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INTRODUCTION
INTRODUCTION
Working Capital is the amount of Capital that a Business has available to meet the day-today
cash requirements of its operations Working Capital is the difference between resources in
cash or readily convertible into cash (Current Assets) and organizational commitments for
which cash will soon be required (Current Liabilities) .It refers to the amount of Current
Assets that exceeds Current Liabilities (i.e. CA - CL) Working Capital refers to that part of
the firms Capital, which is required for Financing Short-Term or Current Assets such as
Cash, Marketable Securities, Debtors and Inventories.
Working capital management is the decision relating to working capital and short term
financing, and this includes managing the relationship between the companys short-term
assets and its short-term liabilities. This enables the company to continue operations and to
have enough cash flow at its disposal to satisfy both maturing short-term debt and upcoming
operational expenses, which is the major objective of working capital management.
The basic objective of working capital management is to put current assets to optimum use
for overall profitability of a business enterprise. If the firm can't maintain a satisfactory level
of working capital it is likely to become insolvent and may even be forced to bankruptcy.
The effective management of working capital requires both medium term planning and
intermediate reactions to changes in forecast and conditions.
The current assets should be managed in such a way that it should cover its current liabilities
in order to ensure a reasonable margin of safety. Therefore the interaction, between the
current assets and current liabilities is the main theme of the theory of working capital
management. It improves the operating performance of the business concern and it helps to
meet the short-term liquidity.
Definitions
Working capital is the money needed to fund the normal, day to day operations of your
business. It ensures you have enough cash to pay your debts and expenses as they fall due,
particularly during your start-up period.
Working capital may be defined by various authors as follows
The sum of the current assets is the working capital of the business J.S.Mill
According to Weston & Brigham - Working capital refers to a firms investment in short
term assets, such as cash amounts receivables, inventories etc
CHAPTER-2
INDUSTRY PROFILE
residential construction constitute about 5 per cent each. The majority of the investment in
the construction sector (about 70 per cent) comes from public sources, while the private
sector contributes only about 30 per cent
Construction industry is an integral part of a countrys infrastructure and industrial
development. Construction becomes the basic input for socio-economic development.
Currently, the construction industry directly or indirectly employs approximately 33 million
workers, representing 14% of the workforce. It also accounts for nearly half of the fixed
capital formation.
Infrastructure growth is visible throughout the country in the form of new highways,
roads, ports, railways and airports; power plants; urban and rural infrastructure, including
water supply, sewerage, and drainage; irrigation and agriculture systems.
The Government of Indias focus and sustained increased budgetary allocation and
increased funding by international and multilateral development finance institutions for
infrastructure development in India has resulted in or is expected to result in several large
infrastructure projects in this region. Overall the construction sector has a positive outlook
on account of growing infra-structure demand and the emphasis of the Government on
catering to this demand.
A brief look at some major sectors of infrastructure is given below
Road Sector
The Indian road system has been the first area within infrastructure to gain serious
attention from the government. Road connectivity, while linking the regions of demand and
supply, forms the very basis of economic and social development, a fact recognized by the
government and reflected in its spending.
Currently, at 3.3 million km, Indias road network is the second largest in the world. The
network is divided into three categories national highways, state roads including state
highways and district roads and rural roads. National highways span a length of 70,548 km,
state highways 131,899 km, major district roads 467,763 km and rural roads 2,650,000 km.
Despite the importance of roads to the Indian economy, the road network in India is grossly
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inadequate in capacity. Only 14 per cent of national highways and one per cent of state
highways are four-lane. Further, about 59 per cent of the national and 22 per cent of state
highways are double-lane.
The biggest initiative in the national highways sector is the NHDP which began in
December 1999. The massive programme aims at development of about 50,000 km of
national highways in seven phases by December 2015 at an investment of over Rs. 3,100
billion. The golden Quadrilateral, which is a part of the first phase and involves provision of
four-lane connectivity to the four metros, is about 98 per cent complete and the NorthSouth-East-West corridor, which is a part of Phase II, is around 58 per cent complete.
Further, projects under the third, fifth, sixth and seventh phases are under implementation.
The entire project has targeted deadline 2015-16. The Centrally-sponsored project aims at
developing 369,386 km in rural areas at an estimated cost of Rs. 1,320 billion.
Irrigation Sector
Irrigation is the most important input for agriculture and vital for food security.
Therefore, large investments were made in successive Plans for expansion of irrigation
facilities. The Investments in the irrigation sector are likely to increase by 2x to INR 2,231
billion in the Eleventh Plan compared with the Tenth Plan.T he Indian government plans to
complete 24 large and medium irrigation projects and 753 minor irrigation projects with
additional irrigation potential of 500,000 hectares.
Airports
Acceleration in traffic growth Air traffic in India has witnessed substantial growth in
the recent past. The Center of Asia Pacific Aviation expects domestic traffic to grow at 2530% and international traffic at 15% until FY10. Currently, 45% of the traffic is based out of
Delhi and Mumbai and around 70% out of the top five airports. This has led to inadequate
parking, runway and terminal capacity problems. Hence, there is a pressing need to develop
regional hubs and modernize existing airports. The Indian government has stated that the
total funds requirement for the modernization program of airports is INR408 billion by
2011, out of which around INR300 billion will be invested by private players.
COMPANY PROFILE
INTRODUCTION
GPL is an ISO 9001 2000 engaged in execution of major Civil Works including
Concrete/Masonry Dams, Earth Filling Dams, National Highways, Bridges, Canals,
Aqueducts, Ports, etc.
