Working capital management

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Working capital management

  1. 1. Chapter 1 Introduction to Topic1.1. INTRODUCTION
  2. 2. Working capital, also known as "WC", is a financial metric which represents operatingliquidity available to a business. Along with fixed assets such as plant and equipment,working capital is considered a part of operating capital. It is calculated as currentassets minus current liabilities. If current assets are less than current liabilities, an entityhas a working capital deficiency, also called a working capital deficit. Net workingcapital is working capital minus cash (which is a current asset) and minus interestbearing liabilities (i.e. short term debt). It is a derivation of working capital, that iscommonly used in valuation techniques such as DCFs (Discounted cash flows).Working Capital = Current Assets − Current LiabilitiesA company can be endowed with assets and profitability but short of liquidity if its assetscannot readily be converted into cash. Positive working capital is required to ensure thata firm is able to continue its operations and that it has sufficient funds to satisfy bothmaturing short-term debt and upcoming operational expenses. The management ofworking capital involves managing inventories, accounts receivable and payable andcash.Decisions relating to working capital and short term financing are referred to as workingcapital management. These involve managing the relationship between a firms short-term assets and its short-term liabilities. The goal of working capital management is toensure that the firm is able to continue its operations and that it has sufficient cash flowto satisfy both maturing short-term debt and upcoming operational expenses.Decision criteriaBy definition, working capital management entails short term decisions - generally,relating to the next one year period - which are "reversible". These decisions are
  3. 3. therefore not taken on the same basis as Capital Investment Decisions (NPV or related,as above) rather they will be based on cash flows and / or profitability. • One measure of cash flow is provided by the cash conversion cycle - the net number of days from the outlay of cash for raw material to receiving payment from the customer. As a management tool, this metric makes explicit the inter- relatedness of decisions relating to inventories, accounts receivable and payable, and cash. Because this number effectively corresponds to the time that the firms cash is tied up in operations and unavailable for other activities, management generally aims at a low net count. • In this context, the most useful measure of profitability is Return on capital (ROC). The result is shown as a percentage, determined by dividing relevant income for the 12 months by capital employed; Return on equity (ROE) shows this result for the firms shareholders. Firm value is enhanced when, and if, the return on capital, which results from working capital management, exceeds the cost of capital, which results from capital investment decisions as above. ROC measures are therefore useful as a management tool, in that they link short-term policy with long-term decision making. See Economic value added (EVA).Management of working capitalGuided by the above criteria, management will use a combination of policies andtechniques for the management of working capital. These policies aim at managing thecurrent assets (generally cash and cash equivalents, inventories and debtors) and theshort term financing, such that cash flows and returns are acceptable.
  4. 4. • Cash management. Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs. • Inventory management. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials - and minimizes reordering costs - and hence increases cash flow; see Supply chain management; Just In Time (JIT); Economic order quantity (EOQ); Economic production quantity • Debtors management. Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances. • Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".KINDS OF WORKING CAPITAL
  5. 5. Source: www.ushamartin.comComposition of Working Capital:Current Assets: Current Liabilities:1. Stock of Inventory: 1. Accounts Payable: Raw Material, Work in Progress, Sundry Creditors, Bills Payable. Finished Goods.2. Accounts Receivable: 2. Short-term borrowings. Sundry Debtors, Bills Receivable.
  6. 6. 3. Short-term loans & advances. 3. Outstanding Expenses4. Short-term investments. 4. Provision for Taxation or Tax Payable.5. Prepaid expenses. 5. Dividends Payable.6. Accrued or Outstanding Income. 6. Short-term dues to employees.7. Cash in Hand. 7. Bank Overdraft.8. Cash at Bank. 8. Minority Interest.1.2. OBJECTIVE OF THE STUDYThe objective of the Thesis is to study the different components of current assets andliabilities and the extent of funds tied up in each the trend of changes of eachcomponent to find out the relationship between working capital and profitability To findout the impact of Working Capital on Economic Value Addition to the stake holder1. To set up the required fund for running the operating activities of the firm.2. To forecast the required amount of gross & net working capital with
  7. 7. individual breakup of the components.3. To fix up the optimum level of working capital & to change the same according to the need of the situation.4. To take care for maintaining the liquidity position of the firm up to the desired level.5. To increase the profitability of the firm by striking a balance betweenliquidity&profitability.1.3. IMPORTANCE OF THE STUDYThe importance working capital in any business can hardly be over-emphasized. To runa business smoothly & efficiently, it is essential to have an adequate amount of workingcapital. Followings are the advantages that a business firm gets for having adequateamount of working capital or the working capital facilitates a business in the followingway:1. Constant supply of raw material.2. Constant supply of saleable product.3. Regular payment of operating expenses.4. Provide adequate solvency to the business.5. Opportunity of getting loans.
  8. 8. 6. Increase in Goodwill.7. Possibility of getting cash discount.8. Helps the business to solving the crisis situations.9. Exploitation of favorable market conditions.10. Increase in efficiency & productivity.11. Increase in profitability.12. Regular payment of Dividend.13. Research & development.14. High morale of employees.It is also to be noted that excess of working capital is a vice for a firm like inadequacy ofworking capital. Excess working capital blocks huge amount capital in a firm whichremains idle for longer period & gives no return to the business.
  9. 9. 1.5 METHODOLOGY OF THE STUDY1.5.1. TYPE OF RESEARCHThis thesis “A Study on Working Capital Management & Profitability Analysis ofUsha Martin Ltd” is an analytical research.Analytical Research is defined as the research in which, researcher has to use facts orinformation already available, and analyze these to make a critical evaluation of thefacts, figures, data or material.The thesis includes finding of primary data and secondary data. It includes surveys andfact-finding enquiries. So, the project basically covers description of state of affairs, as itexists at present. Here in this case, the researcher does not have control over thevariables. Here, the job done as a researcher is to use the facts and information alreadyavailable. The research is done with the aid of the annual reports, the companydatabase textbooks and the observation and interaction being the only source ofprimary data whatever is used. The same set of information is analyzed to make thecritical evaluation of the material.With the given nature of research this is an analytical type of research wherein theanalysis of the existing set of affairs are used to arrive the effect of working capitalmanagement on the return and profitability of the company.
  10. 10. 1.5.2. INSTRUMENTATION TECHNIQUES The techniques used for the collections of the financial statements, data and other information as follows. The primary data were collected by interaction and observation. The secondary data were collected from the published annual reports, budgeted manuals and the audited balance sheet and profit and loss account, database of the company. 1.5.3. ACTUAL COLLECTION OF DATA The thesis makes use of both the primary as well as secondary data. Primary data were collected by observation and interaction. In the course of time, the finance manager and his executives, the purchase manager and his executives and the store manager and his executives provided very appreciable co-operation during the interaction. As for the secondary data, the various published materials were used along with the database. The annual reports, fact-sheets, budgeted manuals and the audited balance sheet and profit and loss account, accounting and financial database of the company. 1.5.4. TOOLS USED FOR ANALYSIS OF DATA The data were analyzed using the following financial tools and techniques · Ratio analysis · ABC analysis
  11. 11. · Statement of changes in working capital1.5.5. OTHER SOFTWARE USED FOR DATA ANALYSIS The application software used for the typing of data, analysis of data, and presentations of different charts, tables, graphs etc is Microsoft Word and Excel. MS Excel made a very handy tool for the analysis of the data. It was rigorously made use of during the calculation and comparisons among the data, graphical and tabular presentation, calculation of various ratios, their analysis 1.6. LIMITATION OF THE STUDY • The analysis is limited to just 4 years. The study conducted deals only with impact of working capital on profitability without taking into consideration the risk I involved.
  12. 12. • The study conducted throws light only on the impact of working capital on a minuscule part of strategic management namely EVA.• The figures and facts claimed in the annual reports and in other forms are taken a .
