37758767 Working Capital Management of a Manufacturing Company Project Report M B A

WORKING CAPITAL MANAGEMENT
OF

Sathe Synthetics
PROJECT REPORT
Submitted in partial fulfillment of the requirement for the award of
Two year full time, Masters in Business Administration.
By

Karan veer Singh

DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(2009-2011)

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Acknowledgement

Whatever we do and whatever we achieve during the course of our limited life is
just not done only by our own efforts, but by efforts contributed by other people
associated with us indirectly or directly. I thank all those people who contributed to
this from the very beginning until its successful end.
I sincerely thank Mr. Subodh kr. Teotia (Personnel manager, Sathe Synthetics,
Ghaziabad), person of amiable personality, for assigning such a challenging
project work which has enriched my work experience and getting me acclimatized
in a fit and final working ambience in the premises of Sathe Synthetics.
I acknowledge my gratitude to Mr. Nitin Dhir (Lovely Professional University),
for his extended guidance, encouragement, support and reviews without whom this
project would not have been a success.
Last but not the least I would like to extend my thanks to all the employees at
Sathe Synthetics, Ghaziabad (prop. Rakesh fuel pvt. Ltd.) and my friends for their
cooperation, valuable information and feedback during my project.

KARAN VEER SINGH

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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY
2. INDUSTRY PROFILE
3. ABOUT THE COMPANY
a. Company profile
b. Mission & Vision
c. Company Leadership
d. Company Products
e. SCOT Analysis of Sathe synthetics
4.
5.
6.
7.

OBJECTIVES OF THE STUDY
REVIEW OF LITERATURE
RESEARCH METHODOLOGY
WORKING CAPITAL MANAGEMENT
a. Introduction
b. Working Capital Analysis
c. Nature & importance of working capital
d. The importance of Good Working Capital
e. Working Capital Cycle

8. OPERATING CYCLE OF SATHE SYNTHETICS
a. Gross operating cycle
b. Net operating cycle
9. SCHEDULE CHANGE IN WORKING CAPITAL & ANALYSIS
10.WORKING CAPITAL RATIOS OF SATHE SYNTHETICS
a.
b.
c.
d.
e.
f.

Receivable Ratio
Payable Ratio
Inventory Ratio
Current Ratio
Quick Ratio
Working capital turnover ratio

11. ANALYSIS OF THE STUDY
a. Analysis of various components

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b.
c.
d.
e.
f.

Inventory
Sundry Debtors
Cash & Bank Balance
Current Liability
Provision Analysis

12. CONCLUSION
13. SUGGESSATIONS & RECOMMENDATIONS
14. BIBLIOGRAPHY & REFRENCES
15. ANNEXURES

Executive Summary
The project on Working Capital Management has been a very good experience. Every
manufacturing company faces the problem of Working Capital Management in their day-to-day
processes. An organization’s cost reduced and the profits increased only if it is able to manage its
Working Capital efficiently. At the same time, the company can provide customer satisfaction
and hence can improve their overall productivity and profitability.

This project is a sincere effort to study and analyze the Working Capital Management of
Sathe Synthetics, GZB. The project focused on making a financial overview of the company by
conducting a Working Capital analysis of SATHE group for the years 2005 to 2009 and Ratios &
various components of working capital & format emphasizing on Working Capital.

The internship is a bridge between the institute and the organization. This made me to be
involved in a project that helped me to employ my theoretical knowledge about the myriad and

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fascinating facets of finance. Moreover, in the process I could contribute substantially to the
organization’s growth. The experience that I gathered over the past two months has certainly
provided the orientation, which I believe will help me in shouldering any responsibility in future.

INDUSTRY PROFILE
HISTORY OF THE INDIAN TEXTILE INDUSTRY:
The human need is to eat well for to be alive and shelter to protect them from discomforts of
nature and a place to live in. Human beings also need something to cover their body to protect
from diverse climates and to add the appearance. Earlier there was a time when the human being
known nothing about the cloth to wear. The human beings first use plant barks, leaves and
animal skin to wrap around them. Then as the development of brain took place, they started to
explore other possibilities and invent more in this area. There is constant search for clothing and
it led to the knowledge of sources from vegetation i.e. Cotton and from animals i.e. wool, which
could be knitted and woven to manufacture clothes to wear.
The commercial development of man-made fiber began late in the 19 th Century, experienced
much growth during the 1940’s, expanded rapidly after world War – II and in the 1970’s was still
the subject of extensive Research and Development.
The spinning and weaving both are very common and attached with each other in all parts of the
world. We talk of the ancient times, when maximum work like weaving of the clothes was done
manually, but all the things were being done for the right perspectives. From time to time in this
world development had taken place, which has been found to be a continuous process. Similarly

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considering the developments in the Spinning and Weaving lot of improvements has come-up.
Because earlier too was the Cotton crop was grown by the farmers, but its end use was not done
in an effective way, which seems good. So much thick fiber was produced and accordingly its
impact for the fabric preparation.

APPARATUS USED FOR SPINNING & WEAVING DURING PRE-INDEPENDENCE
Before Independence we talk of the political leaders like Mahatma Gandhi, who had always
insisted to use Khadi Clothes and even self-spinning and weaving. It is also called as selfdependence for all needs. Such a good initiatives had come-up at India level amongst the
followers of the Leader – Mahatma Gandhi. On the other side too such initiatives had been
proved very good and had attracted many other western countries to follow such practices and
show their excited ness. Though in case we talk of the English rule before the Independence i.e.
1947, it was not appreciated by the English Rulers, but after the freedom these leaders had got

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very good appreciation particularly for the self spinning and weaving and in an overall manner
this sector of Spinning and Weaving was industrialized even after the independence too on the
basis of Indian cotton growers.
It is needless to mention here that throughout India, cotton grower’s belts are available and after
independence, even English people take their raw material from here and had established
themselves with the Spinning and weaving industries. Overall In India no such preferences for
the Spinning and Weaving industries were made, however the Library research reveals that the
first Cotton mill had been established in India during 1854 named as Bombay Spinning and
Weaving company. Though the Cotton industry had progressed a lot, but in case we say that
India alone is heading this world, it is wrong. Though in India Textile Machine manufacturers
are there and one or two decades ago they were the market leaders, but with the help of the other
parts/people of world i.e. Germany, Switzerland etc., India had made a very good recognition in
the yarn market.
Because Indian Industrial Organizations have also initiated towards the most modernized
machinery produced by Schlafhorsts – Germany, Luwa – Humidification systems, Switzerland.
This is just the example of the development, that in India too the most modern machinery is
being installed.

However, it is an evident that the Indian yarn is always running on the

development trend since its Inception of first unit in Bombay, but its position in the international
market has not appeared so good. Because many other countries like China as Cotton Textiles
has went ahead. Though till today India has achieved a lot in the Textile Industry and almost 700
Textile units are working successfully, because India is having at present more than 20 Million
spindles and a weaving capacity of more than 2.5 Lac looms and the total output value of the
same is around Rs.1500 Cores, employing more than 10 Lac of workers directly. The invention
and production of manmade thirty three fibers that is synthetic fibers like Nylon, Acrylic fibers,
Polyester Fiber, Viscose, S.Sament yarns, Mélange yarn, etc., which ultimately had given a good
blow to grow for the Cotton Textile Industry and know occupy a major part of consumer
acceptance.

About 50 countries have been importing such material from India and the

description of the Spinning and weaving industry had remained incomplete without referring to
the woolen industry.