Minister Mrs.Indira Gandhi for its outstanding performance and successful completion of
the "NAGARJUNA SAGAR DAM" work.
1989
372.512 ( USD in Millions )
1756.1883514 ( Rs. in Millions )
6-3-1090,TSRTowers1,RajbhavanRoad
SomajigudaHyderabad-500082,AndhraPradesh
www.gayatri.co.in
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Management Details
Chairperson-T.IndiraSubbaramiReddy
MD-TV.SandeepKumarReddy
Directors - Archana Niranjan Hingorani, C H Hari
Vittal Rao, C S I Vlakshmi, Ch Hari Vittal Rao, G Siva
Kumar Reddy, Hari Vitthal Rao, I V Lakshmi, J Brij
Mohan Reddy, S M A A Jinnah, T Indira, T Indira
Reddy, T Indira Subbarami Reddy, T V Sandeep Kumar
Reddy, V L Moorthy
Business Operation
Background
Engineering - Construction
Gayatri Projects was incorporated as a Private Limited
company on September 15, 1989, under the Companies
Act, 1956 as Andhra Costal Construction Private
Limited in the state of Andhra Pradesh. The name of
the company was changed to Gayatri Projects Private
Limited with effect from March 31, 1994 and it was
converted into a Public limited company with effect
from December 2, 1994.
Gayatri Projects Limited
Financials
Company Secretary
Bankers
Auditors
Vision / Mission
1) We at Gayatri try to do our best to construct the highest quality works. This is our True
Spirit.
2) The attitude of trying to meet all customer needs and solve any problem in advance is
Customer Satisfaction.
3) The work of the Company is to serve in the Building of a Nation. This is our Service.
4) Putting more emphasis on the value gained by a customer rather than on the companys
self- benefit is our Value Creation.
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Milestones
1989-90
on
1993-94
Name of the Company changed to Gayatri Projects Private Limited with effect
from March 31, 1994
1994-95
Converted into a Public limited company with effect from December 2,
1994Investment by Videocon Appliances Limited and Videocon International Limited into
shares of the Company at a premium of Rs. 97/-.The Company took over all the assets and
liabilities of Gayatri Engineering Company.
1996-97
Completed construction of S Bund and Platforms at Kakinada Port Project
funded by ADB.Successfully completed filling of 50.00 Lakh cum. In a record time of 8
months at Reliance Petroleum Limited Project, Jamnagar. The registered office of the
company was shifted from Andhra Pradesh to Maharashtra.
1997-98
Formed a Joint Venture with IJM Corporation Berhad, Malaysia
2005-06
Took 40% interest in the equity of Western UP Toll way Limited a SPV created to
execute a BOT project awarded by NHAI. This will be the FIRST BOT project for our
Company. Awarded ISO 9001:2000 and Q9001-2000 Quality Certificate by American
Quality Assurance International, LLC, USA
2006-07
Awarded 2 contracts on annuity basis by NHAI in Uttar Pradesh in Joint Venture
2007
Gayatri Projects secures five new ordersGayatri Projects Ltd has bagged two orders
along with Maytas Infra Ltd under the consortium (Maytas-Gayatri Consortium) with a total
projects cost of Rs 880 crore.
2008
Gayatri Projects Ltd has informed that the Company and M/s. DLF Ltd,along with
associates have signed an MOU on January 17, 2008 for the purpose of construction of Road
projects on BOT basis.
2009
Company has secured two new orders along with Ratna Infrastructure Projects Pvt.
Ltd under Joint Venture namely (GAYATRI - RATNA JOINT VENTURE) with a total
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projects cost of Rs 2,131.62 crores.Company has recommended dividend of 40% (Rs 4/- per
equity share of
Rs 10/-) on the paid up capital of the Company.
2010
Declared an interim dividend of Rs. 2.50/- per share (@ 25% of Rs.10/- per share)
on1, 11, 04,761 equity shares of Rs. 10/- each. Company has secured a new order under
BOT (Toll) with a total project cost of Rs. 602.00 crores.
2011
Company has bagged new order under Civil Engineering works for Rs. 68.09
Crores.
PROMOTERS
Dr. T. SUBBARAMI REDDY, whose name has now become the byword for leadership and
quality in the construction industry in India, entered into the construction business nearly
three decades ago. He was involved in the construction of major Irrigation Projects in the
State of Andhra Pradesh. In the year 1967, the Prime Minister of India Late. Mrs. Indira
Gandhi awarded him a Gold Medal, in recognition of his outstanding performance in the
construction of the Worlds largest and prestigious masonry dam Nagarjuna Sagar in
Andhra Pradesh State.
In the year 1975, Dr. Reddy diversified into other fields of specialized Civil Construction
such as site grading, Reservoirs, Ash Ponds, Industrial Plant constructions, Harbors and
Railway bridges, tunnels and major highway road projects. Currently the Company is being
controlled by a well mix of independent and promoter directors with varied experience in
the field of infrastructure development, banking and financial sectors.
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25 irrigation projects amounting to Rs. 1000 Cr, 9 projects for construction of dams and
reservoir amounting to Rs. 500 Crs.
GPL have completed irrigation projects such as Construction of five packages
of Narmada Main Canal comprising of the 50.60 Km, Upper Krishna Project comprising of
44.00 Km, Sriram Sagar Project comprising of 954.00 Km and KC Canal comprising of
64.00 Km. GPL has executed, in which major ones include construction of Kaniti Balancing
Reservoir for Vishakhapatnam Steel Plant, construction of raw water pond for Jindal
Vijaynagar Steel Ltd., construction & rising of ash pond dykes to ancillary works for
NALCO Ltd. Etc.
