PREFACE

The topic for the summer training is to study that how to start any business,
first of all we need finance and the success of that business entirely depends on the
proper management of day-to-day finance and the management of this short term
capital or finance of the business is called working capital management.

The second chapter is related with the basic accounting terminology. In it, we
have discuss about the basics with all its Description.

After the second chapter the research methodology used in the project has
been shown in this chapter. Objective, scope, evaluation & Limitation of the study
are given in it.

The fourth chapter comprises of statement of changes in working capital.

At last, on the basis of study a questionnaire has been designed and gives it to
the workers for filling this and on the basis of this data is interpreted and analyzed
and some conclusion & Recommendations has been given.

NEHA

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 ACKNOWLEDGEMENT

It is my pleasure to place on record my sincere gratitude towards my guide. it

was his direction and encouragement at every moment and step that motivated me
to steer the research work confidently and successfully.

I am also thankful to our Venerable director Dr. Kewal Kumar whose

encouragement, moral support and provide the valuable guidance, which has been
a source of inspiration to me.

I am especially thankful to Mr. Atul Ghambhir who has to provide me

valuable guidance, which is helpful to fulfillment I am also thankful to my friends
who directly or indirectly helped me lot.

I am indebted to my respected parents because of whose blessing I have been

able to carry out this work successfully.

NEHA

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 STUDENT DECLARATION
This project has been undertaken as a partial fulfillment of the requirements
for the award of the Degree of the Master of Business Administration,
Uttarakhand Technical University, Dehradun.

This project was executed during 4th Sem. Of MBA program under the
supervision of Dr. Kewal Kumar, Director IMT, Kashipur.

Further I declare that this project is my original work and the analyses are
for academic purpose only. This project has not been present in any seminar or
submitted elsewhere for the award of any degree or diploma.

.... .....

Counter Signed by

Mr Atul Gambhir NEHA

Asst Professor (IMT) (MBA IV SEM).

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 Introduction To The Videocon Appliances Limited

Company Profile

A man of Ideas. A man of Substance Shri

Lt Shri. Nandlal Madhavlal Dhoot
Founder, The Videocon Group
(26 February 1932 - 26 April 1993)
times when the village did not even have electricity. Thus was unleashed an
Industrial revolution.
Nandlal Madhavlal Dhoot, the founder of the
Videocon Group, completed his education in
Ahmednagar and Pune. He was a successful
sugarcane and cotton cultivator. As a next logical
step to vertical integration, he boldly took upon an
entrepreneurial venture by importing machinery
from Europe to set up the Gangapur Sakhar
Karkhana (Sugar Mill) in 1955. Those were the

In 1984, the dhoot family launched Videocon International Limited with an

avowed purpose of producing world class Color Television set thought technical
tie- up with Toshiba Corporation of Japan.

Videocon group companies have won prestigious approval and certificate

from India and abroad. These includes the approval from VDE testing and
Certificate Institute Germany, the British Standard, the CE approval for exporting
to Europe and the ISO 9002 certification.

The Videocon Group is ever evolving group continuing to sty trends in every sphere
of its activity. The group enjoys an unassailable leadership position interactive T.V,
Co lour T.V.; high ended audio system, VCD, VCR, air-conditioners, washing

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machine Tran chillers as well as no-frost refrigerator. After firmly entrenching
itself in a field of consumer electronic and home appliances . The group has boldly
venture into business that are crux of nation mainly petroleum and power .The
group has further ventured to leverage its strengths to boosts progress of the nation.

Videocon sprawling state of the art facility is spread across 18 locations in India.
The latest inclusion is the Rs.400 crore. Ultra modern and environmental friendly
manufacturing facility set up at Bangalore. It houses state of the art robot
machineries. Robotic machineries and India. Do you see a disconnect there? Not
anymore.

The inertia of diversification was catalyzed with the inspection of Videocon

Appliance ltd. In 1988 the company manufactured advanced washing machines and
has thus changed the lives of millions of women. The company has revolutionized
the A.C. market by creating superior quality A.C. 1992 Videocon breathed new life
into the refrigerator market by introducing Indias first No frost refrigerator. The
refrigerator plant follows the international quality to ensure defect free products
with a total production capacity of more than 1.5 million refrigerators per year.
Videocon Refrigerator is amongst largest selling branch in the market place.

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 Values & Philosophy

The die was cast. Over the years, Nandlal jis path-breaking attitude found

expression in a myriad ways, earning him the well-deserved reputation of the

pioneer of industrial activity in Marathwada India.

In early 80's Nandlal ji initiated his three sons Venugopal, Rajkumar and

Pradeep into business. Through a technical tie up with Toshiba Corporation of

Japan, he launched India's first world-class color Television: Videocon. Today,

Videocon is household name across the nation- India's No. 1 brand of Consumer

Electronics & Home Appliances, trusted by over 50 million people to improve their

quality of life.

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 History

Group Profile

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 Vision & Mission

Videocons mission: a reflection of continuity and change

Videocons mission expression has been crafted to envelope both extant and
emerging realities:
To delight and deliver beyond expectation through ingenious strategy,
intrepid entrepreneurship, improved technology, innovative products, insightful
marketing and inspired thinking about the future.
A breakdown of the statement above reveals a means and end approach,
where the end is articulated at the beginning with the means linked to it.

To delight and deliver beyond expectation the end

This segment not only underlines the importance of the ultimate goal -
customer satisfaction (delight) and ultimate target - the customer, but also of
intermediate processes and principals, which have contributed to building a robust,
dependable Videocon value chain (deliver). As a result of it s focuses on
developing loyal customers and reliable associates, Videocon are able to exceed
expectations.

Through ingenious strategy the means

In the cutthroat world of today, it is only by taking recourse to advance
planning and strategy that a business can hope to survive. Although textbook
strategy has its uses, reproducing it in verbatim for the real world would be foolish
because of the absence of textbook conditions. Thus, there is a need for a bounded
rationality, spontaneity and improvisation that is flexible enough for scenarios both
imaginable and unimaginable.

Videocons ingenious maneuvers are actually flexi-strategy that abstracts

from shifting ground conditions and decides game plans, or sometimes changes the
rules of the game.

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Intrepid entrepreneurship the means
An enterprise with the odds stacked against it makes great business sense. This is
because higher the obstacles lower the number of players likely to be active in that
field - thus, fetching extraordinary returns. The only requirement is a bold and
confident attitude willing to brave the odds. Videocons foray into oil and gas is a
bold and intrepid endeavor that arises from immense faith on the surefooted
competence of the companys in-house managerial talent.

Improved technology the means

Technology is no more a premium input; it has become the bare minimum in
recent years. Rapid advances have only fuelled this phenomenon. Videocon is
extremely vigilant in shunting out dated technology and replacing it with the best-
in-class offers of the times.

Innovative products the means

Product development, innovation and customizations are the tools Videocon
uses to stay ahead of the competition. This is because a continuous stream of
innovative products excites the market and enhances brand recall. A strategy that
Videocon banks on a lot , especially on the domestic front.

Insightful marketing the means

The market share battle scene has long shifted from technology and processes
to the psyche of the customer. This means that those with deeper insights into the
elusive mind of the buyer are likely to dominate. Videocon is reinforcing marketing
strengths to read better the pulse of the market and help create products that map
perfectly into customer preferences.

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Inspired thinking about the future. the means

The future is unpredictable, but not doing anything about it is fraught with
grave risk. Videocon extrapolates future trends on the basis of current changes in
technology and preferences as well as sheer gut feel. Fine-tuned business instincts
are worth their weight in gold, lots of it. The company has perfected its practice
almost into an art form with some calculated gambles like oil and gas proving to be
absolute money-spinners.

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 Basic Accounting Terminologies

Introduction
Every human being consciously engages himself in some meaningful activity.
Although the measure of success may vary in each case one has to be careful and
cautious at every stage in his life. Bookkeeping and accountancy is a science, which
has attracted the attention all such human activities. Accounting enables a person
to assess the risk appropriate steps.

Account an account denotes a summarized record of transactions pertaining

to one person, one kind of asset, or one class of income, or one class of income or
loss.

Assets properties of every description owned by a person will be called assets

for example land and building, plant and machinery, cash balance, bank balance
etc.

Bad debts which are irrecoverable and written off from debtors A/C as a loss
are termed as bad debts.

Casting means the totaling of the books of account casting has to be done of
the ledger accounts and also of a journal.

Creditor a creditor is a person to whom we owe something. He is the person

to whom we have to pay.

Capital the dictionary meaning of the term capital is wealth capital is the
total account invested in business the capital of a business is the claim of the owner
to the business is the claim of the owner to the business.

Debtor is person who owes something he is the person who has to pay to
other person.

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Drawing is the total amount withdrawn by a trader from his business for meeting
personal expenses. Trader becomes a debtor of business by the amount withdrawn
by him from business for private purpose.

Discount it is an allowance or a concession allowed by the receiver of benefit to the

giver of benefit. It is normally allowed to the customers, debtors, and retailers etc.
the discount may be classified in two ways.

Cash discount.
Trade discount.

Cash discount it is discount allowed to customer as an inducement to make

payment immediately. Cash discount is closely related to cash receipt and cash
payment. When cash is received, discount is allowed is a loss to a business while
cash discount received is a gain to him.

Trade discount it is an allowance made by a wholesaler to a retailer in order

to enable the retailer to sell the articles at list prices and earn a reasonable margin
of profit. The amount of trade discount is deducted from the invoice; therefore, it
has no connection as to the receipt and payment of cash. Hence, trade discount
does not appear in the books of accounts.

Entry the term entry refers to the recording of a transaction in the book account. It
is the primary record of a transaction in the books called journal or any other
subsidiary journal.

Expenses the effort made by business to obtain the revenues are termed as
expenses. It is the amount spent on manufacturing and selling of goods and
services.

Folio it means the page number of the book of original entry or of the ledger by
writing folio i.e. page number, one can easily find out on what page the original
entry is made and on what page the entry is made in the main book.

Goods commodities in which a trader deals are called as goods.

Insolvent a person is said to be insolvent when his liabilities are more than assets.

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Insolvency when the liabilities of a firm are greater than its assets, it is referred to
an insolvency indicating the liabilities of a business to meet all its liabilities. Such a
business firm is said insolvent.

Journal is the book 0f accounts in which business transaction are first recorded. It
is a book of prime entry or first entry.

Liabilities debts owed by a person are called liabilities. Liabilities represent the
total amount to creditors. Debts arise because, goods may be purchased out but
payment may not be made at the time of purchasing the goods. Therefore the total
amount payable to creditors will be the liabilities.

Narration it is a brief explanation or description on to a journal entry it is given on

the line just below the journal entry within the brackets.