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COMPANY PROFILE

Sathe Synthetics
Introduction

Company was started in 1995 as Production capacity of 40 tons per month of p.p. multifilament
yarn in various deniers of FDY ranging from 210 deniers to 1200 deniers in all colors
& naturals. The company is the largest P.P. Yarn manufacturer in the country.
Our Mission- We work with a mission to become world leader in narrow fabrics and
webbings products by successfully adopting latest manufacturing techniques and offering
innovative range of products that are used for various applications.
The company Sathe Synthetics (Prop. Rakesh fuel PVT. LTD) divided in two units, situated in
Ghaziabad and other one is in Sikandrabad. The company is governed and controlled by three
brothers and partners named asMr. Ravi Mohan – DIRECTOR GENERAL, HEAD OF TECHNICAL & MAINTENANCE
DEPARTMENT
Mr. Rajeev Mohan – FINANCE DECISION MAKER, HEAD OF SALES AND MARKETING

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NAME OF AUTHORITY

DESIGNATION

MR. ARUN SINGH

GENERAL MANAGER

MR. SUBODH KR. TEOTIA

PERSONNEL MANAGER

MR. ASHOK AGARWAL

STORE MANAGER

MR. HARISH GUPTA

HEAD MARKETING (PURCHASE)

MR. ASHA RAM
ACCOUNTS HEAD
Mr. Rakesh Mohan – DIRECTOR, NEW OPPORTUNITIES FOR COMPANY
PRODUCT RANGE: Flat & Twisted
Range FD

Sathe Synthetics

CRIMP

FDY 210 Deniers
FDY 330 Deniers
FDY 440 Deniers
FDY 600 Deniers
FDY 840 Deniers

YARN 110/1
YARN 110/2
YARN 120/1
YARN 120/2
YARN 130/1

FDY 1000 Deniers
FDY 1200 Deniers

YARN 130/2

Uses - For
Swing Thread
Belt
Lasses
Tape
Filter cloth
Fabrics
Housosry
And
many
things

FDY Use of Crimp Yarn
Undergarments
Socks
Lasses
Tie
And
many
more
things
more

PRESENT CAPACITIES
Presently the group has following production capacity and product range at its different
manufacturing facilities.
Location

Installed
Capacity

Production
Capacity

Product Range

10Tons / Day

POLYPROPYLEN
E
MULTIS.SAMENT
YARN

(spindles)
Sathe synthetics, Ghaziabad

10500

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UNI-2, Sikandrabad

8000

6.5 Tons/Day

POLYPROPYLEN
E
MULTIS.SAMENT
YARN, &
NON-WOVEN
FABRICS

USTERIZED CERTIFICATION
The unit had been awarded USTER certificate by Uster technologies AG CH-8610 Uster/
Switzerland on April 10, 2007. Sathe synthetics, Ghaziabad / India fulfill all conditions for using
the brand USTERIZED and will be checked regularly at once per year basis.
PRODUCTION
The unit is producing different types of yarn both for Domestic consumption and Export
purpose. The production department is headed by General Manager (G.M.). The SATHE
SYNTHETICS has two units. The unit- I is concerned with the production of
POLYPROPYLENE MULTIFILAMENT YARN. The unit-II expansion is concerned with
production of POLYPROPYLENE MULTIFILAMENT YARN & NON WOVEN FABRICS.
Production capacity of unit –I is 10 ton per day and unit-II is 6.5 tons per day.
MARKETING
For Marketing of different product, the unit is having a modern marketing department headed by
experienced team which covers all the activities for conversion of finished goods into cash. It
keeps vigil on the market feed-back on the level competition, market, trend, changing customer
needs and modifications. The marketing department deals with domestic sales, while export
department of the group manages export sales. The SATHE SYNTHETICS, Having the export
and domestic ratio is 34:66. The unit is having different channels for distribution of its products.
1.
2.
3.

Selling agents at Ghaziabad, Delhi, Mumbai and Lucknow.
Branches at Delhi and Utter Pradesh.
Direct Dispatches are also made by the units.

ORGNISATION STRUCTURE
A chart showing the organizational structure of SATHE SYNTHETICS, Ghaziabad is given on
the next page. It shows the various hierarchical levels of the organization. It is a department line
organization which is divided into various department headed by their respective department

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heads. All departments operate under the ultimate control of Chief Executive Sh. Rakesh Mohan.
The orders flow directly from unit head to different departmental heads down the line to
respective department subordinates.

Manufacturing Process Flow Chart of
S.S

GREY CHIPS
GREY-CHIPS
PP*/PE*/NYLON

EXTRUDER

MASTER-BATCH

PPP*P*/PE*/NYLON
POLYMER-MENT

(COLOURED CHIPS)

SCREEN-S.STER
METERING-S.STER
SPINNERETTE DIE-PLATE

MULTIFILAMENT YARN
QUENCHING (FAST
COLLING)
SPIN FINISH APPLICATION
TAKE UP/WINDER
FDY/HE/POY

D-TEX M/C
TWISTING
TWISTING

PACKING
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DESPATCH

MANUFACTURING PROCESS IN SATHE SYNTHETICS , GHAZIABAD
Poy Spinning
Polyester Polypropylene chips are fed in the feeding hopper with the help of electric hoist
and are conveyed from feeding hopper to DPG from where they are further conveyed to the
Storage Silos with the help of compressed air. From the Silos, the chips enter the blender for
proper blending to avoid variation.

Control Room

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The chips, after blending, are stored in a Wet Chips Hopper.
The level of chips in this hopper is automatically controlled from where these are
transferred to the drying system through rotary air lock. Rotary air lock does not allow the air to
leak during the chips entry from WCH to drying system. Dryer system dries the chips with the
help of hot air to control the moisture level of the chips to make it suitable for spinning. From the
dryer, chips enter the Dry Chips Hopper before feeding to the Extruder.

Production Lines
From the Dry Chips Hopper, chips are conveyed to the extruder where chips are melted
and mixed to give homogenous molten polymer with the help of electrical heaters. The same is
thereafter filtered through continuous polymer filter.
After filtration, the melt is distributed to 4 nos. of spinning beams via manifold. The temperature
of the spinning beams and manifold is maintained by special type of heat transfer media. Melt is
purified by means of metallic and sand filters before being extruded to filament through
spinnerets.
The extruder has a capacity to melt and deliver 800 kgs of chips/hr. at high pressure up to
250 bars. Molten polymer in spinning beam is extruded through the spinnerets via polymer
pump. The speed of polymer pump is controlled by production computers to ensure uniform flow
of melt to produce quality of yarn. The speed of polymer pump may be changed to produce
different kind of deniers.

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Quality Control
Polymer melt passing through the spinnerattes comes out in the form of yarn at a
temperature of 280-290 ° C. The yarn is then cooled to solidify in the cooling chamber and after
the cooling, finish oil is applied to yarn to lubricate the same for further processing. The yarn is,
thereafter, taken on the winder for winding on paper tubes. The speed of the winder is controlled
by the computers and can be varied as per the process requirement to produce different kind of
deniers. The POY thus produced is checked on automatic machines called Tensorapid and Uster
Tester-3 for checking of thickness and uniformity properties.

Packaging
Twisting
POY is thereafter transported from the POY department to texturising section. It is then
taken on creel and fed to the texturising machines and heaters. After the necessary heat setting
and cooling, the texturised yarn is collected on paper tubes and thereafter, packed in corrugated
boxes and sent to the market.
FINAL PRODUCT OF SATHE SYNTHETICS

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Sathe Synthetics
Address:
D-27, Industrial Area, Kavi Nagar
Ghaziabad-201001, (U.P.)
Phone: 91-120-2700336, 2700386
Fax: 91-120-2703172
E-mail: [email protected]
Contact Person: Mr. L.C. Sharma

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SCOT Analysis of Sathe Synthetics
Strengths
Experienced promoters with over 40 years of experience in the industry
Successfully implemented various expansion schemes in the past with in-house expertise
Consistently achieved capacity utilization over 90% in respect of POY in the past.
Products are well accepted in the market
With the implementation of the proposed project, the company will reap the benefits of
economies of scale due to optimum utilization of the existing facilities.
Satisfactory organizational set-up with experienced and well-qualified employees.
Strong marketing network with low selling and distribution costs
Challenges
The prices of raw materials and finished goods move in tandem with international prices,
which, in turn, have positive correlation with the prices of petrochemical products.
A major portion of the manufacturing capacity originates from second hand equipment.
S.S adopts the technology of spinning POY from polyester chips which are an intermediate
and may put S.S at a comparatively disadvantages position due to relatively higher cost vis-à-vis
the other players who manufacture POY directly from PTA/DMT/MEG. Company is taking
planning to putting up its own captive poly- condensation facility.