Widening to 4/6-lanes and upgrading of the existing 2-lane Road in Andhra Pradesh
from Km.291 to Km.358 (OngoleChilakaluripet) Section of NH 5 (Contract
Package AP-13; Contract Value Rs. 231.17 crores)
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IRRIGATION PROJECTS
The Company is traditionally strong in the irrigation works and has also been awarded the
Gold Medal by the then Prime Minister Smt. Indira Gandhi for outstanding contribution to
the construction of the worlds largest earth dam Nagarjuna Sagar Project in Andhra
Pradesh. The top 5 major assignments are
Narmada Main Canal Reach Km.188 to Km.198 (Contract Value Rs. 39.47 crores).
Industrial Projects
GPL has executed many industrial projects for reputed Indian companies, both in the public
and private sector. Some of our major projects in the industrial, railways and ports segments
are
Civil Works for Coke Oven-2 (Contract Value Rs. 9.78 crores).
15
Construction of New BG Railway line in 3 sections i.e. KR-51, KR-55 & KR-57 for
Koraput-Rayagada Lane. (Contract Value Rs. 14.21 crores).
Area grading/filling & leveling of entire area of power (2X250 MW) and
construction of retaining wall in the premises of Power House at Korba East
(Contract Value Rs. 23.86 crores).
Leveling and Grading work in Group-I for Simhadri Thermal Power Project
(Contract Value Rs. 16.36 crores).
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Site grading and construction of roads, drains and ponds at Reliance Petroleum Ltd.
Project site, Jamnagar (Contract Value Rs. 13.65 crores)
Area Grading Roads, drains for NFCL phase-II, Kakinada (Contract Value Rs. 7.79
crores).
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and / or structural works including Earth works, National and / or State Highways, Bridges,
Dams, Reservoirs, Airports, Roads and Buildings within India.
JAIPRAKASH - GAYATRI JOINT VENTURE
Jaiprakash-Gayatri JV has been formed on July 9, 2004 in the ratio of 60:40
for the purpose of participation in the pre-qualification bids as a joint venture and to
participate subsequently in the tenders for the projects.
Heavy earth moving machines such as hydraulic excavators, loaders, dozers, earth
compacters, etc.
Concreting plants such as batching plants, concrete mixers, transit mixers, concrete
pavers, etc.
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Quarry equipment like wagon drills, jack hammers, air compressors, etc.
Transportation equipment such as cars and jeeps, tippers, tractors, water tankers,
trailers, etc.
Fabrication and erection plant such as welding generators, gas cuttings sets, work
shop equipment, cranes, generators and other miscellaneous equipment.
Competition
The construction industry is highly fragmented with large number of
players operating in an unorganized sector and a few of them in the organized sector. Some
of key players in the construction industry are L&T,Gammon (India) Ltd., Nagarjuna
Constructions, Simplex Concrete Piles Ltd., IVRCL Infrastructure & Projects Ltd. With the
works coming up all over country, the numbers of agencies have increased. This forced
most of the key players to limit their bidding to Mega Projects where few agencies get prequalified. To meet this tough competition, we are planning to enter into various joint
ventures.
Organizational Structure
The Registered & Corporate office is monitoring the entire
organization and is having overall control over the various site offices situated all over the
country. This organization is headed by Executive Vice Chairman and Managing Director
and at the helm President at Corporate Office having close association with the Executive
Directors, and Vice Presidents (Projects). The Executive Directors and Vice President
(Projects) are directly in-charge of projects under their control, and are assisted by the field
General Manager, Project Manager and other field staff for the proper planning,
implementation and successful execution of the projects.
General Manager Projects manages the project site, assisted by Project
Manager. The site organization is further divided into various functions, such as personal
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administration, mechanical, quality, stores and materials and accounts and finance headed by
senior executives.
Board of Director
Managing Director
Vice President
(Projects )
Executive Director
(Techno - legal)
General Manager
(Projects)
General Manager
Legal Consultants
Projects Manager
Company Secretary
CFO
President
Vice President
(Finance)
General Manager
Systems & Audit
Material Engineer
QC Engineer
Dy. Project. Engineer
General Manager
Accounts
Manager
(Tenders)
Manager
(Procurement)
Manager
(Contracts)
Manager
(Planning)
Safety Officer
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Organization Structure
CHAPTER-3
REVIEW OF LITERATURE
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INTRODUCTION
Working capital management involves the relationship between a firm's short-term assets
and its short-term liabilities. The goal of working capital management is to ensure that a firm
is able to continue its operations and that it has sufficient ability to satisfy both maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories. Ratio Analysis is a form of Financial Statement Analysis that
is used to obtain a quick indication of a firm's financial performance in several key areas.
Ratio Analysis as a tool possesses several important features. The data, which are provided
by financial statements, are readily available. The computation of ratios facilitates the
comparison of firms which differ in size. Ratios can be used to compare a firm's financial
performance with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or deteriorated over time.
Ratio analysis is a method of analyzing data to determine the overall financial
strength of a business. Financial analysts take the information off the balance sheets and
income statements of a business and calculate ratios that can then be used to make
assessments of the operating ability and future prospects of that business. These ratios are
useful only when compared to other ratios, such as the comparable ratios of similar
businesses or the historical trend of a single business over several business cycles. There are
various ratios that measure a company's efficiency, short-term strength, profitability, and
solvency.