Posting transaction entered in the original books of entry are also to be recorded in
the ledger on the basis of the entry made in the original book is called posting.

Purchases the goods bought for resale or manufacture and resale are called
purchases. Purchases may be classified as

Cash purchase
Credit purchase

Revenue it represent the accomplishment of the enterprise until the company

has been successful in selling its products, no revenue is realized. Revenue is the
amount that adds to the capital.

Sales the goods sold by a business for cash or on credit are called sales. The
sales may be classified as;

Cash sales
Credit sales

Solvent a person is said to be solvent when his assets are equal to or more
than his liabilities.

Stock goods unsold lying with a business on any given date are called as
stocks.

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 Transactions a transaction are an exchange of money or money worth
between two parties. It is dealing between two parties. It is dealing between two or
more persons.

The transactions are classified on the basis of exchange of goods and service
they may be.

Barter transactions.
Monetary transactions.

1) Cash transactions.
2) Credit transactions.

Book keeping is defined as the process of analyzing, classifying and recording

transaction in a systematic manner to provide the information about the financial
affairs of the business concerns.

Accounting is a wider concept, which includes book keeping accounting, is

involved not only maintaining records, but also balancing of accounts, interrupting
the balances, preparation of summaries, drawing conclusions from the summaries
knowing the results of financial transactions etc.

Classification of accounts.
Accounts are classified in to four types

1) Personal accounts DEBIT THE RECIVER AND CREDIT THE GIVER

2) Real accounts DEBIT WHAT COMES IN AND CREDIT WHAT GOES OUT

3) Nominal accounts DEBIT EXPENSES AND LOSSES AND CREDIT GAINS

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 INCOMES

Journal
Journal is derived from the French word jour which means a day journal
is the book of original entry or primary entry. It is booking of daily record first of
all the business transactions are recorded in the journal and subsequently they are
posted in the ledger. Ledger a group of accounts is known as ledger a ledger is
the principle book of account a journal is meant for passing the entries of business
transaction. A ledger is a bound book. It contains many pages, which are called
folios. These pages are consecutively numbered. For each account a separate page
is kept. Every ledger has an index. It is generally an alphabetic index one page is
allotted for each alphabet. All the accounts commencing with that particular
alphabet are indicated on that particular page only. The page number on which the
particular account appears is shown in the index.

This facilities appear is shown against the account in the index. The
facilities immediate reference .

Ledger posting

After the transaction has been analyzed into its debit and credit elements in
a journal, each such debit and credit elements must be transferred in a journal
accounts. The process of transfer of entries from journal to ledger account is called
ledger posting.

Trial balance

After posting the transaction to respective ledger accounts they are

balanced and then a trial balance is drawn. A trial balance is a statement, which
shows the list of accounts showing debit balances and list of accounts showing
credit balance. If double entry principles are strictly followed the total of the entire
debit balances must agree with the total of all the credit balance.

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Trade discount

The amount of trade discount is deducted from the bill itself. Therefore, a
trade discount does not appear in the books of accounts. If a trade discount is given
in the transaction, the amount of such a trade discount is deducted from the gross
value of purchase and only the net value (arrived at after allowing a trade discount)
is recorded in the purchase books.

Debit note

A debit note is sent to the supplier when the goods purchased from him are
returned. A debit note is a statement sent by the buyer to the supplier stating the full
details of the good returned. It is sent along with the goods. It intimates the supplier
that his account has been debited by the value of the good returned to him.

Credit note

A credit note is sent to the customers when we receive goods returned from
them. It gives the full details of the good returned by the customer. Credit notes are
generally is printed in red ink. Transaction is recorded in this book on the basis of
credit notes.

Trial balance

The dictionary for accountants written is a list or abstract of the balance or

of total debits and total credits of the accounts in a ledger, the purpose being to
determine the equality of posted debits and credits and to establish a basic summary
for financial statements.

Subsidiary books (sub division of journal)

If all the business transaction were recorded in one and the same journal, the
journal would be bulky and cumbersome. It would be very difficult to make clerks to
work on the same journal at one and the same time. Instead of recording all the

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transaction in on and the same journal, they are recorded in separate journals
meant for the purpose.

Therefore, in order to meet the requirements of modern business, the original

journal is divided into the following

Purchase book
Sales book
Purchase return book
Sales return book
Cash book
Bills receivable book.
Bills payable book.
Journal proper

Final accounts

The final accounts are prepared to find out the profit or loss and to know the
financial position of the business. These accounts consist of:

The trading account

The profit and loss account
Balance sheet

Trading account

A trading account is prepared to find out the gross profit or gross loss in the
business done during the year. The gross profit is the difference between the cost
of goods sold and the sale proceed without any deduction of indirect expenses.
Hence, in the trading account it is necessary to include all items of expenses
directly affecting the cost of goods sold. The cost of goods sold includes the
purchase price of the good sold plus buying and bringing expenses and the
expenses of conversion of raw material into saleable finished goods.

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 Profit and loss account

Profit and loss account is another summary account, which is prepared

after preparation of trading account. Trading account does not disclose the net
income or loss. There are other expenses in order to ascertain the profit or not
loss.

Balance sheet

A balance sheet is a statement of the financial position of a business on a

given date. It is a snapshot of the financial condition of the business. The balance
sheet is not account; it is only a statement showing asset and liabilities of the
business. It is important to note that the balance sheet always balances. The total
value of the assets is always equal to the capital and liabilities.

We can define balance sheet as a statement of financial position of any

economics unit as at a given moment of time, its assets, at cost, depreciated cost
or another indicated value, its liabilities and its ownership equities

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 Objective behind the Study of Working Capital
& Research Methodology

Working capital management is very important in modern business. The

analysis of working capital is also very useful for short-term management of funds.
The following are objective of study:

To make. Items wise analysis of the elements or component of working capital to

identify the items responsible for change in working capital.

To calculate of working capital for last Five Year.

Scope & Limitation of the Study

1. The Study is limited to Four Years (2011-12 to 2014-15) performance of the
Company.
2. The data used in this study have been from published annual reports only. As
per the requirement and necessary some data are grouped and sub grouped.
3. For making a clear-cut opinion, Ratio technique of financial management has
been used.

Data & Methodology Of The Study:

The data of Videocon appliances Ltd. For the Year 2011-12 to 2014-15 used
in this study have been taken from secondary sources e.g. published annual report
of the company. Editing, classification and tabulation of the financial data, which
are collected from the above-mentioned sources, have been done as per the
requirement of the study.

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 Working Capital: An Introduction

Introduction
Working Capital is so much in use in common parlance and is so much
misunderstood even among the professional managers the controversy and
confusion persists.

While an accountant will regard working capital as current assets minus

current liabilities and call is as net working capital. But the finance managers
concern is to find fund for each item of current assets as such costs and risks that
the evolving financial structure remains balanced he two.

When one ask a production controller; what is working capital? His answer
is very simple and straightforward. To him working capital is the fund needed to
meet day-to-day working expenses. Is there any difference between the statement of
the accountant, finance manager and production controller? In the ultimate
analysis he late may be true, but according to accountant or the finance manager I
is the very working expense that get blocked in current assets along he productive
distributive line if an enterprise and net working capital is that liquidity which takes
care if he working expenses if he line gets extended due to any reason.

Working capital may be regarded as he life blood of a business; its effective

provision can do much o ensure the success of a business while its inefficient
management can lead not only o loss of profit but also o ultimate downfall of what
otherwise might be considered as a promising concern. Much has been right made
of the long term planning in the use of working capital is immeasurable.

A study of working capital is of major impotence to internal and external

analysis because of is close relationship with the current day-to-day operation of a
business.

Working capital consist of broadly of hat portion of the assets of a business

which are used in, o elated o current operations and represented at any one time by
the operating cycles of such items as against receivables, inventories of raw

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material, stores, work in process and finished goods, need notes of bill receivable
and cash.

When current liabilities and provision exceeds current assets the differenced
is referred to as negative working capital. This situation does not generally exits in
a business firm because this is generally a situation of crises. , This has been
admirably summed up Brown and Heward, who compare it with a river which is
always there, but whose water level is constantly changing.

The blockage of funds, which was eventual , becomes routine and inevitable
due to globalization waves throughout the world. Modern economic theory has
introduced a concept of Global Village, which makes he cut the oat competition
more servers.

In his current scenario managing the day-to-day affairs has become the
challenging task. Now a day it may be somewhat easy to erect a company or
industry, as several loan schemes at subsidized rates are available. But at the same
time managing industry by feeding them regularly with raw material and labor is
assumed to be difficult and critical task.

Hence working capital, which was initially, emerges, as a convenience now

has become a compulsion for an industrial undertaking.

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Meaning
Working capital could be defined as the portion of assets used in current
operations. The movements of the funds from capital to income and profits and back
to working capital are one of the most important characteristics of the business.
This cyclical operation is concerned with utilization of the funds with the hope that
will return with an additional amount called income. If the operations of the
company are to run smoothly, a proper relationship between fixed capital and
current capital has to maintain. Sufficiently liquidity is important and must be
achieved and maintained to provide that funds to pay off obligation as they arise.

The adequacy of cash and other current assets together with their efficient
handling, virtually determine the survival o demise of the company. A businessman
should be able to judge the accurate requirement of working capital and should be
quick enough to raise the enquired funds to finance he working capital needs.

Working capital is also called as net current assets, it is the excess of

current assets over current liabilities. All organization has to carry working
capital. It is important from the point of view of both liquidity and profitability.
Poor management of working capital means that funds that unnecessarily tied up in
idle assets hence educing liquidity and also reducing ability to invest in productive
assets such as plant and machinery. So affecting profitability.

The term working capital refers to current assets, which may be defined as:
i. Those which are convertible into cash or equivalents with the period of one
year and
ii. Those which are required to meet day to day operations,

The fixed as well as current assets, both requires investment of Funds. So

the management of working capital and fixed assets apparently seem to involve it
type of consideration but it is no so. The management of working capital involve
different concept and methodology than the techniques used in fixed assets
management.

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Types of working capital
The type, kinds of a thing are depending upon the different utilization of
working capital. It prominently works in the direction of performing different
functions in different situation and in the context of divergent variables. So
following are some important types of working capital

1) Net Working Capital: Term Net working capital can be define in two way
It is the difference between current assets and current liabilities.
Amount left for operational requirement.

2) Gross Working Capital: Gross working capital means the total current assets.

3) Permanent Working Capital: It is the minimum amount of the current assets,

which are needs to conduct the business even during the dullest season of the
year. This amount varies from year to year depending upon the growth of a
company and stage of the business cycle in which it operates. It is the amount of
funds required to produce the goods and services, which are necessary to satisfy
demand at a particular point.
It represents the current assets, which are required on a continuing basis
over the year. It is maintain as the medium to carry on operation at any time.
Permanent working capital has following features:

It is classified on the basis of the time factor.

