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“WORKING CAPITAL MANAGEMENT” 2018

Chapter:1 Introduction

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“WORKING CAPITAL MANAGEMENT” 2018 INTRODUCTION OF COMPANY COMPANY PROFILE

 COMPANY’S NAME: RSB TRASMISSIONS (III) LTD,Jamshedpur jharkhand.  ESTD IN: 1975 (AS INTERNATIONAL AUTO LTD.)  HEADED BY: Mr. R.K. Behera (Chairman),Mr.S.K Behra(Vice Chairman

&

Managing Director)

 INDUSTRIES: Auto Production  VISION: “To be amongst most admired organisation with significant global presence”.  MISSION:-“To be a leader by providing customer delight through world class quality in progressive, innovate & challenging environment”.

 We strive to exceed the customer expectation in service, quality & cost.  We endeavour to provide an enriching rewarding & environment

friendly work

experience for our employees in an achievement based high performance structure.

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“WORKING CAPITAL MANAGEMENT” 2018 HISTORY OF THE COMPANY •

In 1975, Mr. R. K. Behera, a young mechanical engineer from NIT, Jamshedpur,

hailing from a humble service oriented middle class family, shunned the security of a job and plunged into the hurly burly of high-risk and high-reward business arena and founded International Auto in Jamshedpur with 15 people and 500 square feet of workspace. •

Inspired and motivated by the benevolent ideals of the legendry JRD and obsessed

with an incorrigible and irrepressible passion to create a world class industrial edifice, R. K. Behera along with his brother S. K. Behera set about meticulously crafting the present-day RSB enterprise brick by brick. •

Toughened by the early trials and tribulations and propelled by nothing-is-impossible

spirit of the Behera brothers, RSB has now blossomed into a pulsating and throbbing global engineering Institution in automotive components and systems and construction equipment aggregates. •

RSB now boasts of manufacturing facilities in six different locations in India and one

in the USA with 85,000 square meters of workspace. Latest technologies and human resources are working together around the world passionately to create an enduring institution. •

Founder and Chairman Mr. R. K. Behera, Co-Founder and Managing Director Mr. S.

K. Behera and Joint Managing Director Mr. Sailendra Behera now spearhead RSB. •

All RSB manufacturing units are ISO / TS16949, ISO: 14001 and OHSAS: 18001

certified. •

S. K. Behera, who has been co-piloting last four decades in his entrepreneurial

journey, started in a humble way in 1975 with a meagre monetary help of Rs. 15,000/- from his father and RSB now has grown into multi-product/multi-location global engineering enterprise with 13 state-of-the-art manufacturing plants spread over 7 locations in India namely Jamshedpur (Jharkhand), Pune (Maharashtra), Dharwad (Karnataka), Chennai (Tamil Nadu), Pantnagar (Uttarakhand), Cuttack (Orissa) and Lucknow (Uttar Pradesh); and one each in Homer (USA), Silao (Mexico) and partnered venture at Brazil, with cumulative employment base of more than 4,000 persons.

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“WORKING CAPITAL MANAGEMENT” 2018

SCOPE Study of working capital is discussed under: 

Management of cash and marketable securities



Management of accounts receivable



Management of inventory



Management of current liabilities

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“WORKING CAPITAL MANAGEMENT” 2018 OBJECTIVES The main objective of working capital management is to maintain a trade of between risk and return for the purchase of raw material component and spares.

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“WORKING CAPITAL MANAGEMENT” 2018 MANAGEMENT TEAM



Mr.R. K. Behera

Chairman

Mr.R.K.Behera (RKB) is the founder and chairman of RSB Group. Mr.RKB is a graduate in Mechanical engineering and has undergone specialized training in several areas of industrial management.Mr.RKB is a member of several professional and trade organization such as confederation of indian industry, value engineers association of india, Indo German Chamber of Commerce, Maharatta Chamber of Commerce. He has over 30 years of experience in Auto Industry



Mr.S.K. Behera

Vice Chairman & Managing Director

Mr.S.K. Behera (SKB) is a graduate in Commerce and has undergone specialized training in production management system. Mr.SKB is an Executive Committee Member and Regional Chairman (East) of ACMA. He is in the governing council of Indo-Danish Tool Room, Jamshedpur. Mr.SKB is a committee member of Red Cross Society of India and is also associated with CII. He has over 28 years of experience in Auto component industry.



Mr.Sailendra K. Behera

Joint Managing Director

Mr.Sailendra Behera is a Bachelor of Mechanical Engineering and has undergone advance training in cutting Technology (Israel), Total Production Management (Japan), QS 9000 training in TUV(USA), and Gear Technology in Italy and turkey.