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FIXED CAPITAL
WORKING CAPITAL
Fixed capital means that capital, which is used for long-term investment of the business
concern. For example, purchase of permanent assets. Normally it consists of non-recurring
in nature. Working Capital is another part of the capital which is needed for meeting day to
day requirement of the business concern. For example, payment to creditors, salary paid to
workers, purchase of raw materials etc., normally it consists of recurring in nature. It can be
easily converted into cash. Hence, it is also known as short-term capital. Working capital
includes the current assets and current liabilities areas of the balance sheet. Working capital can be
called by its alternative name "Net Current Assets".
Solvency of Business
Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.
Cash Discounts
Adequate working capital also enables a concern to obtain cash discounts on the
purchases and hence is reducing costs.
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Easy Loans
A concern having adequate working capital high solvency and good credit standing can
arrange loans from banks and other on easy and favorable terms.
Goodwill
Sufficient working capital enables a business concern to make prompt Payments and
hence helps in creating and maintaining good will.
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GWC = CA
Net Working Capital
Net Working Capital is the specific concept, which considers both current assets and current
liability of the concern.Net Working Capital is the excess of current assets over the current
liability of the concern during a particular period. If the current assets exceed the current
liabilities it is said to be positive working Capital; it is reverse, it is said to be Negative
working capital.
NWC = C A CL
Component of Working Capital
Every business needs adequate liquid resources in order to maintain day- to- day Cash flow. It
needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its
workforce and ensure its supplies. Maintaining adequate working capital is not just important in the
short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in
the long- term as well. Even a profitable business may fail it does not have adequate cash flow to
meet its liabilities as they fall due Therefore, when businesses make investment decisions they must
not only consider the financial outlay involved with acquiring the new machine or the new
building, etc, but must also take account of the additional current assets that are usually involved
with any expansion of activity.
Working capital constitutes various current assets and current liabilities. This can be
illustrated by the following chart
Working Capital
Current Assets
Current Liabilities
Cash in Hand
Bills payable
Cash at bank
Sundry Creditors
Bills Receivable
Outstanding Expenses
Sundry debtors
Accrued Income
Dividend payable
Inventories
Bank overdraft
Prepaid Expenses
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Current Assets
Current assets are defined as either cash or those assets that can be converted into
cash within the current year. The major components of these current assets are inventories, account
receivables and advances.
Cash
It is most liquid current assets and includes cash in hand and cash at bank it
provides in start liquidity and can be used to meet obligations / acquire assets without delay
Cash
Inventory
Receivables
Cash sales
Inventories
These are materials: commodities or goods used in day- to-day operations of
production of in the form of finished goods. These include raw materials, work- in progress and finished goods.
Inventory is divided into three types
Finished goods Held for sale in the ordinary course of business
Work in Progress In the process of production for such sales
Raw Material Currently consumed in the production of goods and services to be available
for sale
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Account Receivables
These are short- term debts owed by company arising from credit and sales made to
customers of the firms.
Advances
These represent amount paid for which the goods and services have not yet been rendered,
including advances given to suppliers and employees
Current Liabilities
This is second major content of the balance sheet is liabilities defined as the claims of
outside against the form alternatively they represent the amount that the form owes to
outside that is other than owners. The assets have to be financed by different sources.
One source of funds is borrowing long term as well as short term. The firms can borrow
on a long term basis from financial institution / banks or through bonds / mortgage /
debentures
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Capital depends upon the nature of the business. Permanent or Fixed Working Capital will
not change irrespective of time or volume of sales
Time
Amount of
Working capital
Temporary
Working Capital
Time
Semi Variable Working Capital
Certain amount of Working Capital is in the field level up to a certain stage and after that it
will increase depending upon the change of sales or time.
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Amount of working
Capital
Time
30
Internal factors
External factors
Internal Factors
a) Nature of business
Working Capital of the business concerns largely depend upon the nature of the
business. If the business concerns follow rigid credit policy and sells goods only for
cash, they can maintain lesser amount of Working Capital .A transport company
maintains lesser amount of Working Capital while a construction company maintains
larger amount of Working Capital
b) Size of Business
The working capital requirements of a concern are directly influenced by the size of its
business, which may be measured in terms of scale of operations Greater the size of a business
unit, generally large will be the requirements of working capital.
c) Production cycle
Amount of Working Capital depends upon the length of the production cycle. If the
production cycle length is small they need to maintain lesser amount of Working
Capital. If it is not, they have to maintain large amount of working capital
d) Business cycle
Business fluctuations lead to cyclical and seasonal changes in business condition and it
will affect the requirements of the Working Capital. In the booming conditions,
the Working Capital requirement is larger and in the depression
condition, requirement of Working Capital will reduce. Better business
results lead to increase the Working Capital requirements.
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It is also one of the factors which affect the Working Capital requirement of the business
concern. If the company maintains the continues production policy, there is a need of
regular Working Capital. If the production policy of the company depends upon the
situation or conditions, Working Capital requirement will depend upon the conditions
laid down by the company.
f) Credit Policy
The credit policy of firm also influences magnitude of working capital. If the company
maintains liberal credit policy to collect the payments from its customers, they have to
maintain more Working Capital. If the company pays the dues on the last date it will
create the cash maintenance in hand and bank.
h) Depreciation Policy
The depreciation policy influences the level of working capital by affecting tax liability and
retained earnings of the enterprise. Since depreciation is tax deductible expenses items, higher
amount of depreciation results in lower tax liability and greater profitability.
k) Earning capacity
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If the business concern consists of high level of earning capacity, they can generate
more Working Capital, with the help of cash from operation. Earning capacity is also one
of the factors which determines the Working Capital requirements of the business
concern
External Factors
A) Business Fluctuations
Business fluctuations refer to alternate expansion and contraction in general business
activity. In a period of boom that is when business is prosperous, there is a need for longer
amount of working capital due to increase in sales, rise in prices, optimize expansion of
business on the country in the items of depression that is when there is a down swing of the
cycle, the business contracts, sales decline, difficulties are faced in collections from debtors and
firms may have a large amount of working capital lying idle.
