Working Capital Management
Working Capital Management
Working Capital Management
Submitted By
Sahul Rana
BM-017343
This is to certify that the project Working Capital Management is a bonafide work done
by Mr. Sahul Rana, Enrollment No. BM017343 and Batch 2018-20 in partial fulfilment of
the requirement of PGDM program of IMS GHAZIABAD. The project was undertaken at
Mrs. Bector’s Food Specialties Ltd.
The report is formally submitted to Mr. Harmesh Chand, Assistant Manager, Finance
Department, Mrs. Bector’s Food Specialties Limited, Tahliwal, Himachal Pradesh and Mr.
Nikhil Kaushik, faculty guide, IMS Ghaziabad.
The work done has not been submitted earlier at any other University or Institute for the
award of the degree.
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ACKNOWLEDGEMENT
Sahul Rana
Roll No: BM-017343
Batch 2018-20
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Preface for the Internship Report
This report is prepared to fulfill the requirement of the PGDM program of Institute Of
Management Studies, Ghaziabad on “Working Capital Management of Mrs. Bector’s
Food Specialties Ltd.”. I have chosen Mrs. Bector’s Food Specialties Ltd because it is one
of the leading companies in the non-glucose biscuits and premium bread segments in North
India. It is known for its innovative offerings, packaging and its commitment to quality.
Keeping up with changing consumer preferences.
The objective of the internship program was to familiarize the student with the
implementation of the knowledge he/she earned on the campus. The practical knowledge is
far different from the bookish knowledge that a student achieves in an institution.
The present report is not free of limitations. There might have problems regarding lack of
limitation in some aspects and also some minor mistakes such as typing mistakes. These few
drawbacks have occurred merely due to lack of secondary sources of information. Though I
have tried my best to keep the report free from errors. I apologize if any error is found which
was not deliberately made. If the report can help any person in providing information, I will
feel that the purpose of the report has been fulfilled.
I am grateful to Mrs. Bector’s Food Specialties Ltd., for providing all the required support
during the internship.
Thank you for showing your interest in this project report.
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INDEX TABLE
SR NO. CONTENTS
1. Executive Summary
2. Industry Profile
Bakery Segment in India
Biscuit Industry in India
Porter’s Five Forces Analysis
3. Company Profile
Introduction
Paradigm Shift and Moving Ahead
About MBFSL
Awards and Achievements
Growth
Products
4. Research Methodology
Scope of the Study
Objectives of the Study
Research Methodology
Limitation of the Study
5. Working Capital Management
Introduction
Breaking Down WCM
Concept of Working Capital
Components of Working Capital
Classification Of Working Capital
Importance of Working Capital
Disadvantage of Excessive Working Capital
Factors Determining the working capital requirement
Management of Working Capital
Schedule of Changes in Working Capital
6. Analysis and Findings
7. Conclusions and Recommendations
8. References
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EXECUTIVE SUMMARY
INDUSTRIAL PROFILE
The Indian biscuit industry gained prominence in the national bakery scene during the later
part of the 20th century. This was the time when the urban population was looking for
readymade food at a convenient cost. Earlier on, biscuits were regarded as part of people who
were ill, but at present is one of the most present fast foods across various age groups. Their
popularity has grown because they can be carried easily and they offer a wide variety of
tastes and are also not that expensive.
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COMPANY PROFILE
Mrs. Rajni Bector started an enterprise in 1978, unveiling her love for baking by whipping
up remarkable ice creams, breads and biscuits. Cremica began its journey on the foundation
of quality, freshness and taste. The small enterprise in due course of time has become a huge
conglomerate, where the standards of goodness have remained the same.
Cremica is one of the leading companies in the non-glucose biscuits and premium breads
segment in North India, according to Techno Pak Report, with products sold under their well-
recognized brands, ‘Mrs. Bector’s Cremica’ and ‘English Oven’ and setting the standards
through consistent quality, globally certified production facilities and unmatched expertise
with love.
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METHODOLOGY
In preparing of this project the information is collected from the following sources.
Primary data:
The Primary data has been collected from Personal interaction with Finance Manager i.e. Mr.
Mukesh Pareek, and Assistant Manager i.e. Mr. Harmesh Chand and other staff members.
Secondary data:
The major source of data for this project was collected through annual reports, profit and loss
account of 5 year period from 2014 to 2018 & some more information collected from internet
and text sources.
