“STUDY ON WORKING CAPITAL MANAGEMENT IN LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED COMPANY

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“STUDY ON WORKING CAPITAL MANAGEMENT IN
LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED COMPANY”
A project Submitted to
University of Mumbai for partial completion of the degree of
Master in Commerce
Under the Faculty of Commerce
By
CHAUDHARY RUDESH NEHA
Roll No. 05
Under the Guidance of
PROF. SAMIR DAVE
NIRMALA MEMORIAL FOUNDATION COLLEGE OF
COMMERCE AND SCIENCE
90 FEET ROAD, ASHA NAGAR, THAKUR COMPLEX,
KANDIVALI (E), MUMBAI-400 101.

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DECLARATION BY LEARNER
I the undersigned CHAUDHARY NEHA here by, declare that the work
embodied in this project work titled “STUDY ON WORKING
CAPITAL MANAGEMENT IN LAXMI CHEMICAL AND
MINERALS PRIVATE LIMITED COMPANY” forms my own
contribution to the research work carried out under the guidance of
PROF. SAMIR DAVE is a result of my own research work & has not
been previously submitted to any other University for any other Degree /
Diploma to this or any other University.
Wherever reference has been made to previous works of other, it has been
clearly indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.
PROF. SAMIR DAVE
Name & Signature of the Learner
Certified by
Name & Signature of the Guiding Teacher

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CERTIFICATE
This is to certify that Ms. CHAUDHARY RUDESH NEHA has worked & duly
completed her Project Work for the degree of Master in Commerce under
the Faculty of Commerce in the subject of ADVANCE ACCOUNTING and his
project is entitled “PROF. SAMIR DAVE ” under my supervision.
I further certify that the entire work has been done by the learner under my
guidance & that no part of it has been submitted previously for any Degree
or Diploma of any University.
It is her own work & facts reported by her personal findings & investigations.
Project Guide:- Prof.SAMIR DAVE
Program Co-coordinator:- DR. VIJAYA JACQUELINE
External Examiner:- _______________
Principal: - MS. SWIDDLE D’CUNHA
Date of Submission :- ____________

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ACKNOWLEDGEMENT
To list who all have helped me in difficult because they are so numerous &
depth is so enormous.
I would like to acknowledge the following as being idealistic channels & fresh
dimensions in the completion of this project.
I take this opportunity to thank the University of Mumbai for giving me
chance to do this project.
I would like to thank my Principal, Ms. Swiddle D’Cunha for providing the
necessary facilities required for completion of this project.
I take this opportunity to thank our Co-ordinator, for her moral support &
guidance.
I would also like to express my sincere gratitude towards my project guide,
whose guidance and care made the project successful.
I would like to thank my College Library, for having provided various reference
books and magazines related to my project.
Lastly, I would like to thank each & every person who directly or indirectly
helped me in the completion of the project especially
my Parents and Peers who supported me throughout my project.

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INDEX
SR.NO CONTENTS PG.NO.
1 INTRODUCTION 6
2 INTRODUCTION TO FINANCE 13
3 INTRODUCTION TO WORKING
CAPITAL MANAGEMENT
24
4 LAXMI CHEMICAL MINERALS
INTRODUCTION PRIVATELIMITED
COMPANY
43
5 RESEARCH AND METHODOLOGY 47
6 SUGGESTION AND
RECOMMENDATION
59
7 CONCLUSION 75
8 ANNEXURE 77
9 BIBLIOGRAPHY 78

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CHAPTER 1 - INTRODUCTION
1.1 Title of the study:-
“The study of working capital management”
As a part of the study, every student who is studying BMS has to undertake a project on a particular subject
assigned him/her. Accordingly I have been assigned the project work on the WORKING CAPITAL
MANAGEMENT IN LAXMI CHEMICAL AND MINERALS pvt ltd.
Decisions relating to working capital is based on Current asset and Current liabilities i.e. Working capital =
Current asset – Current liabilities and also short term financing is also known as working capital management.
It involves firm‟s short term asset and short term liabilities.
The goal of working capital management is to ensure the firm is able to continue is operation and that it has
sufficient cash flow to satisfy both short term debt and operational expenses.
Working capital is used in company for the following purpose:-
1.1 Title of the Study
1.2 Industrial & Company Profile
1.3 Objective of Study
1.4 Limitation of the Study
1.5 Background of the Study
1.6 Importance of the Study
1.7 Industrial Profile

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Raw material, Work in progress, Finished goods, Inventories, Sundry debtors, and day to day cash
requirements. The company raises certain funds for financing other company aspects or financing current asset
requirement.
The various information regarding “WORKING CAPITAL MANAGEMENT” such as Classification,
Analysis, sources, and determinants, relating to LAXMI chemical and minerals pvt ltd.
Ratio analysis has been carried out using Financial Information of the company. Ratios like Working Capital
Turnover Ratio, Quick Ratio, Current Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio, Creditors
Turnover Ratio, Debt to Equity Ratio, Earnings Per Share, have also been analysed. A statement showing
working capital changes have been also be analysed.
Working capital management are shown in all of the department in the company. It is very easy to obtain
and also it can be managed effectively.
Working capital management gives the more information regarding companies profit and loss and how the
company surviving in the business.
It is important to manage the Working Capital of the business.
1.2 Industrial & company profile:-
Industrial profile:-
The chemical and minerals industry is one of the oldest domestic industries in India, it is also contributing
to both the industrial and economic growth of the country. The chemical and minerals industry currently
produces nearly 90,000 commercial product, the industry covers a large categories including organic and
inorganic chemical and minerals, drugs, plastics, petrochemical and minerals, dyes, specialty chemical and
mineral , pesticides and agrochemical and minerals and fertilizers.
Company profile:-
LAXMI chemical and minerals pvt ltd is small scale industry. The company constructed building in 1995. It
started in the 1997. Its main product is aluminium sulphate. It is the private company which enjoying the all
facilities like water, electricity, transport, labour, power and good environment and materials.
Need for the study:-
 The study is conducted for gaining practical knowledge of working capital management.

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 It is the practical knowledge about the company‟s working capital management and activities of the
company.
 It also gives knowledge about company‟s profit and loss and company‟s wealth.
 The project should accomplish because it is the part of the study.
1.3 Objectives of the study:-
 To study the Working capital components such as receivables accounts, cash management, inventory
management etc.
 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital related ratios.
 To make suggestions based on the finding of the study.
 To know how working capital works and gives company benefits.
 To give another person knowledge about working capital who reading these.
Scope of the study:-
The scope of the study is identified after and during the study conducted. The main scope of the study was to
put into practical and theoretical aspect of the study into real life work experience. The study of working
capital management is based on Ratio Analysis, Statement of changes of working capital. If any one reads it
benefited for reader.
1.4 Limitation of the study:-
 The study time (duration) is short.
 The study Analysis is limited because there is less data available.
 Limited interaction with manager, staffs.
 There is busy schedule of members so they cannot give much time to interact.
 Limited data given by the company.
 The findings of the study are based on the information given by the selected units
1.5 Background of the study:-
“Cash is the life blood of business” is an often repeated maxim amongst financial managers. Working capital
management refers to the management of current or short term assets and short term liabilities. Components
of short term assets include inventories, loans and advances, debtors, investment and cash and bank balance.

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Short term liabilities include creditors, trade advances, borrowings, and provisions. The major emphasis is
however, on short term assets, since short term a liabilities arises in the context of short term assets. It is
important that companies minimize risk by prudent working capital management.
Statement of the problem:
This project deals with the study about “working capital management” in LAXMI chemical and minerals
private limited company.
1.6 Importance of the study:
There are numerous aspects of working capital management that makes it an important topic for the study.
The management of asset in any organisation is an essential part of overall management. The enterprise, at
the time of formation attaches great importance to fixed assets management, as a part of investment decision
making. However, in the overall day to day financial management, after the initial investment, the
management gives more importance to managing working capital. If we look at any financial statement it
will be evident that the investment in fixed asset remains more or less static but the working capital is
constantly changing. This reflected in adequate inventories, lowest level of debtors, minimum utilization of
bank facilities for working capital, etc. thus the study of working capital management occupies an important
place in financial management.
1.7 Industrial profile
History:-
The chemical industry is one of the oldest domestic industries in India, contributing significantly to both the
industrial and economic growth of the country since it achieved independence in 1947. The chemical industry
currently produces nearly 90,000 commercial products, ranging from cosmetics and toiletries, to plastics and
pesticides.
The wide and diverse spectrum of products can be broken down into a number of categories, including
inorganic and organic chemical, drugs and pharmaceuticals, plastics and petrochemical, dyes and pigment.
Fine and speciality chemical and pesticides and agrochemicals, and fertilizers.
Indian chemical industry scenario:
Chemical industry is one of the oldest industries in India, which contributes significantly towards industrial
and economic growth of the nation. It is highly science based and provides valuable chemicals for various end
product s such as textile, paper, paints and vanishes, leather, etc. which are required in almost all walks of life.
The Indian chemical industry forms the backbone of the industrial and agricultural development of India and
provides building blocks for downstream industries.
The Indian chemical market segment wise is as under:-
SEGMENT MARKET VALUE(BILLION US $)
Basic chemical 20
Speciality chemical 9

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High end/ knowledge segment 6
Total 35
Chemical industry structure:
 High fragment and widely dispersed.
 Western India accounts for 45-50% of total Indian chemical industry.
 Large players in bulk chemical. Both large and small players in fine and speciality.
 Chemical presence of many multinational companies also.
Foreign trade:
India was a net importer of chemicals in early 1990s, but has now becomes net exporter due to reduction in
imports because of implementation of many large scale petrochemical plants like reliance etc. and also because
of tremendous growth of exports in sector like bulk drugs and pharm a, pesticides, dyes and intermediates.
Basic chemical export did exceedingly well….
The website carries detailed information regarding different varieties of chemical and terminology of chemical
such as chemical processing, chemical industry, chemical technology, chemical association, chemical
engineering, chemical news, etc. such information will enable you to properly assess the usage of different
chemicals in safe & secure manner. The voluminous knowledge about chemical related issues can be easily
and instantly obtained from this website.
Lists of chemical industry:
 20 microns ltd.
 ABR organic.
 Aimco pesticides.
 Alkly amines chemical ltd.
 Galaxy surfactants.
 Indo German carbon.
Chemical information:
The website carries detailed information regarding different varieties of chemical and terminology of chemical
such as chemical processing, chemical industry, chemical technology, chemical association, chemical
engineering, chemical news, etc. such information will enable you to properly assess the usage of different
chemical in safe & secure manner. The voluminous knowledge about chemical related issues canbe easily
and instantly obtained from this website.

