Abhinav Project On Working Capital

Summer Internship Project Report
On
Working Capital Management
AT
Glaxo Smith Kline
Submitted towards the Partial Fulfillment of Degree in
Master of Business Administration (MBA)

(2011-2013)
L M Thapar School of Management, Patiala
Submitted To:
Submitted By:
Dr. K.K. De
Abhinav Batta
Prof. A.K. Dhingra
MBA-4th Tri Sem.,

Uni. Roll NO.-501104008
ACKNOWLEDGEMENT
Writing a report is always the most challenging part of a students life. It was definitely the most
important academic contribution by me. This however would not have been possible without the
encouragement and support of a few people. I consider it pleasant privilege to express my
heartiest gratitude and indebtedness to those who have assisted me towards the completion of my
project report.
First and foremost, I would like to thank I am very much thankful to Mr. Somit Pandit Senior
Manager, Finance and IT GlaxoSmithKline, for making me capable of conducting such a study.
I express my heartiest and sincere thanks to my company guide Mr. Aman Bansal and Mr. Shiv
Kaushal, Mr. Vikas Bansal, Mr. Sunil Sharma, Mr. Puneet and Mr. Sumit Bansal of Finance
department, GSK who have been a constant source of inspiration and encouragement to me in
carrying out this study.
I would like to thank my parents for their blessings and good wishes and to my friends who
helped me to complete the project.
Last but not the least; I would like to thank God for all.
Thank You.
Abhinav Batta
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Summer Internship Report
PREFACE
The problem of unemployment is one of our major problems. This problem has been troubling us
ever since we gained independence. One reason for growing unemployment in the country is our
faulty education system. Students are given bookish knowledge without any training for specific
jobs. To mitigate such problems of our education system to some extent, training programs are being
introduced. These programs help the students to widen their horizon. Training can be done in
industries, business-houses, sales and income tax department of various central, state, local,
government societies etc.
A training program in industry is to get an overall view and exposure of the industry and its working
environment. It enhances the confidence and boosts the morale of the students preparing themselves
to work in industry in future. These programs continuously find place in curriculum of management
studies for development of the personality of students and to provide them with a firsthand
experience about working in industry.
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Table of Contents
EXECUTIVE SUMMARY................................................................................................. 5
Company Profile.............................................................................................................. 7
Introduction to GSK......................................................................................................... 9
HISTORICAL BACKGROUND........................................................................................ 11
Glaxo.................................................................................................................. 12
GlaxoSmithKline................................................................................................. 12
PLANT LOCATIONS IN INDIA....................................................................................... 15
PRODUCT PROFILE..................................................................................................... 17
New Horlicks...................................................................................................... 17
MANUFACTURING PROCESS....................................................................................... 21
SUPPLY CHAIN PROCESS............................................................................................. 22
About the NABHA Plant.................................................................................................. 23
5S AT NABHA............................................................................................................. 24
DEPARTMENTAL OVERVIEW....................................................................................... 26
FINANCE DEPARTMENT.............................................................................................. 28
SCOPE OF STUDY....................................................................................................... 30
MEANING OF WORKING CAPITAL................................................................................32
Concept of Working Capital.............................................................................................. 34
NET WORKING CAPITAL............................................................................................. 35
DETERMINANTS OF WORKING CAPITAL......................................................................36
WORKING CAPITAL CYCLE......................................................................................... 38
OPERATING CYCLE..................................................................................................... 42
OPERATING CYCLE OF GSK......................................................................................... 44
Particular..................................................................................................................... 44
CASH MANAGEMENT................................................................................................. 47
CASH AND PAYMENT PROCEDURE IN GSK...................................................................50
RECEIVABLE MANAGEMENT...................................................................................... 57
INVENTORY MANAGEMENT........................................................................................ 61
INVENTORY CYCLE.................................................................................................... 62
VARIOUS INVENTORY MANAGEMENT TECHNIQUES.....................................................63
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Analysis of Various Components of Working Capital...............................................................67

FINANCIAL RATIO ANALYSIS...................................................................................... 71
FUNDS FORECASTING AND BUDGETING AT GSK, NABHA..............................................80
RECOMMENDATONS................................................................................................... 85
SUGGESTIONS............................................................................................................ 86
CONCLUSION............................................................................................................. 88
LIMITATIONS............................................................................................................. 89
REFERENCES............................................................................................................. 90
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EXECUTIVE SUMMARY
Working capital nowadays has been identified as a major thrust area by almost all the firms
throughout world in order to manage the current assets and consequentially current liabilities.
Working capital refers to the capital which is used to carry out the day to day operation of a
business. Every business needs funds for two purposes, for its establishment and to carry on its
day to day operations. Long term funds are required to create production facilities through
purchase of fixed assets such as Plant, machinery, and building, furniture etc. Funds are also
needed for short-term purposes i.e. for the purchase of raw material, payment of wages and carry
on day-to-day operations of business etc. These funds are known as working capital.
The above idea of Working capital suggests that lifeline of a business is cash. Cash flows in a
cycle into, around and out of a business. If a business is operating profitably, then it should, in
theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run
out of cash and expire.
The faster a business expands the more cash it will need for working capital and investment.
There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money). The main sources of cash are Payables
(creditors) and Equity and Loans.
The cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
For similar reasons optimization of working capital came into existence as an exhaustive project
at GlaxoSmithKline, Nabha.
The project conducted for optimization of working capital is a live project at GSK, Nabha under
the name Working Capital. The project basically deals with analysis of credit terms of
suppliers, supplying different items at all the seven sites of GlaxoSmithKline involved in
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production as well as packaging of different products of the company. Apart from analyzing the
credit terms of suppliers for the company standard norms for holding the inventory of raw
materials, packaging materials was also analyzed to determine the opportunities for reducing the
working capital. A few more aspects of working capital have also been studied to fulfill the
objectives of the study.
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Company Profile
CHAIRMAN
Simon J. Scarff, O.B.E
MANAGING DIRECTOR
Zubair Ahmed
DIRECTORS
Mukesh H. Butani
Kunal Kashyap
P. Dwarakanath
Praveen K Gupta
Ramakrishnan Subramania
Subodh Bhargava
Naresh Dayal
COMPANY SECRETARY
Surinder Kumar
BANKERS
Deutsche Bank
Citibank N.A.
Bank of America
The Hongkong & Shanghai Banking
Corporation Limited
State Bank Of Patiala
AUDITORS
Price Waterhouse
REGISTERED OFFICE
Patiala Road
Nabha 147201 (Punjab)
EMAIL FOR INVESTORS: - investors.2.co@gsk.com
COMPANY WEBSITE ADDRESS: - www.gsk-ch.in
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STATUS
Multinational Company with promoters from U.K
QUALITY STATUS
OHSAS-18001
ISO 9000:2000
ISO 14001:2004
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Introduction to GSK
GlaxoSmithKline
Consumer
Healthcare
Ltd.
(GSKCH)
is
an
Indian
associate
of
GlaxoSmithKline plc, U.K.

GSKCH is one of the largest players in the Health Food Drinks industry in India. The Company,
with its manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total
workforce of over 2700 people, each driven by a spirit of enterprise.
Its flagship product, Horlicks, is a highly respected brand, which is over 100 years old in India.
The Company also manufactures and markets Boost, Viva, Malt ova, Biscuits and in addition
promotes and distributes a number of products in diverse categories, including prominent brands
such as Eno, Crocin and Iodex.
GSKCH has a strong marketing and distribution network in India comprising over 1800
wholesalers and direct coverage of over 4,00,000 retail outlets.
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GSK MISSION
Our global quest is to improve the human life by enabling the people
TO DO MORE, FEEL BETTER, AND LIVE LONGER.
People at Glaxo SmithKline consumer healthcare limited are dedicated us to delivering

medicines and products that help million of people around the world LIVE LONGER,
HEALTHIER AND HAPPIER LIVES.
GSK Vision
We want to become the indisputable leader in our industry-not simply in terms of size, but in
how we use that size to achieve our mission and to improve the quality of human life.
Becoming the indisputable leader in our industry means conquering the challenges that face us as
an industry, and as global society.
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HISTORICAL BACKGROUND
GlaxoSmithKline Consumer Healthcare Ltd. is a pharmaceutical and healthcare company born
out of the merger of two leading international organizations SmithKline Beecham and Glaxo
Welcome. Its global mission is
To improve the quality of human life by enabling people to do more, feel better and live
Longer ".
YEAR
DESCRIPTION
1955:
Horlicks a milk product manufactured by Horlicks Ltd. Slough, England

was being imported, bottled and sold in India. Due to changes in import
policy import stopped.
195657:
A team from the organization visited to explore the possibilities of setting

up a plant with the support of Maharaja of Nabha, His highness PRATAP
SINGH, and a plant was set up at Nabha.
1958:
On May 31, 1958 His highness Pratap Singh laid the foundation stone of
the Company at Nabha.
1960:
On 24th March 1960, the factory went into production.
1969:
Horlicks Group disposed off their holding in India and U.K. to

BEECHAM GROUP OF INDUSTRIES" which was a multinational and
owned more than 500 companies in more than 200 countries engaged in
manufacturing of Brylcream, Hair cream, Eno Fruit Salt, Macleans,
Toothpaste, Pure Silvikrin etc. Immediately after taking over the
management, Beecham Group shifted its head office from Nabha to Delhi.
1979:
Beecham India (Pvt.) Ltd. Mumbai merged with Hindustan Milk food
Manufacturers Ltd. and the name was changed to H.M.M. Ltd. Beecham
Group Plc.
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1991:
SmithKline U.S.A. merged on September 16, 1991 to form

Smith Kline Beecham Consumer Brands, Plc. with its
registered office in the U.K. H.M.M. became a part of
Smithkline Beecham Consumer Brands, one of the three
sectors of Smithkline Beecham and its name was changed
to SmithKline Consumer Brands Ltd.
1994:
The name was changed to Smithkline Consumer Healthcare Ltd. to

reassert the company's promise of providing Healthcare to consumers. The
company decided to do away with its toiletry products and sold its brands
like Brylcream and Silvikrin to Sara Lee.
2000:
The Company acquired MALTOVA and VIVA brands of nutritional from

Jagatjit Industries Ltd.
A merger took place between Smithkline Beecham and Glaxo Welcome
and the new company Glaxo Smithkline (GSK) was formed on 27-12-00
Glaxo
Merge
r
GlaxoSmithKlin
Smith Kline
Beecham
2002:
Change of name took place from 23-04-02
2003:
Company installed another manufacturing unit in Haryana - Sonepat