  13. 13. Chapter -2 Literature ReviewREVIEW OF LITERATURESam DCosta wrote an article “Working Capital – a Tool to Judge your Company’sEfficiency” on the subject ofThe most repeated maxim amongst financial managers is "Cash is the lifeblood ofbusiness". A business owner always look that his cash flow to business is smooth and
  14. 14. use it for generating profit. When a business is running smoothly and taking in profit,then it will undoubtedly have cash surpluses. If your business does not have cashsurplus, expect to go out of the business.1. Cash Flow forecasting is what working capital management is all about. Your forecastshould include factors like fluctuating market cycles, unforeseen events, loss ofcustomers and your competitors strategy. Also, unforeseen demands and its effect onyour business all need to be factored in.2. There is nothing wrong with putting together a contingency plans just in case ofunexpected events. Its true that market leaders manage uncertainty much better than inyears past, but you really should have risk management procedures for your companyas insurance.Steve Bush wrote an article “Commercial Loans and Working Capital FinancingSpecial Reports” on the subject ofA prudent approach to working capital management is becoming more difficult for mostcommercial borrowers. Commercial loans have always been more complicated thanrealized by most business owners. Recent financing difficulties involving commercialmortgages, SBA loans and business cash advances have added significantly to thecomplexity of the entire commercial lending process.This article will provide a brief overview describing some of the business financingresources which should be thoroughly evaluated by commercial borrowers as part oftheir prudent approach to successful working capital funding. All of the recommendedsources are free and available online. Business owners should contact the authordirectly or use one of the leading internet search engines to locate the most appropriate
  15. 15. sites.Jamie Liddell wrote a article “Making the Link Between P2P and Working Capitalto Create a Robust Governance Framework” on the subjectofHow changes made to cope with adversity can prove advantageous in other areas ofthe organization. One of the lesser-trumpeted consequences of the credit crunch hasbeen a renewed (and some might say long overdue) attention paid to working capitalmanagement: with liquidity the watchword organizations have been scrambling torelease potentially significant sums tied up in their P2P and O2C processes, with everysaving going some distance to staving off a potentially business-critical shortage ofcash. But while the short-term benefits of such new-found C-level interest in suchprocesses can be summed up by the bottom line, longer-term the ramifications could bea lot more profound – and positive – thanks to the enhanced governance frameworksresulting from companies increased attention to detail.Stephen Bush wrote a article “Commercial Loan Help for Avoiding ProblemWorking Capital Lenders” on the subject ofAvoiding critical problems is vital for a small business owner seeking help withcommercial loans. Successful working capital management especially requires thatproblem lenders be avoided for business loans and commercial mortgage financing.One of the most serious commercial loan situations is a small business commerciallender that causes problems for their commercial borrowers on a repeating basis.Commercial borrowers should be prepared to avoid certain problematic commercial
  16. 16. lenders unless alternative working capital loan options are impossible.This article will not name specific lenders to avoid. However, we will describe theimportance of avoiding "problem commercial lenders". Key examples will be provided toillustrate why prudent commercial borrowers should be prepared to avoid a wide varietyof existing commercial lenders when seeking viable commercial mortgage and smallbusiness financing strategies.Suzanne wrote a article “Working Capital: the Life Blood of Business” on the subject ofSuccessful business thrives on smooth cash flow. This is no jargon but a simple truth oftrepeated and realized by the financial managers around. The top priority of any smallbusiness is to stay solvent and ensure the availability of adequate working capital. Thiscapital is utilized for the payment of rent, payroll, and other operating costs as isinvolved in the various stages of production and services. Irrespective of the success ofany business, there is always a possibility of scarcity of funds on account of someunexpected circumstances. Herein arises the need for securing adequate fund tomanage all your business obligations and provide enough financial security for thefuture as well.Lack of adequate expendable cash makes it difficult for an organization to meet day-to-day expenses. Since businesses always run the risk of unexpected expenses, itbecomes even more important to secure some fund in order to avoid unpleasantcircumstances
  17. 17. Stephen Bush wrote an article “Working Capital Financing Success with Realistic Choices”on the subject of Being realistic when seeking new working capital financing andcommercial loans should be a key goal for all commercial borrowers. Business ownersshould be prepared to encounter stark changes impacting most business financing andworking capital loans. Although it is very likely that either the terms or kind of financingwill be different from previous commercial financing arrangements, with properpreparation most business owners will still be able to obtain new financing despite thesenew and difficult challenges.In view of volatile conditions which have recently impacted credit markets, this will notbe a simple task. The extensive misinformation and confusion that there has been aboutbusiness financing and working capital availability illustrates a common example of theproblem. One of the most difficult challenges for commercial borrowers is obtainingmore accurate information about what is realistically possible.Terry H. Hill wrote an article “Making Your Working Capital Work” on the subject ofThe more rapidly that your business expands, the greater the need for working capitalbecomes. If you have insufficient working capital – the money necessary to keep yourbusiness Functioning – your enterprise is doomed to fail. Many businesses, that are profitableon-paper, are forced to "close their doors" due to their inability to meet short-term debtswhen they come due. However, by implementing sound working capital managementstrategies, your enterprise can flourish; in other words, your assets are working for you!
  18. 18. At one time or another, most businesses have the need to borrow money in order tofinance their growth. The ability to obtain a loan is based on the credit worthiness of abusiness. The two major factors that determine credit worthiness are the existence andextent of collateral and the liquidity of the business. Your companys balance sheet isused to assess both of these factors. On your balance sheet, working capitalrepresents the difference between current assets and current liabilities — the capitalthat you currently have to finance operations.Stephen Bush wrote a article “Avoid Key Credit Card Processing and WorkingCapital Mistakes” the subject ofAlthough it will not be easy, avoiding key credit card processing and business cashadvance mistakes is likely to eliminate business finance problems that often havedisastrous consequences. The use of proper precautions is likely to produce improvedworking capital management results.In our experience, the potential difficulties involving factors discussed below are moreserious and common than most business owners expect. While we will not beaddressing all possible merchant cash advance and working capital loan mistakes inthis article, we will include several of the most severe issues to anticipate.The immediate impact is a sudden influx of inexperienced residential mortgage brokersand lenders attempting to provide working capital management advice for credit cardprocessing and business cash advance services. As we have written about extensively,business financing is infinitely more complex than residential financing.
  19. 19. GAUTAM KOPPALA wrote a article “Working Capital from Pome by Gautam Koppala”on the subject ofThe management of short-term assets, also known as working capital assets, is a very,very important management function. As we will see, mismanagement of these assets,particularly inventories and accounts receivable, can consume resources that wouldotherwise be used to support and strengthen the business. It is important to recognizethat management of these assets is a comprehensive function. One cannot focus ononly one of these asset categories at a time.We will also see that there is a direct relationship between the management of short-term assets and the management of short-term liabilities. As we noted earlier, financialtransactions that affect one part of the Balance Sheet ultimately affect another part,because the Balance Sheet always balances. Understanding the other side of theBalance Sheet effect helps us understand the impact of management actionsSteve Bush wrote a article “Working Capital Loans and How to Avoid FakeArticles” on the subject ofIn a recent commercial loan report, we described the increasing use of fake articlesabout working capital loans on a variety of internet sites. In our prior AEX CommercialFinancing article, we provided two practical strategies to avoid the publishers of fictitiousinformation concerning commercial mortgages and other business financing. To avoidrepetition, please contact us directly regarding recommendations which were previouslydiscussed. In the current report we will provide more detailed suggestions for avoiding
  20. 20. this growing problem.The use of reputable publication sites is an effective and important way to avoid fakearticles about business cash advances and commercial real estate loans. Such sites willemploy their best efforts to eliminate articles for which the author does not haveownership rights. These responsible and high-quality sites will require review of articlesby a human editor prior to publicationSteve Selengut wrote an article “Investment Performance Analysis Using theWorking Capital Asset Allocation Model”2008 on the subject ofThe use of Issue Breadth and 52-week High/Low statistics for navigating the sea ofuncertainty, and Peak-to-Peak interest rate and market cycle analysis are much moreuseful as performance expectation barometers than the DJIA was ever meant to be.When did it become vogue to think of Investment Portfolios as sprinters in a twelve-month race with a nebulous array of indices and averages? Why are the Masters of theUniverse rolling on the floor in laughter? They can visualize your annual performanceagitation ritual producing fee generating transactions in all conceivable directions. Anunhappy investor is Wall Streets best friend, and by emphasizing short-term results in asuper bowlesque environment, they guarantee that the vast majority of investors will beunhappy about something, all of the time.Your portfolio should be as unique as you are, and I contend that a portfolio of individualsecurities rather than a shopping cart full of one-size-fits-all consumer products is mucheasier to understand and to manage. You just need to focus on two longer-range
  21. 21. objectives: (1) Growing productive Working Capital, and (2) Increasing Base Income.Neither objective is directly related to the market averages, interest rate movements, orthe calendar year.Alfred Anderson wrote an article “Manage Working Capital With Cash Advance” 2006 onthe subject ofThe success of an organization depends on how effectively its working capital ismanaged. Day to day operational expenses pertaining to advertising, salaries, rent etc.needs to be met on a regular basis and thus proper management of working capital isessential. Managing working capital typically refers to strategies being implemented tomaintain the requisite amount of operating liquidity on a day to day basis. This involvesmanagement of a company’s short term assets and liabilities to ensure sufficient cashflow to satisfy short term debt and other operational expenses.Working capital decisions are short term which is based on cash flows and profitabilityof a business. Hence measurement and estimation of the profitability is vital. Cash flowscan be measured with the help of cash conversion cycle i.e. the time required to convertraw materials into finished products which is then converted into sales.Michael Koslow wrote a book “Your Success: It’s All About Working Capital Strategy” onthe subject of
  22. 22. This area of finance allows companies to obtain working capital for their business byreleasing liquidity tied up in assets. Asset-based lending is growing faster than generallending because it is generally less risky, according to Paul Hancock, a managingdirector in asset-based lending at JPMorgan, as told to The Financial Times."Both the securitization and traditional leveraged loan markets have been significantlyless active, and businesses are increasingly considering alternatives for their fundingneeds," Hancock says. "In times of economic uncertainty and earnings volatility,companies can sometimes find it easier to manage their finances with their balancesheet rather than earnings or cash flow covenants."James Leong wrote a book “Managing Working Capital” on the subject ofAccounting defines working capital as Current Assets less Current Liabilities. It is alsoknown as Net Current Assets. Current assets are those which are considered liquid andare convertible or expected to be realizable in cash within a period of 12 months fromthe date of the financial report. Common examples include cash, inventories, accountsreceivables, prepayments and marketable securities. Current liabilities are those whichare expected to be repaid within a period of 12 months. Examples include bankoverdraft, short term borrowings, accounts payables and accrued expenses.Operationally, working capital indicates the ability of the company to finance its currentoperations and to meet obligations when they mature. It measures the companys abilityto pay daily bills from a liquiditystandpoint.