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Chemical compound:
Chemical compound is formed by combination of two or more elements into one substances form. In a
chemical compound atoms of its constituent elements are bonded together in molecules. Millions of chemical
compound can be made by combining the roughly 120 chemicals.
The ratio determining the composition of chemical compound remains fixed. The ratio of each element in a
chemical compound is generally expressed by chemical formula like, water which is represented by chemical
formula H2O is a chemical compound consisting of two hydrogen.
Chemical compound are further divided into subcategories. Those chemical compounds which are based on
carbon and hydrogen atoms are called organic compound and other chemical compound which are based on
elements other than carbon and hydrogen are called inorganic compounds. Another form of chemical
compound which contains bond between carbon and minerals are called organ minerals compound.
Chemical compound in which components share electrons are known as covalent compound whereas
compounds consisting of oppositely charged ions are known as iconic chemical. Talking about property of
chemical compound, a chemical compound may have several possible phases. At low enough temperature
all compound can exist are solids. Some chemical compounds may also exist as liquids, gases and even
plasmas. Every known chemical compound decompose when heat is applied.
The wide and diverse spectrum of chemical products can be broken down into number of categories – inorganic
and organic chemical, drugs and pharmaceuticals, plastics and petrochemicals, dyes and pigment, fine and
speciality chemicals, pesticides and agrochemical and fertilizers. The report covers overall industry scenario
in the context of global chemicals industry, various segments, growth drivers, critical success factors, issues
and challenges and future outlook for the industry. The report also profiles the major 17 companies in the
Indian industry. The report is useful for industry analysis, banks and financial institution, investors,
consultants, corporate engaged directly or indirectly in the chemicals industry and international readers who
was to keep abreast of the Indian manufacturing sectors.
Organic chemical:
Organic chemicals are compounds that are formed from the two basic building blocks of carbon and hydrogen.
It is one of the most important sectors of the chemical industry, providing the basis feedstock for avariety of
other industrial sector such as drugs and pharmaceuticals, dyes and dye intermediate, leather chemicals, paints
and pesticides.
As the case of most of the other chemical sector, the domestic industry is a late starter, with the pioneers in the
field being the National organic chemical industry limited and Hindustan organic chemical limited. The Indian
industry has traditionally used the alcohol route for the manufacture of many organic chemical, but is now
shifting over the globally accepted petrochemical route, with the alignment of petrochemical feedstock prices
with the international levels.

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Speciality chemicals:
Speciality chemicals are those that are customized to perform specific fluctuation, applications and operating
condition.
Speciality chemicals are high priced, low volume chemicals used for specific applications by various
industries. Main speciality chemicals are rubber chemicals, water treatment chemicals, polymer addictive,
lubricating additives, speciality pigments etc. These chemical are mainly based on organic chemicals. Globally
the contribution of speciality chemical is up to 25% of the chemical sector.

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CHAPTER 2 – INTRODUCTION TO FINANCE
2.1 Meaning of finance:
Before we begin, first let‟s understand the origin of word “FINANCE.”
If we trace the origin of finance, there is evidence to prove that it is as old as human life on earth. The word
finance was originally a French word. In the 18th
century, it was adapted by English speaking communities
to mean “the management of money.” Since then, it has found a permanent place in the English dictionary.
Today, is not merely a word else has emerged into n academic discipline of greater significance. Finance is
now organized as a branch of economics.
2.1 Meaning of Finance
2.2 Features of Finance
2.3 Types of Finance
2.4 Function s of Finance
2.5 Objective of Finance
2.6 Scope of Finance
2.7 Organization of Finance

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Furthermore, the word which can easily replace finance is “EXCHANGE.” Finance is nothing but an exchange
of available resources. Finance is not restricted only to the exchange and/or management of money. A barter
system is also a type of finance. Thus, we can say, Finance is an art of managing various available resources
like money, asset, investment, securities, etc.
At present, we cannot imagine a world without finance. In other words, Finance is an soul of our economic
activities. To perform any economic activity, we need certain resources, which are to be pooled in terms of
money (i.e. in the form of currency notes, other valuables, etc.). Finance is a prerequisite for obtaining physical
resources, which are needed to perform productive activities and carrying business operations such as sales,
pay compensations, reserves for contingencies (unascertained liabilities) and so on.
Hence, finance has now become an organic function and inseparable part of our day-to-day lives. Today, it
has become a word which we often
Encounter on our daily basis.
Significance:
Finance is the life blood of business. Before discussing the nature and scope of Financial management, the
meaning of „finance‟ has to be explained. In fact, the Term, finance has to be understood clearly as it has
different meaning and Interpretation in various contexts. The time and extent of the availability of Finance in
any organization indicates the health of a concern. Every Organization, May it be a company, firm, college,
school, bank or university Requires finance for running day to day affairs. As every organization previews
Stiff competition, it requires finance not only for survival but also for Strengthening themselves. Finance is
said to be the circulatory system of the Economy body, making possible the required cooperation between
the Innumerable units of activity.
Definition of finance:
1. According to F.W.Paish, Finance may be defined as the:

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“Position of money at the Time it is wanted.”
2. In the words of John J. Hampton, the term finance can be defined as the:
“Management of the flows of money through an organization, whether it will be a
Corporation, school, bank or government agency.”
3. According to Howard and Upton:
“Finance may be defined as that Administrative area or set of administrative functions in an organization
which Relates with the arrangement of each and credit so that the organization may have the means to carry
out the objectives as satisfactorily as possible.”
2.2 Features of finance:
The main characteristics or features of finance are depicted below.
1.1 Investment opportunities:
In finance, investment can be explained as a utilization of money for profit or returns.
Investment can be done by:-
1. Creating physical assets with the money (such as development of land, acquiring commercial assets,
etc.),
2. Carrying on business activities (like manufacturing, trading, etc.),
3. Acquiring financial securities (such as shares, bonds, units of mutual funds, etc.)

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Investment opportunities are commitments of monetary resources at different times with an expectation of
economic return in the future.
2.1 Profitable opportunities:
In finance, profitable opportunities are considered as an important aspiration (goal).
Profitable opportunities signify that the firm must utilize its available resources most efficiently under the
condition of cut-throat competitive market.
For example, business carried on either non-compliance of law, unethical ways of acquiring the business,
etc. usually may result in huge short-term profits but may also hinder the smooth possibility of long term
gains and survival of business in the future.
3.1 Optimal mix funds:
Finance is concerned with the best optimal mix of funds in order to obtain the desired and determined results
respectively.
Primarily, funds are of two types, namely,
1. Owned funds (Promoters contribution, Equity shares, etc.), and
2. Borrowed funds (Bank loan, Bank overdraft, Debentures, etc.)
The composition of funds should be such that if shall not result in loss of profits to the entrepreneurs
(promoters) and must recover the cost of business units effectively and efficiently.
4.1 System of internal control:
Finance is concerned with internal control maintained in the organisation or workplace.
Internal controls are set of rules and regulations framed at the inception stage of the organisation, and they
are altered as per the requirement of its business.
However, these rules and regulations are monitored at various intervals to accomplish the same which have
been consistently followed.
5.1 Future decision making:
Finance is concerned with the future decision of the organisation.
A good finance is an indicator of growth and good returns. This is possible only with the good analytical
decision of the organisation. However, the decision shall be framed by giving more emphasis on the present
and future perspective (economic condition) respectively.
2.3 Types of finance:-
Business finance:

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The term „business finance‟ is very comprehensive. It implies finances of business activities. The term,
„business‟ can be categorized into three groups: commerce, industry and service. It is a process of rising,
providing and managing of all the money to be used in connection with business activities.
It encompasses finance of sole proprietary organizations, partnership firms and corporate organizations. No
doubt, the aforesaid organizations have different characteristics, features, distinct regulations and rules. And
financial problems faced by them vary depending upon the nature of business and scale of operations.
However, it should be remembered that the same principles of finance is applicable to large and small
organizations, proprietary and non-proprietary organizations.
Business finance deals with a broad spectrum of the financial activities of a business firm. It refers to the
raising and procurement of funds and their appropriate utilisation. It includes within its scope commercial
finance, industrial finance, proprietary finance corporation finance and even agricultural finance.
The subject of business finance is much wider than that of corporation finance. However, since corporation
finance forms the lion's share in the business activity, it is considered almost inter-changeable with business
finance. Business finance, apart from the financial environment and strategies of financial planning, covers
detailed problems of company promotion, growth and pattern. These problems of the corporate sector go a
long way in widening the horizon of business finance.
The finance manager has to assume the new responsibility of managing the total funds committed to total
assets and allocating funds to individual assets in consonance with the overall objectives of the business
enterprise.
Direct finance:
The term 'direct', as applied to the financial organisation, signifies that savings are affected directly from the
saving-surplus units without the intervention of financial institutions such as investment companies, insurance
companies, unit trusts, and so on.
Indirect finance:
The term 'indirect finance' refers to the flow of savings from the savers to the entrepreneurs through
intermediary financial institutions such as investment companies, unit trusts and insurance companies, and so
on.
Finance administers economic activities. The scope of finance is vast and determined by the financial needs
of the business enterprise, which have to be identified before any corporate plan is formulated. Thiseventually
means that financial data must be obtained and scrutinised. The main purpose behind such scrutiny is to
determine how to maintain financial stability.
Public finance:

