This document discusses working capital management. It defines working capital as the capital required for financing short-term assets like cash, debtors, and inventory. Maintaining adequate working capital is important for business solvency and efficiency. There are two concepts of working capital - gross working capital refers to total current assets, while net working capital is current assets minus current liabilities and measures liquidity. Factors like the operating cycle, credit terms, and expenses must be considered to estimate working capital requirements.

1. OBJECTIVE
My Project Report mainly focuses on “
Working Capital”.
My Project study also focuses on the main point
that the basic objective of thecompany.
To ensure smooth & efficient working of a department.
To p romo te in d ivid u al s an d co l l ect ive, mo ral
s a sen se of resp o n sibi l i t ies,regarding best
utilization of resources.
To develop the different sources of finance.
To know the financial position of the company.
Stability & growth.
Development & Promotion of funds in the organization.
To fo cu s on Imp o r t an ce of fin an cial an al ysis
. It h e l p s to ach ieve go al s of
Organization.
To understand the
effect iveness of financial act ivity of
Jay Bharat ExhaustSystems Limited.

2. To Compare the Assets and Liabilities of the company.
To know the profitability position of Jay Bharat
Exhaust System Ltd.
To know about the trend of profits and sales of the
company.
SIGNIFICANCE OF STUDY
Finance is the life of any business. No business can
run properly unless it maintains itscash. Blood is
essent ial for human being al ive. In case of
business finance take the position of blood. Hence
this Project becomes vital for organization-paying
attention
tofinancial management . Rat io Analysis howeve
r is important because of fol lowingreasons: -
To help a company to fulfill it future financial needs.
To increase the productivity.
To improve organization climate.
To effect the financial growth.
Scope of the project includes:
to managing the financial activity.

3. To h e l p t h e Fin an ce Dep ar tment to eval u at e
sh o r t comings in t h e fin an cial programs.
To help the Finance Department to effective utilization
of the funds.
To help the Finance Department to understand where
the scope of improvement inthe future is.
To h e l p t h e Fin an ce Dep ar tment to eval u at e
t h e fin an cial act ivi t y of t h eorganization
To help in inventory control.
To help the Finance Department to evaluate the
comparative study.
To help in know the financial position of the company.
To help the Finance Department in forecasting.
Introduction
FINANCIAL MANAGEMENT
Finance is the life of any business. No business can
run properly unless it maintains itscash. Blood is
essent ial for human being al ive. In case of
business finance take the position of blood. Now
the question arises what is finance. Simply finance
is known ascash and monetary terms but finance
means more of it . Finance means measure

4. thefinancial requirement and allocate cash in
different heads for proper working of
eachdepartment.The word management refers to
manage-men-t. It means manage the men tactfully.Here
the word men mean all those person who are working in
the organization.
“Financial management is that
managerial activity which is concerned with thep
lanning and controlling of the firm’s financial resources”
According to
Howard & Upton
“
Financial Management is the application
of planning and controlling function to the finance
function”
Thus financial management means manage the
financial activity of the company. Thereare different
approaches regarding financial management.
Traditional Approach
Under this approach financial management refers
to rising of funds through varioussources according
to current need of the company. This approach is
mainly concentrateon rising of fund. Through
different sector in this approach the main thing is
raising of capital.
Transactional Approach
Under this approach financial management refers to
inflow and outflow of cash inoperating activity.
Operating activity means purchase and sale of material.
Modern approach

5. Modern approach is rising of funds through
different sources and ut il izes
themeffectively. Capital budgeting and cost of
capital must be kept in mind while raising thefunds.
Capital budgeting means the investment in capital
goods in such a way so that wecan get back our
invested money easily and quickly. Cost of capital
means what is thecost of raising capital. The return
demanded by preference shareholders, the interest
ratesdemanded by debenture holders, dividend re
quirement of equity capital holders isconsidered
as cost of capital.Utilization of funds means effective
utilization of funds in inflow-outflow; allocatethe cash
to different department in such a way so that business
can run successfully. Thusfinancial management means
rising of funds through different sources and utilizes
themeffectively.
SIGNIFICANT ACCOUNTING POLICIES
1.Basis of Preparation of Financial Statements
The Financial statements have been prepared under the
historical cost convention, inaccordance with
applicable Accounting Standards and provisions of
the companiesAct, 1956 as adopted consistently by the
Company.
2.Recognition of Income/Expenditure
All incomes & expenditures having a material bearing
on the financial statement areaccounted for on an
accrual basis and provision is made fore all known
losses andliabilities.
3. Fixed Assets