  23. 23. Peter Kennedy wrote a article “Government bond Markets: Shaw CapitalManagement February Newsletter” on the subject ofShaw Capital Management Korea February Newsletter: There was always the risk thatthe funding requirements resulting from recent policies, and particularly from themeasures to counter the latest recession, would prove to be a massive burden for theglobal bond markets, and this has now proved to be the case. The Dubai governmentappears to have been rescued by help from Abu Dhabi; but it is still not clear whetherthere will be help for Greece and other periphery countries of the euro-zone that are indifficulties, and doubts have also been expressed about countries outside the euro-zone, including the UK, if central banks do not implement "exit strategies" carefully, andcredible plans to reduce the massive fiscal deficits are not introduced fairly quickly.Capital Management Korea February Newsletter: Debt issuance rose to over $2 trillionin 2009 to finance this deficit, and to replace maturing bonds; and the latest decision totake advantage of the unexpected windfall from the repayment of bank bail-out fundsthat are no longer needed to provide new resources for job creation is a clear indicationthat there are no plans to take early action to reduce the deficit.Marciano Guerrero wrote a article “Working Capital And Current Ratio - 2 UsefulMeasures Of Liquidity And Solvency” on the subject ofThe Balance Sheet is one of the four required financial statements that accountantsprepare for business owners and managers. This statement shows the assets, liabilities,and the owners equity (capital).
  24. 24. The balance sheet is a reflection of the Accounting Equation (Assets = Liabilities +Owners Equity). The accounting equation is a simple-minded equality. It informs thereader of the balance sheet to whom the assets (left side of the equation) belong: thecreditors (liabilities) and the owner (owners equity).So, in all businesses, the two parties that can claim ownership of the assets arecreditors and the owner. And in the case of a corporation the owner will be many andare called shareholders.Stan Prokop wrote a article “How Does My DSO Affect Cash Flow and WorkingCapital” on the subject ofMost business owners and financial managers know the importance of their investmentin accounts receivable. The method by which the largest corporations in the world, anda small company measure collection activity, is called DSO, or ‘Collection Period ‘. DSOstands for DAILY SALES OUTSTANDINGBusiness owners can calculate this number very quickly, and we recommend it be doneregularly, typically monthly, quarterly, and certainly annually. It’s a great businessmeasurement of your success, and lenders also focus in on this number also.We point out that the DSO calculation is a reflection of one point in time – that’s why it isimportant to monitor the overall trend of DSO on a longer term basis. Naturally all goodbusinesses age their receivables, so they know how old they are and focus on past dueaccounts.Jeff Bross wrote an article “Accounts Receivable Factoring Can Be A PowerfulWorking Capital Tool” on the subject of
  25. 25. The way factoring receivables works is the factoring company (factor), provides cash foryour invoices after you invoice your customers. Many factoring companies use the termpurchase your receivables, but in reality they are really just advancing funds againstyour receivables as the primary collateral for the transaction. True no recourse factoringis not very common these days as most companies that need factoring do not want afactor calling customers for collections and payments. So if the factor sets yourdiscount fee at 2.5%, the factor keeps 2.5% of the invoice total as their fee for providingthe funds immediately. Most factoring companies will advance 80% to 90% of the totalup front, and then provide your business the remaining amount 20% to 10%, less yourdiscount fee, once the invoice is paid by your customer.You are normally given up to 90 days for payment to arrive and if the payment does notarrive the factor will come back you for collection. Its important to keep in mind thattodays factoring is mostly full recourse so you will need to manage the relationship withyour customers and make sure payments still arrive within a reasonable time period.DR.R.SRINIVASAN wrote a article “WORKING CAPITAL FINANCING –BOON TOBUSINESS” on the subject ofIt is widely accepted that every successful business must have a strong working capitalposition. It is in this context; an attempt was made to explain the concept and variousdeterminative factors influencing net current assets below:Gross working capital refers to working capital as the total of current assets. That is tosay, Gross working capital = Total current assets.
  26. 26. Net working capital refers to working capital as excess of current assets over currentliabilities. In other words net working capital refers to current assets financed by longterm funds or capital employed of the business.Accordingly, Net working capital = Current assets – Current liabilitiesThe net working capital position of the firm is an imperative contemplation, as this willdetermine the firm’s profitability and risk. Here the profitability refers to profits afterexpenses and risk refers to the probability that a firm will become technically insolventwhere it will be unable to meet obligations when they become due for payment.Steve Jones wrote an article “Finance for Working Capital - Bank Overdrafts”2004on thesubject ofThis is the most common form of finance used to fund working capital and the one withwhich most business owners are familiar. This is where the bank account is allowed togo overdrawn up to a pre-agreed limit.Overdrafts are straightforward to arrange and are provided by most banks. The limit willbe set at a figure appropriate for the business and at a level where the bank considersthe risk to be acceptable. The actual amount available will therefore vary significantlyfrom business to business. Security may or may not be required A rapidly expandingbusiness could easily out grow its overdraft facility and find itself constantly close to theagreed borrowing limit. As there will always be a finite amount of money
  27. 27. that a lender can provide, this in itself may be a restricting factor in the growth of thebusiness. In this situation it will be necessary to consider and explore other types offinance.Stan Prokop wrote a article “How Do Banks Exert Control And Influence OnBusiness Loan And Working Capital Facilities “2010-06-17 on the subject ofThis is because when a customer has to service the additional non- bank debt theymight be unable to service the banks loans. Banks have very well known and publishedcash flow ration and they want to ensure their customers can meet these rations on thebank debt. Naturally if a bank feels comfortable with a customer growth and cash flowprofits they are much more likely to approve a third party financing . If they aren’tcomfortable they may ask the company to at lease temporarily defer bonuses,dividends, or, in the case of a public company, a stock repurchase.Bankers of course usually know the company very well, as a relationship and financialhistory has developed over the years. They will often want to have input into thecompany’s growth direction in an effort to ensure the customer is not going down a paththat in their opinion, might lead to liquidity loss or profitability lossJackie Johnson wrote a article “How Accounts Receivable Factoring Can SolveYour Working Capital Issues”2008 on the subject of
  28. 28. The beauty of using this cash flow tool comes in the simplicity of it all. They purchase aninvoice from you at a rate that is discounted from the true invoice value. This discountallows them to make a profit when the original customer settles the invoice, which istheir motivation for engaging in the transaction. The benefit for selling the invoice comesin receiving the money immediately, which can negate any potential difficulty that maybe arising from a lack of cash flow. Again, using the skills and knowledge of companieswho perform accounts receivable factoring services can ensure the liquidity of manyfirms, even in the most troublesome of times.The firm who sells the invoice may be the one who benefits the most but it is clear thatthe factor is doing a great level of business too. If they have enough cash to cater fortheir own short term needs as well as having money left over, it makes sense to havethis excess money working for them. The guaranteed profit that arises from the discountapplied to the invoice rate ensures the firm will receive more money in the future, whichcan help a business plan ahead.Jason Hulott wrote a article “Short term Business Loans: Feasible way to raiseworking capital”2005on the subject ofWith assist of short term business loans people can avail easy case for any of theirbusiness and other purposes. It may include anything like pay off salary & wages ofemployees, business promotional expenses, purchasing a land for office premises,paying due taxes, buying new machinery, and advertisement expenses, office interiorexpenses etc. There is no restriction over the usage of loan amount.
