A Study of Working Capital Management: Master of Business Administration

SUMMER TRAINING REPORT ON
A STUDY OF WORKING CAPITAL MANAGEMENT
(Submitted for the Partial Fulfilment for the Award of the Degree of)
MASTER OF BUSINESS ADMINISTRATION

(MBA 2010-12) UNDER THE GUIDANCE OF Dr. V.K. Khurana Submitted by SHRUTI AGGARWAL ENROLLMENT NO.18819103910
GITARATTAN INTERNATIONAL BUSINESS SCHOOL (Affiliated to GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY) ROHINI, NEW DELHI-110085
CERTIFICATE
This is to certify that the Summer Training Report titled A Study of Working Capital Management is an original work submitted by Shruti Aggarwal, Enrollment No.18819103910, MBA III semester student of Gitarattan International Business School (GIBS) under the guidance of Dr. V.K. Khurana and the same has not been submitted to any other university or institute for the award of degree/diploma.
Dr. V.K. Khurana Professor
Dr. S S Narula Director Gitarattan International Business School
II
DECLARATION
I, Ms. Shruti Aggarwal, Enrollment No. 18819103910, MBA III Semester hereby declare that , the Summer Training Report titled A Study of Working Capital Management is an original work done by me under the guidance of Dr. V.K. Khurana and has not been submitted to any other university or institute for the award of any degree or diploma or fellowship.
Dated:
Shruti Aggarwal 18819103910
III
ACKNOWLEDGEMENT
We are living in knowledge/information era which requires continuous learning and up gradation of skills. Summer training plays an important role for getting an insight into corporate culture and practices. I feel pleasure in taking this opportunity to express my sincere regards to my supervisor, Dr. V K Khurana, Professor, Gitarattan International Business School, New Delhi. Without his guidance, valuable suggestions, constructive criticism and encouragement throughout the course of the training, the present shape of the work would not have been possible. I wish to place on record my gratitude to Dr. S.S. Narula, Director and Mr. Rajesh S. Pyngavil, Program Coordinator, Gitarattan International Business School, New Delhi for their continuous encouragement and advice which were of immense help to me. I am also thankful to all teachers, non teaching staff and all my friends of the institute for their kind help. During the planning of this work the most difficult job was the stage of data collection. I want to convey my deepest regards to the General Manager, Ms. Sudeepta Das and all the employees of Shree Kunj Behari Embroidery Pvt. Limited, Bahadurgarh (Haryana). Without their help, data collection and training was impossible.
Shruti Aggarwal Enrolment No. - 18819103910
IV
TABLE OF CONTENTS
S.No. Particulars Training Certificate Certificate of Authenticity Declaration Acknowledgement List of Tables List of Figures Executive Summary Chapter-1 1.1 1.2 1.3 Chapter-2 Introduction Company Profile Overview of the Industry Products & Services Theoretical framework of the study Page No. I II III IV VII IX X 1 2 4 6 8
2.1 2.2 2.3 2.4
Meaning & Importance Working Capital Management Working Capital Cycle Cash Management
9 15 17 22
2.5 2.6 2.7 Chapter-3 3.1 3.2 3.3 3.4 Chapter-4 Chapter-5 Chapter-6 6.1 6.2 7 8
Debtors Management Managing Payables Inventory Management Research Methodology & Design Scope of the Study Objectives of the study Research Design Limitations of the study Data Analysis & Interpretation Major Findings & Discussion Recommendations & Conclusion Recommendations Conclusion References Annexure
26 28 28 36 37 37 38 38 39 60 62 63 64 65 66
VI
List of Tables
Table No.
Particulars
Page No.
2.1 2.2 2.3 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11
Constituents of Current Assets & Current Liabilities Sources of Working Capital
10 17 18 41 42 43 44 45 46 47 48 49 50 51
Situations & Responses Trend in Current Assets Trend of Current Liabilities
Trend of Net Working Capital Current Ratio Acid test ratio/Quick Ratio Inventory Holding Period Debtors Collection Period Working Capital Turnover Ratio Current Asset Turnover Ratio Debt-Equity Ratio Gross Profit margin
VII
4.12 4.13 4.14 4.15 4.16
Net Profit Ratio Degree of Operating Leverage Degree of Financial Leverage Degree of Combined Leverage
52 55 55 56 57
Statement of Changes in Working Capital (2009-10)
VIII
List of Figures
Fig.No.
Particulars
Page No.
2.1 2.2 2.3 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10
Operating Cycle Operating Cycle for a Manufacturing Firm Net Operating Cycle Trend in Current Assets Trend of Current Liabilities Trend of Net Working Capital Current Ratio Acid test ratio/Quick Ratio Working Capital Turnover Ratio Current Asset Turnover Ratio Debt-Equity Ratio Gross Profit margin Net Profit Ratio
19 21 22 41 42 43 44 45 48 49 50 51 52
IX
EXECUTIVE SUMMARY
The major objective of the study is to have the proper understanding of working capital. Working Capital Management is usually concerned with the administration of all the current assets and current liabilities. Working capital management policies have a great impact on the firm's profitability, liquidity and its structural health of the organization. Efficient management of working capital aims at solvency, profitability etc. Management of working capital is an essential task of the financial manager. He has to ensure that the amount of working capital available with his concern is neither too large nor too small for its requirement. Both excessive and inadequate working capital positions are undesirable and dangerous from the firm points of view. Excessive working capital means ideal funds which earns no profit for the firm. On the other hand paucity of working capital may lead to a situation where the firm may not able to meet its liabilities. Thus proper management and analysis of working capital is highly crucial for all kind of business which is clearly highlighted in the present study. It is the job of the financial manager to estimate the requirements of working capital carefully and determine the optimum level of investment in working capital. This study gives in detail the working capital management practices in Shree Kunj Behari Embroidery Private Limited. Management of each current asset, namely inventory management, cash management, receivables management, debtors management is studied. Similarly management of accounts payable is studied to understand the management of current liabilities. Apart from this the concept of operating cycle is also studied. The research methodology adopted for this study is mainly from secondary sources of data which include annual reports of SKBE Pvt. Ltd. The use of primary sources is limited to discussions/ interviews with employees in finance department. The study of working capital management shows that SKBE Pvt. Ltd. has satisfactory working capital position. By studying about the companys different areas it can be said that: Acid test ratio is less than one which means that company has less liquidity. Standard current ratio is 2:1 and for industry it is 1.50:1. The ratio is satisfactory.
Debtors of the company are high; they were increasing year by year, so more funds are blocked in debtors. Working capital turnover ratio has decreased that shows inefficiency of the firm in using the working capital.
XI

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SUMMER TRAINING REPORT ON

A STUDY OF WORKING CAPITAL MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION

Dr. V.K. Khurana Professor

Dr. S S Narula Director Gitarattan International Business School

Shruti Aggarwal 18819103910

Shruti Aggarwal Enrolment No. - 18819103910

2.1 2.2 2.3 2.4

Constituents of Current Assets & Current Liabilities Sources of Working Capital

Situations & Responses Trend in Current Assets Trend of Current Liabilities

4.12 4.13 4.14 4.15 4.16

Statement of Changes in Working Capital (2009-10)

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