A study on working capital management

A STUDY ON WORKING CAPITAL MANAGEMENT AT
Submitted in partial fulfillment of the requirement for the award of degree
BACHELOR IN BUSINESS ADMINISTRATION
(Session 2011-2014)
Under Guidance of: Submitted By:
MANOJ CHAUDHARY ANCHAL GUPTA
Asst. Professor Roll No.-11105
PANIPAT INSTITUTE OF ENGINEERING & TECHNOLOGY

DECLARATION
I, hereby declare that the Summer Training project entitled “A STUDY ON WORKING
CAPITAL MANAGEMENT AT GAURAV EXPORTS, PANIPAT” is an original work and
the same has not been submitted to any other institute for the award of any other degree & the
information provided in the study is authentic to the best of my knowledge.
(ANCHAL GUPTA)

ACKNOWLEDGEMENT
It gives me a Great pleasure to present this Project Report. It indeed goes without saying that the
success of my study on working capital management at GAURAV EXPORTS, PANIPAT
(HARYANA) was because of direct or indirect guidance of everybody at the company and
institute. I take this opportunity to acknowledgement by their help and valuable assistance in
providing technical input or reviewing the report.
I hereby express my sincere thanks and gratitude towards the management of GAURAV
EXPORTS FINANCE DEPARTMENT for giving me an opportunity for training in their
organization.
My respectful thank to all management and employees of GAURAV EXPORTS for their
valuable assistance, suggestions and their timely guidance in completing my project report.
I am delirious about the tremendous support and guidance provided to me by Mr. MANOJ
CHAUDARY. His expert opinion and effort to direct my views in the right direction helped in
the successful completion of this project
ANCHAL GUPTA

TABLE OF CONTENTS
PARTICULARS PAGE NO.
EXECUTIVE SUMMARY 1-6
CHAPTER1:- INTRODUCTION 7-40
INDUSTRY PROFILE 7-8
COMPANY PROFILE 9-23
INTRODUCTION TO TOPIC 24-40
CHAPTER 2:- LITERATURE REVIEW 41-47
CHAPTER 3:- RESEARCH METHODOLOGY 48-54
CHAPTER 4:- DATA ANALYSIS AND INTERPRETATION 55-80
CHAPTER 5:-FINDINGS, SUGGESTIONS AND
CONCLUSIONS
81-82
CHAPTER 6:- BIBLIOGRAPHY 83

OBJETIVES OF WORKING CAPITAL MANAGEMENT
The goal of working capital management is to manage the current assets and
current liabilities of a firm in such a way that working capital is maintained
at a satisfactory level.
To determine the adequate or optimum quantum of investment in working
capital.
To determine the composition or structure of current assets.
To maintain a proper balance between liquidity and profitability.
To determine the policy or means of finance for current assets.
“Working Capital Management is concerned with problems that arise in
attempting to manage the current assets, current liabilities and the inter
relationship that exists between them .‟‟

CHAPTER 1
1.1 INTRODUCTION TO INDUSTRY:-
The textile industry is a group of related industries which uses a variety of natural and/or
synthetic fibers to produce fabric. It is a significant contributor to many national economies,
encompassing both small and large- scale operations worldwide
Subdivision of the textile industry into its various components can be approached from several
angles. The classical method of categorizing the industry involves grouping the manufacturing
plants according to the fiber being processed, that is, cotton, wool, or synthetics. The modern
approach to textile industry categorization, however, involves grouping the manufacturing plants
according to their particular operation:-
Wool scouring
Wool finishing
Dry processing
Woven fabric finishing
Knit fabric
Carpet manufacturing
Stock and yarn dyeing and finishing
India has been well known for her textile goods since very ancient times. The traditional textile
industry of India was virtually decayed during the colonial regime. However, the modern textile
industry took birth in India in the early nineteenth century when the first textile mill in the
country was established at fort glister near Calcutta in 1818. The cotton textile industry,
however, made its real beginning in Bombay, in 1850s. The first cotton textile mill of Bombay
was established in 1854 by a Parse cotton merchant then engaged in overseas and internal trade.
Indeed, the vast majority of the early mills were the handiwork of Parse merchants engaged in
yarn and cloth trade at home and Chinese and African markets.
The first cotton mill in Ahmadabad, which was eventually to emerge as a rival centre to
Bombay, was established in 1861. The spread of the textile industry to Ahmadabad was largely
due to the Gujarati trading class.

The cotton textile industry made rapid progress in the second half of the nineteenth century and
by the end of the century there were 178 cotton textile mills; but during the year 1900 the cotton
textile industry was in bad state due to the great famine and a number of mills of Bombay and
Ahmadabad were to be closed down for long periods.
PRIMARY CONTRIBUTION OF TEXTILE INDUSTRY TO INDIAN ECONOMY:-
The Indian textile industry has a significant presence in the economy as well as in the
international textile economy. Its contribution to the Indian economy is manifested in terms of its
contribution to the industrial production, employment generation and foreign exchange earnings.
It contributes 20 percent of industrial production, 9 percent of excise collections, 18 percent of
employment in the industrial sector, nearly 20 percent to the country‟s total export earning and 4
percent to the Gross Domestic Product.
In human history, past and present can never ignore the importance of textile in a civilization
decisively affecting its destinies, effectively changing its social scenario. A brief but thoroughly
researched feature on Indian textile culture.
MARKET SHARE OF COUNTRIES IN TEXTILE INDUSTRY
share
china
india
pakistan
korea
taiwan
turkey
mexico
others

1.2 COMPANY PROFILE:-
GAURAV EXPORTS is a flagship company. The group is an industrial conglomerate based at
PANIPAT in HARYANA with the turnover in excess of Rs. 3 crore. The fibre work is one of the
oldest and well recognized businesses in India. The company was incorporated in 1998 by Mr.
SUKESH JAIN. He is the company‟s present chairman and managing director. The company is
one of the pioneers of the organized Indian woolen hosiery industry.
The company made a beginning as a manufacturer of hosiery items which was followed by
setting up a worsted woolen spinning plant to serve as a backward integration of the existing
manufacturing activities. The company believes that this worsted the woolen spinning in the
northern India.
Matching ahead in the journey pace with overall industrial development in India. The company
is now a vertically integrated woolen textile company, having presence in diverse market, with
wide range of products including woolen hosiery segment, it company starts its operations with
import of raw greasy wool mostly from U.S.A. and the company‟s products include various
types of specialty yarns, such as worsted woolen yarn, acrylic yarn, various types of wool based
blended yarn, fancy yarn, hand knitting and hosiery garments etc.

The company subsequently added cotton garments to company‟s existing product portfolio
during fiscal year 2002 , which it outsource as per its requirements and sell under company‟s
own brand name. Since March 2006, the company has started manufacturing dyed specialty
fabric, which has added to its existing range of product portfolio.
The company‟s manufacturing facilities are spread across various locations in and around
PANIPAT in HARYANA, fully backed by the facilities to provide quality products to its
customers. Currently the company has employed over 1000 persons and company‟s present
manufacturing facilities include 2648 spindles to manufacture worsted woolen yarn besides
machines, knitting, dyeing and finishing.
LOGO OF THE COMPANY:-
1.2.1 VISION
To be one of the most preferred & trusted exporter of quality products in floor covering, through
continuous improvement driven by the integrity, teamwork and innovation.
1.2.2 MISSION
The handloom and handicraft sector represent an important source of livelihood in India,
especially in rural areas. After agriculture, handicrafts is the second largest employer in rural
India, with many agricultural communities depending on it as secondary form of income
generation during times of drought, lean harvests and famines. Despite a significant contribution
to the national GDP and export earning, little effort has been made to enhance the incomes of
craft workers at a macro level.
The All India Artisans and Craft workers Welfare Association (AIACA) is a membership-based
apex body for the handloom and handicraft sectors. AIACA seeks to represent a range of
organizations in these sectors and to engage in policy advocacy activities aimed at increasing the
domestic and international market for handloom and handicraft products along with improving

the standard of living of craft workers and to explore new and commercially sustainable models
of livelihood promotion.
1.2.3 VALUES
Client Focus – To exceed customer expectations for values and services.
Commitment to Excellence – To deliver world-class results in all we do.
Competitive Advantage – To enable our customers to stay ahead of their competitors by
providing best-in-class products.
Strong Leadership & Teamwork – To foster an environment and culture of collaboration and
mutual accountability.
Performance – To develop plans that delivers better results, and continually strive for personal
and professional development.
Adaptiveness – To enhance the standards continuously, with passion & pride.
1.2.4 ORGANISATIONAL CHART:
BOARD OF DIRECTORS
marketi
ng
export
docume
nts
maintain
ence
productio
n
purchase
s and
stores
marketing
research
account
record

1.2.5 PRODUCTS:-
Cushion covers
Tufted rugs
Handloom rugs

Bath rugs
Bed covers
Throws
Benchmarking global standards in speed, innovation, technology, quality, consistency and
punctuality, Gaurav Export House offers world class integrated textile solutions.