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It is the study of principles and practices pertaining to acquisition of funds for meeting the requirements of
government bodies and administration of these funds by the government.
Private finance:
It is concerned with procuring money for private organization and management of the money by individuals,
voluntary associations and corporations. It seeks to analyse the principles and practices of managing one‟s
own daily affairs. The finance of non-profit organization deals with the practices, procedures and problems
involved in the financial management of educational chartable and religions andthe like organizations.
Corporate finance:
Corporation finance deals with the financial problems of a corporate enterprise. These problems include the
financial aspects of the promotion of new enterprises and their administration during their early period; the
accounting problems connected with the distinction between capital and income, the administrative problems
arising out of growth and expansion, and, finally, the financial' adjustments which are necessary to bolster up
to rehabilitate a corporation which has run into financial difficulties.
The term „corporation finance‟ includes, apart from the financial environment, the different strategies of
financial planning. It includes problems of public deposits, inter-company loans and investments, organised
markets such as the stock exchange, the capital market, the money market and the bill market. Corporation
finance also covers capital formation and foreign capital and collaborations.
2.4 Function of finance:-
The finance function is the process of acquiring and utilizing funds of a business. Finance functions are related
to overall management of an organization. Finance function is concerned with the policy decisions such as
like of business, size of firm, type of equipment used, use of debt, liquidity position. These policy decisions
determine the size of the profitability and riskiness of the business of the firm.
Prof. K.M.Upadhyay has outlined the nature of finance functions as follows:
i) In most of the organizations, financial operations are centralized. This results in economies.
ii) Finance functions are performed in all business firms, irrespective of their sizes / legal forms of
organization.
iii) They contribute to the survival and growth of the firm.
iv) Finance function is primarily involved with the data analysis for use in decision making.
v) Finance functions are concerned with the basic business activities of a firm, in addition to external
environmental factors which affect basic business activities, namely, production and marketing.
vi) Finance functions comprise control functions also.
vii) The central focus of finance function is valuation of the firm.

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It is clear from the above, that, finance functions can be grouped as outlined below:
i) FINANCIAL PLANNING
ii) FINANCIAL CONTROL
iii) FINANCING DECISION
iv) INVESTMENT DECISION
v) MANAGEMENT OF INCOME AND DIVIDEND DECISION
vi) INCIDENTAL FUNCTION
2.5 Objectives of finance:
The objective of finance function is to arrange as much funds for the business as are required from time to
time. This function has the following objectives.
1. Assessing the financial requirement:
Financial function is to assess the financial needs of an organization and then finding out suitable sources for
raising them. The sources should be commensurate with the needs of the business. If funds are needed for
longer periods then long-term sources like share capital, debentures, term loans may be explored.
2. Proper utilization of funds:
Though raising of funds is important but their effective utilisation is more important. The funds should be used
in such a way that maximum benefit is derived from them. The returns from their use should be more than
their cost. It should be ensured that funds do not remain idle at any point of time. The funds committed to
various operations should be effectively utilised. Those projects should be preferred which are beneficialto
the business.
3. Increasing profitability:
The planning and control of finance function aims at increasing profitability of the concern. It is true that
money generates money. To increase profitability, sufficient funds will have to be invested. Finance function
should be so planned that the concern neither suffers from inadequacy of funds nor wastes more funds than
required. A proper control should also be exercised so that scarce resources are not frittered away on
uneconomical operations. The cost of acquiring funds also influences profitability of the business.
4. maximising value of firm:
Finance function also aims at maximizing the value of the firm. It is generally said that a concern's value is
linked with its profitability.
2.6 Scope of finance:-

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The scope of finance function is very wide. While accounting is concerned with the routine type of work,
finance function is concerned with financial planning, policy formulation and control. Earnest W. Walker and
William are of the opinion that the financial function has always been important in business management. The
financial organisation depends upon the nature of the organization – whether it is a proprietary organisation, a
partnership firm or corporate body. The significance of the finance function depends on the nature and size
of a business firm. The role of various finance officers must be clearlydefined to avoid conflicts and the
overlapping of responsibilities. The operational functions of finance include:
 Financial planning
 Deciding the capital structure
 Selection of source of finance
 Selection of pattern of investment
i. Financial planning:
The first task of a financial manager is to estimate short term and long-term financial requirements of his
business. For this purpose, he will prepare a financial plan for present as well as for future. The amount
required for purchasing fixed assets as well as needs of funds for working capital will have to be ascertained.
The estimations should be based on sound financial principles so that neither there are inadequate nor excess
funds with the concern. The inadequacy of funds will adversely affect the day-to-day operations of the concern
whereas excess funds may tempt a management to indulge in extravagant spending or speculative activities.
ii. Deciding capital structure:
The Capital structure refers to the kind and proportion of different securities for raising funds. After deciding
about the quantum of funds required it should be decided which type of securities should be raised. It may be
wise to finance fixed assets through long-term debts. Even if gestation period is longer, then share capital may
be most suitable. Long-term funds should be raised. It may be wise to finance fixed assets through long-term
debts. Even here if gestation period is longer, then share capital may be most suitable. Long-term funds should
be employed to finance working capital also, if not wholly then partially. Entirely depending upon overdrafts
and cash creditors for meeting working capital needs may not be suitable. A decision about various sources
for funds should be linked to the cost of raising funds. If cost of raising funds is very high then such sources
may not be useful for long.
iii. Selection of sources of finance:
After preparing a capital structure, an appropriate source of finance is selected. Various sources, from which
finance may be raised, include: share capital, debentures, financial institutions, commercial banks, public
deposits, etc. If finances are needed for short periods then banks, public deposits and financial institutions may
be appropriate; on the other hand, if long-term finances are required then share capital and debentures may be
useful. If the concern does not want to tie down assets as securities then public deposits may be a

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suitable source. If management does not want to dilute ownership then debentures should be issued in
preference to share.
iv. Selection of pattern of investment:
When funds have been procured then a decision about investment pattern is to be taken. The selection of an
investment pattern is related to the use of funds. A decision will have. to be taken as to which assets are to be
purchased? The funds will have to be spent first on fixed assets and then an appropriate portion will be retained
for Working Capital. The decision-making techniques such as Capital Budgeting, Opportunity Cost Analysis,
etc. may be applied in making decisions about capital expenditures. While spending on various assets, the
principles of safety, profitability and liquidity should not be ignored. A balance should be struck even in these
principles.
2.7 Organization of the finance:-
Today, finance function has obtained the status of a science and an art. As finance function has far reaching
significance in overall management process, structural organization for further function becomes an outcome
of an important organization problem. The ultimate responsibility of carrying out the finance function lies with
the top management. However, organization of finance function differs from company to company depending
on their respective requirements. In many organizations one can note different layers among the finance
executives such as Assistant Manager (Finance), Deputy Manager (Finance) and General Manager (Finance).
The designations given to the executives are different. They are
 Chief Finance Officer (CFO)
 Vice-President (Finance)
 Financial Controller
 General Manager (Finance)
Finance officers:
Finance, being an important portfolio, the finance functions is entrusted to top management. The Board of
Directors, who are at the helm of affairs? Normally constitute a „Finance Committee‟ to review andformulate
financial policies. Two more officers, namely „treasurer‟ and „controller‟ – may be appointed under the direct
supervision of CFO to assist him/her. In larger companies with modern management, may be Vice-President
or Director of finance, usually with both controller and treasurer. The organization of finance function is
portrayed below:
Organization of finance function:
It is evident from the above that Board of Directors is the supreme body under whose supervision and control
Managing Director, Production Director, Personnel Director, Financial Director, Marketing Director perform
their respective duties and functions. Further while auditing credit management, retirement benefits

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and cost control banking, insurance, investment function under treasurer, planning and budgeting, inventory
management, tax
 Board of Directors
 Managing Directors
 Production Director
 Purchase Director
 Finance Director
 Personnel Director
 Marketing Director
 Treasurer Controller
 Auditing Credit Analysis
 Planning & Budgeting
 Cost and inventory
 Pension management
 Cost management
Organization of finance
It is evident from the above that Board of Directors is the supreme body under whose supervision and control
Managing Director, Production Director, Personnel Director, Financial Director, Marketing Director perform
their respective duties and functions. Further while auditing credit management, retirement benefits and cost
control banking, insurance, investment function under treasurer, planning and budgeting, inventory
management, tax administration, performance evaluation and accounting functions are under the supervision
of controller.
Meaning of controller and treasure:
Board of
directors
Managing
director
Production
directors
Purchase
directors
Finance
director
Personnel
director
Marketing
director

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The terms „controller‟ and „treasurer‟ are in fact used in USA. This pattern is not popular in Indian corporate
sector. Practically, the controller / financial controller in India carried out the functions of a Chief Accountant
or Finance Officer of an organization. Financial controller who has been a person of executive rank does not
control the finance, but monitors whether funds so augmented are properly utilized. The function of the
treasurer of an organization is to raise funds and manage funds. The treasures functions include forecasting
the financial requirements, administering the flow of cash, managing credit, flotation of securities, maintaining
relations with financial institutions and protecting funds and securities. The controller‟s functions include
providing information to formulate accounting and costing policies, preparation of financial reports, direction
of internal auditing, budgeting, inventory control payment of taxes,etc. According to Prof. I.M. Pandey, while
the controller‟s functions concentrate the asset side of the balancesheet, the treasurer‟s functions relate to the
liability side.
Finance function:
The designation Finance Manager or Director (Finance) is very popular in Indian Corporate sector. The key
function of any financial manager in India is management of funds. It means given the constraints, he must
ensure optimum utilization of funds. The financial managers have significant involvement in injecting
financial discipline in corporate management processes. They are responsible for emphasizing the need for
rational use of funds and the necessity for monitoring the operations of the firm to achieve expected results.
The finance functions of augmenting resources and utilisation of funds, no doubt, have a significant impact on
other functions also. Infect, between finance on one side and production, marketing and other functionson
the other side, an inseparable relationship exists. The Board of Directors have been bestowed with the onerous
responsibility of reviewing financial procedures, formulation of financial policies, selection of right finance
personnel with professional capabilities like Chartered Accountant, Cost Accountant and Company
Secretaries. The Board of Directors with counsel and direction given by the financial manager finalise
decisions pertaining to formulation of new projects, diversification of projects, expansion of undertaking,
introduction of new products, widening the branch areas, diversification of new product lines. It should be
remembered that the financial controller, in fact, does not control finance. For management control and
planning, the financial controller develops uses and interprets information.

