A Study On Working Capital Management: Chapter-1 Finance

A Study on Working Capital Management
CHAPTER-1
INTRODUCTION
1.1 Introduction
Finance:
Finance is one the basic foundations of all kinds of economic activities. It is the master
key, which provides access to all the sources for being employed in manufacturing. Hence it is
rightly said that finance is lifeblood of any enterprise beside begin the scarcest elements, it is also
the most indispensable requirement without finance neither any business can be started nor
successfullyrun.Provisionofsufficientfundsatrequiredtimeisthekeytosuccessofconcern
.As matter of fact finance may be set to be the circulatory system of economic body, making
possible the needed co-operation among many units of the activity.
Meaning of Finance:
Finance is defined as the management of money and includes activities like investing.
Borrowing, lending, budgeting, saving, and forecasting. …corporate finance also includes
the tools and analysis utilized to prioritize and distribute financial resources.
Definitions:
“According to Guthmann and Doughal Business finance can broadly be defined as the
activity concerned with planning, rising, controlling and administering of funds used in the
business.”
“According to Bonnevile and Dewey Finance consists in the rising, providing and managing
of all the money, capital or funds of any kind to be used in connection with the business.”
VEMU INSTITUTE OF TECHNOLOGY Page 1

“According to Prof. Ezra Soloman Financial management is concerned with the

efficient use of any important economic resources, namely capital funds.”
Features of Finance:
The main characteristics or features of finance are
1. Investment Opportunities:
In finance, investment can be explained as the utilization of money for profit or

returns. Investment can be done by: -
• Creating physical assets with the money (such as development of land,

acquiring commercial assets, etc.),
• carrying on business activities (like manufacturing, trading,etc.),and
• Acquiring financial securities (such as shares, bonds, units of mutual funds,etc.).
2. Profitable Opportunities:
In finance, profitable opportunities are considered as an important aspiration (goal).

profitable opportunities signify that the firm must utilize its available resources most efficiently
under the conditions of cut-throat competitive markets. Profitable opportunities shall be a vision.
It shall not result in short-term profits at the expense of long-term gains.
3. Optimal Mix of Funds:
Finance is concerned with the best optimal mix of funds in order to obtain the desired
and determined results respectively.Primarily, funds are of two types, namely,

• Owned funds (promoters contribution, equity shares ,etc.),and
• Borrowed fund (bank loan, bank overdraft, debentures,etc).
The composition of funds should be such that it shall not result in loss of profits to the
entrepreneurs (promoters)and must recover the cost of business units effectively and efficiently.
4. System of Internal Controls:
Finance is concerned with internal controls maintained in the organization or work place.
Internal controls are set of rules and regulations framed at the inception stage of the
organization, and they are altered as per the requirement of its business.
However, these rules and regulations are monitored at various intervals to accomplish the same,
which have been consistency followed.
5. Future Decision Making:
Finance is concerned with the future decision of the organization. A ‘’good finance” is an
indicator of growth and good returns. However, the decision shall be framed by giving more
emphasis on the present and future perspective (economic conditions) respectively.
Scope of Financial Management:
Financial management emerged as a distinct field of study at the turn of this century. Many
eminent persons defined it in the following ways.
• Economic concepts (such as macro and micro economics, economic order quantity, money
value discounting factor and more) are directly applied with the final management approaches.
• Accounting place a critical rolling management decision making and in final management.

• Financial management applies large number of mathematical and statistical tools

and concepts (also known as econometric).
• Production management is operational aspect of decision making requiring the support

of financial management.
• Financial management/finance department allocates resources for marketing and

related activities that play a crucial role in a firm’s marketing budget.
• Financial management is related to human resources department, which provides man

power to all the functional areas of management.
Objectives of Financial Management:
Funds are obtained for investment in business. These funds must be dully protected and
conserved. We must make maximum use of these funds. There are twin objectives, namely
profitability and liquidity of funds. These are conflicting and finance executives must secure the
balance and optimize the utilization of funds.
• Procurement of money needed by business.
• Keeping and increasing the invested money through sound financial policies and programme.
• Generating income or profit for the business.
• Financial planning, forecasting of cash receipts and disbursements – cash flow statement.
• Raising of funds, either equity capital or fixed interest capital which includes both preference
shares capital and loan capital (securing of funds).
• Use and allocation of funds (Administration of funds);and

• Financial controls (budgets and other controls).
• To ensure regular and adequate supply of funds to the concern.
• To ensure adequate returns to the shareholders which will depend upon the earning capacity,
market price of the shades, expectations of the shareholders.
Tools of Financial Analysis:
Financial statements are prepared to have complete information recording assets, liabilities,
equity, reserves, expenses and profit and loss of an enterprise. To analyze & interpret the
financial statements, commonly used tools are comparative statements, common size statements
extra. Let us take a look.
A brief explanation of the tools or techniques of financial statement analysis presented below.
1. Comparative Statements:
Comparative statements deal with the comparison of different items of the profit and loss
account and balance sheets of two or more periods. Separate comparative statements are
prepared for profit and loss account as comparative income statement and for balance sheets.
As a rule, any financial statement can be presented in the form of comparative statement
such as comparative balance sheet, comparative profit and loss account, comparative cost of
production statement, comparative statement of working capital and the like.
2. Comparative Income Statement:
Three important information are obtained from the comparative income statement. They are
gross profit, operating profit and net profit. The changes or the improvement in the profitability
of the business concern is find out over a period of time. If the changes or improvement is not

satisfactory, the management can find out the reasons for it and some corrective action can be
taken.
3. Comparative Balance Sheet:
The financial condition of the business concern can be find out by preparing comparative
balance sheet. The various items of balance sheet for two different periods are used. The assets
are classified as current assets and fixed assets for comparison. Likewise, the liabilities are
classified as current liabilities long term liabilities and shareholder’s net worth. The term
shareholder’s net worth includes equity share capital, preference share capital, reserve and
surplus and the like.
4. Common Size Statement:
A vertical presentation of financial information is followed for preparing common-size

statements. Besides, the rupee value of financial statement contents is not taken into
consideration. But only percentage is considered for preparing common size statement.
The total assets are total liabilities or sales is taken as 100 and the balance items are compared to
the total assets, total liabilities or sales in terms of percentage. Thus, a common size statement
shows the relation of each component to the whole. Separate common size statement is prepared
for profit and loss account as common size income statement and for balance sheet as common
size balance sheet.
5. Trend Analysis:
The ratios of different items for various periods are find out and then compared under this
analysis. The analysis of the ratios over a period of years gives an idea of whether the business
concern is trending upward or downward. This analysis is otherwise called as Pyramid Method.