Keeping abreast with the international trends GAURAV Export House possesses vertically
integrated, state-of-the-art production facilities for Home Textiles, Woven Products, Tufted
Products, Bath mats, Rugs, Terry Towels, Organic towels and Beach towels.
Trusted for over two decades by India's leading exporters and world's leading brands, Abhitex
has today emerged as one of India's leading textile groups.
1.2.6 QUALITY POLICY:-
Gaurav Export House is a house of home furnishing products and Handicrafts for home. With a
huge range of products, the company provides one stop solution for the need of home furnishing
products and Handicrafts. The company believes in quality, innovation and creativity.
Gaurav Export House provides the world-class high-end Home furnishing products. It provides
a range of Rugs and Handicrafts to choose from. It also provides custom-made handicrafts. The
export house works on quality wool and other fine materials. It provides quality with style and
comfort with elegance. It takes proud of its traditional heritage and richly skilled workers. The
products are wonderfully handcrafted by skilled workers giving it the beauty that speaks of its
own unique style and elegance.
The company values its customers and provides for the best quality affordable home furnishing
products, handicrafts and decorative products.
The group is ISO 9000-2008 & 14001:2004 certified by International Organization for
Standardization. The quality has been important to the end product user, whether an individual or
an organization.
Quality can be defined as a combination of the characteristics or properties of a product which
make a product usable. The extent to which a product successfully serves the purpose of the user
during usage is called its “fitness for use”. Therefore the quality of all products may be described
in terms of whether the products are fit for use or not. Fitness for use in the most widely used
concept of quality and is determined by those features of a product that a user can recognize as
beneficial. Fitness for use should be judged from the consumer‟s point of view and not from
either the manufacturer or sellers perspective. We are having various in house Departments to
ensure the Quality of Products manufactured at Gaurav Exports.

1.2.7 TESTING:-
The Group's in-house laboratory is well equipped with testing machines on SGS standards .
Testing is dedicated to becoming the market leader.
The company‟s technicians are experts in testing to published application standards with great
precision, delivering accurate, dependable results.
Our environmentally controlled laboratory, impeccable service, quick lead-times, and
competitive pricing all combine to provide you with exceptional value for your textile testing
needs.
1.2.8 TRAINING:-
"Progress comes to those who train and train; reliance on secret techniques will get you
nowhere." Working on this principal, the company regularly conducts in-house training to ensure
peak efficiency, manufacturing excellence and to keep its employees abreast of the latest trends
in manufacturing and management practices.
1.2.9 MATERIAL SOURCING:-
Gaurav Exports strong business partnership allows them to procure raw materials directly from
the mills, giving them the benefits of top quality materials as well as cost advantages.
1.2.10 DYEING:-
Well equipped with different types of looms like 35 Shuttle less looms, Sky looms, 2500 Pit
looms , 50 Power looms , 300 Frame looms , 250 Carpet looms and 400 Tufted carpet frame
looms .
Dyeing facility with latest technologies with dyeing capacity of 70 tons per day.
1.2.11 WEAVING AND TUFTING:-
It started tabletop tufting in 1986 and became the first manufacturer of tufted bath rugs in the
country. Today, Tufting Division is a vertically integrated plant with complete in-house yarn
spinning, tufting, dyeing, packing, and container stuffing facilities.

The division has over 250 multi needle table top tufting machines to produce over 200,000 units
of bath rugs per month and a supporting bath rug dyeing capacity of 15 tons a month. Apart from
this, the group also has, USA made, wide width tufting machines. These machines produce
Chenille bedspreads and bath rugs.
1.2.12 FINISHING & PACKAGING
All finished products are being supervised under strict precaution & safety measures are being
followed to ensure a safe product delivery to end-user.
1.2.13 PLANT MACHINERY AND EQUIPMENT:-
UNIT A
Bath mat machines 189
Stitching machines 56
Pit looms 42
UNIT B
Jacquard machines 23
Pitlooms 90
powerlooms 45
Frame looms 60
UNIT C
powerlooms 23
UNIT D
Bath rugs machine 34
UTILITY SECTION
600 KVA generator 1
250 KVA generator 2

1) Weaving machine
2) Pit looms
3) Jacquard machines

4) Tufted machines
5) Power looms
N1
6) Bath mat machines

1.2.14 SAMPLING:-
GAURAV EXPORTS always concentrates n spends manpower/money in sampling, the
company has dedicated sampling units and sampling units are equipped with the latest
technology machines and well-experienced weavers to handle all kinds of samples with a short
lead-time. It has a huge library which can support the latest trends in the market and the buyers
can select the weaves and make the samples with a quick turn around time.
1.2.15 PRODUCTS PROFILE:-
The range of home furnishing products include:-
1) Bed covers: - the decorative bed covers are made in a multitude of fabrics ranging from
cotton, polyester, silk, with different thread counts.
2) Tufted rugs: - Rugs made by hand will always have certain variations in their surface
coloration, the density of hand-knotting of the pile, irregularities in shape along the edges
or borders and differences along the fringes or fringe ends. Tufted rugs are best of them.
3) Handloom rugs: - We are engaged in offering an alluring range of Cotton rugs that are
processed using high grade cotton rugs, which are in turn procured from reliable vendors.
The fine quality of raw material used in the manufacturing process, gives these rags
sturdy and durable texture.
4) Bath rugs:- Bath rugs made exclusively for waterworks have deep pile for comfort and
absorbency and have been made of the finest cotton to ensure a long life.
FEATURES:-
Waterworks most plush bath rugs
Made exclusively for waterworks
Made with the deep pile for comfort and absorbency
Made from finest quality cotton for durability and to ensure long life.

5) Throws: - Accent your furnishings with fabric pieces made from tapestry, upholstery or a
variety of decorating fabrics. These fabric throws create colorful accents for any room
and can be strategically placed to cover worn or stained spots on furniture.
6) Cushion covers: - Beautiful and potent, the range of aesthetically designed cushion
covers is skillfully set in uncommon designs and hues.
1.2.16 ACHIEVEMENTS OF THE COMPANY:-
Gold medal award in 2002-03 for Best Performance over previous year from Handloom Export
Council of India.
1.2.17 SWOT ANALYSIS:-
The SWOT analysis is a valuable step in your situational analysis. Assessing your firm‟s
strengths, weaknesses, market opportunities, and threats through a SWOT analysis is a very
simple process that can offer powerful insight into the potential and critical issues affecting a
venture.
The SWOT analysis begins by conducting an inventory of internal strengths and weaknesses in
your organization. You will then note the external opportunities and threats that may affect the
organization, based on your market and the overall environment. Don‟t be concerned about
elaborating on these topics at this stage; bullet points may be the best way to begin. Capture the
factors you believe are relevant in each of the four areas. You will want to review what you have
noted here as you work through your marketing plan. The primary purpose of the SWOT
analysis is to identify and assign each significant factor, positive and negative, to one of the four
categories, allowing you to take an objective look at your business. The SWOT analysis will be a
useful tool in developing and confirming your goals and your marketing strategy.

1.2.17.1 SWOT ANALYSIS FRAMEWORK:-
1.2.17.2 ADVANTAGES OF SWOT ANALYSIS:-
SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool,
but it involves a great subjective element. It is best when used as a guide, and not as a
prescription. Successful businesses build on their strengths, correct their weakness and
protect against internal weaknesses and external threats. They also keep a watch on their
overall business environment and recognize and exploit new opportunities faster than its
competitors.
SWOT Analysis helps in strategic planning in following manner-
It is a source of information for strategic planning.
Builds organization‟s strengths.
Reverse its weaknesses.
Maximize its response to opportunities.
Overcome organization‟s threats.
It helps in identifying core competencies of the firm.
It helps in setting of objectives for strategic planning.
It helps in knowing past, present and future so that by using past and current data,
future plans can be chalked out

STRENGTHS: A firm's strengths are its resources and capabilities that can be used as a basis for
developing a competitive advantage. Examples of such strengths include:
1. Indian Textile Industry is an Independent & Self-Reliant industry.
2. Abundant Raw Material availability that helps industry to control costs and
reduces the lead-time across the operation.
3. Availability of Low Cost and Skilled Manpower provides competitive advantage
to industry.
4. Availability of large varieties of cotton fiber and has a fast growing synthetic fiber
industry.
5. India has great advantage in Spinning Sector and has a presence in all process of
operation and value chain.
6. India is one of the largest exporters of Yarn in international market and
contributes around 25% share of the global trade in Cotton Yarn.
7. The Apparel Industry is one of largest foreign revenue contributor and holds 12%
of the country's total export.
8. Industry has large and diversified segments that provide wide variety of products.
9. Growing Economy and Potential Domestic and International Market.
10. Industry has Manufacturing Flexibility that helps to increase the productivity.
WEAKNESSES: A firm's strengths are its resources and capabilities that can be used as a basis
for developing a competitive advantage. Examples of such strengths include:-
1. Indian Textile Industry is highly Fragmented Industry.
2. Industry is highly dependent on Cotton.
3. Lower Productivity in various segments.
4. There is Declining in Mill Segment.
5. Lack of Technological Development that affect the productivity and other activities
in whole value chain.
6. Infrastructural Bottlenecks and Efficiency such as, Transaction Time at Ports and
transportation Time.
7. Unfavorable labor Laws.
8. Lack of Trade Membership, which restrict to tap other potential market.

9. Lacking to generate Economies of Scale.
10. Higher Indirect Taxes, Power and Interest Rates.
OPPORTUNITIES:
The external environmental analysis may reveal certain new opportunities for profit and growth.
Some examples of such opportunities include
1. Growth rate of Domestic Textile Industry is 6-8% per annum.
2. Large, Potential Domestic and International Market.
3. Product development and Diversification to cater global needs.
4. Elimination of Quota Restriction leads to greater Market Development.
5. Market is gradually shifting towards Branded Readymade Garment.
6. Increased Disposable Income and Purchasing Power of Indian Customer opens New
Market Development.
7. Emerging Retail Industry and Malls provide huge opportunities for the Apparel,
Handicraft and other segments of the industry.
8. Greater Investment and FDI opportunities are available.
THREATS: Changes in the external environmental also may present threats to the
firm. Some examples of such threats include:
1. Competition from other developing countries, especially China.
2. Continuous Quality Improvement is need of the hour as there are different demand
patterns all over the world.
3. Elimination of Quota system will lead to fluctuations in Export Demand.
4. Threat for Traditional Market for Power loom and Handloom Products and forcing
them for product diversification.
5. Geographical Disadvantages.
6. International labor and Environmental Laws.
7. To balance the demand and supply.
8. To make balance between price and quality.