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CHAPTER 3 – INTRODUCTION TO WORKING CAPITAL MANAGEMENT
CAPITAL:-
Introduction:-
Capital is the keynote of economic development. In this modern age, the level of economic development is
determined by the proportion of capital available.
3.1 Meaning of capital:-
3.1 Meaning of Capital
3.2 Introduction to Working Capital
3.3 Meaning of Working Capital
3.4 Need for the Working Capital
3.5 Classification of Working Capital
3.6 Importance of Working Capital
3.7 Adequate and Inadequate Working Capital
3.8 Operating Cycle of Working Capital
3.9 Financing of Working Capital
3.10 Determinants of Working Capital
3.11 Estimation of Working Capital
3.12 Components of Working Capital

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In the ordinary sense of the word capital means initial investment invested by business or owner at the time of
commencing the business.
Capital is a factor of production that is not wanted for itself but for its ability to help in producing other goods.
Definition:-
Capital is a factor of production with a specific changeable value attached to it that could, potentially,provide
its owner with more wealth. It is an abstract economic concept, and as such has man different definition and
classification but the unifying feature of capital is that it has a certain value so it in itself is a type of wealth
and it has potential of generating more wealth.
Features of capital:-
Capital has the following features.
i. Capital is a man made.
ii. Capital is perishable.
iii. Capital is a human control possible.+
iv. Capital is mobile.
v. Capital is a human sacrifice.
vi. Capital is scarce.
vii. Capital is passive factor.
3.2 Introduction of working capital:-
Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the
human body for maintaining life, working capital is very essential to maintain the smooth running of a
business. No business can run successfully without an adequate amount of working capital.
There is an operative aspect of working capital i.e. current asset which is known as funds also employed to the
business process from the gross working capital. Current asset comprises cash receivables, inventories,
marketable securities held as short term investment and other item nearer to cash or cash equivalent to cash.

-26-
Working capital cones into business operation when actual operation takes place generally the requirement
of quantum of working capital is determined by the level of production which depends upon the management
attitude towards risk and the factor which influence the amount of cash , inventories receivables and other
current assets required to support given volume of production.
Working capital management is usually concerned with administration of the current asset as well as current
liabilities. The area includes the requirement of funds from various sources and to utilizes them in all result
oriented manner. It can be stated without exaggeration that effective working capital management is the
short requirement of long term success.
The importance of working capital management is indisputable. Business liability relies on its ability to
effective management of receivables, inventory and payables. By minimizing the amount of funds tied up in
current asset. Firms are able to reduce the financing costs or increases the fund available for expansion. Many
managerial efforts are put into bringing non optimal level of current asset and liabilities back toward their
optimal level.
3.3 Meaning of working capital:-
Working capital means the fund (i.e. capital) available and used for day to day operations (i.e. working) of an
enterprise. It consists broadly of that portion of asset of a business which are used in an related to its current
operation. It refers to fund which are used during an accounting period to generate a current income of type
which is consists with major purpose of a firm existence.
In Accounting:
WORKING CAPITAL = CURRENT ASSET – CURRENT LIABILITIES
Definition:-
Many scholars gives many definition regarding term working capital some of these are given below.
The accounting principle board of the American institute of certificated public accountants,
U.S.A. has defined working capital as follows:

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“Working capital, sometimes called net working capital, is represented by the excess of current asset
over current liabilities and identifies the relatively liquid portion of total enterprise capital which constitutes a
margin of buffer for maturing obligations within the ordinary operating cycle of the business.
According to Westorn & Brigham
“Working capital refers to firms investment in short term asset cash, short term securities, accounts
receivables an inventories.”
According to Mead mallott & Field
“Working capital means current asset.”
According to Bonnerille
“Any acquisition of funds which increases working capital for they are one and the same.”
Positive working capital means that the company is able to pay off its short term liabilities companies that
have a lot of working capital will be more successful since they can expand and improve their operation.
Negative working capital means that a company currently is unable to meet its short term liabilities with its
current asset. Companies with negative working capital may lack fund necessary for growth.
Objectives of working capital management:-
Effective management of working capital it means of accomplishing the firm‟s goal of adequate liquidity. It
is concerned with the administration of current asset and current liabilities. It has the main following
objectives.
i. To maximize profit of the firm.
ii. To help in timely payment of bills.
iii. To maintain sufficient current asset.
iv. To ensure adequate liquidity of the firms.
v. It protects the solvency of the firm.
vi. To minimizes the risk of business.
vii. To increase the value of the firm.
viii. To discharge current liabilities.
ix. To maximize the wealth of the company.

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3.4 Need for the working capital management:-
The need for the working capital management arises due to time gap between production and realization of
cash from sales. Working capital must for every business purchasing raw-materials, semi-finished goods,
stores & spares etc. and the following purpose.
a. To purchases raw materials, spare parts and other components.
A manufacturing firm need raw material and other components parts for the purpose of converting them into
final products, for this purpose it requires working capital. Trading concern requires less working capital.
b. To meet overhead expenses.
Working capital is required to meet recurring overhead expenses such as cost of fuel, power, office expenses
and other manufacturing expenses.
c. To hold finished and spare parts etc.
Stock represents current asset. A firm that can afford to maintain stock of required finished goods, work in
progress & spares in required quantities can operates successfully. So for the adequate quantity of working
capital is required.
d. To pay selling & distribution expenses.
Working capital is required to pay selling & distribution expenses. It includes cost of packing, commission
etc.
e. Working capital is required for repairs & maintenance both machinery as well as factory building.
f. Working capital is required to pay wages, salaries and other charges.
g. It is helpful in maintain uncertainties involved is business field.
Working capital management:-
Working capital management refers to management of current assets and current liabilities. Working capital
management refers to a company‟s managerial accounting strategy designed to monitor and utilize the two
components of working capital, current asset and current liabilities, to ensure the most financially efficient
operation of the company. The primary purpose of working capital management is to make sure thecompany
always maintains sufficient cash flow to meet its short term operating costs and short term debt obligation.
Working capital management commonly involves monitoring cash flow, assets and liabilities through ratio
analysis of key elements of operating expenses, including the working capital ratio, collection ratio and the
inventory turnover ratio. Efficient working capital management helps with a company‟s earning and

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profitability. Management of working capital includes inventory management and management of account
receivables and account payables.
3.5 Classification of working capital:-
 On the basis of concept:-
 Gross working capital:-
Gross working capital is the amount of funds invested in various components of current asset. Current asset
are those assets are easily/ immediately converted into cash within a short period of time say, an accounting
year. Current asset includes cash in hand, cash at bank, inventories (i.e. stock), bills receivable, debtors, short
term loans and advances.
This concept has the following advantages:-
Working capital
On The Basis of
Concept
On The Basis of
Time
Gross Working
Capital
Net Working
capital
Permanent/
Fixed Capital
Temporary/
Fluctuating
Working Capital
Intial Working
Capital
Regular Working
Capital
Seasonal
Working capital
Special Working
Capital

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 Financial managers are profoundly concerned with the current asset.
 It enables a firm to realize the greater return on investment.
 It enables a firm to plan and control funds and to maximize the return on investment.
 It helps in the fixation of various areas of financial responsibility.
 Gross working capital provides the correct amount of working capital at right time.
For these advantages gross working capital has become a more acceptable concept in financial management.
 Net working capital:-
This is the difference between current asset and current liabilities. Current liabilities are those that are expected
to mature within an accounting year and include creditors, bills payables and outstanding expenses.
Working capital management is no doubt significant for all firms, but its significance is enhanced in case of
small firms. A small firm has more investment in current asset than fixed assets and therefore current asset
should be efficiently managed.
The working capital needs increase as the firm grows, as sales grow, the firm needs to invest more in debtors
and in inventories. The finance manager should be aware of such needs and finance them quickly.
 On the basis of time:-
 Permanent / Fixed working capital:-
Permanent or Fixed working capital is minimum amount which is required to ensure effective utilization of
fixed facilities and for maintain the circulation of current asset. Every firm has to maintain a minimum level
of raw material, work - in – progress, finished goods and cash balance. This minimum level of current asset
called permanent or fixed working capital as this part of working is permanently blocked in current asset. As
the business grow the requirement of working capital also increases due to increase in current asset.
 Initial working capital
At its inception and during the formative period of its operation a company must have enough cash fund to
meet its obligation. The need for initial working capital is for every company to consolidate its position.
 Regular working capital

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Regular working capital refers to the minimum amount of liquid capital required to keep up the circulation
of the capital from the cash inventories to accounts receivable and from account receivable to back again cash.
It consists of adequate cash balance on hand and at bank, adequate stock of raw materials and finished goods
and amount of receivables.
 Temporary / Fluctuating working capital:-
Temporary / Fluctuating working capital is the working capital needs to meet seasonal as well as unforeseen
requirement. It may be divided into two types.
 Seasonal working capital
There are many lines of business where the volume of operations are different and hence the amount of
working capital very with the seasons. The capital required to meet seasonal needs of the enterprise is known
as seasonal working capital.
 Special working capital
The capital required to meet any special operation such as experiment with new products or new techniques
of production and making interior advertising campaign etc. are also known as special working capital.
3.6 Importance of working capital:-
1. Solvency of the business:
Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of
production.
2. Goodwill:
Sufficient amount of working capital enables a firm to make prompt payment and make s and maintain the
goodwill.
3. Easy loans:
Adequate working capital leads to high solvency and credit standings can arranges loan from banks and
other in easy and favourable terms.