B) Technology Development
Technology development in the area of production can have shape effects on the need for working
capital. If a firm switches over to new manufacturing process and installs new equipments with
which it is able to cut period involved in converting raw materials into finished goods, permanent
working capital requirements of the firm will decrease If the new machine
method, first we have to find out the sales to Working Capital ratio and based on that we
have to estimate Working Capital requirements. This method also expresses the relationship
between the Sales and Working Capital.
C. Operating cycle
Working Capital requirements depend upon the operating cycle of the business. The
operating cycle begins with the acquisition of raw material and ends with the collection of
receivables.
The operating cycle can be shortened by the following means
Production process
In the production process there should not be any time lag from the time of
actually receiving the raw materials and the starting of production process. This
means as soon as the materials arrive they should be introduced in the production
process.
Finished goods
The goods once produced should be held in the companys possession as the
companys capital would be locked up in these goods. Thus it is essential that the
company sell all these finished goods as soon as possible so as to allow the company
reacquires its capital employed in the operating cycle.
Receipt of sales
The receipts of the money from the debtors as soon as possible so as to
regain the money along with the profits.
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This is how the operating cycle operates along with how it can be improved so as to
enable the company to regain the money invested in the production of the goods being
produced.
OC = R +W+F+D-C
Working Capital Cycle
The working capital cycle can be defined as
The need of time, which elapses between the point at which, cash beings to be expended on the
production of a product and the collection of cash from a customer.
The diagram below illustrates the working capital cycle for a construction firm:
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The upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank
through which funds flow.
These tanks, which are concerned with day_ to_ day activities, have funds constantly flowing into
and out of them.
The chain starts with the firm buying all input materials on credit.
In due course this stock will be used in production, work will be carried out on the
stock, and it will become part of the firm's work in progress (WIP)
Work will continue on the WIP until it eventually emerges as the finished product
When the finished goods are sold on credit, debtors are increased
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They will eventually pay, so that cash will be injected into the firm
Each of the areas_ stocks (raw materials, work in progress and finished goods), trade
debtors, cash (positive 0r negative) and trade creditors_ can be viewed as tanks into and from which
funds flow.
Forms of Credit
After getting the overall credit limit sanctioned by the bankers, the borrower draws
funds periodically. The following form of credit is available to the borrower.
a) Loan Arrangement
Under the arrangement the entire amount of loan is credit by the bank to the
borrowers account. In case the loan is repaid in investments, interests in payable of actual
outstanding.
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borrower can draw up to stipulated limit based on the security margin. He has to pay 1% as
commitment charges on the underutilized balanced during the period.
b) Issue of Debentures
It is another regular working capital can also be procured by the issue of debentures
and bonds. If anybody wants mobilize working capital in the form of debentures they can
get easily permission from SEBI and Ministry of Industry.
d) Term loans
Midterm and long term loans for a period above five years provide important source
of working capital.
To ensure solvency the firm should be very liquid, means larger current assets
holdings. But a considerable amount of the firms funds will be died up in current assets,
and to the extent this investment is idle, the firms profitability will suffer. To have higher
profitability, the firm may sacrifice solvency and maintain a relatively low level of current
assets but its solvency would be threatened and would be exposed to greater risk of cash
shortages and stock outs.
value) and the total current liabilities. It is superior to the current ratio between; both these
ratios should be used ad completely to each other to analyze the liquidity position of a firm.
The standard ratio is 1:1 it can be calculated as under.
Liquid Assets
Quick ratio=
--------------------------Current liabilities
Liquid assets= Sundry debtors+ cash & bank balances+ loans & advances.
Current liabilities= current liabilities+ provisions
are expected to be converted into cash over a short period. To a great extent, the amount and
quickly of debtors determine the liquidity position of the firm. Debtors turnover or
receivables turnover is calculated by dividing credit sales by average debtors. This ratio
indicates the number of times, on an average the debtors. This ratio indicates the number of
times, on an average the debtors or receivables turnover each year. Generally, the higher the
value of debtors turnover, the more efficiency is the management of assets. Sometimes, data
relating to credit sales, opening balance and closing balance of debtors may not be available.
Then debtors turnover can be calculated by dividing total sales by closing balance of
debtors.
Credit sales
Debtors turnover ratio =
--------------------------Average debtors
(Or)
Total sales
Debtors turnover ratio =
--------------------------Closing debtors
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--------------------------Working Capital
receivables are collection costs, capital costs, delinquency costs and default costs. A firms
investment in accounts receivables depends on volume of credit sales and collection period.
The financial manager can influence volume of credit sales and collection period through
credit policy.
Credit policy includes credit standards, credit terms and collection efforts. Credit standards
are criteria to decide to whom credit sales can be made and how much. If the firm has soft
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standards and sells to almost all customers, its sales may increase but its costs in the form of
bad-debt losses and credit administration will also increase. The conditions for extending
credit sales are called credit terms and they include the credit period and cash discount.
Cash discounts are given for receiving payments before than the normal credit period. All
customers dont pay within the credit period.
