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  1. 1. [1] A COMPREHENSIVE PROJECT REPORT ON “Working Capital Management at Laxmi Diamond Pvt. Ltd” Submitted to : Shrimad Rajchandra Institute of Management and Computer Application IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In Gujarat Technological University UNDER THE GUIDANCE OF Mr. Manish Pathak Company Guide (If Any) Name and Designation Submitted by Brinda J. Rajpara Yash R. Shah Batch : 2010-12, Enrollment No: Brinda J. Rajpara :107740592019 Yash R. Shah :107740592089 MBA SEMESTER III/IV Shrimad Rajchandra Institute of Management and Computer Application MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad December, 2011
  2. 2. [2] Company Certificate “This is certified that Mr./ Ms Simpal M. Vora and Mr/Ms Jalpa S. Vyas. from Shrimad Rajchandra Institute of Management and Computer Application, have carried out the research on the subject titled “Employees’ Turnover Rate” at this company/organisation under the supervision of ………… ……………..from ……. To……........ I also certify that, the above mentioned students have carried the research work satisfactory.
  3. 3. [3] Institute’s Certificate “Certified that this Comprehensive Project Report Titled “Employees’ Turnover Rate” is the bona fide work of Mr./ Ms Simpal M. Vora and Jalpa S. Vyas, (Enrollment No107740592050 & 107740592102), who carried out the research under my supervision. I also certify further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate. Signature of the Faculty Guide (Name and Designation of Guide) (Certificate is to be countersigned by the Director/HoD)
  4. 4. [4] PREFACE For a management student training plays an important role during his/her study. Training provides a corporate or real world platform to learn practically. MBA degree without any training or corporate world experience is just like ship without radar. Industrial training provides a great training experience about management concepts and its applications. This training provides me an opportunity to know the current situation of the corporate world. It provides me a platform whereby I can apply my theoretical knowledge and solve many practical problems. It can help me to be a successful manager in future. The credit goes to all those who help me directly or indirectly to complete this project within a short span of time. For preparation of this report I would like to thank the faculty members of college as well as the entire staff of Laxmi Diamond Pvt. Ltd, Surat.
  5. 5. [5] ACKNOWLEDGEMENT A project of this nature involves the support of many people. I believe that would be lacking in my duty if I do not express my sincere gratitude to them. I feel immense pleasure to thank Dr. Prashant Joshi, Director, Shrimad Rajchandra Institute of Management & Computer application (SRIMCA), Tarsadi for making available all facilities in fulfilling the requirements for the research work. I wish to convey my special thanks to _________________ (Senior HR manager), and to __________________ at Laxmi Diamond Prv. Ltd. for giving me all possible help and guidance throughout training period. I feel immense pleasure in expressing my deep sense of respect and indebtedness to my institute project guide, Ms. Tarjani Desai, Faculty, SRIMCA for his valuable guidance throughout preparation of this report. I would also like to extend my heartily felt gratitude to all the respondents who spared their valuable time and helped me filling up the questionnaire by providing the needed information. In the course of my interaction with them, my understanding of the very notions on which I am conducting the study, deepened greatly. I am indebted to my family and friends for their kindly co- operation. Last but not the least, I would like to thank all those whom I have missed but have helped me day in and day out directly or indirectly.
  6. 6. [6] DECLARATION We, Yash R. Shah and Jalpa S. Vyas, hereby declare that the report for Comprehensive Project entitled “Employees’ Turnover Rate” is a result of our own work and our indebtedness to other work publications, references, if any, have been duly acknowledged. Place : …….. (Signature) Date : (Name of Student)
  7. 7. [7] Executive Summery
  8. 8. [8] TABLE OF CONTENTS SR. NO. Topic PAGE NO. 01 About the Company 02 About the Topic & Literature Review 03 RESEARCH METHODOLOGY 3.1 Objectives 3.2 limitations 3.3 Benefits 04 Data Analysis & Interpretation 05 FINDINGS 06 RECOMMENDATIONS 07 BIBLIOGRAPHY
  9. 9. [9] INDUSTRY PROFILE:- INTRODUCTION`:- As long as about three thousand year ago, man bent down to pick up a glistering pebble and by some chance found it to be different from other stones form that times, diamond began to acquire magical power and avarice. More recently it has become an object of extreme scientific Curiosity. Man began to collect diamond treasure them, built legends around them trade in them as, use them as tools, them as gems, raise loan with them fight over them, and eventually to give them as symbol of love and trust his early instinct to treat diamond as unique was true, because today probably more effect goes into and research on any other material. The desire for diamond because of its beauty of hits scientific industrial uses has not diamond over the years but has become much more widespread. A century ago, the possession of a diamond was the prerogative of the rich alone since the discovery of huge deposit in Africa, and more recently Diamond pipes in Russia, mining and marketing of diamond has brought them within reach of large section of the population of industrial countries, bot as gems and as parts of working tools. Diamond is the hardest substance man has ever discovered and the purest that occurs in nature, although very highly prize as gems, however, it is composed of one of the commonest substance on earth, ordinary carbon, carbon is found in all living thing, plants as well as animal and in many rocks. Diamond can be broken with the blow of hammer yet will penetrate steel by pressure. It is extremely durable, being able to withstand and attacks the strongest acids and alkalis, yet is an unstable forms of carbon and will burn or oxidizes on the surface it dropped in a fire for short times. It has a very high melding-point and will cut steel for long period at near red heat, yet hearted to bright red it will catch fire and convert to carbon dioxide gas.