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4. Cash discount:
Adequate working capital also enables a concern to avail cash discount on the purchases and here reduces
cost.
5. Regular supply of raw material:
Sufficient working capital ensures regular supply of raw material and continuous production.
6. Regular payment of salaries, wages and other day to day commitment:
Leads to the satisfaction of the employee and raises the moral of its employee, increases their efficiency
reduces wastage and costs and enhances production and profits.
7. Exploitation of favourable market condition:
If a firm is having adequate working capital then it can be exploit the favourable market condition such as
purchasing its requirement in bulk when the price are lower and holding its inventories for higher prices.
8. High morale:
Adequate working capital brings an environment of securities, confidence, high morale which results in overall
efficiency in a business.
9. Quick and regular return on investment:
Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains
confidence of the investors and can raise more funds in future.
10. Ability to faces crises:
A concern can face the situation during the depression.
3.7 Adequate and Inadequate working capital:-
Adequate of working capital:-
Working capital should be adequate so as to protect a business from the adverse effect of shrinking in the value
of current asset. It ensures to a greater extent to the maintenance of a company‟s credit standing and provides
for such emergencies as strikes, flood, fire, etc. it permits the carrying of inventories at level that would enable
a business to serve satisfactorily the needs of its customers. It enables a company to operate its business more
efficiently because there is no delay in obtaining material etc. because of credit difficulties.

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Inadequate of working capital:-
When working capital is inadequate, a company faces many problems. It stagnates the growth and it becomes
difficult for the firm to undertake profitable projects for non-availability of working capital funds. Difficult in
implementing operating plans and achieving the firm‟s profit target. Operating inefficiency creepin when it
becomes difficult even to meet day to day commitment. Fixed asset are not utilized efficiently thus the firm‟s
profitability would deteriorate. Paucity of working capital funds renders the firm unable to avail attractive
credits opportunities. The firm loses its reputation when it is not in a position to honour it short term obligations
thereby leading to tight credit terms.
3.8 Operating cycle of working capital:-
Working capital is also known as circulating capital or revolving capital. That is the money / capital which
circulate in various forms of current asset in a continued manner. For example, at a point of time, funds may
be tied up in raw material, and then later converted into semi-finished goods, and then into finished/ final
products and when these finished product are sold, it is converted either into account receivable or cash.
The operating cycle or circulation flow of money can best be projected in the following manner:

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 Conversion of cash into raw materials.
 Conversion of raw materials into work in progress.
 Conversion of work in progress into finished goods.
 Conversion of finished goods into account receivable(debtors) through sale and
 Conversion of accounts receivable(debtors) into cash.
 Capital/ finance is regarded as life blood of any enterprise. Therefore, the significance of working
capital in an enterprise lies in the fact that its circulation has to be properly regulated in the business.
Because, any over- circulation or under circulation may create problems just as improper blood
circulation called higher or lower blood pressure, in the human body may create problem.
It is also noteworthy that the total working capital composed of two parts is known as:
 Regular or fixed
 Variable
CASH
DEBTORS
RAW
MATERIAL
FINISHED
GOODS
WORK - IN -
PROGRESS

-35-
The amount which is needed, of course, at short intervals to invest again and again in current asset is called
regular or fixed working capital.
3.9 Financing of working capital:-
Introduction:
After determining the level of working capital, a firm has to decide how it is to be financed.
It is the finance which naturally in course of business is called as spontaneous finance.
In that LAXMI chemical and minerals pvt ltd, it was financing the working capital from the following fur
common sources they are,
 SHARES
 TRADE CREDIT
 BANK CREDIT
 CUSTOMER ADVANCES
 shares:
The company has issued the equity share for raising the funds. The equity shares do not have any fixed
commitment charges and the dividend on these shares is to be paid subject to availability of sufficient funds.
Also a company can raise finance by issuing two kinds of shares viz. equity shares and preference shares. Ever
company requires long term and permanent capital. The company can employ this capital for acquiring and
maintaining fixed assets and current asset.
 Trade credit:
Trade credit is one of the most important sources of short term finance. Trade credit refers to the sale of
merchandise on non-cash term by one business organisation to another. There are three categories of trade
credit viz. open accounts, notes payable and trade acceptances. Open account is better known as accounts
payable and is the most prevalent from of trade credit. Notes payable are also called as promissory notes.

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In sum business, the trade acceptance is employed in place of open account. This kind of credit also involves
a formal recognition of debt. If the firm has a good relationship with the trade creditors then suppliers can send
goods to the firm for the payment to be received in future as per the agreement or sales invoice.
 Bank credit:
Commercial bank plays an important role in financing the trade & industry bank provides short term,
medium term & long term finance to an industrialist or a business man.
The bank loan can take the form of cash credit, overdraft, loans, and bill purchased and discounted.
These loan are granted against the security of current asset like inventories, shares, receivables etc.
 Customer advances:
The company can follow the practice of collecting advance money from the customer as soon as orders are
placed and before the actual delivery of the goods. Such as advance received from the customers constitutes
one of the short term sources of finance.
3.10 Determinants of working capital:-
In order to determine the amount of working capital needed by the firm a number of factor have to be
considered by finance manager. These factor are explained below.
1. Nature of business:
The nature of the business effects the working capital requirement to a great extent. For instance, public
utilities like railways, electric companies, etc. need very little working capital because they need not hold large
inventories and trading operation are mostly on cash basis, but in case of manufacturing firms an trading firms,
the requirement of working capital is sufficiently large as they have to invest substantially in inventories and
receivables. The working capital required is more in period of production as compared to other period.
2. Product policies:

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The production policies also determine the working capital requirement through the production schedule i.e.
the plan for production, production process etc.
The company has small production process.
3. Credit policy:
The credit policy relating to sales and affects the working capital.
The credit policy influences the requirement of working capital in two ways:
 Through credit terms granted by the firm to its customer/ buyers.
 Credit terms available to the firm its creditors.
The credit term granted to customers have a bearing on the magnitude of working capital by determining the
level of book debts. The credit sales result in higher book debt means more working capital.
On the other hand, if liberal credit terms are available from the suppliers of goods, the need for working capital
is less. The working capital requirement of business are thus, affected by the terms of purchase and sales, and
the role given to credit by a company in its dealings with creditors and debtors.
4. Change in technology:
Used in manufacturing process is mainly determined need of working capital. Modernize technology needs
low working capital, where as old and traditional technology needs greater working capital.
5. Size of the business unit:
The size of the business unit is also important factor in influencing the working capital needs of a firm.
Large scale industries requires huge amount of working capital compared to small scale industries.
6. Growth and expansion:
The growth in volume and growth in working capital go hand in hand, however the changed may not be
proportionate and the increased need for working capital is felt right from the initial stages of growth.
7. Dividend policy:

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Another appropriation of profits which has a bearing on working capital is dividend payment. Payment of
dividend utilizes cash while retaining profit act as source as working capital thus working capital gets affected
by dividend policies.
8. Supply condition :
If supply of raw material and spares is timely adequate, the firm can get by with a comparatively low inventory
level. If supply is scarce and unpredictable or available during particular seasons, the firm will have to obtain
raw material when it is available. It is essential to keep larger stock increasing working capitalrequirement.
9. Market condition:
The level of competition existing in the market also influences working capital requirement. When competition
is high, the company should have enough inventories of finished goods to meet a certain level ofdemand.
Otherwise, customers are highly likely to switch over to competitor‟s products. It thus has greater working
capital needs. When competition is low, but demand for the product is high, the firm can afford to have a
smaller inventory and would consequently require lesser working capital. But this factor has not applied in
these technological and competitive days.
10. Business cycle:
The working capital requirements are also determined by the nature of the business cycle. Business fluctuation
leads to cyclical and seasonal changes which, in turn cause a shift in the working capital position.
11. Profit level:
Profit level also affects the working capital requirements as a concern higher profit margin results in higher
generation of internal funds and more contributing to working capital.
3.11 Estimation of working capital:-

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Managing the working capital is a matter of balance. The firms must have sufficient funds on hand to meet
its immediate needs. The LAXMI chemical and minerals pvt ltd is manufacturing oriented organisation.
The following aspects have to be taken into consideration while estimating the working capital requirement.
They are:
 Total costs includes on material, wages and overheads.
 The length of time for which raw material in stores before they are issued for production.
 The length of the production cycle or work in progress i.e. the time taken for conversion of raw
material onto finished goods.
 The average period of credit allowed to customer.
 The average credit period expected to be allowed by suppliers.
 The length of sale cycle during which finished goods to be kept waiting for sales.
 Time lag in the payment of wages and other expenses.
 The amount of cash required playing day to day expenses of the business,
 The average amount of cash required to make advance payment.
Estimation of current asset:-
 Raw Material Inventory:
The investment in raw material can be computed with the help of the following formula:
Budgeted Cost of Raw Average Inventory
Production x material x Holding period
(In units) (per unit) (monthly/ days)
12 months/52 week/365 days
 Work In Progress:
The relevant cost of determine work in progress inventory are the proportionate share of cost of new material
and conversion costs(labour and manufacturing overhead cost excluding depreciation).