Therefore, this firm has to make efforts to collect payments from customers. Collection
efforts of the firm aim at accelerating collections from slow payers and reducing bad-debt
losses. The firm should in fact thoroughly investigate each account before extending credit.
It should gather information about each customer, analyze it and then determine the credit
limit. Depending on the financial condition and past experience with a customer, the firm
should decide about its collection tactics and procedures.
MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60% of current assets in
public limited companies in India. Because of the large size of inventories maintained by
firms, a considerable amount of funds is required to be committed in them. It is, therefore,
absolutely imperative to manage inventories efficiently and effectively in order to avoid
unnecessary investments in them.
The term inventory refers to the stockpile of the product a firm is offering for sale and the
components that make up the product.
The assets which firms store as inventory in anticipation of need are
Raw materials
Work-in-process (semi-finished goods) and
Finished goods.
The raw material inventory contains items that are purchased by the firm from other and are
converted into finished goods through the manufacturing (production) process. They are an
important input of the final product.
45
The work-in-process inventory consists of items currently being use in the production
process. They are normally partially or semi-finished goods that are at various stages of
production in a multi-stage production process.
Finished goods represent final or completed products which are available for sale. The
inventory of such goods consists of items that have been produced but are yet to be sold.
Stocks of raw materials and work-in-process facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus inventories serve as a link between
the production and consumption of goods.
CHAPTER-4
Research Methodology
46
Introduction
Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done
Systematically. In that various steps, those are generally adopted by a researcher in studying
his problem along with the logic behind them.
It is important for research to know not only the research method but
also know methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology. Methods
comprise the procedures used for generating, collecting and evaluating data. All this means
that it is necessary for the researcher to design his methodology for his problem as the
same may differ from problem to problem.
Data collection is important step in any project and success of any project
will be largely depend upon now much accurate you will be able to collect and how much
time, money and effort will be required to collect that necessary data, this is also important
step.
47
Data collection plays an important role in research work. Without proper data
Available for analysis you cannot do the research work accurately.
RESEARCH DESIGN
It is an Descriptive in nature.
Types of data collection
There are two types of data collection methods available
1. Primary data collection
2. Secondary data collection
1) This project has completed with annual reports; it just constitutes one part of data
collection i.e. Secondary. There were limitations for primary data collection because of
confidentiality.
2) This project is based on five year annual reports. Conclusions and recommendations are
based on such limited data. The trend of last five year may or may not reflect the real
working capital position of the company.
3) Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get
Research Sequence
This study consists of two sequences both of which serve the purpose of
Understanding the determinants of WCM and ultimately developing a conceptual
framework. Further, each sequence consists of multiple stages dealing with relevant
literatures and actual practices Scapens (2004) explained that working with case studies
requires a comprehensive research plan, specified research questions, and all evidence
should be recorded to ensure procedural reliability
49
Research Sequence 1
The research sequence 1 consists of three stages which will be briefly explained in this
section;
Stage 1
Using literature review from various academic disciplines (accounting, finance,
strategic management, operation management, and organizational Behavior) to identify
the research questions.
Stage 2
Using research questions as a topic of focus group discussion (consist of
management accountants, financial controllers, or CFO) to refine research instruments
for fieldwork.
Stage 3
Using research instruments to collect relevant data by using multiple case studies. Semistructured interviews will be undertaken with key informants who are directly involved with
WCM. The interviews will be transcribed for analysis, and stored according to appropriate
ethical standards.
process) to provide further insight. Data will be coded, categorized and themed for
theoretical constructs and narrative explanations.
50
research sequences one and two, a process of triangulation will be used to validate the
theoretical conjecture from the
findings. This process will require a constant comparison of data to develop the
conceptual framework, in coherent manner.
CHAPTER-5
51
2008-2009
2009-10
2010-11
2011-12
2012-13
6043.48
6933.2
6933.2
14703.
22411.
ars
Invento
52
ries
51
79
Sundry
22391.1
31490.
32847.
51428.
84903.
Debtors
65
03
33
Cash&
Bank
Balance
7560.14
20521.
20521.
17120.
19895.
95
92
29
09
Loan&
27648.7
40433.
59802.
57495.
61892.
Advanc
64
09
94
82
63643.5
99379.
120104
140748
189103
45
.25
.07
.5
es
Total of
C.A.
53
200000
180000
160000
140000
120000
Loans &Advances
100000
cash&bank bal
80000
sundry debtor's
60000
inventories
40000
20000
0
Fig.5.1
54
PARTICULARS
(Rs. in lakhs)
YEAR
31-3-2008
CHANGES IN
WORKING CAPITAL
31-3-2009 INCREAS DECREASE
E
A.CURRENT ASSETS
1
2
3
3855.96
16798.68
7560.14
6043.48
22391.18
5876.47
2187.52
5592.5
_
_
_
1683067
BALANCES
4
LOANS &ADVANCES
5
TOTAL
B.CURRENT LIABILITIES
23708.21
51922.99
27648.73
61959.86
3940.52
22993.94
30146.35
7152.41
1038.94
24032.88
1204.49
31350.84
165.55
27890.11
30609.02
INVENTORIES
SUNDRY DEBTORS
CASH&BANK
CURRENT
LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT
ASSETS(A)-CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL
2718.91
30609.02
2718.91
30609.02
11720.54
11720.54
INTERPRETATION
In 2008-2009 the Net Working Capital has decreased with the amount of Rs.2718.91.
Table No.5.3
SNO.
