Working Capital Management Project

A Project Report Entitled \ue000Study

of Working Capital Management of Jain Irrigation System Ltd. (JISL)\ue001

Submitted in partial fulfillment of Post-Graduate Degree

Master in BusinessAdministrat ion TO

University of Pune -: Submitted By:-

Santosh Deoram Watpad e -: The Research Guide:-

Prof. Shekhar Paranjpe -:For The Academic Year:2007-09

INSTITUTE OF MANAGEMENT

Jain Irrigation Systems Ltd.

MET \ue000s Institute Of Management BHUJBA L KNOWLEDGE CITY,

,

MET League of Colleges, Adgaon, Nasik - 422 003

1

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ACKNOWLEDGEMENT It gives me immense pleasure to present this project report on Working Capital

No work can be carried out without the help and guidance of various persons. I

At the outset I would like to thank

Mr. S.R. Gohil sir Head of Dept.

Mangal sir (Head of SQC. dept.) for timely help concerning various aspects of

project. I also thanks to all staff members of account department for help me to complete the summer internship program. I would be failing in my duty if I do not express my deep sense of gratitude to Prof. Shekhar Paranjpe sir

without his guidance it wouldn t have been

possible for me to complete this project work. Lastly I would like to thank my parents, friends and well wishers who





















DECLARATION I, Santosh D. Watpade Student of MBA II (Finance) 2007-2009 studying at MET \ue000s Institute of Management, Nasik , declare that the project work entitled Working Capital management of Jain Irrigation System Ltd. Jalgaon

Was carried by me in the partial fulfillment of MBA program under the University of Pune. This project was undertaken as a part of academic curriculum according to the

Date: Place:-Nasik





















CONTENTS Chapter No.

Certificate

Particulars

Page No.

I II III IV VI VII

1

Working Capital Mangement 1.1 Introduction 1.2 1.3

1 2 2 3 4 5

2

Research Methodol ogy 2.1 Introduction 2.2

7 8 8 10 11

3

Introduction of company 3.1 Corporate Philosophy

12 13

4

3.4

Working Capital Size and analysis 4.1 Working capital level. 4.2

20 21 22

4.5

27





















5

Working Capital Ratio analysis 5.1 Introduction 5.2

33 34 34

5.5 5.6

36 41

6

Working Capital compone nts 6.1 Receivables management 6.2 Inventory management 6.3 Cash management

46 47 49 54

7

Working Capital Finance and Estimation 7.1 Introduction.

59 60

8

Conclusions and recomandations 8.1 Conclusion 8.2 Recommendations

66 67 68 69 70 71

Appendices Bibliography Balance sheets





















LIST OF TABLES Sr. No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Descripti on /Name of the table Table Financial highlights of JISL Products profile working capital Working capital size Current asset size Current assets components Current liabilities size Statement of changes in working capital Calculation of operating cycle Calculation of working capital leverage Calculation of working capital turnover Inventory turnover ratio Debtors turnover ratio Current assets turnover ratio Calculation of current ratio Calculation of quick ratio Absolute liquid ratio Account receivable size and indices Avg. collection period Size of inventory Inventory holding period Size and indices of cash Cash Cycle Working capital loan and interest Estimation of working capital

No. Page No. 3.1 18 3.2 19 4.1 21 4.2 22 4.3 24 4.4 25 4.5 26 4.6 28 4.7 29 4.8 31 5.1 34 5.2 37 5.3 39 5.4 40 5.5 42 5.6 43 5.7 44 6.1 47 6.2 48 6.3 50 6.4 52 6.5 56 6.6 57 7.1 62 7.2 65























LIST OF CHARTS Sr. No.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

Description /Name of the chart

Chart No.