  29. 29. These loans are unsecured in nature that avails you money in the ranges of £1000 to£25000 for the term period of 1 to 10 years. You may have complete freedom to selectthe amount range as per your convenience and repaying capability. You can avail thisloan facility at any stage of your business. But, keep in mind that never make delays inpayment as it cause high penalty charges. Plus, timely repayment of money can alsoassist you in strengthen your financial position.Terry Cartwright wrote a article “Cash Flow Management of Debtors AndCreditors In A Credit Crunch” on the subject ofThe objective is to obtain payment from customers as fast as possible improving cashflow and minimizing the risk of bad debts and not being paid at all.Payment terms offered to customers should be clearly stated and fixed as standardaccounting figures according to the amount of funding the business is prepared to offerits clients. Because that is exactly what credit terms to customers is, free cash fundingin exchange for eventual sales income.Consideration should be given to using a cash discount system to encourage salesinvoices to be paid faster. In some businesses it would be appropriate to obtain up frontdeposits and scheduled payments. Review this practise to obtain a greater proportion ofpayments faster to improve liquidity.American Journal of Business on An Analysis of Working Capital ManagementResults across IndustriesFirms are able to reduce financing costs and/or increase the funds available forexpansion by minimizing the amount of funds tied up in current assets. We provide
  30. 30. insights into the performance of surveyed firms across key components of workingcapital management by using the CFO magazines annual Working Capital ManagementSurvey. We discover that significant differences exist between industries in workingcapital measures across time. In addition, we discover that these measures for workingcapital change significantly within industries across time.The IUP Journal of Accounting Research and Audit Practices on Inventory andworking capital Management: An Empirical AnalysisThe working capital management refers to the management of working capital, orprecisely to the management of current assets. A firm’s working capital consists of itsinvestments in current assets, which includes short-term assets—cash and bankbalance, inventories, receivable and marketable securities. Therefore, the workingcapital management refers to the management of the levels of all these individualcurrent assets. On the other hand, inventory, which is one of the important elements ofcurrent assets, reflects the investment of a firm’s fund. Hence, it is necessary toefficiently manage inventories in order to avoid unnecessary investments. A firm, whichneglects the management of inventories, will have to face serious problems relating tolong-term profitability and may fail to survive. With the help of better inventorymanagement, a firm can reduce the levels of inventories to a considerable degree e.g.,10 to 20% without any adverse effect on production and sales.European Financial Management, on International working capital practices in theUK
  31. 31. A new order depletes that inventory significantly. Although payments from Medicare andother carriers may lag, expenses including loan repayment, must be paid and inventoryreplenished. However, additional credit is not available until the existing line has beenrepaid. Consequently, unless you have established a credit line sufficient to meet thecash flow requirements you might need in the future, loans won’t work because they donot fluctuate with your revenue cycle or expand with your growthJournal of International Business Studies on An International Study ofManagement Perceptions of the working capital ProcessWorking capital literature is rather limited and the process of managing short‐termresources is not understood well by he academicians. In contrast the corporatemanagers are continuously involved in the working capital decision-making process, buttheir perspective is limited to the practice of their firm. In order to fill this gap in theworking capital literature, a study of management perceptions of the working capitalprocess was undertaken. A survey was used to collect the information from the sampleof marketing, production, and financial executives in large corporations in Belgium,France, India and United States. The study intercepts management ranking of workingcapital objectives and indicates the need to improve finacial planning models to includeexplicitly short–run objectives; further, predictability of cash inflows and outflows isexamined and the potential factors affecting the predictability are evaluated
  32. 32. Studies in Agricultural Economics on The interpretation of ccc and its elements,working capital managementThose literary sources, which are about the interpretation of the working capital in acontext with the financing strategies of the companies, about the related financialindices, and the counting methodological questions of all these, could not be calledpoor, nor unified. The deficiency of defining the concepts that give the theoretical basisand their vocational tenability, the controversial interpretation and the unclearness of therelated methodological questions creates several problems. The problematic conceptsare working capital net working capital, the circulation of current assets and workingcapital management etc. The root of the problems could be found on the other hand inthe unclearness of the theoretical contexts, in the deficiency and vocational tenability ofthe defining of the related concepts and categories. We define the concepts of workingcapital, net working capital based on the results of our several years of research work.30Journal of Business Finance & Accounting on Does working capitalManagement Affect Profitability of Belgian FirmsThe relation between working capital management and corporate profitablity isinvestigated for a sample of 1,009 large Belgian non-financial firms for the 1992-1996period. Trade credit policy and inventory policy are measured by number of daysaccounts receivable, accounts payable and inventories, and the cash conversion cycleis used as a comprehensive measure of working capital management. The resultssuggest that managers can increase corporate profitability by reducing the number ofdays accounts receivable and inventories. Less profitable firms wait longer to pay theirbills.
  33. 33. 31Policy Research working Paper Series on Why liberalization alone has notimproved agricultural productivity in Zambia: the role of asset ownership andworking capital constraintsThe authors use a large panel data set from Zambia to examine factors that couldexplain the relatively lackluster performance of the countrys agricultural sector afterliberalization. Zambias liberalization significantly opened the economy but failed to alterthe structure of production or helps realize efficiency gains. They reach two mainconclusions. First, not owning productive assets (in Zambia, draft animals andimplements) limits improvements in agricultural productivity and household welfare.Owning oxen increases income directly, allows farmers to till their fields efficiently whenrain is delayed, increases the area cultivated, and improves access to credit andfertilizer markets. Second, the authors reject the hypothesis that the application offertilizer is unprofitable because of high input prices. Rather, fertilizer use appears tohave declined because of constraints on supplies, which government interventionexacerbated instead of alleviating.32PR NEWSWIRE , Published a article on the subject of Equity IndexedAnnuities have a place in many peoples retirement accounts. Unfortunately, theyarent as well known as variable or fixed annuities and customers and sales reps oftenoverlook them because of lack of awareness. Equity indexed annuities provide amethod of fighting inflation, participating in the market and still remaining risk free.Equity indexed annuities are a blend of the fixed annuity and the variable annuity. Theyoffer a base interest rate the company guarantees regardless of market conditions. In
  34. 34. this way, theyre much like the fixed annuity. They also track a specific equity index,such as the S&P 500, and give a percentage of the growth to the policyholder if themarket increases. The percentage varies from policy to policy.There are difference in the percentage you receive and differences in caps. A cap onthe percentage is the highest amount the policyholder gets regardless of the marketconditions. Sometimes caps are as low as 8 to 10 percentPR Newswire published a article . on the subject of Ten papers present recentresearch in the field of financial planning and forecasting. Journal of EconomicLiterature.An Empirical Examination of The Intraday Return Volatility Process (S.Rahman, K.P. Ang). The Valuation of New Product Introduction UnderUncertain Competition: A Real Option Approach (S.-S. Chen, et al.). Earnings,Dividends, and Equity Value of Multinational Firms (A. Riah-Belkaoui).Benfords Law and Its Application in Financial Fraud Detection (K. Kumar, S.Bhattacharya). Estimation of the Degree of Integration in the U.S. MaturityRates Using Semi parametric Techniques (L. Gil-Alana). On Country-FundPrice Behavior-An Empirical Analysis of Co integrating Factors (T. Chiang, D.Kim). Strategic Capital Budgeting: the Abandonment Option with Political Risk(E. Clark). Time Series Model Complexity and Firm Valuation: the Case of AR1Firms Versus Non-AR1 Firms (B.-H. Bao, D.-H. Bao). Debt Covenant Violationand the Value Relevance of Accounting Information (W. Cready, et al.). Whats
  35. 35. Next: Merger in the Lebanese Banking Sector (A. Charbaji). PR Newswire published a article on the subject of Usually owning to the fact that the debtor has a regular and consistent job, you as the judgment recovery specialist can garnish the wages relatively quickly, in such a way that the debtor is able to sustain his lifestyle at the same time is able to pay the judgment amount, provided that there no other garnishments with a higher priority than yours, levied on him. However, there is a high possibility of the debtor quitting his job, right after he is served with the wage garnishment notice. If, in case, this happens its back to square one for you, as judgment recovery professional. Generally, debtors or defendants who fend for themselves and have a home based business; it becomes excessively harder for the judgment recovery specialist to recover the judgment owed. When such a case arises, special tools like an assignment order of third party levies are used by the judgment recovery specialist. These will be discussed at length in other articles on judgment recovery, once I am done with them.Infiniti Research Limited, published a article on the subject of
  36. 36. The reputed Las Vegas financial planners can perform proper analysis and make properrecommendations on every major asset class. They not only make recommendationsdepending on the bonds and stocks but also on several other aspects. These plannersinclude the natural resources, commodities, currencies and real estates. Theexperienced planners know how these investments would be taxed. They candetermine the way in which they are to be used within investment portfolio for achievingthe long term as well as the short term goal of their clients.A person who wants to get the best wealth management should contact a private wealthmanager than contacting the retail brokerage firms. The private wealth managementfirms have a financial team and make sure that all investments have a properconsistency. They provide the planning through the account of his lawyer or his client.These firms coordinate all wealth of a person as they consider coordinated approach asthe best approach for financial services.Decision Resources, , Pages: 23 publised a article on the subject ofThe Federal Reserve can control interest rates by expanding or contracting the quantityof money. It can control the financial markets with its “Open Market Operations.” It cancreate new money to increase its members bank reserves at any time. It can negotiatewith foreign banks on monetary policies without congressional approval or knowledge.And it can do all of this with virtually no oversight by any elected representative of thepeople. Even the Government Accounting Office responsible for auditing all governmentagencies, has no auditing authority over the Federal Reserve, a private corporation nota government agency
  37. 37. Without the ability to judge the cost of capital by the true market value of interest rates,determined by the availability of savings for investing and future consumption, no freemarket can correctly judge its financial health. These false signals along withgovernment regulations are what create booms and busts in our economy, not freemarket actions. Espicom Business Intelligence Ltd, May , published a article on the subject of The core idea of retirement planning is to save enough money for your old age days and a smart investment plan made by a financial consultant will also be able to ensure that your old age is the golden period of your life financially. Property is one of the biggest assets you can have financially and making good money out of investments and savings is possible by employing independent broker dealers that can guide you to converting your property into an investment that delivers high returns. Investing in the right insurance policies can also save your money efficiently especially in areas like auto insurance or health insurance where without a good insurance a lot of your money might get spent for the smallest hiccups in your personal health. Wealth is the one language that everyone understands across the world and maintaining this wealth is essential if you want yourself to have an open communication with a good life.