Opportunities
With no major capacity increase being created in the recent past / being planned in the near
future, the existing players are well positioned to take advantage of the emerging scenario where
demand is expected to exceed supply.
Potential growth in exports of POY / PFY. With quantitative restrictions on textile exports
being dismantled under the aegis of World Trade Organization (WTO) from 2005, it is expected
that low cost producers like India will benefit.
With tariffs proposed to come down in India over a period of time, it is expected that raw
material costs will be comparable to those prevailing in the international markets.
Potential growth in domestic demand for POY due to increase in share of non-cotton fabric.

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Threats
Likely expansion by large players like Reliance Industries, Indo Rama Synthetics, Century
Enka Ltd., etc.
India has concluded / is in the process of concluding Free Trade Agreements (FTA) with a
number of countries like Sri Lanka, Thailand, China, etc. This will lead to lower tariffs all round
and may affect Indian textile units, including S.S.
Post WTO, when India would be exposed to international competition. S.S’s position is
expected to be vulnerable vis-à-vis those companies with global size and modern facilities.

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OUTLINE OF THE STUDY
The management of working capital is very important. It involves the study of day-to-day affairs
of the company. The motive behind the study is to develop an understanding about the working
capital management in the running business organization and to help the company in developing
the efficient working capital management. Therefore, it helps in future planning and control
decisions.
OBJECTIVES OF THE STUDY
The objectives of the study are as follows:
 To analyze the working capital management of the company.
 To determine the gross and net operating cycle of the unit.
 To know the future need of working capital in the running organization.
 To render recommendations for the effective management of working capital.

SCOPE OF THE STUDY
The study is conducted at “SATHE SYNTHETICS, Ghaziabad” for 6 weeks duration. The study
of W.C. management is purely based on secondary data and all the information is available
within the company itself in the form of records. To get proper understanding of this concept, I
have done the study of the balance sheets, profit and loss A/C’s, cash accounts, trial balance, and
cost sheets. I have also conducted the interviews with employees of accounts and finance
department and stores department. So, scope of the study is limited up to the availability of
official records and information provided by the employees. The study is supposed to be related
to the period of last five years.

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REVIEW OF LITERATURE
1- The research done by Pass C.L., Pike R.H., “An overview of working capital management
and corporate financing”,(1984) describes that over the past 40 years major theoretical
developments have occurred in the areas of longer-term investment and financial decision
making. Many of these new concepts and the related techniques are now being employed
successfully in industrial practice. By contrast, far less attention has been paid to the area of
short-term finance, in particular that of working capital management. Such neglect might be
acceptable were working capital considerations of relatively little importance to the firm, but
effective working capital management has a crucial role to play in enhancing the profitability
and growth of the firm. Indeed, experience shows that inadequate planning and control of
working capital is one of the more common causes of business failure.

2- The research done by Herrfeldt B., “How to Understand Working Capital Management”
describes that“Cash is king”--so say the money managers who share the responsibility of
running this country's businesses. And with banks demanding more from their prospective
borrowers, greater emphasis has been placed on those accountable for so-called working
capital management. Working capital management refers to the management of current or
short-term assets and short-term liabilities. In essence, the purpose of that function is to make
certain that the company has enough assets to operate its business. Here are things you
should know about working capital management.

3- The research done by, Samiloglu F. and Demirgunes K., “The Effect of Working Capital
Management on Firm Profitability: Evidence from Turkey” (2008) describes that the effect of
working capital management on firm profitability. In accordance with this aim, to consider
statistically significant relationships between firm profitability and the components of cash
conversion cycle at length, a sample consisting of Istanbul Stock Exchange (ISE) listed
manufacturing firms for the period of 1998-2007 has been analysed under a multiple

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regression model. Empirical findings of the study show that accounts receivables period,
inventory period and leverage affect firm profitability negatively; while growth (in sales)
affects firm profitability positively.

4- The research done by, Appuhami, Ranjith B A, “The Impact of Firms' Capital Expenditure on
Working Capital Management: An Empirical Study across Industries in Thailand” ,
International Management Review,(2008), The purpose of this research is to investigate the
impact of firms' capital expenditure on their working capital management. The author used
the data colleted from listed companies in the Thailand Stock Exchange. The study used
Shulman and Cox's (1985) Net Liquidity Balance and Working Capital Requirement as a
proxy for working capital measurement and developed multiple regression models. The
empirical research found that firms' capital expenditure has a significant impact on working
capital management. The study also found that the firms' operating cash flow, which was
recognized as a control variable, has a significant relationship with working capital
management.

5- The research done by, Hardcastle J., “Working Capital Management”,(2007) describes that
Working capital, sometimes called gross working capital, simply refers to the firm's total
current assets (the short-term ones), cash, marketable securities, accounts receivable, and
inventory. While long-term financial analysis primarily concerns strategic planning, working
capital management deals with day-to-day operations. By making sure that production lines
do not stop due to lack of raw materials, that inventories do not build up because production
continues unchanged when sales dip, that customers pay on time and that enough cash is on
hand to make payments when they are due. Obviously without good working capital
management, no firm can be efficient and profitable.
6- The research done by, Thachappilly G., “Working Capital Management Manages Flow of
Funds”,(2009)

describes that Working capital is the cash needed to carry on operations

during the cash conversion cycle, i.e. the days from paying for raw materials to collecting

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cash from customers. Raw materials and operating supplies must be bought and stored to
ensure uninterrupted production. Wages, salaries, utility charges and other incidentals must
be paid for converting the materials into finished products. Customers must be allowed a
credit period that is standard in the business. Only at the end of this cycle does cash flow in
again.The research done by, Beneda, Nancy; Zhang, Yilei, “Working Capital Management,
Growth and Performance of New Public Companies”.
7- The research done by, Dubey R.,“Working Capital Management-an Effective Tool for
Organisational Success” (2008) describes that The working capital in a firm generally arises
out of four basic factors like sales volume,technological changes,seasonal , cyclical changes
and policies of the firm.The strenghth of the firm is dependent on the working capital as
discussed earlier but this working capital is inteslf dependent on the level of sales volume of
the firm.The firm requires current assets to support and maintain operational or functional
activities.By current assets we mean the assets which can be converted readily into cash say
within a year such as receivables,inventories and liquid cash.If the level of sales is stable and
towards growth the level of cash,receivables and stock will also be on the high.
8- The research done by, McClure B., “Working Capital Works” describes that Cash is the
lifeline of a company. If this lifeline deteriorates, so does the company's ability to fund
operations, reinvest and meet capital requirements and payments. Understanding a company's
cash flow health is essential to making investment decisions. A good way to judge a
company's cash flow prospects is to look at its working capital management (WCM). Cash is
king, especially at a time when fund raising is harder than ever. Letting it slip away is an
oversight that investors should not forgive. Analyzing a company's working capital can
provide excellent insight into how well a company handles its cash, and whether it is likely to
have any on hand to fund growth and contribute to shareholder value.

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9- The research done by, Gass D., “How To Improve Working Capital Management” (2006)
"Cash is the lifeblood of business" is an often repeated maxim amongst financial managers.
Working capital management refers to the management of current or short-term assets and
short-term liabilities. Components of short-term assets include inventories, loans and
advances, debtors, investments and cash and bank balances. Short-term liabilities include
creditors, trade advances, borrowings and provisions. The major emphasis is, however, on
short-term assets, since short-term liabilities arise in the context of short-term assets. It is
important that companies minimize risk by prudent working capital management.