-40-
Full unit of raw material is required in the beginning the unit cost of work in process would be higher i.e.
cost of full unit +50% of conversion cost compared to the raw material requirement.
Work in process is normally equivalent to 50% of total cost of production.
Budgeted Estimated work in Average time span of
Production x Progress cost x of work in progress
(in units) (per unit) inventory (months/day)
12 month/52 weeks/365 days
 Finished Goods Inventories:-
Working capital required to finance the finished goods inventory is given by factor summed up as follows:
Budgete
d
Producti
on(in
units)
x
Cost of
Goods
Produced
(per unit)
x
Finished
Goods
Holding
Period
(months/ days)
 Debtors:
12 months/52 weeks/365
days
The working capital tied up in debtor should be estimated in relation to told cost price.
Budgeted Cost of Sale Average Debt
Production x (per unit) x Collection Period
(in units) (months/ days)
12 months/ 52 week/365 days
 Cash and Bank Balance:
Apart from working capital needs for Financing Inventories and Debtors, firms also find it useful to have
such minimum cash balance with them. It is difficult to play down the exact procedure of determining such

-41-
an amount. This would primarily be based on the motives of holding cash balance of business firm, attitude of
management towards risk, the access to the borrowings sources in times of need and past experience.
Estimation of current liabilities:-
The working capital needs of business firms are lower to the extent that such needs are met through the current
liabilities(other than bank credit) arising in the ordinary course of business. The important current liabilities
in this context are Trade creditors, wages, and overheads:
 Trade Creditors:
The finding of working capital from Trade Creditors can be computed with the help of the following formula:-
Budgeted Raw material Credit Period
Production x Cost x Allowed by Creditors
(in units) (per unit) (months/ days)
12 month/ 52 weeks/ 365 days
 Direct Wages:
The finding of working capital from Direct Wages can be computed with the help of the following formula:-
Budgeted Direct Labour Average Time lag in
Production x Cost x Payment of wages
12 months/52 week/ 365 days
Note:-The average collection period for the payment of wages approximately to half a month in the case of
monthly wages payment. The first days monthly wages are paid on the 30th
of the month, extending credit
for 29 days, the second day‟s wages are, again paid on the 30th
day, extending credit for 28 days, and so on.
Average credit period approximately to half a month.
 Overheads:

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The funding of working capital from overhead can be computed with the help of the following formula:-
Budgeted Overheads Average Time lag in
Production x Cost x Payment of wages
12 month/ 52 week/365 days
Note: - The amount of overheads may be separately calculate for different type of overheads. In case of
selling Overheads, the relevant item would be sales volume instead of production volume.
FORMAT FOR DETERMINATION OF WORKING CAPITAL:-
SR.
NO PARTICULARS AMOUNT
1
2
ESTIMATION OF CURRENT ASSET
Minimum desired cash and bank balance xxx
Inventories
Raw Material xxx
Work-in-Progress xxx
Finished goods xxx
Debtors xxx
Total Current Asset
ESTIMATION OF CURRET LIABILITIES
Creditors xxx
Wages xxx
Overheads xxx
Total Current Liabilities
NET WORKING CAPITAL
(Total Current Asset – Total Current Liabilities)
Add : Margin for Contingency net
WORKING CAPITAL MANAGEMENT
XXX
XXX
XXX
XX
X XXX

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3.12 Components of working capital:-
 CASH MANAGEMENT
 DEBTORS OR RECEIVABLE MANAGEMENT
 STOCK OR INVENTORY MNAGEMENT
 Cash management:
Cash is the important current asset for the operation of the business. Cash is the basic input needed to keep the
business running in the continuous basis, it is also the ultimate output expected to be realized by sellingor
product manufactured by the firm.
The firm should keep sufficient cash neither more or less. Cash shortage will disrupt the firms manufacturing
operation while excessive cash will pay simply remain ideal without contributing anything towards the firms
profitability.
Thus, a major function of the financial manager is to maintain a sound cash position. Cash is the money, which
a firm can disburse immediately without any restrictions.
The term cash includes coins, currency and cheques held by the firm and balances in its bank account.
Need for holding cash:
The need for holding cash arises from a variety of reason which is,
1 Transaction motive:
A company is always entering into transactions with other entities. While some of these transactions may not
result in an immediate inflow/ outflow of cash, other transactions causes immediate inflow and outflows. So
firms keep a certain amount of cash so as to deal with transactions where immediate cash payment is required.
2 Precautionary motive:

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Contingencies have a habit of cropping up when least expected. A sudden fire may break out, accident may
happen, employees may go on strike, creditors may present bills earlier than expected or debtors may make
payment earlier than warranted. The company has to be prepared to meet these contingencies to minimize the
losses. For this purpose companies generally maintain some amount in the form of cash.
3 Speculative motive:
Firms also maintain cash balance in order to take advantage of opportunities that do not take place in the course
of routine business activities. For example, there may be a sudden decrease in the price of raw materials which
is not expected to last long or the firm may want to invest in securities of other companies when the price is
just right. These transactions are purely of speculative nature for which the firms need cash.
Objective of cash management:
Primary object of the cash management is to maintain a proper balance between liquidity and profitability. In
order to protect the solvency of the firm and also to maximize the profitability. Following are some objectives
of cash management.
 To meet day to day cash requirement.
 To provide for unexpected payment.
 To maximize profits on available investment opportunities.
 To protect the solvency of the firm and build up image.
 To minimize operational cost of cash management.
 To ensure effective utilization of available cash resources.
Cash budgeting:
Cash budgeting is an important tool for controlling the cash. It is prepared for future period to know the
estimated amount of cash that may be required. Cash budgeting is a statement of estimated cash inflows and
outflows relating to a future period. It gives information about the amount of cash expected to be paid out by
a firm or a given period.

-45-
Cash budgeting indicates probably cash receipts and cash payment for an under consideration. It is a statement
of budgeted cash receipts and cash payment resulting in either positive or negative cash or for a week or for a
year so on.
 Debtors or receivable management:
Debtors or receivable are the one of the most important parts of the current asset which is created if the
company sells the finished to the customer but not receive the cash for the same immediately. Trade credit
arises when a company sales its products or services on credit and does not receive the cash immediately. It
is an essential marketing tool, acting as abridge for the moment of goods through production and distribution
stages to customers.
The receivable includes three characteristics
1) It involves element of risk which should be carefully analysis.
2) It is based on economic value. To the buyer, the economic value is good or services passes immediately at the
time of sales, while seller expects an equivalent value to be received later on.
3) It implies futurity. The cash payment for goods or serves received by the buyer will be made by him in a future
period.
A company gives trade credit to protect its sales from the competitors and to attack the potential customers
buy its products at favourable terms. Trade credit creates receivables or book debts that the company is
accepted to collect in the near future. The customers from who receivables have to be collected are called as
“Trade Debtors” receivables constitute a substantial position of current assets.
 Stock or inventory management:
Inventories are goods held for eventual sale by a firm. Inventories are thus one of the major elements, which
help the firm in obtaining the desired level of sale. An inventory includes raw material, semi-finished goods,
and finished products.
In company there should be an optimum level of investment for any asset, whether it is plant, cash or
inventories. Again inadequate disrupts production and causes losses in sales. Efficient management of
inventory should ultimately result in wealth management should try to pursue financial objective of turning
inventory as quickly as possible, it should at same time ensures sufficient inventories to satisfy production and
sales demand.

-46-
The main objectives of inventory management are operational and financial.
The operational means that the materials and spares should be available in sufficient quantity so that work is
no disrupted for want of inventory. The financial objective means that investments in inventories should not
remain ideal and minimum working capital should be locked in it.
The following are the objectives of inventory management:-
 To ensure continuous supply of material, spares and finished goods.
 To avoid both over and under stocking of inventory.
 To maintain investments in inventories at the optimum level as required by the operational and sales
activities.
 To minimize losses through deterioration, pilferage, wastages and damages.
 To ensure right quality of goods at reasonable prices.
 To ensure perpetual inventory control so that materials shown in stock ledgers should be actually
lying in the sector.
Benefits of holding inventory:
Holding of large and adequate inventories is very beneficial to every firm.
The benefits or advantages of holding inventories area as follows.
 Reducing order cost.
 Continuous production.
 To avoid loss.
 Availing quantity discount.
 To enables the firm to avoid scarcity of good meant for either production of sale.
Cost of holding inventory:
 Material cost.
 Order cost.
 Storage cost.
 Insurance.
 Obsolescence.