6. Fixed asset s are st at ed at co st , n et of Mo d va
t /Cenvat /Vat , l ess accumu l at eddepreciation.
Cost of fixed assets comprises purchase price, duties,
levies borrowingcost, net charges on forward exchange
contracts and exchange rate variations and
anydirect ly at t ributable cost of bringing the asse
ts to its working condition for theintended
use.Machinery spares that can be used only in
connection with an item of fixed asset andtheir use is
expected to be irregular are capitalized.
Replacement of such spares is charged to
revenue.In t an gib le asset s acq u i red on or aft er
1
st
April 2003 sat isfying the qual ifyingconditions
prescribed under Accounting Standard 26-
Intangible assets, issued byInstitute of Chartered
Accountants of India are capitalized
4.Capi tal Work in Progress
Advance paid towards acquisition of fixed assets
and the cost of assets not ready to put to use before
the year end, are disclosed under capital work in
progress.
5 . Impa irment o f As s et s
Carrying amount of cash generat ing units/assets
is reviewed for impairments, Impairment, if any, is
recognized where the carrying amount exceeds the
recoverableamount being the higher of net realizable
price and value in use.
6 . I n v e n t o r i e s

7. Inventories are valued at lower of cost and net
real izable value. The cost of rawmaterial is
determined by using First-In-First Out (FIFO) method.
However, scrap isvalued at Net realizable value. Cost of
finished goods and work in progress includes
cost of conversion and other cost incurred in
brining the inventories to their present location and
condition.
7 . S a l e s
Sales are recognized on dispatch of goods from the
factory and are net of discounts but exclude sales tax.
8 .De p re ci a t i on
Depreciation on fixed assets is provided on written
down value basis at the rate and inthe manner
prescribed in schedule XIV to the Companies Act,
1956. Depreciation ischarged on pro-rata basis for
assets purchased/sold during the year. Individual
assetscosting Rs. 5000 or less is depreciated in full in
the year of purchase. Depreciation onincremental cost
arising on account of translation of foreign
currency liabilities for acquisit ion of fixed assets
is provided as aforesaid
over the residual l ife of therespective assets. Costs
of intangible assets are amortized over five years
9.Foreign Exchange Transactions
Tran sact ions d en omin ated in fo reign cu r ren c
ie s are n o rmal l y reco rd ed at t h e exchange rate
prevailing at the time of transaction. Monetary
items denominated
inforeign currencies outstanding at the year-

8. end are t ranslated at exchange rateapplicable as
on that date. Non-monetary items denominated in
foreign currency arevalued at the exchange rate
prevail ing on the date of t ransact ion. Any
income or expenses on account of exchange
difference either on settlement r on translation
isrecognized in the profit and loss account except
in cases where these relate to theacquisition of fixed
assets.
10. Borrowing Cost
Borrowing Cost that is attributable to the
acquisition or construction of qualifyingAssets is
capitalized as part of the cost of such assets. A
qualifying asset is one thatnecessarily takes
substantial period of time to get ready fore
intended use. All other borrowing costs are charged
to revenue.
1 1 . C l a i m s
Claims receivable are accounted for on the certainty of
receipt & claims payable areaccounted at the time of
acceptance
1 2 . E x c i s e D u t y
Excise duty is accounted on the basis of both
payments made in respect of goodscleared as also
provision made for goods lying in bonded
warehouse.Cenvat claimed on Capital goods is credited
to capital Assets/capital work in process. Cenvat
claimed on purchase of raw and other materials are
deducted fromcost of such material.

9. WORKING CAPITAL MANAGEMENT
Introduction
Every business needs funds for two purposes for
its establishment and to carry out day-to-day
operations. Long term funds are required to create
production facilities
through purchase of fixed assets
such as plant and machinery, land building, furn
iture etc. investment in these assets represent that
part of firm’s capital, which is blocked on
a permanent or fixed basis is called fixed capital.
Funds are also needed for short-term purposes of raw
materials, payment of wagesand other day-to-day
expenses etc. these funds are known as working capital
MEANING OF WORKING CAPITAL
Working capital refers to that part of firm’s capital,
which is required for financing shortterm or current
assets such as cash, marketable securities, debtors and
inventories.
DEFINITIONS OF WORKING CAPITAL
In the words of
Shubin,
“working capital is the amount of funds necessary
to coverthe cost of operating the enterprise.”
According to
Genestenberg
“

10. Circulating capi tal means current assets of ac
ompany that are changed in ordinary course
of business from one form to anotheras for example,
from cash to inventories, inventories to receivables,
receivables into
Cash”
NATURE OF WORKING CAPITAL
Working Capital management is concerned with the
problems that arise in attemptingto manage the
current assets, the current liabilities and the inter-relationship
that exists between them. The term
current assets refer to these assets which in the ordinary
courseof business can be, or will be, Converted into
cash within one year without undergoingthe
diminution in value and without disrupting the
operating of the firm, whereas thecurrent liabilities
are those liabilities which are intended, at there
inception, to be paid inthe ordinary course of
business, within a year out of current asset s or
earning of theconcern. Thus the goal of working
capital management is to manage the firm’s assets
andliabilities in such a way that a satisfactory level
of working capital is maintained. Theinteraction
between current assets and liabilities in such a way
that optimum level of current assets, the trade off
between profitability and risk which is associated
with thelevel of current liabilities and assets, better
financing mix strategies and other short termgoals are
attained