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2004:
The Bank of Punjab has tied up with the company for facilitating finance
on attractive terms to its milk suppliers.
2005:
Deutsche bank has tied up with GSK for facilitating their fund management
as well as treasury management on a centralized basis
2006:
Companys packing unit at Excise Free Zone Baddi (Himachal Pradesh)

came into existence.
2007:
Companys packing unit at Excise Free Zone Gauhati(Assam) came into

existence.
2008:
Company launched Actibase and Actigrow products - Energy drinks
2009:
GSK becomes a leader in skincare with the acquisition of Stiefel. Worlds

largest malaria vaccine trial gets underway in seven African countries.
GSK signs agreement with the World Health Organization to donate 50
million doses of pandemic H1N1 vaccine for distribution to developing
countries.
2010:
GSK announces open innovation strategy to help deliver new and better
medicines for people living in the worlds poorest countries. GSK
increases support for WHO strategy to improve childrens health with new
5 year commitment to expand donations of albendazole medicine.
2011:
GSK announces move to new environmentally friendly building in Philadelphia

USA. Launch of Sensodyne Repair & Protect, the worlds first everyday
fluoride toothpaste with NovaMin technology that can repair sensitive
teeth.
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GEOGRAPHICAL OVERVIEW
Page | 14
PLANT LOCATIONS IN INDIA

PRODUCTION STATIONS
FOOD POWDER
NABHA, RAJAHMUNDRY, SONEPAT & HAMIRA
BISCUITS
SAHIBABAD
ENO
RAJAHMUNDRY
CROCIN
BANGLORE
IODEX
BANGLORE
PACKING STATIONS
The company started packing Horlicks in Kg and 1kg pouches. Packing machines were
imported and installed. As the main market for sale of Horlicks was in the South and East
India, need was felt for the sale of Horlicks in small units of the country. Therefore was opened
at different places. At present Horlicks is dispatched from Nabha in bulk quantity to the
following packing stations:
Mangaldoi (Assam)
Kompally
Baddi (Himachal Pradesh)
Hamira (Punjab)
Parson
The marketing of the company's products is done through various Regional Sales Offices (RSO)
situated at:
North (New Delhi office)
West (Mumbai office)
East
South (Chennai office)
(Kolkata office)
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The company has its head office in Gurgaon. Bulk-malted food manufactured in Nabha is
dispatched to different packing stations in drums for packing in units container or gusseted
pouches (GPs).
GlaxoSmithKline Consumer Healthcare Limited is one of the three sectors of
GlaxoSmithKline. The other two sectors are:
GLAXOSMITHKLINE PHARMACEUTICALS:
It is a one of the major players of pharmaceutical companies and has activities in all the major
markets of the world and spends a major part of its income in R&D.
GLAXOSMITHKLINE CLINICAL LABORATORIES:
It is the leading network of clinical testing laboratories in North America and its major
laboratories and patient centers provide the broadcast range of testing to help physicians,
hospitals and other private organization to detect disease and monitor health.
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PRODUCT PROFILE
In line with the increased buoyancy across the FMCG segment, GSK
continues to perform well with sales growth of 15.3% over 2006.
The main products of the company are:
New Horlicks
Horlicks Pistachio
Horlicks Export
Boost Intermediate
Horlicks intermediate for Pistachio and Butterscotch variants
Horlicks Premix
Horlicks Vanilla Premix
Junior Horlicks Chocolate with DHA
Actibase Vanilla
Horlicks with FAT
Junior Horlicks Intermediate
New Junior Horlicks DMI
New Mother Horlicks DMI
Horlicks Butterscotch delite
New Improved Boost
Horlicks Lite Regular Malt
Junior Horlicks With DHA
New Elaichi Horlicks
Mothers Horlicks With DHA
Boost Premix
Acitbase Regular
Actigrow Chocolate
Actigrow Vanilla
Foodles
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GlaxoSmithKline Consumer Healthcare Ltd. is having three production units, which are at
Nabha, Rajahmundry and Sonepat. The unit at Nabha is the mother unit and its production
capacity is 99500 MT per annum and the products manufactured by this company fall under two
categories of consumer healthcare:
Nutritional
Health
Gastrointestin
al
1.
Horlicks and
its variants
ENO Fruit
Salts
HORLICKS: - THE GREAT FAMILY NORISHER
The flagship brand of the company, this product name is associated with that of the company.
Horlicks, which was restaged the previous year, following intense market research and product
development activities, with an improved formulation, which is clinically tested to make children
Taller, Sharper & Stronger, continues to grow strong. India forms almost half the world's
market for Horlicks. Horlicks sales crossing the 1000 crores in 2007.
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2.
JUNIOR HORLICKS
Chocolate Horlicks and Junior Horlicks were restaged during the tear keeping in mind the
consumer expectations from the two brands. Junior Horlicks was launched in 1991 in Karnataka
in an attempt to cater to the specialized needs of certain age groups. This special nourisher, an
Indian brand was targeted at 1-3 years old as a delicious tasting Milk food drink based on the
international standards of nutrition.
3. BOOST
Boost
was launched in 1976 as an energy drink in the Brown Powder segment. Boost
along with Boost Chocoblast, which was launched in the previous year,
continue to deliver as per expectations. An Indian Brand, this is
manufactured at the Nabha Plant. It is also exported to, countries in West
Asia. Very popular in the South, Boost has grown an
average growth rate
of
9% per annum. Sportsmen like Virender Sehwag and Sachin Tendulkar
back
it, making it the secret of OUR ENERGY!!
4. MOTHER HORLICKS
Mothers Horlicks (launched in November96), is a special
scientifically designed to help meet the nutritional needs of pregnant and lactating
nourisher
women, as
part of a healthy diet. It is made with the natural goodness of Horlicks by a unique spray dried
process, which helps make it easy to digest. It is enriched with natural honey, and a combination
of vitamins and minerals that not only gives excellent flavor but also help in keeping good health
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during pregnancy and optimal birth weight of the baby It is also essential for
physical and
mental development of the growing foetus.

5. ENO
Eno is a 100 years old global brand. It is a part of
Gastrointestinal category Eno is the only powder
antacid and has shown favorable growth over the
years. This has been strengthened of the lemon
variant and the sachet pack.
6. BISCUITS
The biscuit division has spread its
wings and set flight with a 54%
increase in the turnover. Horlicks
biscuits are now a truly national
brand. The division has a number of
plans for the future growth with the
lot of exciting new variety up its
sleeves.
7. GOPIKA GHEE (BY PRODUCT)

The main by-product of this company is Gopika Ghee. Gopika Ghee is packed in the factory
itself, rest of the product are bulk packed in containers, which contain 184 kg of Horlicks and
110 kg. of Boost. These are sent to the 4 packing near the major markets.
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MANUFACTURING PROCESS
The Manufacturing process for Horlicks is as Follows:
1. The First step in the production process involves the mixing of wheat flour with malted
barley.
2. In the second step water is added to the above mixture and the material is mashed
thoroughly, as a result of which the outer cover of malted barley is removed and remains
after is called Husk.
3. After mashing, the material becomes thick slurry in which the solid content is above
55%.
4. The fourth step involves adding up of milk to the mixture.
5. The next stage is the stage of evaporation in which the material is evaporated and the
result is thick slurry in which the solid content is around 82%.
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6. After evaporation, comes the step of spreading out of material in plates and keeping them
in the oven for about half an hour.
7. Once the material is completely dried, the plates are taken out from the oven and the food
item is scrapped out, which comes out in the form of thin layers. Then the vitamins and
other essential nutrients are added to the food items which is then ground and the result is
our final product HORLICKS.
SUPPLY CHAIN PROCESS

The Supply Chain Process at GSK, Nabha is as follows:
Consumer
Retailers
Drums (at factories)
Bottles
&
GPs
(at
packing
stations)
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Wholesalers
Sale Depots
Horlicks is manufactured at the Nabha plant, after that it is put in drums with a capacity of 186
kg. The finished good thus packed in drums is either bottled or packed in pouches and then sent
to sales depots situated across the country.
About the NABHA Plant

GSKs Nabha plant is a huge manufacturing unit. Glaxo SmithKline Consumer Healthcare Ltd.
is having three factories, which are at Nabha, Rajahmundry and Sonepat. The factory at
Nabha is the mother unit and products manufactured by this company fall under two categories
of consumer healthcare:
Nutritional
Health
Gastrointestin
Horlicks and
its variants
ENO Fruit
Page | 23
The food powder (HORLICKS & BOOST) is manufactured in Nabha. The requirement of
workforce changes with change in production policy. The plant at present employs a work force
varying from 1500 to 2000 out of which approximately 1100 are permanent. There is a staff
and management of about 145 persons. There is a wage agreement for 3 years. The workers also
getting weekly off according to Labors Act... The plant runs 365 days a years in 3 shifts daily
which work from 5.15 a.m. to 1.15 p.m., 1.15 p.m. to 9.15 p.m. & 9.15 p.m. to 5.15 a.m... The
office opens 6 days a week.
About 12 Milk collection centers were opened at a radius of about 40km around Nabha, to meet
the requirement of 20 tones of Milk per day. The main purpose of opening collection centers at
village level was to get good quality of Milk directly from the producer and pay them good price,
thus, raising their standard of living. Nabha and Sonepat production facility has already been
certified for HACCP (Hazard Analysis Critical Control Point for Food Safety).During the year
the Nabha site received The Best Environment Protection Initiative 2006 award from the
Punjab Pollution Control Board.
5S AT NABHA
5S is a tool that aims to create and maintain an organized, clean & high performance workplace.
This tool has been efficiently utilized by Nabha Unit and it has lead to reduce the records
retrieval time drastically.
Sort
Throw out rubbish
Store `
Find suitable storage area for everything
Shine
Clean all surface areas
Standardize
Communicate the 5S procedure for your area
Sustain
Participate in site-wise monthly assessment & display results
Why do it?
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How often do you go to use a piece of equipment and its not where you left it? Wouldnt it be
less time consuming if everybody knew where they were supposed to store it?
Where do I start?
Get everyone involved
Get commitment and authorization for area wide improvement
Have leaders set expectations
Sort - Get rid of what is not needed. Throw out rubbish
Define personal space first (and stay out). Start at one corner touch everything. Ask questions
about each thing: How often do you use it? Where does it go? Place stuff based on frequency of
use. Place red tags on unnecessary stuff.
1. Red tagging visually identifies what is not needed in the workplace.
2. Establish rules for what is needed and where it belongs.
3. Remove and store Red Tagged items in a temporary holding area.
4. Sort through and dispose of those items that are truly unnecessary. Prepare all other items
for relocation. Ensure that all interested parties agree.
5. Continue to Red Tag regularly.
Store - Organize whats Left! Arrange and Identify for ease of use
A place for everything, everything in its place, Know what you have and where its kept to get
rid of waste of searching.
1. Designate locations in a variety of ways
2. Lines on the floor
3. Signs hung from the ceiling
4. Tool boards
5. Fix Storage Methods and Places
Shine - Clean up whats left! Clean Daily
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Paint, refurbish, etc.Get the remaining items into the same condition as when they were new!
Standardize - Standardize cleanup methods
1. Make Sort, Storage, and Shine a daily habit
2. Assign responsibilities to apply these procedures
3. Integrate Sort, Storage, and Shine into regular work activities
4. Check on the maintenance of Sort, Storage, and Shine
5. Do you have standards, procedures & assigned responsibilities for Sort, Storage & Shine?
Sustain - Set discipline, plan and schedule