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“WORKING CAPITAL MANAGEMENT” 2018 RSB GROUP RSB comprises of four different companies, 

RSB Transmissions (III) Ltd.,



RSB Transmissions North America Inc. (Formerly known as



Miller Brothers Manufacturing),



I-Design Engineering Solutions Ltd. and



I-vitas Technologies Pvt. Ltd. (Currently known as RSB Industries.)

1. RSB Transmission (III) Ltd. It was launched in 2000 as the Group Holding Company to bring all the Group Companies under a common parent and in the wake of globalization, to create a unified structure for global expansion and diversification and value accretion.

RSB Transmissions (III) Ltd 2. RSB Transmissions North America Inc. (Formerly known as Miller Brothers Manufacturing Co.) It enters the 21st century in a facility of 98,000 square feet with more than 150 dedicated employees and projected sales of over $25 million.

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“WORKING CAPITAL MANAGEMENT” 2018 RSB CLIENT

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“WORKING CAPITAL MANAGEMENT” 2018 PRODUCT 

Propeller Shaft



Axles



Transmission Components



Aluminium Castings



Ferrous Casting



Running Gear System



Construction Equipment Aggregates



Forgings

Propeller Shaft RSB is a vertically integrated Propeller Shaft Solution provider, enjoying the largest market shares in India. To enhance its in-house technical capabilities and overall productivity, RSB has developed a technical collaboration with Eugene Klein GmbH, Germany for acquiring technical know-how in designing, processing and testing.

The Propeller Shaft manufacturing program covers more than 65 unique part designations. RSB is focused on catering to the present & futuristic commercial vehicle power transmission requirements and meeting the stringent quality norms. The six manufacturing plants set up at 4 locations are functioning to assist Auto OEM’s for Propeller Shaft solutions targeted towards regular production as well as after market requirements.

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“WORKING CAPITAL MANAGEMENT” 2018 Axles Axles are one of the most significant products offered by RSB. It has a staggering capacity to manufacture 2, 00,000 Axles/year. There are plans to enhance the capacity by 30% to cater to the export market. Well-equipped manufacturing lines have been dedicated to develop a variety of Axle.

Transmission Components RSB's Gear Transmission units provide in-depth product support to prospective OEM clients based on its vast industry experience and expertise. It manufactures an extensive range of fully finished gears at two of its plants that are strategically located to cater to diversified industry sectors inclusive of Commercial Vehicles, Passenger Cars, Tractors, Pump OEM's. RSB is renowned for its customer services such as, fast turn around and individual attention to complex orders.

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“WORKING CAPITAL MANAGEMENT” 2018 Aluminum Castings RSB offers precision machined Aluminum castings to domestic as well as export markets. RSB has been assisting any intricate casting ranging from 0.5 Kg aluminum component to 8.0 Kg aluminum component. RSB has been successfully managing the complete supply chain program for a reputed US based OEM and supplies around half a million components annually. The scope includes local warehousing in US and daily online supplies. The existing export supply agreement has been renewed for the next program that reaffirms the faith of the customers.

Ferrous Castings RSB manufactures Ferrous Castings as per customer design & specifications at its manufacturing plants located at Jamshedpur & Pune. It offers and supplies a wide range of products to leading OEM’s like Cummins. RSB completely manages the supply-chain from Castings procurement stage to the supplies and also conducts periodical supplier audits. An in-house Quality Control has been ensuring high quality standards. The vast experience of the professionals and the expertise of RSB has been the key to manufacturing cost-effective and reliable Automobile Parts.

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“WORKING CAPITAL MANAGEMENT” 2018 Running Gear System RSB manufactures Running Gear Systems like Axle, Fifth Wheel Coupling, King Pin and Landing Leg, which are designed, developed, tested and validated by its in house R&D division I-Design. Our Fifth Wheel coupling design is at par with latest European models. RSB offers organized after sales service network across major cities in India.

Construction Equipment Aggregates RSB is a forerunner in the Construction Equipment Aggregates industry in India. It has set up three modern manufacturing facilities at Jamshedpur, Dharwad and Chennai.RSB has reached significant milestones in the exports market over past few years. The services and the efforts are being reflected by the faith of our international customers. Today, RSB is serving as a single source to many overseas customers and manages their supply chain.

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“WORKING CAPITAL MANAGEMENT” 2018 Forging RSB manufactures forging components with state-of-the art technology and equipment to cater to the most stringent quality standards of forged components for domestic and export customers. This facility will be the backbone of the group’s forging requirements, and will also cater to OEM customers of the country.

(forging) SWOT ANALYSIS

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“WORKING CAPITAL MANAGEMENT” 2018 Streangths •

Cost competitiveness in terms of labor and raw material.

