1.1 OBJECT OF THE PROJECT
It is customary that under two year full time course of M.B.A. degree, a student
has to undergo different training programs so as to establish himself capable of managing
at the place of his work after the completion of this degree. Thus project work is an
unique way of studying an organization.
The main purpose of assigning this task of project report is to keep new practical
knowledge, establishing relations with different persons outside the organization and to
obtain first hand and factual information.
The project helps to draw out the differences and similarities between the
theoretical knowledge with the actual job conditions, this helps the students to persuade
and activate strategy decision-making when they start their carriers. It provides an
opportunity to develop communication skill and analytical skills.
The project provides the opportunity to understand the working capital
requirement for a winery.
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1.2 SELECTION OF THE
TOPIC FOR STUDY
One of the most important areas in the day to day management of the firm is the
management of the working capital.
The analysis of working capital is necessary for all the organization because if an
organization maintains a large holding of current assets especially cash, the risk is
reduced but it also reduces the profitability.
The importance of working capital management is reflected in the fact that
financial managers spend a great deal of time in managing current assets and current
liabilities. Arranging short term financing, negotiating favorable credit terms, controlling
cash movement, managing accounts receivables and monitoring investments in
inventories consume a great deal of time of financial managers.
As the study of working capital can find out the drawbacks of working capital
management of the company by analyzing the previous years working capital.
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1.3 OBJECTIVE OF THE STUDY
Every study emerges to achieve certain objectives. The main objective of
carrying out this project is to know and gain practical knowledge and to know the
organization working culture.
Following are the important objective of the project:
1
To have comprehensive understanding of Vinsura Wines.
2
To know the present financial position of Vinsura Wines.
3
To know the working capital performance of Vinsura Wines.
4
To examine the financial performance of Vinsura Wines through ratios and
statements of changes in working capital.
5
To draw observations based on the study and suggest suitable measures to
overcome problems or to improve its performance.
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1.4 RESEARCH METHODOLOGY
Methodology is the process of collecting the information and helps to find out the
solution to the topic selected by the researcher. Where as research helps to study and find
out the techniques with the proper process. It is a systematic way of presenting
information.
In order to collect the required information for the project the following methods
were adopted:
PRIMARY DATA:
The concern staff of Vinsura Wines was interviewed personally. The data was
collected with the purpose of evaluation.

Discussion with the finance manager regarding the figure of balance sheet.

Collection of information related to working capital from other members of the
accounts department of the organization.
SECONDARY DATA:
Secondary data is provided by the organization. The needed information is
collected from:

Balance sheet of Vinsura Wines 2004-07

Books of accounts of Vinsura Wines 2004-07

Annual reports of Vinsura Wines 2004-07
The present study is aimed at to analyze the working capital analysis of Vinsura
Wines, by coving yearly financial data supplied in the company’s financial accounts.
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1.5 SCOPE OF THE STUDY
In this project I tried to analysis the working capital of Vinsura Winery for the
last four years from 2004 to 2007.
As the part of the study of working capital and its circulation, statement of
changes in working capital and ration analysis with its conclusion and interpretation of
working capital with the help of graph has been done.
This project is based on last four-year record and these records are used for
comparison for ratio analysis.
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1.6 LIMITATIONS OF STUDY
This project focuses only on certain factors, which are important to discuss. But
tool of ratio analysis has certain fundamental and conceptual limitations, this project as
well.
The study is only made on one organization so it does not provide any scope of
comparison with other organization.

The study is based only on last 4-year records.

The study is restricted to financial position of the company with on attention
given to loans and advances and deposit mobilization.