Its size increase with the growth of the business.
It constantly shifted from one assets o another and continues to remain in
the business process.

4) Temporary Working Capital: It represents the additional assets, which are

required at different times during the operating year. Seasonal working capital
is the additional amount of current assets particularly cash, receivables, and
inventory which is required during the more active business seasons of the year.
It is the temporary investment in the current assets and possesses the following
features:

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 It is not always gainfully employed, though is May also shift from one asset to
another as permanent working capital does.
It is particularly suited to business of seasonal on cyclical nature.

5) Balance Sheet Working Capital: The balance sheet working capital is one,
which is calculated from the items appearing in the balance sheet. Gross
working capital, which is represented by the excess of current assets over
current liabilities, is example of the balance sheet working capital.

6) Cash Working Capital: It is one, which is calculated from the items appearing
in the Profit and Loss Account. It shows the real flow of money or value at a
particular time and considered to be most realistic approach in working capital
management. It is the basic of the operation cycle concept, which has assumed a
great importance in financial management in recent year. The reason is that the
cash working capital indicates he adequacy of the cash flow which is an
essential pre requisite of a business.

7) Negative Working Capital: It emerges when current liabilities exceeds current

assets, such a situation is absolutely theoretical and occurs when a firm is
nearing a crisis of some magnitude.

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 Principles of Working Capital Management
There are some principles of sound working capital management policy which are:

1) Principle of Risk Variation:

Risk here refers to inability of a firm to meet its obligation when they become
due for payment. Large investment in current assets with less dependence on a
short term borrowing increase liquidity, reduces dependence on short term
borrowing increases liquidity, reduces risk.
On the other hand less investment in current assets and greater dependence on
debt increase the risk reduces liquidity and increases profitability. In other word
these is a definite inverse relationship between the degree of risk and profitability.
Conservative management prefers to minimize risk by maintaining a higher level of
current assets or working capital while a liberal management should be to
establish a suitable tradeoff between profitability and risk.

2) Principle of Cost of Capital:

The various sources of rising of working capital finance have different cost of
capital and the degree of risk involved. Generally higher the risk lower is the
cost and lower the risk higher is the cost. A sound working capital management
should always try to achieve a proper balance between these two.

3) Principle of Equity position:

According this principle, the amount of working capital invested in each
component should be adequately justified by a firms equity position. Every
rupee invested in the current assets should contribute to the net worth of the
firm.

4) Principle of Maturity of Payment:

This principle is concerned with planning he sources of finance for working
capital. According to this principle, a firm should make every efforts o related
maturity of payment to its flow of internally generated funds. Maturity pattern of
various current obligations is an impotent factor in risk assumptions and risk
assessment.

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 Factors determining working capital

1) Nature or character of Business:

The working capital requirement of a firm basically depends upon the nature
of its business. Public utility undertaking like Electricity, Water Supply, and
Railways need vary limited working capital because they offer cash sales only
and supply services, not products and as such no funds are tied up in inventories
and receivables.

On the other hand trading and financial firms require less investment in fixed
assets but they have o invest large amount in current assets like inventories,
receivables and cash. So they need large amount of working capital .

2) Production cycle:
Another factor, which has a bearing on the quantum of working capital, is the
production cycle. The term production or manufacturing cycle refers to the
time involved in the manufacturing of goods. It coves he time span between the
procurement of raw material and the completion of the manufacturing process
leading o he production of finished goods.

In other words, there is sometime gap before raw material becomes finished
goods. To sustain such activities that need for working capital is obvious. The
longer time span (production cycle) the large will be he tied up funds and
therefore, larger is working capital need and vice versa.

3) Production Policy:
In certain industry the demand is subject to wide fluctuations due to seasonal
variations. The requirement of working capital in such case, depend upon he
production policy. The production can be either kept steady by accumulating
inventories during slack. Period with a view to meet high demand during peak

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 season of the production could be curtailed during the slack season
35accumulating inventories it will require higher working capital.

4) Credit Policy:
The credit terms granted o customers have a bearing in the magnitude of
working capital by determining the level of book debts. The credit sales result in
higher book debs. Higher book debts mean more working capital. On the other
hand, if liberal credit terms are available from the supplies of goods trade needs
less working capital.

The working capital requirement of a business are thus, affected by term of

purchase and sale, and he ole given to credit by a company in its dealing with
creditors and debtors.

5) Growth and Expansion:

The working capital requirement of concern increase with the growth and
expansion of its business activities. Although, it is difficult to determine the
relationship between the growth in the volume of business and his growth in the
working capital of a business, yet it may be concluded hat for normal rate of
expansion in the volume of business. We may have retained profits to provide
for me working capital but in fast growing concern, we shall require lager
amount of working capital.

6) Seasonal Variation:
In certain industry raw material is no available throughout the year. They
have to buy raw material in bulk during the season to ensure uninterrupted flow
and process them during the entire year. So a huge amount is blocked in form of
row material during the peak season, which gives more requirements for
working capital and less requirement during the slack season.

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7) Earning Capacity:
Some firm have more earning capacity than others due o quality of thee
products, monopoly condition etc. Such firms with high earning capacity may
generate cash profits from operations and contribute o their working capital.

8) Dividend Policy:
The dividend policy of a concern influence on the requirement of the working
capital. A firm that maintains a steady high rate of cash dividend irrespective of
its profits level needs more working capital than the firm that retains large part
of its profits and does not pay at high rate of cash dividend.

9) Other Factors:
Certain other factors such as operating efficiency, management ability,
irregularities in supply, import policy, assets structure, importance of labor,
banking facilities etc, also influence he requirement of working capital.

Page | 28
 Sources Of Working Capital

Mainly there are two sources of working capital

1) Permanent or Fixed working capital
2) Temporary or variables working capital
In any concern, a part of the working capital investments are as investment in
fixed assets. This is so because there is always a minimum level of current assets,
which are copiously required by the, enterprise to carry out its day-to-day business
operation and this minimum, cannot be expected to reduce at any time. This
minimum level of current assets need long term working capital, which is
permanently blocked.
Similarly, some amount of working capital may be required to meet the
seasonal demands and some special exigencies such as rise in prices, strikes, etc.
this gives rise to short term working capital which is required for day to day
transaction also.
The fixed proportion of working capital should be generally financed from the
fixed capital sources while he temporary or variable working capital equipment
may be met from the short term sources of capital.
The various sources for financing working capital are as follows:

Sources Of Working Capital

Long term Sources Short Term sources

1) Shares 1) Commercial Banks
2) Debentures 2) Indigenous Banks
3) Public Deposits 3) Trade Creditors
4) Ploughing back of Profits 4) Installment Credit
5) Loans from Financial Institutions 5) Advances
6) Account receivable Credit
7) Accrued Expenses
8) Differed Income
9) Commercial Paper

Page | 29
 Methods of Calculation of Required Working Capital
The methods of calculation of required working capital are as follows:

Working Capital Cycle:

The working capital cycle is also known as operating cycle. It refers to the
duration between he firms payment of cash for raw material, entering into
production and inflow of cash from debtors and realization of receivables. Simply
speaking, operating cycle is the duration between the outflow of cash and inflow of
cash and this may be evidenced from the following working capital cycle.

Receivables

Cash Finished Goods

Raw Material Work In Process

The above and network diagram may offer a clear picture of a complete
working capital i.e. it is a cash phenomenon. In the diagram, raw material, stock
refers to material only. In work in process, components involve are raw material,
wages, and overhead more specifically manufacturing overheads. Finished stock
consists components of material, wages and overheads inclusive of factory, office
and administration and selling and distribution. Debtors include material, wages,
overheads and profits. Credit involves for the components of raw material, etc.
something a contingency margin is also given while estimating the working capital
requirement.

The operating cycle consists of the following events, which continues

throughout the life of a firm remaining engaged in commercial activities.

Page | 30
Avg. Stock of Raw Material

1) Raw Material Holding Period = Avg. Cost of Consumption per day

2) Work in Process Holding Period =
3) Finished Goods Holding Period =
Avg. Stock of Work In Process
Avg. Cost of Production per day
Avg. Stock Of Finished Goods
Avg. Cost of Goods Sold per day
Avg. Cost of Goods Sold per day

Avg. Book Debt

4) Receivables Collection Period = Avg. Credit Sales per day

Avg. Credit Sales per day

5) Creditors Collection Period = Avg. Trade Creditors

Avg. Credit Purchased per day

In the form of a simple equation working capital cycle or operating cycle can be
represented as bellow

O = R+W+F+D-C
Where, O = Operating Cycle (In Days)

R= Raw Materials Holding Period

W = Work in Process Holding Period

F = Finished Goods Holding Period

D = Receivables Collection Period

C = Creditors Collection Period.

Working capital required= total operating cost .

Number of operating cycle

Page | 31
 Components of Working Capital:
Current assets:
I) Stock of raw material (for.month consumption)
ii) Work in process (formonth)
a. Raw material
b. Direct labor
c. Overheads
i.Stock of finished goods ( formonth sales)
a. Raw materials
b. Labor
c. Overheads

ii.Sundry debtors or receivables ( for..month sales)

a. Raw materials
b. Labor
c. Overheads

iii.Payments in advance (if any)

iv.Balance of cash (required to meet day to day expenses)
v.Any other (if any)

Less: Current liabilities...

i. Creditors (formonth purchase of raw material) .

ii. Others (if any) ...

Working capital (CA-CL)

Add: Provision/Margin for contingencies ..

Net working capital required .

Page | 32
Management of working capital:
Working capital, in general practice, refers to the excess of current assets
over current liabilities. Management of working capital therefore, is concerned with
problems that arise in attempting to mange him current assets, current liabilities,
and interrelationship that exists between them. In other word it refers to all aspects
of administration of both current assets and current liabilities.

The basic goal of working capital management is o manage the current assets
and current liabilities of a firm in such way that a satisfactory level of working
capital is maintain, i.e. neither inadequate nor excessive. This is so because both
inadequate as well as excessive working capital position is bad for the business.
Inadequacy of working capital, may lead the firm insolvency and excessive working
capital implies idle funds, which earn no profit for the business. Working capital
management policies of the firm have a great effect on its profitability, liquidity and
structural health of the organization. In this context, working capital management is
three-dimensional nature:

1. Dimension I is concerned with the formulation of the policy with regard to

Profitability, risk and liquidity.
2. Dimension II is concerned with the decision about the composition and level of
current assets.
3. Dimension III is concerned with the decision about the composition and level
of current liabilities.

This dimension aspect of the working capital has been more clearly and
precisely explains by the following diagram.

