Post on 23-Nov-2014
Summer Internship Project Report
On
Working capital management
At
AKUMS DRUGS & PHARMACEUTICAL LTD
HARIDWAR
(Submitted For the Partial Fulfillment of the Requirement for the Degree of Master in Business Administration)
Project Guide: Submitted By:
MR. K.D SHARMA ANKITA NEGI FINANCE MANAGER &HR MANAGER 09720641
AKUMS, Hardwar
UTTRAKHAND TECHNICAL UNIVERSITY,DEHRADUN
SESSION 2009-2011
DECLARATION
I hereby declare that the study entitled “WORKING CAPITAL MANGEMENT in the context of AKUMS DRUGS & PHARMACEUTICAL LTD SIDCUL, HARDWAR” being submitted by me in the partial fulfilment of the degree of “MASTERS IN BUSINESS ADMINISTRATION” is a record of my own work being a student of COER school of management affiliated to Uttarakhand technical university. The study was conducted at FINANCE Department, AKUMS DRUGS & PHARMACEUTICAL
The matter embodied in this project report has not been submitted anywhere else for any other degree/diploma. .
Place: Haridwar ANKITA NEGI
Date: 10-08-10 Roll No: 09720641
ACKNOWLEDGEMENT
I wish to express my sincere gratitude to Mr. K.D SHARMA, (Finance Manager AKUMS DRUGS & PHARMACEUTICAL Hardwar) for giving me the opportunity to do my summer training in his highly esteemed Organization.
I am grateful to Ms. LALIT ARORA (SENIOR ACCOUNT OFFICER), for his Valuable guidance, advice, suggestion and constant encouragement rendered to me at every stage.
I am extremely thankful to my Faculty Guide Mrs. JYOTSNA at College of Engineering Roorkee for her invaluable Guidance and Suggestions during my Training.
I am also thankful to all others who helped me directly or indirectly towards the completion of my works.
Ankita Negi
MBA
COER-SM
INDEX:-
COMPANY PROFILE
THEORITICAL BACKGROUND OF TOPIC
METHODOLOGY
FINDINGS
CONCLUSION
RECOMMENDATION
ANNEXURE
OBJECTIVES:
To analysis the working capital turnover ratio.
To analysis the current assets turnover ratio
To analysis the current liability turnover ratio
INTRODUCTION:
Akums drugs & pharmaceutical ltd is situated in a excise free zone & well developed INDUSTRIAL AREA OF HARIDWAR (U.A), in INDIA was established & formed in the year 2004 by good efforts of MR. D.C. JAIN, MR. SANDEEP JAIN
Akums drugs is endeavoring to make a name in pharmaceutical industry.
Akums drugs has become the icon of INDIAN HEALTHCARE & A QUALITY PHARMA MANUFACTURER of the country, global vision AKUMS has been accredited with WHO-GMP,ISO 9001:2000 & ISO 14001:2004 CERTIFICATE.
Quality assurance:
Quality assurance is deals with all methods that individually & collectively influence the quality of products.
Hence q. a department looks after implementation of GMP, in all aspects of products manufacture & control .The Q.A. serve as countercheck for different departments like stores , production, engineering, personnel & administration, quality control etc. to ensure that all activities are performed as per respective SOP’S & records are maintained.
Besides the above mentioned, Q.A. performs additional tasks as under:-
Selection of approval of vendors.
Proving the details of storage conditions & monitoring of R.M & P.M
Checking of the active materials issued from the store department.
Independently monitoring & recording in process checks during manufacturing & packing.
Inspection of entire batches manufacturing & packing records for giving final approval for transfer to finished goods store.
Validation of testing methods particularly non- pharmacopoeia methods.
Microbiological monitoring of purified WATER in manufacturing & filling areas etc.
Real time & accelerates stability testing as per WHO/ICH GUIDELINES.
Calibration of all laboratory equipments & instruments.
Monitoring residual quantity of medicaments after product charges are over.