While computing ratios, average, percentage, the figures are appropriated to two
decimal places. Therefore sometimes the total may not exactly tally.
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1.7 RATIONAL OF THE STUDY
Education is only a mean to an end and not an end in itself.
The ultimate objective of making this project is to develop self reliance, learning
habit, creating awareness of the special and culture environment developing appropriate
communication skills, application of knowledge of project and surveys of these
programs.
The project also helps to build the skills of analysis. The contribution of the
project is to accept as a great opportunity as one can apply the knowledge through
project surveys etc. and to study the problem faced by the industry.
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2.1 GENERAL INFORMATION
Name of an Organization:
Address of Corporate Office
VINSURA WINERY PVT. LTD.
:
VINSURA WINERY PVT. LTD.
(Sankalp Winery Pvt. Ltd.)
1, Govind Appt., N. D. Patel Road,
Opp. Telephone Exchange,
Nashik – 422 001
Maharashtra, India
Phone: +91-253-2598555, 3299361
Fax: +91-253-2597555
Winery Address
:
VINSURA WINES PVT. LTD.
CU – 3, Vinchur Wine Park,
Tal: Niphad, Dist: Nashik
Phone: +91 2550 261751/52
Fax: +91 2550 261752
Email
:
info@vinsura.com
visitvinsura@vinsura.com
Website
:
www.vinsura.com
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THE PROMOTERS / MANAGEMENT TEAM OF
VINSURA WINES:
The promoters and management team of Vinsura Wines consist of the most eminent
Industrialist, Agriculturist in the State of Maharashtra.
The Vinsura team comprises of:
1.
Mr. Pralhad S. Khadangale
- Chairman
2.
Mr. Kishor C. Holkar
- Managing Director
3.
Mr. Sadashiv K. Nathe
- Chief Executive Officer
4.
Mr. Sanjay C. Holkar
- Director Finance.
5.
Dr. Pradeep N. Pawar
- Director Public Relations
They main participants in the progress of Vinsura Wines. These people are popular in
their circle of business associations.
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Some details about the premiers of this group:
1. Mr. Pralhad S. Khadangale – Chairman:
Specializes in Chemistry, one of the foremost agriculturists in initiating export of
farm produce from the Nashik Valley. Successfully runs a Biotech Company called M/s.
Sankalp Biotech Pvt. Ltd. which is reaping rich dividends under his critical supervision.
A visionary as a whole and willing to take all the necessary steps to make the company
the best wine making company in the country.
2. Mr. Kishor C. Holkar - Managing Director:
Specializes in Horticulture, one of the most well-known agriculturists in the
Nashik Valley. He has gained recognition all over Maharashtra as one of the best under
standers of the latest irrigation facilities, methods and culture. He strives to achieve the
best quality grapes for the production of wine. Successfully runs Drip Irrigation business
that helps the farmers in the nearby vicinity.
3. Mr. Sadashiv K. Nathe – Chief Executive Officer:
The management expert in the team of "VINSURA". He brings in the most
innovative ideas for the promotion, sale and brand establishment. He is also an
agriculturist who owns Vineyards which produce one of the best quality table & wine
grapes. He has interest in Drip Irrigation and has developed his skills in this sector over
the last 15 years. His efficiently managed Company called Jaldhara Drip Irrigation Pvt.
Ltd., which has been doing successful business and is well known in the Nashik Valley
as well as all over Maharashtra. He is also the secretary of the Nashik Valley Wine
Producers Association.
4. Mr. Sanjay C. Holkar – Director Finance:
A dynamic personality, well known industrialist and a popular individual who is
a participating member in a lot of industrialist groups. Due to his high thinking, path
breaking views, popular personality he has been successfully doing business in the fields
of export of fruits & vegetables, production of petrochemicals. He has a vision of making
a big corporate house that will be self sufficient in all aspects. At present he is the
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General Manager of a large Co-operative Society "Vegetable & Fruits Co-operative
Marketing Society Ltd.", also he is the Chairman and Managing Director of "Yashoda
Agro Mercantile & Processing Company Private Limited". These two organizations are
striving ahead under his sincere perseverance, and have set high standards for the future.
Recently VEFCO has received the "Vasantrao Naik Agricultural Export Award 2006-07
presented by the Honorable Agricultural Minister Shri Sharad Pawar."
5. Dr Mr. Pradeep N. Pawar - Director Public Relations:
One of the most promising medical practitioners in the Nashik City. He has
contributed to this company with his personal relations skills in both India as well as
abroad. His presence in the Board of Directors gives it a different dimension. He lends
the brand name of "VINSURA" the sophistication that is required to survive in the
international market. With his astounding presence he has been one of the major factors
of "VINSURA" reaching the heights it has come to today and is hoped to achieve in the
future.
EVOLUTION OF BUSINESS SINCE
INCORPORATION:
It is known to all that India is primarily an agriculturally inclined country. The
growth of this country has always been measured by the growth that takes place in the
agricultural sector. Keeping this in mind the promoters with their foresight decided to
start to produce wine grapes along with table grapes.
Their plan was initiated in the year 1997 when the promoter’s viz. Mr. P S
Khadangale, Mr. Kishor C. Holkar, Mr. S K Nathe had gone to France the birth place of
wine. There they took keen interest in the wine making process. Once they started to get
a grip on the process of wine making it came to their observation that this is
predominantly a farmer friendly business.
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For this purpose they imported wine saplings from France, Australia and
California (USA).
1998 – Plantation began at the promoter’s farms in 1998. This was a very tough period of
two (2) years where the promoters had to wait with bated breath to find out if the crops
would turn out to be the types that are found in the Mediterranean regions.
2000 –In the month of October 2000, the promoters went to France. This time they had a
dream of getting their wine accepted by the French. They knew once it was approved in
France they could get a green signal to start producing more wine grapes. With a resolve
to accept and acknowledge whatever was the outcome of the tests they got the samples
tested in the World famous testing & tasting laboratories. The laboratories were Station
Analogy and the Institute of Analogy, situated in Eperney the capital of Champaign
in France. The wine was appreciated by the French and the reports given were
favorable.
2001 – October 2001 brought with it the good news of the State Government allotting
license to SANKALP WINERY PVT. LTD (VINSURA Wines)
The Government set up a Wine Park at Vinchur, Tal: Niphad, Dist: Nashik. This
is the first of a kind in the State of Maharashtra and India as well.
November 2001 SANKALP WINERY PVT. LTD (VINSURA Wines) started
construction of its plant.
2002 – In March 2002 the crushing process was started. The first products made were
Chenin Blanc White Wine & Zinfandel Red Wine.
2003 – The advent of sale took place in the year of 2003. Slowly but steadily Vinsura
started forming a market for their product. Over the years they have launched different
varieties of Wine that have been readily accepted by the wine lovers in India.
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2004 – 2006 – A number of wine were introduced and in December 2006 Champagne
was launched. The products of Vinsura Wines have been appreciated all over the world.
Vinsura was the first company to participate in the VINITALY Verona Fair in April
2006. Vinsura Wines have won a number of awards in the wine tasting competitions like
in "Wine Style Asia 2006" Singapore in November 2006 3 Awards, 1-Silver medal for
Chenin Blanc White Wine, and two commendations for Zinfandel & Rose variety wines.
Vinsura has won 4 Awards in "International Symposiums on Grape Production and
Processing, Pune, In February 2006.
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2.2 ABOUT VINSURA
We are a respected Indian wine making company in business from last three
years. With a humble beginning with a farming background, the promoters of VINSURA
were able to come up with the world class wine made from some exotic wine grape
varieties. It is said that 80% of the wine is produced in the vineyards and if we go by this
norm one can notice that the best wines can only be made by the farmers worldwide and
India is no exception.
Today VINSURA is already popular with wine connoisseurs and is also present
in large parts of India. This success belongs to the quality product and dynamic
leadership of Pralhad Khadangle, Chairman, and VINSURA group.
1. Logo
In all green plants, including vines, leaves utilize sun light to combine carbondioxide and water to synthesize sugars. This process is known as 'Photosynthesis'. Thus
in vines, leaves function as factories where sun light is converted into grape sugars or
grapes. Hence a properly controlled development of leaves or vines-canopy can optimize
light interception to give quality grapes and quality wines. As vine leaves play a very
fascinating and a crucial role in producing quality wines, we selected vine leaf for our
logo. It is rightly said that great wines are made in the vineyard provided the canopy is
efficiently managed or the leaf is provided due attention.
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2. Brand
Vinsura literally stands for SURA, of Vinchur, to be pronounced as VINSURA.
Vinchur is a small hamlet adjoining the Wine Park, and SURA in Sanskrit means wine.
The pharmacological value of wine is well known since antiquity. Considering these two
prominent factors, i.e. the location of the winery and the ancient nomenclature of this
beverage, we decided to brand our product as 'VINSURA'.
3. Location
Located in Vinchur Wine Park, a central part of fertile grape-growing area in
Nashik Valley, this is the first winery in the proposed Vinchur Wine-Park. The WinePark is situated on Mumbai-Aurangabad highway and it is easily accessible by rail and
road. It is about 4 hours drive from Mumbai and Pune. The world - famous caves of
Ajanta and Ellora, near Aurangabad, are about 90 km, from the Wine Park. It is also
equidistant from the Pilgrim City of Nashik and the holy shrine of Shirdi - a distance
about 50 km.
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4. Region
Nashik Valley has been known for growing quality grapes, fruits and flowers for
the last ten decades. It is during the last decade that some local enterprising farmers took
initiative to reorganize and rearrange their vineyards to produce wine grapes, as this
region provided the right environment for growing quality wine grapes. The soil type
ranges from well-drained gravely loams to moisture retaining salty clay. The climate is
typically Mediterranean with warm, but not excessively hot, days and cool nights. The
entire grape growing area in this wine district is very well irrigated with excellent
network of dams and canals. At present there are more than 30,000 hectares of land
under grape cultivation in Nashik and another 30,000 hectares in the surrounding
regions.
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5. Vineyards
Different varieties of vines spread out over 100 hectare, over slopes, sunny
hillsides and valley floor, within a radius of about 15.km from the winery, constitute our
vineyards.
Each vineyard, each plot and each plant is looked after by a qualified
Horticulturist.
Cabernet Sauvignon, Zinfandel and Syrah varieties of wine grapes are used
mainly for Red Wines. Sauvignon Blanc, Chenin Blanc and Symphony are used for
White Wines. Each Variety of grapes has been carefully selected and grown in the most
suitable plot, taking into consideration the macro-climate it needs. Annually our
vineyards produce about 840 tons of Quality grapes.
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2.3 PRODUCTION PROCESS
Flow chart of Wine Making Process
GRAPE
PRESS
CHILLING
PACKING
FERMENTATION
SETTLING
COLD
TREATMENT
BASE
STILL
WINE
BASE
WINE
SPARKLING WINE PROCESS
SUGAR &
YEAST
BOTTLING
RIDLING
AGEING 68 MONTHS
BOTTLING
LABELING
DISGORGI
NG
DOSING &
CORKING
LABELING
DISPATCH
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2.4
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Products in VINSURA’s Portfolio:  VINSURA BRUT METHOD CHAMPENOISE (SPARKLING
WINE)
 VINSURA CHENIN BLANC (WHITE WINE)
 VINSURA SAUVIGNON BLANC (WHITE WINE))
 VINSURA FLORA (WHITE WINE)
 VINSURA ZINFANDEL (RED WINE)
 VINSURA SHIRAZ (RED WINE)
 VINSURA ROSE (BLUSH WINE)
 VINSURA DESSERT (SWEET WINE)
 VINSURA CABERNET SAUVIGNON – SHIRAZ (RED WINE)
 VINSURA VALENTINO (WHITE WINE)
 VINSURA VALENTINO (RED WINE)
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3.1 INTRDUCTION
Working capital management is a significant in financial management due the
fact that it plays a pivotal in keeping the wheels of a business enterprise running.
Working capital management is concerned with short-term financial decisions. Lack of
efficient and effective utilization of working capital leads to earn low rate of return on
capital employed or even compels to sustain losses.
A firm invests a part of its permanent capital in fixed assets and keeps a part of it
for working capital i.e. for meeting day to day requirements. We will hardly find a firm
which does not require any amount of working capital for its normal operations. The
requirement of working capital varies from firm to firm depending upon the nature of
business, production policy, market conditions, seasonality of operations, conditions of
supply etc.
Working capital to a company is like the blood to human body. It is the most vital
ingredient of a business. Working capital management if carried out effectively,
efficiently and consistently, will assure the health of an organization.
MEANING
Working capital is defined as the excess of current assets over current liabilities.
Current assets are those assets which will be converted into cash within the
current accounting period or within the next year as a result of the ordinary operations of
the business. They cash or near cash resources. These include:
 Cash and Bank balances.
 Receivables.
 Inventory