Profitability, Risk & Liquidity

Dimension I

Dimension Dimension
III II Composition &
Composition & Level of
Level of Current Current Assets
Liabilities

Page | 33
 Evaluation of Working Capital
The working capital management needs attention of all the financial. Manger
as working capital management is important for avoiding unnecessary blockage of
fund. Like that liquidity is important at it refer to the short-term financial strength
of company.

It is very important to have proper balance in regard to the liquidity of the

firm. For assessing the appropriate working capital and liquidity position the
following tables are relevant.

Page | 34
Table I - Statement of Working Capital Requirement

Particulars 2011-12 2012-13 2013-14 2014-15

A) Current Assets: -

i) Inventories 2371923131 2408949822 2598543332 2883150119

ii) Sundry Debtors 2129611335 2141497697 2118827972 3158308150

iii) Cash & Bank Balance 150096788 170250276 162214670 142323543

iv) Other Current Assets 7045660 50999449 12278799 15608656

v) Loans & Advances 573879754 441160933 278628907 467120093

5232556668 5212858177 5170473680 6666510561

B) Current Liabilities:

i) Current Liabilities 1677427019 1915816994 1525006973 1088482082

ii) Provisions 38395374 35425889 41057949 86616306

1715822393 1951242883 1566064922 1175098388

Working Capital (A-B) 3516734275 3261615294 3604408758 5491412173

Add: Provision for Contingencies -- -- -- --

Net Working Capital Requirement 3516734275 3261615294 3604408758 5491412173

Page | 35
Graphical Representation of Working Capital Requirement
Working Capital Requirement

6000000000
Rs.)

5000000000

4000000000
(in

Requirement
Capital

Working Capital
3000000000
Working

2000000000

1000000000

2012-13 2012-14 2012-15 2012-16

Year

Page | 36
Table II - Statement of Operating Cycle of Videocon
Appliances Ltd.
From 2012-13 to 2015-16
Components 2011-12 2012-13 2013-14 2014-15

Raw Material Conversion Period 67.91 61.62 64.82 69.16

WIP Conversion Period 32.53 27.60 26.48 25.75

Finished Goods conversion Period 4.46 3.65 2.99 3.29

Debtors Conversion Period 78.51 70.55 68.84 82.81

Total Operating Cycle 183.41 163.42 163.13 181.01

Less: Creditors Conversion Period 63.90 60.63 58.93 44.66

Operating Cycle (In Days) 120 103 104 136

Operating Cycle (Times) 3.05 3.55 3.50 2.68

Page | 37
Graphical Representation of Operating Cycle

Operating Cycle (in Times)

4
(Times)

3.5
Cycle

2.5
Operating Cycle (in
2
Times)
Operating

1.5

0.5

2011-12 2011-13 2011-14 2011-15

Year

Page | 38
Table III - Statement of Changes in Working Capital

Particulars Previous Current Year Effect on Working Capital

Year Increase Decrease

A) Current Assets: -

i) Inventories 2598543332 2883150119 284606787

ii) Sundry Debtors 2118827972 3158308150 1039480178

iii) Cash & Bank 162214670 142323543 19891127

Balance

iv) Other Current 12278799 15608656 3329857

Assets .

v) Loans & 278628907 467120093 188491186

Advances

Total Current Assets: 5170473680 6666510561

B) Current Liabilities:

i) Current Liabilities 1525006973 1088482082 436524891

ii) Provisions 41057949 86616306 45558357

Total Current Liabilities: 1566064922 1175098388

Working Capital (A-B) 3604408758 5491412173

Net Increase Or Decrease In

working Capital 1887003415 1887003415

Page | 39
 5491412173 5491412173 1952432899 1952432899

Observation and Summary

Training in a huge company like VIDEOCON , which is fast growing company
in the field of home appliances. It is noticed that functioning in the company is
carried out very systematically and technically.

As the today world is of competitive world and all are going globally, so very
company has special attention to survive and grow in a market and it is observes that
the VAL is doing it level best to survive.

It is observed that VIDEOCON firmly believe on human and ethical value so,
being a soft management they treat employee as a very important and appreciating
assets of continuous growing.

Not only this company that strive to ensure organization growth by raising
strength of employees and providing various facilities for every individual to raise
his\ her full potential.

Table I: -
It is observed that current asset decrease up to 2011-12 as compare to 2012-13
but in the year 2013-14 it had been increase from 517.04cr to 666.65cr and the
current liabilities has been increase from 2011-13. It decreases in 2004-05 and again
it increases 2014-15

It shows fluctuation in every year. Working capital of Videocon appliances it

is at only in the 2011-12 it decreases reaming year i.e. 2013-14 and 2014-15it
increase it means that in the year 2012-13 working capital falls down which shows
the current liabilities increasing in greater percentage as compare to current asset.

Page | 40
 In the 2012-13 working capital also shows the negative trend due to the
increase in the current liability in the condition of the year 2013-14and 2014-15 are
increased it shows the positive trend.

Table II: -
As per the table II it is clear that the operating cycle of VAL improved
regularly their position from the 120 to 103 days between the 2011-12 to 2013-
014but in the year 2014-15 it is of the 136 days it shows that in inefficient utilization
of working capital in the year 2012-13 the operating cycle is 120days. It means the
working capital is 3.05 times used in the financial year, in the year 2012-13
operating cycle is used 103 days. It means the working capital is 3.55 times used in
the year.

In the year 2013-14 operating cycle is used 104 days so working capital is 3.5
times used in year. In the year 2014-15operating cycle is 136 days, which is
maximum period among the four year as it is the highest time, consuming cycle so the
working capital is used only 3 times and also observe that in year 2012-13operating
cycle of minimum period among the 4 periods it shows an efficient utilization of
working capital.

Table III: -
Statement of changes in the working capital is prepared to show the changes
in the working capital between the two balance sheet dates. This statement is
prepared with the help of the current asset and current liabilities derived from the 2
balance sheets so,

i) An increase in current asset increases working capital

ii) A decrease in current assets decreases in working capital

iii) An increase in current liabilities decreases working capital.

Page | 41
 A decrease in current liabilities increase working capital it is worth noting that
schedule of changes in working capital is prepared only from current assets and
current liabilities and the other information is not of any use for preparing this
statement.

From the table 2 it is observe that the debtors collection period had been
decreases regularly from 2011-12 to 2013-14 every year it indicates fast collection of
debtor.

Operating cycle decreases regularly from 120 to103 days in year 2011-12to
2013-14 but in year 2005-06 it suddenly increases to 136 days from the above study it
is clear that the operating cycle in terms of no of days is increased which is not
favorable sign.

There are 2.68 operating cycle in year so there will be apportionment of

higher cost to each operating cycle to decrease in no of operating cycle there is
tremendous decrease in net working capital in the year 2014-15 due to increase in
current liabilities. The company should look in to the proper current liabilities.

Page | 42
WORKING CAPITAL CYCLE

A firm requires many years to recover initial investment in fixed assets. On

contrary the investment in current asset is turned over many times a year.
Investment in such current assets is realized during the operating cycle of the
firm.

35Each 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 you can get money to Move faster
around the cycle (e.g. collect dues from debtors more quickly) or reduce the amount
of money tied up (e.g. reduce inventory levels 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.

Page | 43
 RECEIVABLES MANAGEMENT:
The term receivables are defined as debt owed to the firm by customers
arising from the sale of goods and services in the ordinary course of business.
Receivables are a type of loan extended by the seller of the buyer to facilitate
purchase process. When companies sell their products they sometimes demand cash
on delivery, but in most cases they sell goods on credit and allow a delay in
payment. The customers promise to pay for their purchases constitutes valuable
assets; therefore accountants enter these promises in their balance sheet as
accounts receivables. Most of the businesses today sell goods and service on credit
and it takes times for the receivables to realize. Hence receivables management
forms an important part of working capital management.

Needs of receivables
The sale of goods on credit is an essential part of working capital
management. Credit sale are treated as marketing tool to aid sale of goods. As a
marketing tool, they are intended to promote sales and increase profits. Hence
receivables assume significance in the context of overall working capital
management.

Objectives of receivables management:

In a competitive environment, sometimes the firms are compelled and
sometimes the firms desire to adopt liberal credit policies for pushing up the sale.
Higher credit sales at more liberal terms will no doubt increase the profits of the
firm, but simultaneously also increase the risk of bad debts as well as result in more
and more funds blocking in the receivables. Thus, the objectives of receivables
management is matching the cost of increasing the sale with the benefits arising out
of increase sales with the objectives of maximizing the return on investments of the
firm.

Page | 44
COST OF RECEIVABLES:
I)cost of financing:

The credit sales delays the time of sales realization and therefore the time gap
between incurring the cost and the sales realization is extended. The firm on the
other hand, has to arrange funds to meet its own obligation towards payment to
supplier, employs, etc. These funds are to be procured at some explicit or implicit
cost. This is known as the cost of financing the receivables.

ii) Administrative cost:

A firm will be required to incur various costs in order to maintain the record of
credit customers before the credit sales as well as after the credit sales.

iii) Delinquency cost:

This is the cost incurred if there is any delay in payment by a customer.

iv) Cost of default by customers:

If there is default by customers and the receivables becomes, partly or wholly
unrealizable, then this amount, known as bad debt also becomes a cost to the firms.

DETERMINANT OF RECEIVABLES
1. In any firm the quantum of receivables is determined by several factors.
2. The percentage of credit sales to total sales. Higher the sales higher will be the
receivables. These are under the control of financial manager.

So, the receivables management must be attempted by adopting a systematic

approach and considering the following aspects of receivables management:

The credit policy

The credit control

Page | 45
 CREDIT POLICY
A firm makes significant investment by extending credit to its customers and
thus requires a suitable and effective credit policy to control the level of the total
investment in the receivables. The basics decision to be made regarding receivables
is to decide how much credit is extended to a customer and on what terms. This is
what is known as credit policy. The credit policy may be defined as set of
parameters and principles that govern the extension of credit to its customers. This
requires the determination of

Credit standard;
Credit term

CREDIT STANDARD:

The credit standards: when a firm sells on credit, it takes a risk about the
paying capacity of the customers. Therefore to be on safer side, it must set credit
standards which should be apply in selecting customers for credit sales. The
following points should be noted while setting the credit standard for a firm:

Effect of particular standard on sales volume.

Effect of a particular standard on the total bad debts of the firm
Effect of a particular standard on the total collection cost.

CREDIT TERMS:

It refers to set of stipulations under which the credit is extended to the

customers. The credit terms specify how the credit will be offered, including the
length of the period for which the credit will be offered, the interest rate on the credit
and the cost of default.

Page | 46
CREDIT PERIOD:

It refers to the length of time over which the customers are allowed to delay
payments. Lengthening the credit period increases the sales by attracting more and
more customers, whereas squeezing the credit period has the distracting effect. The
firm must consider the cost involved in increasing the credit period has the
distracting effect. The firm must consider the cost involved in increasing the credit
period which will result in increase in the investment in receivables .