1. Follow the rules that you set!
2. Involve everybody in the production of standard documents and checks sheets. Develop
habits you wont forget! Assessment is a key activity and should be carried out on a
regular basis depending on the overall status of the 5S activity. The radar chart is used to
map progress using the data from the assessment checklist within the area. It should be
displayed in a prominent location and updated on completion of the assessment.
DEPARTMENTAL OVERVIEW
The various departments in GSKCH, Nabha are:

Manufacturing Department
Engineering Department
Quality Assurance Department.
Warehouse & Supply Chain Management
Procurement Department (Milk Sourcing Procurement and Purchase
Department)
Finance & IT Department
Human Resources and Administration Department.
Environment, Health and Safety Department (EHS)
Operational Excellence
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Procur
ement
Depart
ment
H R
Admini
stratio
n De.
Environ
ment,
Health
and
Safety
De.
Manuf
acturi
ng DE.
FINAN
CE &
IT
Wareho
use &
Supply
Chain
Mgt.
DEPART
MENTS
IN GSK
Operat
ional
Excell
ence
Engine
ering
Depart
ment
Quality
Assuran
ce
Depart
ment.
Finance Department Overview
Page | 27
Page | 28
FINANCE DEPARTMENT
Main Functions of Finance Department are as Follows:
Vendor Payment: - When an article arrives at the gate, an entry permit is made and they are
sent to the GOODS INWARD DISPATCH section (GID). A goods inward from (GID) is filled
up and sent to the finance department for payment. The vendors submit the bill to purchase
department. The finance department also receives a hard copy of the corresponding purchase
order (PO). There is online passing and payment system. This contains a database of all purchase
order issued. These are checked against the bills for the GID, PO references, after which the bill
is posted for production of the payment slips.
Disbursement of Salaries: - The HR Department sends a compile list of all employees on

the payroll together with their monthly working records .The salaries are paid mainly through
the bank, except for a few temporary workers.
Payment to Government Bodies: -Excise is paid to all suppliers for goods purchased .The
company obtains reimbursement for the excise from the govt. According to the CENVAT. Excise
is however paid for the finished goods. Octroi on petro products only is paid to Local Authorities
for petro products arriving from outside Nabha. Property tax, VAT, Insurance claims also paid in
case of accidents & breakdowns, for which claims are called for assessment. VAT is paid to
Excise & Taxation Department of Punjab.
Milk Accounting: - Every milk supplier has a code, the first two digits indicating whether
the milk is from cow, buffalo and the next three digits indicating the supplier. Payments are
made within 10 days by cheque/DD.
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Cash/Banking: - There are separate accounts for raw material excluding milk, stores,
services, capital and packing material every department submits its monthly cash requirement
and sends it to finance where it is consolidated.
Payment of services: - The finance department pays for various services like rent, truck hire
etc.
Capital budgeting: - Every department submits an annual budget, which is allocated quarter
wise. The concern department also sends a capital investment proposal, which has to be
approved in different forums depending on the investment required.
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SCOPE OF STUDY
The above project was conducted keeping in mind the components of Working capital
mentioned above i.e. inventory, receivables, and payables and further, credit terms with
suppliers; project Working Capital took its shape. The project Working Capital was started at
Nabha plant of GSKCH Ltd. with an idea of standardization of credit period across sites,
scrutinizing the inventory holding period of raw materials, packaging materials and finished
goods and estimating the working capital thus released through these initiatives.
The study was conducted with following broad and specific objectives:
BROAD OBJECTIVE:
Main objective of the project is to analysis the whole data of GSK of various sites and find
various opportunities to improve the working capital of the company
SPECIFIC OBJECTIVES:
To standardize the credit period provided by the suppliers of raw materials,

packaging materials, finished goods and store items.
To determine the difference between the standard norms and actual number of
days for which the inventory of raw materials, packaging materials, finished
goods and store items is kept.
To determine the difference between the standard norms and actual number of
days for which the inventory of raw materials, packaging materials, finished
goods and store items is kept for purpose of quality clearance.
General PO terms are required to be reduced.
Rationalization of bank balances.
To understand the cash forecasting and budgeting at GSKCH, Nabha.
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METHODOLOGY
COLLECTION OF DATA:
Data pertaining to supplier credit terms for raw materials, packaging materials, finished
goods and store items; inventory holding period as per standard norms and actual number of
days and inventory holding period for the purpose of quality clearance as per standard norms
and actual number of days for items mentioned above was collected to accomplish the
objectives of the study.
For better consolidation of results data templates were provided to all the concerned sites.
These data templates were framed in a way that desirable information is obtained easily and
is readily accessible for quick interpretations.
ANALYSIS and INTERPRETATION:
The data thus obtained was ready for analysis, interpretations and drawing conclusions out
of it.
Thus the data used for conducting the project was secondary in nature. For purpose of
analysis, data was further captured in spread sheet for better comparisons both within a site
as well as between different sites simultaneously. The results obtained after comparing it
within a site and across different sites was presented in form of power point presentation.
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MEANING OF WORKING CAPITAL

In simple words working capital means that which is issued to carry out the day to day operation
of business. Capital required for a business can be classified under two main categories.
Fixed capital
Working capital
Every business needs funds for two purposes, for its establishment and to carry on its day to day
operations. Long term funds are required to create production facilities through purchase of fixed
assets such as Plant, machinery, and building, furniture etc. Investment in these assets represent
that part of firms capital, which is blocked on a permanent or fixed basis, is called fixed capital.
Funds are also needed for short-term purposes i.e. for the purchase of raw material, payment of
wages and carry on day-to-day operations of business etc. These funds are known as working
capital.
The management of fixed and current assets however, differs in three important ways: 1.
In managing fixed assets, time is a very important factor consequently discounting

and compounding techniques play a significant role in capital budgeting and a minor
one in the management of current assets.
2.
Large holding of current assets, especially cash, strengthens firms liquidity position
but it also reduces the overall profitability.
3.
Levels of fixed as well as current assets depend upon expected sales, but it is not only
current assets which can be adjusted with sales fluctuating in short run.
In simple words working capital refers to that part of firms capital, which is required, be
financing short term and current assets such as cash, marketable securities, debtors and
inventories.
Page | 33
WORKING CAPITAL MANAGEMENT

COMPOSITION OF WORKING CAPITAL
The management of working capital is concerned with two problems that arise in attempting to
manage the current assets, current liabilities and the inter relationship that assets between them.
The basic goal of working capital management is to manage current assets and current liabilities
of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e.
it is neither inadequate nor excessive.
CURRENT ASSETS
CURRENT LIABILITIES
Cash in hand and bank balance
Bills payable
Bills receivables
Sundry creditors
Sundry debtors
Accrued loans
Short term loans and advances
Short term loans
Investment of stock as:
Advances and deposits
Raw material
Dividend payable
Work in progress
Bank overdraft
Finished goods
Provision for taxation
Store and spares

Temporary investment
Prepaid expenses
Page | 34
Concept of Working Capital

GROSS WORKING CAPITAL:
Simply called working capital it is total of current assets, it refers to the firms investment in
current assets. Current assets refer to those assets, which in the ordinary course of business can
be continued into cash within an accounting year.
Debtors
(Receivabl
es)
Cash
Finished
Raw
Materials
Work-inProgress
GROSS WORKING CAPITAL OF GSK: -
CURRENT ASSETS
Inventories
Sundry Debtors
Cash & Bank Balance
Loans & Advances
Other current assets
Total
RS. LACS
36995.58
9919.07
107965.44
7213.58
4915.64
167009.31
NET WORKING CAPITAL

Page | 35
Net working capital is the difference between current assets and current liabilities. Current
liabilities include items payable or expected to be turned within one year from the date of the
balance sheet and the term is used to designate obligation whose liquidation is reasonably
expected require the use of existing resources assets or creation of other current liabilities. Net
working capital may be positive or negative.
A positive working capital arises when current assets exceed current liabilities a negative net
working capital occurs when current liabilities are more than current assets.
Net Working Capital= Current assets - Current Liabilities

CURRENT
RS. LACS
CURRENT LIABILITIES &
RS. LACS
ASSETS
Inventories
36995.58
PROVISIONS
Sundry Creditors
50102.48
Sundry Debtors
9919.07
Other Liabilities
11225.51
Loans & Advances
7213.58
Advances
Other current
4915.64
Trade Security Deposits
740.51
4385.75
assets
Unclaimed Dividend
Total
59043.87
177.51
Provisions
10017.55
Total
76649.31
Net working capital = Current Assets Current Liabilities

Therefore, Net Working Capital of GSK= Rs. 59043.87-76649.31=
- Rs
17605.44Lacs.
DETERMINANTS OF WORKING CAPITAL