Raw materials, stores and spares.
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
Work in process.

Finished goods.
 Prepaid expenses.
 Short term advances.
 Temporary investments.
The value represented by these circulates among several times. Cash is used to
buy raw-materials, to pay wages and to meet other manufacturing expenses. Finished
goods are produced. These are held as inventories. When these are sold, accounts
receivables are created. The collection of accounts receivable brings cash into the firm.
Current liabilities are the debts of the firm that have to be paid during the current
accounting period or within a year. These include:
 Creditors for goods purchased
 Outstanding expenses. i.e., expenses due but not paid.
 Short term borrowings.
 Advances received against sales.
 Taxes and dividends payable.
 Other liabilities maturing within a year.
Working capital is also known as circulating capital, fluctuating capital and
revolving capital. The magnitude and composition keep on changing continuously in the
course of business.
Current Assets – Current Liabilities = Working Capital
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3.2 OBJECTIVE OF WORKING CAPITAL
MANAGEMENT.
The basic objectives of working capital are as follows:

By optimizing the investment in current assets and by reducing the level of
current liabilities, the company can reduce the locking-up of funds in working
capital thereby; it can improve the return on capital employed in the business.

The company should always be in a positing to meet its current obligations which
should properly be supported by the current assets available with the firm. But
maintaining excess funds in working capital means locking of funds without
returns.

The firm should manage its current assets in such a way that the marginal return
on investment in these assets in not less than the cost of capital employed to
finance the current assets.

The firm should maintain properly balance between current assets and current
liabilities to enable the firm to meet its day to day financial obligations.
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3.3 CLASSIFICATION OF
WORKING CAPITAL
Working Capital
On the basis of
concept
Gross
On the basis of periodic
requirement
Net
Positive
Negative
Permanent/Fixed
Working Capital
Regular Working
Capital
Reserve
Margin
Variable
Working Capital
Seasonal
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GROSS AND NET WORKING CAPITAL
Generally the working capital has its significance in two perspectives. These are
gross working capital and net working capitals are called ‘balance sheet approach’ of
working capital.
Gross Working Capital:
The term ‘gross working capital’ refers to the firm’s investment in current assets.
The amount of current liabilities is not deducted from the total of current assets. The
concept of gross working capital is advocated for the following reasons:

Profits of the firm are earned by making investment of its funds in fixed and
current assets. This suggests the part of the earning relate to investment in
current assets. Therefore, aggregate of current assets should be taken to mean
the working capital.

The management is more concerned with the total current assets as they
constitute the total funds available for operating purposes than from the sources
from which the funds come.