6. Average Analysis:
Whenever, the trend ratios are calculated for a business concern, such ratios are compared
with industry average. The both trends can be presented on the graph paper also in the shape of
curves. These presentation of facts in the shape of pictures makes the analysis and comparison
more comprehensive and impressive.
7. Statement of Changes In Working Capital:
The extent of increase or decrease of working capital is defined by preparing the statement of
changes in working capital. The amount of networking capital is calculated by subtracting the
sum of current liabilities from of the sum of current assets. It does not detail the reasons for
changes in working capital.
8. Fund flow analysis:
Fund flow analysis deals with detailed sources and application of funds of the business
concern for a specific period. It indicates where funds come from and how they are used during
the period under review. It highlights the changes in the financial structure of the company.
9. Cash flow analysis:
Cash flow analysis is based on the movement of cash and bank balances. In other words, the
movement of cash instead of movement of working capital would be considered in the cash flow
analysis. There are two types of cash flows. They are actual cash flows and notional cash flows
10. Ratio analysis:
Ratio analysis is an attempt of developing meaningful relationship between individual items

(or group of items) in the balance sheet or profit and loss account. Ratio analysis is not only
usefultointernalpartiesofbusinessconcernedalsousefultoexternalparties.Ratioanalysis highlights
the liquidity, solvency, profitability and capital gearing

11. Cost volume profit analysis:
This analysis discloses the prevailing relationships among sales, cost and profit. The cost is
divided into two. They are fixed cost and variable cost. There is a constant relationship between
sales and variable cost. Cost analysis enables the management constant relationship between
sales and variable cost. Cost analysis enables the management for better profit planning.
Financial Decision:
Financial decision is a process which is responsible for all the decisions related with
liabilities and stock holder’s equity of the company as well as the issuance of bonds to make a
good financial planning process you have to follow the six steps.
1. Determine current financial situation:
To join all the information about the financial situation of the company, such as bank
accounts, loans, taxes, utility bills, investments, insurance…finally, with all these information
analyzed, you can evaluate how the financial situation is.
2. Establish your financial goals:
Setting the goals, you want to achieve and the risk that you would be able to suffer.
3. Identify different courses of action:
Once you have established the objectives, you must fix the action to be carried out.
4. Evaluate alternatives:
There isn’t a unique action to carry out the project. You should know that there are
different ways to reach the same goals.

5. Elaborate and implement the actions of the financial plan:
When you have already fixed your objectives and you know the actions to carried out, you only
need to launch the project.
6. Review and revise the financial plan:
Evaluate how the project is operating relative to a forecast which was made previously If you
aren’t performing according to expectations, you should propose a strategy to correct the
mistakes.
Goals of Financial Management:
Maximize the value of the firm to its equity shareholders. This means that the goals of the
firm should be to maximize the market value of its equity shares (which represent the value of
the firm to its equity shareholders)
• Maximization of profit.
• Maximization of earning per share.
• Maximization of return on equity (defined as equity earnings/net worth).
• Maintenance of liquid assets in the firm.
• Ensuring maximum operational efficiency through planning, directing and controlling of

the utilization of the function funds i.e., through the effective employment of funds.
• Enforcing financial discipline in the use of financial resources through the

coordination of the operation of the various divisions in the organization.

• Building up adequate reserves for financing growth and expansion.
• Ensuring a fair return to the shareholders on their investment.
The key challenges for the finance manager in India appear to be in the following areas
• Investment planning
• Financial structure
• Treasure operation
• Foreign exchange
• Investor communicates

1.2 Industry Profile
History:
India is the highest milk producer in the entire globe. India is well known as the 'Oyster' of
the global dairy industry, with opportunities galore for the entrepreneurs globally. It might be
dream for any nation in the world to capitalize on the largest and fastest growing milk and milk
products' market. The dairy industry in India has been witnessing rapid growth with
liberalization. As the economy provides good opportunities for MNCs and foreign investors to
release the full potential of this industry. The main objective of the Indian Dairy Industry is to
manage the national resources in a manner to enhance milk production and upgrade milk
processing using innovative technologies.
The crossbred technology in the Indian Dairy Industry has further augmented with the
viability of the dairy units by increasing the milk production per animal. Then subsequently milk
production has also increased at an exponential rate while the benefits of an increase in milk
production also reached the consumers from a relatively lower increase in the price of milk. The
favorable price environment for milk producers for the Dairy Industry in India however appeared
to have weakened during the 90's, a decline in the real price of milk being noticed after the year
1992. And then slowly regained it is glory after 1992 to till now.
In India dairying from very much earlier is regarded as an instrument for social and economic
development. The country's milk supply comes from millions of small producers, who are
dispersed throughout the rural areas. All these farmers maintain an average herd of one or two
milch animals, comprising cows and/or buffaloes. Mostly ample labour and a small land base
encourage farmers to practice dairying as an occupation subsidiary to agriculture. As income
from crop production is seasonal instead dairying provides a stable which is a year-round income
and also an important economic incentive for the small farmer.

Brief Introduction:
India had tremendous milk production in 40 years and has become the world's largest
milk- producing nation with a gross output of 84.6 million tons in 2001.
The Indian Dairy Industry has achieved this strength of a producer-owned and
professionally-managed cooperative system, despite the facts that a majority of dairy farmers are
illiterate and run small, marginal operations and for many farmers, selling milk is their sole
source of income. More than 10 million dairy farmers belong to 96,000 local dairy cooperatives,
who sell their products to one of 170 milk producers' cooperative unions who in turn are
supported by 15 state cooperative milk marketing federations. In India dairy business has been
practiced as rural cottage industry over the years. Semi Commercial dairy started with the
establishment of military dairy farms and co-operative milk unions throughout the country
towards the end of the 19th century. Since Independence this Industry has made rapid progress.
A large number of modern milk and milk product factories have since been established. The
organized dairies in India have been successfully engaged in the routine commercial production
of pasteurized bottled milk for Indian dairy products.
The growth of Indian Dairy Industry during the last three decades has been impressive,
at more than 5% per annum; and in the 90's the country has emerged as the largest producer of
milk. This is not a small achievement when we consider the fact that dairying in India is largely
stringent that farmers in general keep dairy animals in proportion to their free crop and also are
available for family labor with little or no purchased inputs and a minimum of marketed outputs.
The existence of restrictive trade policy milk in the Diary Industry and the emergence of Amul
type cooperatives have changed the dairy farming practices in the country. Farmers have gained
the favorable price for their milk and for their production which was essentially a self-reliant one
is which is now being transformed into a commercial proposition.