There are no set of rules to determine working capital requirements of the firms. A large number
of factors influence working capital needs of firms. All factors are of different importance. The
Page | 36
following is the description of factors, which generally influence the working capital
requirements of firms.
1. NATURE AND SIZE OF BUSINESS:
Working capital requirement of a firm are basically influenced by nature of its business. Trading
and financial firms have a very small investment in fixed assets, but require a large sum of
money to be invested in working capital. In contrast, public utilities have a very limited need of
working capital because they provide services on cash basis. Hence no funds will be tied up in
debtors and stocks. Working capital needs of most manufacturing concerns fall between two
extremes.
In GSK Nabha final product is Horlicks, which is made by milk, which is perishable in
nature. And it is not possible to store it for long period, because of that milk is purchased
daily, for which they need to keep large amount of working capital with them.
2. MANUFACTURING CYCLE:
The manufactures cycle start with the purchase and use of raw materials and completes with the
production of finished goods. Longer the manufacturing cycle, larger will be the firms working
capital requirements.
In GSK the manufacturing Cycle is moderates i.e. neither too long nor too short. So their
working capital requirements are moderate. This is successfully maintained by them.
3. BUSINESS FLUCTUATION:
Most firms experience seasonal and cyclical fluctuations in the demand for their products and
services. These business variations affect the working capital requirements specially the
temporary working capital requirements of the firm. When there is an upward swing in the
economy, sales will increase correspondingly, the firms investment in inventories and book
debts will also increase.
In GSK the main raw materials they require for production are Milk, Wheat Flour, Malted
Barley etc. They purchase raw materials other than milk on contract basis for a year, so
there is no fear of fluctuation of prices for them. And for milk, there is fluctuation in prices
Page | 37
but these fluctuations are so small to effect the working capital requirements of the
company. And from sales point of view there is no fluctuation at all.
4.
PRODUCTION POLICY:
We just noted that a strategy of constant production might be maintained in order to resolve the
working capital problems arising due to seasonal changes in the demand for the firms product. A
steady production policy will cause inventories to accumulate during the off-season period and
the firm will be exposed to greater inventory costs & risks. Thus, production policies will differ
from firm to firm, depending upon circumstances of individual firm.
In GSK, sales for next three years are forecasted on the basis of their production policy.
Accordingly they maintain their working capital requirements. Seasonal changes do not
effect their working capital requirements.
5.
AVAILABILITY OF CREDIT:
The working capital requirements of a firm are also affected by credit terms granted by its
creditors. A firm will need less working capital if liberal credit terms are available to it.
Similarly, the availability of credit from banks also influences the working capital needs of the
firm. A firm, which can get bank credit easily on favorable conditions, will operate with less
working capital than a firm without such a facility.
In GSK, as it is the Multinational Company it finds no difficulty in getting credits on their
required terms. So they need not maintain high amount of working capital with them.
6.
GROWTH AND EXPANSION ACTIVITIES:
The working capital needs of the firm increase as it grows in term of sales or fixed assets. A
growing firm may need to invest funds in fixed assets in order to sustain its growing production
and sales. This will, in turn, increase investment in current assets to support enlarged scale of
operation. It should be realized that a growing firm needs funds continuously.
In GSK capital budget is prepared every year, which is helpful in determining the
requirements of working capital in the coming year. So if there is any expansion plan of
company then it keeps into consideration while preparing capital budget. Last expansion of
GSK, it established a Plant in Sonepat 5 years back. It was for spray-drying technology.
Page | 38
7.
OPERATING EFFICIENCY
The operating efficiency of the firm relates to the optimum utilization of resources at minimum
costs. The firm will be effectively contributing to its working capital if it is efficient in
controlling operating costs. The use of working capital is improved and pace of cash cycle is
accelerated with operating efficiency. Better utilization of resources improves profitability and,
thus helps in releasing the pressure on working capital.
GSK installed a plant that re-utilizes the waste of company in generating fuel for further
production. This plant helps in optimum utilization of recourses which in turn reduces cost
also.
WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every
manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a
business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't
generate surpluses, the business will eventually run out of cash and expire.
The faster a business expands the more cash it will need for working capital and investment. The
cheapest and best sources of cash exist as working capital right within business. Good
management of working capital will generate cash will help improve profits and reduce risks.
Bear in mind that the cost of providing credit to customers and holding stocks can represent a
substantial proportion of a firm's total profits.
There are two elements in the business cycle that absorb cash - Inventory (stocks and work-inprogress) and Receivables (debtors owing you money). The main sources of cash are Payables
(your creditors) and Equity and Loans.
Each component of working capital (namely inventory, receivables and payables) has two
dimensions: TIME and MONEY, when it comes to managing working capital - TIME IS
MONEY. If one can get money to move faster around the cycle (e.g. collect money due from
debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels
Page | 39
relative to sales), the business will generate more cash or it will need to borrow less money to
fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have
additional free money available to support additional sales growth or investment. Similarly, if
you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit
limit; you effectively create free finance to help fund future sales.
It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If
you do pay cash, remember that this is now longer available for working capital. Therefore, if
cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc.
Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water
flowing downs a plughole, they remove liquidity from the business. More businesses fail for
lack of cash than for want of profit.
It is this importance of cash that, cash management is one of the key areas of working capital
management. Apart from the fact that it is the most liquid asset, cash is the common denominator
to which all the current assets can be reduced because the other major liquid assets, that is,
receivables and inventory eventually get converted into cash. This underlines the significance of
cash management.
The term cash with reference to cash management is used in two senses. In a narrow sense it is
used to cover currency and generally accepted equivalents of cash, such as cheques, drafts and
demand deposits in banks. The broad view of cash also includes, near cash assets such as
marketable securities and time deposits in banks.
A firm is well advised to hold adequate cash balances but should avoid excessive balances. The
firm has, therefore, to assess its need for cash properly. Cash budget is a device that helps affirm
to plan and control the use of cash. It is statement showing the estimated cash inflows and
outflows over the planning horizon. In other words, the net cash position (surplus and deficiency)
of a firm as it moves from one budgeting sub period to other is highlighted by cash budget.
The various purposes of cash budgets are:
To coordinate the timings of cash needs

Page | 40
It pinpoints the periods when there is excess of cash

It helps to arrange the funds on most favorable terms and prevents excess
accumulation of cash.
It enables a firm which has sufficient cash to take advantage of cash

discounts on its accounts payables, to pay obligations when due, to
formulate dividend policy, to help unify the production schedule during
the year so that the firm can easily smooth out the heavy fluctuation
seasons.
NEED OF WORKING CAPITAL

1.
For the purchase of raw material components and stores
2.
For the payment of wages and salaries.
3.
To incur day-to-day expenses and overhead costs such as fuel, power and office
expenses.
4.
To meet the selling cost as packing, advertising etc.

Page | 41
5.
To provide credit facility to the customers.
6.
To maintain the inventories of raw material, work-in-progress, stores and spares and
finished stock.
7.
To meet the requirement of anticipated needs of future.
8.
To face business crisis in emergencies such as depression, because during such

periods, generally, there is much pressure on working capital.
OPERATING CYCLE
There is a difference between current assets and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment in fixed assets such as Plant & Machinery.
On the contrary, investment in current assets is turned over many times in a year.
Operating cycle is the time duration required to convert sales (after conversion of resources into
inventories and inventories into finished goods) into cash.
Page | 42
The operating cycle of a manufacturing Company involves three phases: 1.
Acquisition of resources such as raw material labor, power and fuel etc.
2.
Manufacture of the product which includes conversion of raw material into work-inprogress into finished goods.
3.
Sale of the product either for cash or on credit. Credit sales create book debts for
collection.
The length of the operating cycle of a manufacturing firm is the sum of:
Inventory conversion period (ICP) and
Book debts conversion period (BDCP).
The inventory conversion period is the total time needed for producing and selling the product.
It includes: 1.
Raw material conversion period (RMCP)
2.
Work in progress conversion period (WIPCD)
3.
Finished goods conversion period.
The book debts conversion period is the time required collecting outstanding amount from
customer. The total of inventory conversion period and book debts conversion period is the
maximum time required to collect outstanding amount from customers and sometimes it referred
to as gross operating cycle. Generally, a firm acquires resources on credit and temporarily
postpones payment of certain expenses. The payable deferral period (PDP) is the length of the
time the firm is able to defer payments on various resource purchases. The difference between
operating cycle and payables deferral period is net operating cycle. The length of operating cycle
can be determined as: GOC =ICP+BDCP
NOC=ICP+BDCP-PDP
ICP=RMCP+WIPCP+FGCP
Page | 43
Where, GOC=Gross Operating Cycle; NOC=Net Operating Cycle;

ICP=Inventory Conversion Period; BDCP= Book Debts Conversion Period;
PDP= Payable Deferral Period; RMCP= Raw Material Conversion Period;
FGCP= Finished Good Conversion Period.
OPERATING CYCLE ANALYSIS

In order to understand the length of time taken to convert sales (after conversion of resources
into inventories and inventories into finished goods) into cash, operating cycle analysis has been
done. The operating cycle of a firm begins with the acquisition of raw material and ends with the
collection of receivables. There are four aspects of operating cycle, which involves commitment
of resources, a material stage, accounts finished stage and account payable stage. The operating
cycle is calculated as the sum of first three stages minus accounts payable stage.
OPERATING CYCLE OF GSK

1. Raw Material Conversion Period (RMCP)
Average raw material inventory x 365
Raw material consumed during the year
Page | 44
Particular
2011( Rs.
Lacs)
Opening stock of R.M.
4524.72
Closing stock of R.M.
7368.95
Average stock
5946.83
Raw material consumed
47727.81
Raw material conversion
46 days
period
2. Finished Goods Conversion Period (FGCP)

Average finished goods inventory x 365
Cost of goods
Particular
2011 ( Rs. Lacs)
Opening stock
9193.47
Closing stock.
11993.15
Average stock
10593.31
Cost of goods Sold
170147.22
Finished Goods Conversion Period
23 days
3. Work in process conversion period (WIPCP)

Average stock in process inventory x 365
Cost of production
Particular
2011
(Rs.
Page | 45
Lacs)
Opening stock of
Work in Process
788.99
Closing stock of
Work in process
670.26
Average stock of
Work in process
729.63
Cost of production
89927.01
Conversion period
2.96
4. Debtors Conversion Period or Book Debts Conversion Period

Average debtors x 365
Credit sale
Particulars
2011 ( Rs. Lacs)
Average debtors
(4325.02+2736.19)/2 *365
Credit sales
170147.22
Debtors Conversion Period
8 days
Note:
Total Sales are taken as Credit Sales.
5. Creditors Conversion Period or Payable Deferral Period

Average creditors x 365
Credit purchases
Page | 46
Particular
2011 (Rs. Lacs)
Opening creditors
14393.14
Closing creditors
17252.17
Average creditors
15822.65
Credit purchase
178381.90
Creditors Conversion Period
17 days
RMCP = 46 days
WIPCP = 3 days
FGCP = 23 days
DCP = 8 days
CCP = 17 days
Gross operating cycle = 46 + 3 + 23 + 8 = 80 days
Net Operating cycle = 80 17 = 63 days
CASH MANAGEMENT
Cash management refers to practices and techniques designed to accelerate and control
collections, ensure prompt deposits of receipts, improve control over disbursement methods, and
eliminate idle cash balances. In general, cash management involves the effective and efficient
use of cash to maximize cash flow at minimum cost. While system institutions generally dont
maintain high cash balances, the cash management process is an integral part of organizations
financial activities and encompasses a wide variety of financial decisions. Such areas can include
information systems management, investment management, fund management, and liquidity
management.
In todays financial environment, electronic delivery systems are becoming increasingly
important because of increased competitions and demand for more efficient and convenient
capabilities. A significant number of transactions and amounts of funds can be moved
electronically from one place to another almost instantaneously, consequently, the opportunities
presented can pose significant risks to a financial organization. Such threats include internal and
external fraud, theft and unauthorized manipulation of financial data.
Page | 47
Motive for holding cash