1.2.18 THE WELFARE MEASURES FOR WORKFORCE:-
A. Welfare measures inside the work place and
B. Welfare measures outside the work place
A. Welfare measures inside the work place
1. Conditions of the work environment:
 Neighborhood safety and cleanliness
 Housekeeping; up keeping of premises
 Workshop (Room) sanitation and Cleanliness; temperature, humidity, ventilation,
lighting, elimination of dust, smoke, fumes, gases etc.
 Control of effluents.
 Convenience and comfort during work that is operative‟s posture, seating arrangements.
 Distribution of working hours and provision for rest hours, meal times and breaks.
 Supply of necessary beverages, pills and tablets like salt tablets, milk, soda etc.
2. Conveniences:
 Urinals and Lavatories, wash basins, bathrooms, provision for spittoons; waste disposal.
 Provision of drinking water, water coolers
 Mobile phones and e – mail facilities.
3. Employment Follow up:
 Progress of the operative in his/her work; his/her adjustment problems with regard to
machines and workload, supervisors and colleagues; industrial counseling.
4. Economic Services:
 Workmen‟s compensation for injury; family assistance in times of need .
B. Welfare measures outside the work place
 Housing and water facilities

1.3 INTRODUCTION TO THE TOPIC:-
“A STUDY OF WORKING CAPITAL MANAGEMENT AT GAURAV EXPORTS PANIPAT”
1.3.1 WHAT IS WORKING CAPITAL?
Working capital is how much in liquid assets that a company has on hand. Working capital is
needed to pay for planned and unexpected expenses, meet the short-term obligations of the
business, and to build the business.
In business, two types of assets are used:-
Fixed assets
Current assets
fixed
assets
current
assets
total
assets

Working capital is an important component of overall financial system. Working capital is also
known „WC‟, is a financial metric which represents operating liquidity available to business.
Along with fixed assets such as plant and equipment, working capital is considered as a part of
operating capital. It is calculated as current assets minus current liabilities. If current assets are
less than current liabilities then the entity has a working capital deficiency, also known as
working capital deficit.
1.3.2 CONCEPT OF WORKING CAPITAL:-
Gross concept
Net concept
GROSS CONCEPT:-
According to the gross concept, working capital means total of all the current assets of a
business. It is also called as gross working capital.
GROSS
CONCEPT
NET
CONCEPT
GROSS WORKING CAPITAL = TOTAL CURRENT ASSETS

NET CONCEPT:-
According to the net concept of working capital , net working capital means the excess of
current assets over current liabilities. According to this concept, if current assets are equal to
current liabilities , working capital will be zero and in case current liabilities are more than
current assets, the working capital will be called negative working capital.
Current assets are those assets which are converted into cash within one accounting period. For
example, stock, debtors, bills receivables, prepaid expenses, cash and bank balance. Similarly,
current liabilities are those liabilities which have to be paid within an accounting year, for
example, creditors, bills payable, short-term loans etc.
Net working capital can also be defined in another manner. Net working capital is
that part of current assets which has been financed from long-term funds. It is, therefore, called
circulating capital.
Gross concept and net concept of working capital have their own significance.
When individual current assets are to be managed, gross concept of working capital is used. Net
concept of working capital emphasizes on how much current assets have to be financed out of
long-term funds under this concept, the relationship between current assets and current liabilities
is established or their liquidity is determined.
1.3.3 NEED FOR WORKING CAPITAL:-
For the different operations of the business, working capital is required along with the fixed
capital. Working capital is needed for the purchase of raw material and payment of various day
to day expenses. There will be hardly any business which does not require working capital. The
need for working capital is different in different businesses. Financial management aims at
maximizing the wealth of shareholders. To achieve this objective, it is necessary to earn adequate
profits. The profits depend largely on sales but sales do not result in cash immediately. To
increase sales, goods are to be sold on credit, the collection of which takes place after sometime.
NET WORKING CAPITAL= CURRENT ASSETS – CURRENT LIABILITIES

Thus there exists a gap between sale of goods and realization of cash. During this period
expenses are to be incurred to continue business operations for this purpose working capital is
required.
It can be explained with the help of operating cycle:-
The greater the period of operating cycle, more will be the requirement of working capital.
Business enterprise engaged in trading activities have smaller duration of operating cycle as
compared to those engaged in manufacturing business because in such enterprise cash is directly
converted into finished goods.
debtors
and b/r
cash
raw
material
work -in-
progress
finished
goods

1.3.4 TYPES OF WORKING CAPITAL:-
PERMANENT WORKING CAPITAL:-
The requirements for current assets do not remain stable throughout the year and fluctuate from
time to time. A certain minimum amount of raw material , work-in-progress and finished goods
and cash must be maintained regularly in the business so that day to day operations of the
business could continue without any obstacles. The minimum requirement of current assets is
called permanent working capital or regular working capital. The arrangement of permanent
working capital should be made from long-term sources only.
VARIABLE WORKING CAPITAL:-
In certain months of the year , the level of business activities is higher than normal and,
therefore, additional working capital may be required along with the permanent working capital
.It is known as variable or temporary working capital. This part of working capital is required
due to changes in demand and supply of goods on account of change in seasons . Therefore, it
must be financed from short-term sources only so that later it can be refunded when it is not
required.
PERMANENT
VARIABLE

Difference between permanent & temporary working
capital
Amount Variable Working Capital
of
Working
Capital
Permanent Working Capital
Time
It is clear that the need for working capital remains same for whole year whereas variable
working capital needs are sometimes high and sometimes low. In a growing concern, the need
for working capital goes on rising because of increase in the level of business activities. It is
presented in the figure below:-
Variable Working Capital
Amount
of
Working
Capital
Permanent Working Capital
Time

1.3.5 FACTORS AFFECTING WORKING CAPITAL:-
Business should prepare its financial plan in such a way that it has neither surplus nor inadequate
working capital. The amount of working capital for any business depends upon various factors.
They are:-
(1) Nature of the business: - The working capital requirements of an enterprise basically depend
upon the nature of its business and operating cycle of the business. A trading concern, for
instance, requires large amount of working capital for investment in stocks, receivables and cash
etc. It requires less investment in fixed assets. A business where the proportion of cost of raw
material to be consumed to total cost of production is high, the amount of working capital
required is large, shipbuilding for instance.
(2) Size of the business: - The amount of working capital needed depends upon the scale of
operation of the business. The larger the size of the business unit, generally the larger is the
requirement of working capital and vice versa.
(3) Length of period of manufacture:- If the goods are tied up for a longer period of time in.
the production process such as ship building, heavy armaments, aero planes etc., it requires a
large amount of working capital to meet the manufacturing expenses until the payment is
received for the finished products. In case of short manufacturing process of a commodity such
as cloth, shoes etc. the capital is not tied for a longer period and as such the amount of circulating
capital will be small compared to the ship building industry.
(4) Methods of purchase and sale of commodities: - If a business is able to purchase the raw
material and other allied products on credit and is able to sell the manufactured goods on cash it
will need less amount of working capital In case the raw material is purchased on cash and goods
are sold on credit the amount of required working capital would be large.
(5) Converting working assets into cash: - If the assets of a business have liquidity i.e. they are
readily saleable for cash then less amount will be set aside for working capital. In case the assets
are not quickly saleable for cash then a greater amount f working capital will be required by it.

(6) Seasonal variation in business: - There are certain industries which purchase raw material in
the production season such as cotton, rubber and consume the material in the off season for the
manufacturing of products. These industries require large amount of working capital to purchase
the raw material in a production season and pay the wage costs in the off season.
(7) Risk in business: - A business like the oil exploration involves great risk. The business may
or may not be able to find out the oil by digging of wells: The business needs huge amount of
working capital in such risky enterprises.
(8) Size of labour force:- If the size of labour force employed in the manufacture of a product is
fairly, large, (labour intensive), the business will need a greater amount of working capital. In
capital intensive industries lesser amount of working capital is required.
(9) Price level changes:- If the prices are rising very rapidly in the country the business will
require greater amount of working capital to maintain the same current assets and vice versa.
(10) Rate of turnover:- If in a business, the sale is faster i.e., a business has rapid turn over then
the amount of working capital required may be small as cash is realized from sales. A business
where the rate of turnover is slow there is more requirement of working capital in that business.
(11) State of business activity:- When the business is prosperous it needs more working capital
for increasing the volume of business. On the contrary when the business is slack and sales
decline then less amount of working capital is required.
(12) Business policy:- If a business sets aside funds at the end of each year for the depreciation,
payment of loans and ploughing back of profits in the business, it requires less amount of
working capital. On the other hand, .a business which does not build its own internal resources,
needs larger amount of working capital to meet the day today expenses of the business and other
unexpected expenses.

1.3.6 ADVANTAGES OF ADEQUATE WORKING CAPITAL:-
Investment in fixed assets only is not sufficient to run the business. Working capital or
investment in current assets, howsoever small it is, is a must for purchase of raw materials, and
for meeting the day-to-day expenditure on salaries, wages, rents, advertising etc., and for
maintaining the fixed assets. “The fate of large scale investment in fixed capital is often
determined by a relatively small amount of current assets.” Working capital is just like a heart of
industry if it is weak; the business cannot prosper and survive, although there is a large body
(investment) of fixed assets. Moreover, not only the existence of working capital is a must for the
industry, but it must be adequate also. Adequacy of the working capital is the lifeblood and
controlling nerve center of a business. Inadequate as well as redundant working capital is
dangerous for the health of industry. It is said, „Inadequate working capital is disastrous; whereas
redundant working capital is a criminal waste‟. Both situations are not warranted in a sound
organization.
The advantages of working capital or adequate working capital may be enumerated as below: -
Cash Discount:
If a proper cash balance is maintained, the business can avail the advantage of cash discount by
paying cash for the purchase of raw materials and merchandise. It will result in reducing the cost
of production. It creates a Feeling of Security and Confidence:
The proprietor or officials or management of a concern are quite carefree, if they have proper
working capital arrangements because they need not worry for the payment of business
expenditure or creditors. Adequate working capital creates a sense of security, confidence and
loyalty, not only throughout the business itself, but also among its customers, creditors and
business associates.
„Must‟ for Maintaining Solvency and Continuing Production:
In order to maintain the solvency of the business, it is but essential that the sufficient amount t of
fund is available to make all the payments in time as and when they are due. Without ample
working capital, production will suffer, particularly in the era of cut throat competition, and a
business can never flourish in the absence of adequate working capital.