  38. 38. Report from the India Press Release brought to you by the Hindustan TimesMUMBAI, India, -The Bombay Stock Exchange of India made the following corporate announcement:Ranbaxy Laboratories Ltd., has informed BSE that Basics GmbH (Basics) based inLeverkusen Germany, a wholly owned subsidiary of the Company on February 13,2007, has announced that the Companys products has been selected by 16 AllgemeineOrtskrankenkassen (AOK), Germanys largest General Local Health Insurance, forlisting. Basics/Ranbaxy is the only Indian Company in the AOK list. This newagreement, listing specific products, is the first of its kind.The Star (South Africa) published a article on the subject of In 1933, by ExecutiveOrder of the President (FDR), all Americans were required to surrender their gold to thegovernment. This took away our right to trade in the most respected of all possiblecommodities used to secure value in our economic exchanges. Not only did governmentconfiscate our gold, they also prohibited redemption of U.S. Dollars for gold by anyAmerican. Of course, the international bankers were still allowed to exchange dollars forgold. Now you know where our gold went. FDR pulled the plug on value-backed moneyfor American enterprise, dooming free market capitalism to a slow and painful death.In 1971, President Nixon reneged on the “Breton Woods Accord” removing theinternational gold redemption for the U.S. dollar. Unfortunately, it was too late. It isprobable that the international bankers already own most of what was our countrysgold. No longer would our dollars be backed by anything other than our central bankersand governments “Good Faith.” No free market can exist without the right to exchangeproductive value for productive value.
  39. 39. Ankit Agarwal on January published a article in Finance Friday on the subjectofIts a new year and a economically promising one at that. However, the stock marketshave been playing a see-saw ride for some time now with no major fluctuations.SectoralInvesting has lost its flavor for some time now but analyzing a particular sector still helpsone shortlist the stocks to invest in. Recently, we had covered a discussion on the ITSector’s position in the Stock Market. One other sector that looks set for some realaction is the HealthCare sector. The Health Care sector picked up some real peaceduring the last year after March where the BSE HealthCare dropped to its maximumlow(CY 09) and from then on, it has been only an uphill journey. A look at the charts ofthe BSE Healthcare index is a good indicator of the good run the Healthcare basedstocks have had in the Indian Stock Markets.Cheng F. Lee November Wrote a book “Advances in financial planning andforecasting, Volume 11” on the subject ofThis paper presents a comprehensive analysis of the distributional and time-seriesproperties of intraday returns. The purpose is to determine whether a GARCH modelthat allows for time variance in a process can adequately represent intraday returnvolatility.This paper investigates how a stochastic competition process in a two-factor real optionmodel could affect the value of future product development opportunities. Our resultsalso indicate that product development opportunities are more valuable
  40. 40. This paper develops and tests a valuation model, whose main prediction is that equityvalue is a function of earnings, dividends and book value, where the function dependson the relative level of multi nationality.This paper has discussed Bedford’s law, which explains that the leading (first orleftmost) digit in a series of natural numbers is not evenly distributed among the digits 1to 9. The main purpose of this study actually seeks to explore a new methodologicalapproach to data mining that can be of some real practical value; especially to theauditors and forensic accountants in detecting financial frauds.Alice C. Lee, John C. Lee, Cheng F. Lee Wrote a book “Financial analysis,planning & forecasting: theory and application” on the subject ofBased on the authors extensive teaching, research and business experiences, thisbook reviews, discusses and integrates both theoretical and practical aspects offinancial planning and forecasting. The book is divided into six parts: Information andMethodology for Financial Analysis, Alternative Finance Theories and Their Application,Capital Budgeting and Leasing Decisions, Corporate Policies and TheirInterrelationships, Short-term Financial Decisions, Financial Planning and Forecasting,and Overview. The theories used in this book are pre-Modigliani Miller Theorem,Modigliani Miller Theorem, Capital Asset Pricing Model and Arbitrage Pricing Theory,and Option Pricing Theory. The interrelationships among these theories are carefullyanalyzed. Meaningful real-world examples of using these theories are discussed step-by-step, with relevant data and methodology.Sue Nugus Wrote a book “Financial planning using Excel: forecastingplanning and budgeting techniques”on the subject of
  41. 41. This book covers all aspects of budget preparation, from designing and creating abudgetary control system, consolidating data and working with spreadsheets.Now fully updated to include the latest version of Excel, Excel 2007 and for easybudgeting now with access to an online resource of worked examples and spreadsheettemplates. The book shows how things are done in Excel 2003 and Excel 2007 to easetransition from the previous version to the new version. Now in full colour throughout toaid quick understanding through numerous color screen shots.For those who use Excel on a daily basis in budget planning, this book is a must. Itcontains a wealth of practical examples, tips, new techniques all designed to helpquickly exploit and master Excel to its full advantage and therefore use spreadsheets formore effective management accounting in your firm.
  42. 42. Chapter 3 Company profileOf usha martin
  43. 43. COMPANY PROFILE3.1. EXECUTIVE SUMMARYStarted in 1961 in Ranchi, Jharkhand as a wire, rope manufacturing company, today theUsha Martin Group is an Rs.3000 Crore conglomerate with a global presence. Thegroup has set new standards in the manufacture of wire rope, bright bars, steel wires,specialty wires, wire ropes, strand, conveyor cord, wire drawing and cablemachinery. With continuous growth in both the domestic and international markets,Usha Martin, the Group’s flagship company has emerged as India’s largest and theworld’s second largest steel wire rope manufacturer.For Usha Martin, the path to sustainable growth was long; the management constantlytried out innovative business practices. With initiative to diversify the customer base byventuring into the international markets, moving up the value chain and fully integratingits business process to maximize stakeholder value.
  44. 44. In 1979, the company set up a steel plant with wire rod rolling mill at Jamshedpur, tobenefit from business integration. This ensured a steady supply of steel for themanufacture of value added products. Today, the Jamshedpur unit has a trulyintegrated specialty steel manufacturing facility of 400,000 MT per annum. Out ofwhich, about 50% is consumed internally by its plant in Ranchi, Hoshiarpur & Bangkok,producing steel wire, steel strand, steel cords, bright bar and steel wire ropes. All itsmanufacturing facilities are ISO 9000 certified and the steel plant was India’s first toreceive the TPM Excellence Award from JIPM, Japan.With local success come global aspirations. Currently, the company has overseasmanufacturing operations in Thailand, UK, USA and Dubai. Besides a vast network ofdistribution centres and marketing offices spread across the globe to support an evergrowing worldwide customer base. The company exports over 60% of the wire ropeoutput and about 20% of the total wire rods produced.Usha Martin’s future plans are focused on its operation in Jharkhand – a state rich inmineral resources. Future priorities include product mix enrichment, cost reduction andinfrastructural improvements. Already flourishing in its recent foray into miningoperations, the company is planning to invest in its iron ore and coal mines, sinter plant,pellet plant, power plants, while also enhancing its steelmaking and value added products capacity with an investment of Rs.2,100 crore. Whatset Usha Martin apart is its unwavering commitment to social responsibility. For overthree decades the company has invested ample man-hours and capital on communitydevelopment projects for integrated prosperity in rural Jharkhand, through a CSR arm,Krishi Gram Vikas Kendra (KGVK).
  45. 45. This NGO undertakes various development initiatives, following a model of Total VillageManagement (TVM). Focusing on key areas like Watershed development, agriculturalproductivity, better health practices and education, empowering women andencouraging micro enterprise. In recognition to its effort Usha Martin has been awardedthe prestigious TERI Award for Corporate Social Responsibility in 2006.Today Usha Martin is the only company globally having an integrated model on theupstream, beginning with iron ore and coal mining, power generationand going down todeep sea oil and gas exploration, providing anchoring and mooring solutions.3.2. HISTORICAL BACKGROUND:Mr. B.K. Jhawar, the Chairman, established Usha Martin Limited in 1960 with the WireRopes Plant, Ranchi. The firm was initially called Usha Martin Black as it started with
  46. 46. collaboration between M/S Martin Black, Scotland and Usha Automobile & EngineeringPvt. Ltd., Calcutta in 1960.1960 - The Company was incorporated as Usha Martin Black (Wire Ropes) limitedhaving its wire rope plant at Ranchi. The name was changed to Usha Martin Black Ltd.in 1979 and further changed to Usha Martin Industries Ltd. (UMIL) in 1983.1965 - UMIL promoted Usha Ismal Ltd. (UIL) in collaboration with CCL Systems Ltd ofUK for the manufacture of fittings and accessories, equipment for pre-stressed concretesystem, wire ropes and wire ropes splicing equipment at Ranchi. UIL merged with UMILin 1990 and became a division of the company.1969- It backed Usha Breco Ltd. To design, construct and erect Ropeways.1971 - UMIL promoted Usha Alloy Steels Limited (UASL) for the manufacture of billetsat Jamshedpur. UASL merged with UMIL in 1988.1975 - UASL acquired an ongoing rolling mill at Agra.1975 - UMIL set up its Machinery Division at Bangalore for the manufacture of WireDrawing and allied machines in technical collaboration with Marshall Richards BarcroLimited (MRB) of UK.The collaboration with Martin Black broke up in 1975 and the company was hencecalled Usha Martin Industries.The company set up an electrical furnace steel plant at Jamshedpur in 1973, followedby a rod mill in 1976.1979 - In order to obtain steady supply of wire rods for its wire rope plant, UASL set upa Wire Rod Rolling Mill at Jamshedpur.