SAMPLING DESIGN
1. Sampling Unit: Financial Statement.
2. Sampling Size: Last five years financial statements.
3. Tools Used: MS-Excel has been used for calculations.
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INDUSTRY PROFILE
Biscuits: Biscuit industry is characterized by a few large players, regional brands as well as
small scale industries. In the unbranded sector, over 30,000 small, very small and tiny units
spread all over the country. After the dereserved of biscuit industry from small-scale industry
in 1997-98, it is growing at a rate of over CAGR of 10.00%. Although, per capita annual
consumption of biscuit in India is only 2.50 kg, compared to about 10.00 kg in the USA and
Western European countries and 4.20 kg in South-East Asian countries.
Bread: In the unbranded sector, there are about 75,000 bread manufacturers spread all over
including some of those operating even out of residential premises. Average per capita annual
bread consumption is estimated to be at ₹ 1.80 kg per person in India.
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BISCUITS INDUSTRY IN INDIA
India Biscuits Industry is the largest among all the food industries and has a turnover of
around Rs.3000 crores. India is known to be the second largest manufacturer of biscuits, the
first being USA. It is classified under two sectors: organized and unorganized. Bread and
biscuits are the major part of the bakery industry and covers around 80 percent of the total
bakery products in India. Biscuits stands at a higher value and production level than bread.
This belongs to the unorganized sector of the bakery Industry and covers over 70% of the
total production.
India Biscuits Industry came into limelight
and started gaining a sound status in the
bakery industry in the later part of 20th
century when the urbanized society called
for ready-made food products at a tenable
cost. Biscuits were assumed as sick-man's
diet in earlier days. Now, it has become
one of the most loved fast food product for
every age group. Biscuits are easy to carry,
tasty to eat, cholesterol free and reasonable at cost. States that have the larger intake of
biscuits are Maharashtra, West Bengal, Andhra Pradesh, Karnataka, and Uttar Pradesh.
Maharashtra and West Bengal, the most industrially developed states, hold the maximum
amount of consumption of biscuits. Even, the rural sector consumes around 55 percent of the
biscuits in the bakery products.
The total production of bakery products have risen from 5.19 lakh tons in 1975 to 18.95 lakh
tons in 1990. Biscuits contributes to over 33 percent of the total production of bakery and
above 79 percent of the biscuits are manufactured by the small scale sector of bakery industry
comprising both factory and non-factory units.
The production capacity of wafer biscuits is 60 MT and the cost is Rs.56,78,400 with a
motive power of 25 K.W. Indian biscuit industry has occupied around 55-60 percent of the
entire bakery production. Few years back, large scale bakery manufacturers like Cadbury,
nestle, and brooke bond tried to trade in the biscuit industry but couldn't hit the market
because of the local companies that produced only biscuits.
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The Federation of Biscuit Manufacturers of India (FBMI) has confirmed a bright future of
India Biscuits Industry. According to FBMI, a steady growth of 15 percent per annum in the
next 10 years will be achieved by the biscuit industry of India. Besides, the export of biscuits
will also surpass the target and hit the global market successfully.
Bargaining
Power of
Suppliers
Competitiv
e Rivalry Bargaining
Within Power of
Industry Porter's Customers
Five
Force
Model
Threat of
Threat of
New
Substitute
Entrants
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Bargaining Power of Buyers:
High because of
Availability of many biscuits from low, moderate prices.
Availability of biscuits from non-organized sector.
Loyalty of the buyers to biscuits that have brand identity makes them more powerful in the
case of new entries.
Entry Barriers:
Low entry barriers because of,
Capital intensive manufacturing, advertising and distribution.
Heavy competition from major players.
Threat of Substitutes:
It is high because,
Substitute threat is more in the case of biscuits.
Growing packaged industry and bread industry.
Traditional Indian homemade snacks.
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COMPANY PROFILE
Introduction
The CREMICA group was established in 1978 by Mrs. Rajni Bector turning her passion for
Ice Cream making (also her hobby) into a small backyard enterprise. She established the
CREMICA group today a widely diversified food products and services company with an
annual sales figure of Rs. 400 Crores, growing at the rate of 30 per cent per annum. In the
course of the past two decades, the CREMICA group has established itself as a huge food
products conglomerate, leading the food processing business through its range of products,
its internationally certified production facilities, the consistency of its quality, and its
unmatched expertise in the industry. Mrs. Bectors Food Specialties Ltd., is a part of Cremica
Group. Cremica, a name that always spelt quality, practical and great tasting food, is fast
becoming a household name in India. Its vast array of products has been carefully selected
to provide the best food processing industry has to offer. Today, Cremica is known for its
unique recipes, health oriented ingredients and state- of- the art standards, unleafing her own
story, Mrs. Bector said, I started the business as a hobby and sold kitchen-made ice creams
at a very small scale. My hobby converted in a profession when I saw the liking of my ice
creams at a stall I had put for a Diwali Melas in the late 1970s. Although I had no formal
training, the recipes were a runaway success. In 1982, with a small investment of 300/-, a
small unit was set up at home. We produced only ice creams and puddings in the first year.