An increase in the overall investment in the enterprise also brings an increase in
the working capital.
Net Working Capital:
The term ‘Net working capital’ refers to the excess of current assets over current
liabilities. It refers to the difference between current assets and current liabilities. The net
working capital is a qualitative concept which indicates the liquidity position of the firm
and the extent to which working capital need may be financed by permanent source of
funds. The concept looks into the angle of judicious mix of long-term and short-term
funds for financing current assets. A position of net working capital should be financed
with permanent sources of funds.
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PERMANANT & TEMPORARY WORKING
CAPITAL
Permanent Working Capital:
The magnitude of investment in working capital may increase or decrease over a
period of time according to the level of production. But, there is a need for minimum
level of working capital to carry its business irrespective of change in level of sales or
production. Such minimum level of working capital is called ‘permanent working
capital’ or ‘fixed working capital’.
Temporary Working Capital:
It is also called as ‘fluctuating working capital’. It depends upon the changes in
production and sales, over and above the permanent working capital. It is the extra
working capital needed to support the changing business activities. It represents
additional assets required at different items during the operation of the year. A firm will
finance its seasonal and current fluctuations in business operations through short-term
debt financing.
For example, in peak seasons, more row materials to be purchased, more
manufacturing expenses to be incurred, more funds will be locked in debtor’s balances
etc.
Amount of
working capital
Temporar y
Wor king Capit al
Permanent
Wor king Capit al
Time
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3.4 FACTORS AFFECTING WORKING
CAPITAL
The working capital needs of a firm are affected by numerous factors are as
follows:
a) Nature of Business:
In some business organizations, the sales are monthly on cash basis and the
operating cycle is also very short. In these concerns, the working capital requirement is
comparatively less. Mostly service giving companies come in the category. In
manufacturing concerns, usually the operating cycle is very long and a firm has to give
credit to customers for improving sales. In such cases, the working capital requirement is
more.
b) Production Policy:
Working capital requirement also fluctuate according to the production policy.
Some productions have seasonal demand but in order to eliminate the fluctuations in
working capital, the manufacturer plans the production in a steady flow throughout the
year. This policy will even out the fluctuation in working capital.
c) Market Conditions:
Due to competition in the market, the demands for working capital fluctuate. In a
competitive environment, a business firm has to give liberal credit to customers.
Similarly, it has to maintain a large inventory of finished goods to service the customers
promptly. In this situation, larger amount of working capital will be required.
d) Seasonal Fluctuations:
A firm which is producing production with seasonal demands requires more
working capital during peak seasons while the demand for working capital will go down
during slack seasons.
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e) Growth and Expansion Activities:
The working capital needs of the firm increase as it grows in terms of sales or
fixed assets. This will in turn increase investment in current assets which will result in
increase in working capital needs.
f) Operating Efficiency:
The operating efficiency of the firm relates to the optimum utilization of
resources at minimum cost. The firm will be effectively contributing to its working
capital if it is efficient in controlling operating costs. The working capital is better
utilized and cash cycle is reduced which decreases working capital needs.
g) Credit Policy:
The working capital requirements of a firm depend to a great extent on the credit
policy followed by a firm for its debtors. A liberal credit policy followed by firm will
result in huge funds blocked in debtors which will enhance the need for working capital.
The need for working capital is also affected by the credit policy followed by the firm’s
creditors. If the creditors are ready to supply material and goods on liberal credit,
working capital requirements are substantially reduced.
h) Sales Growth:
As the sales grow, the working capital needs also go up. Actually it is very
difficult to establish an exact proportion of increase in current assets, as a result of
increase in sales.
i) Dividend Policy:
A company has to pay dividends in cash as per Company Act, 1956. If a liberal
policy is followed for payment of dividends, more working capital will be required. The
needs for working capital will be substantially reduced if dividend policy is conservative.
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3.5 DISADVANTAGES OF INSUFFICIENT
WORKING CAPITAL
The disadvantages suffered by a company with ‘negative working capital’ are as
follows:

The company is unable to take advantages of new opportunities or adapt to
changes.

Fixed assets cannot be used effectively in situations of working capital shortage.

The operating plans cannot be achieved and will reduce the profitability of firm.

It stagnates the growth of the firm.

Employee moral will be lowered due to financial difficulties.

The operating inefficiencies will creep into daily activities.

Trade discounts are lost. A company with ample working capital is able to
finance large stocks and can, therefore, place large orders.

The advantages of being able to offer a credit line to customers are foregone.

Financial reputation is lost result in non-cooperation from trade creditors in times
of difficulty.

There may be concerted action by creditors and will apply to court for winding
up.