10- The research done by, Maynard E. Rafuse, “ Working capital management: an urgent need to
refocus” Management Decision, (1996) Argues that attempts to improve working capital by
delaying payment to creditors is counter-productive to individuals and to the economy as a
whole. Claims that altering debtor and creditor levels for individual tiers within a value
system will rarely produce any net benefit .Proposes that stock reduction generates systemwide financial improvements and other important benefits .Urges those organizations seeking
concentrated working capital reduction strategies to focus on stock management strategies
based on “lean supply-chain” techniques.
11- Impact of Working Capital Management Policies on Corporate Performance—An
Empirical Study
Sushma Vishnani, Bhupesh Kr. Shah (2007)
It is felt that there is the need to study the role of working capital management policies on
profitability of a company. Conventionally, it has been seen that if a company desires to
take a greater risk for bigger profits and losses, it reduces the size of its working capital in
relation to its sales. If it is interested in improving its liquidity, it increases the level of its
working capital.
However, this policy is likely to result in a reduction of the sales volume, therefore of
profitability. Hence, a company should strike a balance between liquidity and profitability. In
this paper an effort has been made to make an empirical study of Indian Consumer
Electronics Industry for assessing the impact of working capital policies & practices on
profitability during the period 1994–95 to 2004–05. The impact of working capital policies

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on profitability has been examined by computing coefficient of correlation and regression
analysis between profitability ratio and some key working capital policy indicator ratios.

12- Working Capital and Financial Management Practices in the Small Firm Sector
Michael J. Peel, Nicholas Wilson (2008)
MICHAEL J. PEEL IS A LECTURER IN accountancy and finance at Cardiff Business
School, University of Wales and Nicholas Wilson is Professor of Credit Management at the
University of Bradford, England. Very little research has been conducted on the capital budgeting
and working capital practices of small firms. The purpose of this paper is to present the results of
a preliminary study on the working capital and financial management practices of a sample of
small firms located in the north of England. In general, the results of the survey indicated that a
relatively high proportion of small firms in the sample claimed to use quantitative capital
budgeting and working capital techniques and to review various aspects of their companies'
working capital. In addition, the firms which claimed to use the more sophisticated discounted
cash flow capital budgeting techniques, or which had been active in terms of reducing stock
levels or the debtors' credit period, on average tended to be more active in respect of working
capital management practices. It hoped that the issues raised would stimulate further theoretical
and empirical contributions on this neglected and important area of small business research.

RESEARCH METHODOLOGY

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The term research refers to the systematic method consisting of enunciating the problem ,
formulating a hypothesis collecting the data , analyzing the facts and reaching the certain
conclusions either in the form of solution towards the concern problem or in certain
generalization for some theoretical formulation .
Research Methodology is a way to solve systematically the research problem .It may be
understood as a science of studying how research is done scientifically.
Time Period of the study:
The present study was undertaken during Six weeks from 14th June - 26th July.
Research Design:
Descriptive research procedure is used for describing the recent situations in the organization and
analytical research to analyze the results by using research tools.

Descriptive Research:

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Descriptive research, also known as statistical research, describes data and characteristics
about the population or phenomenon being studied. Descriptive research answers the
questions who, what, where, when and how...
Although the data description is factual, accurate and systematic, the research cannot describe
what caused a situation. Thus, Descriptive research cannot be used to create a causal
relationship, where one variable affects another. In other words, descriptive research can be said
to have a low requirement for internal validity.
In short descriptive research deals with everything that can be counted and studied. But there
are always restrictions to that. Your research must have an impact to the lives of the people
around you. For example,finding the most frequent disease that affects the children of a town.
The reader of the research will know what to do to prevent that disease thus, more people will
live a healthy life.

Data Source & Collection Methods:
There are two types for collecting data
1. Primary data
2. Secondary data
Secondary Data:
Secondary data are those which have already been collected by someone else and
which have already been passed through the statistical process. The Secondary data consist of
reality available compendices already complied statistical statements. Secondary data consists of
not only published records and reports but also unpublished records.
Here we done the analysis on basis of secondary data, which included Balance sheet of company
 Profit and loss A/C of Sathe Synthetics

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 Cost sheets, & Trail balance of five years

Purpose:
The purpose of this paper is to properly analysis of the working capital management of
Sathe synthetics, Ghaziabad over the period 2005-2009.
Tools used:
I used the different tools to analyze the working capital management of Sathe Synthetics 




Analysis through Working capital ratios
Analysis through Schedule change in working capital
Analysis through Gross operating cycle & Net operating cycle
Analysis through Various components of working capital

LIMITATIONS OF THE STUDY
 As central purchase office, purchase raw material and central marketing yarn make sales.
Information that is so more detailed cannot be received about these.
 Cash from debtors a collected by the corporate office through commission agents. So
efforts for collection of debtors cannot be clearly known from SATHE SYNTHETICS,
Ghaziabad.
 Investment of funds are also made by corporate office, so it becomes difficult to know
that how much investment is made in different ways for continuous availability of funds.

Page 26

Page 27

THEORETICAL BACKGROUND
OF WORKING CAPITAL MANAGEMENT
MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT
The management of working capital is concerned with two problems that arise in
attempting to manage the current assets, current liabilities and the inter relationship that asserts
between them.
The basic goal is working capital management is to manage current assets and current
liabilities of a firm in such a way that a satisfactory of optimum level of working capital is
maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well
as excessive working capital position is bad for business.

MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT
There are two major decisions management relating to working capital management:1.

What should be ratio of current assets to sales?

2.

What should be the appropriate mix of short term financing and long term financing
for financing these current assets?

1.

Current assets in relation to sales:If the firm can forecast accurately the factors, which effect the working capital, the

investment in current assets, can be designed uniquely. When uncertainty characteristics the
above factors, as it usually does the investment in current assets cannot be specified uniquely. In
case of uncertainty, the outlay on current assets should consist of base component meant to meet
normal requirement and a safety component meant to cope with unusual requirement. The safety
component depends upon low conservative or aggressive in the current assets policy of a firm. If

Page 28

the firm purchases a very conservative current asset policy it would carry a high level of current
assets in relation to sales. If a firm adopts a moderate current assets policy it would carry
moderate level of current assets in relation to sales, finally is a firm follows a highly aggressive
current assets policy, it would carry a low level of current assets in relation to sales.
SATHE SYNTHETICS is following current assets policy showing moderate level of
current assets in relation to sales as is evident from ratio analysis.

2. Determining a Short Term and Long Term Financing Mix for Financing of current
assets:There are three approaches in this regard, which are discussed below:
HEDGING APPROACH: This approach is also called matching approach. In this approach there is a
proper matching of expected life of asset with the duration of fund. Usually, according to this
approach, long-term sources are used for financing permanent current assets and fixed assets &
short-term sources are used for financing temporary current assets:
Temporary current assets
Short term financing

A

term financing

S
S

ASSETS

E

Permanent current
Time
assets

T
S

Page 29

Long-term financing

CONSERVATIVE APPROACH: In this approach there is more reliance on long-term financing in comparison to shortterm financing. Even some part of the temporary current comparison to finance from long-term
sources because long-term sources are less risky in comparison to short-term sources.

Temporary Current Assets
A

Short-term financing

S
S
E
T
S

Fixed Assets

Permanent Current Assets
Time

Long-term

financing

AGGRESSIVE APPROACH
In this approach there is more reliance on short term financing and even a part of
permanent current assets is financed from short-term finance.

Temporary current assets

Short term financing

A
S
S
E

Permanent current assets

T
S

Fixed Assets
Time

Page 30

Long term financing

In SATHE SYNTHETICS, the current assets are financed from short term sources as well as
long term sources, so they follow conservative approach.

WORKING CAPITAL ANALYSIS

1. OPERATING CYCLE ANALYSIS
Operating cycle refers to the time period which starts from the raw material purchases
and ends with realization of receivable. So it is total time gap between raw material purchases to
total debtors’ collection. This is also known as working capital cycle. Operating cycle is
therefore expressed in terms of months or weeks or days. The higher the operating cycle period,
higher the working capital requirement. It comprises of raw material conversion period, WIP
conversion period, FG conversion period and debtors’ conversion period and creditors period.
The basic reason for calculating operating cycle is to find out the means for reducing the duration
of operating cycle because if duration of operating cycle will be less than working capital
requirement will be less.