  47. 47. 1980- It promoted Usha Siam Steel Industries Ltd, Thailand to produce wire, wire ropes& auto control cables. It set special products division to produce Hi-Tech Wire Cables.1987- UMIL, along with Bihar State Electronics Development Corporation, promotedUsha Beltron Ltd. (UBL) in collaboration with AEG KABEL of Germany for themanufacture of Jelly Filled Telephone Cables.1994- It set up Software Division to provide IT Solution for communication applicationand Usha Martin Ltd, a distribution center at Glasgow, UK.1997 - UMIL merged with UBL w.e.f 1st October 1997.1999- Usha Martin Ltd. Merged with Usha Beltron Group and was renamed as Wire andWire Rope Division within which following six companies are included: JFTC-Ranchi,Wire And Wire Rope Division - Ranchi, Usha Ismal Division – Ranchi, Usha Alloys &Steel –Jamshedpur, Usha Machinery Division – Bangalore and Rod-Mill Division – Agra2000 - Acquisition of specialty wire rope manufacturing plant in UK “BruntonShaw”.2000 - Commissioning of 25 MW thermal power plants for captive consumption.2001 – Commissioning of 2nd SMS to enhance capacity and produce quality specialtysteel.2003 - Usha Beltron Ltd Changed its name to “Usha Martin Limited (UML). UML createdFine Cord Plasticized coated Fine wires, household wire, Polymer coated wire, FineRopes & Bright Bars manufacturing facilities in Tatisilwai- Ranchi
  48. 48. 3.3. Achievements • UML is the 2nd largest wire and rope manufacturer in the world and has the largest variety in South East Asia. • It is multi product, diversified engineering conglomerate with 10 production units in India,1 in Thailand,1 in UK and 1 in Dubai. • It is saving valuable foreign exchange by exporting by exporting its products to 42 countries like USA, Africa and Middle East, conforming to the strictest product quality standards. • It got the ISO 9000 Certification by BVQI in 1994.
  49. 49. • ICICI (BCB) did the business process re-engineering in 1996 and line system was set up to enhance performance.• With the modern concepts like TPM, value engineering, QC, suggestions scheme, customer satisfaction and human resource development, UML is trying to reach unparalleled heights.• UML is serving through a leading daily “Prabhat Khabar”, Krishi Gram Vikas Kendra, Usha Martin Technical Institute. HEAD OFFICE: Usha Martin Limited Mangal Kalash, 3rd floor 2-A Shakespeare Sarani KOLKATA-71 PLANT LOCATION: Usha Martin Limited Wire Ropes & Specialty Products Division Tatisilwai, Ranchi,
  50. 50. Jharkhand- 8351033.4. VISION: • In our chosen business, we shall retain market leadership in India and shall be globally competitive through customer orientation and excellence in quality, innovation and technology.MISSION • Enriching livesWe will do our best to provide quality product and services, which will improve thelifestyle of our users. • Quality is our first priorityWe aim to achieve customer satisfaction by providing quality products. No sale is goodsale unless it fulfills our customer expectations. • Our word is our bound
  51. 51. Our dealers are our partners. We endeavor to practice this golden rule in all our relations with others. • Integrity is our commitment The conduct of our company’s affairs must be pursued in a manner that command respect for honesty and integrity. TPM POLICY: • It is our policy to induce change in all employees by delegation, empowerment and motivation to achieve total participation towards zero accident, zero defects and zero failure.3.5. TRADE PROFILE Business Excellence UML is the 2nd largest wire and rope manufacturer in the world and has the largest variety in South East Asia. It is multi product, diversified engineering conglomerate with
  52. 52. 10 production units in India, 1 in Thailand, 1 in UK and 1 in Dubai. It is saving valuableforeign exchange by exporting its products to 42 countries like USA, Africa and MiddleEast, conforming to the strictest product quality standards. It got the ISO 9000Certification by BVQI in 1994.ICICI (BCB) did the business process re-engineering in1996 and line system was set up to enhance performance. With the modern conceptslike TPM, value engineering, QC, suggestions scheme, customer satisfaction andhuman resource development, UML is trying to reach unparalleled heights. UML isserving through a leading daily “Prabhat Khabar”, Krishi Gram Vikas Kendra, UshaMartin Technical Institute.Areas of businessGroup companies: • Usha Siam Steel Industries Public Company Ltd., Thailand (USSIL) • European Management & Marine Corporation Ltd., Aberdeen, UK (EMM) • Brunton Shaw Ltd., Nottinghamshire, UK (BSRL) • Usha Martin Cables Ltd., Silvasa, Bangalore, India (UCL)Distribution centers:UM International Ltd. at Glasgow, Houston, Johannesburg, Copenhagen and Dubai UMSingapore Ltd.Services:
  53. 53. • Usha Breco Ltd. (Usha Martin Industries & British Ropeway Engineering Ltd.) • Usha Martin Ventures Ltd.Steel divisionA backward integration initiative, the Usha Alloys & Steels Division (UASD) atJamshedpur is one of the largest amongst secondary steel manufacturers of specialtysteel long products in India. With ISO 9002 certified facilities, UASD has pioneered theunique process of steel making through mini blast furnace-arc furnace route, whichensures superior quality of steel at a lower cost. UASD serves a range of industries likeautomobile, general engineering, fasteners, railways, defense and power.Machinery divisionThis ISO 9001 unit was set up in 1974 at Bangalore to manufacture Wire Drawing andallied machines. Over the years, the division has added a wide range of Wire, WireRope and Cable machinery to its product range and is now the leader in this field inIndia. The division started with technical collaboration with M/s Marshall RichardsBarcro of UK and subsequently has collaborated with internationally reputed firms likeDe-Angeli Industries SPA, Italy, Stolberger Maschinenfabrik, Germany, Hi-DrawMachinery Ltd, UK and Redaelli Techna Meccanica, Italy. A facility in Ranchi has alsobeen created for manufacturing machines required for Wire Drawing and StrandingApplications.Usha Ismal Division
  54. 54. This unit, having manufacturing unit in Ranchi (Eastern India), is the leader in the fieldof pre-stressing equipment & accessories and also executes pre-stressing job onturnkey basis. Besides, it provides services for jointing of reinforcement bars bymechanical splicing. All major civil contractors of National Highway Authority of India,Indian Railways and PWD are regular users of these products and services. It alsooffers hydraulic presses & accessories for manufacturing mechanically spliced wire ropeslings, machines for proof load testing of wire rope slings, and die-less hand operatedhydraulic crimping tools. These products find wide application with Steel Plants, PortTrusts, Oil Sector, Heavy Engineering Industry, Electricity Boards, Electrical Contractorsand Factories etc.Cables Division under UM CablesThe Cable Division of Usha Martin Limited has emerged as a leading manufacturer ofjelly-filled underground & fiber optic telecommunication cables in India. Thesophisticated manufacturing facilities are located in Silbasa. The company integratestechnology from KABEL RHEYDT (formerly AEG KABLE), GERMANY, a member ofAlcatel Group - is rated as one of the most efficient plants in the country and abenchmark in the industry. The Plant includes computer - controlled critical equipments,imported from International Leaders in cable technology.Wire and Wire Ropes Division
  55. 55. The ISO 9001-certified 100,000 MT / annum-manufacturing facilities at Ranchi (EasternIndia) is 2nd largest producer of ropes in the world. Since its inception, the division hascontinuously developed and expanded its range of product offerings and is considered apioneer in certain classes of products in India. Steel wire ropes manufactured by thedivision find wide applications in oil exploration, mining, elevators, Crane, fishing,construction, load transportation and general engineering sectors. It find varied use indifferent parts of the world known for their excellent quality, long life and lowmaintenance, and are the preferred choice of customers across nations. Ropes, rangingfrom 2 mm to 100 mm diameter find varied applications. The wide ranges of productsare used in underground mining, surface mining, mooring, onshore and offshore drilling,fishing, elevators, cranes, aerial haulage and track installations besides various generalengineering applications. Pre-stretched ropes, locked coil wire ropes and spiral strandsmade in Usha Martin are used in suspension bridges, antenna masts etc.Backed by a strong international distribution network our ropes have found a place indifferent corners of the world.Sources of Raw MaterialsRaw materials sourcesSteel Wire Rod (90% - 96%) UMIL, JamshedpurSteel Wire Rod (4% - 10%) Imported from Germany, Japan, etc.Fibre Core M/s. Chotanagpur Wire RopeOther Raw material (Zinc) M/s. Hindustan Zinc & Other
  56. 56. Supplies 25% & balance is ReportedFinished ProductsRope- General engineering rope, Flattened strand, Elevator rope, Non- rotating rope,finished rope, Mining rope, Hyplex rope, Locked coil winding, Track rope.Wire- Auto spoke, Cycle spoke, PC Strand, Rolling shutter, ACSR, PC wire Indexed &plain.Fine CordUsha Martin, extended vast experience in rope making technology towardsmanufacturing of Fine Cords. Usha Martin Fine Cords find application as the innerelement for the Automotive Control Cables and also in boring applications and as PullCord cables for laying of Television cables.Size rangeThe size range for overall diameter of finished cords is 1.20mm to 6.00mm.Low relaxation prestressed concrete (LRPC) StrandsIn keeping with the demands of the international market, we have introduced LowRelaxation Prestressed Concrete (LRPC) Strands for the construction industry in 2001.A steel member that is prestressed and embedded in concrete loses the initially appliedstress exponentially with the passage of time. The single most important factorattributing to this loss in stress relaxation property of the steel itself. By treating the steelthrough a thermo mechanical process known as stabilizing, the propensity of the steel to
  57. 57. "relax” under a stressed condition is controlled to a great extent. Some of the mainadvantages that our customers derive by using low relaxation strands are listed below* Up to 10% reduction in steel requirement possible* Reduction in concrete requirement due to reduced size of structural members* Hot stretch process used during the manufacture of LRPC strands produces a nearlystraight strand, thereby eliminating necessity for extra post straightening treatment.* Saving in number of anchorages, ducts, sheathings, wedges and labour resulting inoverall reduction of project costApplicationsPre-stressed concrete girders for road, river & railway bridges and flyovers, pre-stressed concrete domes, slabs, silos, hangars, aqua ducts, viaducts & railwaysleepers.Patenting & Galvanizing facility* 50ft electrically fired furnace with inline cleaning, coating, galvanizingfacilities.* 30ft propane fired LeFour furnace with inline cleaning, coating, andgalvanizing facilities.* 30ft propane fired rod DSW patenting furnace* Galvanizing plants of different capacities* Stress relieving facilities for wires and strands* Annealing furnaces (bell type)
  58. 58. * Vacuuann ealing furnace* PLC driven automatic pickling plant* manually operated pickling plantQuality & TestingWires and Strands hold a premier position in the domestic market and are also exportedto different part of the world. Used for different purposes across a gamut of industries,our wires and strands are continuously put through rigorous and demanding conditions.To ensure that our offerings match the international standards, we have set high internalquality standards. Plant located at Ranchi has been awarded ISO 9001 due to ouremphasis on maintaining global quality standards. Wires confirm to various specifications such as* IS Specifications* JIS Specifications* British Specifications* ASTM Specifications* DIN SpecificationsAerial RopesUML is the undisputed leaders in the domestic Aerial Rope sector. Their productofferings include Aerial haulage ropes, material handling ropes, rope for passengerropeways and other track ropes. Ropes are renowned for their low maintenance, longlife, excellent quality and strength.