It would be difficult to get adequate working capital finance from banks, financial
institutions.
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3.6 OPERATING CYCLE CONCEPT
Working capital is the life blood of any business, without which the fixed assets
are inoperative. Working capital circulates in the business, and the current assets change
from one form to the other. Cash is used for procurement of raw materials and stores
items and for payment of operating expenses, and then converted into work-in-progress,
then to finished goods. When the finished goods are sold on credit terms receivables
balances will be formed. When the receivables are collected, it is again converted into
cash. The need for working capital arises because of the time gap between production of
goods and their actual realization after sales. The time gap is called technically called as
‘operating cycle’ or ‘working capital cycle’. The operating cycle of a company consists
of time period between the procurement of inventory and the collection of cash from
receivables.
Cash
Purchase of
Raw materials
Collection of
Receivables
Raw material
inventory
Accounts
Receivable
Issue of materials to Production &
incurring expenses.
Sales
Work-in-process
Finished
goods
OPERATIING CYCLE
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Periods are ascertained as follows:
(a) Raw Material Holding Period
Average raw material stock
Average consumption of raw material/365
(b) Work-In-Process Period
Average work-in-process
Average cost of goods sold/365
(c) Finished Goods Holding Period
Average finished goods stock
Average cost of goods sold/365
(d) Receivables Collection Period
Average receivables
Average sales/365
(e) Creditors Payment Period
Average creditors
Average purchase of raw material/365
Institute of Management Research and Technology, MVP Campus, Nasik-2
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3.7 ESTIMATION PROCESS
A firm must estimate in advance as to how much net working capital will be
required for the smooth operations f the business. Only then, it can bifurcate this
requirement into permanent working capital and temporary working capital. This
bifurcation will help in deciding the financing pattern i.e. how much working capital
should be financed from long-term sources and how much to be financed from shortterm sources. There are different approaches available to estimate the working capital
requirements of a firm as follows:
A) Working Capital as a Percentage of Net Sales
This approach to estimate the working capital requirement is based on the fact
that the working capital for any firm is directly related to the sales volume of that firm.
So, the working capital requirement is expressed as a percentage of expected sales for a
particular period.
B) Working Capital as a Percentage of Total Assets or Fixed Assets
This approach of estimation of working capital requirement is base on the fact
that the total assets of a firm are consisting of fixed assets and current assets. On the
bases of the past experience, a relationship between (i) total current assets i.e. gross
working capital ; or net working capital i.e. Current assets – Current liabilities, and (ii)
total fixed assets or total assets of the firm is established.
C) Working Capital based on Operating Cycle
The concept of operating cycle, as discussed in the preceding chapter, helps
determining the time scale over which the current assets are maintained. The operating
cycle for different components of working capital gives the time for which an asset is
maintained, once it is acquired. However, the concept of operating cycle does not talk of
the fund invested in maintaining these current assets. The concept of operating cycle can
definitely be used to estimate the working capital requirements for any firm.
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3.8 CURRENT ASSETS MANAGEMENT
CASH MANAGEMENT
Cash is the most liquid asset in any business. It is a very crucial asset in the dayto-day operations of a business firm. Cash is the basic input required to run the business
continuously and at the same time it is also the ultimate output expected to be realized by
selling the service or product manufactured by the firm. A firm has to strike a balance
between maintaining a very high cash balance and a very small amount of cash balance.
If excessive cash balance is maintained, the excess cash will remain idle affecting the
profitability of the business adversely. On the other hand, if too small amount of cash
balance is maintained, it will lead to shortage of cash resulting into disruption of
manufacturing operations of a business firm. Therefore, the major aspect of cash
management is to keep proper cash balance.
The term cash with reference to cash management is used in two senses. In a
narrow sense, it is used broadly to cover cash (currency) and generally accepted
equivalent of cash such as cheques, bank drafts and demand deposits in bank. The
broader view of cash also includes ‘near cash assets’ such a marketable securities and
time deposits in bank. The main characteristic of these assets is that they can be readily
sold and converted into cash. They also provide a short-term investment outlet for excess
cash and are also useful for meeting planned outflow of funds.
Cash management thus is concerned with, the managing of,
1)
Cash flows into and out of the firm.
2)
Cash flows within the firm.
3)
Cash balance held by the firm at a point of time by financing deficit or
investing surplus cash.
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ACCOUNTS RECEIVABLES MANAGEMENT
Business firms generally sell goods on credit which is granted to facilitate sales.
It is valuable to customers as it augments their resources. It is particularly appealing to
those customers who can not borrow from other resources or find it very expensive.
According to O. M. Joy, “The term receivable is defined as debts owned to the
firm by customers arising from sales of goods or services in the ordinary course of
business.”
According to Bolten, “The objective of receivables management is to promote
sales and profits unit that point is reached where the returns on the investment in further
funding of receivables is less than the cost of the funds raised to finance that additional
credit.”
Accounts receivables management is divided into five sections:
1)
Credit Policy Variables.
2)
Credit Evaluation.
3)
Credit Granting Decision.
4)
Control of Receivables.
5)
Management of Trade Credit in India.
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INVENTROY MANAGEMENT
The total current assets of a firm consist of 1) Debtors, 2) Bills Receivables, 3)
Inventory, 4) Cash and Bank balances, 5) Expenses paid in advance and 6) Short-term
Investments. The inventories which include inventories of raw materials, finished goods,
and work-in-process constitute quite a significant part of the total current assets. It has
been observed that in many cases inventories are more than 60-65% of the total current
assets of a firm. This naturally means that a large amount is blocked in inventories and,
therefore, management of inventory has assumed a great importance. If properly
managed, the profitability is definitely affected adversely.
Classification of Inventories:
1)
Raw Materials: A manufacturing concern converts the raw material into
the finished products. The raw materials are the basic inputs which are required for the
conversion into finished products.
2)
Work-in-process: Between the raw materials and the finished goods,
there is an intermediate stage which is known as work-in-process or work in progress.
These units are, therefore, neither totally raw nor totally finished.
3)
Finished Goods: These are completed units awaiting the sales in the
market. As the production in the modern days is in anticipation of the demand, some
amount of finished goods inventory is inevitable. This inventory should be in sufficient
quantity so that marketing operations of the firm can be smooth.
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4.1 STATEMENT SHOWING CHANGES IN