1.
The transactions motive
2.
The precautionary motive
3.
The speculative motive
The transaction motive requires a firm to hold cash to conduct its business in the
ordinary course. The firm needs cash primarily to make payments for purchases,
wages, operating expenses, taxes, dividends etc. the need to hold cash would not arise,
if there were perfect synchronization between cash receipts and cash i.e enough cash
was received to make the payments .but cash receipts and payments dont coincide
most of the times. Some time cash receipts are more and securities. However ,the
transaction motive mainly refers to holding of cash to meet the payment .for those
period when the payments are more, the firm should maintain some cash balances to
pay the required amount, for this firm may invest in marketable anticipated payments
whose timing is not perfectly match with the receipts.
Page | 48
The precautionary motive is the need to hold the cash to meet any contingencies in
future. It provides a cushion or buffer to withstand some unexpected emergency. The
precautionary amount of cash depends upon the predictability of cash flows. The more
the accuracy in predicting the cash flows the lesser will be the amount required to be
kept for this purpose. The amount of precautionary cash is also influenced by the firms
ability to borrow at short notice when the need arise. Better the firms position in
raising funds at short notice the less the need for precautionary balances. This balance
may be kept in cash and marketable securities .the marketable securities should be
selected keeping in view the risk, safety and liquidity and profit factors.
The speculative motive relates to holding of the cash for investing in profit making
opportunities as and when the arise in other words it is concerned with the pocketing of
differences by taking advantage of the price fluctuations. The firm will hold cash,
when it is expected that interest rate will rise and security price will fall. Securities can
be purchased when the interest rate is expected to fall. The will benefit by the
subsequent fall in interest rates and increase in security prices. The firm may also
speculate on materials prices. If it is expected that material price will fall, the firm can
postpone materials purchasing and vice-versa.
The firm must decide the quantum of transaction and precautionary balances to be
held. This depends upon the following factors;
1. The expected cash inflows and outflows based on the cash budget and
forecasts.
2. The degree of deviation between the expected and actual net cash flows.
3. The maturity structure of the firms liabilities.
4. The firms ability to borrow at short notice, in the event of any emergency.
5. The efficient planning and control of cash.
Page | 49
CASH AND PAYMENT PROCEDURE IN GSK

FORMAT FORECASTING
The Format of cash forecast plays a very significant role in management of funds in enterprises
as it is on the basis of this forecast only the company can make its decisions regarding the use
and application of funds. Thus the forecast should be simple and contain all the required
information.
In GSK nabha, the present method of preparing the forecasts for whole of the organization start
with the submission of forecasts for the individual departments to the finance department by the
25th of every month.
Page | 50
The final cash forecast is prepared on monthly basis which starts with an opening balance and
consists of proper record of day-wise- receipts and payments and also gives information about
closing balances.
The cash requirements shown in the cash forecast are then clubbed and a consolidated demand
draft for the required amount is called for from the head office of the company which is situated
at Gurgaon. This demand draft is made from state bank of Patiala, nabha and collection charges
to the tune are paid per DD.s.
This format shows the movement of cash during the month. For e.g. on day one if the total
receipts are six lacs and the total payment are of 10 lac, we are left with a closing balance deficit
of Rs. 4 lacs. These 4 lacs will come in funds required column of day 1. The amount then calls in
for a dd. The amount that we get after our calculation in the dd required for plus closing balance
column will be the opening balance of day 2. In this way, we will continue our cash calculations
for the rest of the days.
FUND FORECASTING-JUNE 2012
SIX MONTHS CASH FORECAST

FOR THE PERIOD June 2012 - Nov 2012
(Rs.in
lacs)
Location
PARTICULARS
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
RECEIPTS
GHEE
Page | 51
SCRAP SALES
SMP / PSMP(FROM HO PURCHASE)
RAW BARLEY (FROM HO PURCHASE)
OTHER (RM/PM)
SALARY & WAGES
EXCISE DUTY
SALES TAX / TDS
STORES & SERVICES
COAL
FREIGHT
CAPITAL EXPENDITURE
OTHERS
TOTAL
NET REQUIREMENT
OTHER RECEIPT
TOTAL
PAYMENTS
CONVERSION CHARGES
Payment Details
(MonSat)
Deutsche
Bank
Week 1
0.0
Page | 52

Week 2
0.0
Week 3
0.0
Week 4
0.0
Week 5
0.0
TOTAL
Total Monthly Spend ( A+B)
Check
Utilization of fund
The excess cash or fund in the enterprises can be utilized by investing it somewhere .keeping in
view the safety, maturity & marketability aspect of the securities purchased.
Safety Usually a firm would be interested in receiving a high rate of return on its investment in
marketable securities as is possible. But the higher return yielding securities are relatively more
risky. The form should thus invest in very safe security as the transaction & precautionary
balance invested in them are needed in near future. The default risk, which means the possibility
of default in payment of interests or principal on time and in the amount promised, should be
minimum.
Maturity Maturity refers to the time period over which interest & principal are to be made. The
price of the long-term security fluctuates more widely with the change in the interest than the
price of short-term security. Overtime interest rate has a frequency to change. Because of these
two reasons the long-term securities are more risky & the firm should go in for short-term
securities, preferable for investing surplus cash.
Payment procedure for regular supplier of raw material

Supplier of raw material doesnt receive direct cash payment from GSK. All the payments are
made by the head office through deutsche bank. Head office is in gurgaon. To make the
Page | 53
payments to suppliers the 1st step is booking of payment voucher/bills. The cashier at head office
generates the payments on daily basis except Saturday & Sunday because these are holidays at
head office. Head office upload the payment to deutsche bank on its web site with an instruction
regularly dispatched of payment. On the due dates of the bills payment is made to the suppliers.
In the case of direct payment to suppliers, deutsche bank dispatched the payment to suppliers.
Deutsche bank transfers the money to the concerned banks from which payment is made to
suppliers. These banks make the drafts & send to nabha factory then these drafts are dispatched
to suppliers.
Payment procedure for some other important items

Milk
Milk is the important raw material for manufacturing of horlicks & its payment procedure is as
follow. Payment for milk is made on 10 days credit basis. On receiving the milk the persons who
envisages the milk prepares the automatic milk card reader in which the following information is
given;
Code no.
Name of supplier
Can wise weight
Total
Fat%
clr.
Weight
Where clr. = corrective lactometer reading
To make the payments to the milk suppliers firstly payment bill are booked & deutsche bank
makes payment.
Beside it, by the automatic milk card reader, the above written information is printed and saved
in the excel sheet. After that, they keep the hard copy if information in their record files.
Salaries
Salaries are of two types;
1.) Salaries for staff/executive
2.) Salaries for workers
Salaries to the staff &the executive are paid on 24-25th of every month.
Page | 54
Salaries to workers are paid on 1st of every month. Besides the two dates mentioned above, there
are some other dates also mentioned in cash forecast on which payments have been made under
the salaries & establishment head &these are;
To permanent workers-payments made on the 2nd of every month.
To temporary workers-payments made on the 5th of every month.
Under other employ include:

Payment made on the 21st regarding ESI (employee state insurance)
Payment made on the 15th regarding EPS (employee pension scheme)
Payment of loan:
Payment of loan applied for is made on 25th of every month.
Payment of PF loan:
Which can be availed only by the staff & permanent workers & that too after one year from the
date of joining is made on the 20th of every month. For disbursement of such loans head office
advice is to be received. For such loan everything has to be clear, like the amount of loan being
given whether it is recoverable or not i.e. whether the amount will be repaid through installments
or the entire amount will be deducted directly from the provident fund etc.
Purchase tax& sale tax

The payment of purchase &sale tax is made on quarterly basis but a monthly provision for the
same is made in the books of the organization. This tax as it is to be paid quartly its monthly
amount is not shown in the cash forecast which is prepared on monthly basis.
Freight payments
When the material comes in the organization then freight charges are dispatched with it and it is
given to the transporters. The freight charges are given either 7th or 22th of every month.
Receipts
Page | 55
In GSK the only cash sale is made for ghee &scrap.
Ghee
For ghee sales the credit period allowed is of 30 days & the payment is done on book billing
basis. The dealer for ghee sale at nabha is ruldu ram& sons who pick up the material from the
factory according to their requirement &makes payment through cheques or bank draft.
Scrap value
The credit period allowed is of 7 days &the scrap sale incude the sale of;
Gunny bags
High density plastic &low plastic bags
Husk(which is the outer cover of malted barley)
Coal cinder (this is the residue of coal obtained on burning of coal in the boilers)
The scrap sale is made on contact basis. An advertisement is given in a daily news paper&
tenders are invited for the sale of scrap. This contract is for a fixed period of time after which it is
renewed or given to some other party. The contractor is required to pick up the scrap regulatory
after due intervals from the company. The procedure for this is as follow:
When any vehicle enters the factory for picking up the scrap, firstly the empty vehicle is
weighted & the weight of the vehicle & vehicle no. is feed into the computer installed near the
weight machine. Then this vehicle goes to the scrap yard accompanied by a person from the store
department. After picking up the material when the vehicles leaves the factory it is again
weighted & the record of the material taken, the date of taking material, the type of material
taken is kept.
Gunny bags
For the number of bags that are to be given out as scrap to a person from the store department
prepares a delivery note for all the material going out. This note is prepared in triplate,1 copy of
the note is kept by the store department,1 copy is given to the gate keeper who again checks the
material going out &1 copy is given to the person taking the material.
Page | 56
RECEIVABLE MANAGEMENT
To increase the sales firm has to resort to sell the goods on credit basis. It has the element of risk
as the cash payment is yet to be received. Receivables constitute a big part of current assets in
many firms. Business firms generally sell goods on credit that is granted to facilitate sales.
Receivable management is the process of making decisions relating to investment in trade
debtors. Certain investment in receivables is necessary to increase the sales and profits of the
firm. But at the same time, investment in this asset involves cost considerations also. There is
always a risk of bad debts too. Thus, the objective of receivable management is to take a sound
decision as regards investment in debtors. The objective of receivables management is to
Page | 57
promote sales and profits until that point is reached where the return on investment in further
funding of receivables is less than the cost of funds raised to finance that additional credit.
DIMENSIONS OF RECEIVABLES MANAGEMENT

Receivable management involves the careful consideration of the following aspects:
Forming the credit policy
Executing the credit policy
Collection efforts
1. FORMING CREDIT POLICY
For efficient management of receivables, a concern must adopt a credit policy. A credit policy is
related to decisions such as credit standards, length of credit period, cash discount etc.
(a) Credit standards: Credit standards are the criteria, which a firm follows in selecting
customers for the purpose of credit extension. The volume of sales will be influenced by the
credit policy of a concern. By liberalizing credit policy, the volume of sales can be increased
resulting into increased profits.
(b) Length of credit period: Length of credit period means the period allowed to the customers
for making the payment. The customers paying well in time may also be allowed certain cash
discount. There is no binding on fixing the length of credit period. A concern fixes its own
terms of credit depending upon its customers and the volume of sales.
(c) Cash discount: Cash discount is allowed to expedite the collection of receivables. The funds
tied up in receivables are released. The concern will be able to use the additional funds
received from expedited collections due to cash discount.
2.
EXECUTING CREDIT POLICY
After formulating the credit policy, its proper execution is very important. The evaluation of
credit applications and finding out the credit worthiness of customers should be undertaken.
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(a) Collecting credit information: The first step in implementing credit policy will be to gather
credit information about customers. This information should be adequate enough so that
proper analysis about the financial position of the customers is possible. The information
may be available from financial statements, credit rating agencies; report from banks, firms
records etc.
(b) Credit analysis: After gathering the required information, one should analyze it to find out
the credit worthiness of potential customers and also to see whether they satisfy the standards
of the concern or not. Keeping three basic c factors does this: character, capacity and
collateral. The credit analysis will determine the degree of risk associated with the amount,
the capacity of the customer to borrow and his ability and willingness to pay.
To estimate the probability of default, the financial or credit manager should consider three
1.
Character
2.
Capacity
3.
Condition
Character:
Character refers to willingness of customers to honor his obligation. The moral
factor is of considerable importance in credit evolution in practice.