•

Established manufacturing base

•

Qualified and skilled man power

•

Manufacturing capabilities with international quality standards

•

High operational efficiency

Weaknesses •

Low investment in research and development

•

Limited knowledge of product liability and offshore warranty Handling

•

Limited domestic market for various components inhibiting Capacity creations

•

Comparatively poor infrastructure for supply chain and exports

•

Lack of experience in system integration

Opportunities • •

May serve as sourcing hub for global automobile majors Significant export opportunities may be realized through Diversification of export basket.

•

The growing need to outsource

•

Leverage on product engineering expertise to improve the Worthiness and exports of auto component

•

Acquisition in foreign markets 14

“WORKING CAPITAL MANAGEMENT” 2018 Threats •

The presence of a large counterfeit components market poses significant threat

•

Pressure on price from OEMs continues

•

Imports pose price based competition in the replacement Market

•

Further marginalization of smaller players likely

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“WORKING CAPITAL MANAGEMENT” 2018 INTRODUCTION OF THE TOPIC WHAT IS WORKING CAPITAL? Working capital refers to the investment by the company in short terms assets such as cash, marketable securities. Net current assets or net working capital refers to the current assets less current liabilities. It measures how much in liquid assets a company has available to build its business. The fundamental principles of working capital management are reducing the capital employed and improving efficiency in the areas of receivables, inventories, and payables. The concept of working capital is, perhaps, one of the most misunderstood issues in the literature of finance. The reason is that it is subject to multiple connotations. Some define it as excess of current assets over current liabilities. These net concepts are based on „gone concern‟ approach. A „going concern‟ approach takes a total view of the business and considers gross current assets as the gross working capital requirement of a business, and management of working capital as management of current assets and current liabilities to ensure dynamic stability between generation of current assets and their funding operations. Gross working capital:It refers to the firm’s investment in current assets. The sum of total current assets is called gross working capital. Current assets are the assets, which can be converted into cash within a one accounting year or operating cycle, & include cash short-term securities, debtors, receivable, & stock. Net working capital:It is the difference between the current assets & current liabilities. Current liabilities are those claim of outside which are expected to mature for payment within one accounting year. Net working capital is positive & negatives both. If a current asset is more than current liabilities, it will call positive net working capital & Current liabilities is more than current assets, it will call negative working capital.

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“WORKING CAPITAL MANAGEMENT” 2018 IMPORTANCE OF WORKING CAPITAL: 

Working capital may be regarded as the lifeblood of the business. Without sufficient working capital no business organization can run Smoothly or successfully.



In the business the Working capital is comparable to the blood of the human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures.



To meet the current requirements a business needs working capital to purchase services, raw materials etc. It is also pointed out that working capital is nothing but one segment of the capital structure of a business.

•

In short, the cash and credit in the business, is comparable to the blood

in

the human body like finance’s life and strength i.e. profit of solvency to the business Enterprise. • Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.

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“WORKING CAPITAL MANAGEMENT” 2018 TYPE OF WORKING CAPITAL

WORKING CAPITAL

ON THE BASIS OF CONCEPT

GROSS WORKING CAPITAL

REGULAR WORKING CAPITAL

ON THE BASIS OF TIME

NET WORKING CAPITAL

PERMANENT WORKING CAPITAL

RESERVE WORKING CAPITAL

SEASONAL WORKING CAPITAL

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VARIABLE WORKING CAPITAL

SPECIAL WORKING CAPITAL

“WORKING CAPITAL MANAGEMENT” 2018 Working Capital can be classified in two ways: 1. On the basis of Concepts. 2. On the basis of Time.

1. ON THE BASIS OF CONCEPT: There are 2 concepts: 

Gross Working Capital.



Net Working Capital.

Gross Working Capital  In point of view of an Accountant the Gross Working Capital is the total Current assets where Current assets are the assets that can be converted into cash within an accounting year & include cash, debtors etc.  In “Economics Concept” assets are employed to derive a return. Net Working Capital Net Working Capital= Current Assets – Current Liabilities  In point of view of an Accountant Net Working Capital is the difference between Current Assets and Current Liabilities and it indicates the liquidity position of a firm & suggests the extent to which working capital needs may be financed by permanent sources of funds. It can be positive or negative. When current assets exceed current liabilities, it is known as ‘positive net working capital’ and if the current liabilities are more than current assets, it is known as, a working capital deficiency 2. ON THE BASIS OF TIME 

Permanent or Fixed working capital.



Temporary or Variable working capital.