Working capital indices 4.1 Current assets indices 4.2 Current assets components 4.3 Current liability indices 4.4 Net operating cycle 4.5 Components of operating cycle 4.6 Working capital leverage 4.7 Components of working capital leverage 4.8 Working capital turnover ratio 5.1 Inventory turnover ratio 5.2 Receivable turnover ratio 5.3 Current assets turnover ratio 5.4 Current ratio 5.5 Quick ratio 5.6 Cash and bank balance to current liabilities5.7 Account receivable indices 6.1 Average collection period 6.2 Inventory indices 6.3 Components of inventory 6.4 Inventory turnover ratio 6.5 Inventory holding period 6.6

Page No.

23 24 25 27 30 30 32 32 36 38 39 41 42 43 45 48 49 51 52 53 53





















CHAPTER I

Working Capital Management

1) Introducti on

5) Determinants of working capital





















1.1) Introduction Working capital management Working capital management is concerned with the problems arise in

The goal of working capital management is to manage the firm s current assets

Definition:1.

According to Guttmann & Dougall-

1.

According to Park & Gladson-

Excess of current assets over current liabilities .

The excess of current assets of a business (i.e. cash, accounts





















is refers to operating or cash cycle. If the company has certain amount of cash,

1.3)

Gross working capital and Net working capital There are two concepts of working capital management

1.

Gross working capital

2.

Net working capital

Gross working capital refers to the firm s investment I current assets. Current

Net working capital refers to the difference between current assets and current





















wage fund which remains blocked in terms of financial management, in work-

1.4) Type of working capital The operating cycle creates the need for current assets (working capital).

1) Permanent working capital The need for current assets arises, as already observed, because of the cash

2) Temporary working capital Any amount over and above the permanent level of working capital is























Graph shows that the permanent level is fairly castanet; while temporary This may be because of changes in demand for permanent current assets might be increasing to support a rising level of activity.

1.5) Determinants of working capital

The amount of working capital is depends upon a following factors 1. Nature of business Some businesses are such, due to their very nature, that their requirement of

2.

Length of production cycle





















5. Terms of purchase and sales Some time due to competition or custom, it may be necessary for the company

6. Profitability The profitability of the business may be vary in each and every individual case,

7) Operating efficiency If the business is carried on more efficiently, it can operate in profits which





















CHAPTER II

Research Methodology

1) Introducti on 2) Types of research methodology 3) Objective of study





















2.1) Introduction Research methodology is a way to systematically solve the research problem. It

It is important for research to know not only the research method but also know

Data collection is important step in any project and success of any project will





















1) Primary data

The primary data is that data which is collected fresh or first hand, and for first

2) Secondary data collection method The secondary data are those which have already collected and stored.

This project is based on primary data collected through personal interview of























2.3) OBJECTIVES OF THE STUDY Study of the working capital management is important because unless the





















Scope of the study The scope of the study is identified after and during the study is conducted. The





















CHAPTE R III

Introducti on of company

1) Corporate Philosophy





















3.1) CORPORATE PHILOSOPHY





















3.2) CORPORATE HISTORY OF JAIN GROUP The beginning of the road to success

THE ROOTS The journey of Jain Irrigation Systems Ltd. Began in 1987 when their forefather























This background helped well for an entry into the industrial ventures .

TAKEOVER OF PAPAIN PLANT























MICRO IRRI GATION SYSTEMS (MIS) In the beginning of 1989, company toiled and struggled to pioneer the water























3.3) PRESENT STATUS WITH FINANCIAL HIGHLIGHTS























Table 3.1- Financial Highlights for year 2005-06 (Rs. In lakhs, except per share data)























3.4) PRODUCT PROFILE Product

Table 3.2 Product Profile Brand Name Uses & Application

Drip Irrigation System

&





























































































































components the working capital fund has locked. A large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone, the profitability will be decreased because cash is non earning assets.



