Capacity: - Capacity refers to the customers ability to pay. Ability to pay can be judged by a
crossing the customers capital and assets offered as security.
Conditions: - Conditions refer to the prevailing economic and other conditions, which also
affect the customers ability to pay.
The GSK unit is selling its products through branches and on the consignment basis.
Before granting sales to any party, these branches have the policy of getting information
about the party. They also take into consideration the market position of the party, their
reputation, makes the study of financial data relation of that customer with other supplies.
(c) Credit decision: After analyzing the credit worthiness of the customer, the finance manager
has to take a decision whether the credit is to be extended and if yes, then up to what level.
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He will match the credit worthiness of the customer with the credit standards of the company.
If customers credit worthiness is above the credit standards then credit is granted otherwise
not.
The strip valuations under which the firm sells on credit to customer are called credit term. These
stipulations include
Credit period
Cash discount
3. COLLECTION EFFORTS
Every firm should follow a well laid down collection policy that may be lenient or strict, and
procedure to collect dues from its customers. When the normal credit period granted to a
customer is over, and he has not made the payment, the firm should send a polite letter to him
reminding that the account is overdue. If the customer does not respond, the firm may send
progressively strong-worded letters. If receivables still remain uncollected, telephone, telegram
and personal visit of the firms representative may follow letters. If the payment is still not made,
the firm may initiate a legal action against the customer.
In this unit, there is no receivable management, as all the sales are controlled by the head
office situated at Gurgaon receives payments. To boost up the sales, the company pays an
attractive cash discount to its customers for early payments so that the credit collection
period is decreased. The credit worthiness of the customer is compared with the credit
standards of the company. It takes into account the promptness of the customer to pay. For
giving credit to new customer, the financial position of the customer is investigated. The
frequency of payment and cash discount availed helps in forming an opinion about the
customer.
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INVENTORY MANAGEMENT
Every business needs inventory for smooth working of its activities. It serves as a link between
production and distribution activities. Inventory the most significant part of current assets.
Large size of inventory is maintained by firms, a considerable amount of fund is required to be
committed in them. Therefore, one of the most significant decision areas concerning finance
manager is inventory management. Inventories consisting raw material, WIP, finished goods,
maintenance spare parts a significant preparation of total assets.
Inventory management means preparing the stock of goods at such I level that neither the stock
should be excessive or inadequate. It is a system, which ensures that right quality of material, is
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available in the right quantity at right time and right place with the right amount of investment.
Large size of inventory ensures efficient and smooth production and sales operations, while
minimum investment in inventories maximizes profitability. Both the extreme points are
dangerous. An efficient manager always determines the optimum points in between of the two
extremes. Excess installments in the inventory pees danger like unnecessary the up of firms
funds and loss of profit excess carrying cost, risk of liquidity and risk of physical deterioration of
inventories. On the other hand inadequate investment in inventories seeks to production hold ups
failure to meet delivery commitments. Thus, the aim of inventory management is to balance
between the two and maintain sufficient inventories. According to Curry and Frank:
Because materials constitute such a significant part of product cost and since this cost is controllable,
proper planning, purchasing, handling and accounting are of great importance.
DEFINITION OF INVENTORY
The dictionary meaning of Inventory is a list of goods. In a wider sense, inventory can be
defined as an idle resource, which has an economical value. It is however, commonly used to
indicate various items of stores kept in stock in order to meet future demands.
In any organization, there may be following four types of inventory:
a) Raw materials & parts- These may include all raw materials, components and
assemblies used in the manufacture of a product.
b) Consumables & Spares- These may include materials required for maintenance and dayto-day operations.
c) Work-in-progress- These are items under various stages of production not yet converted
as finished goods.
d) Finished goods- These are the goods that are not yet sold or put into use.
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INVENTORY CYCLE
In inventory cycle first of all raw material is purchased and then it is sent for manufacturing
where work in progress is then converted into finished stock which is readily available for sale.
Same process is followed in GSK but at Nabha plant only manufacturing of
products is to be done whereas a sale finished product is done through the Head office. In GSK at
Nabha raw materials are malted barley, Milk, Wheat Flour, Vitamins, etc. And in GSK work in
progress is not considered for accounting because it is not calculated, it is only that part of
production which is in pipelines. And in last finished product is produced which is filled in
Drums and send to Head office (Gurgaon) for sale.
VARIOUS INVENTORY MANAGEMENT TECHNIQUES

Selective Management: - In this technique, various items of stores are classified in various
classifications depending upon their consumption value, unit price, criticality for the
organization, source of supply, purchasing problems, rate of withdrawals from the stores,
seasonality and stores balances on a particular date. Different approaches of control are being
followed for different types of items.
Two such classifications ABC & FSN are followed in

GSK
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Management by Exception: - In this technique, items with certain exceptions are tackled on
different points of time. For example, overstock items; surplus items and inactive items may
require more attention.
In GSK management by exception is followed for

such goods that are stock outs for some period.
Rationalization: - Techniques of standardization and variety reduction are used to minimize
lead-time of the material, and reduce unnecessary inventory carrying costs.
Value Analysis: - Functions performed by the materials are analyzed and alternative designs/raw
materials are suggested to achieve the same function at minimum cost.
Computerization: - Computer outputs can be used for scientific forecast of demand to solve
many inventory models, providing optimum safety and for controlling funds.
GENERAL STORE INVENTORY

General store is a major part of the inventory in all the concerns. It provides the information
regarding how much material we can purchase, and how much material we can keep in store
such as it is helpful to provide the information regarding all levels. The major part of working
capital of all the concern spent in General store inventory.
NATURE OF GENERAL INVENTORY IN GSK

Inventories are stock of the product a company is manufacturing for sale and components that
make up the product. The various forms in which inventories exist in a manufacturing company
are: raw materials, work in progress, finished goods & stores and spares.
Raw materials are those basic inputs that are converted into finished product through the
manufacturing process. Raw material inventories are those units, which have been purchased and
stored for future productions.
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In GSK Malted Barley, Wheat flour, Skim Milk Product (SMP), Fine
Crystalline Sugar (FCS), Roasted Malted Barley, Calcium, Potassium,
Sodium, Vitamin Flavors etc., are main raw materials.
Work-in-process. The work-in-process is that stage which is in between raw material and
finished goods. The raw material enters the process of manufacture but they are yet to attain a
final shape of finished goods. The quantum of work-in-process depends upon the time taken in
the manufacturing process. The greater the time taken in manufacturing, the more will be the
amount of work in process.
In GSK at Nabha there is no work in progress.
Consumables. These are the materials, which is needed for smooth process of production. These
materials do not directly enter in the production but they act as catalysts, etc. consumables may
be classified according to their consumption and criticality. Generally, consumables stores do not
create any supply problems and form a small part of production cost. There can be instance
where these materials may account for much value than the raw materials The fuel oil may form
a substantial part of cost.
In GSK Nabha Polythene, Drum Seal, Tape roll, Label, Cleansing Agent, Hand gloves, Oil,
Chemical, Coal, etc. are examples of some consumables.
Finished goods. These are the goods, which are ready for the customers. The s tock of finished
goods provides a buffer between production and market. The purpose of maintaining inventory
is to ensure proper supply of goods to customers. In some concerns the production is undertaken
on the order basis, in general without waiting for specific orders.
In GSK main finished goods are Horlicks, Boost, Vanilla Horlicks, Elachi Horlicks, Boost
intermediate, Horlicks high fat, Junior Horlicks DHA, mother Horlicks DHA etc. are
products, which are produced for consumption in India. Mother Horlicks DMI and Junior
Horlicks DMI are products manufactured for export package and send to Bangladesh.
Spares. Spares also form a part of inventory. The consumption pattern of raw material,
consumables, finished goods are different from that of spares. The stocking policies of spares are
different from industry to industry. Some industry like transport will require more spares than
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other concern. Costly spare parts like engines, maintenance spares etc. are not discarded after
use, rather they are kept in ready position for further use. All decision about spares is based on
the financial cost of inventory on such spares and the costs that may arise due to their nonavailability
In GSK examples of Spares are Barring, V-Bolt etc
GENERAL STORE INVENTORY IN GSK

General store is that which the part of the production becomes indirectly. Without such inventory
no production will be there. This store inventory includes:
Polythene bags
Consumables like diesel etc.
Cleaning material like nitric acid, caustic soda etc.
Floor cleaning towels
Spare parts of the machines
Inventory required under GMP (Good Manufacturing Practices) like uniform, hand gloves,
mouth covers, safety shoes etc.
Under the general store inventory total no. of items are 2517, which have the ABC
classification. Their total consumption value is Rs. 51714106.83. It includes 45 items, some
of which dont have any classification because these items are used as and when required
during the year as such do not fall under any category and some are capital related spares.
JUST IN TIME INVETORY SYSTYEM