Page 31

OC = R + W + F + D – C
Where,
R = raw material conversion period

W = work in process period

F = finished goods conversion period

D = debtor collection period

C = creditors payment period
(1)

Raw Material Conversion Period (RMCP)
=

Average Raw Material Stock
Average Raw Materials consumed during the year

PARTICULARS
Average
raw

2008-09
33065118

2007-08
33352213.5

2006-07
20819151

2005-06
13076062.5

2004-05
9471720.12

material stock
Raw
material

314166.03

213093.45

107464.04

218371.65

121729.46

105.25

156.52

193.73

59.88

77.80

consumed
during the year
RMCP

250
193.73

200
156.52
150
105.25

RMCP

100

59.88

77.8

50
0
2009

2008

2007

2006

Page 32

2005

(2)

Work in Progress Conversion Period (WIPCP)
=

Average stock in progress
Average Cost of Production

PARTICULARS
Average stock in

2009
7834151.50

2008
8313099.5

2007
5586013

2006
4818821.5

2005
3634639.5

progress
Avg. Cost

190952.86

211273.02

194248.64

180015.22

136824.55

41.03

37.93

28.75

26.77

26.56

of

production
WICP

45

41.03

40

37.93

35
28.75

30

26.77

26.56

2006

2005

25
WICP

20
15
10
5
0
2009

(3)

2008

2007

Finished Goods Conversion Period (FGCP)

Page 33

=

Average finished goods inventory

X
X 360
360

Average Cost of goods sold

PARTICULARS
Average finished

2009
14911159

2008
13149905.5

2007
5004497

2006
6396225

2005
5858384.5

goods inventory
Cost of goods

1955523.98

1648540.72

1398222.17

1260173

989215.18

sold
FGCP

7.63

7.98

3.58

5.08

5.92

9
8

7.98

7.63

7

5.92

6

5.08

5
FGCP
3.58

4
3
2
1
0
2009

(4)

2008

2007

2006

2005

Debtors’ Conversion Period (DCP)
=

Days in year company operating
Debtors’ turnover

PARTICULARS

20009

2008

2007

2006

2005

Days

360

360

360

360

360

in

year

company operating
Debtors’ turnover

21.66

22.89

18.41

15.82

18.38

DCP

16.62

15.72

19.55

22.76

19.59

Page 34

25

22.76
19.59

19.55

20
16.62

15.72

15
DCP

10
5
0
2009

(5)

2008

2007

2006

2005

Credit Conversion Period (CCP)
=

Days in year company operating
Creditors’ turnover

X

PARTICULARS

2009

2008

2007

2006

2005

Days

360

360

360

360

360

Creditors’ turnover

27.15

26.02

39.50

22.77

23.30

Avg.

13.26

13.84

9.11

15.81

16.14

in

year

company operating

consumption

period OR CCP

Page 35

18
16
14

15.81

16.14

2006

2005

13.84

13.26

12
9.11

10

CCP

8
6
4
2
0
2009

2008

2007

GROSS OPERATING CYCLE FOR SATHE SYNTHETICS:
YEAR

RMCP

WICP

FGCP

DCP

GOC

2009

105.25

41.03

7.63

16.62

170.53

2008

156.52

37.93

7.98

15.72

217.84

2007

193.73

28.75

3.58

19.55

245.61

2006

59.88

26.77

5.08

22.76

114.49

2005

77.80

26.56

5.92

19.59

129.87

300
245.61

250
200

217.84
170.53

150

114.49

129.87

100
50
0
2009

2008

2007

2006

2005

NET OPERATING CYCLE: -

Page 36

GOC

YEAR

GOC

CCP OR APP

NOC

2009

170.53

13.26

157.27

2008

217.84

13.84

204.31

2007

245.61

9.11

236.5

2006

114.49

15.81

98.68

2005

129.87

16.14

113.73

236.5

250
204.31

200
157.27
150

NOC

100

98.68

113.73

50
0
2009

2008

2007

2006

2005

ANALYSIS
It claimed that gross operating cycle of SATHE SYNTHETICS is increasing in year 2004-05 and
in the year 2005-06 it decreasing up to certain extent. In year 2004-05, it is 129.87 days then it
decreased to 114.49 days in year 2005-06 due to contraction in raw material. In 2006-07, it is on
the highest point of 245.61 days. The main reason of increasing gross operating cycle in 2006-07
is due to more availability of raw material in the stores. In year 2006-07 the company purchased
a bulk of raw material due to market variations the GOC is increased. However, when we came
to year 2007-08 the GOC for S.S has shown a significant decrement of 204.31 days from the
year 2006-07 to 245.61. When in next year 2008-09, it came out to be 170.53 days. The GOP for
satisfactory as it Varies as the market requirements and changes in form of meet the customer’s
requirements largely.

Page 37

But when we came to the NOC of Sathe Synthetics it we can see that Creditor’s payment period
OR Average payment period of S.S is on a average of 15 days in each (5) five years so does not
make more effect on GOC. Therefore, it is somehow near of the GOC.
That is why the company’s NOC 113.73, 98.68, 236.5, 204.31, and 157.27 in the years 2005,
2006, 2007, 2008 and 2009. Therefore, we can say that there is a significant change in the NOC
of the Sathe Synthetics.

1. RATIO ANALYSIS
Ratio analysis is a technique of analysis and interpretation of financial statements. It is the
process of establishing and interpreting various ratios for helping in making decisions. It only
means of better understanding of financial strengths and weaknesses of a firm. The main
emphasis has been on calculating the ratios related to a working capital management.
LIQUIDITY RATIOS: -These are the ratios which measures the short term solvency or
financial position of a firm. In other words, it refers to the ability of a concern to meet its current
obligations as and when these become due. To measure the liquidity of a firm, the following
ratios can be calculated.
CURRENT RATIO: – It may be defined as the relationship between current assets and current
liabilities. This ratio is also known as working capital ratio and measures the ability of the firm to
meet current liabilities. High current ratio indicates firm is liquid and has the ability to pay its
current obligations in time as and when they become due.
A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is
considered to be satisfactory.
Current Ratio =

Current Assets
Current Liabilities

Page 38

YEAR

CURRENT ASSETS

CURRENT

CURRENT RATIO

LIABILITIES
2009

115612673.56

18528617.22

6.24

2008

141934492.00

35172584.20

4.04

2007

97761075.20

12343214.74

7.92

2006

72335450.22

13758132.09

5.26

2005

72171734.06

21676428.69

3.33

9

7.92

8
7

6.24

6

5.26

5

4.04

4

3.33

CR

3
2
1
0
2009

2008

2007

2006

2005

ANALYSIS
The current ratio of the Sathe synthetics is above the standard and it guarantees the payment of
dues in time. The current ratio of the company has been considerably high because they had
made over investment in inventories, which is the main reason for the high ratio of current assets.
Inventories are high because of seasonal availability of raw material. The overall position of
current ratio for Sathe synthetics is satisfactory.
The current ratio of dye house has shown a remarkable increment from 3.33 in 2004-05 to 5.26
in 2005-06 and then to 7.92 in 2006-07. Initially in 2004-05, the ratio was not satisfactory but it
is quite satisfactory for the years after 2008-09 and especially for the year 2006-07.