In India Milk production is dominated by small and marginal land-holding farmers and also
by landless labours who in aggregate own 70% of the national milch animal herd. Andas the crop
production on 78% of the agricultural land still depends on rain, which is prone to both drought and
floods, rendering agricultural income is very much uncertain for most of the farmers.
Dairying, as a subsidiary source of income and occupation, is real relief to most of the
farmers in the society. Usually one or two mulch animals enable the farmers to generate
sufficient income to break the vicious subsistence agricultural-debt cycle
The Operation Flood which is the successful Indian dairy development programmed has
analyzed that how food aid can be utilized as an investment in building the type of institutional
infrastructure that can bring about national dairy development. Programmers’ like this, with
similar policy orientations, may prove to be appropriate to dairy development in India.
India in the early 1950's was commercially importing around 55000 tons of milk powder
annually to meet the urban milk demand. Most of the significant developments in dairying have
taken place in India in this century only.
India's Milk Product Mix:
Fluid Milk 46.0%
Ghee 27.5%
Butter 6.5%
Curd 7.0%
Khoa (Partially Dehydrated Condensed Milk) 6.5%

Milk Powders, including IMF 3.5%
Paneer & Chhana (Cottage Cheese) 2.0%
Others, including Cream, Ice Cream 1.0%
Total Contribution to the Economy/Sales:
The Indian Dairy Industry engages in the production and processing of milk & cream.
This industry is involved in the manufacture of various dairy products like cheese, curd, yoghurt
etc. The Indian Dairy Industry specializes in the procurement, production, processing, storage
and distribution of dairy products. India as nation stands first in its share of dairy production in
the international scenario. The industry contributes about Rs 1, 15,970 to the national economy.
Employment Opportunities:
Vast majority of the rural households. It employs about 8.47 million people on yearly
basis out of which 71% are women. Jobs in Indian dairy industry are mainly in the fields of
production and processing of dairy products.
An individual with minimum of 60% marks who has bachelor's degree course in the
dairy technology can easily be availing an opportunity to work in this industry. For the
graduation course in Dairy technology one has to qualify the All India Entrance Test that is
affiliated to the Indian Council of Agricultural Research. After that the person can continue with
his masters in dairy technology. Jobs would be for the following positions.
• Dairy Scientists: The main job of the dairy scientists is to deal with collection of milk
and taking care of the high yielding variety of animals.
• Dairy Technologists: The work of Dairy technology requires procurement officers

who take the responsibility of collecting milk from farmers, milk booths and

cattle-rearers. This particular procurement officer should well understand the latest
technology that is applicable in maintaining the quality of milk of the process of
•
transporting it to the desired location.
Dairy Engineers: Dairy engineers are usually appointed is to set up and maintain
dairy Plants.
Marketing Personnel: These individuals deal with the sale and marketing of milk
together with milk products.
Latest Developments:
Indian Dairy Industry is the largest milk producer all over the world, around 100
million MT Indian Dairy Industries value of output amounted to Rs. 1179 billion in 2004-05
which approximately equals combined output of paddy and wheat. With 1/5th of the world's
bovine population.
Intensive Dairy Development Programmed (IDDP):
The Schemes, modified under this program are on the basis of the recommendation of the
evaluation studies which were launched during Eighth Plan period and is being continued
throughout the Eleventh Plan with an outlay of Rs. 32.49 core for 2009-10.
Strengthening Infrastructure for Quality and Clean Milk Production (CMP):
This is a centrally sponsored scheme which was launched in October 2003, which had the
main objective of improving the quality of raw milk produced at every village level in this India.

Dairy Venture Capital Fund:
This is introduced in the Tenth Five Year Plan to bring about structural changes in
unorganized sector, which would measure like milk processing at village level, marketing of
pasteurized milk in a cost effective manner, quality or the up gradation of traditional technology
to handle commercial scale using modern equipment's and management skill

1.3 Company Profile
Sruthi Milk dairy products is a fast-growing dairy company in south India established in
the year2008.since then, Thejes has been maintaining its position as a fastest growing brand with
presence in Major states of India such as Andhra Pradesh, Telangana, Tamil nadu, Karnataka.
Today, Thejes dairy products across four state-of-the-art manufacturing plants spread across
southern state of India.
Legal Compliance:
At Sruthi Milk, we strictly ensure to be Compliant with all the legal norms, whether it is
for the products or brands in the market. We understand its importance and that is why we
guarantee its fulfillment.
Consumer Preference:
Thejas has a strong focus on its consumers and therefore goes the extra mile to provide
them consistent quality Products which is relevant their organoleptic palate. Not only is this
about giving consumers the best, but also understanding what they would need through robust
customer- connect programmers’.
Supplier Assurance:
We always strive for ensuring consistent quality products with confirming purity of the
products available the market, which is made possible through the help of our own Thejes
distribution on-time delivery’s to our retailers So that our products are made available for our
consumers 24/7.

Food Safety Guarantee:
We believe in the philosophy of “consumer first”. As a part of our corporate

responsibility, we ensure that food safety is on our top priority. We have ISO 22000certifications
and FSSAI licenses certify in a commitment towards food safety and dependability.
Customer Satisfaction:
Our consumer satisfaction not only comes from the consistent quality products, we provide
customer care services who are readily available to provide any product related information, and
address any queries or concerns.
Quality at the Best Price:
Be in a commodity & dairy market, we ensure our products are not only the healthiest and
tastiest but also affordable for one and all. Quality is not something we strive for, it’s something
weguarantee.

1.4 Product Profile:
Double-toned milk is a similar product, where the fat content of the milk is reduced to 1.5%and
the non-fat solids content increased to 9%. Unlike single toned milk, double-toned milk is
always pasteurized.
Double toned Milk
SKU size: 500 ml
Toned milk is a method, developed in India, of treating buffalo milk by adding skim milk,
powder skim milk and water to be buffalo milk. These process decreases that fact content,
increases the quantity of available milk, and ‘tones up’ the non-fact solids level to the original
amount.
Toned Milk
SKU size: 500 Ml, 200 Ml

Standardized milk is a product, whose fat and/or solids-not—fat (SNF)content have been
adjusted to a certain predetermined level. …The standardization can be done either by partially
skimming the fat in the milk with a cream separator, or by admixture with fresh or reconstituted
skim milk in proper proportions.
Standardized Milk
SKU size: 1 Ltr, 500 ml, 250 ml
Full cream milk refers to milk with an average of 3.5-4% milk fat. So, all fresh milk is full
cream milk. …With the low-fat craze still sweeping the consumer market, fresh milk also can be
converted to low fat and skim milk (0.1% fat), in which case the milk has its fat removed.
Full Cream Milk
SKU size: 1 Ltr, 500 ml, 200ml
Bucket Curd Fresh & pure milk procured from our formers is processed, homogenized,
pasteurized and packed in state of the art of processing plants with utmost care to
ensure goodness.