  10. 10. [10] (1.2)MEANING OF DIAMOND:- Adomas and adamant were words implying extreme hardness, derived from the GREEK ADAMNO meaning “I tame” or “I subdue”. They were used in classical time to describe supplier, which was sometimes confused with diamond. In the bible, god tells the prophet Ezekiel, ‘As an ADMANT HARDER than flint have I made the forehead.’ DEFINITION ON DIAMOND:- “Diamond is a crystallize, mineral, essentially composed of carbon. The word diamonds originally come from the Greek words ‘Adams’ which means ‘unconquerable’.” HARDNESS OF DIAMOND:- Hardness can be defines as the ability of mineral to resist abrasion when scraped by any other mineral. HARDNESS SCALE:-
  11. 11. [11] 1. Talc 2. Gypsum 3. Calcite 4. Fluorite 5. Apatite 6. Orthoclase Feildspar 7. Quartz 8. Topaz 9. Corundum 10.Diamond WHERE DIAMOND IS FOUND:- Pliny remarked that diamond acumen pained gold. Diamond are found with gold, but we know now that they arrive together through the action of winds and rain over millions of year gradually shaking and sifting them and other heavy mineral together diamond does not occur in its originally source with gold pliny referred to six type of diamond, but form his description some of the types were sapphires which are very heavy and are also found with gold. As far as is known, all early source of diamond were in the beds of active or dried up rivers, despite the legends. India was the only known source for over 2000 year expect for Borneo where diamond were probably first mind in the sixteenth century. The Brazilian Diamond fields were discovered in the gold mining area of minas gerais in 1725. New discovered always seem to have been regarded with skepticism stones was
  12. 12. [12] questions on the London market and as late as 1740 a jeweler declared in print that it was a false idea that the mines of brazil furnish diamond. Even a century later Portuguese possession in India, to sell them mining was carried out so intensive that main area were almost exhausted in twenty years. By an extraordinary coincidence the South African diamond fields were discovered in 1860, by the times that the Brazilian fields were exhausted when the news arrived in Brazil, history repeated itself. The Brazilian Merchant refused to believe the facts and many were exhausted. When the news arrived in Brazil history reputed itself. The Brazilian merchant refused to believe the facts and many were ruined. PROFESSOR J. GREGERY, London university mineralogists, actually spent three weeks in the South African diamond fields and subsequence wrote an article for the geological magazine in 1868 declaring the story of South African diamond was false and simply a scheme for trying to prompt the employment and expenditure of capital in searching for the precious Stone in that country major diamond deposits were found in the arctic area of Yakuida in Russia form 1954. Again there was disbelief in some quarter before the diamond came on to the market in the west, but now the Russia mines have an output comparable with that of South Africa. Following famous diamond are found in India mines. 1. Kohinoor 2. Hope 3. Pit 4. Grate mugale 5. Deriya noor etc. DIAMOND CUTTING:- Early description of faceting diamond refer to polishing and it is presumed that octahedral crystals were left their natural shape or the angled of the face were altered by cutting, since they were altered by cutting since they were called points-cut stones. An octahedral face is in fact impossible to polish. Moreover, the process of cleaving produces points stones without the necessity for polishing Grinding to remove the top
  13. 13. [13] point of the Octahedrar crystal to produce what was called the table stones presumably come later. The history of cutting and polishing is purely documented and the art remained a trade secret for many centuries. It is uncertain where cutting Originated, whether in Europe or India, as well as which Europe was probably in the fourteenth century and in India possibly about the some times because there was on earlier bon for superstitious reason on shaping diamond superstious. Probably delayed the development in the alternation of a diamond was supposed to destroy its magical properties. Tavernier noted in the seventeenth century that there were considerable differences in the techniques of European and Indian cutters. He also surmised that the Indian used facets to hide fiaws. WHICH PEOPLE INVOLVE IN DIAMOND INDUSTRY? There are many people involve in diamond industries. In world 60% people having diamond factory, In India 40% people having diamond factory. There are many Surat people doing this business in Gujarat. There are 50% people doing diamond business in Surat.