Conduction quality monitoring tasks like manufacturing, cleaning validation, process validation, complaint. Product recall, training, self-inspection, quality audit, etc.
Approving SOP’S of all functional department & product master formula card.
DOCUMENTS & DATA CONTROL :
AKUMS quality gyrates around customer satisfaction. It is towards this end that the company has the following:
ISO 9001 WHO-GMP
ISO 14001 FOLLOW UKMHRA & SAFETY,HEALTH & ENVIRONMENT +(SHE) NORMS
Quarantine , sampling & dispensing
Best manufacturing practices
Regular training Standard operation procedures(SOP)
In-house controls of process Well defined sampling procedure
Effective controls of procedure
Well defined sampling procedure
Proper documentation Process controls
Documents reports & records Reference literature
GMP audit Clean atmosphere @ air handling
Hygienic conditions Proper uniforms
Quality standards Own R&D
MANUFACTURING RANGE INCLUDES
ANTI-MALARIAL ANTIBIOTICS VITAMINS
Analgesics Anti-ulcerates Corticosteroids
Anti-diabetics Tranquilizers Sedatives
Gastri-intestinal Anti-bacterial Anti-ulcerates
Anti-allergic Anti-amoebic Antipyretics
Cough & cold preparation
Anti-diarrhea Food preparation
Ointments
(eye / ear/skin)
FINANCE DEPARTMENT OF AKUMS & PHARMACEUTICALS LTD.
SECTION UNDER - AKUMS DRUGS & PHARMACEUTICALS LTD.
PURCHASE SECTION.
EMPLOYEE WELFARE SECTION.
PAY ROLL SECTION.
BANKS & MISCELLANEOUS.
1. PURCHASE DEPARTMENT:
IT INCLUDE THE FOLLOWING FUNCTION:
a) Deposists & advance payments to suppliers
b) Passing of bills for suppliers received
c) Pricing of goods receipt notes
d) Accounting of cash purchase made by materials department
e) Arrangement of cash purchase made by the material department
f) Arrangement for insurance of transit risk
g) Maintenance of books of accounts
2. EMPLOYEE WELFARE SECTION
The section is responsible to give the information to payroll section for payment and deduction of below mentioned benefits and incentives.
Other welfare schemes:-
Indian oil employees welfare co-operative society
LIC’s group saving linked insurance scheme
HBA mortgage redemption scheme
IOCL Employee group gratuity scheme
IOCL Superannuation benefit fund scheme
Personal claims and other payments
Leave travel concession
Reimbursement of medical expenses
Self leased accommodation
Travelling Allowance
Travelling allowance
Daily allowance
Local conveyance charges
TA for joining duty on first appointment
Transfeer benefits & settling time
Settling allowance
Displacement allowance
Transit allowance
Salary advance
Transportation of personal effects
Loading and unloading charges
Insurance charges
Excess baggage charges
Octroi charges
Packing charges
Travel expenses – for preparatory trip
Reimbursement of expenses for admission of school going children
Allowances on local transfer
Joining time
Facilities
Canteen services
Medical facilities
Housing facilities
Education facilities
Recreation clubs and centers
Social security
Provident fund
Group insurance scheme
Indian oil employees welfare co-operative scheme
Scheme for self insurance
Gratuity & compassionate gratuity
Other benefits
Membership of professional bodies
Children education assistance scheme
Incentive for acquiring higher qualification
Long service award
Issue of briefcase
Issue of calculators
Ex- gratia payment
Performances linked
Productivity linked incentive
3. PAY ROLL SECTION
Function of the section dealing with establishment can be broadly classified as follows:
Scrutiny and concurrence of proposal from personal department
Payment of salaries and allowances
Advances to employees
Deduction from pay bills
Statutory and statistical requirements.
Scrutiny and concurrence of proposal from personal department
Proposals requiring finance concurrence shall be received in the section and serutinized with reference to the rules applicable. Cases not covered by specific rules shall be referred to the appropriate authority for decision.