BUCKET CURD
Size:5kg,10kg, 20kg, 40kg
Flavoured milk Badam is a plant milk manufactured from almonds with a creamy texture
andnutty flavor, although some types or brands are flavored in limitation of dairy milk. …it can
also be made at home using a blender, almonds and water.
BADAM MILK
SIZE:200ml
Buttermilk(countable and unconfinable, plural buttermilks)The liquid left over after producing
butter form full cream milk by the churning process, also called traditional buttermilk. cultured
buttermilk, a fermented dairy product produced from cow’s milk, with a characteristically sour
taste.

BUTTERMILK
SKUSize:200ml
A sweet are or savoury Indian drink made from a yogurt or buttermilk base with water. …
from Hindi Lassi
SWEET LASSI
Size:200ml
Ghee is a hard fat that is obtained used by heating butter made from the milk of a cow or a
buffalo. Ghee is used in India cooking.
GHEE
SKU Size: 200ml

CHAPTER-2
REVIEW OF LITERATURE
Introduction Working Capital Management
Working capital is a financial metric which represents operating liquidity available to a

business, organization, or entity including governmental entities. Along with fixed assets such as
plant and equipment, working capital is considered a part of operating capital. Gross working
capital is equal to current asset. Working capital is calculated a current assets minus current
liabilities. If current assets are less than current liabilities, an entity as a working capital
deficiency, all so called a working capital deficiency, all so called a working capital deficit.
A Company can be endowed with assets and profitability but may fall short of liquidity if
its assets cannot be readily converted in to cash. Positive working capital is required to ensure
that a form is able to continue its operations and that it has sufficient funds to satisfy both
maturing short- term debt and upcoming operational expenses. The management of working
capital involves managing inventories, accounts receivable and payable, and cash.
Meaning of Working Capital Management:
Working capital management is a business strategy designed that a company operates

efficiently by monitoring and using its current assets and liabilities to the best effect. the primary
purpose of working capital management is to enable the company to maintain sufficient cash
flow to meet its short-term debt obligations.
A company’s working capital is made up of its current assets minus its current liabilities.
Definitions of Working Capital Management:
A managerial accounting approach focusing on sustaining resourceful stages of both modules of

working capital, current liabilities, in respect to each other. Working capital management

ensures a company has sufficient cash flow in order to meet its short-term debt obligations and
operating expenses.
Working capital is the financing in a small business that helps a company pay its trade
creditors and cash flow-it is the finance that business need for their day trading operations.
Significance of Working Capital Management:
The various significance of working capital management are as following:
• Cash discount: if a proper cash discount is maintained, the business can avail the
advantage of cash discount by paying cash for its purchase of the raw materials and machineries.
It will result in reading the cost of production.
• It creates a feeling of security and confidence: proper working capital arrangement

results in less worrying for the payment of business expenses or creditors.
• “MUST” for maintain solvency and continuing production.
• As it creates a sound good will so it results in getting easy loans from the banks.
• Therefore, working capital management shows that the firm has enough liquid cash or
equivalent; therefore it indicates that the firm has good dividend distribution policy. This also
helps in accelerating the market value per share of the firm.
• The firm with the help of working capital management can meet any unforeseen
contingencies or situations.
• Working capital management helps in increasing the leading power of a firm with
efficient working capital a firm can borrow more money from the public.
• Effective working capital management ensures smooth production and operation activity.

Thus, it increases the image of the firm in the society.
Components of Working Capital Management:
Efficient management of working capital ensures profitability and overall financial health for
business. Working capital is the cash that companies use to operate and conduct their
organizations. Effective working capital management ensures that a company always maintains
sufficient cash flow to meet its short-term operating costs and short-term debt obligations.
The elements of working capital that investors and analysts assess to evaluate a company
determine a company’s cash flow. these elements are money coming in, money going out, and
management of inventory.
These are three main components associated with working capital management:
Accounts Receivable:
company must collect its. past sales. A company must collect its receivables in
timely manner so that it can use those funds to meet its own debts and operational costs.
Accounts receivable appear as assets on a company’s balance sheet, but they do not become
assets until they are collected. days sales outstanding is a metric used by analysts to assess a
company’s handling of accounts receivables. The metric reveals the average number of days a
company takes to collect sales revenues.
Accounts Payable:
Accounts payable is the amount that a company must pay out over the short term and is
key components of working capital management. Companies endeavour to balance payments
with receivables to maintain maximum cash flow. Companies may delay payments as long as is
reasonable possible with the goal of maintaining positive credit with the goals of maintaining
positive credit ratings while suppliers and creditors.

Inventory:
Inventory is a company’s primary asset that it converts into sales revenues. The rate at which
a company sells and replenishes its inventory is a measure of its success. Investors also
considered the inventory turnover rate to be an indication of the strength of sales and how
efficient the company is in its purchasing and manufacturing. Low inventory means that the
company is in danger of losing out on sales, but excessively high inventory levels could be a sign
of wasteful use of working capital.
Working Capital Management:
Working capital management is a business strategy designed to ensure that a company

operates efficient by monitoring and using its current assets and liabilities to the best effect. …a
company’s working capital is made up of its current assets minus its current liabilities.
Objectives of Working Capital Management:
Smooth Operating Cycle:
The key objective of working capital management is to ensure a smooth operating cycle. It
means the cycle should never stop for the lack of liquidity whether it is for buying raw material,
salaries, tax payments etc.
Lowest Working Capital:
For achieving the smooth operating cycle, it is also important to keep the requirement
of working capital at the lowest. This may be achieved by favourable credit terms with accounts
payable and receivable both, fast production cycle, effective inventory management etc.
Minimize Rate of Interest or Cost of Capital:
It is important to understand that the interest cost of capital is one of the major costs in

any firm. The management of the firm should negotiate well with the financial institutions,
select the right mode of finance, maintain optimal capital structure etc.
Optimal Return on Current Asset Investment:
In many businesses, you have a liquidity crush at one point of time and excess liquidity at
another. This happens mostly with seasonal industries. At the time of excess liquidity, the
management should have good short-term investment avenues to take benefit of the idle fund
Types of Working Capital Management:
Gross Working Capital:
The current assets of the company’s balance sheet represent the gross working capital
of the company.
Net Working Capital:
• Net working capital is called simply as working capital
• It is calculated as current assets-current liability.
Permanent/Fixed Working Capital:
• It is the level below which the net working capital has never gone. It is further
divided into regular WC and reverse WC.
Temporary/ Variable Working Capital:
• Net working capital-permanent working capital.
• It is further dividend into seasonal working capital and special working capital.