Sound Goodwill and Debt Capacity: It is common experience of all prudent
businessmen that promptness of payment in business creates goodwill and increases the
debt of the capacity of the business. A firm can raise funds from the market, purchase
goods on credit and borrow short-term funds from bank, etc. If the investor and
borrowers are confident that they will get their due interest and payment of principal in
time.
Easy Loans from the Banks: An adequate working capital i.e. excess of current assets
over current liabilities helps the company to borrow unsecured loans from the bank
because the excess provides a good security to the unsecured loans, Banks favor in
granting seasonal loans, if business has a good credit standing and trade reputation.
Distribution of Dividend: If company is short of working capital, it cannot distribute the
good dividend to its shareholders inspite of sufficient profits. Profits are to be retained in
the business to make up the deficiency of working capital. On the other contrary, if
working capital is sufficient, ample dividend can be declared and distributed. It increases
the market value of shares.
Exploitation of Good Opportunity: In case of adequacy of capital in a concern, good
opportunities can be exploited e.g., company may make off-season purchases resulting in
substantial savings or it can fetch big supply orders resulting in good profits.
Meeting Unseen Contingency: Depression shoots the demand of working capital
because sock piling of finished goods become necessary. Certain other unseen
contingencies e.g., financial crisis due to heavy losses, business oscillations, etc. can
easily be overcome, if company maintains adequate working capital.
High Morale: The provision of adequate working capital improves the morale of the
executive because they have an environment of certainty, security and confidence, which
is a great psychological, factor in improving the overall efficiency of the business and of
the person who is at the hell of fairs in the company.
Increased Production Efficiency: A continuous supply of raw material, research
programme, innovations and technical development and expansion programmes can
successfully be carried out if adequate working capital is maintained in the business. It

will increase the production efficiency, which will, in turn increases the efficiency and
morale of the employees and lower costs and create image among the community.
1.3.7 MANAGEMENT OF WORKING CAPITAL:-
“A managerial accounting strategy focusing on maintaining efficient levels of both components
of working capital, current assets and current liabilities, in respect to each other. Working capital
management ensures a company has sufficient cash flow in order to meet its short-term debt
obligations and operating expenses”
Implementing an effective working capital management system is an excellent way for many
companies to improve their earnings. The two main aspects of working capital management are
ratio analysis and management of individual components of working capital.
A few key performance ratios of a working capital management system are the working capital
ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify
areas of focus such as inventory management, cash management, accounts receivable and
payable management.
1.3.8 APPROACHES TO DETERMINE THE FINANCING OF WORKING CAPITAL:-
1. Matching or Hedging approach:
When the firm uses long term sources to finance fixed assets andpermanent current assets, and
short term financing to finance temporary current assets.
2. Conservative approach:
Under this approach a firm finances its permanent assets and also apart of temporary current
assets with long term financing. It relies heavily on long term financing and is less risky so far as
solvency is concerned, however, the funds may be invested in such instruments, which fetch
small returns to build up liquidity. This adversely affects profitability.
3.Aggressive Approach: The firm uses more short term financing than what is justified, in this
approach. The firm finances a part of its permanent current assets with short term financing. This
is more risky but may add to the return on assets.

1.3.9 PRINCIPLES OF WORKING CAPITAL:-
There are four principle of working capital management. They are being depicted as below:
(i) Principle of Risk Variation: - The goal of WC management is to establish a suitable trade
between profitability and risk. Risk here refers to a firm's ability to honor its obligation as and
when they become due for payments. Larger investment in current assets will lead to
dependence. Short term borrowings increases liquidity, reduces risk and thereby decreases the
opportunity for gain or loss On the other hand the reserve situation will increase risk and
profitability And reduce liquidity thus there is direct relationship between risk and profitability
and inverse relationship between liquidity and risk.
(ii) Principle of Cost Capital: - The various sources of raising WC finance have different cost
of capital and the degree of risk involved. Generally higher the cost lower the risk, Lower the
risk higher the cost. A sound WC management should always try to achieve the balance between
these two.
(iii) Principle of Equity Position: - This principle is considered with planning the total
investment in current assets. As per this principle the amount of WC investment in each
component should be adequately justified by a firms equity position Every rupee contributed
PRINCIPLE
OF RISK
VARIATION
PRINCIPLE
OF COST
CAPITAL
PRINCIPLE
OF EQUITY
POSITION
PRINCIPLE
OF
MATURITY
OF
PAYMENT

current assets should contribute to the net worth of the firm The level of current assets may be
measured with the help of two ratios. They are:
· Current assets as a percentage of total assets.
· Current assets as a percentage of total sales.
(iv) Principle of Maturity of Payment: - This principle is concerned with planning the source
of finance for WC. As per this principle a firm should make every effort to relate maturities of its
flow of internally generated funds in other words it should plan its cash inflow in such a way that
it could easily cover its cash out flows or else it will fail to meet its obligation in time.
1.3.10 COMPONENTS OF WORKING CAPITAL MANAGEMENT:-
There are three basic components of working capital management. They are:-
INVENTORY MANAGEMENT:-
Inventory management is the process of efficiently overseeing the constant flow of units into and
out of an existing inventory. This process usually involves controlling the transfer in of units in
Working
Capital
Management
Inventory
Management
Cash
Management
Receivables
Management

order to prevent the inventory from becoming too high, or dwindling to levels that could put the
operation of the company into jeopardy. Competent inventory management also seeks to control
the costs associated with the inventory, both from the perspective of the total value of the goods
included and the tax burden generated by the cumulative value of the inventory.
CASH MANAGEMENT:-
The corporate process of collecting, managing and (short-term) investing cash. A key component
of ensuring a company's financial stability and solvency. Frequently corporate treasurers or a
business manager is responsible for overall cash management.
Successful cash management involves not only avoiding insolvency (and therefore bankruptcy),
but also reducing days in account receivables (AR), increasing collection rates, selecting
appropriate short-term investment vehicles, and increasing days cash on hand all in order to
improve a company's overall financial profitability.
RECEIVABLES MANAGEMENT:-
The credit and the collection policies should be properly laid down and effectively implemented
to manage the accounts receivables efficiently. The credit policies should be such which balance
the risk on one hand and profitability on the other hand. The investment in the receivables should
be at the optimum level.
ESTIMATING THE WORKING CAPITAL:-
1.3.11 TECHNIQUES:-
There are certain techniques used for finding the optimum level of working capital or
management of different items of working capital.

Intersection of Carrying Cost and Shortage Cost: One of the important methods of
finding the optimum level of working capital is the point of intersection of carrying cost
and shortage cost in a graphical representation. The total of carrying and shortage cost is
minimum at this point.
Here, the levels of current assets are optimum at the point where the shortage and carrying costs
are meeting or intersecting. At this point, the total cost, as we can see, is minimum and this is
why that level of current assets is considered to be optimal.
Working Capital Financing Policy: Working capital can be divided into two viz.
Permanent and Temporary. Permanent working capital is the level of working capital
which is always required and maintained. Temporary working capital is the part of
working capital which keeps on fluctuating. It is high in good seasons and low in bad
seasons. There are two types of financing available. They are long term financing and
short term financing. Three strategies are possible with respect to financing of working
capital. Efficient financing of working capital reduces carrying cost of capital.
Long term financing is used for both permanent and temporary WC.
techniquese.o.q.
just-in-time
carrying cost
and shortage
cost working
capital
financing
policy
capital
budgeting

Long term financing is used for permanent and some part of temporary WC. Remaining part of
temporary WC is financed through short term financing as and when required.
Long term financing is used for permanent and short term financing for temporary WC.
These strategies should be chosen so as to match the maturity of source of finance with the
maturity of the asset.
Cash Budgeting: Cash budgeting is another important technique for working capital
management which helps keeping optimum level of cash in the business. Cash budgeting
involves estimating the requirements of cash by estimating all the fore coming receipts
and payments. For effective management, a balance is needed between both excess and
shortage of cash. It is because both ends are costly. Speeding up of collection and getting
relaxed credit terms from the creditors can reduce the cash requirements.
Inventory Management: Inventory is an important component of working capital or current
assets. Optimum level of inventory can save on costs heavily.
EOQ: Economic Order Quantity (EOQ) model is a famous model for managing the
inventories. It helps the inventory manager know how to find the right quantity that
should be ordered considering other factors like cost of ordering, carrying costs, purchase
price and annual sales. The formula used for finding EOQ is as follows:
EOQ = √{ (2 * A * O) / (P * C)}
A – Annual Sales
O – Cost per Order
P – Purchase price per unit
C – Carrying Cost
Just-in-Time: Just-in-time is another very important technique which brought about
paradigm shift in the management of inventories. It did not reduce cost of inventory but it

abolished it completely. Just-in-time means acquiring raw material or manufacturing
product at the time when it is required by the customer. This strategy is very difficult to
implement but if implemented can bring down inventory cost to minimum levels.
These are some important techniques discussed here. They are very effective in managing
working capital. Managing working capital means managing current assets. Current assets like
cash can be managed using cash budgeting; inventory can managed using inventory techniques
like EOQ and JIT. Debtors and financing of working capital can be managed using appropriate
sources of finance.