DISCOUNT TERMS
The customers are generally offered cash discount to induce them to make
prompt payments. Different discount rates may be offered for different
periods.e.g.3% discount if payment made within 10days; 2% discount if payment
made within 20days.both the discount rate and the period within which it is
available are reflected in the credit terms e.g;3/10,2/10,net 30means that a 3% cash
discount if payment made with 10days;2%discount if payment made within
20days,otherwise full payment by the end of 30days from the date of sale.

PRACTICAL IMPLEMENTATION
CREDIT TERMS:
Credit period:

The credit period at VIDEOCON is not constant. For some vendors, it is 30days, for
others, it may be 45days or 60days.this depends entirely on companys policies. It
can be different for different vendors.

Cash discount:

The cash discount offered by VIDEOCON is 2% to 1.75%, depending upon cash

discount period.

Page | 47
Cash discount period:

The cash discount period allowed by VIDEOCON is 1 to 3 days.

Credit discount period Credit discount

[days] [%]

1 2

3 1.75

There are basically two ways availed to vendors to pay their dues to VIDEOCON.

In cash payment method, a vendor is supposed to clear his dues within a limited

Amount of time. And the mode of payment must be highly liquid (cheque or demand
draft).

There are three options availed with the vendors:

I) blank arrangement

In blank cheque arrangement, the vendors provide VIDEOCON blank cheques

drawn on the name of VIDEOCON. As soon as the material is received and invoice
is generated, VIDEOCON is allowed to fill the relevant amount pertaining to the
transaction that took place between VIDEOCON and its vendor. This cheque can be
cleared on the same day the invoice is generated.

ii) Cheque arrangement:

In simple cheque arrangement, on generation of invoice, a cheque is issued by the

vendor drawn on the name of VIDEOCON.

iii) Demand draft (dd):

Here, a demand draft is drawn on the name of VIDEOCON, by the vendor, as

soon as invoice is generated.

Page | 48
 CONTROL OF RECEIVABLES
Once the credit has been extended to a customer as per credit policy, the next
important step in the management of receivables is the control of receivables. The
things to be taken into consideration are:

1.The collection procedure:

The firm should have a built in system under which customer may be
reminded a few days in advance about the bill becoming due. The collection
procedure of the firm should neither be too lenient not too strict. A strict collection
policy can affect the goodwill and damage the growth prospects of the sales. If the
firm has lenient credit policy, the customers with a natural tendency towards slow
payment may become even slower to settle his accounts. Thus, the objective of
collection procedure and policies should be to speed up the slow paying customers
and reduce the incidents of bad debts.

2.Monitoring of receivables:
The financial managers should keep a watch on the credit worthiness of all
the individual customers as well as the total credit policy of the firm.

A common method to monitor receivables is the collection period or no. of

days outstanding receivables.

Average collection period=Average receivables/credit sales per day

Another technique for monitoring the receivables is known as aging schedule.

The quality of the receivables of a firm can be measured by looking at the age of
receivables. The older the receivables, the lower is the quality and greater the
likelihood of a default. In the aging schedule, the total outstanding receivables on
particular days are classified into different age groups together with percentages of
total receivables that fall in each age group.

Page | 49
3.Lines of credit:
It is the maximum amount a particular customer may have a due to the firm
at any time. Different lines of credit may be allowed to different to different
customers. As long as the customers unpaid balance remains within this maximum
limit, the account may b routinely handled. However if new order is going to
increase the indebtedness of a customer beyond his line of credit, then the case must
be taken for an approval for a temporary increase in the line of credit

4. Accounting ratios:
Two accounting ratios may be calculated in particular may be calculated to
find out the changing pattern of receivable. These are

I) Receivables turnover ratio

II) Average collection period

Both the ratio should be calculated on a continuous basis to monitor the

receivables. The ratios so calculated for the firm must then be compared with the
standard for that industry or with past ratios of the same firm.

Page | 50
 PAYABLE MANANGEMENT
As the firm sells goods on credit it may also procure/purchase raw material
and finished goods on credit basis. The payment for these purchases may be
postponed for the period of credit allowed by suppliers. So; the supplier of the firm
in fact provides working capital to the firm for the credit period.

For examples, a firm makes credit purchases of rs.60000per month and the credit
allowed by supplier is two month, then the working capital supplied by creditors is
rs.120000 (i.e. Rs 60000*2months).it means the firm would be getting the supplies
without however, making the payment for two months. The postponement of
payment to the creditors makes the firm to utilize this money elsewhere or help the
firm to sell on credit without blocking its own funds.

Since, working capital is the difference between current assets and current
liabilities and creditors form an important part of current liabilities. so, a firm can
save a considerable amount .if these creditors are managed. the extent, to which
the payment to these current liabilities is delayed, the firm gets the arability of
funds for that period. so, a part of the funds required to maintain current assets is
provided by current liabilities and the firm will be required to invest the funds in
only those current assets which are not financed by current liabilities. so, the sum
of the firm is to realize its debtors as fast as possible but too pay its creditors as
late as possible. Creditors can be managed by discounting of bills.

BILL DISCOUNTING is a relatively new concept in India. when a firm buys

goods on credit the supplier will state a final payment date. To encourage firm to
pay before final payment date, the supplier will offer a cash discount for prompt
settlement. Now its the decision of firm whether to avail or not that discount
facility provided by supplier. For that they should see whether it is profitable for
them or not.

By using discounting of bills technique huge sums of money can be saved, by

just paying the discounted amount in time. Big firms, (like VIDEOCON), which
have huge cash reserves, generally, get into a cash into a contract with financial
institution or banks (like ICICI bank or VIDEOCON finance ltd.)These financial

Page | 51
institutions pay the suppliers the requisite amount on behalf of these firms and they
charge some interest on the amount paid by them to the suppliers from these firms.

BENEFITS OF DISCOUNTING OF BILLS

Discounting of bills makes it easy to decide whether the discount being allowed
by the supplier is worth taking or not.
Also, it make possible to calculate savings being received on account of
availing discount, in monetary terms
It also helps in improving relationship between vendors/suppliers.
Its an indirect cash inflow, because the company is going to pay less than what
it was supposed to pay initially.
The cash thus saved can be invested elsewhere.
Its a win situation for both the company as well as suppliers as the suppliers
will be getting money much before the stipulated time and the company is able
to enjoy the benefits of discount offered by the suppliers.

Page | 52
 INVENTORY MANAGEMENT
The dictionary meaning of inventory is a list of goods. In a wider sense,
inventory can be defined as an ideal resource which has an economic value. It is
however, commonly used to indicate various items of stores kept in stock in order
to meet future demands.

Inventory is assets to the firm and requires investment and hence involves
the commitment of firms resources. The inventories need not be viewed as an ideal
asset rather these are integral part of firms operations.

Inventory refers to stockpile of products that a firm is offering for sale and
the component that makes up the product. We can also say that inventory is
composed of assets that will be sold in the future in the normal course of business.
But the question arises how much inventory be maintained? If the inventories are
too big, they become strain on the resources; however, if they are too small, the
firm may lose sales.

In any organization, there may be following four types of inventory:

a) Raw material & parts- These may include materials, components and
assemblies used in the manufacture of a product.

b) Consumables and spares- These may include materials required for

maintenance and day to day operations.

c) Work in progress- These are items under various stages of production not
yet converted as finished goods.

d) Finished products- Finished goods not yet sold or put into use.

Page | 53
NEED FOR INVENTORY
Every organization needs to maintain a minimum amount of inventory so as to plan
fulfill its customers demands. Also, the organizations foresee demand and them
their inventory levels accordingly. These reasons can be classifies as:

Transactional motive: to meet the day to day requirements of sales, production

process, and customer demand etc.

Precautionary motive: A firm should keep some inventory for unforeseen

circumstances also.

Speculative motive: The firm keeps some inventory in order to capitalize

opportunity to make profit.

OBJECTIVES OF INVENTORY MANAGEMENT

a. To ensure a continuous supply of raw materials to facilitate uninterrupted
production.

b. To maintain sufficient stock of raw materials in periods of short supply and

anticipate price changes.

c. To control inventory investment by maintaining optimum inventory.

d. To minimize investment in inventory and to ensure maximum turnover of

inventory in an accounting period.

e. To ensure stocking of relevant materials in adequate quantities and to ensure

that unwanted or slow-moving items and/or non-moving items do not pile up.

f. To minimize inventory carrying costs in business-both ordering cost and

carrying cost.

Page | 54
g. To eliminate waste and delays in the process of manufacturing at all stages so
as to reduce inventory pile up.

f. To minimize inventory carrying costs in business both ordering cost and

carrying cost.

g. To eliminate waste and delays in the process of manufacturing at all stages so

as to reduce inventory pile up.

h. To ensure adequate and timely supply of finished goods to the market through
proper distribution.

COST OF HOLDING INVENTORY

Every firm maintains some stock of raw materials, work in progress and
finished goods depending upon the requirement and other features of the firm. It is
benefits, by holding inventory but there is cost involved with it. Has these cost not
there, would not have been any problem of inventory management and every firm
would have maintained higher and higher level of inventories. The cost of holding
inventory includes the following-

ORDERING COST-
The cost associated with the acquisition or ordering of inventory is known as
ordering cost. Firms have to place order with suppliers to replenish inventory of
raw materials. Such expenses involved are referred to as ordering cost. The
ordering cost may have fixed component which is not affected by the order size;
and a variable component which changes with the order size. it includes:

Carriage inward
Insurance inward
Communication cost
Stationary cost.
Demurrage charges

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Ordering cost=(A*O)/Q

Where, A=annual requirement of a particular material in units or numbers or kegs.

O=ordering cost per order

Q=lot size, in units

CARRYING COST
The very fact that the items are required to be kept in stock means additional
expenditure to the organization. The different elements of costs involved in holding
inventory are as follows:

a. Interest on capital/cost of capital/opportunity costs

b. Obsolescence and depreciation

c. The cost of storage, handling and stock verification

d. Insurance costs

The average inventory carrying costs can, therefore, be as follows:

Interest/cost of capital/opportunity cost 15 to 25%

Obsolescence and depreciation cost 2 to5%

Storage, handling etc. 3to5%

Insurance costs 1to2%

total 21to37%

Carrying cost is calculated by:

Carrying cost=(c*o)

Where is carrying cost

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Stock out cost(a hidden cost)
A stock out is a situation when the firm is not having units of items in store
but there is demand for that either from the customers or production department.
There is always a cost of stock out in the sense that the firm faces a situation of lost
sales or back orders.

Some examples are:

o Non arability /small amount availed with vendors

o .non avaviblity of substitutes
o .quality desired not matching with the supplied ones
o .updated or improved product not availed.

