A

SUMMER TRAINING PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT AT

Silver Forge Pvt. Ltd.

SUBMITTED TO:

Gujarat Technological University

-:Prepared by

UNDER THE GUIDAN

COMPANY PROFILE

Name of the unit : - silver forge pvt. Ltd.

Name of director : - Mr. Ankit khoyani

Year of the

Establishment : - 1995

Form of

Organization : - Large Scale

Phone Numbers :- 97234 44449

E-mail Address : - silverforge@yahoo.com

Bankers : - Bank of Baroda,rajkot

Working capital management

Working capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the inter relationship that exist between them.

Working capital refers to the cash a business requires for day-to-day operations or more specifically, for financing the conversion of raw material into finish goods.

Current assets are include cash short term securities, bills receivables, debtors, and stock. Current liabilities are include creditors, bills payable, and outstanding expenses.

Working capital= current asset – current liability

RESEARCH METHODOLOGY

Source Of Data: Secondary Source

Secondary data is original data. This kind of data is gathered by others and that can be used in reference or in study. The sources to gather this kind of data is published survey of market, journal by govt., media report etc.

I have used secondary data for the purpose of research, like

Annual Report Prepaid by Charted Accountant of company.

Cost sheet Prepaid by Cost Auditor Of the Company.

Net operating cycle

1) Payable Deferral Period

2) Gross Operating cycle

A) Debtor Cosumption Period

B) Inventory Cosumption Period

a) Raw materiol Cosumption Period

b) Work in Progress Cosumption Period

c) Finish Good Cosumption Period

CALCULATION

Inventory consumption period = Raw material consumption period + Work in Progress Consumption Period + Finish goods consumption period

Gross operating cycle = Inventory consumption period + Debtors consumption period

Net Operating cycle= Gross Operating Cycle - Payable Deferral Period

Calculation of Net Operating Cycle

Years Inventory consumption Period

Debtors consumption Period

Payable deferral Period

days

2012-13 264 + 80 _ 223 121

2011-12 226 + 71 _ 155 142

2010-11 239 + 85 _ 154 170

2009-10 196 + 99 _ 182 113

WORKING CAPITAL RATIO ANALYSIS

Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”.

A) Working capital turnover ratio

W.C.R.A. = Net working capital

Sales

Particular 2012-13 2011-12 2010-11 2009-10

Sales 669249673 816685475 729950074 648628921

N.W.C. 348405728 327647003 335792950 275044278

W.C,TOR 0.52 0.40 0.46 0.42

Interpretation

High working capital ratio indicates the capability of the

organization to achieve maximum sales with the minimum

investment in working capital. Company’s working capital ratio

shows mostly more than two, except for the year 2012-13 because

of excess of cash balance in current assets which occurred due to

encashment of deposits. In the year 2011-12 the ratio was around

3, it indicates that the capability of the company to achieve

maximum sales with the minimum investment in working capital.

B)Inventory turnover ratio

Inventory TOR = Average inventory

Cost of goods sold

Particular 2012-13 2011-12 2010-11 2009-10

COGS 433156377 520433711 463296547 400008998

Average Inventory

269919109 285090636 243794185 192118715

Inventory TOR 0.62 0.55 0.53 0.48

Interpretation

Inventory turnover ratio indicates the efficiency of the firm in

producing and selling its products. It was observed that Inventory

turnover ratio indicates maximum sales achieved with the minimum

investment in the inventory. As such, the general rule high inventory

turnover is desirable but high inventory turnover ratio may not

necessary indicates the profitable situation. An organization, in order

to achieve a large sales volume may sometime sacrifice on profit,

inventory ratio may not result into high amount of profit.

C)Receivable turnover ratio

Receivable turnover ratio = Average account receivables

Gross sales

Particular 2012-13 2011-12 2010-11 2009-10

Gross Sales 688623368 843295105 772355659 691409903

Sundry Debtors

151569700 164825535 179198533 187721269

Receivable TOR

0.22 0.20 0.23 0.27

Inerpretation

Receivable turnover ratios that receivables turned around the

sales were greater than 4 times. The actual collection period are more

than normal collection period allowed to customer. It shows that as

compare to previous year the debtors are decrease but it lead to

decrease in gross sales also. The company allows less credit sales but

it may be affect adversely on the total sales of the company.

D)Current assets turnover ratio

Current assets TOR= Current assets

Sales

Particular 2012-13 2011-12 2010-11 2009-10

sales 669249673 816685475 729950074 648628921

Current Assets 524548890 543102425 544804318 451413980

Current Assets TOR

0.78 0.67 0.75 0.70

Interpretation

It was observed that current assets turnover ratio does not

indicate any trend over the period of time. Turnover ratio was O.78 in

the year 2012-13 and increase to 0.67 in the year 2011-12 , but it

decreased in the year 2010-11, because of high cash balance. Cash

did not help to increase in sales volume, as cash is non earning asset

2)Liquidity ratio

The ratios compounded under this group indicate the short term position of the organization and also indicate