Chapter 2
LITERATURE REVIEW:-
Introduction:-This chapter discusses the literature about working capital management. This
literature was obtained from textbooks, and publication, periodicals research reports, the
company financial documents and Internet among others.
2.1 Working Capital Management
Samuels said that funds management is the planning, controlling and the effective utilization of
funds. Money can be earned not only through manufacture and distribution but also through the
management of all its assets that it employees. The best funds management policy is through
funds budgets. A company can decide on the funds that it will have available for short-term
investment at a particular time depending on the nature of business and season. If a business is
seasonal or trade is cyclical, funds budgets will show when the surplus funds that will be
available and what length of time will elapse before they are required. Some companies will
borrow money in case of deficit spending to satisfy their seasonal needs (Samuels, 2006).
Kakuru said that every organization must establish funds management policies or guidelines to
ensure that it has optimal funds balance at any time when it requires it. This can be achieved by
implementing the following funds management policies. The organization must ensure that it
speeds up funds inflows through efficient credit policy. For example timely preparation and
delivering of customer invoices, making customers to pay their outstanding by allowing funds
discounts. This will enable the firm to keep in a liquid position and carry on its operations
efficiently (kakuru, 2000).
Firms hold funds for primary reasons but although the first two of these are generally satisfied by
holding actual funds (a checking account balance, the last two requirements may be meet, instead
by holding highly liquid marketable securities. Funds inflows and out flows are somewhat
unpredictable with the degree of predictability varying among firms and industries. Therefore
firms need to hold some funds (or more often marketable securities) in reserve for random,
unforeseen fluctuations in inflows and outflows. These „safely stock‟ of funds are called the

precautionary balance and the less predictable the firm‟s funds flows the larger the necessary
funds balance (Bodil, 1995).
Funds balance may also be held to enable the firm to take advantage of any bargain purchases
that might arise, these funds are defined as speculative balances. For example reduction in the
price of raw materials, any profitable short-term investment that may happen, the firm should
maintain such balance to take advantage of the investment opportunities that may arise(
Campsey ,2005).
Lending institutions such as banks, makes money by lending out funds that have been deposited
with it. So the larger its deposits, the better the bank profit position. If a bank is providing
services to a customer, it generally requires the customer to leave a minimum balance on deposit
to help offset the cost of providing the service (Campsey, 2008).
Funds balances are necessary in business operations because payments must be made in funds
and the receipts are deposited in the funds account. These funds balances are associated with
routine payments and collections are known as transaction balances ( Knott,2008).
Although a carefully prepared funds budget is a necessary starting point for managing the firm‟s
funds, there are other elements of a good funds management programs. The primary funds
management activities are performed jointly by the firm and its main bank, but the financial
manager is responsible for the effectiveness of the funds management programs. The most
commonly funds management techniques (Knott ,2008).
One way, in which a firm can keep its funds on hand longer, would simply be by delay
payments, but this would lead to such obvious difficulties as being labeled “a dead beat”. Firms
have always lengthened the collection period for their cheques so as to delay funds out flows.
Payables Centralization permits the financial manager to evaluate the payment coming, one for
the entire firm and to schedule funds transfers to meet the needs of the company wide basis.
Centralizing disbursements also permits more efficient monitoring of payables and float
balances (Van ,2000).

When a firm is actively trying to use floats, it will often arrange with its bank to have the use of
an overdraft system. In such a system, the firm writes cheques in excess of its actual balance and
its bank automatically extends loans to cover funds shortage. The overdraft is sometime interest
free so the firm can use it to carry out its operations, which can yield a return in the long run
(Sanford etal ,2001).
2.2 Financial Performance
A customer is the most important visitor on business premises; he is not dependent on business.
Business is dependent on him. He is not an interruption in business work. He is the purpose of it.
He is not an outsider in business. He is part of it. Business men are not doing him a favor by
serving him. He is doing them a favor by giving them an opportunity to do so (Alm ,2000).
The profit motive is not only fundamental to our ability to reward shareholders and pay
employees; it's fundamental to excellent journalism. Far from corrupting the craft, profits
enhance it. Expansion drives diversity and diversity protects and strengthens our craft.
Nevertheless Money is only used for two things. One, it‟s to make you comfortable, and the
more comfortable you are the more creative you will become. And the other purpose is it enables
you to extend the service you provide far beyond your own presence (Alm, 2003).
The country is now universally recognized as a nation on the move and takes its place amongst
the successful economies in the region. The future potential is enormous but the country's destiny
is in our hands. The time has come to move from small increments to bold, large initiatives. The
time has come to stretch the envelope and set goals which were earlier not seen to be possible.
The time has come for performance to be measured and for allocated funds of the government to
reach the people for whom they were intended (Matovu and Ritva 2001).
The theories discussed so far all recognize that the attitudes and abilities of the business owner
have an important impact on small firm growth and will be reflected in strategic choices and the
ways in which he or she operates the business. The following section will draw from a variety of
theoretical and empirical sources on small firm growth for the purpose of developing expected

theoretical relationships between particular sets of variables, or factors of growth, and business
growth (Matovu and Ritva ,2001).
It has been proposed in the literature that women may have fewer opportunities to develop
relevant experiences, may have fewer networks to get assistance and may have greater difficulty
in assembling resources (Sexton and Robinson , 1989).
There is some evidence that banks may impose more stringent requirements on women business
owners in regard to collateral for loans, and therefore limit their ability to grow (Riding and
Swift, 1990).
Women may also be more family oriented and be less keen in pursuing economic goals related
to expansion of the firm (Brush, 2002).
Cooperatal found that being female had a negative impact on the growth of small ventures but
had no impact on the survival of the firm (Cooperetal, 2004).
Younger individuals may be more willing to assume risks and grow their business. Following
Davidson's argument, a younger individual may have a higher need for additional income. The
burden of supporting a family and meeting mortgage payments generally declines with age. An
older individual who continues to be the owner- manager of a small firm is more likely to have
reached his/her initial aspirations. However, while younger individuals have more motivation to
expand their business they also may have fewer financial resources and fewer networks. The
limited empirical evidence suggests that the owner-manager's age tends to be negatively related
to growth (Boswell, 2003).
Evidence suggests that immigrants are more likely to become self-employed and that they are
more likely to create higher incomes from this activity than will native entrepreneurs. The
explanation for this differential is that immigrants create enclaves by concentrating in specific
geographic areas, which in turn create and expand opportunities for small entrepreneurial
ventures, in particular for immigrants of the same national background as the residents of the
enclave. However, it is suggested that there may be limits to the growth of entrepreneurial
ventures owned by immigrants as enclaves are in poor locations and offer limited access to the

general market. It is also suggested that immigrants may have fewer contacts and more difficulty
in obtaining insurance, credit from suppliers and access to prosperous customers. No study has
linked immigration status to business growth. However, there is some empirical evidence that
suggests that being part of a racial minority is linked to lower probabilities of both survival and
growth (Cooperetal ,2004).
The effect of education has been widely studied. Education is presumably related to knowledge
and skills, motivation, self-confidence, problem solving ability, commitment and discipline.
Higher education is expected to increase the ability of the entrepreneur to cope with problems
and seize opportunities that are important to the growth of the firm. Empirical evidence on the
effects of education on firm performance is mixed. In ten out of seventeen empirical studies
surveyed, found a positive relationship between prior level of education and firm performance.
He found that having a Bachelor's degree has a positive impact on both survival and growth of
small ventures (Cooperetal, 2004).
According to the small business literature, there is a distinct difference between the small
business owner and the entrepreneur (Birch,2007).
"Income substitute‟s" and "entrepreneurs", the former substituting paid-employment income
with business income, the latter being committed to the growth of their business. Similarly, Hay
makes the distinction between "value builders" and "life-style‟s." The latter seek long-term
stability instead of growth, and use the business as a means of generating income sufficient to
support a certain "life-style." Canadian evidence supports this finding. In an Ontario survey of
small business start-ups, half of new firm owners intended that their business would simply
generate enough income to make a living for themselves (Blatt, 2003). Therefore, for
entrepreneurial ventures the willingness of the owner-manager to grow is as important as his
ability to foster and manage growth (Hay , 1994).
Entrepreneurial intensity refers to the willingness of the individual to assume risk and be pro-
active as an indicator of commitment to growth McCelland. The level of active risk taking by the
owner-manager may also determine how willing he/she is to tap the various resources necessary

for developing the firm. Active risk taking is demonstrated by the owner-manager's willingness
to accept personal financial risk (McCelland , 2001).
Perren, in sixteen case studies of micro-enterprises, found that active risk taking was a key
factor that conditioned the owner-manager's willingness to tap the physical, material, financial
and intangible resources necessary for firm growth beyond the micro-enterprise phase (Perren,
2005).
It is likely that individuals who hold a concurrent paid-employment job may have neither the
time nor the motivation to invest in the growth of their business. It is likely that some of these
individuals are complementing their paid-employment income with some independent business
income, in order to support a certain lifestyle (Ridingetal 2008).
Management know-how embodied in the entrepreneur may be an important factor in the growth
of the firm. Management know-how may result from having had parents who were entrepreneurs
themselves, or from previous paid-employment experience in a similar business, or by previous
management experience of the owner. Furthermore, management know-how may be acquired
through the owner-manager having access to professional advisors or a network of contacts such
as suppliers, customers, business associations, etc., or from involvement of partners (Matovu
and Ritva, 2001).
A number of studies have shown that entrepreneurs are more likely to be from families in which
the parents owned a business. It is assumed that young individuals develop knowledge of what is
involved in running a business Dushenseau and Gardner and that they are more likely to perceive
entrepreneurship as a viable career choice (Dushenseau and Gardner, 1988).
There is indeed some empirical evidence to suggest that coming from an entrepreneurial family
background increases the likelihood of survival Cooperetal. However, there is little evidence on
the impact of family background on the growth prospects of an entrepreneurial venture. Though
one study has found no relationship between entrepreneurial background and growth of a small
venture Cooperetal, we will test whether coming from a family of entrepreneurs has a positive
impact on business growth (Cooperetal, 2004).