includes sales. The sundry excesscreditor of current s means assetssupplier is showing whose positive payment liquidity is due position but notofpaid the firmthus yet, but itcreditors is not always called good as current because liabilities. excess current Current assets liabilities then required, also include it may adversely short term loanaffects and provision on profitability. as tax provision. Current assets Current include liabilities some also funds includes investments bank overdraft. for For which some company current pay assets interest. like bank The balance overdrafts of current and short assets termis highlycompany loan, increased has into year pay2005-06, interest because thus the management of increase in of cash current balance. liabilities Cash has



















activity will influence the transaction. level of working capital both permanent andbe policy the credit changes in the initiated market by bygood management. TheTo term get current maximum assets credit policy frommay temporary. supplier defined as which the relationship is profitable to between the company current it reduces assets and the sales need of volume. working capital of firm. As a current liability increase in the year 2006-07 by 35% it reduce the working capital size in the same year. But company enjoyed over creditors which may include indirect cost of credit terms.



















levels of working because change sin following technology working to install capital that statement technology is prepared in our business on themore base working of balance capital sheetisofrequired last two year.



















goodsof management and of actual cash working realization capital. after The sale. operating This time cycle gap reveals is calledtheOperating time that cycle thetheir JISL vary year to year as changes in policy of management about Cycle policy elapses or between Working Capital of cash Cycle and . The inflow operating of cash.cycle Quicker of a the company operating consist cycle credit andoutlays operating control of time less amount period ofbetween investment procurement in workingofcapital inventory is needed and theand collection it improves of cash from receivables. profitability. The duration The operating of the operating cycle is the cycle length depends of time onbetween nature ofthe industries company and efficiency s outlay in working on raw materials, capital management. wages and other expanses and inflow of



















year it is reflect the efficiency of management. Days of operating cycle shows WIP period period of lack of funds in current assets, if no of day are more than it increases the cost of funds as taken from outside of the business. In 2004-05 shows the Finished goods holding high no. of days because of reduced of creditors holding period.

















employed to the maintaining changes optimum in level level ofof current investment assets. inWorking current assets capitaland leverage by reducing would theless be level inof the investment case of capital in current intensive assets capital and by employed reducing isthe same level working of current capital liabilitiesexpresses leverage the company the can relation minimize of efficiency the investment of working in the capital working management capital thereby with theimprovement profitability of in the return company on capital . employed is achieved. The term working capital leverage refers to the impact of level of working capital on company s profitability. The working capital management should improve the productivity of investment in current assets and ultimately it will increase the return on capital employed. Higher level of investment in current assets than is actually required means increase in the cost of Interest charges on short term loans and working capital finance raised from banks etc. and will result in lower return on capital employed and vice versa. Working capital leverage measures the responsiveness of ROCE (Return on Capital Employed) for changes in current assets. It is measures by applying the following formula,

















compare to the year 2003-04 reduction in working capital shows the inefficient current assets management. In the year 2004-05 and 2005-06 the current assets has increased by high rate of 28% and 65% respectively. It adversely affects on ROCE, which increased by only rate of 20.86% and 0.74% respectively, that resulted in push down the working capital leverage to 0.72 and 0.011 respectively. When investment in current assets is more than requirement that increases the cost of funds raised from short term sources may be bank loans, which affected on profitability of the JISL.

















2) Role of ratio analysis 3) Limitations of ratio analysis 4) Classifications of ratios

















efficiency define statements. as of the performance, indicated An organization quotient either of individually for two the mathematical purpose or in relation of decision expressions to other making firms and may as in the relationship same industry. need the between Ratio hint regarding analysis two or more isthe one future things of thehappiness .best Thepossible absolute rather techniques figures than those reported available in the in the past. to financial management Thestatement external to impart analyst dothe notbasic has provide tofunctions depend meaningful upon like planning the understanding pastand which control. may of the not As future performance is closely necessary related andto financial the reflect immediately position financialof past, position the firm. ratio and Ratio calculated performance helpson to the summaries in basis future. historical large quantities financial data of financial may be of data good and assistance to make qualitative to predict the judgment future.of E.g. theOn firm thesbasis financial of inventory performance turnover ratio or debtor s turnover ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales. Similarly, the ratio analysis may be able to locate the point out the various arias which need the management attention in order to improve the situation. E.g. Current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firm s financial analysis liquidity, solvency, activity, profitability and overall performance, it enables the interested persons to know the financial and

