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“WORKING CAPITAL MANAGEMENT” 2018 Permanent or Fixed working capital  There is always a minimum level of current assets which is continuously required by a firm to carry on its business operations.  Thus, the minimum level of investment in current assets that is required too continues the business without interruption is referred as permanent working capital. Temporary or Variable working capital  This is the amount of investment required to take care of fluctuations in business activity or needed to meet fluctuations in demand consequent upon changes in production & sales as a result of seasonal changes. Distinction between permanent and variable working capital  Permanent is stable over time where as variable is fluctuating according to seasonal demands.  Investment in permanent portion can be predicted with some profitability where as investment in variable cannot be predicted easily.  While permanent is minimum investment in various current assets, variable is expected to take care for peak in business activity.  While permanent component reflects the need for a certain irreducible level of current assets on a continuous and uninterrupted basis, the temporary portion is needed to meet seasonal & other temporary requirements.  Also permanent capital requirements should be financed from Long Term sources whereas Short Term funds should be used to finance temporary working capital needs of a firm.

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“WORKING CAPITAL MANAGEMENT” 2018 REQUIREMENTS OF FUNDS

Every company requires funds for investing in two types of capital i.e. fixed capital, which requires long-term funds, and working capital, which requires short-term funds.

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“WORKING CAPITAL MANAGEMENT” 2018

Capital Sources of additional working include the following:  Profits (when you secure it as cash!)  Payables (credit from suppliers)  Bank overdrafts or lines of credit  Short Term loans If a company have insufficient working capital and try to increase sales, it can easily overstretch the financial resources of the business. This is called overtrading. Early warning signs include:  Pressure on existing cash  Exceptional cash generating activities e.g. offering high discounts for early cash payment.  Seeking greater overdrafts or lines of credit  Part-paying suppliers or other creditors  Paying bills in cash to secure additional supplies  Management pre-occupation with surviving rather than managing  Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheque.

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“WORKING CAPITAL MANAGEMENT” 2018 Operating or Cash Cycle The working capital cycle refers to the length of time between the firms paying the cash for materials, etc., entering into production process/stock & the inflow of cash from debtors (sales), suppose a company has certain amount of cash it will need raw materials. Some raw materials will be available on credit but, cash will be paid out for the other part immediately. Then it has to pay lab our costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds during this time period. This time period is dependent upon the length of time within which the original cash gets converted into cash again. The cycle is also known as operating cycle or cash cycle. Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the Supplier for 15 days and finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of working capital. Thus the working capital cycle helps in the forecast, control & management of working capital. It indicates the total time lag & the relative significance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above we can broadly classify the operating cycle of a firm into three phases:1. Acquisition of resources. 2. Manufacture of the product and 3. Sales of the product (cash / credit). 23

“WORKING CAPITAL MANAGEMENT” 2018 First and second phase of the operating cycle result in cash outflows, and be predicted with reliability once the production targets and cost of inputs are known. However, the third phase results in cash inflows which are not certain because sales and collection which give rise to cash inflows are difficult to forecast accurately.

Operating cycle consists of the following:  Conversion of cash into raw-materials;  Conversion of raw-material into work-in-progress;  Conversion of work-in-progress into finished stock;  Conversion of finished stock into accounts receivable through sales; and  Conversion of accounts receivable into cash. In the form of an equation, the operating cycle process can be expressed as follows:

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“WORKING CAPITAL MANAGEMENT” 2018

The time elapsed between cash outlay and cash realization by the sale of finished goods is the length of an operating cycle. It consisting of: Procurement of raw material, components, stores and spares for the manufacture of the product  Conversion of raw material in to finished goods  Storage of credit to customers, and  Collection of cash form customer. BALANCED WORKING CAPITAL POSITION The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm’s point of view. Excessive working capital not only impairs the firm’s profitability but also result in production interruptions and inefficiencies. Operating cycle for manufacturing firm:

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“WORKING CAPITAL MANAGEMENT” 2018 The firm is therefore, required to invest in current assets for smooth and uninterrupted functioning:

Here, the length of GOC is the sum of ICP and RCP. ICP is the total time needed for producing and selling the products. Hence it is the sum total of RMCP, WIPCP and FGCP. On the other hand, RCP is the total time required to collect the outstanding amount from customer usually, firm acquires resources on credit basis. PDP is the result of Such an incidence and it represents the length of time the firm is able to defer payments on various resources purchased. The difference between GOC and PDP is known as Net Operating Cycle and if Depreciation is excluded from the expenses in computation of operating cycle, the NOC also represents the cash collection from sale and cash payments for resources acquired by the firm and during such time interval between cash collection from sale and cash payments for resources acquired by the firm and during such time interval over which additional funds called working capital should be obtained in order to carry out the firms operations. In short, the working capital position is directly proportional to the Net Operating Cycle.