  59. 59. Size rangeThe size range generally preferred for such ropes is* 19mm to 38mm5Steel cord for conveyor beltsConveyor belts - one of the most popular means for bulk material handling - findswidespread application in mines, cement and coal industries, ports & terminals, powerstations etc. When reinforced with steel cord these belts last longer, allow higheroperating speeds and offer better shock and rupture resistance than conventional fiberreinforced belts. In addition, very low elongation and absence of creep, makes steelcord the ideal reinforcement for long haul, high strength belts (from 500 to 2000 N permm of belt width).In March 2003, the US $ 300 million Usha Martin Group, entered into a Joint Venturewith Gustav Wolf, Germany for production of Steel Cords for Conveyor Belts at aspecial facility set-up adjacent to the main Wire & Wire Rope plant at Ranchi and knownas Gustav Wolf Specialty Cords Limited. Gustav Wolf, Germany is one of the globalpioneers in producing Steel Cord for Conveyor belts with decades of experience behindthem and with all major Conveyor Belt manufacturers on their customer list.Through effective synergy of years of conveyor belt experience of Gustav Wolf withrope making expertise of Usha Martin, we have become the pioneer and the onlyproducer of Steel Cords for Conveyor Belts in this country. With state-of-art machineryand latest technology from Gustav Wolf, our cords provide an optimized high tensile yetflexible reinforcement to the Conveyor Belts and enables reliable and high capacityConveyor Systems to be used. Our flexibility to supply in ready-to-fit spools as well as in
  60. 60. giant master spools, gives our customers the option to procure in exact lengths, thusreducing operational cost and downtime.Major customers of Usha MartinEastern Region— a. Indian Ropeway & Corporation Ltd. b. OTIS India Ltd. c. Philips India Ltd. d. SAIL e. HEC, Ranchi f. TISCO, Jamshedpur g. MCL, Talchar i. CCL, RanchiWestern Region- • ONGC • Jindal Strips Ltd. • Essar Steels, Surat • Reliance Infrastructure. • Nuclear Power Corporation of India, Tarapur • Western Coal Fields
  61. 61. Northern Region— • BHEL Panipat • Hindustan Copper Ltd. • Maruti Udyog Ltd. • Hindustan Electronics Ltd. Southern Region— • L&T Ltd. • KONE Elevator, Chennai • Johnson Lifts Pvt. Ltd., Chennai • KEC International Ltd., Amateur • United Marine Traders.3.6. COMPETITORSDOMESTIC – Fort Williams, Kolkata TATA SSL, Mumbai
  62. 62. Bharat Wire Ropes, MaharashtraSouth Indian Wire Ropes, MaharashtraJCT Ltd., PunjabNaveen Wire Ropes, PathankotOrient Wire Ropes, IndoreAsian Wire Ropes, A.P.GLOBAL—KISSWIRE, KoreaAustria draught, AustriaCaser, GermanyJohn Shaw, EnglandRedaelli, ItalBridan, Ger3.7. BOARD OF DIRECTORSMr. B.K Jhawar – ChairmanMr. Prashant Jhawar – Vice ChairmanMr. Brij Kr. Jhawar – DirectorMr. U.V. Rao – DirectorMr. N.J. Jhaveri -- DirectorMr. A.K. Chaudhuri – DirectorMr. Suresh Neotia – DirectorMr. Ashok Basu – DirectorMr. Sudhir Dole – ICICI nominee director
  63. 63. Mr. Rajeev Jhawar – Managing Director Dr. P. Bhattacharya – Jt. Managing Director3.8. GOVERNMENT POLICIES RELATED ACTS: Factories Act (1948) Objectives: The Factories Act provides for the health, safety, welfare, service conditions and other aspects of workers in factories. The Act is enforced by the State Government who frame rules that ensure that local conditions are reflected in enforcement. The Act as amended in 1987 also regulates the safeguards to be adopted for the use and handling of hazardous substances. Applicability: The Factories Act extends to whole of India and is applicable to all factories including government factories.
  64. 64. It applies to all factories employing more than 10 people and working with the aid ofpower or employing 20 people and working without the aid of power. Factory howeverdoes not include a mineCovered under the mines Act, 1952, a mobile unit of the armed forces, a railway shed ora hotel, restaurant or eating place. The act covers all workers employed in the factorypremises or precincts directly or through an agency including a contractor, involved inany manufactureMinimum Wages Act (1948)Object of the Act- to Provide for fixing minimum rates of wages in certain Employment.The object of the Act is to ensure the welfare of the workers in a competitive market byfixing the minimum rates of wages in certain employments.Article 39 states that the State shall, in particular, direct its policy towards securing (a)that the citizen, men and women equally shall have the right to an adequate livelihoodand (b) that there is equal pay for equal work for both men and women.Article 43 states that the State shall endeavour, by suitable legislation or economicorganisation or in any other way, to give all workers, agricultural, industrial or otherwise,work, a living wage, conditions of work ensuring a decent standard of life and fullenjoyment of leisure, and social and cultural opportunities.Employees’ Provident Fund Act (1952)
  65. 65. The Employees’ Provident Fund and Provision Fund and Miscellaneous Provision Act,1952 provides for institution of compulsory provident funds for employees in Factoriesand other establishment. The purpose is to make some provisions for the future of theindustrial worker after he retires or for his dependents in case of his early death. Itapplies to all factories and other establishment of any notified industry if the number ofemployees is 20 or more than 20.Under this scheme, a stipulated amount {12%(current)} is deducted from theemployees’ salary & contributed towards the fund. This amount is decided by thegovernment. The employer also contributes an equal amount to the fund.Employees’ State Insurance Act (1948)The Government of India passed ‘Employees’ State Insurance Act, at April 1948. It wasdesigned to provide cash benefits in the case of Sickness, Maternity and EmploymentInjury, payment in the form of pension of dependents of workers who dies, the familygets employment injury and medical benefits.Contribution periods and benefit period:Workers, covered under the ESI Act, are required to pay contribution towards thescheme on a monthly basis contribution period means a six-month time span from 1April to 30 October and 1 November to 31 March. Thus, in a financial year there are twocontribution periods of six months duration. Cash benefits under the scheme are
  66. 66. generally linked with contribution paid. The benefit period starts their months after theclosure of a contribution period.Contribution period corresponding benefit period:1 April to 30 September 1 January to 30 June of the following year1 October to 31 march 18 July to 31 DecemberRegistration:Simultaneously with his or her entry into employment in a covered factory orestablishment, an employee is required to fill in a declaration form. The employee isthen allotted a registration number, which distinguishes and identifies the person for thepurposes of the scheme. A person is registered once and only upon his entry ininsurable employment. But recent SC’s judgment in Balakrishna v ESIC has held that aworker covered under the act would be entitled to benefit from the date of hisemployment and not from the date of registration after contribution by the employer.Bonus Act (1975)It is a part of profit linked with productivity given annually to the employees. Everyemployee receiving wages up to Rs.3500/monthis entitled to bonus every accounting year. Every factory wherein 10 or more personsare employed with the aid of power or an establishment in which 20 or more personsare employed without the aid of power on any day during an accounting year.Minimum Bonus -- 8.33% of wage.Maximum Bonus -- 20% of wage / Rs.7200
  67. 67. 3.9. Social Commitment through Krishi Gram Vikas KendraManagement commitment and support since 1977"in every village where hunger persists, human being must be empowered to discover.Their own vision expresses their own leadership, create their own solutions and worktogether to achieve their own success"KGVK Activities• augmenting water resources through watershed management• sustainable income generation through cottage industries & live stock management• capacity building through "agivika research & training center"• health & family welfare programmes• women empowerment thru "swashakti" programmeKGVK projectsIn partnership with grass root civic society, corporate and government• India canada environment facility (icef) project - for water resources conservation& conjunctive utilization for environmental restoration (project cost rs 10.0 cr)• ICICI - cini project - for primary health services at the grass root level project cost rs.2.0 cr)
  68. 68. • project with us aid along with cepda - for training barefoot workers in villages formaking them 1st point of contact in village health services• Projects with govt of India for water shed, women empowerment, education etc.• Total projects worth Rs.18 cr in hand
  69. 69. Chapter 4: Data analysis And Interpretation4.1GENERAL INDICATORSCOMPONENTS OF CURRENT ASSETSCurrent assets means assets that will either be used up or converted into cash within ayears time or normal operating cycle of the business whichever is longer. They includecash and bank balances, marketable securities, inventory of raw materials, semi-finished and finished goods, debtors, bills receivables and pre-paid expenses.TABLE 4.1.1: COMPONENTS OF CURRENT ASSETS