management organization that it only and to e.g. use highlights also current the indicate various assets, thethe kinds strong current efficiency ofor assets problem liabilities, with by converting which arias, liquidity, the it dose working them profitability notthe provide capital form and of any is risk turnoff sale. being This solution used. ratio etc. The to also these most rectify called important ratio the as are activity problem classified ratio ratio arias under or asassets follows this group management is follows ratio. As the assets basically categorized as fixed assets and current assets and the current assets further classified according to individual components of current assets viz. investment and receivables or debtors or as net current assets, the important of efficiency ratio as follow















needed. If any increase in sales contemplated working capital should be adequate and thus this ratio helps management to maintain the adequate level of working capital. The ratio measures the efficiency with which the working capital is being used by a firm. It may thus compute net working capital turnover by dividing sales by working capital.















inventory achieve maximum in a manufacturing sales the company minimum likeinvestment JISLthe inventory of finished capital. is selling its products. It is with calculated by dividing costin ofworking good sold bygoods average Company used to calculate s working inventory capital ratio turnover showsratio mostly more than two, except for the inventory: year 2005-06 because of excess of cash balance in current assets which occurred due to encashment of deposits. In the year 2007 the ratio was around 3, it indicates that the capability of the company to achieve maximum sales with the minimum investment in working capital.















with the minimum investment in the inventory. As such, the general rule high inventory turnover is desirable but high inventory turnover ratio may not necessary indicates the profitable situation. An organization, in order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not result into high amount of profit.















matching increase in sales is reflected by a low receivable turnover Generally the higher the value of debtor s turnover, the more isratio. the It is indication of slowing down of the collection system or an extend line of credit management of credit. being allowed by the customer organization. The latter may be due to the fact that the firm is loosing out to competition. A credit manager engage in the task of granting credit or monitoring receivable should take the hint from a falling receivable turnover ratio use his market intelligence to find out the reason behind such failing trend.















utilizing the salesthe were current less than assets 4 times. .current Theassets actualincludes collection the period assets was likemore inventories, than normal debtors, sundry collection bills period receivable, allowedcash to customer. in hand or It bank, concludes marketable that over securities, investment in the debtors prepaid expenses which and adversely short term affect loans onand requirement advances.of This theratio working includes capital the finance and efficiency with cost which of such current finance. assets turn into sales. A higher ratio implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm.













over the period of time. Turnover ratio was 0.92 in the year 2002-03 and increase to 1.10 and 1.30 in the year 2004 and 2005 respectively, but it decreased in the year 2005-06, because of high cash balance. Cash did not help to increase in sales volume, as cash is non earning asset. In the year 2006-07 company increased its sales with increased investment in current assets, thus current assets turnover ratio increased to 1.39 from 1.1 in the year 2005-06













liabilities within a year, in thesuch formmarketable of current assets. securities, A higher debtors ratioand indicates inventories. that there All were obligations sufficient assets within available a year are with include the organization in current liabilities. which canCurrent be converted liabilities in cash, include creditors, without any reduction billsin payable the value. accrued As ideal expenses, currentshort ratio term is 2:1,bank where loan current income tax liabilities ratio of the firm and is long moreterm thandebt 2:1, it maturing indicates inthe theunnecessarily current year. Current investment ratio in indicates the current the assets availability in the form of current of debtor assets andincash rupees balance. for every Ratio rupee is higher of current in the liability year 2005-06 . where cash balance is more than requirement which came through encashment of deposits of ZCCB funds.