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“WORKING CAPITAL MANAGEMENT” 2018 CONSTITUENTS OF WORKING CAPITAL: CURRENT ASSETS: 

Inventory



Sundry Debtors



Cash and Bank Balances



Loans and advances

 CURRENT LIABILITIES: 

Sundry creditors



Short term loans and Provisions

Current Assets:Current Assets are assets in the balance sheet which is expected to be realized usually within one year, or one business cycle – whichever is longer. Current Assets are also called the GORSS WORKING CAPITAL. Typical current assets include: 

Cash and Bank balances



Accounts Receivable



Inventory



Short – term – investment,



Security Deposits, and



Prepaid accounts which will be used within a year.

Characteristics of Current Assets:  Short Life Span Cash balances may be held idle for a week or two, thus a/c may have a life span of 30-60 days etc.

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“WORKING CAPITAL MANAGEMENT” 2018  Swift Transformation into other Asset forms Each CA is swiftly transformed into other asset forms like cash is used for acquiring raw materials , raw materials are transformed into finished goods and these sold on credit are convertible into A/R & finally into cash.

Current Liability:In accounting, current liabilities are often understood as all liabilities of the business that are to be settled in cash within the fiscal year or the operating cycle of a given firm, whichever period is longer. A more complete definition is that current liabilities are obligations that will be settled by current assets or by the creation of new current liabilities. For example, accounts payable for goods, services or supplies that were purchased for use in the operation of the business and payable within a normal period of time would be current liabilities. Current Assets are controlled by using a scientific tool called the “Ratio Analysis”. In order to control over the Current Assets, a company calculates the Current Ratio.

Current Ratio:Current ratio is calculated by dividing current assets by current liabilities:-Current assets include cash and those assets that can be converted into cash within a year, such as marketable securities, debtors, inventories, loans and advances. All the obligations maturing within a year are included in current liabilities. Current liabilities include creditors, bills payable, accrued expenses, short term bank loan, income tax liability and long-term debt maturing in the current year. CURRENT RATIO = CURRENT ASSETS ÷ CURRENT LIABILITIES. This ratio varies from industry to industry. In ideal situation the Current Ratio should be 2:1. But for the company like RSB Transmission (I) the ratio should be 1.33. In order to improve the Current Ratio one has to keep proper control over both current assets and current liabilities. 28

“WORKING CAPITAL MANAGEMENT” 2018

Chapter:II Review of literature

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“WORKING CAPITAL MANAGEMENT” 2018 Working Capital Management: a literature review and research agenda Author(s): Harsh Pratap Singh:Abstract Purpose-The purpose of this paper is to review research on working capital(WCM)and to identify gaps in the current body of knowledge which justify future research direction.WCM has attracted serious research attention in the recent past ,especially after the financial crisis of 2008.the paper will be useful to researchers, finance professionals and other concerned with WCM to understand the important of WCM.To the best of author has knowledge, no detailed SLR on this topic has previously been published in academic journals. Keywords literature review survey methods, operating cycle, working capital management paper type literature review. Design/methodology/approach: Using systematic literature review (SLR) method, the present study reviews 126 articles from referred journal and international conferences published WCM. Findings: Detailed content analysis reveals that most of the research work is empirical and focuses mainly on to aspect, impact of working capital of profitability of firm and working capital practice. Major research work has concluded that WCM is essential for corporate profitability. Major issues with prior literature are lack of survey based approach and lack of systematic theory development study, which opens all new areas for future research. The future research directions proposed in this paper may help develop a greater understanding of determinants and practices of WCM.

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“WORKING CAPITAL MANAGEMENT” 2018

CHAPTER:III RESEARCH METHODOLOGY

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“WORKING CAPITAL MANAGEMENT” 2018 RESEARCH METHODOLOGY Research methodology has multiple dimensions. Research Methodology is a way to systematically solve the research problems scientifically. Collection of data:Secondary data: Annual reports of the company  Balance sheets profit and loss Account of the company  Company website Research design:In view of the objects of the study listed above on descriptions research is one which is largely interprets and already available information and it lays particular emphasis an analysis and interpretation of the exiting and available information. 

To know to working capital status of the company.



To after suggestion based on research finding.

Scope of the study:

The scope of the study is limited to collecting working capital annual report of the company every year.



The study of working is based on tools like ratio analysis.



Statement of changes in working capital.



The study is based on last year (2016-2017) annual reports of RBS Transmission (III) Auto LTD.

Needs of the study:

To express the relationship different between financial reports in such a way that if allow the user to draw conclusion above the performance strengths and weakness of the company.



To diagnose the information contained in financial statements so as to judge in working capital of the firm. 32

“WORKING CAPITAL MANAGEMENT” 2018 

The study helps to know a current ratio and turnover position of the company.

Objective of study The financial analyzing of the RSB Company and company has been undertaken with the following objective. 

To identity the financial strengths & weakness of the company.