WORKING CAPITAL
2004 - 2005
Particulars
A) Current Assets
a) Cash & Bank Bal.
b) Inventories
c) Loans & Advances
d) Sundry Debtors
B) Current Liabilities
a) Sundry Creditors
b) Advances to Staff
c) Profession Tax Payable
d) Provision for Taxation
e) Sales Tax Payable
f) Elect. Charges Payable
g) Audit Fee Payable
h) Telephone Exp. Payable
i) TCS & Surcharge
Payable
j) TDS Payable
Total Increase/Decrease
Working Capital (A-B)
2004
2005 Increase
Decrease
-41100
277750
318850
12847800 19428050 6580250
702650 1135700
433050
2853650 6968400 4114750
16363000 27809900 11446900
8709300
0
8850
0
741150
53550
63100
20450
5672850
21550
20600
26700
626550
16500
95500
18550
2150
110050
9708600
21550
26100
6546450
0
0
3036450
21550
11750
26700
114600
37050
32400
1900
83950
3273950
14720850
6654400 21263450 14609050
19400
111800
111800
 There is a Net Increase in Working Capital by Rs. 1,46,09,050/Interpretation & Analysis:
We see that there is a net increase in the working capital, because in the year 2004-05
there was increase in the inventories by 51%, the sundry debtors also increased by 144%
of the previous year. Along with it the creditors also decreased by 35%.
Institute of Management Research and Technology, MVP Campus, Nasik-2
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2005 – 2006
Particulars
A) Current Assets
a) Cash & Bank Bal.
b) Inventories
c) Loans & Advances
d) Sundry Debtors
B) Current Liabilities
a) Sundry Creditors
b) Advances to Staff
c) Profession Tax Payable
d) VAT – BST
e) VAT – CST
f) VAT Payable - Delhi
g) VAT - 31.03.2005 (BST)
h) VAT - 31.03.2005 (CST)
i) Provision for Taxation
j) Provision for FBT
k) Sales Tax Payable
l) O/s Expenses
m) Elect. Charges Payable
n) Audit Fee Payable
o) Tax Audit Fees Payable
p) Salaries Payable
q) Telephone Exp. Payable
r) TCS & Surcharge
Payable
s) TDS Payable
Total Increase/Decrease
Working Capital (A-B)
2005
2006 Increase
277750
101750
19428050 33541550 14113500
1135700 1727350
591650
6968400 9256600 2288200
27809900 44627250 16993350
5672850 11348050
21550
0
20600
7400
0
300
0
50
0
6700
0
456250
0
3900
26700
28050
0
215600
626550
0
0
3000
16500
18200
95500
19500
0
19500
0
155850
18550
0
21550
0
26100
2100
6546450 12284450
Decrease
176000
176000
5675200
21550
13200
300
50
6700
456250
3900
1350
215600
626550
3000
1700
76000
19500
155850
18550
21550
24000
801400
17794750
21263450 32342800 11079350
6539400
6715400
 There is a Net Increase in Working Capital by Rs. 1,10,79,350/Interpretation & Analysis:
We see that there is a net increase in the working capital, because in the year
2005-06 there was again an increase in the inventories by 73% and the debtors also
increased by 33%. Even though there was increase in creditors by 100%.
Institute of Management Research and Technology, MVP Campus, Nasik-2
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2006 -2007
Particulars
A) Current Assets
a) Cash & Bank Bal.
b) Inventories
c) Loans & Advances
d) Sundry Debtors
B) Current Liabilities
a) Sundry Creditors
b) Deposit – Giltage
Enterprises, Delhi
c) Profession Tax Payable
d) VAT – BST
e) VAT – CST
f) VAT Payable – Delhi
g) VAT - 31.03.2005 (BST)
h) VAT - 31.03.2005 (CST)
i) Provision for Taxation
j) Provision for FBT
k) Provident Fund
l) O/s Expenses
m) Elect. Charges Payable
n) Audit Fee Payable
o) Tax Audit Fees Payable
p) Salaries Payable
q) Wages Payable
r) TCS & Surcharge Payable
s) TDS Payable
Total Increase/Decrease
Working Capital (A-B)
2006
2007 Increase
Decrease
101750
831400
729650
33541550 68505100 34963550
1727350 1380900
9256600 19145250 9888650
44627250 89862650 45581850
346450
346450
11348050 22844750
11496700
0 1000000
7400
-550
300
0
50
0
6700 1017700
456250
456250
3900
3950
28050
400000
215600
220900
0
216500
3000
0
18200
0
19500
19500
19500
19500
155850
0
0
105800
0
22200
2100
30800
12284450 26357300
1000000
7950
300
50
0
1011000
0
50
371950
5300
216500
3000
18200
0
0
155850
0
0
105800
22200
28700
185350 14258200
45767200 14604650
32342800 63505350 31162550
 There is a Net Increase in Working Capital by Rs. 3,11,62,550/Interpretation & Analysis:
We see that there is a net increase in the working capital, because in the year 2006-07
there was increase in the inventories by 105% and the debtors increased by 107%.
Institute of Management Research and Technology, MVP Campus, Nasik-2
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4.2 GRAPH SHOWING CHANGES IN
WORKING CAPITAL
Year
2004-2005
2005-2006
2006-2007
INCREASE IN
WORKING CAPITAL
14609050
11079350
31162550
DECREASE IN
WORKING CAPITAL
0
0
0
31162550
35000000
Working Capital
30000000
25000000
20000000
14609050
11079350
15000000
10000000
5000000
0
2004-2005
2005-2006
2006-2007
Years
WORKING CAPITAL
Institute of Management Research and Technology, MVP Campus, Nasik-2
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4.3 ESTIMATION OF WORKING CAPITAL
Working Capital as a Percentage of Net Sales
Net Sales
Total Current Assets
Total Current Liabilities
Current Assets as a % of
Sales
Current Liabilities as a % of
Sales
2004
2005
2006
2007
6827000
10555300
15138200
32799400
16363000
27809900
44627250
89862650
9708600
6546450
12284400
26357300
240%
263%
295%
274%
142%
62%
81%
80%
The average of current assets as a % of sales is 268%
i.e. (240%+263%+295%+274%)/4
The average of current liabilities as a % of sales is 91%
i.e. (142%+62%+81%+80%)/4
So, net working capital as a % of Sales is 177%
i.e. (268% - 91%)
The percentage changes in Net Sales:
Year
2004-2005
2005-2006
2006-2007
% Change
55%
43%
117%
The average % change in Net Sales is 72%
i.e. (55%+43%+117%)/3
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Thus an Estimated Working Capital for next three years with an average
change in Net Sales.
For 2008:
Expected Sales
= Rs. 32799400 + 72% thereof
= Rs. 56414950/-
Net Working Capital as a % of Sales = 177%
= Rs. 56414950 X 177% = Rs. 66005500/For 2009:
Expected Sales
= Rs. 56414950 + 72% thereof
= Rs. 97033700/-
Net Working Capital as a % of Sales = 177%
= Rs. 97033700 X 177% = Rs. 113529400.
For 2010:
Expected Sales
= Rs. 97033700 + 72% thereof
= Rs. 166897950/-
Net Working Capital as a % of Sales = 177%
= Rs. 166897950 X 177% = Rs. 195270600/-
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5.1 RATIO ANALYSIS
The ratio analysis has emerged as the principal technique of the analysis of
financial statements. A ratio is a relationship expressed in mathematical terms between
two individual or group of figures connected with each other in some logical manner.
The ratio analysis is based on the premise that a single accounting figure by itself may
not communicate any meaningful information but when expressed as a relative to some
other figure, it may definitely give some significant information. The relationship
between two or more accounting figures/groups is called a financial ratio. A financial
ratio helps to summarize a large mass of financial data into a concise form and to make
meaningful interpretations and conclusions about the performance and positions of a
firm.
Working Capital Ratios
Working capital ratios indicate the ability of a business concern in meeting its
current obligations as well as its efficiency in managing the current assets for generation
of sales. These ratios are applied to evaluate the efficiency with which the firm manages
and utilizes its current assets. The following three categories of ratios are used for
efficient management of working capital – (1) Efficiency ratios (2) Liquidity ratios (3)
Structural health ratios
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IMPORTANCE OF RATIO ANALYSIS
The major benefits arising from ratio analysis are as follows:
 Ratio analysis is a very powerful tool useful for measuring performance of an
organization.
 Ratio analysis concentrates on the inter-relationship among the figure appearing
in the financial statements.
 Ratio analysis helps the management to analyze the past performance of the firm
and to make further projections.
 Ratio analysis allow interested parties to make evaluation of certain aspects of the
firm’s performance as given below:

Shareholders and prospective investors will analyze ratios for taking
investments and disinvestment decisions.

Bankers who provide working capital will analyze ratios for appraising the
creditworthiness of the firm.

The financial institutions who provide long-term debt will analyze ratios for
project appraisal and debt servicing capacity of the firm.

Government agencies will analyze ratio of a firm for review of its
performance.

The company’s management will analyze ratios for determining the financial
health and its profitability. The ratio will also be used for inter-firm and intrafirm comparison and will also be used in financial planning and decision
making.
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FACTORS AFFECTING RATIOS
Ratios by themselves mean nothing. Caution has to be exercised in using ratios.
They must always be compared with.
a) A norm or a target,
b) Previous ratios in order to assess trends, and
c) The ratios achieved in other comparable companies.
The following limitations must be taken into account:
 Ratios are calculated from financial statements which are affected by the
financial bases and policies adopted on such matters as depreciation and the
valuation of stocks.
 Financial statements do not represent a complete picture of the business, but
merely a collection of facts which can be expressed in monetary terms. These
may not refer to other factors which affect performance.
 Over use of ratios as controls on managers could be dangerous, in that
management might concentrate more on simply improving then on dealing with
the significant issues.
 A ratio is a comparison of two figures, a numerator and a denominator. In
comparing ratios it may be difficult to determine whether differences are due to
changes in the numerator or in both.
 Since ratios are calculated from past records, there are no indicators of future.
 Proper care should be exercised to study only such figures as have a cause and
effect relationship, otherwise ratios will only be meaningless or misleading.
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5.2 CALCULATIONS OF RATIOS
A) Working Capital
Working capital is defined as the excess of current assets over current liabilities.
Working capital = Current assets – Current liabilities
Year
Current assets –
Working capital
Current liabilities
2003-04
16362950 – 9708600
6654350/-
2004-05
27809900 – 6546450
21263450/-
2005-06
44627250 – 12284400
32342850/-
2006-07
89862650 – 26357300
63505350/-
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63505350
70000000
Working Capital
60000000
50000000
40000000
32342850
30000000
21263450
20000000
6654350
10000000
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
100000000
90000000
80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
2004
2005
Current Assets
2006
2007
Current Liabilities
Interpretation & Analysis:
In the case of Vinsura Wines the working capital is increases year
after year.
There is a continuous increase in current assets as compare to
current liabilities.
Thus there is an application done every year in the funds of the
company.
Institute of Management Research and Technology, MVP Campus, Nasik-2
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B) Current Ratio
The current ratios is a popular financial ratio used to test a company's liquidity
(also referred to as its current or working capital position) by deriving the proportion of
current assets available to cover current liabilities.
The concept behind this ratio is to ascertain whether a company's short-term
assets (cash, cash equivalents, marketable securities, receivables and inventory) are
readily available to pay off its short-term liabilities (notes payable, current portion of
term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio,
the better.
Current Assets, Loans & Advances
Current Liabilities & Provisions
Year
Current Assets
Current Ratio
Current Liabilities
2003-04
16363000
1.69
9708600
2004-05
27809900
4.25
6546450
2005-06
44627250
3.63
12284450
2006-07
89862650
3.41
26357300
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4.25
Current Ratio
4.5
4
3.63
3.5
3
2.5
3.41
1.69
2
1.5
1
0.5
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
100000000
90000000
80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
2004
2005
Current Assets
2006
2007
Current Liabilities
Interpretation & Analysis:
In case of Vinsura Wines the situation was improved from the year
2004 to 2005, from 1.69 to 4.25, which had an increase of 2.56, which
was 151%. But again in 2006 and 2007 it decreased a bit.
Thus the company has sufficient assets to be converted into cash
in order to the debts as and when required.
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C) Liquid/Quick/Acid Test Ratio
This ratio is also known as ‘liquid ratio’ or ‘test ratio’. It expresses the
relationship between quick current assets and current liabilities. While calculation of
quick ratio, inventories are excluded from current assets, since inventories cannot be
converted into cash in short time without loss of value. This ratio is a more refined tool
to measure the liquidity of an organization.
Current Assets, Loans & Advances – Inventories
Current Liabilities & Provisions – Bank Overdraft
Year
Liquid Current Assets
Liquid Ratio
Liquid Liabilities
2003-04
3515200
0.36
9708600
2004-05
8381850
1.28
6546450
2005-06
11085700
0.90
12284400
2006-07
21357550
0.81
26357300
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1.28
1.4
Liquid Ratio
1.2
0.9
1
0.81
0.8
0.6
0.36
0.4
0.2
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
30000000
25000000
20000000
15000000
10000000
5000000
0
2004
2005
Liquid Current Assets
2006
2007
Liquid Liabilities
Interpretation & Analysis:
In case of Vinsura Wines the situation was good in the year 2005,
it was above one which was satisfactory, which shows high liquidity.
While in the rest of the years the position was below satisfaction for
meeting the liabilities. Standard ratio is 1:1.
Thus it is observed that the major of the current assets is filled
with the stock. Stock is a not liquid current asset.
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D) Working Capital Turnover Ratio
This ratio is computed by dividing sales by working capital. This ratio helps to
measure the efficiency of the utilization of the net working capital. It signifies that for an
amount of sales, a relative amount of working capital is needed. If any increase in sales
is contemplated, working capital should be adequate and thus, this ratio helps
management to maintain the adequate level of working capital. A high ratio indicates
efficient utilization of working capital.
Sales
Working Capital
Year
Sales
Working Capital
2003-04
6827000
Working Capital
Turnover Ratio
1.03
6654400
2004-05
10555300
0.50
21263450
2005-06
15138200
0.47
32342800
2006-07
32799400
0.52
63505350
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Working Capital Turnover
Ratio
1.2
1.03
1
0.8
0.5
0.6
0.47
0.52
0.4
0.2
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
2004
2005
Sales
2006
2007
Working Capital
Interpretation & Analysis:
In case of Vinsura Wines the working capital turnover was good in
2004 than the other years. Observing the working capital turnover in the
year 2005, 2006, and 2007 is very low as per the standards.
It means that there was no efficient utilization of the working
capital during 2005, 2006, and 2007.
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E) Inventory Turnover Ratio
The ratio establishes relationship between the sales with average stock. It
measures the velocity of converting stock into sales. This ratio indicates the effectiveness
and efficiency of the inventory management. The ratio show how speedily the inventory
is turned into accounts receivables through sales. The higher the ratio, the more
efficiently the inventory is said to be managed and vice versa.
Sales
Average Inventory
Year
Sales
Average Inventories
2003-04
6827000
Inventory Turnover
Ratio
0.68
9979950
2004-05
10555300
0.65
16137900
2005-06
15138200
0.57
26484800
2006-07
32799400
0.64
51023350
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Inventory Turnover Ratio
0.68
0.68
0.66
0.65
0.64
0.64
0.62
0.6
0.57
0.58
0.56
0.54
0.52
0.5
2004
2005
2006
2007
Years
2004
2005
2006
2007
60000000
50000000
40000000
30000000
20000000
10000000
0
2004
2005
Sales
2006
2007
Average Inventories
Interpretation & Analysis:
As Vinsura Wines is a storage industry its inventory moves
slowly. We can see that inventory turnover ratio decreases from 2004 to
2006.
But it has decreased in 2006 to 0.57 from 0.65. It is due to the
expansion of the company in 2006-07, due to which the storage capacity
increased.
But still the company should improve its Inventory turnover ratio.
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F) Inventory Holding Period (in days)
365
Inventory Turnover Ratio
Year
365
Inventory Turnover
Inventory Holding
Period
Ratio
`2003-04
365
537 days
0.68
2004-05
365
562 days
0.65
2005-06
365
640 days
0.57
2006-07
365
570 days
0.64
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640
Inventory Holding Period
640
620
600
580
570
562
560
537
540
520
500
480
2004
2005
2006
2007
Years
2004
2005
2006
2007
Interpretation & Analysis:
As Vinsura Wines is a storage industry its inventory holding