Later the company ventured into the biscuits, breads and condiment business.
Today, Cremica group does sales of over Rs.400 crore (Rs.4 billion) and is an important link
in the supply chain to the fast food industry with an inventory of buns, breads, sauces,
ketchups and ice creams toppings. Cremica is an approved supplier of bakery and liquid
products to Worlds largest fast food giants Mc Donalds. Its products are also on the approved
list of Canteen Stores Department, which caters to the requirements of Indian Armed Forces.
It is also a major supplier to Indian Railways, Super Bazaars, Big Bazaar, Vishal Mega Mart,
Reliance, Pizza Hut, Cafe Coffee Day, Barista, Papa Johns, United Nations (World Food
Programme), Jet Airways to name just a few.
Cremica manufactures high quality Biscuits, Bread and Buns, Confectioneries, Indian
Gravies /Curries, Tomato Ketchup, Sauces, Mayonnaise, Thousand Island, Spreads, Syrups,
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Toppings, Salad Dressings, Biscuits, Bread & Buns, Ice-Cream, Confectionery and Indian
Snacks, Fruit & Flavored syrups for Milk and thick shakes, Ice Creams and Desserts etc.
ABOUT MBFSL
MBFSL was established in 1995 as a joint venture (JV) with Quaker Oats for supplying
condiments such ketchup and sauces to McDonalds and gradually added buns, batter, and
bread. The JV partner withdrew from MBFSL in 1999 and during 2007, the biscuits and
bakery business was transferred to MBFSL through slump sale. During 2013-14, the
company pursuant to a business reorganisation scheme, demerged its food supplements
(sauces, spreads, and namkeen) division to a separate company named, Cremica Food
Industries Limited. † For complete rating scale and definitions, please refer to ICRA’s
Website, www.icra.in, or any of the ICRA Rating Publications.
As a result, MBFSL currently manufactures biscuits and bakery products which are marketed
under Mrs. Bectors Cremica and Mrs. Bector’s English Oven brand respectively. MBFSL
has five manufacturing locations namely Phillaur, Tahliwal, Noida, Mumbai (housed under
its wholly owned subsidiary, Bakebest Foods Private Limited), and Bangalore. The company
operates in consumer segment through its network of distributors and retailers besides
supplying to export markets and catering to institutional customers.
During FY2016, private equity investors – CX Partners and Gateway Partners acquired
46.75% stake in MBFSL from Mr. Ajay Bector and the earlier private equity investor Motilal
Oswal (which held 23.37% stake). Further, there was a family restructuring where in Mr.
Anoop Bector and his family became the major shareholders, holding 53.25% stake with the
exit of Mr. Dharamveer Bector and Mr. Ajay Bector.
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VISION
A strong and successful, Biscuit and Confectionery Manufacturing Company, respected by
stakeholders with products enjoyed by consumers as part of a balanced diet Cremica Group
will follow this objective by encouraging:
1. The safety, quality and taste of their products and maintaining the culture and tradition of
their origins;
2. The development of a business environment in which companies can meet the needs of their
customers;
3. That products comply with the regulatory framework at national and European level;
4. That raw materials are sourced and products manufactured in a responsible manner from an
economical, environmental and social point of view.
MISSION
1. Promote the Cremica food categories to stakeholders through building confidence and trust
via responsible and transparent practices throughout the supply chain, meeting consumers
needs for safe, high quality, tasty and nutritious products;
2. Influence public policy, at European and Global levels via proactive and effective networking
and communication with external stakeholders. Use aligned internal policy frameworks to
influence current issues and to develop positions on future issues;
3. Enhance value to members by addressing their needs via a transparent, timely and efficient
decision making process on all non-competitive issues relevant to member’s activities. Make
best use of members’ expertise and commitment in order to optimise efficiency and aligned
positions through collective engagement.
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2016
Food Safety System Certification 22000 from UK AS Management Systems for
manufacturing (pre-mixing, mixing, moulding, baking, cooling, sandwiching) of biscuits and
cookies for a period of three years from March 10, 2016.
2018
Award of Honour by Income Tax Department, Ludhiana
THE GROWTH
Strong market presence through 'Mrs. Bectors Cremica' and 'English Oven' brands in
North and Northwest India and improving revenue diversity
MBFSL gets 90% of its biscuit revenue (Mrs. Bectors Cremica brand) from North and
Northwest India, and is among the top three biscuits in most of the states-Punjab, Haryana,
Himachal Pradesh, Jammu & Kashmir, Uttar Pradesh, Uttarakhand, and Delhi National
Capital Region (NCR) in that region. A network of 570 distributors and 135 super stockists
and 1271 Cremica preferred outlets ensure brand presence in over 450,000 retail outlets.