To analyses the working capital of the company.



To analyses and interpret the financial ratio of RSB.



To analyses and interpret the profitability ratio of RSB.

LIMITATIONS OF THE STUDY:Following are the limitations of the study: 1) To study was limited to only two years financial data. 2) The study is purely based on secondary data which were taken primarily from published annual reports of RSB. 3) Many facts and data are such that they are not to be disclosed because of the confidential nature of the same. 4) Since the financial matters are sensitive in nature the same could not acquired easily. 5) The ratio is collected from past financial statement and these are not indicated of future.

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“WORKING CAPITAL MANAGEMENT” 2018

CHAPTER:IV DATA ANALYSIS AND INTERPRETIONS

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“WORKING CAPITAL MANAGEMENT” 2018 CASH MANAGEMENT:Cash is one of the important aspects of Current Asset. Cash Management involves control and analysis of cash flow during a particular period of time. Holding excessive cash by a company indicates that the company is not investing its idle cash in the available profitable project. It adds the implicit of Capital. We must note that Cash is an asset for the company only when it is used effectively. Idle cash is the liability. However, the requirement of Cash varies from business to business. A firm may hold cash at times of lower inflow with an object to finance it ongoing project. A Cash Reserve is essential to tide over the deficit or future contingencies. In other words firm that have volatile cash flow are more likely to keep more cash balance then a non-volatile firm. The most important factor that determines the amount of cash that a company can hold is the “Conversion Cycle”. Conversion Cycle is the length of time that a company takes to convert its resource i.e. input to cash flow. It begins from purchasing of raw-material, converting the Raw-material into Work-in-process, converting the work-in-process to Finished Goods, selling out the finished goods and ends with collection of money from the Customer. The Conversion Cycle Diagram:

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“WORKING CAPITAL MANAGEMENT” 2018

Motives for holding Cash: 1.

To meet the day-to-day requirement of the business.

2.

To meet the future contingencies.

3.

for speculative business opportunities.

Cash Flow:

Cash Flow refers to the flow of cash into and out of a business over a period of time. The outflow of cash is measured by the money we pay every month to salaries, suppliers, and creditors. The inflows are the cash we receive from customers, lenders, and investors. The Cash Flow is of two types:1.

Positive Cash Flow

2.

Negative Cash Flow

1. Positive Cash Flow: If the cash coming into the business is more than the cash going out of the business, the company has a positive cash flow. A positive cash flow is very good and the only concern here is managing the excess cash prudently.

2. Negative Cash Flow: If the cash going out of the business is more than the cash coming into the business, the company has a negative cash flow. A negative cash flow can be caused by a number of problems that result in a shortage of cash, such as too much or obsolete inventory, or poor collections on accounts receivable. If the company doesn't have money in the bank or can't borrow additional cash at this point, it may be in serious trouble.

Cash Flow Statement:A cash flow statement is prepared to periodically to know the inflow as well as out flow of cash and whether the company is having a positive cash balance at the end. It is also drawn to know how much cash is generated by a company from:

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“WORKING CAPITAL MANAGEMENT” 2018

1.

Operation Activities.

2.

Investment Activities

3.

Financing Activities

1.

Operating Cash Flow (Internal)

Operating cash flow, often referred to as working capital, is the cash flow generated from internal operations. It is the cash generated from sales of the product or services of a business. Because it is generated internally, it is under control of a company.

2.

Investing Cash Flow (Internal)

Investing cash flow is generated internally from non-operating activities. This component would include investments in plant and equipment or other fixed assets, non-recurring gains or losses, or other sources and uses of cash outside of normal operations.

3.

Financing Cash Flow (External)

Financing cash flow is the cash to and from external sources, such as lenders, investors and shareholders. A new loan, the repayment of a loan, the issuance of stock and the payment of dividend are some of the activities that would be included in this section of the cash flow statement. Good cash management means: •

Knowing when, where, and how cash needs will occur,

•

Knowing what the best sources are for meeting additional cash needs; and,

•

Being prepared to meet these needs when they occur, by keeping good relationships

with bankers and other creditors. The starting point for avoiding a cash crisis is to develop a cash flow projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage Daily cash, and long-term (annually) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to gain an understanding about where all the money went.