Total cost
The total cost associated with inventory is the sum of ordering and carrying
cost i.e. Total cost=carrying cost ordering cost

One underlying principle should be in time that ordering cost and carrying cost
are inversely related to each other. Suppose the ordering cost increases because
more no. of times the order is repeated, a direct consequences would be reduction
in inventory held and hence carrying cost would be less. Conversely, if the number
of order is less, this means that average value of inventory held is higher with
consequence of higher inventory carrying costs.

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 TECHNIQUES USED FOR INVENTORY MANAGEMENT
The finance dept of every organization aims at maintain an optimum level
of inventory on the trade244 off between cost and benefit to maximize the owners
wealth. There are various tools for effective inventory management. The tool
depends upon the type of inventory, namely materials, work in progress or finished
goods. Some of these tools have an impact not only on inventory but on whole
structure of the organization. They help in reducing cost and improving the
efficiency of organization as a whole.

1. PERPETUAL INVENTORY VERIFICATION

This is done to check out actual inventory level and is done on a continuous
basis. In PIV method, the amount of inventory is checked both in documents as well
as stores. Here, some items are checked randomly and while checking those items
issues and receipt of those items is stopped we can say that these items are brought
to freezing state.

The database which, ideally, should be refreshed simultaneously whenever

there is a change in inventory and it should match with physical inventory level.
Practically, these two numbers rarely match. This happens because of various
reasons, which may or may not be under the control of management.

Some of the reasons for mismatch are:

o Delay in entering data

o Technical errors(intranet or SAP not working)
o Documentation error(document not submitted)
o Posting error
o Material issued but document not processed
o Document processed but material not issued
o Material send for job work but not received effectively
o Material waiting for quality check

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Benefits of perpetual inventory verification
a. The exact amount of inventory present in the plant can be checked.

b. Checking it against the database of the stores can give us a fair idea about
how effiencilty the system is working

c As faults in the system, regarding the errors associated with updating of

database of stores department can be traced.

Recommendations
.PIV should be done as frequently as possible.

.it should be made sure that data is updated from time to time that is soon as
material is issued or received, corresponding data should be updated on the plant
database.

.unless or until data is entered no material should be issued or received.

A firm should have a built in system under which customer may be reminded a few
days in advance about the bill becoming due. The collection procedure of the firm
should neither be too lenient not too strict. A strict collection policy can affect the
goodwill and damage the growth prospects of the sales. If the firm has lenient credit
policy, the customers with a natural tendency towards slow payment may become
even slower to settle his accounts. Thus, the objective of collection procedure and
policies should be to speed up the slow paying customers and reduce the incidents
of bad debts

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ABC ANALYSIS
This is done to solve classification problem. The most important thing in inventory
control management is classification of different types of inventories to determine
the type and control required for each. The ABC analysis is based on the
assumption that same degree of control should not be exercised on all items of
inventory. The ABC analysis classifies various inventory items into three sets of
groups of priority and allocates managerial efforts in proportion of the priority. The
most important items are classifies as class A, those of intermediate importance
are classifies as class B and the remaining items are classifies as class c.

The financial manager should monitor different items belonging to different groups
in that order of priority. Utmost attention is required for class A items, followed by
items in class B and then items in classs

This is done based on the experience

That 10%of items in the inventory accounts for 70%of consumption in value so they
are classified as A class items

20%of items in the inventory account for 20%of consumption in value so they are
classifies as Bclass items

70%of the items in the inventory accounts for 10%of consumption in value so they
are classifies as C class items.

class NO OF ITEMS (%) INVENTORY VALUE (%)

A 10 70

B 20 20

C 70 10

TOTAL 100 100

Table-ABC analysis

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BENEFITS OF ABC ANALYSIS

.It serves as a tool for classification for inventory.

.Each item can be given appropriate attention as per classification.

LIMITATIONS OF ABC ANALYSIS

This system suffers from major drawback. an item of inventory may not be very
expensive, but may be very critical to production process and/or may not be easily
available; still it will be classified under group C.it would require serious
attention but done to this classification, it will receive less attention. Similarly a not
very important component may receive extra attention when it deserves. In either
case it is detrimental to the growth of the company. This is a serious limitation of
ABC analysis.

Practical implementation
ABC analysis is strictly followed in VIDEOCON. It keeps an eye on those items
which are more crucial for production process than others; such items are given
attention so that there is neither an excess nor deficit of such materials. On the
other hand there is not much to worry about class and class C items. There are
around 7000 items which are categorized as A, B and C items.

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 ECONOMIC ORDER QUANTITY
After ABC analysis we get to know which item deserves how much attention.
The next problem is to determine the lot size in which a particular item of inventory
will be required. The importance of effective inventory management is directly
related to size of the inventory. a firm should neither place too large or too small
orders. The inventory management basically focuses on maintain an optimum level
of inventory in order to minimize the cost attached with different inventory levels.

The optimum level of inventory is known as economic order quantity (eoq) or

economic lot size. This refers to that quantity per order, which ensures that total of
carrying and ordering cost is minimum.

The approach to determine EOQ is based on the following assumptions:

.The total usage of particular item for a given period (usually a year) is known with
certainty and the usage rate is even throughout the year.

.There is no time gap between placing an order and getting its supply.

. The cost per order of an item is constant and the cost of carrying inventory is also
fixed and is given as a percentage of average value of inventory.

. There are only two costs associated with the inventory, and these are the cost of
ordering and the cost of carrying the inventory.

EOQ is generally used to determine the order quantities of CLASS C items and
sometimes for CLASS B items also. this method is rarely used for CLASS A items
because CLASS A items are ordered only when requirement arises, there is no
need to keep inventory of CLASS A items. the formula for estimation EOQ is:

EOQ= (2A*O)/C

WHERE, A=annual requirement of a particular material in units or numbers or

kegs

O=ordering cost per order=carrying cost per unit

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EXPLANATION
The figure shows that the total ordering cost for any particular item is
decreasing as the size per order is increasing. This will happen because with the
increase in the size of order, the total number of order for a particular item will
decrease resulting in decrease in the order cost. The total annual carrying cost is
increasing with the increase in order size. This will happen because the firm would
be keeping more and more items in the stores. However, the total cost of inventory
(i.e. the total carrying cost the total ordering cost) initially reduces with the
increase in size of order. The trade off of these two costs is attained at the level at
which the total amount of cost is least. At this particular level the order size is
designated as the economic order quantity. If the firm places the order for that item
of this economic order quantity, then the total annual cost of inventory of that will
be minimized.

BENEFITS OF EOQ

. It makes sure that there is neither an excess nor deficit of inventory.

. It saves cost as it saves carrying and ordering cost.
. It also results in strong relationship with vendors.
It results in saving of time.

PRACTICAL IMPLEMENTATION

EOQ is a relatively old technique for assessing the lot size of the order.
Moreover, it suffers from the disadvantage that the order cost is assumed to be
uniform during a particular period. The aim point of problem in calculating EOQ is
regarding the estimation of ordering and carrying costs. Because there are no set
rules to find exact storage cost, maintenance cost etc. since the production unit of
VIDEOCON

Is involved in manufacturing of tailor made products, assessment of EOQ

is not relevant for this kind of business line. however, the general usage items like

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nuts, bolts ,crimps, wires, batons, nails, lubricants, gaskets etc are common for all
types of items .hence, it may have restricted application in the refrigerator plant.

EOQ is estimated on the basis of prior experience future requirements.

This happens so because it is very difficult to classify to calculate storage and
maintainece costs. They have to be estimated because there are no provisions
available to calculate them. To prove the usefulness of this method, some arbitrary
costs (ordering cost and carrying cost) are assumed. Accordingly, EOQ is
calculated to show how this model works and how it can be useful in maintain
proper inventory levels.

RECOMMENDATIONS:

.Provisions to calculate EOQ must be made because a guess work may prove
to be wrong.
. At first, the total cost involved in ordering, transporting, procurement, and
storage and maintain ace must be calculated .Than, a part of this (say 20%)
should be taken as carrying cost and rest as ordering cost.

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 LEAN MANUFACTURING
There are many hidden wastes in any organization. To get rid of these
hidden wastes we need to first unhide them. The best way to do this is to have a
visual factory where there is nothing hidden. Lean manufacturing is a tool to
enables us to achieve this objective.

FUNDAMENTALS OF LEAN MANUFACTURING:

1. Smooth flow of material and information to meet on demand service to customers
but without having to hold high inventories.

2. Elimination of hidden wastes. These wastes fall into seven basic categories:

A. over production
B. defects/rework
C. motion
D. transportation
E. high inventory
f. ver. processing and
G. waiting

3. to achieve waste elimination, workplace organization using the 5S system is

necessary:

A. sort...remove unneeded items

B. set-in order...a place for everything and everything in its place (peep)
C. shine...clean enough to inspect and expose any defect.
D. standardize ...create instruction and standard operating procedures
E. sustain....maintain the above through support and encouragement

4. Reducing lead time at every process through

A. visual controls using kanban cards

B. receiving material just in time
C. Line balancing to avoid up piling up of material at any stage.

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D. Studying the flow of material or value stream mapping.
E. Total productive maintenance to improve overall operation of the equipment.
F. set up time reduction using SMED (single minute exchange of dies)

Lean manufacturing is a management philosophy focuses on reduction of the seven

wastes to improve overall customer value. Lean management (also known as big
JIT)is a philosophy of operations management that seeks to eliminate waste in all
aspects of firms production activities : human relations, vendor relations,
technology and management of materials and inventory.

By eliminating waste quality is improved, and automatically, production time and

cost are reduced. To solve the problem of waste lean manufacturing has several
tools at its disposal. All of these tools aim at reducing wastes, of one of several
types, as possible.

Some of the tools of lean manufacturing which helps in inventory management and
control are;

. Just in time (right amount in the right place at right time)

. Kaizen (continuous improvement process)
. Kanban (pull production)
. Single peace flow system
. Gemba walking
.Virtual storage

Lean manufacturing can be achieved by implementing above tools which are

explain following:

1.JUST IN TIME:
The basic philosophy behind JIT is that the firm should keep minimum level
of inventory on hand relying on suppliers to furnish stock just in time as and
when required. This is in direct contrast to the traditional inventory philosophy
which emphasizes keeping sufficient levels of safety stocks to ensure that production
will not be interrupted.

Thus JIT system benefits in two ways:

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 . By reducing the ordering cost. This is attempted by locating inventories
supplies in convenient locations.
. By reducing the safety stock. This is attempted by developing a strong
relationship with suppliers and setting up restocking strategies that cut time.

PRACTICAL IMPLEMENTATION

Just in time is implemented, nearly, at each and every stage of

manufacturing/production in the plant. Stores department and fabrication
departments are the main users of this technique.