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Furthermore, MBFSL has been increasing its premium product portfolio and leveraging its
presence, with focus on high-margin biscuits such as cookies, creams and crackers, and
reduced dependence on low-margin glucose biscuits. With enhanced capacity and increasing
distribution reach, growth of segment to increase to 15% from 3% in last 3 years.
Strong growth in bakery segment under the brand 'English Oven' led to increase in revenue
contribution to 25% in fiscal 2018 from 21% in fiscal 2016. The brand is amongst the leading
premium bakery brands in India. With addition of new lines and new products (premium
breads, croissants, buns) the growth of over 18-20% is likely to continue over the medium
term.
Established relations with large institutional players
The company remains a preferred supplier of buns to Mc Donalds (Hardcastle Restaurants
Pvt Ltd in West and South and Connaught Plaza restaurants Pvt Ltd) in North and East) ,
Burger king, KFC (Devyani International Pvt Ltd )and is also targeting new QSR chains
supported by continued focus on quality and standards. Longstanding relations with large
institutional customers such as McDonald's (over 15 years), as the sole supplier of buns, has
resulted in a steady source of revenue over the past few years. MBFSL also supplies to
Domino's Pizza, Wendy's, KFC, and Burger King. It also sells bakery products in modern
retail chains such as Easy Day, Big Bazaar, and Reliance Retail, among others.
In biscuit segment as well, the company has also shown over 20% growth in exports segment
(branded and private label) driven by its strong focus on quality and healthy share of 23% of
Indian biscuit exports market.
Established customer relations should provide stability to operating income and profitability,
given the revenue visibility and cost plus profitability built into long-term contracts.
PRODUCTS
Straddling all segments in the biscuit industry, Cremica offers high quality products in
exciting and innovative formats, reinforcing our commitment to delivering a world class
product experience to the discerning consumers.
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Health
Digestive
Oatmeal Cookies
Digestive Cornflakes
Marie Classic
Creams
Bourbon
Twin Cream
Magicream
Crackers
Ajwain Cracker
Kalonji Cracker
Jeera Lite
Krack Bite
Party Cracker
Cookies
Golden Bytes - Butter
Golden Bytes – Mixed Nuts
Coconut Cookies
Cashew Cookies
Coconut Crunches
Butter Cookies
Butter Gold
Glucose
English Oven Thy Bread
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RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
This project “A Study on Working Capital Management of Mrs. Bector’s Food
Specialties Ltd.” is considered as an analytical research.
Analytical research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, datd or material.
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Sampling Design
Sampling Unit: Financial Statement.
Sampling Size: Last Five Year financial Statement.
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WORKING CAPITAL MANAGEMENGT
INTRODUCTION
The project deals with the study of Working Capital Management. Working capital
management refers to a company's managerial accounting strategy designed to monitor and
utilize the two components of working capital, current assets and current liabilities, to ensure
the most financially efficient operation of the company. The primary purpose of working
capital management is to make sure the company always maintains sufficient cash flow to
meet its short-term operating costs and short-term debt obligations.
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The collection ratio, also known as the average collection period ratio, is a principal measure
of how efficiently a company manages its accounts receivables. The collection ratio is
calculated as the product of the number of days in an accounting period multiplied by the
average amount of outstanding accounts receivables divided by the total amount of net credit
sales during the accounting period. The collection ratio calculation provides the average
number of days it takes a company to receive payment. The lower a company's collection
ratio, the more efficient its cash flow.
The final element of working capital management is inventory management. To operate with
maximum efficiency and maintain a comfortably high level of working capital, a company
must carefully balance sufficient inventory on hand to meet customers' needs while avoiding
unnecessary inventory that ties up working capital for a long period before it is converted
into cash. Companies typically measure how efficiently that balance is maintained by
monitoring the inventory turnover ratio. The inventory turnover ratio, calculated as revenues
divided by inventory cost, reveals how rapidly a company's inventory is being sold and
replenished. A relatively low ratio compared to industry peers indicates inventory levels are
excessively high, while a relatively high ratio indicates the efficiency of inventory ordering
can be improved.
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As a result, the net working capital will remain the same. This concept is usually supported
by the business community as it raises their assets (current) and is in their advantage to
borrow the funds from external sources such as banks and the financial institutions.
In this sense, the working capital is a financial concept. As per this concept:
Gross Working Capital = Total Current Assets
1. Cash / Money:
Cash is the most liquid form of funds, hence it is one of the huge important components of
working capital. It is necessary for every business to maintain optimum level of cash in hand
regardless if other existing assets is substantial. Cash act as an effective instrument at various
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stages of product life cycle. Cash in hand plays an important role to balance any gaps arising
between productions to distribution cycle.