  70. 70. current assets 2004-05 2005-06 2006-07 2007-08Inventories 2840534 2621667 3390551 5324181Sundry debtors 2513970 1982492 2269104 2563505cash and bank balance 389655 517489 370805 463607other current assets 195738 225640 260942 340486Loans and advance 2108995 1648665 2119931 4024216Total current assets 8048892 6995953 8411333 12715995increase/decrease in CA -1052939 1415380 4304662(%)increase/decrease in CA -13.08% 20.23% 51.17%
  71. 71. Source: www.econpapers.repec.org.comCOMPONENTS OF CURRENT LIABILITIES
  72. 72. Current liabilities are those liabilities or obligations, which are expected to mature in thenext twelve months. They include short-term loans and advances, accounts payable /sundry creditors, provision for taxation, outstanding expenses and dividend payable. TABLE4.1.2: CURRENT LIABILITIESParticulars Amount in (Rs) 2004-05 2005-06 2006-07 2007-08Sundry creditors 1431326 1701248 1940128 5175146Advances from customers 74406 70772 95418 106193Unclaimed dividends 2982 2797 2983 3152Others Liabilities 2894347 1994670 2574014 3325085Provisions 176380 210109 262565 381723Total Current Liabilities 4579441 3979596 4875108 8991299Increase/Decrease in CL - (599845) 895512 4116191(%)Increase/Decrease in CL _ 22.50% 84%
  73. 73. Source:www.econpapers.repec.org.comNET WORKING CAPITALNet working capital (NWC) represents the excess of current assets over currentliabilities. The greater the amount of net working capital, the greater the liquidity of thefirm. However, the problem of net working capital as the measure of liquidity is that the
  74. 74. change in net working capital does not necessarily reflect the change in liquidity of thefirmTABLE 4.1.3: NET OPERATING CYCLE NET WORKING CAPITAL Particulars Amount (Rs) 2004-05 2005-06 2006-07 2007-08 Total CA 8048892 6995953 8411333 12715995 Total CL 4598033 3979596 4875108 8991299 Net Working Capital(NWC) 3450859 3016357 3536225 3724696 Increase/Decrease in NWC - (434502) 519868 188471 (%)increase/decrease in NWC - (12.59)% 17.20% 5.32%Significance:Working capital during 2006 was negative but as on 2007 it has increased upto 17.20%but again there was drastically fall during 2008 i.e.5.32% the reason of this fall wasincrease in current liability was twice of increase in current assets.
  75. 75. OPERATING CYCLEThe operating cycle represents the time taken for cash spent on raw materials to comeback to the business in the form of cash from collection of sale proceeds.In case of a manufacturing firm, the following are the sequence of events, which istermed as operating cycle of the manufacturing firm..Conversion of cash into raw materialsConversion of raw materials in WIPConversion of WIP into finished goodsConversion of finished goods into Accounts receivablesConversion of accounts receivables into cash.The term cash or operating cycle contains the length of time necessary to complete thefollowing cycle events:Conversion of cash into inventoryConversion of inventory into receivableConversion of receivable into cash TABLE 4.1.4: NET OPERATING CYCLEPARTCULARS 2005-06 2006-07 2007-08
  76. 76. Raw material conversion period 46 52 107Work in progress conversion period 18 24 24Finished goods conversion period 84 112 123Debtors conversion period 52 52 50Operating Cycle 200 240 304Payable deferral period / Credit Period* 119 113 207Net Operating Cycle (in days) 81 127 97.Credit Period: This includes advances from customers. The company as a consciousdecision on policy solicits for advances for all the special orders to take care of the costof the materials to be procured.
  77. 77. Source: www.themanagementor.com4.2.LIQUIDITY ANALYSISCURRENT RATIO:
  78. 78. The current ratio is an indicator of the firms commitment to meet its short-termliabilities. The current ratio is an index of the concerns financial stability since it showsthe extent of working capital, which is the amount by which the current assets exceedthe current liabilities. A very high current ratio would indicate inadequate employmentof funds while a poor current ratio is a danger signal to the management. It shows thatbusiness is trading beyond its resources.CURRENT RATIO -This ratio tells about the relationship between current assets andcurrent liabilities of a business .The formula for calculating the ratio is: CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIESCurrent assets include those assets which can be converted into cash within a year’stime and current liabilities include those liabilities which are repayable in a year’s time.Current AssetItem having a life of one year or less, or the normal Operating Cycle of the business,whichever is greater. For example, if a construction companys operating cycle is threeyears because it is engaged in long-term construction activities, it would show ascurrent assets items having up to a three-year life. However, in almost all cases, theone-year cutoff is used. Examples of current assets are cash, marketable securities,inventory, and prepaid expenses.Current Assets = Cash in hand + cash at bank + B/R + short terminvestments(marketable securities) + debtors + (debtors-provision) + stock (stock offinished goods + stocks of raw material + work in progress) + prepaid expenses.
  79. 79. Current Liabilities = Bank overdraft + B/P + creditors + provision for taxation +proposed dividends + unclaimed dividends + outstanding expenses + loans payablewithin a year.TABLE4.2.1: CURRENT RATIO
  80. 80. Particulars YEAR 2004-05 2005-06 2006-07 2007-08Current AssetsInventories 2840534 2621667 3390551 5324181Sundry Debtors 2513970 1982492 2269104 2563505Cash &Bank 389655 517489 370805 463607BalanceOther Current 195738 225640 260942 340486AssetsLoans& Advances 2108995 1648665 2119931 4024216Total (a) 8048892 6995953 8411333 12715995CurrentLiabilitiesLiabilities 4421653 3769487 4612543 8609576Provisions 176380 210109 262565 381723Total (b) 4598033 3979596 4875108 8991299
  81. 81. Current Ratio (a/b) 1.75 1.76 1.73 1.41Significance:This ratio is used to assess the firm’s ability to meet its short term liabilities on time.According to accounting principle, a current ratio of 2:1 is supposed to be an ideal ratio.It means that current assets of a business should, at least, be twice of its currentliabilities. The higher the ratio, the better it is, because the firm will be able to pay itscurrent liabilities more easily. The reason of assuming 2:1 as the ideal ratio is that thecurrent assets include such assets as stock, debtors etc., from which full amount cannotbe realized in case of need. Hence, even if half the amount is realized from the currentassets on time, the firm can still meet its current liabilities in full.Status of Current ratio of UML - With the help of graph and the available data ofUsha Martin Ltd we can see that the ratio of 1.75:1 was stagnant for two consecutivefinancial year and during 4th financial year i.e. during 2007-08 the current ratio fall to
  82. 82. 1.41:1 .The reason of fall in current ratio is because of increase in current liabilitiesduring this financial period we can see that the current assets has also increase but theincrease in creditors as well as other liability the current ratio decrease .Thus duringslow down of market also the company’s current ratio was positive .During 2008 thedebtors, loans and advances increases but the increase in current liabilities was approx.double of 2007.QUICK RATIOQuick ratio is a refinement over current ratio as it shows the instant ability to meet thecurrent liabilities. Liquid assets means all the current assets less inventories, stickydebts, etc., i.e. such assets as can be ‘quickly’ converted into cash. The general normfor a healthy quick ratio is 1:1. This ratio is also known as acid-test ratio.Quick ratio indicates whether the firm is in position to pay its current liabilities within amonth or immediately. As such, the quick ratio is calculated by dividing liquid assets(quick current ratio) by current liabilities:-Quick Ratio or Acid Test Ratio = liquid assets Current liabilities‘Liquid assets’ means those which will yield cash very shortly. All current assets exceptstock and prepaid expenses are include in liquid assets. Stock is excluded from liquidassets because it has to be sold before it can be converted into cash. Prepaid expenses
  83. 83. too are excluded from the list of liquid assets because they are not expected to beconverted into cash. Liquid assets thus include cash, debtors, bills receivable and shortterm securities.TABLE 4.2.2: QUICK RATIO
  84. 84. Particulars Year 2004-05 2005-06 2006-07 2007-08Liquid assetsSundry Debtors 2513970 1982492 2269104 2563505Cash &Bank Balance 389655 517489 370805 463607Other Current Assets 195738 225640 260942 340486Loans& Advances 2108995 1648665 2119931 4024216Total (a) 5208358 4374286 5020782 7391814Current LiabilitiesLiabilities 4421653 3769487 4612543 8609576Provisions 176380 210109 262565 381723Total (b) 4598033 3979596 4875108 8991299quick ratio (a/b) 1.13 1.10 1.03 0.82

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