Payment of salaries and allowances
Pay and allowance shall be drawn by the finaces department on the basis of attendance particular which shall be send by the time office to finance giving details such as name of the employee.employee number, number of regular days, over time etc. under the mechanized system of pay roll accounting, the time cards are after filling in summary particulars through finance department to the data processing section. The data processing section shall prepare a statement, which is checked and confirmed by the time office subsequently. Pay and allowances are as mentioned below:
Scale of pay
Dearness allowance
City compensatory allowance
House rent allowance
Shift allowance
Washing allowance
Tea reimbursement
Special allowance
Patrolling allowance
Cash handling allowance
Tanker allowance
Conveyance allowance to blind
Reimbursement towards transport exptenses
Compensatory hill cum winter allowance
Non practicing allowance
Heavy equipment allowance
North Eastern Allowance
Special compensatory allowance
Professional updating expenses
Rationalization adjustment allowance
ADVANCE TO EMPLOYEE
Rules for various types of advances are prescribed in the personal manual on the basis of sanction and release order received from competent authority. The section dealing with advance shall prepare payment voucher debiting appropriate advance account and the same shall be passed on to cash section for payment. Recovery of advance shall be made in accordance with the installments given in the sanction order. Where the period of recovery is prescribed in the rule given in the relevant manuals. The same shall be done accordingly. All recoveries in respect of particular advance account shall be credited to the advance account. Loans and advances are mentioned below:
House building advance
Conveyance advance
Conveyance repair advance
Emergency advance
Funeral expenses
Festival advance
4. BANKS AND MISCELLANEOUS SECTION:-
This section shall be responsible for:
Receipts of cheques and bank drafts
Petty cash imprested by cheques and bank drafts
Payments
Safe custody of valuables and documents
Maintenance of special current accounts
Maintenance of bank cashbooks.
Reconciliation of bank account
MEANING OF WORKING CAPITAL
Working Capital is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of working capital, the exact amount varying from firm to firm and depending, among other things on the nature of industry.
Capital required for a business can be classified in two main categories viz.
1) Fixed capital, and
2) Working capital.
Every business needs funds for two purposes-for establishments and to carry out its day-to-day operations. Long-term funds are required to create production facilities.
Through purchase of fixed assets such as plants and machinery, land, building, furniture, etc. An investment in these assets represents that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw material, payment of wages and other day-to-day expenses, etc. These funds are known working Capital. In simple words, working capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories. Funds thus invested in current assets keep revolving fast and are being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.
CLASSIFICATION OF WORKING CAPITAL
Working Capital may be classified on two basis: -
a) On the basis of Concept: -
On the basis of concept, working capital can be classified as,
Gross Working Capital
Net Working Capital
b) On the basis of Time: -
On the basis of time, working capital can be classified as,
Permanent or Fixed Working Capital
Temporary or Variable Working Capital
Gross Working Capital: -
The Gross Working Capital is the Capital invested in the total current assets of the enterprises. Current assets are those assets, which can be converted into cash within a short period, normally an accounting year.
Gross Working Capital = Total Current Assets
Net Working Capital: -
The term Net Working Capital refers to the excess of current assets over current liabilities, or say,
Net Working Capital = Current Assets – Current Liabilities
Net Working Capital can be positive or negative. When the current assets exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets of the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.
The gross concept is sometime preferred to the concept of working capital for the following reasons: -
It enables the enterprise to provide correct amount of working capital at correct time.
Every management is more interested in total current assets with which it has to operate then the sources from where it is made available.
It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital.
The concept is also useful in determining the rate of return on investments in working capital.
The net working capital concept, however, is also important for the following reasons:-
It is a qualitative concept, which indicates the firm’s ability to meet its operating expenses the short-term liabilities.
It indicates the margin of protection available to short term creditors.
It is an indicator of financial soundness of enterprise.
It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.
Permanent or Fixed Working Capital: -
Permanent or fixed capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of current assets is called permanent or fixed working capital as this part of working capital is permanently blocked in current assets. As the business, grow the requirement of working capital also increases due to increase in current assets.