Page 39

LIQUID RATIO –This ratio is also known as quick ratio or acid test ratio. It is a more rigorous
test of liquidity than the current ratio. It is based on those current assets which are highly liquid.
Inventory and prepaid expenses are excluded because they are deemed to be least liquid
component of current assets. A high quick ratio is the indication that the firm is liquid and has the
ability to meet its current liabilities in time and on the other hand low ratio represents liquidity
position is not good.
Quick Ratio

=

Quick or Liquid Assets
Current Liabilities

Quick Assets = Current Assets – Inventory – Prepaid Expenses

YEAR

LIQUID ASSETS

CURRENT
LIABILITIES

LIQUID RATIO

2009

71845029.56

18528617.22

3.88

2008

74081279.00

35172584.20

2.11

2007

56583851.20

12343124.74

4.58

2006

50693352.22

13758132.09

3.68

2005

45231614.06

21676428.69

2.09

5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0

4.58
3.88

2009

3.68

2.11

LR

2008

2007

2.09

2006

Page 40

2005

Analysis
According to rule of thumb, it should be 1:1. For Sathe synthetics, the liquid ratio present a
uneven change over the past four years. It was 2.09 in 2004-05 and increased to 4.58 in 2006-07
and then to 2.11 in 2007-08. The decrement in the ratio is not satisfactory, however the ratio 2.11
in 2007-08 is more than the rule of thumb but it should be quite more than the rule of thumb.
.
WORKING CAPITAL TURNOVER RATIO – Working capital turnover ratio indicates the
velocity of the utilization of net working capital. This ratio measures the efficiency with which
the working capital is being used by a firm.
Working Capital Turnover Ratio

=

COGS OR Sales
Net Working Capital

YEAR

SALES

NET
WORKING
CAPITAL

2009

703988634.61

97084056.34

7.25

2008

593474659.66

106761907.80

5.56

2007

503359979.46

85417950.46

5.89

2006

453662278.70

453662278.70

7.74

2005

356117465.20

50495305.37

7.05

9
8

7.74

7.25

7.05

7
5.56

6

5.89

5
WCTR

4
3
2
1
0
2009

2008

2007

2006

Page 41

2005

WCTR

ANALYSIS
This ratio indicates the number of times the working capital is turned over in the course of a year.
A high working capital ratio indicates the effective utilization of working capital and less
working capital ratio indicates less utilization. For Sathe synthetics, the ratio is quite same for the
past five years. It is 7.05 in 2004-05, 7.74 in years 2005-06 and in2006-07 there was a slight
change came over here and the ratio decreased to 5.89. And in the next year in 2007-08 the ratio
stand at 5.56 For Sathe synthetics, the ratio is increasing once more in the very next year in
2008-09, It shows increment to 7.24. the ratio of the company is satisfactory.

STOCK TURNOVER RATIO
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio
reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned
over or sold during the year.
STOCK OR INVENTORY TURNOVER RATIO

=

COGS OR SALES
AVERAGE STOCK

YEAR

SALES

AVERAGE
STOCK

STR or ITR

2009

703988634.61

55810428.5

12.61

2008

593474659.66

23981268.5

24.75

2007

503359979.46

31409661

16.03

2006

453662278.70

24291109

18.68

2005

356117465.20

18964744.11

18.78

Page 42

30
24.75

25
20

18.68

18.78

2006

2005

16.03
15

12.61

STR

10
5
0
2009

2008

2007

ANALYSIS: By analyzing the five-year data it seen, that it follows an uneven trend. We see that from the year
2005 to 2006 & 2006 to 2007, it moves on a slow pace means, the ratio is increased in very
nominal figures i.e. (.10) times and (2) times, which has been rectified in the year 2008.
In 2008 there is a huge increase in inventory due to this ratio the company maintains is very high
in 2008 and the company is required to take measures to lower down this ratio as it affects the
working capital cycle of company and the flow of cash in the company. In 2009, we saw
company take measure to lower down its ratio which is good for company because a low stock
turnover ratio reveals undesirable accumulation of obsolete stock.

DEBTORS’ TURNOVER RATIO: DEBTORS’ TURNOVER RATIO

=

CREDIT SALES
AVERAGE DEBTORS’

YEAR

CREDIT SALES

AVERAGE
DEBTORS’

DTR

2009

703988634.61

32503373

21.66

2008

593474659.66

25923481.52

22.89

Page 43

2007

503359979.46

27348823.87

18.41

2006

453662278.70

28677098.13

15.82

2005

356117465.20

19374123.96

18.38

25

21.66

22.89

20

18.41

18.38
15.82

15
DTR

10
5
0
2009

2008

2007

2006

2005

ANALYSIS
Generally a low debtor’s turnover ratio implies that it considered congenial for the business as it
implies better cash flow. The ratio indicates the time at which the debts are collected on an
average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter
collection period which indicates prompt payment made by the customer.
Now if we analyze the five year data we can say that it holds a good position while receiving
its money from its debtors. The ratios are in variation trend, which implies that recovery
position is good and company should maintain these positions.
CREDITORS’ TURNOVER RATIO: -

Page 44

Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low creditor’s turnover ratio implies favorable since the firm
enjoys lengthy credit period.
CREDITORS’ TURNOVER RATIO

=

NET CREDIT PURCHASE
AVERAGE CREDITORS’

YEAR

CREDIT
PURCHASE

AVERAGE
CREDITORS’

CTR

2009

567750535.58

20914713.21

27.15

2008

505412322.46

19426820.02

26.02

2007

421557817.32

10672311.95

39.50

2006

358037616.35

15724391.01

22.77

2005

300672597.42

12906200.48

23.30

45
39.5

40
35
30

27.15

26.02

25

22.77

23.3

2006

2005

CTR

20
15
10
5
0
2009

2008

2007

ANALYSIS
Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally, a low creditor’s turnover ratio implies favorable since the firm
enjoys lengthy credit period.

Page 45

Now if we analyze the three years data we find that in the year 2007 the ratio was very high
which means that its position of creditors that year was not good only in the year 2007, when we
turn ahead the other years creditor’s turnover ratio is in pretty good position.
In the all four years it has followed, a decreasing trend, which is very good, sign for the
company. Therefore, we can say it enjoys a very good credit facility from the suppliers.

ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

Page 46

PARTICULARS

2005-06

2006-07

INCREASE

DECREASE

Inventories

21642098.00

41177224.00

19535126

S. debtors

30359548.69

22158429.16

8201119.53

Cash & Bank
Balances

3407307.32

2297697.88

1109609.44

Loans &
Advances

16926496.21

32127724.16

Total current
assets (A)

72335450.22

97761075.20

S. creditors

11585162.05

9759461.84

Provisions

2072970.04

2483662.90

Security deposits
& Retention
money

100000

100000

Total current
liabilities (B)

13758132.09

12343124.74

Working capital
(A-B)

58577318.13

85417950.46

Net increase in
working capital

26840632.33

CURRENT
ASSETS:

15201227.95

CURRENT
LIABILITIES:

85417950.46

1825700.21
410692.86
-----

------

36562054.16

9721421.83
26840632.33

85417950.46

36562054.16

36562054.16

ANALYSIS ON THE BASIS OF SCHEDULE OF CHANGES IN WORKING CAPITAL

Page 47

PARTICULARS

2007-08

2008-09

INCREASE

Inventories

67853213

43767644

S. debtors

27508864

37497882

9989018

Cash & Bank
Balances

3665403.60

6891449.29

3226045.69

Loans &
Advances

42907011.40

27455698.27

Total current
assets (A)

141934492.00

115612673.56

S. creditors

29094178.20

12735248.22

16358929.98

Advance from
customers

2439050

722054

1716996

Provisions

3539356.00

4971315.00

Security deposits
& Retention
money

100000.00

100000

Total current
liabilities (B)

35172584.20

18528617.22

Working capital
(A-B)

106761907.8

DECREASE

CURRENT
ASSETS:
24085569

15451313.13

CURRENT
LIABILITIES:

Net Decrease in
working capital
106761907.8

1431959
-----

-----

97084056.34

31290989.67

40968841.13

9677851.46

9677851.46

106761907.8

40968841.13

Page 48

40968841.13

FOR YEARS 2006 AND 2007:
As we have a look on the schedule of changes in working capital for the Sathe synthetics over
the years 2005-06 and 2006-07, we find that, among current assets, inventories, loans and
advances have shown increment from year 2005-06 to year 2006-07. The sundry debtors and
cash & bank balances have decreased in the same years. Among the current liabilities, the sundry
creditors and other liabilities have decreased and provisions were increased. Therefore, the
overall net working capital has increased.
FOR YEARS 2007-08 AND 2008-09:
Among the current assets, debtors and cash & bank balances have increased and inventories and
loans & advances have shown decrement. The total current assets have increased. Among the
current liabilities, sundry creditors and other liabilities have decreased which made a positive
effect on networking capital and it increases, on the other hand, the provision increased which
not directly but overall made a good effect on company. Therefore, the net working capital has
also increased.