2. Account Receivable:
Accounts receivable tend to be profits due which is owed to a business by their clients for
the sale of goods. Efficient, timely collection of account receivable is most essential to
maintain financial health of the company’s operation. For example: marketable securities
consist of commercial papers offered by companies, acceptance letter, treasury bill, etc.
These instruments can be bought and sold at quicker and reasonable rate. They usually have
less than one year as their maturity period. This attract company’s to investment additional
cash reserves and also can be used as highly liquid assets.
Accounts receivable have always been under assets side of a company’s balance sheet, but
they are not actually assets until these are typically collected. A commonly used method by
analysts to evaluate the organization’s accounts receivable cycle is that, day’s sales
outstanding, that reveals that the typical average days an organization sales cycle to collect
profits from sale of goods.
3. Account Payable:
Account payable, the money an organization need to pay out throughout the short term, is
also an another key components of working capital management. Normally company’s
effectively maintain balance between maximum cash flow simply by delaying payments as
long as it is fairly potential. In addition, they need to keep positive credit ranks / scores while
dealing with creditors as well as suppliers. Commonly, a business’s average time for account
receivables are significantly shorter than the average time for account payable’s.
4. Stock / Inventory:
Stock is one of the main components of working capital. An organization’s main asset that it
transforms in to sales profits and earnings. The speed at which business sells and restock is
significant to determine its success. Stock are of various types, which includes stock as raw
material, stock as work in progress or stock in finished goods. Investors give consideration
to their stock turnover level become a sign of this strength to sales and as a measure towards
how efficient the business looks in their buying as well as production process. Stock that is
minimal, puts the company into danger zone of getting rid of off product sales. Again
excessively high stock levels express inefficient utilization of working capital.
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CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified in two ways:
1) On the basis of concept
2) On the basis of time
.
On the basis of concept working capital can be classified as:
a) Gross working capital, and
b) Net working capital.
On the basis of time, working capital may be classified as:
a) Permanent or fixed working capital.
b) Temporary or variable working capital
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IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL
Solvency of the business: Adequate working capital helps in maintaining the solvency of
the business by providing uninterrupted of production.
Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.
Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
material and continuous production.
Regular Payment of Salaries, Wages And Other Day TO Day Commitments: It leads to
the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
Exploitation Of Favorable Market Conditions: If a firm is having adequate working
capital then it can exploit the favorable market conditions such as purchasing its requirements
in bulk when the prices are lower and holdings its inventories for higher prices.
Ability To Face Crises: A concern can face the situation during the depression.
Quick And Regular Return On Investments: Sufficient working capital enables a concern
to pay quick and regular of dividends to its investors and gains confidence of the investors
and can raise more funds in future.
High Morale: Adequate working capital brings an environment of securities, confidence,
high morale which results in overall efficiency in a business.
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DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING
CAPITAL
Excessive working capital means ideal funds which earn no profit for the firm and business
cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and accumulation of inventories.
Excessive working capital implies excessive debtors and defective credit policy which causes
higher incidence of bad debts.
It may reduce the overall efficiency of the business.
If a firm is having excessive working capital then the relations with banks and other financial
institution may not be maintained.
Due to lower rate of return n investments, the values of shares may also fall.
The redundant working capital gives rise to speculative transactions
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The requirement of the working capital goes on increasing with the growth and expensing of
the business till it gains maturity. At maturity the amount of working capital required is called
normal working capital.There are others factors also influence the need of working capital in
a business.
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raw- work-in -
material progress
finished
Cash
goods
Accounts
sales
receivables
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PRICE LEVEL CHANGES: Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in working capital.
OTHER FACTORS: These are:
Operating efficiency.
Management ability.
Irregularities of supply.
Import policy.
Asset structure.
Importance of labor.
Banking facilities, etc.
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capital can be prepared by comparing the current assets and current liabilities at two
periods.
The format of schedule of changes in working capital is as follows:
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ANALYSIS AND FINDINGS
NWC
400
344.41
350 321.58
300
RS. IN MILLIONS
243.35
250
200 175.04
150
87.1
100
50
0
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
NWC
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INTERPRETATION
The above chart shows that during the year 2013-2014 the company has 87.10 million rupees
of NWC which has been increasing till the year 2016-2017 i.e. 344.41 million rupees. But in
the year 2017-2018 there is an decrease in the NWC of 169.37 million rupees and is at 175.04
million rupees. The reason for decrease in the NWC in the year is that there is an increase in
trade payables, provisions and other financial liabilities due to which the current liabilities
has been increased and thus results in the decrease in the NWC of Mrs. Bector’s Food
Specialties Ltd in the year 2017-2018. But company had a sufficient NWC which mean it
has sufficient funds to meet its current financial obligations and invest in other activities.
