807.29 502.4 763.53 1812.94

Current assets, loans & advances

Inventory 3065.56 3443.01 3316.98 5318.73 6767.92 Debtors 6238.55 5564.41 6581.79 11562.3 13834.34 Cash & Bank 1031.21 1747.02 1208.69 1238.7 2471.74 Loans & advances 885.29 881.26 945.47 1090.38 1902.97

TOTAL 11220.61 11635.7 12052.93 19210.11 24976.97 (-)Current liabilities

& Provisions

Current Liabilities 3373.8 2716.03 3862.57 5671.67 6491.81 Provisions 156.37 499.89 385.72 484.67 732.3

TOTAL 3530.17 3215.92 4248.29 6156.34 7224.11 Net Current Assets 7690.44 8419.78 7804.64 13053.77 17752.85 Welfare revenue expenses

212.04 159.98 107.91 55.85 -

TOTAL 15277.89 16996.76 16955.76 23572.16 33805.58