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“WORKING CAPITAL MANAGEMENT” 2018 RSB TRNASMISSIONS (III) LIMITED Cash Flow Statement

Particular

A. Cash flow from Operating Activity NET PROFIT BEFORE TAX ADJUSTMENTS FOR: Depreciation & Amortisation Expenses Unrealised Foregin Exchange(Gain/Loss) Loss/Profit on sale of Fixed Assets Liabilities no longer required written back ITEMS CONSIDERED SEPARATELY: Interest expenses Investment income Interest income OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES IN WORKING CAPITAL Net changes in working capital CASH GENERATED FROM OPERATIONS Taxes paid (including TDS & prior period taxes) NET CASH FROM OPERATING ACTIVITIES B. Cash flow from Investing Activities Purchase of Fixed Assets Purchase of Investments Share application money Interest received Dividend received from Investment(net) NET CASH FROM INVESTING ACTIVITES C. Cash flow Financing Activities Net Proceeds from borrowing(Term Loan) Net Proceeds from borrowing(Working Capital) Net Proceeds from borrowing(Unsecured) Interest paid Preference Dividend Paid(Including dividend tax)

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As at 31st March 2017 (amount in Rs.)

As at 31st March 2016 (amount in Rs.)

266,512,974

208,376,444

372,911,699 6,936,061 (94,116) -

378,970,484 13,478,481 219,342 -

478,680,407 (12,947,457)

426,636,176 (150) (36,784,721)

1,111,999,568

990,896,056

(179,423,987)

163,800,717

932,575,581 (81,321,407)

1,154,696,772 (36,632,059)

851,254,174

1,118,064,713

(142,102,536) (1,290,515) 12,947,457 -

(157,564,854) (345,703,313) 36,784,721 150

(130,445,594)

(466,483,296)

(250,743,244) 40,144,096

(121,128,528) (115,778,875)

12,166,440 (478,680,407) (59,785)

8,689,965 (426,636,176) (59,785)

“WORKING CAPITAL MANAGEMENT” 2018 NET CASH FROM FINANCING ACTIVITIES NET INCREASE IN CASH AND CASH EQUIVALENT (A+B+C) CASH AND CASH EQUIVALENT AT THE BEGINNING CASH AND CASH EQUIVALENT AT THE END

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(677,172,900)

(654,913,400)

43,635,680

(3,331,983)

127,565,055

130,897,038

171,200,735

127,565,055

“WORKING CAPITAL MANAGEMENT” 2018 RSB TRANSMISSIONS (III) LIMITED

Particular

Revenue from Operations Other Income Total Revenue

Profit and Loss Account For the year ended 31st March Amount in Rs. 8,705,947,054 13,251,511 8,719,198,565

Expenses Cost of materials consumed Changes in inventories of finished goods Employee benefits expense Other Expenses Finance cost Depreciation and Amortization Total Expenses

For the year ended 31st 2017 March 2016 Amount in Rs. 8,219,048,519 37,082,905 8,256,131,424

57.44% 5,012,668,658 (12,282,724) 749,304,128 1,851,403,424 478,680,407 372,911,699 8,452,685,591

57.81% 4,824,343,296 (73,074,647) 782,502,324 1,708,377,347 426,636,176 378,970,484 8,047,754,980

Profit for the year before tax Tax expenses : Current tax MAT credit entitlement Defferred tax Total Tax

266,512,974

208,376,444

99,984,000 (3,284,000) 996,736,000

68,986,000 (5,994,825) 2,217,000 65,258,175

Profit After Tax Earning per ordinary share (face value Rs.10 each) Basis Diluted

169,776,974

143,118,269

10.07 6.55

9.08 5.91

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“WORKING CAPITAL MANAGEMENT” 2018 RSB TRANSMISSIONS (III) LIMITED BALANCE SHEET As at 31stMarch,2017 (Amount in Rs.) EQUITY AND LIABILITIES Shareholder’s funds Share capital Reserves and surplus Non-current liabilities Long-term borrowings Deferred tax liabilities Other long term liabilities Long term provisions Current liabilities Short-term borrowings Trade payables Other current liabilities Short-term provisions TOTAL ASSETS Non-current assets Fixed assets Tangible assets Intangible assets Capital work-in-progress Intangible assets under development Non-current investments Long-term loan and advances Current assets Inventories Trade receivables Cash and cash equivalents Short-term loan and advances Other current assets TOTAL

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As at 31stMarch,201 (Amount in Rs.)

219,688,170 3,103,430,086 3,323,118,256

208,671,920 2,744,699,361 2,953,341,281

1,505,498,754 366,091,018 254,945,140 49,914,319 2,176,449,232

1,883,802,446 369,339,018 198,752,737 50,114,443 2,502,008,644

838,179,858 780,358,161 910,188,747 55,229,887 2,583,956,652 8,083,524,140

826,035,762 698,356,042 1,036,244,171 36,575,401 2,597,211,376 8,052,561,302

3,572,922,226 119,158,439 122,284,228 2,518,600 3,816,883,494 1,468,773,323 242,584,988 1,741,358,311

3,787,591,152 124,433,440 123,191,862 12,382,086 4,047,598,540 1,467,482,809 219,501,501 1,686,984,310