2) Ratio Analysis
Ratio Analysis is a powerful tool of financial analysis. Alexender Hall first presented it
in 1991 in Federal Reserve Bulletin. Ratio Analysis is a process of comparison of one
figure against other, which makes a ratio and appraisal of the ratios to make proper
analysis about the strengths and weakness of the firm’s operations. The term ratio refers
to the numerical and quantitative relationship between two accounting figures.
Note: I have used ratio analysis in this project to substantiate the managing of working
capital. For this, I used some of the ratios to get the desired output.
i) Current Ratio
ii) Acid Test Ratio / Quick Ratio / Liquid Ratio
iii) Absolute Liquid Ratio
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These are the ratios which indicate the speed with which assets are converted or
turned over into sales.
i) Inventory Turnover Ratio
ii) Debtors/ Account Receivable Turnover Ratio
iii) Creditors/ Account Payable Turnover Ratio
iv) Working Capital Turnover Ratio
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1. Current Ratio:-
It is a ratio, which express the relationship between the total current assets and total current
libilities. It measures the firm’s ability to meet its current liability. It indicates the availability
of current assets in rupees for every one rupee of current liabilities. A ratio of greater then
one means that the firm has more current assets then current liabilities claims against them.
A standard ratio between them is 2:1.
Current Ratio
1.60
1.36 1.39 1.39
1.40
1.12 1.15
1.20
CURRENT RATIO
1.00
0.80
0.60
0.40
0.20
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above graph shows that the current ratio is increasing from the year 2013-2014 to
2016-2017 i.e. from 1.12 to 1.39, but in the year 2017-2018 it decreased to 1.15 which
means the company is not meeting the standard ratio of 2 but it still have enough current
assets to cover its short term liabilities. Thus to increase its current ratio company needs to
sell some of its unused long term assets for cash, or reduce its overhead expenses, etc.
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2. Acid Test Ratio/ Quick Ratio/ Liquid Ratio:-
The acid-test ratio is a measure of how well a company can meet its short-term financial
liabilities. The acid-test ratio is a more conservative version of another well-
known liquidity metric -- the current ratio. Although the two are similar, the Acid-
Test ratio provides a more rigorous assessment of a company's ability to pay its current
liabilities. It does this by eliminating all but the most liquid of current assets from
consideration. Inventory is the most notable exclusion, because it is not as rapidly convertible
to cash and is often sold on credit. The standard quick ratio is 1:1.
Year Current Assets Inventories Quick Assets Current Liabilities Quick Ratio
2013-2014 816.53 253.13 563.40 729.43 0.77
2014-2015 919.47 263.70 655.77 676.12 0.97
2015-2016 1142.51 313.92 828.59 820.93 1.01
2016-2017 1229.59 262.74 966.85 885.18 1.09
2017-2018 1362.33 344.20 1018.13 1187.29 0.86
Quick Ratio
1.20 1.09
0.97 1.01
1.00
0.86
0.77
0.80
QUICK RATIO
0.60
0.40
0.20
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
DATE
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Interpretation
The above graph shows that the quick ratio of MBFSL lower than its idle ratio in the years
2014 and 2015, and after that increased in the year 2016 and 2017 to 1.09, but again decreased
to 0.86 in the year 2018, which means the company may relies too much on inventory or
other assets to pay its short term liabilities.
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3. Absolute Liquid Ratio:-
Absolute Liquid Ratio may be defined as the relationship between Absolute liquid assets and
Current libilities. It include Cash in hand and cash at bank. The standard ratio is 0.5:1.
Absolute Liquid
Year Cash and Bank Balance Current Liabilities
Ratio
2013-2014 59.9 729.43 0.08
2014-2015 93.43 676.12 0.14
2015-2016 110.24 820.93 0.13
2016-2017 186.65 885.18 0.21
2017-2018 99.87 1187.29 0.08
0.20
0.05
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
DATE
Interpretation
The above chart shows that the Absolute Liquid Ratio of MBFSL is lower than the idle ratio
of 0.5:1 during the years which means that the company’s day to day cash management is in
a poor light.
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4. Inventory Turnover Ratio:-
Inventory Turnover Ratio is the ratio, which indicates the number of times the stock is turned
over i.e. sold during the year. This measures the efficiency of the sales and stock level of a
company. A high ratio means high sales, fast stock turnover and a low stock level. A low
stock turnover ratio means the business is slowing down and a high stock level.
15.00
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above chart shows that the inventory turnover ratio of MBFSL is higher then the ideal
ratio in all the years i.e. in 2013-14 it is 21.34 times and shows up and down in the following
and in the year 2017-18 stood at 18.98 times which means the company has more sales and
an effective inventory management.