11. There are two concepts of working capital: Gross and
Net
1. The term gross working capital, also referred to
as working capital, means the totalcurrent assets.2.
The term net working can be defined in two ways.
Difference between current assets and current liabilities.
The task of the financial manager in managing working
Capital efficiency is to ensureefficiency liquidity in
the operations of the enterprise. The basic three
measures of afirm’s overall liquidity are: Current
ratios, Acid test ratio, Net Working Capital. For
the purpose of working capital management
Therefore, NWC Can be said to measure the
liquidity of the firm. In other
words,the goal of working capi tal management
is to manage the current assets andliabilities in
such a way that an acceptable level of NWC is
maintained.
IMPORTANCE OF ADEQUATE WORKING
CAPITAL
Working Capital is very essential to maintained
the smooth running of the business. Itis lifeblood and
nerve center of a business. No business can run
successfully with outadequate amounts of working
capital.1.Adequate working capital helps in
maintaining solvency of the business by
providinguninterrupted flow of production.2.It also
enables a concern to avail each discount on the
purchases and hence it reducescasts.3.Sufficient
working capital enables a business to make prompt

12. payments and helps increating and maintaining
goodwill.4.A concern having adequate working
capital enables and high solvency
can averageloans from banks and others on easy and
favorable terms.5.Adequate working capital ensures
regular supply of raw materials.6.A concern can
also pay quick and regular dividends to its
investors, as there may not be much pressure to
plough back profits because of adequacy of working
capital.
7.Sufficiency of working capital creates an
environment of security, confidence, andhigh
morale and creates overall efficiency of a business.
Adequacy of working capital also enables a firm
to make regular payments of salaries, wages and
other day-to-day commitments, which raises the
morale of
itsemployees, increase their efficiency reduces w
astages and costs and enhancesproduction and
profits.
WORKING CAPITAL REQUIREMENT
“WO R K IN G CAPITAL IS THE LIFE BLOO
D AND CONTROLLING NERVECENTRE OF
A
BUSINESS.” No business can be successfully run
without an adequateamount of working capital. To
avoid the shortage of working capital at once, an
estimateof working capital requirements is not an easy
task and a large number of factors have

13. to be considered before starting this exercise. The
following factors have to be consideredfor this: -
1.The length of sales cycles during which inventory
is to be kept waiting for sales.2.The average
period of credit al lowed to customers.3.The
amount of cash required paying day-to-day
expenses.4.The average amount of cash required
making advance payments, if any.5.The average
credit period expected to be allowed
by suppliers.6.Time lag in payment in wages and
in other expenses
From the total amount blocked in current assets
estimated on the basis of first for itemsgiven above,
the total current liabilities i.e. the last two items is
deducted. In order to provide for contingencies,
some extra amount calculated as a fixed percentage
of WCmay be added as safety margin.
NEED OF WORKING CAPITAL
The need for the working capital (gross) or current
assets cannot be over emphasized.Given the
objectives of financial decision making to maximize the
shareholder’s wealth,it is necessary to generate
sufficient profits. The extent to which profits can
be earnedwill naturally depend, among other
things. Open the magnitude of sales. A
successfulsales program is necessary for earning
profits by any business enterprise. There is a needof
working capital in firm of current assets to deal
with the problem arising out of thelack of immediate
realization of cash against goods sold. Thus sufficient

14. working capitalis necessary to sustain sales activity.
Technically, this is referred to as the operating
or cash cycle.
CONCEPT OF WORKING CAPITAL
There are two concepts of working capital:
1. Gross working capital
: In the broad sense, the term working capital refers
to thegross working capital and represents the amount
of funds invested in current assets. Thus,gross working
capital is the capital invested in the total current assets
of the enterprise.Current assets are those assets, which in the
ordinary course of business can be convertedin to cash with in
a short period of normally one accounting year. Constitutes of
currentassets are:
Cash in hand
Cash at bank
Sundry debtors
Bills receivable
Short term loans and advances
Inventories in stock
Prepaid income
Accrued expenses
2. Net working capital
: In a narrow sense, the term working capital refers to
the
netwo rk in g c a p i t a l . Ne t wo rk in g c a p i t a l is t h e ex
c e s s of c u r r e n t a s se t s o v e r c u r r e n t liabilities. So,
Net working capital = current assets –current liabilities

15. Net working capital may be positive or negative. When
the current assets exceed thecurrent liabilities the working
capital is positive and the negative working capital
resultswhen the current liabilities are more than current
assets. Current liabilities are thoseliabilities, which are
intended to be paid in the ordinary course of business with in
a short period of normally one accounting year out of the
current assets or the incomes of the business. Constitutes
of current liabilities
Bills payable
Creditors
Dividend payable
Provision for taxation