Format of Net Working Capital
Change in working
Capital
Previous Current
Particulars
year year Increase Decrease
Current assets
Inventories Xxxx xxxx Xxxx
Financial assets Xxxx xxxx Xxxx
other current assets Xxxx xxxx Xxxx
Disposable group-assets held for
Sale Xxxx xxxx Xxxx
Total Current Assets(A) Xxxx xxxx
Current Liabilities
Financial liabilities Xxxx xxxx Xxxx
Other current liabilities Xxxx xxxx Xxxx
Government grant Xxxx xxxx Xxxx
Provisions Xxxx xxxx Xxxx
Disposable group-liabilities
realated To assets held for sale Xxxx xxxx Xxxx
Total Current
Liabilities(B) Xxxx xxxx
Net Working Capital (A-B) Xxxx xxxx
Net Decrease in
Working Capital xxxx Xxxx
Total Xxxx xxxx Xxxx Xxxx

Ratios:
1. Current Ratio
The current ratio is an acceptable measure of the firm’s short term solvency. Current
assets include cash within a year, such as marketable securities, debtors and inventories.
Prepaid expenses are also included in the current assets as they represent the payments that
will not be made by the firm in the future. All the obligations maturing within year are
included in current liabilities. Current liabilities include creditors, bills payable, accrued
expenses, short-term bank loan, income-tax liability and long-term debt maturing in the
current year. The current ratio is a measure of the firm’s short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability. A current ratio
of 2:1 is considered satisfactory. The higher current ratio, the greater the margin of safety;
the large the amount of current assets in relation to current liabilities, the more the firm’s
ability to meet its obligations. It is a crude-and-quick measure of the firm’s liquidity.
Current Assets
Current Ratio = ------------------------------
Current Liabilities
2. QuickRatio
Quick ratio establishes a relationship between quick or liquid assets and current liabilities.
An asset 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 that are considered to be relatively
liquid asset and included in quick assets are debtors, bills receivables and marketable
securities. Inventories are considered to be less liquid. Inventories normally require some

time for realizing into cash. The quick ratio is found out by dividing quick assets by current
liabilities. Generally a quick ratio of 1:1 is considered adequate.
Quick Assets
QuickRatio = ----------------------------
Current Liabilities
3. CashRatio
Cash is the most liquid asset; a financial analyst may examine Cash Ratio and its equivalent
current liabilities. Cash and Bank balances and short-term marketable securities are the most
liquid assets of a firm. Trade investment or marketable securities is equivalent of cash;
therefore, they may be included in the computation of cash ratio. If the company carries a
small amount of cash, there is nothing to be worried about the lack of cash it the company
has reserves borrowing power. Cash ratio is perhaps the most stringent measure of liquidity.
Cash Ratio is calculated as cash and marketable securities by current liabilities.
Cash + Marketable Securities
CashRatio = ---------------------------------------
Current Liabilities

4. Working Capital Turnover Ratio
The relationship between working capital and sales. The ratio shows the number of times the
working capital results in sales. Working capital as usual is the excess of current assets over
current liabilities. The following formula is used to measure the ratio
Net Sales
Working Capital Turnover Ratio =---------------------
WorkingCapital
5. Inventory Turnover Ratio
Inventory turnover ratio indicated the efficiency of firm in producing and selling its products.
It is calculated by dividing the cost of goods sold by average inventory. It measures how fast
the inventory is moving through the firm and generating sales. The Inventory turnover ratio
reflects the efficiency of inventory management.
Cost of Goods Sold

Inventory Turnover Ratio = -----------------------------
Average Inventory

Reviews:
Gill Amarjit, Biger Nahum and Mathur Neil (2010) examine the relationship between
working capital management and profitability. For the study, 88 American firms listed on
New York Stock Exchange for a period of three years from 2005 to 2007 were selected as a
sample. They found statistically significant relationship between the cash conversion cycle
and profitability, measured through gross operating profits. It also showed that managers
could create profits for their companies by handling correctly the cash conversion cycle and
by keeping accounts receivable at an optimal level. The study concludes with the observation
that profitability can be enhanced if firms manage their working capital in a more efficient
way
Rahman Mohammad M. (2011) focuses on the co-relation between working capital and
profitability. An effective working capital management has a positive impact on profitability
of firms. From the study it is seen that in the textile industry profitability and working capital
management position are found to be up to the mark.
KushalappaS.andKunder Sharmila (2012) closely study the relationship between working

capital management policies and profitability of the thirteen listed manufacturing firms in
Ghana. At the end of the study, a significantly negative relationship between profitability and
accounts receivable days is found to exist. Profitability is significantly positively influenced
by the firm‟s cash conversion cycle (CCC), current assets ratio and current asset turnover. It
is also suggested that managers can create value for the shareholders by creating incentives to
reduce their accounts receivable to 30 days.
Akoto Richard K., VitorDadson A. and Angmor Peter L. (2013) closely study the
relationship between working capital management policies and profitability of the thirteen
listed manufacturing firms in Ghana. At the end of the study, a significantly negative
relationship between profitability and accounts receivable days is found to exist. Profitability

is significantly positively influenced by the firm’s cash conversion cycle (CCC), current
assets ratio and current asset turnover. It is also suggested that managers can create value for
the shareholders by creating incentives to reduce their accounts receivable to 30 days.
Joseph Jisha (2014) closely examines the study of working capital management in Ashok
Leyland and points out that the liquidity and profitability position of the company is not
satisfactory, and needed to be strengthened in order to be able to meet its obligate

CHAPTER-3
RESEARCH METHODOLOGY
Data Collection Methods:
The required data has been collected from secondary sources of information.
Secondary Data
Secondary data is collected from the
➢ Past Company’s Annual reports of Sruthi Milk Dairy Products.
➢ Manufacturing accounts statements
➢ Department manuals
➢ Broachers and other printed materials issued by the company.

3.1 Need of The Study:
➢ The need for the study is to know the financial position and performance of the
company is analysis by powerful financial analysis tool that is ratio analysis.
➢ The study helps to know a liquidity, solvency, profitability and turnover position of
the company.
➢ It also helps to analyze the various elements and components of working capital. It
helps to find out the changes in working capital.

3. 2. Scope of the Study
The present study is continued to only Sruthi Milk Products. The time that considered the study i.e.,
from 2015-2019 various components of working capital i.e., cash, receivables, Inventory management has
been analyzing taking into consideration, the information both the past and present with respect to the
performance of the company.