Page 49

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL
INVENTORY ANALYSIS
Inventory is total amount of goods and materials. Inventory means stock of three:1. Raw materials
2. Semi finished goods.
3. Finished goods.
Position of inventory in Sathe synthetics: PARTICULARS
Raw material
W.I.P
Finished goods
TOTAL

2009
28833211
5912280
9022153
43767644

2008
37297025
9756023
20800165
67853213

2007
29407402
6270176
5499646
41177224

2006
12230900
4901850
4509348
21642098

2005
13921225
4735793
8283102
26940120

80000000
70000000
60000000
50000000
40000000

STOCK

30000000
20000000
10000000
0
2009

2008

2007

2006

2005

INTERPRETATION:
By analyzing the 5 years data we see that the inventories are increased/decreased year by year.
We can look increasing pattern in inventories. We can see that inventories are grown in 06-07
and 07-08 respectively from previous year in figures it increases up to19535126 in2007 and
inyear2008 it increases to 26675989 in comparison of 2007. By this growth we can say that the
company is growing. A company uses inventory when they have demand in market and Sathe
Synthetics is having a demand in industry market. That is biggest reason for increase in
Inventories. From other point of view we can say that the liquidity of firm is blocked in
inventories but to stock is very good due to uncertainty of availability of raw material in time.

SUNDRY DEBTORS ANALYSIS

Page 50

Debtors or an account receivable is an important component of working capital and fall under
Current assets. Debtors will arise only when credit sales made.
Position of Sundry Debtors in Sathe synthetics
PARTICULARS
DEBTS O/S
FOR A PERIOD
OF SIX
MONTHS
OTHER
DEBTS
TOTAL

2009
0.00

2008
203547.00

2007
118028.00

2006
85124.00

2005
262290.00

37497882.00

27305317.00

22040401.16

30274424.69

26732357.57

37497882.00

27508864.00

22158429.16

30359548.69

26994647.57

40000000
35000000
30000000
25000000
20000000

DEBTORS

15000000
10000000
5000000
0
2009

2008

2007

2006

2005

INTERPRETATION
In the table and figure, we see that there are continuous variations in the debtors of Sathe
Synthetics in five (5) successive years. A simple logic is that debtors increase only when sales
increase and if sales increases it is good sign for growth. We can see that in the year 2006-07 the
Debtors are at minimum level. Moreover, in next two years in 2008 & 2009 the debtors are
continuously increasing.
We can say that it is a good sign as well as negative also. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. When sales are increasing with a
great speed the profit also increases. If company decreases the Debtors, they can use the money
in many investment plans. So, this variation is good from the firm prospect

Page 51

CASH AND BANK BALANCE ANALYSIS
Cash called the liquid asset and vital current assets; it is an important component of
Working capital. In a narrow sense, cash includes notes, bank draft, cheque etc.
Position of Cash and Bank Balance in Sathe synthetics: PARTICULARS
Cash & Bank
TOTAL

2009
6891449.29
6891449.29

2008
3665403.60
3665403.60

2007
2297697.88
2297697.88

2006
3407307.32
3407307.32

2005
6617777.19
6617777.19

8000000
7000000
6000000
5000000
4000000

CASH & BANK

3000000
2000000
1000000
0
2009

2008

2007

2006

2005

INTERPRETATIO
N
If we analyze the above table and chart we find that it follows an increasing trend. In the year
2005, it had maintained a huge amount of cash and bank balance which has decreases in the year
2006, 2007 and 2008. Although company’s cash position in the year2006, 2007 & 2008 was not
sound so, this is not a very good sign for company. The analysis shows that the fix deposits of
company are rapidly fallen in the year as 42.3% in 06- 07 respectively from year 2005 that is
why company is have minimum balance in 2007 in comparison of all. Through analysis, we got
that company is utilizing the fixed cash for exploding the Projects that is good for growth.

LOANS AND ADVANCES ANALYSIS
Loans and Advances here refers to any to amount given to different parties, company, employees

Page 52

For a specific period of time and in return they will be liable to make timely repayment of that
Amount in addition to interest on that loan.
PARTICULARS
LOANS &
ADVANCES
TOTAL

2009
27455698.27

2008
42907011.40

2007
32127724.16

2006
16926496.21

2005
11619189.30

27455698.27

42907011.40

32127724.16

16926496.21

11619189.30

50000000
45000000
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0

LOANS & ADVANCE

2009

2008

2007

2006

2005

INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is a
Good sign for the company. We can see that the increase of loans and advances are increases year
by year except the year 2009. In the year 2008 there is more than Rs 4 crore given as loan, due to
this a lot of amount was blocked. But it used for expansion of business.
The increasing pattern shows that company is giving advances for the expansion of plants and
Machinery which is good sign for better production. Although company’s cash is blocked but
This is good that company is doing modernization of plan competitors in market.
CURRENT LIABILITIES ANALYSIS
Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
Liabilities that has to be paid by the firm within one year.

Page 53

CREDITORS: PARTICULARS
SUNDRY
CREDITORS
TOTAL

2009
12735248.22

2008
29094178.20

2007
9759461.84

2006
11585162.05

2005
19863619.97

12735248.22

29094178.20

9759461.84

11585162.05

19863619.97

30000000
25000000
20000000
15000000

CREDITORS

10000000
5000000
0
2009

2008

2007

2006

2005

INTERPRETATION
If we analyze the above table then we can see that it follow an uneven trend in the sundry
creditors and other liabilities. In 2006 it decreased by 75% and in 2007 it further decreased by
more then100%. In 07-08 it was increased because of growth in other liabilities. This is done
because in the year2008 company purchased a bulk of raw material due to market variations.
When company has minimum liabilities it creates a better goodwill in market. High current
liabilities indicate that company is using credit facilities by creditors.

PROVISIONS ANALYSIS
Position of Other Provisions in Sathe synthetics
PARTICULARS
PROVISIONS
TOTAL

2009
4971315.00
4971315.00

2008
3539356.00
3539356.00

2007
2483662.90
2483662.90

Page 54

2006
2072970.04
2072970.04

2005
1812808.72
1812808.72

6000000
5000000
4000000
3000000

PROVISIONS

2000000
1000000
0
2009

2008

2007

2006

2005

INTERPRETATION
From the above table we can see that provision shows a growing trend and the huge amount is
Being kept in these provisions. Though the profits of the company are increased, income tax is
Also increased. Therefore, there is a great need of maintaining proper provisions, which is good
that company is creating in time. The provisions are increasing as the tax increases. Although
company is paying more income tax that is why because company also earning more. This is
good sign for Company.

Page 55

Page 56

 By conducting the study about working capital management, I found out that working
capital management of SATHE SYNTHETICS is good. SATHE SYNTHETICS has
sufficient funds to meet its current obligation every time, which is due to sufficient profits
and efficient management of SATHE SYNTHETICS.
 Raw material for all the units of SATHE SYNTHETICS purchased by corporate office in
bulk, which is a major problem for the company as it increases the inventory cost.

 Company is

cash rich but as there are expansion and diversification plans under the

pipeline, company is not utilizing these funds. For meeting the working capital needs and
capacity expansion needs, it has borrowed from banks.
 Lack of advertisement can be considered to be a weak point for the Sathe Synthetics.
 The amount of stock is increasing per year, which is a good sign, as it would help them in
the tough competition coming ahead.
 Firm profitability can be increase by shortening accounts receivables and inventory
periods.

Page 57

SUGGESTIONS

Management should make the proper use of inventory control techniques like



fixation of minimum, maximum and ordering levels for all the items for less blockage of
money.
The company should also adopt proper inventory control like ABC analysis etc.



This inventory system can make the inventory management more result oriented. The
EOQ should also follow in stores.
The company should train its work force properly, which would enable the



company to utilize its resources properly and in the interim help in minimizing wastage,
and hence result in the expansion of its market share.
Due to competition, prices are market driven and for earning more margin



company should give the more concentration on cost reduction by improving its
efficiency.
The investments of surplus funds made by the corporate office and the units are



not generally involved while taking decisions with regard to structure of investment of
surplus funds. The corporate office should involve the units to better ascertain the future
requirements of funds and accordingly the investments made in different securities.
The company is losing its overseas customers due to decrease in exports so; the



sufficient amount of exports should the maintained.
Company’s Average debtor collection period of company is 19 days. Therefore, it



would be the one of the positive point for company and company should maintain it for
future.

