REVIEW OF LITERATURE
Sakshi vasudeva & M.Shri Nivas – In their book – Working Capital management – “Working capital” is often referred to as “life blood” of an organization for it is “the money required for carrying day to day activities of an organization. The management of current assets is similar to that of fixed assets in the sense that in the both cases a firm analyses their effects on its return and risk.
R.P.Trivedi & Manoj Trivedi – In their book – Cost and Management Accounting, The goal working capital management is to manage the firm’s current liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. As the working capital is the difference between current assets and current liabilities, the current assets should be large enough to cover its current liability in order to ensure a reasonable margin safety.
S.P.Jain ; K.L.Narang – In their book – Cost and Management
Accounting, The working capital requirements are determined by a wide variety of factors. It should be noted that tease factors affect different enterprises differently. They also vary from time to time. The following factors are involved in proper assessment of the quantum of working capital required.
S.P.Jain ; K.L.Narang – In their book – Advanced Accounting, Working capital is the life blood and nerve center of business .just as circulation of blood is Essential in the human body for maintaining life, working capital is very essential to Maintain the smooth running of a business .no business can run successfully without an Adequate amount of working capital.
–Smith – In his study, “Working capital management is concerned with the problem that arises in attempting to manage the current asset, current liabilities, and the inter-relationship that exist between them
General introduction about the topic
Working capital discusses portion of total capital,and recycled for unchanging of regular business process.it is sum of capital charity for funding day to day processes. the business is working capital is defined as excess of current assets over current liabilities.
The team “working capital” position’s is the part of capital, which is obligatory for the financing of working desires of the company. Working capital is the lifetime of every concern. Whether it is manufacturing or non-manufacturing one without suitable working capital around can be no improvement in the industry.
Insufficient working capital means lack of raw materials, labour etc., follow-on in incomplete current liabilities-has no economic significance in the sense of indicating few type of normative performance. Allowing to this line of thinking. It is largely an accounting item. Working capital Management, then is a inaccuracy.
The working capital of the strong is not achieved. The term pronounces a kind of management decisions affects unambiguous kind of current assets and current liabilities. In turn, those decisions would be fixed in the overall evaluation of the firm.
These are those assets which are adapted into cash within crrent accounting historical or within the next year because of even procedures of business.Net cash possessions or cash are includes.
Bank &cash balance
Stores, Spares parts& raw materials
Work in progress
Short term advances
The values signified by those assets parties between numerouscash item used to buy raw material for wages paying and others manufacturing expenditures.finished goods created and those are held as inventories.when those are sold account receivables are generated.The collected of accounts receivables being cash into firm round tics again.
This can be shown in figure below
These are those credits of firms that must pay during current book keeping period
creditors for goods procured.
Short term borrowings.
Advances received against sales
Taxes and dividend payments.
Other liabilities maturing with in a year
Importance of the working capital
Working capital shows as part of blood in human body suitable management of working capital important for working of business. Its policy is troubled with two significant factors that is level of current assets to be held and techniques by which assets are financed. company efficiency is in one way firm by management of its working capital. the benefits of working capital are
Regular source of raw materials
Capability to face crisis
Rapid and systematic returns on investments
Steady payments made
Affluence of the business
In current years, working capital management increased position for number of explanations those like registered below.
These are controllable in sense that funds are committed reasonably for smaller period and wrong period can more simply manageable with insignificant alteration in way for greater grades.
Contribution of cash discount firm can persude customers to pay bills immediately sale is complete in shortest conceivable time so falling and removing intermediate stages of account receivables.
By shifting the length of business cycle, firm can decrease its financial and administrative cost. lessening in the investment of working capital does not essentially mean enhancement in the profitability of the firm. However, when all other things remain the same, lessening in the volume of working capital growths profitability.
Sources of working capital
The sources of working can be obtained from the resulting sources
Long Term sources
Short Term Sources
Long Term sources
Long term sources are of two types
Issue of shares
Action of fixed assets
Long term debt
Short Term sources
Short term sources exit of two types
Provision for taxation
Letter of credit
Advances from customers
Working Capital management
Working capital management shows protection the wheels of a business enterprise successively. Working capital management are becomes greater in recent years.In other words of smith “working capital management is worried with the problem that arises in trying to accomplish current assets, current liabilities and inter relationship that occurs between them”.
Brown and Howard, who compared the working capital with a river which is always there but whose water level is changing
It may be experimental to life blood of business its efficient providing that could to do much certify success of business. Its incompetent management may lead to net loss (or) profit and also downfalls of the business. It is important with internal &external analysis because of close connotation with current day-day operation of business.
Each business needs capitals for purpose of
Payments of wages
Others daily expenses
Significance of working capital
Significant portion of capital of a firm is in of working capital.
Capital is raised from borrowed(or) outsiders
Interest to be paid
Ensure usage and eliminate wastage
Ensure to yield good profit and benefit to service borrowed capital
Maintaining adequate level of working capital
Investment in current assets in “never static”
Working capital is difficult to control (or) to estimate exact amount required
Working capital addresses the issues “liquidity and profitability”
Deficiency (or) shortage of of working capital investments will not only disturb routine business but also affect “solvency”of firm in the little run.
Aspects of working capital management
Working capital management has different aspects.They are
Management of cash
Management of account receivables
Management of inventories
Modules of working capital
Management of cash
Management of Inventory
Management of Receivables
Statement of the problem
A substantial portion of total investment is current assets, Level of current assets and current liabilities will change quickly with variation in sales, so it needs to be determined and level of current assets ¤t liabilities need to be known
Objective about the study
To study on how efficient utilization of funds in the organization
To know the composition of gross working capital and net working capital
To know financial performance of the company through ratio analysis.
Scope of the study
The learning was done at M.G.M. Springs pvt. Ltd. in Ananthapuram. The study looks at only the liquidity position as well as to maintain the profitability of the company. This study is confined to only Ananthapuram, the analysis of working capital management for the period from 2013-2017.
Methodology of the study
The above objectives were studied by using descriptive research design, where the study employed various ratios like liquidity ratios, activity ratios and solvency ratios to analyze the working capital of PSMW. Future information related to ratios was collected through secondary data, which is explained in detail in the next sub point.
Source of data
The report describes the collecting of the data. The data collected is an interesting aspect of the study. The research tasks depend upon the type and sources of the data which has to yield the desired for the study. The present study has used secondary sources of information, which is obtained from the balance sheet and profits & loss accounts.
Tools used for the study
Ratio analysis is the main tool used in the study. Different ratios related to working capital that are used in study are as follows.
Report on changes in working capital
Apart since ratio analysis, working capital schedules of changes in working capital are also used as a tool for data analysis. The analysis data presented in tables and graphs.
Limitations of the study
The study on working capital management in M.G.M. Springs pvt. ltd. has some of the limitation that are discussed in the below
The project is just a brief working capital management .it is not exhaustive.
The research conducted on the basics of secondary data, so its not exhaustive.
DATA ANALYSIS AND INTERPRETATION
The ratio is modest numerical arrival of relationship of one number to another it may be clear as specified quotient of two exact expresssions.
Liquidity ratio used to measure the ability of firm to pay its maturing responsibility on time. The first anxiety of the financing analysis of the liquidity of working capital is used for both short term creditors and internal management of the firm.