Just in time purchasing is the purchase of material or goods in such a way that delivery of
purchase item is assured before their use or demand. Just in time purchase recognizes too much
carrying cost associated with holding high inventory levels. Therefore, it advocates developing
good relation with supplier and making timely purchases from proven suppliers who can make
ready delivery of goods available as and when need arises EOQ (Economic order quantity)
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model assumes a constant order quantity where as JIT purchasing policy advocates a different
quantity for each order if demand fluctuates. EOQ lays emphasis on ordering and carrying cost
but inventory management extends beyond carrying and ordering cost to include purchase cost,
quantity cost and stakeout cost .JIT purchasing takes into consideration all these cost and move
outside the assumptions of the EOQ model.
There are 150 JIT items in GSK, Nabha.
ADVANTAGES
Investment in inventory is reduced because more frequent purchase order of small

quantities are made
Carrying cost is reduced as a result of investment in inventory.
A reduction in the number of suppliers. Only proven suppliers who can give quick
delivery of quality goods are given purchase order
Quality costs such as inspection cost of incoming material or goods, scraps and rework
costs are reduced because JIT purchasing assures quick and frequent deliveries of small size
orders which h results in low level of inventories causing minimum possible wastage.
Analysis of Various Components of Working Capital

Inventory analysis
Inventory is the total amount of goods and materials. Inventory means stock of three:
1. Raw material
2. Semi finished goods
3. Finished goods
Position of inventory in GSK
Particulars
2007
2008
2009
2010
2011
Page | 67
Raw material
WIP
Finished goods
Total
13921225
4735793
8283102
26940120
12230900
4901850
4509348
21642098
29407402
6270176
5499646
41177224
37297025
9756023
20800165
67853213
28833211
5912280
9022153
43767644
Sundry debtors analysis

Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales made.
Position of sundry debtors in GSK
Particulars
Debtors over a
period of 6
months
2007
67.7
2008
127.5
2009
69.43
2010
106.44
2011
137.9
Other debtors
Total debtors
2,668.50
2,736.20
4,197.52
4,325.02
3,066.21
3,135.64
4,930.20
5,030.20
9,781.17
9,919.07
Total debtors
12,000.00
9,919.07
10,000.00
8,000.00
Total debtors
6,000.00
5,030.20
4,325.02
3,135.64
4,000.00 2,736.20
2,000.00
0.00
2007
2008
2009
2010
2011
In the table, we see that there are continuous variations in the debtors of GSK in the last five
successive years. A simple logic is that debtors increase only when the sales increase and if sales
increase it is a good sign for growth. We can see that in the year 2007 the debtors are at
minimum level. But in the year 2011, debtors are higher due to increase in the sales.
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We can say that it is a good sign as well as negative sign. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. When sales are increasing with a
great speed the profit also increases. If the company decreases the debtors, they can use the
money in many investment plans.
Cash and bank balance analysis

Cash called the liquid asset and vital current assets; it is an important component of working
capital. In narrow sense, cash includes notes, bank draft, cheque etc.
Particulars
Cash
2007
9,366.6
2008
47,997.69
2009
81,979.89
2010
97,609.83
2011
1,07,965.44
CASH
120000
100000
CASH
80000
60000
81979.69
40000
107965.44
47997.69
20000
0
97609.83
9366.6
2007
2008
2009
2010
2011
If we analyze the above table we find that it follows an increasing trend. Cash is continuously
increasing from the year 2007. Through analysis, we got that company is utilizing the fixed cash
for exploding the projects that is good for growth.
Current liabilities analysis
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Current liabilities are any liabilities that are incurred by the firm on the short term basis or
liabilities that have to be paid within a year.
Particulars
Current liabilities
2007
2,48,67
2008
3,12,46
2009
5,11,09
2010
8,00,40
2011
9,37,67
If we analyze the above table, we can see that the current liabilities are continuously increasing.
When a company has a minimum liability, it creates a better goodwill in the market. Higher
current liabilities indicate that company is using credit facilities by creditors.
Current asset analysis

Particulars
Current assets
2007
3,71,13
2008
8,53,37
2009
11,72,91
2010
14,23,13
2011
16,70,09
If we analyze the above table, we can see that the current assets are continuously increasing.
Current assets are continuously increasing may be due to the increase in the cash, cash is
increasing may be due to the increase in sale, but if the current assets are increasing due to
increase in the inventory, then this is not the good sign, because inventory is increasing due to
decrease in sale and there are chances that inventory becomes obsolete and moreover company
has to incur storage cost and other expenses for handling the inventory.
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FINANCIAL RATIO ANALYSIS

Financial ratio analysis is a study of ratios between various items or group of items in financial
statement and the turnover ratios. Ratio analysis is the powerful tool of financial analysis. In
financial analysis, ratio analysis is used as an index or yardstick to measure the performance of
the firm.
Working capital is that part of total capital which is important in current assets. To get better
insights about the working capital position of the firm ratio analysis has been utilized.
To determine the Working Capital position of the firm following ratios have been analyzed:
Current ratio
Absolute liquid ratio
Quick ratio
Current asset turnover ratio
Working capital turnover ratio
Inventory turnover ratio
Debtors turnover ratio
Creditors turnover ratio

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Inventory to working capital rate
Current ratio, Quick ratio and absolute liquidity ratio are regarded ad liquidity ratios. The
liquidity aspect is essential for both the creditors as well as management of a business enterprise.
These ratios are used to judge firms ability to meet short term obligations. These ratios give an
insight about present cash solvency of the firm and its ability to remain solvent in the event of
adversities.
CURRENT RATIO:
The current ratio is very popular financial ratio which is used to measure the ability of a
firm to meet its current liabilities. Current assets are converted into cash for the payment of
current liabilities. Apparently higher is the current ratio, greater is the short term solvency.
Current ratio is given by the formula:
Current Assets
Current Liabilities
Year
2011
2010
2009
2008
2007
Current Assets
16,70,09
14,23,13
11,72,91
8,53,37
3,71,13
Current Liabilities
9,37,67
8,00,40
5,11,09
312,46
2,48,67
CURRENT RATIO
1.78
1.78
2.29
2.73
1.49
Current Ratio
3
Current Ratio
2
1
0
2007
2008
2009
2010
2011
A current ratio of 2:1 is generally considered to be acceptable. The current ratio of GSK is
1.78 in 2011 and 2010 and it is decreasing from the year 2008 due to increase in current
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assets and increase in current liabilities. The overall position of current ratio for GSK is
satisfactory.
QUICK RATIO ( ACID TEST RATIO):

Quick ratio is much more exacting measure than the current ratio. By excluding inventories, it
concentrates on really liquid assets, with value fairly certain.
Quick Assets consist of only cash and near cash assets. Inventories are deducted from current
assets on the belief that these are not near cash assets. Quick ratio is given by the formula:
Liquid assets
__________________
Current liabilities
Particulars
2007
2008
2009
2010
2011
Quick Assets (In Lacs)
35165
5,76,19
9,06,87
Current Liabilities (In Lacs)
24867
3,12,46
5,11,09
11,11,1
2
8,00,40
13,00,1
4
9,37,67
QUICK RATIO (Times)
1.41
1.84
1.77
1.38
1.38
QUICK RATIO
1.84
2
1.5
1.77
1.41
1.38
1.38
QUICK RATIO
1
0.5
0
2007
2008
2009
2010
2011
A quick ratio of 1:1 is considered as acceptable. A higher ratio of 1.38:1 ensures the ability of the
firms quick assets to meet its current liabilities. For GSK, the quick ratio presents an uneven
Page | 73
change over the past 5 years. It was 1.41 in 2007 and then increased to 1.84 in 2008 and then
decreased t0 1.38 in 2011.
CURRENT ASSETS TURNOVER RATIO:
The idea of the current assets turnover is to ascertain the contribution of the current assets
to sales. The relationship indicates efficiency or otherwise utilization of current assets to
attain the maximum turnover sales.
Sales
__________________
Current assets
Particulars
Net Sales
2007
2008
2009
13,955.05
1,70,044.8
2,02,512.04
3,71,13
85,336.62
0.37
1.99
Current Assets
Ratio
2010
2011
2,43,077.18
2,83,209.55
1,17,290.83
1,42,312.92
1,67,009.31
1.73
1.71
1.69
Current asset turnover ratio

2.5
2
Current asset
turnover ratio
1.5
1
0.5
0
2007
2008
2009
2010
2011
Current asset turnover ratio is continuously decreasing from year 2008 due to the increase in the
current assets. Although sales are also increasing but increase the % increase in the current assets
is more as compared to % increase in the sales.
Page | 74
WORKING CAPITAL TURNOVER RATIO:
Net working capital turnover ratio
indicated the velocity of the utilization of working capital. A higher ratio indicates the
effective utilization of working capital and a low ratio indicate otherwise.
COGS or Sales
Net Working Capital
Particulars
2008
2009
2010
2011
Net Working
Capital
54,135.42
66,182.25
62,273
73,252.7
Sales
1,70,044.8
2,02,512.04
2,43,077.18
2,83,209.55
Ratio
3.14
3.06
3.90
3.86
WCTR
5
4
3
2
1
0
3.14
3.06
2008
2009
3.9
3.86
WCTR
2010
2011
This ratio indicates the number of times the working capital is turned over in the course of a
year. A high working capital ratio indicates the effective utilization of working capital and
less working capital ratio indicates less utilization. For GSK, the ratio is quite same for the
past four years. It was 3.14 in 2008 which decreased to 3.06 in 2009 and then rise to 3.9 in
Page | 75
2010 and then there is negligible change in 2011 when compared to 2010. This ratio has
improved over the last four years. Hence we can see that the component of working capital is
consistently reducing which is considered as a positive sign from the point view of the
finance.
Working capital is segregated into Inventory turnover, Debtors turnover and creditors
turnover
INVENTORY TURNOVER RATIO:

This ratio is also known as stock turnover ratio and establishes the relationship between the
cost of goods sold during the year and average inventory held during the year. It is
calculated as follows:
Sales
Average Inventory
Particulars
2008
Opening Inventory
19,482.4
27,717.03
26,603.20
31,200.06
Closing Inventory
27,717.03
26,603.20
31,200.06
3,69,95.58
Average Inventory
23,599.69
27,160.12
28,901.63
3,40,97.82
Sales
1,70,044.8
2,02,512.0
4
2,43,077.1
8
2,83,209.55
7.2
7.45
8.41
8.30
ITR
2009
2010
2011
Page | 76
ITR
9
8.41
8.5
ITR
8
7.5
8.3
7.45
7.2
7
6.5
2008
2009
2010
2011
It was observed that Inventory turnover ratio indicates maximum sales achieved with the
minimum investment in the inventory. Therefore, high inventory turnover is desirable but high
inventory turnover ratio may not necessary indicates the profitable situation. An organization, in
order to achieve a large sales volume may sometime sacrifice on profit, inventory ratio may not
result into high amount of profit.
DEBTORS TURNOVER RATIO:

In case firm sells goods on credit, the realization of sales is delayed and the receivables are
created. The cash is realized from these receivables later on. The speed with which these
receivables are collected affects the liquidity position of the firm. The debtors turnover ratio
throws light on the collection and credit policies of the firm. The debtors turnover ratio is
calculated as follows:
Sales
Average Accounts Receivable
Particulars
2008
2009
2010
2011
Opening Debtors
2,736.2
4,325.02
3,135.64
5,036.64
Closing Debtors
4,325.02
3,135.64
5,036.64
9,919.07
Average debtors
3,530.61
3,730.33
4,086.14
7,477.85
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Sales
1,70,044.8
2,02,512.04
2,43,077.18
2,83,209.55
DTR
48.16
54.28
59.48
37.87
DTR
80
60
54.28
48.16
59.48
DTR
37.87
40
20
0
2008
2009
2010
2011
Debtors turnover indicates the number of times the debtors are turned over during a year.
Generally, the higher the value of debtors turnover the more efficient is the management of
debtors/sales and less liquid debtors.
CREDITORS TURNOVER RATIO:
This ratio is calculated on same lines as receivable turnover ratio is calculated. This shows the
velocity of debt payment by the firm. A low creditors turnover ratio reflects liberal terms
granted by the suppliers. While a high ratio shows the accounts are settled rapidly. It is calculated
as follows:
Credit Purchases
Average Accounts Payable
Particulars
2008
2009
2010
2011
Opening Creditors
14,393.14
17,245.92
28,499.78
35,692.46
Closing Creditors
17,245.92
28,499.78
35,692.46
50,102.48
Average
15,819.53
23,154.89
32,096.12
42,897.47
Annual Purchase
44,297.50
49,763.51
59,350.20
65,326.10
Page | 78
CTR
2.80
2.15
1.85
1.52
CTR
2.8 CT
42.15
1.85
1.52 R
2
0
2008
Actually, this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally, a low creditor turnover ratio implies the favorable since the firm
enjoys lengthy credit period. Now if we analyze the four years data we find that in the year 2008
the ratio was 2.8 which mean that its position of creditors that year was not very good, but when
we turn ahead the other years creditors turnover ratio is in pretty good position. In all the four
years it has followed, a decreasing trend, which is very good sign for the company. Therefore, we
can say that it enjoys the good credit period from suppliers.
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FUNDS FORECASTING AND BUDGETING AT GSK, NABHA

The principal aim of budgeting as a tool is to predict the cash flows over a given period of time is
to ascertain whether at any point of time there will be excess or shortage of cash. So is the
purpose of cash budgeting done at GSK, Nabha.
The first element of cash budgeting at Nabha is selection of period of time to be covered by the
budget. It is referred to as planning horizon. The planning horizon means the time span and the
sub periods within the time span over which the cash flows are to be projected.
At GSK, Nabha the sub period taken for the purpose of budgeting is a time span of one month
which is further used to consolidate it for quarterly and then annual budgeting.
The second element of cash budgeting is to determine the factors that have a bearing on cash
flows. The items included in cash budget are only cash items; non cash items such as
depreciation and amortization are excluded. The factors that generate cash flows are generally
divided into two broad categories: Operating and Financial. Cash flows generated by the
operations of the firm are known as operating cash flows while the others are termed as financial
cash flows.
At GSK, Nabha as per the limits of the project only operating cash flows have been considered.
The operating cash flow items which are require to be considered are mentioned as below:
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OPERATING CASH FLOW ITEMS

Inflows/Cash receipts
Outflows/Disbursements
Cash Sales
Accounts payable
Collection of accounts receivable
Purchase of raw materials
Disposal of fixed assets
Wages and Salary

Factory expenses
Administrative and selling expenses
Maintenance expenses
Purchase of fixed assets
As is mentioned in the table above the operating cash flow items which are used at GSK for the
purpose of budgeting are mentioned in the template attached. This template is used for obtaining
the inputs for the cash flow items from the various departmental heads on monthly basis. The
major heads in the template are receipts, payments for purchase of raw materials, packaging
materials, freight, employee salaries, electricity expenses and provision for taxation.
After the time span of the cash budget is decided, the final step is the construction of the budget.
Post receiving inputs from various departments the budget is constructed.
WORKING CAPITAL BUDGET

The goal of working capital management is to manage the firms current assets and current
liabilities in such way that the satisfactory level of working capital is mentioned. The current
Page | 81
assets should be large enough to cover its current liabilities in order to ensure a reasonable
margin of the safety
WORKING CAPITAL BUDGETING-2011-2014
GlaxoSmithKline Consumer
Healthcare Limited
Working Capital
Budget - 2011-2014
Location
NABHA
( All Figures in Rs. '

000 )
2012
2014
2013
Dec Mar June

2011 Act Act
Sep Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
INVENTORY
Raw & Packing
Material
Raw Materials
2000
Packing
Materials
1000
SUB - TOTAL
3000
Finished Goods
Bulk/Packed
Stock
SUB - TOTAL
OTHERS
General Stores
Coal Stock
SUB - TOTAL
Page | 82
Dec
TOTAL
INVENTORY
3000
TOTAL TRADE
DEBTORS
1500
TRADE CREDITORS
(Negative)
Raw Materials
Packing Materials
Stores/Services
Milk
Marketing
Freight
Other Expenses
TOTAL TRADE
CREDITORS
1000
OTHER DEBTORS
Advances
Loans to
Employees
Other DebtorsExcise
Modvat
Employee
Advances
Other Debtors
Interest
Receivable
TOTAL OTHER
DEBTORS
1200
Page | 83
OTHER CREDITORS
Payroll
Excise Payble
Other Creditors
Interest Pavble
Capex
Gratuity Etc
TOTAL OTHER
CREDITORS
-650
TOTAL WORKING CAPITAL 4050
INTERPRETATIONIn the month of july, we have done the month wise forecasting of working capital
required for the next year.
RECOMMENDATONS
The result of the live project done at GSK is presented in the form of following
recommendations:
Working capital can be improved by:
Page | 84
1. Reducing the inventory holding period of items.
INVENTORIES
3. Increasing the credit period of Creditors.
CREDIT
PERIOD
3. Decreasing the credit period of Debtors.
CREDIT
PERIOD
SUGGESTIONS
Credit period of raw material suppliers to be checked for standardization
Credit period of same supplier to be checked for standardization across all locations
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General PO terms to be checked for revision for Simplification
Inventory holding to be validated for checking against the norms
FG quality clearance time to be reviewed for reduction
Upward revision of credit limit of suppliers post discussions
Credit period of same raw material supplied by different supplier to be standardized at

same site in case they differ
If more than one supplier supply raw material at same site then their credit period
should be same
If same supplier supply raw material at different site within the same company
then their credit period should be same
If the same supplier supplies the raw material to different companies then their
credit period should be same.

The surplus fund of the unit should be invested in some short marketable securities. It
will thus improve the profitability position of the concern.

The company should borrow some funds from markets. As Loan today is the cheaper
source of Finance
Company has to give due consideration on current liabilities which are increasing though
these are increasing slightly but it must be taken into consideration.

The Company to strengthen its cash resources and also to reduce the dependence on Head
Office funds. The company should accelerate its cash sales of Ghee. As is evident from
the Cash Forecast the Ghee sales projected are just Rs. 89 lakhs. This could be done by
extensive marketing activities, covering new markets, exports of the product etc.
The company should aware of the competitors strategy.

The company should spend more on the advertisements like distributing free testing of
products to the people at public place.

Further improvements could be done through modernization of the methods of
transferring funds i.e. instead if transmitting of funds through a demand draft or cheque if
Electronic Data Interchange (EDI) or Society For Worldwide Instant Funds Transfer
Page | 86
(SWIFT) were brought into practice the amount needed could be brought in easily and
that too in less time and at lesser cost.

The company could make use of the funds if needed, before disbursement of different
payments by maintaining good relations with banks i.e. if the company is in need of
funds and on the same date the payments are also to be made the company could delay
the payments by negotiating with the concerning Bank and utilize the funds without
causing any harm to the goodwill of the company. Another such way out is by making a
cheque in hand which would in the company's record show the payment on the desired
date but actual payment is paid after one or two days. This method is based on the faith of
the party in the enterprise. For example in our cash forecast, the funds from the Head
Office are brought in on 11th for Rs.145 lakhs and the payments due on 11th and 12th are
ofRs.25 lakhs and Rs. 120 lakhs respectively. So if the amount of 145 lakhs is delayed by
one day through negotiation with the Banks or though cheque in hand the company could
earn an interest of Rs. 4369.86.
CONCLUSION
Working capital management is concerned with the problems that arise in attempting to manage
the current assets, the current liabilities and the interrelationship that exists between them. The
major current assets are cash, marketable securities, accounts receivable and inventory.
Page | 87
Current liabilities are those liabilities which are intended, at their inception, to be paid in the
ordinary course of business, within a year, out of the current assets or earnings of the concern.
The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding
expenses.
The goal of working capital management is to manage the firms current assets and liabilities in
such a way that a satisfactory level of working capital is maintained.
The majority of Indian companies maintain relatively lower cash/bank balances. Marketable
securities are yet to emerge as a popular means of cash management. The excess cash is
deployed to retire short term debt/ in short term bank deposits.
Though there is a notable decline over the years but yet inventory constitutes an important part of
total current assets.
Debtors/ receivables also constitute an important part of current assets. The collections are
required to be as quick as possible and thus corporates offer cash discounts for the purpose.
Accounts payables and short term loan/ advances are major components of current liabilities.
The project Working Capital cardinally focuses on inventory and credit terms for the creditors
and debtors.
The approach followed in the project is to reduce the inventory so as to adhere to the standard
norms of the inventory holding thereby releasing the working capital out of it.
Secondly to revise the credit terms in such a way so as to make them uniform across all the sites.
Thus releasing the working capital at the sites where the credit terms were proposed to be
revised.
LIMITATIONS
Page | 88
Working as a trainee for a period of two months the company was reluctant to reveal its
complete information
The time was not enough for giving an in-depth review of the working capital
management
REFERENCES
http://gsk-ch.in/AnnualReports.aspx
www.Money Control.com
www.indiainfoline.com
www.google.com
Page | 89

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Summer Internship Project Report

Master of Business Administration (MBA)

L M Thapar School of Management, Patiala

Prof. A.K. Dhingra

MBA-4th Tri Sem.,

Working Capital Management

Analysis of Various Components of Working Capital...............................................................67

Working Capital Management

Working Capital Management

Working Capital Management

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Baddi (Himachal Pradesh)

North (New Delhi office)

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South (Chennai office)

Working Capital Management

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Working Capital Management

average growth rate

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mental development of the growing foetus.

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Working Capital Management

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Throw out rubbish

Find suitable storage area for everything

Clean all surface areas

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Working Capital Management

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Working Capital Management

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Working Capital Management