3.3 Objectives of the study:
• To evaluate the changes in Working Capital.
• To study the different components of Working Capital.
• To analyze the liquidity position through various Working Capital Ratios.

3.4 Limitations of the Study:
• The information collected from historical reports doesn’t indicate the current situation of the
firm.
• The ratios are calculated from the past financial statement and these may not the
exact indicators of future.
• Detailed information could not be carried for the project work because of limited span
of time.
• The study is limited to the Sruthi Milk Products.

CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
Changes in Working Capital for the Year2015-2017
Table 4.1
Change in working
Capital
As at 31 Increase Decrease
Particulars As at 31 march Rs in Rs in
March2016 2017 Lakhs Lakhs
Current assets
Inventories 14,491.11 12,268.96 2,222.15
Financial assets 8,474.34 7,516.14 958.20
other current assets 432.05 528.84 96.79
Disposable group-assets held
for sale 236.05 380.91 144.86
Total Current Assets(A) 23,633.55 20,694.85
Current Liabilities
Financial liabilities 22,052.76 24,229.66 2,176.90
Other current liabilities 805.37 742.52 62.85
Government grant 7.38 3.91 3.47
Provisions 579.46 608.71 29.25
related To assets held for sale 113.83 174.65 60.82

Total Current
Liabilities(B) 23,558.80 25,759.45
Net Working Capital (A-B) 74.75 -5,064.60
Net Decrease in
Working Capital 5139.35 5139.35
Total 74.75 74.75 5,447.32 5,447.32
(Source: From Annual Reports of the Sruthi Milk Products)
Interpretation:
From the above table it is observed that the networking capital decreases 5139.35 from Rs. 74.75
lakhs in 2016 to Rs. -5064.60 in lakhs in 2017. The increase in current liabilities 2200.65 from
Rs. 23,558.80 lakhs in 2016 to Rs. 25,759.45 lakhs due to decrease in financial liabilities and
decrease in inventory 2222.15 from Rs. 14,491.11 lakhs in 2016 to Rs. 12,268.96 lakhs in 2017
effect decreases in current assets 2938.70 from Rs. 23,633.55 lakhs in 2016 to Rs. 12,268.96 in
2017. It may be the decrease in inventories and also increase in other current liabilities.

Table:4.2
Change in working
Capital
Decrease
Particulars As at 31 AS at 31 Increase Rs Rs in
march 2017 march 2018 in Lakhs Lakhs
Current assets
Inventories 12,268.96 15,474.92 3,205.96
Financial assets 7,516.14 8,638.06 1,121.92
current tax assets(net) 7.62 58.6 50.98
other current assets 528.84 866.74 337.90
Disposable group-assets
held for sale 380.91 362.17 18.74
Current Liabilities
Financial liabilities 24,229.66 31,007.09 6,777.43
Provisions 608.71 728.97 120.26
current tax liability(net) - -

related To assets held for
sale 174.65 150.59 24.06
Total Current
Liabilities(B) 25,759.45 32,589.59

Net Working Capital(A-

B) -5,056.98 -7,189.10
Net Decrease in Working
Capital 2132.12 2132.12
Total -5,056.98 -5,056.98 6,916.43 6,916.43
(Source: From annual reports of the Sruthi Milk products)
Interpretation:
From the above table it is observed that the networking capital decrease 2132.12from Rs. -
5,056.98 lakhs in 2017 to Rs.-7,189.10 in lakhs in 2018. The increase in current liabilities
6,830.14 from Rs. 25,759.45 lakhs in 2017 to Rs. 32,589.59 lakhs due to decrease in financial
liabilities and increase in financial assets Rs. 1121.92 lakhs from Rs. 7516.14 lakhs in 2017 to
Rs. 8638.06 lakhs in 2018 effect increases in current assets 4,698.02 from Rs 20,702.47 lakhs in
2017 to Rs 25,400.49 in 2018.It may be the decrease in disposable group-assets held for sale and
also increase in other current liabilities.

Table:4.3
Change in Working Capital

AS at 31 AS at 31 Increase Rs in Decrease Rs
Particulars
march 2018 march 2019 Lakhs in Lakhs
Current assets
Inventories 15,474.92 13,836 1,638.61
Financial assets 8,638.06 12,036.27 3,398.21
current tax assets(net) 58.6 117.68 59.08
other current assets 866.74 1,275.66 408.92
Disposable group-assets
held for sale 362.17 227.91 134.26
Current Liabilities
Financial liabilities 31,007.09 31,080.10 73.01
Provisions 728.97 818.65 89.68
current tax liability(net) - -

realated To assets held for
sale 150.59 41.38 109.21
Total Current
Liabilities(B) 32,589.59 32,560.77
Net Working Capital(A-
B) -7,189.10 -5,066.94

Net Increase in Working

Capital 2122.16 2122.16
Total -5,066.94 -5,066.94 4057.72 4057.72
Interpretation:
From the above table it is observed that the networking capital increases Rs.2122.16 lakhs from
Rs. -5,066.94 lakhs in 2018 to Rs.-5,066.94 in lakhs in 2019. The decrease in current liabilities
Rs.28.82 lakhs from Rs. 32,589.59 lakhs in 2018 to Rs. 32,560.77 lakhs due to decrease
inProvisions and decrease in inventory 1,638.61 from Rs. 15,474.92 lakhs in 2018 to Rs. 13,836
lakhs in 2019 effect decreases in current assets 2,093.34 from Rs 25,400.49 lakhs in 2018 to Rs
13,836 in 2019. It may be the decrease in mismanagement in inventories and also Disposable
group-liabilities related to assets held for sale.

CurrentRatio:
Current Ratio= (Current Assets)/current liabilities
Table 4.4
Current
Years Current Assets liabilities Current Ratio
2015-2016 23,633.55 23,723.82 0.996
2016-2017 20,702.47 25,759.45 0.804
2017-2018 25,400.49 32,589.59 0.779
2018-2019 27,493.83 32,560.77 0.844
Chart 4.1

Interpretation:
From the above chart 4.1, It is observe that the current ratio of all the years of the firm is less
than 1 it may indicate that the firm does not have enough current assets to pay for its short term
liabilities.