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CHAPTER 4 – INTRODUCTION LAXMI CHEMICAL MINERALS
PRIVATELIMITED COMPANY
4.1 Company profile:-
History of the company:
LAXMI chemical and minerals private limited is small scale industry. The company purchased andconstructed
building in the year 1995. It started production in the year 1996. It is a private company situated in the industrial
estate.
The LAXMI chemical and minerals private limited is enjoying all the required facilities like water, power,
transport, labour, and good environment and material.
The company is achieving its sales target with some ups and downs. The company has been receiving good
response from customer and expected to achieve better sales in coming years. The company has its nature of
business.
The company has not accepted any deposits from public as per the provision of section 58A of the company
Act, 1956
4.1 Company Profile
4.2 Vision and Mission
4.3 Company Ownership
4.4 Objective of Company
4.5 Product Profile
4.6 Expansion and Diversification
4.7 SWOT Analysis
4.8 Organizational Structure

-48-
.
LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED COMPANY
Name of the
company
LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED
Year of the
establishment
1995
Chairman Shri. Chandrashekhar .J. LAXMI
Type of company Private Limited
Area of operation LAXMI chemical and minerals private
limitedC-1, Industrial Estate,
Ambewadi, Dandeli-581325,
Mumbai.
Nature of business Production and Sales of Aluminium sulphate
No. of departments 6 years
Number of
employee
140
Number of working
days
6 days a week
Capital structure of LAXMI chemical and minerals pvt ltd company:-
Share capital:-
1. Authorized capital Rs. 10, 00,000.
10,000 equity shares of Rs. 100 each.
2. Subscribed/ paid up share capital Rs. 10,00,and 000.
Borrowed capital:-

-49-
The company has taken long term loans from corporation bank. It has also taken unsecured loans from its
joint associate. The company has also received government subsidy of 25%on capital investment.
Table showing long term loan taken by company:
Year Loans
Secured loans | Unsecured
2005-2006 20,19,216 5,69,734
2006-2007 36,51,599 1,15,000
2007-2008 37,42,360 26,64,000
2008-2009 22,38,845 26,51,471
2009-2010 25,74,672 30,49,192
Investment and fixed asset is shown below:
Sr. No. Fixed asset Total Investment (Rs.)
1 Land & building 30,00,000
2 Machinery 12,00,000
3 Adjacent Building 15,00,000
4.2 Vision and mission of company
“Vision”
“To fulfil growing demand of alum and increasing the production”
“Mission”
1. To provide employment.
2. Quality product.
3. Maximum satisfaction to customer.
4. To ensure enterprise growth.
5. To create clean and healthy environment.
6. To develop the establishing the organisation in the city.
4.3 Company ownership:-
 Shareholders:
 Shri. Chandrashekhar .J. LAXMI
 Shri. Jawaharlal LAXMI.
 Shri. Laxmi LAXMI.

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 Board of directors:
 Shri. Chandrashekhar LAXMI.
 Shri. Laxmi LAXMI.
 Staff:
NAMES DESIGNATION
Mr. Nadkarni Finance manager
Mr. Deshpande Laboratory manager
Mr. Mahalkar Purchase manager
Mr. Neil Production manger
Mr. Patil Administrative manager
4.4 Objectives of LAXMI chemical and minerals private limited company:-
 To expand their market into other states.
 To modernize the organisation by using the hi-tech machines in the production process.
 To increase the productivity of the company.
 To produce chemical and minerals into different area.
 To know the customer attitude towards alum chemical and minerals.
 To gain profit for the business.
 To expand wealth of the business.
 To co-ordinate with companies staff members.
 To make the goals for future.
 To protect an environment on harm full gases.
4.5 Product profile:
The LAXMI chemical and minerals private limited company is engaged in the production of aluminium
sulphate is used in water treatment as mordant in dying. Aluminium sulphate mainly used in paper sizing

-51-
and in water treatment. Pharmaceutically, it is employed in dilute solution as a mild astringent and antiseptic
for the skin. Soda alum or Aluminium sulphate is used in some baking powder. Aluminium sulphate is known
more as alum. It is a colourless solid, which is soluble in water but insoluble in alcohol.
Major product of the company:
o Viz. ferric alum.
o Viz. ferric liquid alum.
o Non-ferric alum.
Uses:-
 Industrial wastewater treatment.
 Municipal wastewater treatment.
 Clarification and phosphorus removal.
 Potable and process water treatment colour and turbidity removal.
 Pulp and paper mills, paper sizing, soap manufactures, manufacture of glycerine.

Uses:-
 Dying and purification, water treatment.
-47-

-48-
Uses:-
 Used for dying and purification.
 Used in the pulp & paper industry.
 Used in water and waste water treatment.
4.6 Expansion and diversification:
Expansion of the company is under progress. The company is planning to produce alum ferric solid through
convention process, boiler evaporation of water from liquid alum. Estimated investment in expansionprocess
is Rs. 27 lacks. The funds required for expansion is borrowed from bank through term loans. Expansion of the
company is likely to give 10-12 employment opportunities.
The company is also planning to diversify. It is planning to manufacture crystal alum for which is better
swimming pools are one of the markets for crystal alum. 50%of the diversification process is already
developed. The estimated investment required starting up producing crystal alum is Rs. 3 lacks.
Infrastructure facilities provided by company:-
Welfare facilities:
The worker in LAXMI chemical and minerals are given some facilities for their, Betterment and Comfort.
1. Washing resting facilities:
Facilities for washing, storing, drying materials, and resting first aid facilities have been provided inside the
factory for the benefits of workers on duty.
2. Drinking facilities:
The company has made provision of clean, drinking water providing to the workers during the working hours.
There are drinking taps and coolers placed in every department.
3. Shelter and lunchroom:

-49-
After the working hours to take rest rooms have been made by the company and to have food in lunchtime.
4. Canteen:
Canteen is also provided to the workers. It runs on “no profit no loss basis”.
5. Parking facilities:
As the raw materials are bought in lorries, there is a proper facility to park them and unload them.
4.7 SWOT analysis of LAXMI chemical and minerals private limited:-
 Strengths:
 Availability of manpower.
 High quality product.
 Low price high quality.
 Availability of raw material.
 Weakness:
 Heavy transport charges.
 Major consumption in paper industries but limited paper industries in Karnataka.
 Opportunities:
 Technological up gradation.
 Foreign market expansion.
 Online ordering process.
 Product expansion.
 Market expansion.

-50-
 Threats:
 Easy of competitors.
 Product substitution.
5.8 Organizational structure:-
ORGANIZATIONAL STRUCTURE
DEPARTMENTAL STUDIES OF LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED
COMPANY:-
 PURCHASE DEPARTMENT
 LABORATORY DEPARTMENT
 ADMINISTRATIVE DEPARTMENT
 FINANCE DEPARTMENT
 MARKETING DEPARTMENT
 Purchase department:
MANAGING
DIRECTORS
Purchase
department
Laboratory
department
Administrative
department
Finance
department
Production
department
Marketing
Department
Manager
Laboratory In-
charge
Manager Manager Manager Manager

-51-
The purchase officer‟s and assistance head the purchase department. The clearly take the requisition from
various departments and forward to the purchase offices and then the purchase officer‟s arranges to the
purchase required material for the best seller available in the market.
The purchase department plays a very important role in the company where the dealing made between the
purchase officer‟s and sellers is convenient then it can be help in reduction of the price of the material and
their by which will also result in increase of profit.
Function:
o Purchase the good quality material.
o Have a better dealing at present and future with suppliers.
o Purchase only and required materials.
 Laboratory department:
Laboratory is also one of the important departments here because this department is used for testing the raw
materials and the finished goods for their quality.
There is a lab in-charge that looks after all the functions of the laboratory. Lab in-charge has certain other
workers under him who help him in executing his functions.
 Administration department:
Administration department takes care of the whole activities happening in and around the company. The
personal manager heads the department and personal managers is responsible for the man power in the whole
factory. Personal manager is concerned with most efficient use of people to achieve organisation and individual
goals. It is the way of managing people at work so that they give the best to the organisation.
Administrative department also takes care of the planning, organizing, directing, controlling, procuring and
developing and integrating of the company and human resources to the end. It also looks after the financial
matters of the company.
Function:
o Maintenance of files, records, etc.
o Collecting and presenting the data in the form of useful information from the records.
o Insuring smooth running of the office files by interacting with external agents as required.
o Maintenance of time management in the company.
o Good relationship between the employer and employee.
o Maintaining the financial matter of the company.
o Good relation with supplier and customers.
o Maintenance of salary, wages records.
o Keeping all the records of all departments.
 Financial department:

-52-
Finance is an essential component of the business to maintain its operations effectively. This department is
concerned with day to day activities like purchase, sales salary, etc. and proper management and maintenance
of account of concerned year.
Since the company is the small scale industry it maintains very good accounting year.
The whole financial matter is mainly dealt by the separate department called finance department.
The major sources of finance are,
1 Shares (Equity shares and preference shares).
2 Loans from corporation bank.
Functions:
o Recording day to day transaction in a systematic manner.
o Maintain proper accounts of purchases and sales.
o Maintaining profit & loss and preparing Balance sheet of company systematically.
o Paying the interest on loans at right time.
o Maintain & paying the taxes & insurance.
o Make use of available finance resources properly.
o Maintain liquidity of asset properly to earn the maximum profit.
 Marketing department:
Marketing department is also a one of the important department in the company. This department isimportant
because it gives a clear picture of the hoe to produce? Which will also help in the investment to made and
purchase department to purchase raw materials.
The marketing department has a procedure, by which it is don i.e. fit receives the order from the buyers and
forwards the order to the production department and as per the order production department produces the
required production and it makes the packing of materials and sends it to buyers as per the order.
Marketing department also take care of the tome given to it by the buyer to produce the product. If there is any
default in the other such as product not as per order or not at time or minimum product supplied the party will
send back the sample to the organisation and organisation gives certain percentage of discount for the default
but no replacement is made.
 Product department:
Production department is one of the most important departments in the company.
This department is used for producing the product and storing the product of the company.
Production manager and other workers work in this department.