liabilities. An asset is liquid if it can be converting in to cash immediately or reasonably soon without a loss of value. Cash is the most liquid asset .other assets which are consider to be relatively liquid and include in quick assets are debtors and bills receivable and marketable securities. Inventories are considered as less liquid. Inventory normally required some time for realizing into cash. Their value also be tendency to fluctuate. The quick ratio is found out by dividing quick assets by current liabilities













inventories, payment of current it can not liabilities. be converted The liquid in to cash ratio immediately of 1:1 is suppose or in time. to be Therefore standard or ideal while calculation but here ratio of absolute is moreliquid than 1:1 ratio over only the the period absolute of time, liquid it indicates assets as that like the firm cash in hand maintains cash at the bank, overshort liquid term assets marketable than actual securities requirement are taken of such in to assets. In the year 2006-07 consideration to measure company the had ability Rs.1.79 of thecash company for every in meeting 1 rupeeshort of expenses; term such a policy financial obligation. is calledItconservative calculates bypolicy absolute of finance assetsfor dividing working by capital, currentRs. 0.79 is the ideal investment which affects on the cost of the fund and returns on liabilities. the funds.













sufficient because company also has other current assets to support current liabilities of the company. In the year 2005-06 absolute liquid ratio increased because of company carry more cash balance, as a cash balance is ideal assets company has to take control on such availability of funds which is affect on cost of the funds.













2) Inventory Management 3) Cash Management













competitive assets which economic is created system. if the company sells sales the are finished generally goods made to the upcustomer on services passes immediately atThe thecredit time of sale, while seller expects an but not receive account in the sense the that for there the are same formal immediately. Trade creditofarises debt obligation when equivalent value tocash be received later on acknowledgements firm sellsa its through financial products instrument. and services As a on marketing credit and tool, dose they not are receive intended cash to immediately. promote salesItand is essential there bymarketing profit. However tool, acting extension as bridge of credit for the involves movement risk of goods and cost, through management production should andweigh distribution the benefit stages asto well customers. as cost toTrade determine creditthe creates goal of receivable receivables management. or book debts Thus which thethe objective firm is expected of receivable to collect management in the near is to promote future. The sales receivables and profit until include thatthree point characteristics is reached where the return on investment in further funding of receivables is less .than the cost of funds raised to finance that additional credit













the speed of there collection. The shorter the average collection period, the better the quality of the debtors since a short collection period implies the prompt payment by debtors. The average collection period should be compared against the firm s credit terms and policy judges its credit and collection efficiency. The collection period ratio thus helps an analyst in two respects.













allowing more credit year to year, but it was not badorsignal because as and supplies, including spares, semi-processed material work in progress receivables were supporting the increase in thedepending sales. Average finished goods. The nature of to inventory is largely uponcollection the type of period arecarried reducing present situation, asofcompare with the concern, normal the operation on.toFor instance, in the but case a manufacturing collection will period allowed to customer by JISL of 90 day s, it was clear that in the inventory generally comprise all three groups mentioned above while the company required to increase our efficiency collection ofor receivables. All case of a trading concern, it will simply be by of stockin- trade finished goods. the above factors directly or indirectly affects in the debtors turnover ratio, current ratio and working capital ratio. For effective management of credit, the firm should lay down clear cut guidelines and procedure for granting credit to individual customers and collecting individual accounts should involve following steps: (1) Credit information (2) Credit investigation (3) Credit limits (4) Collection procedure.













in term whether ofitcost is plant, and benefits cash or inventories. associated with Again inventory. inadequate That disrupts the firm production should quantity as would ensure that the aggregate result confirm with the and causes minimize the losses investment in sales. inEfficient inventory management impliescontrol. thatof maintaining inventory should an inventory ultimately constraint and objective of inventory resultsuch cost, in wealth that smaller maximization the inventory, of owner thes better wealth. the It implies view point that.obviously, while the the management financial manager should should try toaim pursue at a level financial of inventory objectivewhich of turning will reconcile inventorythese as quickly as possible, conflicting elements. it should Some objective at the same astime follow ensure sufficient inventories to satisfy production and sales demand. The objectives of inventory management consist of two counterbalancing parts:





















held I) Raw by material the firm on an average it is necessary to examine the efficiency with ii) Workwhich thein-progress firm converts raw material inventory and work in progress into iii) Finished finished goods. goods





















percentage term. When the numbers of days in year are divided by inventory turnover, we obtain days of inventory holding (DIH).





