  14. 14. [14] COMPANY PROFILE:- LAXMI DIAMOND is the vision of one man VASANT GAJERA, who started his career in the nascent diamond industry in 1970 at the bottom of the ladder, but with sheer grit and determination, shaped the group into an org. par excellence within three short decades. Today with turnover in the excess of 2000 Cores. LAXMI DIAMOND is a sight holder of the diamond trading company, the sales and marketing division of De beers, the largest producer of diamond in the world? Poised on the threshold of becoming a global leader, LAXMI DIAMOND has 9 offices and 11 manufacturing unit in various part of the globe VASANTBHAI modestly attributes this resounding success to the strongest of his people the dedicated workforce, business associated and above all, the support of his family without which success of his family without which the success of LAXMI DIAMOND would have been just another dream. Rough-polished-jewellery is but a logical extension and VASANTBHAI started a jewellery-manufacturing unit at SEEPZ MUMBAI in 1996 with turnover Of 5 cores in first year with 6 jewellery manufacturing unit worldwide. The sales of jewellery will expect 100 cores in 2004. From unbranded is a step and in 2002, the CYNGUS brand of jewellery was born CYNGUS is constellation of start in the shape of a swan an elegant bird, like CYNGUS jewllery, elegant and exquisites. BUSINESS DESTINATIONS:- 1. U.S.A. 2. JAPAN 3. SINGAPORE 4. TAIWAN 5. BELGIUM 6. HONGKONG 7. THAILAND 8. SWITZERLAND 9. DUBAI
  15. 15. [15] 10.MALAYS STEPPING-STONES FOR ‘LAXMI DIAMOND’:- No Award YEAR 1. Award for export of Polished Diamonds by GJEPC in the Non-DTC Category. 1992 2. Laxmi Diamond becomes 100 % EOU - 3. DTC sight holder 1995 4. Award for largest exporter of Diamonds by GJEPC in the DTC category. 1999 & 2000 5. Award for second largest exporter of Polished diamonds from India. 1999 & 2000 6. Award from the FIIE for highest growth in exports given by the President of India. 2000 7. Award for second largest exporter of Polished diamonds from India. 2001
  16. 16. [16] 8. SGIA. 2004
  17. 17. [17] About the products:- We are specialist in the following shapes of the Diamond 1. Round 2. Princess 3. Taper 4. Marquise 5. Pan 6. Chalky 7. Oval etc. IDENTIFICATION OF PROCESSES:- Following 12 processes identify entire activities of this organization. 1. Purchase 2. Rough Diamond Checking 3. Cleaving 4. Laser 5. Polishing 6. Polished Assortment/QC/Dispatch 7. Sales and Marketing 8. Maintenance 9. HRD 10.EDP 11.Excise 12.A/C.
  18. 18. [18] PROVISION OF RESOURCE AND WORK ENVIRONMENT:- The LAXMI DIAMOND has determined, provided and is maintaining the infrastructure needed to achieve conformity to requirements. Infrastructure includes Buildings, workspace and associated utilities supporting services as transport and communication Production process equipment. The LAXMI DIAMOND has adequate office spaces, workshop space, open space, storage tank, canteen etc. The LAXMI DIAMOND has following manpower to meet the requirements as stated: 1. Chairman 01 2. Managing director 02 3. CEO 01 4. General Manager 01 5. Office Staff Department Head(90) Assist. Manager(10) 100 6. . Factory Staff 700 The LAXMI DIAMOND is having Production/ process equipment adequate for the requirements. Services as and when required, 1. Transport 2. Courier 3. Calibration 4. Training/ISO
  19. 19. [19] The Laxmi Diamond has adequate communication facilities like, 1. Telephone 2. Fax 3. E - mail 4. Computers 5. Intercom phones Approved Suppliers for raw materials and other services are available. There are no out-sourced products / services in Laxmi Diamond.
  20. 20. [20] ABOUT THE TOPIC AND LITERATURE REVIEW
  21. 21. [21] About the topic OVERVIEW OF FINANCIAL MANAGEMENT Finance is regarded as the lifeblood of any business organization. The Financial management study of about the process of procuring of financial resources and its judicious utilization with a view to maximizing the shareholders wealth. Efficient management of every business enterprise is largely dependent on the efficient management of its finance. “Financial Management is concerned with the efficient use of an important economic resource, namely capital funds”. From the starting and registration to winding up of a unit, finance play dominate role in each and every business unit. In short financial management is managerial activity, which is concerned with planning and controlling of the firm’s financial resources. Modern approach of financial management requires four broad decision areas of financial management viz.  Investment Decision  Financing Decision  The dividend policy Decision  Working Capital Management This report covers analysis of the last decision i.e., Working Capital Management. It is very important for short-term survival, which is must for long-term success. It is concerned with the management of current assets.