-54-
CHAPTER 5 – RESEARCH AND METHODOLOGY
5.1 Scope of the study:
The scope of the study is identified after and during the study is conducted.
The main scope of the study was to put into practical the theoretical aspect of the study into real life work
experience.
The study of working capital management is based on tool like ratio analysis, statement of changes in
working capital. Further the study is based on annual report of the company.
5.2 Objective of the study:
 To study the sources and uses of the working capital.
 To study the liquidity position through various working capital relate ratio.
 To study the working capital components such as receivable account, cash management, inventory
management.
 To make suggestion based on the findings of the study.
 To aware the company to customers.
 To aware the product of the company.
 To know the product quality and satisfactory thing of the product.
5.1 Scope of the Study
5.2 Objective of the Study
5.3 Introduction to Research & methodology
5.4 Questionnaire

-55-
 To know the product reputation among people.
5.3 Research and methodology:-
Introduction:
Research methodology is a way to systematically solve the research problems. It may be understood as a
science of studying now research is done systematically. In that various steps, those are generally adopted by
a researcher in studying his problem along with the logic behind them.
“The procedures by which researchers go about their work of describing, explaining and predicting
phenomenon are called methodology.”
Types of research:
This project “A study on working capital management of LAXMI chemical and minerals private company
limited company” is concerned as an analytical research.
Analytical research is defined as the research in which, researcher has to use facts or information already
available, and analyse these to make a critical evaluation of the facts, figure, data or material.
Sampling:
 Sample size : 50 Respondents
 Sample method : Random Sampling
 Sample plan : Personal interview
 Sample unit : Respondents in Mumbai city
 Survey conducted on graphical bases.
Every decision poses unique needs for information, and relevant strategies can be developed based on the
information gathered through research. Research is the systematic objective and exhaustive search for and
study of facts relevant to the problem.
Research design means the framework of study that leads to the collection and analysis of data. It is a
conceptual structure within which research is conducted.
It facilitates smooth sailing of various research operations to make the research as effective as possible.
The study was conducted as an exploratory sampling survey method to collect primary and secondary data.

-56-
Data sources:-
Primary source of data:
Primary data are those collected by the investigator himself for the first time and they are original in
character, they are collected for a particular purpose.
A well-structured questionnaire was personally administrated to the selected sample to collect the primary
data.
Secondary source of data:
Secondary data are those, which have already been collected by some other person for their purpose and
published. Secondary data are usually in the sharp of finished goods.
Two types of secondary data were collected for the preparation of the project work:
Internal data was generated from company‟s brochures, manuals and annual reports.
External data, on other hand, was generated from research books and internal (websites).
Sampling techniques:
A sample is a representative part of the population. In sampling techniques, information is collected only
from a representative part of the universe and the conclusions are drawn on that basis for the entire universe.
A random sampling technique was used to collect data from the respondents. A random sample is a sample
selected from population in such a way that every member of the population has equal chance of being selected
and the selection of any individual does not influence the selection of any other. The selection is purely depends
on chance. So while conducting the survey, 50 Respondents were selected at random.
Sample size:
Sample size denotes the number of elements selected for the study. For the present study, 50 respondents were
selected.
Instrumentation techniques:
To know the response, the researcher used questionnaire method. It has been designed as primary researcher
instruments. Questionnaires were distributed to respondents and they were asked to answer the questions given
in the questionnaire.
The questionnaires were used as an instrumentation technique, because it is an important method of data
collection. The success of the questionnaire method in collecting the information depends largely on proper
drafting. So in the present study questions were arranged and interconnected logically. The structured

-57-
questionnaire will reduce both interviewers and interpreters bias. Further using SPSS software and analysis
was done for each question‟s response to reach into findings, suggestions and finally the conclusion about the
topic.
5.4 Questionnaire:-
Questionnaire for Personal Information:-
1) Name: .
2) Mail Id: .
3) Gender:
o Male
o Female
4) Age:
o Less than 20 years
o 25 years to 35 years
o 35 years to 45 years
o Above 45 years
5) Marital status:
o Married
o Unmarried
6) Education and Qualification:
o Intermediate
o Bachelor Degree
o Master Degree
o Profession
7) Monthly Income:
o Up to 10,000
o 10,000 – 15,000
o 15,000 – 20,000
o 20,000 – 25,000
o 25,000 – 30,000
o 30,000 and Above
8) Occupation:
o Business man
o Professional

-58-
o Students
o Government employee
o Private company employee
o Other
Questionnaire for Working Capital Management on LAXMI Chemical and Minerals private
Limited Company:-
1) Is there a separate Inventory Management Department.
o Yes
o No
2) What are the main Sources of raw material, finished goods and spare parts supplied in the
company?
o Indigenous / Indian
o Foreign
Interpretation:-
Particulars Frequency percentage
Yes 20 40%
No 10 40%
Maybe 20 20%
Frequency
yes no Maybe
40% 40%
20%

-59-
Interpretation:-
particular Frequency Percentage
Indigenous/ Indian 21 42
Foreign 8 16
both 21 42
3) What are the methods of purchasing raw material, finished goods, spare parts and stock?
o Limited tenders
o Open tenders
o Direct placement
o Contract basis
o Repeat order
Frequency
Indigenous/ Indian Foreign both
42% 42%
16%
Frequency
Limited tenders Open tenders Direct placement
Contract basis Repeat order
14%
26%
18%
21%
21%

Interpretation:-
Limited tenders 7 14%
Open tenders 9 18%
Direct placement 10.5 21%
Contract basis 10.5 21%
Repeat order 13 16%
4) Do you prepare stock reports?
o Yes
o No
Frequency
Yes no
0%
32%
68%
Interpretation:-
particular Frequency percentage
Yes 16 32%
no 34 68%
5) How is the inventory priced?
o FIFO
o LIFO
o Average
o Any other:
-60-

-61-
Interpretation:-
FIFO 20 40%
LIFO 9 18%
Average 18 36%
Any other 3 9%
6) Do you prepare account Receivable report
o Yes
o No
Frequency
FIFO LIFO Average Any other
6%
40%
36%
18%
Frequency
0%
no
46%
yes
54%

-62-
Interpretation:-
particular Frequency percentage
yes 27 54%
no 23 46%
7) Does the company allowed a discount to its customer for prompt payments
o Yes
o No
Interpretation:-
Yes 25 50%
No 5 10%
maybe 20 40%
8) Do you follow any of the following ratios as credit norms?
o Receivable to current asset
o Collection period
o Receivable to sales
o Any other:
Frequency
maybe
40% Yes
50%
No
10%

-63-
Interpretation:-
Particular Frequency Percentage
Receivable to current asset 13 26%
Collection period 9 18%
Receivable to sale 11 22%
Other 17 34%
9) Is there any specific policy for loans and advances
o Yes
o No
Frequency
Receivable to current asset Collection period Receivable to sale Other
34%
26%
18%
22%
Frequency
Yes No Maybe
40%
50%
10%

-64-
Interpretation:-
Particulars Frequency Percentage
Yes 25 50%
No 5 10%
Maybe 20 40%
10) Do you prepare cash reports?
o Yes
o No
Interpretation:-
Yes 16 32%
No 34 68%
11) Where you invest your cash
o Company
o Bank
o Stock market
o Any other:
Frequency
Yes No
0%
32%
68%

-65-
Interpretation:-
12) What are the main sources of working capital
o Internal
o External
o Both
Frequency
Company Bank Stock market Other
14%
20%
24%
42%
Particular
Company
Bank
Stock market
Other
Frequency
10
21
12
7
Percentage
20%
42%
24%
14%

-66-
Interpretation:-
Internal 14 28%
External 4 8%
Both 32 64%
13) What should be policy of the company in utilizing the following internal source of funds for
working capital?
o Retained earning
o Depreciation
o Provision for taxation, etc.
Frequency
Internal External Both
28%
64% 8%

-67-
Interpretation:-
Retained earning 20 40%
Depreciation 7 14%
Provision for taxation, etc. 23 46%
14) What is the approach of working capital?
o Hedging approach
o Conservative approach
Frequency
Retained earning Depreciation Provision for taxation, etc.
46%
40%
14%
Frequency
0%
Hedging
approach
36%
Conservative
approach
64%

-68-
Interpretation:-
Hedging approach 18 36%
Conservative approach 32 64%
15) Which working capital forecast you use if you are the employee of the company?
o Informal / judgemental
o Formal / statistical
Interpretation:-
Informal / judgemental 20 40%
Formal / statistical 30 60%
16) On what basis you prepare your credit plan?
o Long term
o Short term
Frequency
Informal / judgemental Formal / statistical other
0%
40%
60%

-69-
Interpretation:-
Long term 23 46%
Short term 27 54%
Frequency
Long term Short term
0%
46%
54%

-70-
CHAPTER 6 – SUGGESTION AND
RECOMMENDATION
6.1 Findings:-
 Working capital of the LAXMI chemical and minerals private limited company was increasing
andshowing positive working capital as per year.
 The LAXMI chemical and minerals private limited company has higher current ratio and quick ratio.
 Inventory turnover is increasing at ever year.
 Debtors turnover ratio is decreasing every year.
 Creditors turnover ratio is increasing every year.
 Working capital ratio is increasing every year, which is good sign for the company. It will gain
profit.
6.2 Suggestions:-
 Working capital of the company has increasing every year.
 Profit of the business is increasing every year, it is good sign to the company.
 It has to maintain, it is further, to run its business long term.
 The current an quick ratio is almost up to the standard requirement
6.1 Findings
6.2 Suggestions

-71-
 So working capital management of LAXMI chemical and material private limited company is
satisfactory and it has maintained further.
 The company has sufficient working capital and has better liquidity position. By efficient utilizing
the short term capital, then it should the turnover.
 The company should take precautionary measures for investing and collecting funds from receivable
and to reduce bed debts.
 The company is utilizing the working capital effectively this is good for the company. It should be
maintain it further.
 Creditor‟s turnover ratio has increased in the last year. Company making prompt payment to the
creditors. This is good sign for the company.
 On timely payment to suppliers will increase the credibility to the firm. It has maintain it‟s further to
survive in the market.

“STUDY ON WORKING CAPITAL MANAGEMENT IN LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED COMPANY

“STUDY ON WORKING CAPITAL MANAGEMENT IN LAXMI CHEMICAL AND MINERALS PRIVATE LIMITED COMPANY

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