inventory size was increasing because of increment in the finished goods stock; it indicates that the company reduced the liquidity of finished goods. High inventory turnover ratio is showing that the maximum sales turnover is achieved with the minimum investment in the inventories. Raw material turnover has reduced in the year 2007 it indicates that company are investing more in raw material purchasing; thus raw material holding period has increased in the same year to 62 days from 54 days in the previous year 2006. Overall inventory holding period has reduced because of increases in the inventory turnover and sales volume.





















the operation most important of firms. component Ordinarily, of working these transactions capital. The include term cash payment with reference for to cash management material, wages, expenses, is useddividends, in two senses, taxation in narrow etc. there sense is it a regular is used broadly inflow of to coverfrom cash cashoperating and generally sources, accepted thus in equivalent case of JISL of cash theresuch will as be cheques, two-way flow draftofand demand cashreceipts deposits andinpayments. banks. The But broader since they viewdo of not cash perfectly also induce synchronize, hear- casha assets, such minimum cash as balance marketable is necessary sense as marketable to uphold the securities operations and for time thedeposits firm if cash in banks. Theexceed payments main characteristics receipts. of this deposits that they can be really sold and convert in to cash in short term. They also provide short term investment outlet for excess and are also useful for meeting planned outflow of funds. We employ the term cash management in the broader sense. Irrespective of the form in which it is held, a distinguishing feature of cash as assets is that it was no earning power. Company have to always maintain the cash balance to fulfill the dally requirement of expenses. There are four primary motive for maintain the cash as follow























Precautionary Motive Cash flows are somewhat unpredictable, with the degree of predictability 1. 2. 3. 4.

Uncontrollable circumstances such as strike and natural calamities. Unexpected delay in collection of trade dues. Cancellation of some order for goods due unsatisfactory quality. Increase in cost of raw material, rise in wages, etc.

The higher the predictability of firm s cash flows, the lower will be the

Speculative motive:

Speculative cash balances may be defined as cash balances that are held to

However, as with precautionary balances, firms today are more likely to rely on

Advantages of cash management Cash does not enter in to the profit and loss account of an enterprise, hence cash 1.

A sufficient of cash can keep an unsuccessful firm going despite losses

2.

An efficient cash management through a relevant and timely cash budget





















Table 6.5-Size Particulars Cash bal.

and

bank

Indices

and indic es of cash in JISL

(Rs. In lakhs)

2002-03

2003-04

2004-05

2005-06

2006-07

2228

1378

1127

22619

3566

100

61.88

50.61

1015.16

160.08

Chart No.6.7

Cash Indices 1200 1000

1015.16

800 600

Indices

400 200 0

100

61.88

50.61

2002-03

2003-04

2004-05

Cash cycle:-

160.08 2005-06

2006-07

One of the distinguishing features of the fund employed as working capital is





















Cash

Debtors

Finished goods

Raw materials

WIP

Basically cash management strategies are essentially related to the cash cycle

Table 6.6 Particulars Inventory Period (+) Acc. Period

20052004-05 06

(Days)

200607

2002-03

2003-04

123

128

108

95

95

155

133

116

107

109

(-) Acc. payable period 169

178

122

130

130

Cash cycle

83

102

72

74

Holding receivable

109





















Observations

The size of the cash in the current assets of the company indicates the miss cash

After the study of cash management it mentioned above it can be conclude that

commercial papers, certificates of deposit, bank deposits and inter corporate deposit. The high portion of cash balance in the current assets it adversely affected on profitability of the company as cash is ideal asset; it reduced the working capital leverage.





