  22. 22. [22] WORKING CAPITAL MANAGEMENT Management of working capital is an extremely important area of financial management as current assets represent more than half of the total assets of a business. Fixed assets through essential for a business organization, does not by itself produce revenue or income. Fixed assets act with current assets to generate revenue or income. Therefore, working capital is necessary for utilizing the productive capacity of fixed capital. For shortage of working capital, the enterprise would suffer reduction in earnings due to productive capacity remain unutilized. While, excess working capital leads to extra cost for want of productive capacity. Thus, the amount of working capital in every enterprise, whether manufacturing or non-manufacturing, should be neither more or less than what is actually required. Working capital in business is just live blood in human body. Optimum and appropriate movement of blood through the body is extremely necessary to continue life. Like human blood, the proper circulation of funds (working/circulating capital) is utmost necessary to continue business. If the circulation of working capital becomes weak, the businesses can hardly prosper and service. An enterprise should maintain optimum amount of working capital so as to carry on the productive and distributive activities smoothly. While, the determination of optimum level of working capital involves fundamental decisions to an organization’s liquidity, which in turn are influenced by a trade off between profitability and liquidity. Thus, goal of working capital management is to manage the firm’s current assets and liabilities in such a way that satisfactory level of working capital maintained.
  23. 23. [23] WORKING CAPITAL MEANING, DEFINITION In accounting “Working capital is the difference between the inflow and out flow of funds.” It other words it is the net cash inflow. Working capital is defined as excess of current assets over current liabilities and provision. In other word, it is “net current assets or net working capital.” Working capital can be defined broadly in two different ways i.e. gross working capital and Net working capital. Gross working capital refers to organizations investment in total current assets. Current assets are the assets, which can be, convert in to cash with in an accounting year and include cash, marketable securities, inventory etc. it is also known as circulating capital. Net working capital refers to the different between current assets and current liabilities are those claims of outsiders, which are accepted to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Symbolicall: NWC = CA – CL. Where, NWC = Net working Capital CA = Current Assets CL = Current Liabilities Net working capital can also be defined as that portion of firm’s current assets, which is financed by long-term funds.
  24. 24. [24] NEED FOR WORKING CAPITAL The need for working capital to run the day-to-day business activities cannot over emphasize. We will hardly find a business firm, which doesn’t require any amount of working capital. Indeed, firms differ in their requirement of working capital. We known that firm should aimed at maximizing the wealth of its shareholders. In its endeavor to do so, firm should earn sufficient return from its operation. Earning a study amount of profit require successful sales activity. But there is always time gap between the day of sales & its realization from debtors realization from debtors will take time but firm has arrange money for purchase of raw material, to pay for salary, wages and other expenses. Therefore sufficient working capital in needed. The operating cycle can be said to be reason for the need for working capital. IMPORTANCE OF WORKING CAPITALMANAGEMENT Working capital is considered as central nervous system of a firm. The importance of working capital management is reflected in the time most spent by financial managers in managing current assets and current liabilities. Maintenance of adequate working capital is necessary in order to discharge day to day liabilities and protect the business from adverse effects in times of emergencies. It aims at protecting the purchasing power of assets and maximizes the return on investment. The goal of working capital management is to maximize the cost of working capital while maximizing a firm’s profit. The working capital management is concerned with determination of relevant levels of current assets and their efficient use as well as the choice of financial mix. The efficiency of a firm to earn profits depends largely on its ability to manage working capital. In other words, working capital management policies have a crucial effect on firm’s liquidity an profitability. Hence, working capital has to be effectively planned, systematically controlled and optimally utilized.
  25. 25. [25] TYPES OF WORKING CAPITAL The operating cycle creates the need for current assets (working capital). However the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between permanent and temporary working capital. There are mainly two types of working capital. a) Permanent Working Capital b) Temporary Working Capital WORKING CAPITAL PARMENENT WORKING CAPITAL TEMPORARY WORKING CAPITAL INITIAL W.C. SPECIAL W.C.SEASONAL W.C. REGULAR W.C.