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5. Inventory Holding Period:-
This period measures the average time taken for clearing the stock. It indicates that how
many days inventories take to convert from raw material to finished goods.
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above graph indicates that the inventory holding period of MBFSL is at 17.10days in
2013-14 and increased to 20.03 days in 2015-16 and then decrease in the next year to 15.94
days but increased in the year 2017-18 to 19.23, which shows that the company is
maintaining its inventory holding period by trying it to reduce it.
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6. Debtors Turnover Ratio:-
Debtors turnover ratio indicates the speed of debt collection of the firm. This ratio computes
the number of times debtors (receivables) has been turned over during a particular period.
18.00 17.00
15.40
16.00
14.00 13.07
11.93
12.00 10.56
10.00
DAYS
8.00
6.00
4.00
2.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above chart shows that the debtors turnover ratio of MBFSL is being decreasing
continuously during the years i.e. from 17 times in 2013-14 to 10.56 times in 2017-18. The
company needs to see after its credit policy to manage its collection process to improve and
maintain its debtors turnover ratio.
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7. Debtors Collection Period:-
Debtors collection period measures the quality of debtors since it measures the rapidity or
the slowness with which money is collected from them a shorter collection period implies
prompt payment by the debtors. It reduces the chances of bad debts. A longer collection
period implies too liberal and inefficient credit collection performance.
20.00
15.00
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
As we noticed before the debtors turnover ratio is being decreasing throughout the year which
showed its effect on average collection period also i.e. in 2013-14 it was 21.47 which
increased to 34.55 in 2017-18. So, as stated above the company needs to look after its credit
policy.
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8. Creditors Turnover Ratio:-
Creditor turnover ratio is the ratio, which indicates the number of times the debts are paid in
the year.
Creditor Turnover Ratio = Net Purchase / Average Creditors
15.00
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above graph shows that the credit turnover ratio of MBFSL has shown an continous
decrease from the year 2013-14 i.e. 24.37 times to 18.06 times in 2017-18. The creditors
turnover ratio of MBFSL is decreasing through out the years, which means the company is
managing better payment terms with the creditors which allow it to make payments less
frequently.
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9. Creditors Payment Period:-
The Creditors payment period represents the average number of days taken by the firm to
pay the creditors and other bills payable.
10.00
5.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above graph shows that the average payment period of MBFSL is subsequently
increasing throughout the years i.e. 14.98 days in 2013-14 to 20.71 days in 2017-18. Which
means that the company is managing better payment terms with the creditors as stated above
also.
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10. Working Capital Turnover Ratio:-
This ratio indicates the number of times the working capital is turned over in the course of
the year. It measures the efficiency with which the working capital is used by the firm. A
higher retio indicates efficient utilization of working capital and a low ratio indicates
otherwise. But a very high working capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio = Net Sales / Net Working Capital
37.32
40.00
30.00 23.70
17.79 17.46
20.00
10.00
0.00
2013-2014 2014-2015 2015-2016 2016-2017 2017-2018
YEAR
Interpretation
The above graph shows that the working capital turnover ratio of MBFSL has decreased
during the years from 62.03 times in 2013-14 to 17.46 times in 2016-17 and then a increase
in the following year to 37.32 times in 2017-18. With this the company shows that it is
efficient in using its short term assets and liabilities to support sales.
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3) Statement of Changes in Working Capital:
The purpose of preparing this statement is for finding out the increase or decrease in working
capital and to make a comparison between two financial years.
Current Assets
If the current assets increases as a result of this, working capital also increases.
If the current assets decreases as a result of this, working capital also decreases.
Current Liabilities
If the current liabilities increases as a result of this, working capital decreases.
If the current liabilities decreases as a result of this, working capital increases.
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Statement of Changes in Working Capital Ratio for the year 2014-2015
Interpretation
In the above table it shows an increase of 156.25 million rupees in working capital of MBFSL
during the year 2013-14 and 2014-15. It indicates an adequate working capital for MBFSL.