PARTICULARS
YEAR
(Rs. in lakhs)
31-3-2009
31-3-2010
CHANGES IN WORKING
CAPITAL
INCREASE DECREASE
A.CURRENT ASSETS
1
INVENTORIES
6043.48
6933.21
889.73
SUNDRY DEBTORS
22391.18
31490.65
9099.47
CASH&BANK
BALANCES
4
LOANS &ADVANCES
5
TOTAL CURRENT
ASSETS
B.CURRENT LIABILITIES
5876.47
20521.95
14645.48
27648.73
61959.86
40433.64
99379.45
12784.91
CURRENT
LIABILITIES
PROVISIONS
30146.35
37384.58
1204.49
767.44
TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL
31350.84
38152.02
30609.02
61227.43
_
437.05
30618.41
61227.43
7238.23
_
30618.41
61227.43
37856.64
37856.64
INTERPRETATION
In 2009-2010 the Net Working Capital has decreased with the amount of Rs.30618.41
56
PARTICULARS
(Rs. in lakhs)
YEAR
31-3-2010
31-3-2011
CHANGES IN WORKING
CAPITAL
INCREASE DECREASE
A.CURRENT ASSETS
1
2
3
4
5
1
2
INVENTORIES
6933.21
SUNDRY DEBTORS
31490.65
CASH & BANK
20523.47
BALANCES
LOANS & ADVANCES
40433.64
TOTAL CURRENT
99380.97
ASSETS
B.CURRENT LIABILITIES
6425.46
32847.03
17120.29
_
1356.38
_
507.75
_
3403.18
59802.09
116194.87
19368.45
CURRENT LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)
37386.1
767.44
38153.54
45916.28
989.21
46905.49
61227.43
69289.38
_
_
8530.18
221.77
CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL
8061.95
69289.38
8061.95
69289.38
20724.83
20724.83
INTERPRETATION
In 2010-2011 the Net Working Capital has decreased with the amount of Rs.8061.95.
(Rs. in lakhs)
57
SNO.
PARTICULARS
YEAR
31-3-2012
CHANGES IN WORKING
CAPITAL
INCREASE DECREASE
INVENTORIES
6425.46
SUNDRY DEBTORS
32847.03
CASH & BANK
17120.29
BALANCES
LOANS & ADVANCES
46090.03
TOTAL CURRENT
102482.81
ASSETS
B.CURRENT LIABILITIES
14703.51
51428.33
14412.22
8278.05
18581.3
_
57495.94
138040
11405.91
CURRENT
27234.24
21775.36
1089.62
28323.86
236.74
31-3-2011
A.CURRENT ASSETS
1
2
3
4
5
1
2
5458.88
LIABILITIES
PROVISIONS
852.88
TOTAL CURRENT
6311.76
LIABILTIES
CURRENT ASSETS(A) 96171.05
_
_
2708.07
_
109716.14
CURRENT
LIABILITIES(B)
NET INCRESE IN
WORKING CAPITAL
TOTAL
13545.09
13545.09
109716.14
109716.14
38265.26
38265.26
INTERPRETATION
In 2011-2012 the Net Working Capital has decreased with the amount of Rs.13545.09.
(Rs. in
lakhs)
SNO.
PARTICULARS
YEAR
CHANGES IN WORKING
CAPITAL
58
31-3-2012
31-3-2013
INCREASE
DECREASE
INVENTORIES
14703.51
SUNDRY DEBTORS
51428.33
CASH &BANK
14412.22
BALANCES
LOANS & ADVANCES
57495.94
TOTAL CURRENT
138040
ASSETS
B.CURRENT LIABILITIES
22411.79
84903.8
19895.09
7708.28
33475.47
5482.87
_
_
_
61892.82
189103.5
4396.88
CURRENT LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL
27234.24
1089.62
28323.86
11556.80
1059.99
12616.79
15677.44
29.63
_
_
109716.14
176486.71
A.CURRENT ASSETS
1
2
3
4
5
1
2
66770.57
66770.57
176486.71
176486.71
66770.57
66770.57
INTERPRETATION
In 2012-2013 the Net Working Capital has decreased with the amount of Rs.66770.57.
(Rs. in
thousands)
YEARS
CURRENT ASSETS
CURRENT
LIABILITIES
NET WORKING
CAPITAL
59
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
61959.86
99379.45
116194.87
138040
189103.5
31350.84
38152.02
46905.49
28323.86
28323.86
30609.02
61227.43
69289.38
109716.14
160779.64
200000
180000
160000
140000
120000
100000
CURRENT ASSETS
Ratio 80000
CURRENT LIABILITIES
60000
40000
20000
0
Fig.5.2
INTERPRETATION
If the current assets were greater than the current liabilities it indicates the companys good
financial position.
Current Ratio
Current Assets
Current Ratio =
-------------------Current Liabilities
60
Current assets
Current assets include cash and bank balances, marketable securities, inventory, debtors,
loans & advances and pre paid expenses.
Current liabilities
Current liabilities include loans and advances (taken), trade creditors, accrued expenses and
provisions.
Table No.5.8 (Rs. in thousands)
YEARS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
CURRENT ASSETS
CURRENT
CURRENT RATIO
61959.86
99379.45
116194.87
138040
189103.5
LIABILITIES
31350.84
38152.02
46905.49
53281.32
139730.95
1.9
2.6
2.4
2.5
1.3
3
2.5
2.6
2.4
2.5
1.9
2
1.3
Ratio 1.5
1
Year
0.5
0
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Year
Fig.5.3
61
INTERPRETATION
By observing above table it can be known that firms current ratio is more than 1 in all the
years except in 2008-2009 and 2012-2013, were it is up to 2. It indicates that the firm is able
to meet its current obligations smoothly.Gayatri Projects Ltd., maintained a good liquidity in
all financial years of study. So comparativly the company is not having any liquidity
problem.