  26. 26. [26] a) Permanent Working Capital: - The need for current assets arises because of operating cycle. The operating cycle is continuous process and therefore the need for current assets is felt constantly. But the magnitude of current assets needed is not always the same. It increases and decreases over time. However there is always a minimum level of current assets, which are continuously required, by firm to carry or its business operations is called permanent or fixed working capital. This minimum level of working capital is necessary on the regular basis even if the management of working capital is done efficiently in the organization. As this type of working capital is minimum necessary for the business at all points of time, it is financed by the long-term sources. b) Temporary Working Capital: - The amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. The need for such type of working arises because of fluctuations in production and sales. The additional requirement may be during more active season when the volume of production and sales more goes up necessitating extra blockage of funds temporarily in current assets like Bank Balance, inventory, debtors, etc. The temporary working capital is the additional funds required. Whose volume is different at different points of time and hence it is financed by short-term sources.
  27. 27. [27] Both concepts are depicted in the following figure: - Time However when the business is growing, the level of permanent working capital also grows. The working capital graph will be rising one as given in figure below: Time A M O U N T O F W. C. Permanent Working Capital Temporary Working Capital A M O U N T O F W. C. Permanent Working Capital Temporary Working Capital
  28. 28. [28] DETERMINANTS OF WORKING CAPITAL There are no set formulates to determine the working capital requirements of firms. A large no. of factors each having a different importance, influence working capital needs of firms. However, the factors may vary from organization to organization. Therefore, an analysis or relevant factors should be made in order to determine total investment in working capital. The following is the description of factors, which generally influence the working capital requirement of firms. 1. Nature of Business: - Business firm can be dividend in to three categories given below: - I. Service organization or public utilities II. Trading or financial organization III. Manufacturing organization Service organizations don’t normally hold any inventory or the level inventory may be very low. Again major sale of such services are on cash basis. Hence they require very less amount of working capital.Trading or financial organization have to maintain sufficient amount of cash and inventory.Hence working capital requirement of such organization are relatively very high. Working capital requirement of manufacturing organization normally falls between the above two extremes. 2. Volume of sales: - The higher the sales on credit basis, the higher is the requirement of working capital, as more and more amount is getting blocked in debtors. 3. Manufacturing Cycle: - The manufacturing cycle refers to the time spent by a product right from the stage of purchase of its raw material to the stage of completion of finished goods. Obviously the larger the manufacturing cycle of a company the higher is the volume of working capital needed to finance blockage of money in raw material, work in progress and finished good
  29. 29. [29] 4. Business Cycle: - No business can remain study for all the time. It passes through the stages of prosperity and depression. During Prosperity, the volume of sales increases necessitating higher level of inventories and debtors, i.e. more Amount of working capital is required to sustain higher levels of activity during prosperity. Depression has exactly an opposite effect on the level of working capital requirement. 5. Credit Policy: - If the organization is following a liberal credit p[policy for its customers, it will result in higher debtors leading to requirement of more working capital. However, if the organization is availing liberal credit term from its suppliers, the need for working capital is reduced. 6. Tax Structure: - The entire profit generated may not be available to the organization because of a simplest fact. The organization has to pay its taxes in time. Tax rates vary in different forms of organization and accordingly working capital requirement of different organization will be different. 7. Dividend Pay out ratio: - If dividend payout ratio is high, the organization may have earned profit but-the profits available only after payment of dividends is available for financing working capital. Hence, higher working capital will be required if Dividend payout ratio is high. 8. Availability of Funds: - If the credit worthiness of an organization is good, it may manage the business with less Working Capital. The reason may be that the organization may procure the funds whenever it needs the funds. 9. Change in Technology: - Change in technology affects the requirement for working Capital. If the firm decides to go for automation, this would reduce the requirements of Working Capital. If the firm adopts a labor-intensive process, the requirement of working capital will be larger. 10. Size of the Firm: - Bigger firms may require lesser working capital as compared to their total sales or assets. Of course the absolute amount of working capital will be higher in bigger firms.
  30. 30. [30] The level of Working Capital is determined by a wide variety of factors that are partly internal to the firm and partly external to it. Efficient working capital management requires efficient planning and a constant review of the needs for an appropriate working capital strategy. SOURCES OF WORKING CAPITAL The main sources of working capital are as under: 1. Shares and debentures 2. Retained earnings 3. Commercial Banks a. Loans b. Bank Overdraft c. Cash Credit 4. Commercial Paper 5. Certificate of Deposit 6. Commercial Bills Market 7. Factoring 8. Trade Creditors 9. Public deposit 10.Indigenous Bankers and Money Lenders
  31. 31. [31] Literature Review Many researchers have studied working capital from different views and in different environments. The following ones were very interesting and useful for our research:(Eljelly, 2004) elucidated that efficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level. The results were stable and had important implications for liquidity management in various Saudi companies. First, it was clear that there was a negative relationship between profitability and liquidity indicators such as current ratio and cash gap in the Saudi sample examined. Second, the study also revealed that there was great variation among industries with respect to the significant measure of liquidity. (Deloof, 2003) discussed that most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days’ accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay their bills .