Temporary or Variable Working Capital: -
Temporary or variable working capital is the amount of working capital, which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called the seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaign for conducting research etc.
Temporary working capital differ from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in business
CALCULATE CURRENT ASSETS TO FIXED ASSET RATIO
A firm needs current and fixed assets to support a particular level of output. However, to support the same level of output the firm can have different levels of current assets. As the firm’s output and sales increases, the need for current asset increases. Generally the current assets do not increase in direct proportion to output; current assets may increase at a decreasing rate with input. This relationship is based upon the notion that it takes a greater proportional investment in current assets when only a few units of output are produced than it does later on when the firm can use its current assets more efficiently.
The level of the current assets can be measured by relating current assets to fixed assets.
There are three policies:-
CONSERVATIVE current assets policy:
CA/FA is higher. It implies greater liquidity and lower risk.
AGGRESSIVE current assets policy:
CA/FA is lower. It implies higher risk and poor liquidity.
MODERATE current assets policy:
CA/FA ratio falls in the middle of conservative and aggressive policies.
NEEDS AND OBJECTIVES FOR WORKING CAPITAL
Every business needs some amount of working capital. The needs for working capital, arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in sales and realization of cash. There are time gaps in purchase of raw material and production, production and sales, and realization of cash.
Thus, working capital is needed for the following purposes: -
For the purchase of raw material, component and spares.
To pay wages and salaries.
To incur day- to- day expenses and overhead costs such as fuel, power and office expenses etc.
To meet the selling costs such as packing, advertising etc.
To provide credit facilities to the customers.
To maintain the inventories of raw material, work in progress, store, spares, and finished stock
For studying the need of working capital in a business, one has to study the business under varying circumstances such as new concern, as a growing and one, which has attained maturity. A new concern requires a lot of funds to meets its initial requirement such as promotion and formation etc. These expenses are called preliminary expenses and are capitalized. The amount needed for working capital depends upon the size of the company and the ambition of its promoters. Greater the size of the business unit, generally will be the requirement of the
working capital. The requirement of the working capital goes on increasing with the growth and expansion of the business until its gains
maturity. At maturity, the amount of working capital required is called normal working capital.
IMPORTANCE OF WORKING CAPITAL
1. Time devoted to working capital management:-
The largest portion of financial manager’s time is devoted to day to day internal operation the firm. This may be appropriately sum up under the heading "WORKING CAPITAL MANAGEMENT".
2. Investment in current assets: -
current assets represent more than half of the total assets of a business firm. Because they represent largest investment and because this investment tends to relatively volatile, current assets are worthy for the financial manager's careful attention.
3. Importance for small firm:-
current assets are similarly important for the financial manager's of small firm. Further small firm are relatively limited access to the long term markets, it must necessarily rely on the trade credit and short term bank loan , both of net effect on net working capital by increased current liabilities.
WORKING CAPITAL CYCLE: -
The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.
Each component of working capital (namely inventory, receivables and payables) has two dimensions ... TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment.
DEBTORS
FINISHED GOODS
CASH
RAW MATERIALWORK IN PROGRESS
THE FOLLOWING DATA WHICH I TAKE HERE IS AN SECONDARY DATA BECAUSE IT IS FROM THE BALANCE SHEET & P&L ACCOUNT OF THE COMPANY. From The Website.
CURRENT
ASSEST
2292.28 2834.68 3743.98 4419.57 5483.42
CURRENT LIABLITIES
1006.15 1053.91 1396.86 1568.71 2524.77
NET WORKING CAPITAL
1286.10 1780.77 2347.12 2850.86 2958.65
TURNOVER 2981.35 3561.99 4203.29 5234.29 5605.69
TABLE IN CRORE
GRAPHICAL REPRESENTATION OF WORKING CAPITAL:-
Interpretation: -
If we see from the above table, it can be clearly seen that net working capital has continuously rise up from MAR’06 TO MAR’10. It is good for the company because its turnover is also increased
WORKING CAPITAL TURNOVER RATIO:-
This ratio helps to measure the efficiency of the utilization of the working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. This ratio shows the direct relationship between the sales and working capital.