Quick Ratio
The acid test ratio is called quick ratio, is a fairly stringent measure of liquidity. It is based
on those current assets which are highly liquid inventories are inclueded from the numerator
of this ratio because inventories are deemed to be the least liquid component of current
assets.
Quick assets
Quick Ratio =
------------------Current liabilities
Quick assets
Quick assets are defined as current assets excluding inventories.
Current liabilities
Current liabilities include loans and advances (taken), trade creditors, accrued expenses and
provisions.
Table No.5.9
YEARS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
QUICK ASSETS
55916.38
92446.25
109769.41
129034.98
167026.83
QUICK LIABILITIES
31350
38152.02
46905.49
26047.08
38134.14
(Rs. in thousands)
QUICK RATIO
1.7
2.4
2.3
4.9
4.3
62
7
6
4.9
5
Ratio
2.4
1.7
4.3
2.3
Quick Ratio
1
0
2008-20092009-20102010-20112011-20122012-2013
Year
Fig.5.4
INTERPRETATION
The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It
measures the firm's capacity to pay off current obligations immediately and is more rigorous
test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio.
A quick ration of 1:1 is considered to represent a satisfactory current financial condition. It
means the company should maintain the quick ratio of 1:1 to get good results in future.
From the above table it is inferred that quick ratio in 2009 was 1.7 and increased to 2.4 in
2010 and then decreased to 2.3 in 2011 and has a continues increase in remaining years.
thousands)
YEARS
TOTAL ASSETS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
TOTAL EQUITY
61959.86
99379.45
116194.87
240462.82
292911.38
21575.4
28041.17
33795.88
51622.18
62542.87
0.78
TOTAL DEBT
RATIO
0.65
0.71
0.70
0.78
0.78
0.78
0.78
0.76
0.74
0.71
0.72
0.7
0.7
Ratio
0.68
0.66
0.65
0.64
0.62
0.6
0.58
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
YEAR
Fig.5.5
INTERPRETAION
64
From the above table it is observed that total debt ratio is 0.65 in 2009 and increased
to 0.71 in 2010 and then continues increase in remaining years i.e., in 2012 and 2013 the
ratio is 0.78.
Total Liabilities
Debt-to-Equity Ratio =
Shareholders' Equity
TOTAL LIABILITIES
31350.84
38152.02
46905.49
240462.82
292911.38
SHARE
EQUITY
21575.45
28041.17
33795.88
51622.18
62542.87
RATIO
1.4
1.3
1.3
4.6
4.6
65
4.6
4.6
4.5
4
3.5
3
Ratio
2.5
2
1.4
1.5
Debt
Ratio
1.3 to Equity1.3
1
0.5
0
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
YEAR
Fig.5.6
INTERPRETAION
From the above table it is observed that debt equity ratio is 1.4 in 2009
and decreased to 1.3 in 2010 and 2011.then it increased to 4.6 in 2012 and 2013.
EQUITY MULTIPLIER
The ratio shows a company's total assets per dollar of stockholders' equity. A higher
equity multiplier indicates higher financial leverage, which means the company is relying
more on debt to finance its assets.
Equity Multiplier =
Total Assets
_____________
Total Equity
YEARS
TOTAL ASSETS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
TOTAL EQUITY
61959.86
99379.45
116194.87
240462.82
292911.38
21575.4
28041.17
33795.88
51622.18
62542.87
4.6
EQUITY
MULTIPLIER
2.8
3.5
3.4
4.6
4.6
4.6
4.5
3.5
4
3.5
3
Ratio
3.4
2.8
2.5
Equity Multiplier
2
1.5
1
0.5
0
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
YEAR
Fig.5.7
INTERPRETAION
From the above table it is observed that Equity Multiplier is 2.8 in 2009 and
increased to 3.5 in 2010.Then decreased to 3.4 in 2011 and continues increase to 4.6 in 2012
and 2013.
67
CHAPTER-6
68
FINDINGS
The study reveals that Total debt ratio increase in 2009-2010 so that the company has
more leveraged and company has greater financial risk.
The debt equity ratio is fluctuating so that the company has more risky financial
position.
.
69
SUGGESTIONS
70
CONCLUSION
Working capital is an important liquidity indicator and historically it has been a major
benchmark for the profitability of construction contractors in infrastructure projects. A high
return on capital employed is an illusion if it is accompanied by inefficient or fraudulent
working capitalmanagement. The study on working capital management conducted in
GAYATRI Ltd. to analyze the financial position of the company. The companysfinancial
position is analyzed by using the tool of annual reports from 2008-09 to 2012-13.The
financial status of GAYATRI PROJECTS Ltd. is good.
71
APPENDIX
72
BIBLIOGRAPHY
BOOKS
To obtain more information regarding the present study and to substantiate it
with theoretical proof, the following references were made:
1. Dr.S.N.Maheshwari(2004).FinancialManagement.9thEdition,Sulthan
Sons Educational Publisher New Delhi.Page no.B-50.
2. P.V.Kulkarni(2002).Financial
Management.11thEdition,Himalaya
House.Page no.308.
3. Prasanna Chandra(2006).Financial
Management.6thEdition,Tata
Chandra
and
Publishing
McGraw-Hill
WEB SITES
WWW.GAYATRI.CO.IN
73