  32. 32. [32] (Ghosh and Maji, 2003) in this paper made an attempt to examine the efficiency of working capital management of the Indian cement companies during 1992 – 1993 to 2001 – 2002. For measuring the efficiency of working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target- efficiency levels of the individual firms, this paper also tested the speed of achieving that target level of efficiency by an individual firm during the period of study. Findings of the study indicated that the Indian Cement Industry as a whole did not perform remarkably well during this period. (Shin and Soenen, 1998) highlighted that efficient Working Capital Management (WCM) was very important for creating value for the shareholders. The way working capital was managed had a significant impact on both profitability and liquidity. The relationship between the length of Net Trading Cycle, corporate profitability and risk adjusted stock return was examined using correlation and regression analysis, by industry and capital intensity. They found a strong negative relationship between lengths of the firm’s nettrading Cycle and its profitability. In addition, shorter net trade cycles were associated with higher risk adjusted stock returns. (Smith and Begemann 1997) emphasized that those who promoted working capital theory shared that profitability and liquidity comprised the salient goals of working capital management. The problem arose because the maximization of the firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article evaluated the association between traditional and alternative working capital measures and return on investment (ROI), specifically in industrial firms listed on the Johannesburg Stock Exchange (JSE). The problem under investigation was to establish whether the more recently developed alternative working capital concepts showed improved association with return on investment to that of traditional working capital ratios or not. Results indicated that there were no significant differences amongst the years with respect to the independent variables. The results of their stepwise regression corroborated that
  33. 33. [33] total current liabilities divided by funds flow accounted for most of the variability in Return on Investment (ROI). The statistical test results showed that a traditional working capital leverage ratio, current liabilities divided by funds flow, displayed the greatest associations with return on investment. Wellknown liquidity concepts such as the current and quick ratios registered insignificant associations whilst only one of the newer working capital concepts, the comprehensive liquidity index, indicated significant associations with return on investment. All the above studies provide us a solid base and give us idea regarding working capital management and its components. They also give us the results and conclusions of those researches already conducted on the same area for different countries and environment from different aspects. On basis of these researches done in different countries, we have developed our own methodology for research. Mathuva (2009) examined the influence of working capital management components on corporate profitability by using a sample of 30 firms listed on Nairobi Stock Exchange for the periods 1993-2008. He used Pearson and Spearman‟s correlations, the pooled ordinary least squares and the fixed effects regression models to conduct data analysis. The key findings of his study were that there exists a highly significant negative relationship between the time it takes for firms to collect cash from their customers and profitability, there exists a highly significant positive relationship between the period taken to convert inventories to sales and profitability and there exists a highly significant positive relationship between the time it takes for firms to pay its creditors and profitability. The conclusive sum of this retrospective review of relevant literature produced till date on the offered subject reveals wide room for the validity and originates of this work and reflects some decisive evidences that affirm its viability, as may be marked here it. Nor has any previous research examined the optimal level of working capital key components through working capital cycle, composition of working capital and the existence of liquidity and profitability relationship, efficiency and liquidity trends of private sector steel companies. No study has incorporated in this fashion before the present one.
  34. 34. [34] RESEARCH METHODOLOGY & PROPOSAL
  35. 35. [35] Research Methodology Problem statement “Analyzing Working Capital Management at Laxmi Diamond Ltd” Objectives of study: 1. The present earning capacity or profitability of the Laxmi diamond 2. The Short-term liquidity & long-term solvency 3. The financial stability of a business. 4. To analyze different ratios so to judge the availability and effective usage of working capital Benefits of the study: 1. It helps the business concern in maintaining the goodwill. 2. It can arrange loans from banks and others on easy and favorable terms. 3. It enables a concern to face business crisis in emergencies such as depression. 4. It creates an environment of security, confidence, and over all efficiency in a business. 5. It helps in maintaining solvency of the business. RESEARCH DESIGN DESCRIPTIVE STUDY: The Project consists of Research Design based on descriptive study. As it will help us describe relevant aspects of phenomena of cash conversion cycle and provide detailed information about each relevant variable.