CHAPTER – 3
RESEARCH METHODOLOGY
3.1 MEANING OF RESEARCH
Research in general refers to the search of knowledge. One can also define research as a
scientific & systematic collection of information.
In simple words research is the careful investigation or enquiry of markets especially through
search for new facts in any branch of knowledge.
Research is Scientific and systematic search for gaining information and knowledge on a specific
topic or phenomena.
Research refers to the systematic method consisting of :

Enunciating the problem,
Formulating a hypothesis,
Collecting the fact or data,
Analyzing the facts and
Reaching certain conclusions either in the form of solutions towards the concerned
problem or in certain generals for some theoretical formulation.
Research methodology is a way to systematically solve the research problem. It may be
understood as the science of studying how research is done. Research in the common parlance
refers to a search for knowledge.
3.2 JUSTIFICATION OF STUDY
This study helps in deciding the mix up of various sources and needs of advertising strategy.
This study also describes certain factors that explain measures that how we can make advertising
more effective. A right advertising strategy decision reduces the cost and increases the value of a
firm while a wrong decision can adversely affect the value of the firm. These all practical points
are very difficult to be understood through books therefore this study provides a practical
knowledge on the advertising strategy concept.
ENUNCIATING THE PROBLEM
FORMULATING A HYPOTHESIS
COLLECTING THE FACT OR DATA
ANALYZING THE FACTS
REACHING CERTAIN CONCLUSIONS

3.3 OBJECTIVES OF STUDY
MAIN OBJECTIVE
To analyze the Advertising Strategy in „GAURAV EXPORTS‟.
Study of advertising strategy is important because all business are to make profits and a
merchandising concern can do that by increasing its sales at remunerative prices. This is
possible, if the product is widely polished to be audience the final consumers and through
convincing arguments it is persuaded to buy it, if an appropriate advertising strategy is followed.
Sub Objectives of the Study
To understand the advertising procedure of the company.
To study the advertising budget of the company.
To analyze the sales of the company.
Consumer satisfaction.
To ensure sufficient cost-effective flow of goods.
To verify the level from point of origin to point of consumption.
To study the availability of different concessional and duty drawback schemes available.
To study the advertising strategy for retaining existing customer.
3.4 SCOPE OF THE STUDY
This study has widened the scope for studying the company on various other parameters:-
The present study can be extended to access the present working condition of
the company.
The study can be used to design a plan for short-term borrowings from the
market.
From the present study we can know the areas of short-term capital
utilization.
The result of marketing success can be interpreted to assess the credit paying
capacity of the company.

3.5 RESEARCH DESIGN
The research design constitutes the blueprint for the collection, measurement and analysis of
data. It aids the scientists in the allocation of his limited resources by posing actual choices.
“Research Design is the plan and structure of investigation so conceived as to obtain answer
to research questions.”
So in brief research design must contain at least following points:
Clear statement of research problem.
Procedure and techniques to be used for gathering information.
Methods used in processing and analyzing the data.
3.6 TYPES OF RESEARCH DESIGN:
Research design in case of exploratory research.
Research design in case of descriptive research.
3.7 RESEARCH DESIGN USED :
The research design used in this project report is descriptive research design. A Descriptive
research design is a scientific method which involves observing and describing the behavior of a
subject without influencing it in any way.
The methods used in context of this research design are:
The survey of concerning literature,
Experience Survey.
The important features of this research design are listed as follows:
The sampling design used is Non-Probability Sampling design and it is flexible in nature.
There is a no pre-planned design for the analysis.
No fixed decisions about the logistics operational procedures.

3.8 SOURCES OF DATA COLLECTION
Data collection is in fact, the most important aspect of a survey. While collecting data utmost
care must be exercised because data constitute the foundation on which the superstructure of
statistical analysis is built. If the data are inaccurate and inadequate the entire analysis may be
faulty and the decision taken would be misleading.
Both Primary and Secondary mode of data collection has been used in the project. The different
sources for collecting data are as follows-
 Primary Data
Interview of Export House Owner
Through Export House Accountant
 Secondary Data
Secondary data are those which have already been collected by someone else and which
have already been passed through the statistical process. The Secondary data consist of reality
available compendices already complied statistical statements. Secondary data consists of not
only published records and reports but also unpublished records.
Here we done the analysis on basis of secondary data, which included-
PRIMARY
DATA
SECONDARY
DATA

Balance sheet of company
Profit and loss A/C of GAURAV EXPORTS
Cost sheets, & Trail balance of five years
3.9 LIMITATIONS OF STUDY
Efforts had been made to collect the relevant information through the sources available; still
some relevant information could not be gathered.
The time duration could not provide ample opportunity to study every detail of
management in the company.
There are restrictions not to visit some specific areas such as cash room, storeroom etc.
Some figures have not been disclosed by the company on account of confidential report,
leading to restriction in analysis.
Since most of the data used is secondary in nature, this poses the constraints on the
validity and reliability of the data.
There was a problem in taking appointments from the managers.
Sources were confounded some time to give proper information.
The time stipulated for the project to be completed is less and thu s there
are chances that some information might have been left out, however due
care is taken to include all the relevant information needed.
More Dependence on the secondary data limits the information gathered.
3.10 MANAGERIAL USEFULNESS OF THE STUDY
The effectiveness of the training programmes can be established through this study.
This study helps to understand, analyze & apply the core concepts of training in an
organization.
Managers would be able to identify the need of training for its employees.
Managers would know what employees think of the training and development
programmes and make changes if necessary.

LIMITATIONS OF THE STUDY
As central purchase office, purchase raw material and central marketing yarn make sales.
Information that is so more detailed cannot be received about these.
Cash from debtors a collected by the corporate office through commission agents. So
efforts for collection of debtors cannot be clearly known from GAURAV EXPORTS,
PANIPAT.

CHAPTER:- 4
DATA ANALYSIS AND INTERPRETATION
4.1 WHY WORKING CAPITAL IS IMPORTANT FOR THE COMPANY?
The working capital plays an important role in managing the financial health of
the firm during the normal course of business. By far the major flow, in terms of its
yearly magnitude , is the working capital cycle. This is the loop which starts at the cash
and marketable securities account, goes through the current accruals accounts as direct
labour and materials are purchased and used to produce inventory, which is in turn sold
and generates accounts receivables, which are finally collected to replenish cash. The
major point to notice about this cycle is that the turnover of resources through this loop is
very high relative to the other inflows and outflows of the cash account.
To see why this cycle is critically important to the firm‟s survival, visualize the cash
account as a bathtub with both the drain and the faucet open. While there are other
inflows and outflows, the major flow is the working capital cycle. As long as the firm has
cash and marketable securities on hand, it can pay bills and thus survive. But if for some
reason the resources stop flowing in, as when one of the working capital accounts slows
in turnover and starts draining off resources, the level of the tub starts to fall. Unless the
firm takes relatively costly action, such as raising new external funds, reducing dividend
outflows, or postponing capital expenditures, the resources will all drain out , the firm
will be unable to pay bills, and financial embarrassment will occur. It is clear that the
working capital cycle is the lifeblood of the firm.

Used in
Used in
Working capital cycle
production process generates used in purchases
used in
purchases
via salescollection used in
generation process
return to capital external
financing
ACCRUED DIRECT
LABOUR AND MATERIAL
ACCRUED FIXED
OPERATING
EXPENSES
CASH AND
MARKETABLE
SECURITIES
INVENTORY
ACCOUNTS
RECEIVABLES
SUPPLIERS OF CAPITAL
FIXED ASSETS

It would seem a practical solution to this problem to keep a very high balance in the cash and
marketable securities account. In this way, when flow problems occur, hasty and painful
remedial actions will not be necessary since the large reserves provides some safety; the leaks
can be plugged before the water is exhausted. However, such a strategy can depress the level of
a firm‟s profitability, since cash and marketable securities are two of the firm‟s least profitable
assets. A major function of decision making for working capital is the management of the
various working capital accounts with regard to the firm‟s level of liquidity: not too much
liquidity and not too little liquidity.
WORKING CAPITAL ANALYSIS:-
As we know working capital is the life blood and the centre of a business. Adequate amount of
working capital is very much essential for the smooth running of the business. And the most
important part is the efficient management of working capital in right time. The liquidity position
of the firm is totally effected by the management of working capital. So, a study of changes in
the uses and sources of working capital is necessary to evaluate the efficiency with which the
working capital is employed in a business. This involves the need of working capital analysis.
The analysis of working capital can be conducted through a number of devices, such as:
1. Ratio analysis. 2. Fund flow analysis. 3. Budgeting.
1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio analysis
can be employed for measuring short-term liquidity or working capital position of a firm. The
following ratios can be calculated for these purposes:
1. Current ratio. 2. Quick ratio
3. Absolute liquid ratio 4. Inventory turnover.
5. Receivables turnover. 6. Payable turnover ratio.
7. Working capital turnover ratio 8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS
Fund flow analysis is a technical device designated to the study the source from which additional
funds were derived and the use to which these sources were put. The fund flow analysis consists
of:
a. Preparing schedule of changes of working capital
b. Statement of sources and application of funds.
It is an effective management tool to study the changes in financial position (working capital)
business enterprise between beginning and ending of the financial dates.