W.C. turnover ratio = sales /working capital
YEAR CALCULATION RATIOMAR’06 2981.35/1286.13 2.318MAR’07 3561.99/1780.77 2.002MAR’08 4203.29/2347.12 1.791MAR,09 5234.29/2850.86 1.836MAR’10 5605.69/2958.65 1.895
GRAPH
INTERPRETATION: By observing the above ratio we find that the organization was using its working capital in the best possible manner in mar’06, this ratio is 2.318 but in the year 2007-09 this ratio has rapidly come down from 2.002 to 1.836 & in the year 2010 this ratio is increase to 1.895 . This increase was becausethe sales do increase in the same ratio so it shows that working capital management is in a proper manner and in accordance to sales.
CURRENT ASSETS TURNOVER RATIO :-
This ratio indicates the efficiency with which current assets turn into sales. A higher current assets turn over rate or a lower current assets turnover period is better. It indicates the efficient use of the funds and the reverse case indicates reduced lock-up of funds in current assets. C.A.turnover ratio = sales / current assetsYEAR CALCULATION RATIOMAR’06 2981.35/1286.13 2.3180MAR’07 3561.99/1780.77 2.002MAR’08 4203.29/2347.12 1.791MAR’09 5234.29/2850.86 1.836MAR’10 5605.69/2958.65 1.895
GRAPH
Interpretation:- By observing the above ratio we find that current assets turnover rate increased in MAR’06. Then after there was a decline from MAR’07-09 but very soon the company improved its current assets position from 1.836 to 1.895 in MAr’10. This increment shows that the current asset management is improving.
CURRENT LIABLITIES TURN OVER RATIO:-
CURRENT LIABLITIES TURN OVER RATIO=SALES/LIABLITIES
YEAR CALCULATION RATIO
MAR’06 2981.35/1006.15 2.963
MAR’07 3561.99/1053.91 3.380
MAR’08 4203.29/1396.86 3.009
MAR’09 5234.29/1568.71 3.337
MAR’10 5605.69/2524.77 2.339
GRAPH:-
INTERPRETATION: From the graph we can see the fluctuation in the current liabilities. In the mar’09 it is 3.337 which was going down in mar’10 by 2.339.
SUMMARY OF FINDINGS
The company is able to reduce its working capital from in a span of FIVE years without affecting the sales of the company which means that company is sincerely utilizing its funds and has reduced the locking of funds.
The latest working capital ratio indicates the efficiency of utilization of net working capital is increased
The current assets turnover ratio has increased which indicates that current assets is efficiently turning into sales.
The current liabilities shows fluctuation ,in mar’10 the C.L reduces which means company maintained its working capital in well manner.
CONCLUSION
By observing the ratio come under working capital management we can say that the company doing good & also improving their sale year by year.
The company also doing well by reducing current liability,& improving their current assets & working capital . So we can say that the company manage w.c management in good way.
RECOMMENDATION
The current assets turnover has decreased from mar’07-09 by 2 to 1.836 , so the company should try to improve this ratio through increase in sales or reduce the un-necessary lock up of funds in current assets.
There is a increase in current liabilities which is not good for the credit of company so the organization should try to reduce the current liabilities through speedy payment to creditors and reduce the un-necessary provisions.
There is a big fluctuation in working capital turnover ratio This was because the sales did not increase in the same ratio as working capital increased. So the company should manage the working capital and should properly estimate for an amount of sales how much working is needed so that the un-necessary lock up of funds in working capital may not occur.
BIBLOGRAPHY
FINANCIAL MANAGEMENT - I.M. PANDAY
WORKING CAPITAL MANAGEMENT- J.D. AGGARWAL
FINANCIAL MANAGEMENT- SASHI K. GUPTA
AKUMS DRUGS & PHARMACEUTICAL PVT. LTD- BALANCE SHEET& P&L ACCOUNT