  36. 36. [36] The information covered is about:  General information about working capital management.  Information about various ratios. . DATA COLLECTION TOOLS Secondary Data: Secondary data are the data which are already collected and use for some other purpose. I use secondary data for analyzing working capital management at Laxmi Diamond. Sources of Secondary Data:  Annual Reports  Cost & Budget Reports  Cash Report  Raw Materials Report  Production Reports  Creditors Reports  Debtors Reports  Inventory Reports  Sales Reports
  37. 37. [37] DATA ANALYSIS AND INTERPRETATION
  38. 38. [38] Working capital ratios: Working capital ratios indicate the ability of a business concern in meeting its current obligations as well as its efficiency in managing the current assets for generation of sales. These ratios are applied to evaluate the efficiency with which the firm manages and utilizes its current assets. The following three categories of ratios are used for efficient management of working capital: (1) Efficiency ratios (a) Working capital to sales ratio = sales/working capital (b) Inventory turnover ratio = sales/inventory (c) Current assets turnover ratio = sales/current assets (2) Liquidity ratios (a) Current ratio = current assets, loans & advances/current liabilities & provisions (b) Quick ratio = current assets, loans & advances – inventories/current liabilities & Provisions. (2) Structural health ratios (a) Current assets to net assets = total net assets/current assets (b) Debtors collection period (in days) = debtors/sales × 365 (c) Creditors payment period (in days) = creditors/purchases × 365
  39. 39. [39] (1). Efficiency ratios (a) Working capital to sales ratio = sales/working capital This ratio is computed by dividing sales by working capital. This ratio helps to measure the efficiency of net working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales is contemplated, working capital should be adequate and thus, this ratio helps management to maintain the adequate level of working capital. Year Sales Working Capital Sales/working capital 2010-11 605561476 137980774.33 4.3 2009-10 420063443 126981552.58 3.30 2008-09 479631484 134709368.83 3.56 2007-08 499084059 139013642.73 3.59 2006-07 441764760 101268885.3 4.36
  40. 40. [40] Interpretation: From the above table we can say that the sale to working capital is quite up in the recent year. The ratio is more or less increase during the last five years that is the good sign for the company. These indicate the company has sufficient net working capital. 2010-11 2009-10 2008-09 2007-08 2006-07 Sales/working capital 4.3 3.3 3.56 3.59 4.36 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 Sales/working capital
  41. 41. [41] b) Inventory turnover ratio = sales/inventory This ratio indicates the effectiveness and efficiency of the inventory management. The ratio shows how speedily the inventory is turned into accounts receivable through sales. The higher the ratio, the more efficiently the inventory is said to be managed vice versa. 2010-11 2009-10 2008-09 2007-08 2006-07 sales/inventory 5.01 3.63 6.76 3.42 3.22 0 1 2 3 4 5 6 7 8 sales/inventory Year Sales Inventory sales/inventory 2010-11 605561476.00 120730409.00 5.01 2009-10 420063443.00 115630324.00 3.63 2008-09 479631484.00 70904100.00 6.76 2007-08 499084059.00 145837950.00 3.42 2006-07 441764760.00 137029394.00 3.22
  42. 42. [42] Interpretation: The inventory Turnover ratio in 2011 is high as compared to the year 2009 which can be considered as good sign for the company as its turnover is increasing. 2) Liquidity ratio (a) Current ratio = current assets, loans & advances/current liabilities & provisions This ratio indicates the extent of the soundness of the current financial position of an undertaking and the degree of safety provided to the creditors. The higher current ratio, the larger amount of rupee available per rupee of current liability, the more the firm’s ability to meet current obligations and the greater safety of funds of short term creditors. Current assets are those assets which can be converted into cash within a year. Current liabilities and provisions are those liabilities that are payable within a year. Year Current assets, loans &advances Currentliabilities& provision current assets, loans & advances/current liabilities & provisions 2010-11 3226697812.33 188717038 1.73 2009-10 313171790.58 186190238 1.68 2008-09 243516228.83 108806860 2.23 2007-08 2367511478 175236298 2.15 2006-07 246622487.83 145353602 1.7
  43. 43. [43] Interpretation:- The ideal ratio is 2:1. In this ratio we measure about company current assets obligation against current liabilities. This is good position in the firm, in 2009-10 the ratio is 1.68 and in 2010-11 it is 1.73 by which we can conclude that the company is not in a ideal position. 2010-11 2009-10 2008-09 2007-08 2006-07 current assets, loans & advances/current liabilities & provisions 1.73 1.68 2.23 2.15 1.7 0 0.5 1 1.5 2 2.5 current assets, loans & advances/current liabilities & provisions