period is more. We have seen that the inventory holding period has
increased due to the expansion in the company during 2006. (Increased up
to 640 days)
But still it should improve at least up to 350 days to 450 days.
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G) Debtors Turnover Ratio
This ratio shows the extent of trade credit granted and the efficiency in the
collection of debts. Thus, it is an indicative of efficiency of trade credit management.
The lower the debtors to sale ratio, the better the trade credit management and better the
quality (liquidity) of debtors. The lower debtors mean prompt payment by customers.
Credit Sales
Average Accounts Receivables
Year
Credit Sales
Average Debtors
2003-04
6827000
Debtors Turnover
Ratio
2.39
2853650
2004-05
10555300
2.15
4911000
2005-06
15138200
1.87
8112500
2006-07
32799400
2.31
14200900
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2.39
Debtors Turnover Ratio
2.5
2.31
2.15
1.87
2
1.5
1
0.5
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
2004
2005
Credit Sales
2006
2007
Average Debtors
Interpretation & Analysis:
In case of Vinsura Wines the situation is average. But in 2006 it
decreased up to 1.87 which was not good for the company.
The ratio should be around 3 and above. Thus it can be said that in
the year 2004, 2005 and 2007 was average, because it was just near 3.
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H) Debtors Collection Period (in days)
This ratio measures how long it takes to collect amounts from debtors. The ratio
represents the average number of days, for which a firm has to wait before their
receivables are converted into cash.
365
Debtors Turnover Ratio
Year
365
Debtors Turnover
Debtors Collection
Period
Ratio
2003-04
365
153 days
2.39
2004-05
365
166 days
2.15
2005-06
365
195 days
1.87
2006-07
365
158 days
2.31
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Average Collection Period
195
200
180
160
140
120
100
80
60
40
20
0
166
153
2004
158
2005
2006
2007
Years
2004
2005
2006
2007
Interpretation & Analysis:
In case of Vinsura Wines the average collection period is quit
high. It should be at least below 150 days.
In none of the years the collection period was below 150 days,
thus the company should improve the collection activity.
This shows that the account receivables are not converted into
cash in time.
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I) Creditors Turnover Ratio
This ratio indicates the credit period allowed by the creditors. A high creditor’s
turnover ratio indicates that payment to creditors is quite prompt but it also implies the
full advantage of credit allowed by creditors is not taken. A low ratio indicates that
payment to creditors is not quite prompt and it needs to be improved.
Credit Purchases
Average Accounts Payable
Year
Credit Purchases
Average Creditors
2003-04
6195800
Creditors Turnover
Ration
0.96
6454800
2004-05
6393200
0.89
7191100
2005-06
12208750
1.43
8510450
2006-07
38372650
2.24
17096400
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2.24
Creditors Turnover Ration
2.5
2
1.43
1.5
0.96
0.89
1
0.5
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
45000000
40000000
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
2004
2005
Credit Purchases
2006
2007
Average Creditors
Interpretation & Analysis:
In case of Vinsura Wines the situation is improving year by year. From 0.96 to
2.24. But still it should be around 3.
We can see that in 2004 and 2005 the ratio was very low (0.96 & 0.89), which
means the creditors were paid very late which was not good.
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J) Average Payment Period (in days)
The measurement of the creditor payment period shows that average time taken
to pay for goods and services purchased by the company. In general, the longer the credit
period achieved, the better, because delays in payment mean that the operations of the
company are being financed interest free by suppliers funds.
365
Creditors Turnover Ratio
Year
365
Creditors Turnover
Average Payment
Period
Ratio
2003-04
365
380 days
0.96
2004-05
365
410 days
0.89
2005-06
365
255 days
1.43
2006-07
365
163 days
2.24
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Average Payment Period
450
400
410
380
350
300
250
255
163
200
150
100
50
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
Interpretation & Analysis:
In case of Vinsura Wines the situation was improved year after
year, from 380 days to 163 days. But still it should be below 150 days.
It shows that the company used the credit from the creditors for
more than one year in 2004 and 2005
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K) Current Assets Turnover Ratio
This ratio indicates the efficiency with which current assets turn into sales. A
higher ratio implies by and large a more efficient use of funds. Thus, a high turnover rate
indicates reduced lock-up of funds in current assets. An analysis of this ratio over a
period of time reflects working capital management of a firm.
Sales
Current Assets
Year
Sales
Current Assets
2003-04
6827000
Current Assets
Turnover Ratio
0.42
16363000
2004-05
10555300
0.38
27809900
2005-06
15138200
0.34
44627250
2006-07
32799400
0.37
89862650
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Current Assets Turnover
Ratio
0.42
0.45
0.4
0.38
0.34
0.37
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2004
2005
2006
2007
Years
2004
2005
2006
2007
100000000
90000000
80000000
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
2004
2005
Sales
2006
2007
Current Assets
Interpretation & Analysis:
In case of Vinsura Wines the situation is poor. The current assets
turnover should be improved. It is said that the higher the ratio the better
utilization of the assets.
But the ratios of the company shows that the current assets are
locked up for a longer period. Which means the sales should improve to
match the required ratio.
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L) Return on Working Capital
Net Profit
X100
Working Capital
Year
Net Profit
X100
Working Capital
2003-04
-2299950 X100
Return on Working
Capital
-34.56 %
6654400
2004-05
186850 X100
0.88 %
21263450
2005-06
371500 X100
1.15 %
32342800
2006-07
2098000 X100
3.30 %
63505350
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Return on Working Capital
1.15%
0.88%
5.00%
3.30%
0.00%
-5.00%
-10.00%
-15.00%
-20.00%
-25.00%
-30.00%
-34.56%
-35.00%
2004
2005
2006
2007
Years
2004
2005
2006
2007
70000000
60000000
50000000
40000000
30000000
20000000
10000000
0
-10000000
2004
2005
Net Prfit
2006
2007
Working Capital
Interpretation & Analysis:
In case of Vinsura Wines the situation was improved from the year 2004 to 2005,
there was an increase of 35.44%.
But still it is observed that as compare to the working capital implied the net
profit has not increased.
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CONCLUSIONS:
As the project was conducted to analyze the Working Capital
of “VINSURA WINERY PVT. LTD.” for the last four years. During
this project working and project report I came to conclusions that are as
follows:
Working capital shows a constant increase every year.
Current ratio is good of the company, which means the company
has sufficient assets, which can be converted into cash to pay the
debts when required.
The acid test ratio is just below the standard ratio which is 1:1.
The working capital turnover ratio is found below standards
during the year 2005, 2006, and 2007.
The inventory turnover ratio is found too low.
The company has a long inventory holding period.
The debtor’s turnover ratio is found average.
The creditor’s turnover ratio is improving every year.
Lots of current assets are in blocked position.
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RECOMMENDATIONS AND SUGGESTIONS
In Working Capital Management, there are mainly three parts they are
Cash
Management,
Receivables
Management
and
Inventory
Management. For optimum use of working capital, these three parts should
be managed properly, for that I would like to give suggestions to Vinsura
Winery, they are as follows:
Considering the cash management the company should maintain a
cash flow budget every year, considering monthly or quarterly.
During the preparation of the cash budget the credit period should
be below 150 days allowed to the customer.
Considering the receivables management, certain credit standards
and policy should be established, like:
 Establishment of policy in appointing sales recovery force.
 Cash discounts policy for cash purchases and early payment
of debts balance by customer to be established.
 Credit rating systems to be established.
Considering the inventory management, there should be a fast
movement of inventory, by taking efforts in increment of the sales.
Considering the creditors the management should set a price range
for the creditors.
 The creditors who are paid early should be given a low price.
 The creditors who are waiting for a longer period should be
paid more.
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BIBLIOGRAPHY
Books:
Financial Management: N. M. Vechalekar.
Financial Management: Ravi M. Kishore (6th edition).
Financial Management: R. P. Rastogi.
Financial Statements of Vinsura Winery Pvt. Ltd.
From 2003-04 to 2006-07.
www.vinsura.com
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