1,227,652,356 646,771,922 171,200,735 380,122,828 99,534,495 2,525,282,335 8,083,524,140

1,143,156,610 634,305,051 127,565,055 341,125,898 71,825,837 2,317,978,451 8,052,561,302

“WORKING CAPITAL MANAGEMENT” 2018 RATIO ANALYSIS

A. Financial Ratio 1. Current Ratio :Current ratio measures the ability of the enterprise to meet its current obligation. It shows how liquid a firm is to meet its debts in short runs. It is computed as: Current Asset Current Ratio = ------------------------------Current Liability Particulars Current Asset (Rs. In Lacks)

Current Liabilities (Rs.in lacks)

2016

2017

2,317,978,451

2,525,282,335

2,597,211,376

Current Ratio

0.8924

2,583,956,652 0.97729

current ration 1

0.97729

0.95 0.9

0.8924 current ration

0.85 0.8 2016

2017

Interpretation: The standard of ideal current ratio is 2:1.we sees here that the RBS current ratio is for above the ideal current ratio. It indicates that the firm is in a liquid position and has ability to meet it requirement in the short term source.

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“WORKING CAPITAL MANAGEMENT” 2018 2. Quick Ratio:It expresses the relationship between quick assets and current liabilities. Quick assets are defined as the assets that can be easily liquidated. It excludes from the current assets inventories and prepaid Expenses that are the most liquid assets. It is computed as: Current Asset – (Inventories +Prepaid Expenses) Quick Ratio = --------------------------------------------------------------------Current Liability Quick Assets = Current Assets – (Inventory + Prepaid Expenses) Current Assets (2016) = 2,317,978,451 Inventory (2016) = 1,143,156,610 Quick Assets = (Current Assets-Inventory)= 1,174,821,841 Current Assets (2017) = 2,525,282,335 Inventory (2017) = 1,227,652,356 Quick Assets = (Current Assets-Inventory)= 1,297,629,979 Particulars

2016

2017

Quick Asset (Rs. In Lacks)

1,174,821,841

1,297,629,979

Current Liabilities (Rs. In lacks)

2,597,211,376

2,583,956,652

0.45

0.502

Quick Ratio

Interpretation: The standard of ideal quick ratio is 1:1 which shows that for each unit of short term liability. There is a highly liquid asset and the company will not face any difficulty to meet any unforeseen situation. It can be noted here that there has been effort put in by the company to improve its quick ratio. 43

“WORKING CAPITAL MANAGEMENT” 2018 B. Profitability Ratio:3. Net Profit Ratio: -The net profit percentage is the ratio of after-tax profit to net sales., It reveals the remaining profit after all costs of production, administration, and financing have been deduced from sales, and income taxes recognized Net Profit (After Tax & Interest) Net Profit Ratio = -------------------------------------------- X 100 Turnover Particulars Net Profit (PAT) (Rs. in Lacs) Turnover (Rs. in Lacs)

2016

2017

143,118,269

169,776,974

8,705,947,054

8,219,048,519

0.0164

0.0206

Net Profit/Loss Ratio (%)

Interpretation: In the Year 2017 Turnover of RSB has increased as compare to year 2016 and also increased Company’s Net Profit. The increase in Net Profit ratio shows the growth of the Company.

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“WORKING CAPITAL MANAGEMENT” 2018

Chapter:V FINDING,SUGGEST ION AND CONCLUSION

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“WORKING CAPITAL MANAGEMENT” 2018 FINDINGS 

RSB Transmissions (III) Ltd. is taking all the efforts to maintain its Working Capital effectively.



The standard of ideal current ration 2:1 and ideal quick ratio of 1:1.it indicates that the firm is in a liquid position and has ability to meet. It requirement in the short term source.



In the year 2017 turnover of RSB is increased as compared to year 2016 and also increased company’s.net profit the increase in net profit ratio show the growth of the company. .

SUGGESTION  Effective computerization:-computer should be used merely for accounting purpose for the decision making.  Improve co-ordination:-better co-ordination among different department like purchase, sale and finance department will help in achieving greater efficiency.  Disposal of obsolete and surplus inventory:-procedures for disposal must be simplified.

CONCLUSION From the above analyses of the company financial statement it’s concluded that the company financial position is not good because the current ratio and quick ratio position are not good of the company have to decrease its liquidity position. It can be efforts put in by the company to improve its financial ratio and its has liquid asset sufficient to meet its short term liability.

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“WORKING CAPITAL MANAGEMENT” 2018 Bibliography

1) website  www.google.com  www.rsbglobal.com  www.investopedia.com  www.businessworld.in 2) Annual reports of RSB Transmission (III) Ltd. 3) Books

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