  44. 44. [44] (b) Quick ratio = current assets, loans & advances – inventories/current liabilities & provisions Quick ratio is a more refined tool to measure the liquidity of an organization. It is a better test of financial strength than the current ratio, because it excludes very slow moving inventories and the items of current assets which cannot be converted into cash easily. This ratio shows the extent of cushion of protection provided from the quick assets to the current creditors. A quick ratio of 1:1 is usually considered satisfactory through it 2010-11 2009-10 2008-09 2007-08 2006-07 Quick ratio 16.46 1.06 1.59 12.68 0.75 0 2 4 6 8 10 12 14 16 18 Quick ratio Year Current assets, loans &advances Inventory Current assets, loans & advances – inventory Current liabilities& provision Quick ratio 2010-11 3226697812.33 120730409.00 3105967403.33 188717038 16.46 2009-10 313171790.58 115630324.00 197541466.58 186190238 1.06 2008-09 243516228.83 70904100.00 172612128.83 108806860 1.59 2007-08 2367511478 145837950.00 2221673528 175236298 12.68 2006-07 246622487.83 137029394.00 109593093.83 145353602 0.75
  45. 45. [45] Interpretation:- Quick ratio indicates the liquidity position of the firm. Higher the ratio company position is good , Here Laxmi Diamond quick ratio is comparatively higher in the year 2010-11 so it indicates is good liquidity position. 3) Structural health ratios (a) Current assets to net assets = total net assets/current assets This ratio explains the relationship between current assets and total investment in assets. A business enterprise should use its current assets effectively and economically because it is out of the management of these assets that profits accrue. Year Total net assets Current assets total net assets/current assets 2010-11 359880716.32 326697812.33 1.10 2009-10 346877422.20 313171791.11 1.11 2008-09 280256479.17 235453975.2 1.19 2007-08 277939949.91 259632280.73 1.07 2006-07 264734325.64 246622487.3 1.07
  46. 46. [46] Interpretation:- Here In this ratio there are no fluctuations in the last 5years the company maintain the current assets and net current assets position. (b) Debtors collection period (in days) = debtors/sales × 365 The debtor’s turnover suggests the number of times the amount of credit sale is collected during the year, while debtors ratio indicates the number of days during which the dues for credit sales are collected. Suppose the debtors’ ratio is 60 days, it means that debtors pay their dues for credit sales after 60 days of making the sales. 0 20 40 60 80 100 120 2010- 11 2009- 10 2008- 09 2007- 08 2006- 07 Debtors/sales × 365 Debtors/sales × 365
  47. 47. [47] Interpretation:- Here, we can see that every year there is fluctuation in debtors ratio which mean’s that supply of money is from debtor to company takes lesser time and that is good for the company. Year Debtors Sales debtors/sales Debtors/sales × 365 2010-11 164429798 605561476 0.27 99 2009-10 183776823 420063443 0.44 160 2008-09 152322216.03 479631484 0.32 116 2007-08 104258967 499084059 0.21 76 2006-07 97919943 441764760 0.22 80 0 20 40 60 80 100 120 140 160 1 2 3 4 5 6 Debtors/sales × 365
  48. 48. [48] (b) Creditors payment period (in days) = creditors/purchases × 365 The measurement of the creditor payment period shows the average time taken to pay for goods and services purchased by the company. In general the longer the credit period achieved the better, because delays in payment mean that the operation of the company are being financed interest free by suppliers funds. Year Creditors Purchases Creditors/ Purchases Creditors/ Purchases × 365 2010-11 180325372 395679746 0.46 166 2009-10 185173718 266465321 0.69 254 2008-09 107979626 394470457 0.27 100 2007-08 111053898 396980675 0.28 102 2006-07 143070126 320355497 0.45 163
  49. 49. [49] (a) Gross profit turnover ratio = Gross profit / turnover Year Gross profit turnover Gross profit / turnover *100 2010-11 26857685 605561476 4.44 2009-10 20172749 460005027 4.39 2008-09 19418507.89 479631484 4.05 2007-08 21200424.52 499084059 4.25 2006-07 17489921.42 441764760 3.96
  50. 50. [50] (B) Net profit turnover ratio = Net profit / turnover Year Net profit turnover Net profit / turnover *100 2010-11 9371229.41 605561476 1.55 2009-10 3613487.54 460005027 0.79 2008-09 - - loss 2007-08 8187746.27 499084059 1.64 2006-07 7411472.03 441764760 1.68
  51. 51. [51] (c) Stock-in-trade turnover ratio = Stock-in-trade / turnover Year Stock-in-trade turnover Stock-in-trade / turnover *100 2010-11 120730409 605561476 19.94 2009-10 115630324 460005027 25.14 2008-09 70904100 479631484 14.78 2007-08 145837950 499084059 29.22 2006-07 137029394 441764760 31.02
  52. 52. [52] FINDING & CONCLUSIONS
  53. 53. [53] RECOMMENDATIONS
  54. 54. [54] BIBLIOGRAPHY

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