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Statement of Changes in Working Capital Ratio for the year 2015-2016
Particulars As on 31 March As on 31 Effect on Working Capital
2015 March 2016 Increases Decreases
Current Assets
Inventories 263.70 313.92 50.22
Investments 50.35 102.70 52.35
Trade receivables 431.26 444.31 13.05
Cash and Cash 57.44 65.68 8.24
equivalents
Bank balance 35.99 44.56 8.57
Loans 16.68 36.08 19.4
Other financial assets 30.65 68.99 38.34
Other current assets 33.40 66.27 32.87
(C) Total Current 919.47 1142.51
Assets
Current Liabilities
Borrowings 90.81 191.83 101.02
Trade Payables 263.21 245.57 17.64
Other Financial 112.77 132.38 19.61
Liabilities
Other Current Liabilities 125.37 128.55 3.18
Provisions 69.02 94.25 25.23
Current Tax Liability 14.94 28.35 13.41
(D) Total Current 676.12 820.93
Liabilities
(A)-(B) Net Working 243.35 321.58
Capital
Increase in Working 78.23 78.23
Capital
Total 321.58 321.58 240.68 240.68
Interpretation
In the above table it shows an increase of 78.23 million rupees in working capital of MBFSL
during the year 2014-15 and 2015-16. It indicates an adequate working capital for MBFSL.
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Statement of Changes in Working Capital Ratio for the year 2016-2017
Interpretation
In the above table it shows an increase of 22.83 million rupees in working capital of MBFSL
during the year 2015-16 and 2016-17. The working capital has decreased from the last but
still it is sufficient for the efficient operations in the firm.
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Statement of Changes in Working Capital Ratio for the year 2017-2018
Interpretation
In the above table it shows an decrease of 169.37 million rupees in working capital of
MBFSL during the year 2016-17 and 2017-18. It shows that due to increase in trade payables,
provisions and other financial liabilities and decrease in current assets such as investments,
cash and cash equivalents, bank and other financial assets the working capital has been
decreased.
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CONCLUSION AND RECOMMENDATIONS
Findings
Net Working Capital of MBFSL was increased from 2013-14 to 2016-17 i.e. from
87.1 to 344.41 million rupees and then decreased to 175.04 million rupees in 2017-
18, but still had a positive net working capital.
The current ratio and quick ratio of MBFSL is lower than the ideal ratios i.e. 1.15:1
and 0.81:1 in the year 2017-18. And also a low absolute liquid ratio of 0.08:1 in 2017-
18 which is too low then the ideal ratio of 0.5:1.
The inventory turnover ratio of MBFSL was decreased from 21.34 times in 2013-14
to 18.98 times in 2017-18 but still high then the ideal ratio. And also efficient
inventory holding period of 19 days in 2017-18.
The debtor’s turnover ratio of MBFSL was decreased from 17 times in 2013-14 to
10.56 times in 2017-18, but still had a high debtor turnover ratio and a low collection
period of 34 days in 2017-18 which is good for the firm.
The creditors turnover ratio of MBFSL was decreased from 24.37 times in 2013-14
to 18.06 times in 2017-18 but still had a high ratio and also paying its suppliers very
frequently i.e. 20 days of average payment period in 2017-18.
The working capital turnover ratio of MBFSL was decreased from 62.03times in
2013-14 to 17.46times in 2016-17 and then increased to 37.32times in 2017-18, but
still had a high working capital turnover ratio for MBFSL.
Suggestions
The company had a positive net working capital which means it has a sufficient
working capital to meet its current obligations and even invests in its growth.
The Liquidity ratios of the company is lower as compared to the standards. Thus the
company needs to improve its liquidity ratios by raising the value of its current assets,
reducing the value of current liabilities, or negotiating delayed or lower payments to
creditors.
The company had a high inventory turnover ratio then the standards which means a
efficient inventory holding period and just need to maintain it like this only.
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The debtors turnover ratio of MBFSL is high as compared to the standard and thus
need to just maintain it like this only and also had an efficient collection period which
is good for the company.
The creditors turnover ratio of MBFSL was high as compared to the standards and
low payment period which means they are paying its suppliers very frequently but it
needs to negotiate with the suppliers for the delay or lower payments to have more
cash which lead to the increase in the liquidity ratio of the company.
The company had a high working capital turnover ratio which indicates that
management is being extremely efficient in using a firm’s short term assets and
liabilities to support sales.
Thus, the Mrs. Bector’s Food Specialties Ltd. need to increase its cash & cash equivalents,
bank balances, need to invest more to increase its liquidity position which is lower then the
standards and sell fixed assets which will lead to increase in cash thus increase in the liquidity
positions.
Conclusion
The study on working capital management conducted in Mrs. Bector’s Food Specialties Ltd.
to analyze the liquidity position through the annual report of the company from 2013-14 to
2017-18 by using the financial tools such as ratios, net working capital and changes in
working capital.
The company had a positive working capital which needs to be maintain it and need to
increase quick assets by generating more cash or increase in investments by selling fixed
assets which are not in use for long or, negotiate with suppliers for delays or lower payments.
By increasing the quick assets MBFSL can improve their Liquidity position which is not so
good for the company. As company has a high debtors and creditors turnover ratio and a
positive net working capital which is good but also need to improve the liquidity ratios which
is also necessary for the company’s day to day operations.
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REFERENCES
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