KEY WORKING CAPITAL RATIOS
The following, easily calculated, ratios are important measures of working capital utilization.
Ratio Formulae Result Interpretation
Stock
Turnover
(in days)
Average Stock *
365/
Cost of Goods
Sold
= x days On average, you turn over the value of your entire
stock every x days. You may need to break this
down into product groups for effective stock
management.
Obsolete stock, slow moving lines will extend
overall stock turnover days.
Receivables
Ratio
(in days)
Debtors * 365/
Sales
= x days It takes you on average x days to collect monies due
to you. If your official credit terms are 45 day and it
takes you 65 days.
One or more large or slow debts can drag out the
average days. Effective debtor management will
minimize the days.
Payables
Ratio
(in days)
Creditors * 365/
Cost of Sales (or
Purchases)
= x days On average, you pay your suppliers every x days. If
you negotiate better credit terms this will increase.
If you pay earlier, say, to get a discount this will
decline
Current Ratio Total Current
Assets/
Total Current
Liabilities
= x times Current Assets are assets that you can readily turn in
to cash or will do so within 12 months in the course
of business. Current Liabilities are amount you are
due to pay within the coming 12 months.
Quick Ratio (Total Current
Assets -
Inventory)/
Total Current
Liabilities
= x times Similar to the Current Ratio but takes account of the
fact that it may take time to convert inventory into
cash.

Working
Capital Ratio
(Inventory +
Receivables -
Payables)/
Sales
As %
Sales
A high percentage means that working capital needs
are high relative to your sales.
Statement showing change in working capital for GAURAV EXPORTS :-
(Rs. in THOUSANDS)
Particulars 09-10 10-11 Increase ( + ) Decrease (- )
Current Assets
Inventories 12800. 18715. 5915 --
Sundry Debtors 6186. 7894. 1706 --
Cash & Bank 2930. 275. -- 2655.
Loan & Advances 7201. 3775. -- 3424.
Total ( A ) 29117. 30659.
Current Liabilities
C.L.and provisions 8872. 10160. -- 1288.
Total ( B ) 8872. 10160.
( A-B ) 20245. 20499. 7621. 7367.
↑ in working capital 254. 254.
Total 20499 20499 7621 7621

CALCULATION OF WORKING CAPITAL FOR GAURAV EXPORTS.
(Rs.in THOUSANDS)
YEAR 31.03.10 31.03.11
CURRENT ASSETS
INVENTORIES 12800. 18715.
SUNDRY DEBTORS 6186. 7894.
CASH AND BANK 2930. 275.
LOANS & ADVANCES 7201. 3775.
TOTAL CURRENT ASSESTS 29117. 30659.
LESS:-
CURRENT LIABILITIES AND PROVISIONS
C.L. & PROVISIONS 8872. 10160.
TOTAL C.L. 8872. 10160.
NET CURRENT ASSETS 20245. 20499.
BANK BORROWINGS FOR
W.C.
13822. 12500.
NET WORKING CAPITAL 6423 7999

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL
INVENTORY ANALYSIS
Inventory is total amount of goods and materials content in a store of factory at any given time.
Inventory means stock of three things:-
1. Raw materials
2. Semi finished goods.
3. Finished goods.
POSITION OF INVENTORY IN GAURAV EXPORTS
(Rs. in THOSANDS)
PARTICULAR 2010 2011
STORES 587. 482.
RAW
MATERIAL
6474. 9746.
FINISHED
GOODS
3834. 5545.
W.I.P 1905. 2942.
TOTAL 12800. 18715.

Analysis through chart:
INTERPRETATION:
As we analyze the financial statements of the company we come to know that the sale of the
company increases so as we know that the sales increases due increase in the demand of the
product. So in order to meet the demand of the customers company has to increases its
production. And in order to increase the production company needs more raw materials. So we
can see that Raw material for the financial year 2010 was 6474 and it is increase to 9746 IN
2011.We can say that raw material is increased by 3272 IN 2010 to 2011 fiscal year. This is
necessary for smooth production so that there is no shortage of raw material, and also to avoid
the unnecessary delays in production.
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2010 2011
STORES
RAW MATERIAL
FINISHED GOODS
W.I.P

SUNDRY DEBTORS ANALYSIS
Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales are made.
Position of Sundry Debtors in GAURAV EXPORTS
(Rs.in thousands)
PARTICULAR 2010 2011
Receivable other than
export and deferred
5696. 7457.00
Export receivable 490. 437.
TOTAL 6186. 7894.

INTERPRETATION
As we analyze the above table we come to know that debtors in 2010 it increases by 1761 in
2011.
So we can say that credit sales of company also increases because debtors and bill receivables
only arises when credit sales are made.
0
2000
4000
6000
8000
2010
2009
AMOUNTS
YEARS
RECEIVABLE ANALYSIS
Recevinable other than export and
deferred
Export receivable

LOANS AND ADVANCES ANALYSIS
Loans and Advances here refers to any to amount given to different parties, company, employees
for a specific period of time and in return they will be liable to make timely repayment of that
amount in addition to interest on that loan.
Position of Other Loans & Advances in GAURAV EXPORTS
(Rs. in lacks)
PARTICULAR 2009 2010 2011
ADVANCE TO SUPPILERS 1533.27 1450.00 1490.00
ADVANCE PAYMENT OF
TAXES
705.65 ------ ------
PREPAID EXPENSES &
ADVANCES
2378.11 2250.00 2335.00
DUTY DRAWBACK & CASH
INCENTIVES
82.18 75.00 146.50
INVESTMENT OTHER THAN
LONG TERM
2502.27 ----- ------
TOTAL 7201.48 3775.00 3971.50

INTERPRETATION
From above we can see that the advance payment supplier is decreased by 5.43% for the
financial year 2010 from 1533.27 of the previous 2009 and then it is increased by 2.75% in 2011
i.e. 1490 so we can say that advance payment to the supplier is increased in 2011.so we can say
that company want to take advantage of cash discount which is provided by the supplier for the
advance cash payment made by the Company and it also have positive impact on goodwill of
company and it‟s the sign of satisfactory financial position of the company.
0
500
1000
1500
2000
2500
3000
2009
2010
2011
1533.27
1450 1490
705.65
0
0
2378.11
2250 2335
82.18
75
146.5
2502.27
0
0
AMOUNT
YEARS
LOANS & ADVANCES
ADVANCE TO SUPPILERS
ADVANCE PAYMENT OF TAXES
PREPAID EXPENSES & ADVANCES
DUTY DRAWBACK & CASH
INCENTIVES
INVESTMENT OTHER THAN LONG
TERM

68 | P a g e
CURRENT LIABILITIES ANALYSIS
Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities that has to be paid by the firm within one year.
Position of Other Current Liabilities in GAURAV EXPORTS
(Rs.in thousands)
PARTICULARS 2009 2010 2011
i. Creditors for purchases 2716.71 3726.00 4278.00
ii. Bills payable under L/C for raw
material
3016.18 2475.80 2900.00
iii. Advance received from
customers
225.14 300.00 357.00
iv. Accrued expenses 1271.96 1402.50 1475.00
v. Statutory liability 257.86 290.00 332.00
vi. Installment of fixed asset loans
due to within a year
1380.96 1965.90 2088.36
TOTAL 8872.37 10160.20 11430.36

69 | P a g e
INTERPRETATION
If we analysis the whole current liability we can see that current liability is increased by 1287.83
and 1270.16 for the financial year 2009-10 and 2010-11 respectively. It is increasing by 13.5
respectively. If we see only creditors for purchase we got can say that in 2010 it is increased by
1009.29 in 2010 from 2716.71 for the financial year of 2010 and it is increased by 552 in 2011.
So we can say that the purchase of the company is increasing in all financial year annually
increased by 12% and we can also see that advances received from customers are also increasing
that is in 2010 it is increased by 74.86 from 225.14 and 57 in 2011. So we can say that more cash
is coming so we can say that liquidity position of the company becoming strong.
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2009
2010
2011
2716.71
3726
4278
3016.18
2475.8
2900
225.14
300
357
1271.96 1402.5
1475
257.86
290
332
1380.96
1965.9 2088.36
AMOUNT
YEARS
CURRENT LIABILITIES & PROVISIONS
Creditors for purchases
Bills payable under L/C for raw
material
Advance received from customers
Accrued expenses
Statutory liability
Installment of fixed asset loans due to
within a year

70 | P a g e
CURRENT LIABILITIES ANALYSIS
Current liabilities are any liabilities that are incurred by the firm on a short term basis or current
liabilities that has to be paid by the firm within one year.
Position of Other Current Liabilities in GAURAV EXPORTS:
(Rs.in thousands)
PARTICULARS 2009 2010 2011
i. Creditors for purchases 2716.71 3726.00 4278.00
ii. Bills payable under L/C for raw
material
3016.18 2475.80 2900.00
iii. Advance received from
customers
225.14 300.00 357.00
iv. Accrued expenses 1271.96 1402.50 1475.00
v. Statutory liability 257.86 290.00 332.00
vi. Installment of fixed asset loans
due to within a year
1380.96 1965.90 2088.36
TOTAL 8872.37 10160.20 11430.36

71 | P a g e
INTERPRETATION
If we analysis the whole current liability we can see that current liability is increased by 1287.83
and 1270.16 for the financial year 2009-10 and 2010-11 respectively. It is increasing by 13.5
respectively. If we see only creditors for purchase we got can say that in 2010 it is increased by
1009.29 in 2010 from 2716.71 for the financial year of 2010 and it is increased by 552 in 2011.
So we can say that the purchase of the company is increasing in all financial year annually
increased by 12% and we can also see that advances received from customers are also increasing
that is in 2010 it is increased by 74.86 from 225.14 and 57 in 2011. So we can say that more cash
is coming so we can say that liquidity position of the company becoming strong.
2716.71
3726
4278
3016.18
2475.8
2900
225.14 300 357
1271.96
1402.5 1475
257.86 290 332
1380.96
1965.9
2088.36
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2009 2010 2011
AMOUNT
YEARS
CURRENT LIABILITIES & PROVISIONS
Creditors for purchases
Bills payable under L/C for raw
material
Advance received from customers
Accrued expenses
Statutory liability
Installment of fixed asset loans due
to within a year