QuickRatio:
Quick Ratio= (Current Assets-Inventory)/Current liabilities
Table: 4.5
Quick
Years Current Assets Inventories Current liabilities Ratio
2015-2016 23,633.55 14,491.11 23,723.82 0.385
2016-2017 20,702.47 12,268.96 25,759.45 0.327
2017-2018 25,400.49 15,474.92 32,589.59 0.305
2018-2019 27,493.83 13,836 32,560.77 0.419
Chart 4.2
Interpretation:
From the above chart 4.2, it is observed that the quick ratio of all the years of the firm is less than
1 it indicate that the company may not be able to fully pay off its current liabilities in the short
term

Cash Ratio:
Cash Ratio= (Cash and Cash Equivalents)/Current liabilities
Table: 4.6
Cash and Cash Current

Years Equalents liabilities Cash Ratio
2015-2016 4,458.76 23,723.82 0.188
2016-2017 4,597.24 25,759.45 0.178
2017-2018 6,021.21 32,589.59 0.185
2018-2019 6,334.86 32,560.77 0.195
Chart: 4.3
Interpretation:
From the above chart 4.3, it is observed that the cash ratio of all the years of the firm is less than 1 it
indicates that the company may not have enough cash on hand to pay off current liabilities.

Working Capital Turnover Ratio:
Working Capital Turnover Ratio =Net sales (Revenue From Operators)/Working Capital
Table: 4.7
working
Years Net Sales Capital Working Capital Turn ovear Ratio
-2637.181
2015-2016 238058.33 -90.27
-36.264
2016-2017 183,383.94 -5056.98
-32.605
2017-2018 234,401.10 -7189.1
2018-2019 248234.93 -5066.94 -48.991
Chart: 4.4

Interpretation:
From the above chart 4.4, it is observed that the working capital turnover ratio of all the years of
the firm is less than 0 i.e. negative it indicates that the company may not use efficient utilization
of working capital during the period. The company is investing in too many accounts receivable
and inventory assets to support it sales, which could eventfully lead to an excessive amount of
bad debts and obsolete inventory write-offs.

Inventory Turnover Ratio:
Inventory Turnover Ratio=Cost of Goods Sold (Cost of Material

Consumed)/Average Inventories
Table: 4.8
Average Inventory Turnover

Years Cost of Goods Sold Inventory Ratio
2015-2016 141378.79 14017.825 1.692
2016-2017 138176.77 14017.825 1.838
2017-2018 1,81,869.02 14017.825 2.325
2018-2019 1,84,087.30 14017.825 2.323
Chart: 4.5

Interpretation:
From the above chart 4.5, it is observed that the Inventory Turnover Ratio of all the years of the
firm is greater than 1 it indicates that the company may have either strong sales or
insufficientinventory.

CHAPTER-5
5.1 Findings:
• It is found that networking capital decrease from the year 2015-16 to 2016-17 due to
mismanagement in inventories and also increase in other current liabilities.
decrease in disposable group-assets held for sale and also increase in other current
liabilities.
decrease in mismanagement in inventories and also Disposable group-liabilities related to
assets held for sale.
• The firm does not maintain sufficient current assets to pay for its short term liabilities.
• The company does not able to fully pay off its current liabilities in short term
• The firm does not have enough cash on hand to pay off its current liabilities
• The company may not use efficient utilization of working capital during the study period

5.2 Suggestions:
• The company has to take steps manage good inventories and decrease their
current liabilities to increase networking capital
• The firm has to increase disposable group assets held for sale and decrease in
other current liabilities to increase networking capital
• The firm has to increase the management inventories and disposable group liabilities to
assets held for sale
• The firm has to increase current assets or decrease current liabilities to increase to pay
for its short term liabilities
• The firm has to increase quick assets or decrease current liabilities to pay off its current
liabilities in short term
• The firm has to increase cash and marketable securities or decrease current liabilities to
pay off its current liabilities
• The firm has to increase net sales or decrease working capital to effect utilization
of working capital
• The company has to decrease cost of goods sold and increase average inventory to
strong sales and sufficient inventory.

5.3 CONCLUSION:
I conclude that the firm continuously decreased their networking capital because their
total current assets are increasing and the current liabilities are also increasing. Due to not
maintain sufficient current assets, quick assets, cash assets, working capital turnover and
inventory turnover total current liabilities are increasing.

5.4 ANNEXURE
CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2018
Assets Notes 31-Mar-18 31-Mar-17 01-apl-16

Non-current Assets
(a) Property, plant and equipment 6 41,060.84 29,456.38 30,821.87
(b) Capital work-in-progress 872.73 756.07 958.8
(c)Investment Property 8 397.21 124.15 121
(d) Other intangible assets 7 1,847.64 48.88 164.12
(e) Investment in associate and
joint venture 9 56.78 56.26 56.35
(f) Financial assets
(1) Investments 10 100,115.41 47,744.57 31,12

(2) loans 16 412.40 409.45 2,200.06
(3) Other financial assets 11 75.22 72.53 63.08
(g) Other non-current assets 12 422.48 210.46 176.76
Total Non- current assets 145,260.71 78,878.75 34,593.16
Current assets
(a) Inventories 13 15,474.92 12,268.96 14,491.11
(b) Financial assets
(1) Investments 10 0.42 1.17 1.65
(2) Trade receivables 14 1289.42 1,548.09 2,851.24
(3) cash and cash equivalents 15(i) 6,021.21 4,597.24 4,458.76

(4) Bank balance other than (iii)
Above 15(ii) 861.24 896.99 681.38
(5) Loans 16 437.40 467.78 458.28

(6) Other financial assets 11 28.37 4.87 23.03

(c) current tax assets (Net) 58.60 7.62 _
(d) Other current assets 12 866.74 528.84 432.05
(e ) Disposable group-assets held
for sale 362.17 380.91 236.05
Total current assets 25,400.49 20,702.47 23,633.55
Total assets 170,661.20 99,581.22 58,226.71
Equity and libilities
Equity
(a) equity share capital 17 2,319.90 2,,319,90 2,319.90
(b) other equity 18 75,447.15 56,760.65 22,125,03

equty attributable to the owners of
the company 77,767.05 59,080.55 24,744.93
non-controling interest 1,055.67 1,064.00 795.89
Total equity 78,822.72 60,144.55 25,540.82
Liabilities
Non-current Liabilities
(a) financial liabilities
(1) borrowings 19 14,230.74 7,377.04 6,527.87
(2) other financial liabilities 20 42,558.72 3,854.87 _
(b) provisions 21 590.03 496.95 551.54
(c) Government grant 8.76 10.38 44.75
(d) Deferred tax liabilities (net) 22 1,860.64 1,937.98 1,837.91
Total non-current liabilities 59,248.89 13,677.22 8,962.07
current liabilities

(1) borrowings 19 10,414.12 6.587.71 3,925.16

(2) Trade payables 24 6,696.29 6,015.05 8,403.94
(3) Other current Liabilities 20 13,896.68 11,626.90 9,723.66
(B) Other current Liabilities 23 701.33 742.52 805.37
(C) Government Grant _ 1.61 3.91 7.38