CHAPTER VII

Working Capital Finance and Estimation

1) Introducti on























7.1) Introduction

Funds available for period of one year or less is called short term finance. In

7.2) Sources of working Capital Finance 1) Trade credit

1) Trade credit

Trade credit refers to the credit that a customer gets from suppliers of goods in





















2) Bank finance for working capital

Banks are main institutional source of working capital finance in India. After

Forms of bank finance:1. Term Loan 2. Overdraft 3. Cash credit 4. Purchase or discounting of bills 1) Term Loan In this case, the entire amount of assistance is disbursed at one time only, either

2) Overdraft In this case, the company is allowed to withdraw in excess of the balance

3) Cash credit In practice, the operations in cash credit facility are similar to those of those of





















3) Letter of credit

In this case the exporter and the importer are unknown to each other. Under

Banks have been certain norms in granting working capital finance to

Table 7.1-Working Particulars

capital loan and interest

200203

Working capital term loan from banks 8152 Consortium of banks Working capital demand loan 5482 Foreign Currency demand loan Cash credit account 6094 Export packaging credit 587

200304

200405

(Rs. In lakhs)

200506

200607

7622

3527

2670

1967

1919

905

359

728

4965 3848 1398

5383 1589 6736

4451 4579 11907

5286 5952 19655





















Chart7.1-

Working capital loan 40000 35000 33588

30000 25000 20000 15000

23966

21474

21270

2002-03

2003-04

Total loan

18634

10000 5000 0 2004-05

2005-06

2006-07

Chart No.7.2 4000

Interest on W.C 3549

3500 3000 2500 2000

2060





















Observations

Jain Irrigation System takes huge working capital loan to fulfill the requirement

7.4) Estimation of working capital

After considering the various factors affecting the working capital needs, it is

The estimation of working capital requirement of Jain Irrigation System ltd. is based on few assumptions such as follows. 1. 2.

Gross sales will increase by 40% Receivables collection period will be 90 day as per standards fixed by company.























For the year 2007-08 for JISL

Particulars A) Current assets

Estimated Amt.Rs.in lakhs.

Inventories (Holding Period 60 Days)

40254

Other Assets Loan & Advances

50921 5666 1345 25543

Sundry Debtors (Average collection period 90 Days) Cash & Bank Balance

Total of A (Gross W.C.) B) Current liabilities

123729

Current liabilities(40 % increment ) Provisions ( 40 % increment)

60484 4632

Total of B Net W.C.(A-B)(Estimated)

65116

Observations

58613

Jain irrigation system ltd has good credit in the market because it is No. 2





















CHAPTER VIII

Conclusi on and Recommendations

1) Conclusion





















8.1) Conclusion

Working capital management is important aspect of financial management. The

1.

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

2.

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

3.

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

4.

Company s current assets were always more than requirement it affect on profitability of the company.





















8.2) Recommendations Recommendation can be use by the firm for the betterment increased of the

1.

Company should raise funds through short term sources for short term

2.

Company should take control on debtor s collection period which is major part of current assets.

3.

Company has to take control on cash balance because cash is non earning assets and increasing cost of funds.

4.

Company should reduce the inventory holding period with use of zero





















APPENDICES























8.3) Bibliography

Books Referred 1.

I. M. Pandey - Financial Management - Vikas Publishing

House Pvt. Ltd. - Ninth Edition 2006 2.

M.Y. Khan and P.K. Jain, Financial management

Vikas





















ANNEXURE I Balance sheet Particulars Sources of funds Shareholders fund Share capital Reserve and surplus Loan Funds Secured Loans

As on 31st march

(Rs. In Lakhs) 2004 2003

2007

2006

2005

15028 32569 47597

14944 20435 35379

15188 17656 32845

14653 12646 27299

14141 11596 25737

47819

40170

29502

27074

28720

Working Capital Management Project

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