72 | P a g e
WORKING CAPITAL RATIO’S OF COMPANY
GROSS PROFIT RATIO OF GAURAV EXPORTS:
Gross Profit Ratio
Gross Profit * 100
Sales
2009 2010 2011
Gross Profit ratio: - 18.11 17.99 18.82
ANALYSIS THROUGH CHART
Interpretation: Gross profit ratio of the company is 18.11% for the year 2009 and it is
decreased to 17.99% in 2010. It is because the cost of the company has minor increase because
of increase in raw material cost. Then company‟s gross profit ratio increased to 18.82 which is
best for company so we can say that company‟s position is strong for the financial year 2011.
17.5
18
18.5
19
2009
2010
2011
18.11
17.99
18.82
YEARS
GROSS PROFIT RATIO

73 | P a g e
NET PROFIT RATIO OF GAURAV EXPORTS:
Net Profit Ratio
Net Profit * 100
Sales
2009 2010 2011
Net Profit ratio: - 4.72 4.02 5.38
Interpretation
Company‟s net profit is 4.72% in the year 2009 and then it is decreased to 4.02 in 2010. But in
2011 by covering minor decrease in previous year with, 70%. But from above data and by seeing
the overall earning we can say that company is in good position.
0
2
4
6
2009
2010
2011
4.72
4.02
5.38
YEARS
NET PROFIT RATIO

74 | P a g e
POSITION OF RECEIVABLE RATIO IN GAURAV EXPORTS
FORMULA
DEBTORS
RECEIVABLE RATIO = ---------------- * 365
SALES
YEAR 31.03.2009 31.03.2010 31.03.2011
RECEIVABLE RATIO (IN DAYS) 62 65
70
INTERPRETATION
From the above table and diagram we can say that company has good debt collection period
because the company have low debt collection period. But the company‟s debt collection period
for the year 2009 is 62 and then it is increased to 65 in 2010 then 70 in 2011. So we can say that
the company‟s debt collection period is increasing averagely by 4 days per year. We can say that
the company has no impact on slow down of economy. So we can say that overall position of the
company is satisfactory.
55
60
65
70
2009
2010
2011
62
65
70
DAYS
YEARS
RECEIVEABLE RATIO (IN DAYS)

75 | P a g e
POSITION OF CURRENT RATIO IN GAURAV EXPORTS:
FORMULA
TOTAL CURRENT ASSETS
CURRENT RATIO= --------------------------------------------
TOTAL CURRENT LIABILITIES
YEAR 31.03.09 31.03.10 31.03.11
CURRENT RATIO 1.28 1.35 1.46
INTERPRETATION
The current ratio of the unit is less than standard. The current ratio should be 2:1 but it is not. But
the company have 1.28 in 2009 1.35 in 2010 and 2.46 in 2011. So we can say that the company
is in not in position as it need.
1.1
1.2
1.3
1.4
1.5
2009
2010
2011
1.28
1.35
1.46
YEAR

76 | P a g e
POSITION OF DEBT-EQUITY RATIO IN GAURAV EXPORTS:
Formula = Debt / Equity
Calculation of debt-equity ratio:
Particulars 2008-09 2009-10 2010-11
Long Term Debt 18779.64 17511.01 16713.49
Net Worth 13290.28 15472.58 18911.22
D/E Ratio 1.41:1 1.13:1 0.88:1
Interpretation
GAURAV EXPORTS has a decreasing trend in d/e ratio so we can say that it is using its funds
and not taking loans from banks. Equity is more than debt that shows a very strong position in
whole market. Using lower debts decreases the cost as well as risk. So company is in good
position.
0
0.5
1
1.5
2009
2010
2011
D/ERatio
YEAR

77 | P a g e
 GAURAV EXPORTS enter into EXPORT Contract with buyer.
Overseas buyer sends an enquiry for placing order.
Firm sends the offer to prospective buyers abroad.
 GAURAV Exports selects the mode for receiving Finance by negotiating with Buyer
overseas.
Letter of Credit (L/C)
Delivery against payment(D/A)
Delivery against acceptance (D/A)
 Gaurav Exports selects the Domestic Bank i.e. Confirming bank for financing of
confirmed Export order and irrevocable L/C and negotiates with the Issuing Bank.
CANARA Bank
 Eligibility and requirement criteria of Gaurav Exports for executing order is
verified by CANARA
Import-Export Code Number
Open general license (OGL)
Regulatory Norms of RBI
 Quantum of sanctioning limit and time duration of production and packing finance
for Gaurav Exports is specified by Bank norms.
Foreign Documentary Bill Purchase (FDBP)
Packing Credit Limit (PCL)
Gaurav Exports enter into Export Contract with the buyer
The very initial step at Gaurav Exports is to receive an export order primarily from its major
importing countries i.e. Germany. It is being considered that the terms of the contract have to be
lawful and not in contravention of any legal provisions in either countries for it to be called a
valid contract.

78 | P a g e
Export contract
THE BUYER SENDS A QUERY
THE FIRM SENDS A QUOTATION
THE BUYER ACCEPTS AND SENDS A PURCHASE ORDER
THE FIRM ACCEPTS THE PURCHASE ORDER AND CONVEYS THE SAME TO THE
BUYER
THE EXPORT CONTRACT IS IN PLACE
An export order/contract normally covers the following:
The item
The description of the item
The quantity required
The price per unit
The terms of payment and delivery
Date of order/Reference to exporter‟s Performa Invoice or quotation
Date of delivery
The kind of packaging required
The kind of labeling required
The kind of marking required
Insurance instructions, if required
Inspection instructions, if required
Documentation required

79 | P a g e
Production sample instructions, if required
Penalties for late delivery, if any
Any other special condition.
Gaurav Exports selects the mode for receiving Finance by negotiating with buyer overseas
There are three modes of receiving funds followed at Gaurav Exports depending upon the
requirements and criteria of the Importer‟s need and feasibility. These are discussed as follows-
Letter of Credit
A Letter of Credit can be defined as “an undertaking by importer‟s bank stating that payment
will be made to the exporter if the required documents are presented to the bank within the
validity of the L/C”.
Delivery against Payment (D/P)
The sight draft or D/P is most commonly used in international trade at Gaurav Exports. In a
sight draft, the payment is on demand or on presentation of the negotiation documents to the
paying bank or the importer. The bank may pay within three (3) working days (not instantly)
after the receipt and review of the negotiation documents and if they are in order, that is, the
documents comply exactly with the letter of credit (L/C) stipulations. In certain countries where
the business relationships between the firm and the bank is well established, the bank may pay
the firm a few hours after the receipt of the negotiation documents that are in order .A sight draft
is used when the firm wants to retain title to the shipment until it reaches its destination and
payment is made The buyer's bank notifies the buyer when it has received these documents. As
soon as the draft is paid, the buyer's bank turns over the bill of lading, which allows the buyer to
claim the shipment. The sight draft still entails risk. If the buyer decides not to pay the draft, the
Surya Overseas itself is responsible for disposing of the goods that he has already transported to
another country.

80 | P a g e
Delivery against Acceptance (D/A)
D/P or in a term draft the exporter extends the credit to the importer. If a term draft is accepted
by the issuing bank such draft becomes what is known as banker's acceptance Gaurav exports
may hold the banker's acceptance pending payment by the bank on the maturity date or discounts
it with the bank, thus provides the firm with immediate funds. In certain countries, the importer
may have access to the customs warehouse or docks and examine the goods before accepting
them. The risk is that the importer may intentionally reject the goods even when they are in good
order and condition, without paying or accepting the draft. The importer may reject the goods,
for example, if the local market prices of the goods have dropped.

81 | P a g e
CHAPTER: - 5
RECOMMENDATIONS:-
 Management should make the proper use of inventory control techniques like fixation of
minimum, maximum and ordering levels for all the items for less blockage of money.
 The unit should also adopt proper inventory control like ABC analysis etc. This inventory
system can make the inventory management more result oriented The EOQ can be followed
in stores
 Due to competition prices are market driven and for earning more margin company should
give the more concentration on cost reduction by improving its efficiency
 The investments of surplus funds are made by the corporate office and the unit is not
generally involved while taking decisions with regard to structure of investment of surplus
funds. The corporate office should involve the units so as to better ascertain the future
requirements of funds and accordingly the investments are made in different securities.
 The company is losing its overseas customers due to decrease in exports so the sufficient
amount of exports should the maintained.

82 | P a g e
CONCLUSION
By concluding the study about the working capital it is finding that working capital management
of Gaurav is too good. Gaurav Exports has sufficient funds to meet its current obligation every
time which is due to sufficient profits and efficient management of Gaurav Exports.
Cash management and receivable management are too much good because of centralized control
on these. Raw material for the all units of Gaurav Exports is purchased by corporate office in
bulk which Is the best way. Safety measures for inventories are also quiet sufficient in company.
Overall the working capital management of GAURAV EXPORTS is very much efficient.

83 | P a g e
References
1. Stephen Bush (2008) “Seizing new treasures with aggressive cash management” cash flow
magazine Paper No- 02-01.
2. Bebehuk L. and L. stole (2009) “Organize Turn tax dollars into working capital” Rush,
George pg- 02-01.
3. Allensius (2009) “MANAGEMENT WORKING CAPITAL” Working Paper No- 02-01.
4. Gamble, Richard H. (2005) “Working capital managers: muscling into a larger role” Cash
flow Magazine0196-6227
BOOKS
Financial management: Pandey IM, vikas publishing house.
ANNUAL REPORTS OF GAURAV EXPORTS
WEBSITES
 http://www.economywatch.com/business-and-economy/textile-industry-
overview.html
 http://www.economywatch.com/business-and-economy/textile-mills.html
 http://www.allprojectreports.com/working_capital_analysis/working_capital_analys
is.htm
 http://www.faqs.org/abstracts/
 journal.org/submissions/isfa2009_submission_13.doc+abstract+of+working+capital
&cd=24&hl=en&ct=clnk&gl=in

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