While manufacturing switchboards, earlier, for an order of say 1000 items in

three months period. One part of the whole manufacturing was done and than other
steps took place. so, inventory of material used to pile up. Also, the different parts
used to lie scattered here and there.

After implementation of JIT, the process is done such that all the steps are taken
simultaneously. So, material keeps moving. Moreover, provisions are made so that
all the parts of a product are kept together.

RECOMMENDATIONS:

. All the workers, especially those who are working in fabrication department,
stores department and purchase department, must be.
. Given proper training regarding the practical implementation of JIT.
. Any sort of delay between any two processes should be minimized as far as
possible. Any kind of ideal time should not be allowed.
. Another point that must be kept in mind is that, right amount of material
should pass from one stage to the other. There is no need to pile up materials,
which are not going to be used immediately.

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KANBAN SYSTEM:
The Japanese refers to kanban as a simple parts-movement system that
depends on cards and boxes/containers to take parts from one work station to
another on a production line .kanban stands for kan-card ,ban-signal. The essence
of the kanban concept is that a supplier or the warehouse should only deliver
components to the production line as and when they are needed, so that there is no
storage in the production area. Within this system, workstations located along
production lines only produce/deliver desired components when they receive a card
and an empty container, indicating that more parts will be needed in production. In
case of line interruptions, each work station will only produce enough components
to fill the container and then stop. In addition, kanban limits the amount of
inventory in the process by acting as an authorization to produce more inventories
.since kanban is a chain process in which orders flow from one process to another,
the production or delivery of components is pulled to the production line. In
contrast to the traditional forecast oriented method where parts are pushed to the
line.

The kanban method described here appers to be very simple. However, this is a
visual record procedure.

ADVANTAGES OF KANBAN PROCESS

. A simple and understandable process
. Provides quick and precise information
.Low costs associated with the transfer of information
.Provides quick response to changes
.Limit of over capacity in processes
.Avoids overproduction
.Is minimizing waste
.Control can be maintained
.Delegates responsibility to line workers

Kanban represents are efficient tool to continuously rationalize the production

process and find the source of problems. Since the circulation of kanban will stop
if there is a production problem on line, it is easy to both spot and correct the
problem instantaneously.

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PRACTICAL IMPLEMENTATION

Kanban is implemented in stores department at VIDEOCON, kashipur. For

this, a kanban card is attached with each and every item present in the stores
department .each kanban carries all the relevant information about the item, which
is useful in estimating its requirements. A typical kanban card bears following
information:

CAT NO......................................................................................

DESCRIPTION...

INITIATOR: ...............................................................................

BUYER: .....................................................................................

CONSUMPTION: ......................................................................

MAXIMUM LEVEL: .................................................................

MINIMUM LEVEL: ..................................................................

REORDER LEVEL: ..................................................................

FIGURE 4-KANBAN CARD

RECOMMENDATIONS:

. To make it more effective, no one should be permitted to take material out of

or to put back the material in the bin unless and until he has updated the
entries on the kanban card.
. The data mentioned on the card attached with each bin should be updated as
soon as some material is issued from that bin.
. Recorder level should always be kept in mind so that as soon as that point is
reached, the bin should again be filled with the same material up to its
minimum capacity.

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 KAIZEN:FOR CONTINOUS IMPROVEMENT:

Kaizen literally stands for key-change and Zen-to become good. The kaizen
philosophy lies behind many Japanese management concepts such as total quality
control, quality control circles, small group activates, labor relations, etc.

Kaizen is based on a FIVE-S Framework:

A. Seri -Tidiness

B. Seaton -orderliness

C. seiso -cleanliness

D. Seiketsu -standardized clean up

E. Shinseki -discipline
Key elements of kaizen:

. QUALTIY- quality cycles

.EFFORT- suggestion for improvement
.TEAMWORK- involvement of all employees
.WILLINGNESS- to change
.COMMUNICATION
.IMPROVED MORALE
.PERSONAL DISCIPLINE

The kaizen method of continuous incremental improvements is an originally Japanese

management concept for incremental change.

The kaizen cycle has four steps:

. Establishing a plan to change whatever needs to be improves.

. Carrying out changes on a small scale
.observing the results
. Evaluating both the results and the process and determining what has been
learned

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BENEFITS OF KAIZEN:

A. It improves safety.
B. It improves affiance of workers as well as the whole plant.
C. It improves the dedication of the employees as it keeps them safe from any
kind of mishap.
D. it makes the plant well-organized.

4.Single piece flow system:

To become lean, companies have to create continuous flow wherever

applicable. Shortening the clasped time from raw materials to finished goods leads to
the best quality, lowest cost, and shortest delivery time. Creating flow exposes
inefficiencies that demand immediate solutions. Everyone concerned is motivated to
fix the problems and inefficiencies because the plant will shut down if they dont.

Flow means that a customer order triggers the process of obtaining the raw
materials needed just for that customers order. The raw materials then flow
immediately to supplier plants, where workers immediately fill the order with
components, which flow immediately to a plant, where workers assemble the order,
and then the completed order flows immediately to the customer. The whole process
should take a few hours or days, rather than a few weeks or months.

There are, various steps involved in production of any item at VIDEOCON

refrigerator plant. Every second steps acts as a customer to the previous step. Each
step depends on its immediate predecessor for performing its function.

5. GEMBA WALKING:
Gemba means actual place. Instead of relying on reports to run a plant or company,
the manager should put on some walking shoes and go and see at all actual place,
whether its a factory or a store. This practice i also followed in VIDEOCON.

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6. VIRTUAL STORAGE:
This is another technique of effective inventory management. Here the supplier
is asked to open their stores or warehouses within the premises of company and as
and when the material is required an order is placed to the supplier and the go down
deliver the goods to the company with the copy of invoice.

So, virtual storage helps to receive timely delivery of inventory as the goods
are lying in the go down and are issued as and when required.

However, this practice is not followed in VIDEOCON.

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 CASH MANAGEMENT
Cash is the most liquid current asset. It is the common denominator to which
all current assets can be reduced because the other major liquid assets, i.e.
inventory an receivables get eventually converted into cashs his clearly underlines
the significance and essence of cash management.

Cash can be defined in many ways, its not only the money in hand or bank, it
is much more than that and these are following:

Cash includes:

Currency
Cheques
Drafts
Demand deposits
Marketable securities
Time deposits

NEED OF CASH:
Cash, of all types, acts as a reserve pool of liquidity that provides cash quickly, as
and when needed. They also provide a short term investment outlet for excess cash
and are also useful for meeting planned outflows of funds.

The major reasons of keeping cash are:

Transaction motive- this refers to the holding of cash to meet routine cash
requirements unforeseen fluctuations in cash flows
Speculative motive- it refers to the desire of a firm to take advantage of
opportunities which present themselves at unexpected moments.
Compensating motive- usually banks ask clients to maintain a minimum balance
of cash with them (bank).since this balance cannot be utilized by the firms for
transaction purposes, the banks themselves can use the amount to earn a return.
Such balances are compensating balances.

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OBJECTIVES OF CASH MANAGEMENT :
The basic objectives of cash management can be classified majorly in the following
three types:

a. To meet the cash disbursement needs (payment schedule)-these include

payments to vendors as well as salaries to employees etc.
b. To minimize funds committed to cash balances- this is important as cash
which is lying ideal is of no use to the firm.
c. To synchronize inflows and outflows of cash- an excess of either inflows or
outflows may be detrimental to the growth of the company.

COST OF HOLDING CASH:

Cash management has some costs associated with it:

No earning power

Irrespective of the form in which cash is held as an asset, it has no earning power.
That is, cash does not earn any return.

Depreciation cost

Cash keeps lying ideal, without earning anything; infect it keeps depreciating with
time.

Benefits of cash management

Some of the major benefits of cash management are:

a. To prevent insolvency or bankruptcy arising out of inability of a firm to meet

its obligations.

b. The relationship with bank is not strained.

C It helps in fostering good relations with trade creditors and suppliers of raw
materials, as prompt payment may help their own cash management.

d. A cash discount can be availed if payment is made within the due date.

e. It leads to a strong credit rating.

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f. To take advantage of favorable business opportunities that may bearable
periodically

g. The firm can meet unanticipated cash expenditure within a minus of strain during
emergencies (strikes, fire, new market strategy by competitor etc.

Cash is the most liquid current asset it is of vital importance to the daily operations
of business. While the proportion of assets held in the form of cash is very small, its
efficient management is crucial to the solvency of the business. Therefore, planning
cash and controlling its use are very important tasks.

Cash budgeting is a useful device for this purpose.

Cash budget
Cash budget basically incorporates estimates of future inflows and outflows cash
over a projected short period of time which may usually be a year, half or a quarter
year. Effective cash management is facilitated if he cash budget is further broken
down into month, week or even on daily basis.

There are two components of cash budget

i) Cash inflows and
ii) Cash outflows
The main sources for these flows are given hereunder:

Cash inflows:

a) Cash sales;
(b) Cash received from debtors
(c) Cash received from loans, deposits,etc
d) Cash receipt of other revenue income;
(e) Cash received from sale of investments or assets.
a) Cash outflow
b) Cash purchases
c) Cash payment to creditors
d )Cash payment for other revenue expenditure
e) Cash payment for assets creation

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 DEBTORS MANAGEMENT
Assessing the credit worthiness of customers

Before extending credit to a customer, a supplier should analyze the five Cs Of

credit worthiness, which will provoke a series of questions? These are:

Capacity: will the customer be able to pay the amount agreed within the allowable
credit period? What is their past payment record? How large is the customer's
business capital. What is the financial health? Of the customer? Is it a liquid and
profitable concern, able to make Payments on time?

Character: Does the customers management appear to be committed

To prompt payment? Are they of high integrity? What are their

Personalities like?

Collateral: what is the scope for including appropriate security in?

Return for extending credit to the customer?

Conditions: what are the prevailing economic conditions? How are these likely to
impact on the customers ability to pay promptly?

Whilst the materiality of the amount will dictate the degree of analysis Involved, the
major sources of information available to companies in Assessing customers credit
worthiness is:

Bank references. These may be provided by the customers bank to indicate their
financial standing. However, the law and practice of banking secrecy determines the
way in which banks respond to Credit enquiries, which can render such references
uninformative, particularly when the customer is encountering financial difficulties.

Trade references. Companies already trading with the customer May be willing to
provide a reference for the customer. This can be extremely useful, providing that
the companies approached are a Representative sample of all the clients suppliers.
Such references can be misleading, as they are usually based on direct credit

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Experience and contain no knowledge of the underlying financial Strength of the
customer.