the efficiency with which the working capital is being used.Current assets

A) Current ratio = Current liabilities

Particular 2012-13 2011-12 2010-11 2009-10

Current Assets 524544889 543102425 544804318 451413098

Current liabilities

176139161 215455422 209011368 176368820

Current Ratio 2.98 2.52 2.61 2.55

Current Ratio

2.98

2.522.61

2.55

2.2

2.4

2.6

2.8

3

3.2

2012-13 2011-12 2010-11 2009-10

Years

Tim

es

Interpretation

The current ratio indicates the availability of funds to payment

of current liabilities in the form of current assets. A higher ratio

indicates that there were sufficient assets available with the

organization which can be converted in cash, without any reduction

in the value. As ideal current ratio is 2:1, where current ratio of the

firm is more than 2:1, it indicates the unnecessarily investment in

the current assets in the form of debtor and cash balance. Ratio is

higher in the year 2012-13 where cash balance is more than

requirement which came through encashment of deposits of funds.

B)Quick ratio

Current assets – Inventory

Quick ratio = Current liabilities

Particular 2012-13 2011-12 2010-11 2009-10

C.A –Inventories

270222975 257586120 260139350 248489696

Current liabilities

176139161 215455422 209011368 176368820

Quick Ratio 1.53 1.20 1.24 1.40

Quick Ratio

1.53

1.2 1.241.4

0

0.5

1

1.5

2

2012-13 2011-12 2010-11 2009-10

Years

Tim

es

Interpretation

Quick ratios establish the relationship between quick or liquid

assets and liabilities. An asset is liquid if it can be converting in to cash

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

most liquid asset .other assets which are consider to be relatively liquid

and include in quick assets are debtors and bills receivable and

marketable securities.

The liquid ratio of 1:1 is suppose to be standard or ideal but here ratio is

more than 1:1 over the period of time, it indicates that the firm maintains

the over liquid assets than actual requirement of such assets.

C)Absolute liquid ratio

Absolute liquid assets

Absolute liquid ratio = Current liabilities

Particular 2012-13 2011-12 2010-11 2009-10

Cash & Bank Balance

64391467 19178538 17833875 7297136

Current liabilities

176139161 215455422 209011368 176368820

Absolute liquid ratio

0.36 0.089 0.085 0.041

Absolute liquid ratio

0.36

0.089 0.085

0.041

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

2012-13 2011-12 2010-11 2009-10Years

Tim

es

Interpretation

Absolute liquid ratio indicates the availability of cash with

company is sufficient because company also has other current

assets to support current liabilities of the company. In the year 2012-

13 absolute liquid ratio increased because of company carry more

cash balance, as a cash balance is ideal assets company has to

take control on such availability of funds which is affect on cost of

the funds.

FINDING

Working capital turnover ratio in year 2009-10 was 0.42. In year 2010-11 theratio was 0.46. Then in year 2011-12 the ratio of working capital turnover was0.40 . In year 2012-13 the ratio was 0.52

Inventory turnover ratio in year 2009-10 was 0.48. In year 2010-11 the ratio was0.53 year 2011-12 the ratio was 0.55.And in year 2012-13 the ratio was 0.62

RecievableTurnover Ratio in year 2009-10 was 0.27. Then in year 2010-11 theratio was 0.23.In year 2011-12 the ratio was 0.20. And in year 2012-13 the ratiowas 0.22.

Current assets turnover ratio in year 2009-10 was 0.70. then in year 2010-11 theratio was 0.75. then in year 2011-12 the ratio was 0.67. And in year 2012-13 ratiowas 0.78

Liquidity ratio in year 2009-10 was 2.55. in year 2010-11 the ratio was 2.61. In year2011-12 the ratio was 2.52. And in year 2012-13 the ratio was 2.98.

Quick Ratio in year 2009-10 was 1.40. In year 2010-11 the ratio was 1.24. In year2011-12 Ratio was 1.20. In year 2012-13 the ratio was 1.53

Absolute Liquid ratio in year 2009-10 was 0.04. In year 2010-11 the ratio was0.085. In year 2011-12 the ratio was 0.089. And in year 2012-13 the ratio was 0.36.

Working capital of the company was increasing and showing positive working capital every year. It shows good liquidity position.

Positive working capital indicates that company has the ability of payments of short terms liabilities.

Working capital increased because of increment in the current assets is more than increase in the current liabilities.

The company has more cash and bank balance in current year it shows that inefficient management.

The inventory conversion period of the company has increasing every year so it shows that there is more days to convert the raw material into finished products.

Debtors of the company are decreasing every year it shows that company allows less credit sales.

RECOMMENDATIONS

Net operating cycle days decreasing as compare to previous years but there is need to improvement.

If we see the debtors are increasing year by year but the collection period are decreasing in current year so by improving the collection period we can improve the net operating cycle.

The cash and bank of the company is very high it shows inefficient cash management so as the company has to improve cash management

CONCLUSION

Concluding about the working of SFPL. It is truly a well organized and well-managed unit all the department of the unit is perfectly co-ordinate and managed.

Production department of SFPL is full fledged, marketing needs no reference because company’ product is in full demand and Personnel is at its best. So, there is nothing more too critical evaluate the working of the unit.

However, there are some problems faced by the company periodically as by other units but its does not over all affect the successful image of the company.

THANK YOU