(d) provisions 21 728.97 608.71 579.46
(e ) tax liabilities (net) _ _ 165.02
(f) Disposable group-liabilities
related to assets held for sale 150.59 174.65 113.83
Total current liabilities 32,589.59 25,759.45 23,723.02
Total equity and liabilities 170,661.20 99,581.22 58,226.71

CONSOLIDATED BALACE SHEET AS AT 31 MARCH 2019
Assets Notes 31-Mar-19 31-Mar-18

Non-current Assets
(a) Property, plant and equipment 6 46,100.78 41,060.84
(b) Capital work-in-progress 4,179.24 872.73
(c)Investment Property 8 369.26 397.21
(d) Other intangible assets 7 1,086.42 1,847.64
(e) Investment in associate and joint venture 9 867.48 56.78
(f) Financial assets
(1) Investments 10 82,634,06 100,115.41

(2) loans 16 463.19 412.4
(3) Other financial assets 11 70.24 75.22
(g) Other non-current assets 12 187.23 422.48
Total Non- current assets 135,957.90 145,260.71
Current assets
(a) Inventories 13 13,836.31 15,474.92
(b) Financial assets
(1) Investments 10 0.32 0.42
(2) Trade receivables 14 4,235.20 1,289.42
(3) cash and cash equivalents 15(i) 6,334.86 6,021.21
(4) Bank balance other than (iii) above 15(ii) 1,139 861.24
(5) Loans 16 236.69 437.40
(6) Other financial assets 11 89.4 28.37

(c) current tax assets (Net) 117.68 58.60

(d) Other current assets 12 1,275.66 866.74
(e ) Disposable group-assets held for sale 227.91 362.17
Total current assets 27,493.83 25,400.49
Total assets 163,451.73 170,661.20
Equity and libilities
Equity
(a) equity share capital 17 2,319.90 2,319.90
(b) other equity 18 77,935.90 75,447.15
equty attributable to the owners of the
company 80,225.80 77,767.05
non-controling interest 1,170.60 1,055.67
Total equity 81,426.40 78,822.72
Liabilities
Non-current Liabilities
(a) financial liabiloities
(1) borrowings 19 16,657.48 14,230.74
(2) other financial liabilities 20 29,448.88 42,558.72
(b) Government grant 7.65 8.76
(c) provisions 21 716.27 590.03
(d) Deferred tax liabilities (net) 22 2,634.28 1,860.64
Total non-current liabilities 49,464.56 59,248.89
current liabilities
(i) borrowings 19 9,457.58 10,414,12

(ii) Trade payables 24

_total outstanding dues of micro and

small enterprises; 772.77 574.28
_total outstanding dues of creditors
other than micro and small enterprises 6,084.10 6,122.01
(iii) Other financial Liabilities 20 14,765.65 13,896.68
(b) other current liabilities 23 619.28 701.33
(c) government grant 1.36 1.61
(d) provisions 21 818.65 728.97
(f) Disposable group-liabilities related to
assets held for sale 41.38 150.59
Total current liabilities 32,560.77 32,589.59
Total equity and liabilities 163,451.73 170,661.20

5.5 BIBLIOGRAPHY
Books:
rd
• M.Y Khan and P.K .Jain financial management. 3 edition Tata McGraw Hill
publishing company Ltd., New Delhi.
th
• I.M. Pandey financial management 9 edition vikas publishing house pvt ltd., New
Delhi.
• Prasanna chandra 2002 financial management 5thedition, tata M.C.Graw Hill

publishing company ltd., newdelhi.
Annual Reports:
• From the annual reports of thejes dairy products
Journals:
• Finance India (Indian institute of finance)
• Indian journal of finance
Websites:
• https://www.indianmirror.com
• https://www.sruthimilkproducts.com

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A Study on Working Capital Management

VEMU INSTITUTE OF TECHNOLOGY Page 1

“According to Prof. Ezra Soloman Financial management is concerned with the

The main characteristics or features of finance are

In finance, investment can be explained as the utilization of money for profit or

• Creating physical assets with the money (such as development of land,

• carrying on business activities (like manufacturing, trading,etc.),and

• Acquiring financial securities (such as shares, bonds, units of mutual funds,etc.).

In finance, profitable opportunities are considered as an important aspiration (goal).

3. Optimal Mix of Funds:

VEMU INSTITUTE OF TECHNOLOGY Page 2

• Owned funds (promoters contribution, equity shares ,etc.),and

• Borrowed fund (bank loan, bank overdraft, debentures,etc).

4. System of Internal Controls:

5. Future Decision Making:

Scope of Financial Management:

VEMU INSTITUTE OF TECHNOLOGY Page 3

• Financial management applies large number of mathematical and statistical tools

• Production management is operational aspect of decision making requiring the support

• Financial management/finance department allocates resources for marketing and

• Financial management is related to human resources department, which provides man

Objectives of Financial Management:

• Procurement of money needed by business.

• Generating income or profit for the business.

• Use and allocation of funds (Administration of funds);and

VEMU INSTITUTE OF TECHNOLOGY Page 4

• Financial controls (budgets and other controls).

• To ensure regular and adequate supply of funds to the concern.

Tools of Financial Analysis:

2. Comparative Income Statement:

VEMU INSTITUTE OF TECHNOLOGY Page 5

3. Comparative Balance Sheet:

4. Common Size Statement:

A vertical presentation of financial information is followed for preparing common-size

VEMU INSTITUTE OF TECHNOLOGY Page 6

7. Statement of Changes In Working Capital:

8. Fund flow analysis:

9. Cash flow analysis:

10. Ratio analysis:

Ratio analysis is an attempt of developing meaningful relationship between individual items

VEMU INSTITUTE OF TECHNOLOGY Page 7

11. Cost volume profit analysis:

1. Determine current financial situation:

2. Establish your financial goals:

3. Identify different courses of action:

different ways to reach the same goals.

VEMU INSTITUTE OF TECHNOLOGY Page 8

5. Elaborate and implement the actions of the financial plan:

6. Review and revise the financial plan:

Goals of Financial Management:

• Maximization of earning per share.

• Maximization of return on equity (defined as equity earnings/net worth).

• Maintenance of liquid assets in the firm.

• Ensuring maximum operational efficiency through planning, directing and controlling of

• Enforcing financial discipline in the use of financial resources through the

VEMU INSTITUTE OF TECHNOLOGY Page 9

• Building up adequate reserves for financing growth and expansion.

• Ensuring a fair return to the shareholders on their investment.

VEMU INSTITUTE OF TECHNOLOGY Page 10