Page 58

Page 59

Measures to Improve Working Capital Management at SATHE
SYNTHETICS:
 The essence of effective working capital management is proper cash flow forecasting.
This should take into account the impact of unforeseen events, market cycles, loss of a
prime customer and actions by competitors. So, the effect of unforeseen demands of
working capital should be factored by company. This was one of its reasons for the
variation of its revised working capital projection from the earlier projection.


It pays to have contingency plans to tide over unexpected events. While market-leaders
can manage uncertainty better, even other companies must have risk-management
procedures. These must be based on objective and realistic view of the role of working
capital.



Addressing the issue of working capital on a corporate-wide basis has certain
advantages. Cash generated at one location can well be utilized at another. For this to
happen, information access, efficient banking channels, good linkages between
production and billing, internal systems to move cash and good treasury practices should
be in place.



An innovative approach, combining operational and financial skills and an allencompassing view of the company’s operations will help in identifying and
implementing strategies that generate short-term cash. This can be achieved by having the
right set of executives who are responsible for setting targets and performance levels.
They could be then held accountable for delivering, encouraged to be enterprising and to
act as change agents.



Effective dispute management procedures in relation to customers will go along way in
freeing up cash otherwise locked in due to disputes. It will also improve customer service
and free up time for legitimate activities like sales, order entry and cash collection.
Overall, efficiency will increase due to reduced operating costs.

Page 60

 Working capital management is an important yardstick to measure a company operational
and financial efficiency. This aspect must form part of the strategic and operational
thinking. Efforts should constantly be made to improve the working capital position. This
will yield greater efficiencies and improve customer satisfaction.

Page 61

WEBSITES:-

 Lazaridis, Ioannis and Tryfonidis, Dimitrios, Relationship between Working Capital Management
and Profitability of Listed Companies in the Athens Stock Exchange. Journal of Financial
Management and Analysis, Vol. 19, No. 1, January-June 2006. Available at SSRN:
http://ssrn.com/abstract=931591

 http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=931591&rec=1&srcabs=966188
 http://www.emeraldinsight.com/Insight/ViewContentServlet?
contentType=Article&S.Sename=/published/emeraldfulltextarticle/pdf/2910030202.pdf
BOOKS AND JOURNALS
 Anand, M. 2001. “Working Capital performance of corporate India: An empirical survey”,
Management & Accounting Research, Vol. 4(4), pp. 35-65
 Berryman, J. 1983. “Small Business Failure and Bankruptcy: A survey of the Literature”,
European Small Business Journal, 1(4), pp47-59
 Bhattacharya, H. 2001. Working Capital Management: Strategies and Techniques, Prentice Hall,
New Delhi.

 Grablowsky, B. J. 1976. “Mismanagement of Accounts Receivable by Small Business”, Journal
of Small Business, 14, pp.23-28
 Grablowsky, B. J. 1984. “Financial Management of Inventory”, Journal of Small Business
Management, July, pp. 59-65



Shields, Patricia and Hassan Tajalli. 2006. Intermediate Theory: The Successful Student
Scholarship. Journal of Public Affairs Education. Vol. 12, No. 3. Pp. 313-334.

Page 62

ANNEXURES
BALANCE SHEET AS AT
PARTICULARS
SOURCES OF
FUNDS
SHRI GANESH JI
SHRI LAXMI JI
SHARE CAPITAL
RESERVE AND
SURPLUS
LOAN FUNDS
SECURED LOANS
DEFERED TAX
LIABILITY
UNSECURED
LOANS
TOTAL
APPLICATION OF
FUNDS
FIXED ASSETS
A: GROSS BLOCK
B: less
DEPRICIATION
C: NET BLOCK
D:CURRENT
ASSETS
INVENTORY
SUNDRY DEBTORS
CASH IN HAND &
BANK
LOANS AND
ADVANCES
E:CURRENT
LIABILITIES
SUNDRY
CREDITORS
ADVANCE FROM
CUSTOMERS/DLR’S
PROVISIONS
(D-E)NET
CURRENT ASSETS

2008-09

2007-08

2006-07

2005-06

2004-05

52.25
51.00
19901000.00
345519604.82

52.25
51.00
19901000.00
29625127.98

52.25
51.00
19901000.00
15253853.53

52.25
51.00
19901000.00
21829192.29

52.25
51.00
19901000.00
20785949.94

72686105.58
3383097.00

88539002.13
3449412.00

94535519.74
3080483.00

55323395.23
662332.00

54399581.72
---------

43486673.00

46947616.00

28872233.00

15703501.00

14408414.70

173976583.65

188462261.36

171643192.52

113419523.77

109495049.61

178453951.93
101561424.62

172240571.18
90540217.62

164888412.68
78663170.62

126570061.76
71729938.62

123370584.96
64380715.62

76892527.31

81700353.56

86225242.06

54840123.14

58989869.34

43767644.00
37497882.00
6891449.29

67853213.00
27508864.00
3665403.60

41177224.00
24338099.04
2297697.88

21642098.00
30359548.69
3407307.32

26940120.00
26994647.57
6617777.19

27455698.27

42907011.40

32127724.16

16926496.21

11619189.30

12735248.22

29094178.20

9759461.84

11585162.05

19863619.97

822054.00

2539050.00

100000.00

100000.00

--------------

4971315.00
97084056.34

3539356.00
106761907.80

2483662.90
85417950.46

2072970.04
58577318.13

1812808.72
50495305.37

Page 63

MISCELLANEOUS
EXPENSES
TOTAL

PARTICULARS
(A) INCOME
1: NET SALES
2: OTHER INCOME
TOTAL
(B) EXPENSES
1:RAW
MATERIAL,FINISHE
D GOODS & WORK
IN PROGRESS
2:MANUFACTURING
EXPENSES
3:SALARY & OTHER
EMP.BENEFITS
4: ADMINISTRATIVE
EXPENSES
5: SELLING
EXPENSES
6: FINANCIAL
EXPENSES
7: OTHER EXPENSES
8:DEPRICIATION
TOTAL

---------

---------

--------

2082.50

9874.90

173976583.65

188462261.36

171643192.52

113419523.77

10945049.61

2008-09

2007-08

2006-07

2005-06

2004-05

703988634.6
1
436106.42
704424741.0
3

593474659.6
6
3913796.87
597388456.5
3

503359979.4
6
172310.00
503532289.4
6

453662278.7
0
13234.00
453675512.7
0

356117465.2
0
33965.73
356151430.9
3

591836104.5
8

478736333.4
6

402022691.3
2

36335638.35

284721845.6
5

68743029.05

76058287.24

69929616.64

64805480.37

49256838.95

4115744.00

3845617.00

3348712.00

3336648.00

2678327.00

3232698.41

3229712.90

3352674.68

2742302.31

2066811.17

4646428.28

4114634.84

3276473.48

3183784.89

1610635.56

13455947.36

13038713.28

7292587.41

6731948.84

4803871.78

446187.51
11021207.00
697497346.1

324537.36
11877047.00
591224883.0

731402.50
6933232.00
496887390.0

38487.59
7349223.00
451523513.3

42963.40
10608658.72
355789952.7

Page 64

9

8

3

5

PROFIT BEFORE
6927394.84
6163573.45
6644899.43
2151999.35
TAX
DEFERRED TAX
-66315.00
368929.00
2418151.00
662332.00
PROVISION FOR FBT 99521.00
90342.00
56529.41
0.00
PROVISION FOR
1999712.00
1333028.00
745557.78
446425.00
TAXATION
PROFIT AFTER TAX
4894476.84
4371274.45
3424661.24
1043242.35
PROFIT AS PER
18406627.98 14035353.53 10610692.29 9567449.94
LAST YEAR
BALANCE SHEET
CARRIED TO
23301104.82 18406627.98 14035353.53 10610692.29
CURRENT YEAR
BALANCE SHEET
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED

Page 65

2
361478.70

58160.00
303318.70

303318.70