Financial accounts. The most recent accounts of the customer can be obtained
either direct from the business, or for limited companies,

From Companies House. While subject to certain limitations pas Accounts can be
useful in vetting customers. Where the credit risks Appears high or where
substantial levels of credit are required, the Supplier may ask to see evidence of the
ability to pay on time. This demands access to internal future budget data.

Personal contact. Through visiting the premises and interviewing senior

management, staff should gain an impression of the efficiency and financial
resources of customers and the integrity of its Management.

Credit agencies. Obtaining information from a range of sources Such as financial

accounts, bank and newspaper reports, court Judgments, payment records with
other suppliers, in return for a fee, Credit agencies can prove a mine of information.
They will provide a Credit rating for different companies. The use of such agencies
has grown dramatically in recent years.

Past experience. For existing customers, the supplier will have Access to their past
payment record. However, credit managers should be aware that many failing
companies preserve solid Payment records with key suppliers in order to maintain
supplies, but they only do so at the expense of other creditors. Indeed, many
Companies go into liquidation with flawless payment records with key Suppliers.

General sources of information. Credit managers should scout Trade journals,

business magazines and the columns of the business Press to keep abreast of the key
factors influencing customers' Businesses and their sector generally. Sales staffs
that have their Ears to the ground can also prove an invaluable source of
Information.

Credit terms granted to customers

Although sales representatives work under the premise that all sales are good
(particularly, one may add, where commission is involved!), the credit manager
must take a more dispassionate view. They must Balance the sales representative's

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desire to extend generous credit Terms, please customers and boost sales, with a
cost/benefit Analysis of the impact of such sales, incorporating the likelihood of
Payment on time and the possibility of bad debts. Where a customer does survive
the credit checking process, the specific credit terms Offered to them will depend
upon a range of factors. These include:

Order size and frequency: companies placing large and/or frequent Orders will be
in a better position to negotiate terms than firm .Ordering on a one-off basis.

Market position: the relative market strengths of the customer and Supplier can be
influential. For example, a supplier with a strong Market share may be able to
impose strict credit terms on a weak, Fragmented customer base.

Profitability: the size of the profit margin on the goods sold will Influence the
generosity of credit facilities offered by the supplier. If Margins are tight; credit
advanced will be on a much stricter basis than where margins are wider.

Financial resources of the respective businesses: from the Suppliers perspective,

it must have sufficient resources to be able to Offer credit and ensure that the level
of credit granted represents an efficient use of funds. For the customer, trade credit
may represent An important source of finance, particularly where finance is
Constrained. If credit is not made available, the customer may switch To an
alternative, more understanding supplier.

Industry norms: unless a company can differentiate itself in some Manner (e.g.,
unrivalled after sales service), its credit policy will generally be guided by the terms
offered by its competitors. Suppliers will have to get a feel for the sensitivity of
demand to Changes in the credit terms offered to customers.

Business objectives: where growth in market share is an objective, Trade credit

may be used as a marketing device (i.e., liberalized to Boost sales volumes).

The main elements of a trade policy are:

Terms of trade: the supplier must address the following questions:

Which customers should receive credit? How much credit should be? Advanced to
particular customers and what length of credit period should be allowed?

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Cash discounts: suppliers must ponder on whether to provide Incentives to
encourage customers to pay promptly. A number of Companies have abandoned the
expensive practice of offering Discounts as customers frequently accepted discounts
without Paying in the stipulated period.

Collection policy: an efficient system of debt collection is essential. A good

accounting system should invoice customers promptly, follow up disputed invoices
speedily, issue statements and reminders at appropriate intervals, and generate
management reports such as an Aged analysis of debtors. A clear policy must be
devised for overdue accounts, and followed up consistently, with appropriate
procedures (Such as withdrawing future credit and charging interest on overdue
Amounts). Materiality is important. Whilst it may appear nonsensical to spend time
chasing a small debt, by doing so, a company may send a powerful signal to its
customers that it is serious about the Application of its credit and collection
policies. Ultimately, a balance must be struck between the cost of implementing a
strict collection Policy (i.e., the risk of alienating otherwise good customers) and
the Tangible benefits resulting from good credit management.

Problems in collecting debts

Despite the best efforts of companies to research the companies to whom they
extend credit; problems can, and frequently do, arise. These include disputes over
invoices, late payment, deduction of discounts where payment is late, and the
troublesome issue of bad debts. Space precludes .A detailed examination of debtor
finance, so this next section concentrates solely on the frequently examined method
of factoring.

Factoring an evaluation
Key elements:

Factoring involves raising funds against the security of a company's trade

Debts, so that cash is received earlier than if the company waited for its Credit
customers to pay. Three basic services are offered, frequently Through subsidiaries
of major clearing banks: Sales ledger accounting, involving invoicing and the

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collecting of Debts; Credit insurance, which guarantees against bad debts;
Provision of finance, whereby the factor immediately advances about 80% of the
value of debts being collected.

There are two types of factoring service: Non-recourse factoring is where the
factoring company purchases the Debts without recourse to the client. This means
that if the clients debtors .Do not pays what they owe, the factor will not ask for his
money back from the client.

Recourse factoring, on the other hand, is where the business takes the Bad debt
risk. With 80% of the value of debtors paid up front (usually electronically into the
clients bank account, by the next working day), the Remaining 20% is paid over
when either the debtors pay the factor (in the Case of recourse factoring), or, when
the debt becomes due (non-recourse Factoring). Factors usually charge for their
services in two ways: Administration fees and finance charges. Service fees typically
range from 0.5 - 3% of annual turnover. For the finance made available, factors
levy a Separate charge, similar to that of a bank overdraft.

Advantages
Provides faster and more predictable cash flows; Finance provided is linked to
sales, in contrast to overdraft limits, Which tend to be determined by historical
balance sheets? Growth can be financed through sales, rather than having to resort
to External funds;

The business can pay its suppliers promptly (perhaps benefiting from Discounts)
and because they have sufficient cash to pay for stocks, The firm can maintain
optimal stock levels; Management can concentrate on managing, rather than
chasing Debts; The cost of running a sales ledger department is saved and the
Company benefits from the expertise (and economies of scale) of the Factor in
credit control

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Disadvantages

The interest charge usually costs more than other forms of short-term Debt;
the administration fee can be quite high depending on the number of Debtors, the
volume of business and the complexity of the accounts; by paying the factor directly,
customers will lose some contact with the supplier. Moreover, where disputes over
an invoice arise, having the factor in the middle can lead to a confused three-way
Communication system, which hinders the debt collection process.

Traditionally the involvement of a factor was perceived in a negative Light

(indicating that a company was in financial difficulties), though Attitudes are
rapidly changing.

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 HOW VIDEOCON MANAGE ITS CASH?
Managing cash is very essential for the business since it is crucial for solvency of
business. VIDEOCON uses various techniques to manage its cash operations.

SWEEPING FACILTY
Rather than keeping cash at different locations, the collections and
disbursals of all the locations are recorded and the cash is kept at one central
location as it is quite cumbersome for an organization to maintain records of
collection and disbursals of cash of cash of its different offices. It also involves a
number of extra personnel, and is certainly a waste of work force, time and money.
Also, the money lying scattered with various offices is of use as such, because it is
simply lying ideal. A better option will be to deposit this cash into a bank, having
central banking facility, where it can be invested to earn some profit. For this a
suitable multi- location bank is selected, preferably the one, which has branches in
all the locations where the different offices of the company are located.

Moreover, if all the money is kept at one place, it will definitely amount to a
huge sum. This huge sum will make it easier for the company to negotiate with the
bank regarding the interest rate with VIDEOCON is supposed to pay for availing
such facility.

BENEFITS OF SWEEPING FACILTY

Its a win situation for both the company and the bank. Both of the parties are
benefited by these techniques.

BENEFITS FOR THE COMPANY

a. Gets a chance to negotiate with bank over the interest rate which VIDEOCON
is supposed to pay to the bank.
b. This huge sum can be invested in business also, which will again prove to
Be profitable.

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Benefits for the bank
a. Bank charges the company according to the services rendered by it.
b. Bank can use these funds for its daily business purposes.

PRACTICAL IMPLEMENTATION
Sweeping facility service is prominent tool used for proper cash management at
VIDEOCON. For this purpose VIDEOCON has selected chartered bank because
of its intensive reach is nearly each and every corner of the country, especially in
Delhi ,Mumbai , Poway and all other places where VIDEOCON offices are located
and also because it has the facility of central banking, which is a perquisite for a
bank to offer such service.
What happens is- all the money is deposited in one account. Now, as and when a
center in any particular region requires some money, it withdraws the same with the
bank. Later, the bank receives the same amount from the central account of
VIDEOCON.
All the financial decisions regarding the selection of bank, its location and interest
rate etc are made at the head office of VIDEOCON treasury department,
VIDEOCON Mumbai.
All the offices are allowed to make cash collection and disbursals through a
common bank account of VIDEOCON at standard chartered bank, Delhi.

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 FINDINGS
In entire Study of Project it has been observed that the overall performance of
the company in all sectors has been remarkable. The year 2014 -2015 has yet
another eventful year for Videocon Appliances. In this year Company has achieved
story financial results registering a growth in sales and increase in Profitability.
This has been possible because of Strong working capital management and focused
efforts of company to explore and expand their markets.

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 CONCLUSION
At the last it is conclude that the management of working of working capital is
necessary for the firm for to achieve its organizational objectives ,in the sense that
working capital is the life blood of business specially in the manufacturing firm like
VIDEOCON who manufacture a variety of product such as refrigerator ,TV ,l.c.d,
washing machine e .t. c.

For the effective management of working capital they have to manage their
sundry debtors and creditors, inventory, cash. For to manage their debtors and
creditor they prepare number of guideline and technique such as discounting of bill
and they establish line of credit and time period. For to manage inventory they use
number of inventory management technique such as perpetual inventory
verification.ABC analysis, economic order quantity model etc.

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 SUGGESTIONS
Company has to maintained Proper records showing full particulars
including Quantitative details and situation of fixed assets.
Company has to restructure the Procedure of Verification of inventory
should be reasonable and adequate in relation to the size of the company
and nature of Business.
It is important for company that company has to give guarantees for loans
Taken by others from banks or financial institutions are not prejudicial to
the Interest of the company.
The company has not defaulted in repayment of dues to a financial
institution or bank.

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 BIBLIOGRAPHY
FINANCIAL MANAGEMENT -(I.M PANDEY)
ANALYSIS OF FIANANCIAL MANAGEMENT (T.S.GREWAL)
PRODUCTION AND OPERATION MANAGEMENT (CHUNA WALA)
MANAGEMENT OF WORKING CAPITAL- (K.V.SMITH)

Web Site: - www.videoconworld.com

www.google.com

www.workingcapitalmanagement.com

Annual Report of Videocon : 2011-2015

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