INTRODUCTION

BACKGROUND OF STUDY THE MAJOR OBJECTIVE OF THIS STUDY IS FOR THE PROPER UNDERSTANDING OF THE
WORKING CAPITAL OF PON PURE CHEM (P) LTD AND TO SUGGEST NECESSARY MEASURES TO OVERCOME THE SHORTFALLS IF ANY IN THE COMPANY.

The project undertaken is on Working Capital Management of pon pure chem (p) ltd.. It describes about how the company manages its working capital and the various steps that are required in the management of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to make investment decisions. A good way to judge a company's cash flow prospects is to look at its Working Capital Management (WCM). Working capital refers to the cash of a business requires for day-to-day operations or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Analysts look at these items for signs of a company's efficiency and financial strength. The working capital is an important yardstick to measure the companys operational and financial efficiency. Any company should have a right amount of cash and lines of credit for its business needs at all times. This project describes how the management of working capital takes place at pon pure chem (p) ltd There are numerous instances in the history of business world where inadequacy of working capital has led to business failures when a firm finds it difficult to meet the day to day affairs. Operating expenses essential out lays may have to be postponed for want of funds, operating plans will go out of gear & enterprise objectives on investment slumps the suppliers & creditors of the firm may have to wait longer to raise their dues & will hesitate to extend further credit to the firm.

Thus efficient management of working capital in an important prerequisite for successful working of a business concern it reduces the chances of business failure generates a fall in security and confidence in the minds of personnel in the organization it assures solvency of steady of the organization.

INDUSTRY PROFILE

The chemical industry in one of the oldest domestic industries in India, contributing significantly to both the industrial and economic growth of the country since it achieved independent in 1947. The wide and diverse spectrum of products can be broken down into a number of categories, including inorganic and organic chemicals, drugs and pharmaceutical, plastics and petrochemicals, dyes and pigments, fine and specially chemicals pesticides and agro-chemical, and fertilizers. The Indian pesticide industry had advanced significantly in recent years, producing more than 1000 tonnes of pesticides annually. India is the 13th largest exporter of pesticides and disinfectants in the worlds and in terms of volume is the 12th largest producer of chemicals. Indian Chemical Industry Chemical Industry Home Furnishing Agriculture Industry India Apparel & Textile Industry Indian Jewellery Indian Leather Indian Gifts & Crafts Plastic Industry Chemical industry is an integral component of the Indian economy, which contributes around 7 % of the Indian GDP. It touches our lives in several different ways. Whether it is thermoplastic furniture we use, or a synthetic garment we wear, or a drug we take we are inextricably associated to it. The industry is integral to the development of agricultural and industrial development in India and has key linkages with various other downstream, such as automotive, consumer durables, engineering, food processing and more. Globalization posses many challenges to the industry, which has predominantly developed in a protected environment. With World Trade Organization assuming an increasing role in global economics, there is an inevitable move towards an inter-linked international economy. However, there have been cases where particular segments of the

industry, such as pharmaceuticals and biotechnology have performed exceedingly well even at the world level. During 2005-06, the industry contributed 17.6% of the manufacturing sector. However the country continues to be a net importer in 2005-06, with exports of US$ 5.95 billion and imports of US$7.92 billion. The worth of Indian chemicals industry during 200506 was US$30.59 billion, which reflected a growth of 10.23% over the previous year and a CAGR of 8.68% during the last 3 years. History The chemical industry is one of the earliest domestic industries in India, contributing considerably to both the industrial as well as economic growth of the country since it achieved independence in 1947. The industry presently produces around 70,000 commercial products, which range from toiletries and cosmetics, to plastics and pesticides. The wide and diverse range of products can be broken down into several categories, which include inorganic, and organic (commodity) chemicals, plastics and petrochemicals, drugs and pharmaceuticals, dyes and pigments, pesticides and agrochemicals, fine and specialty chemicals, and fertilizers. With primary focus on modernization, the Govt. of India has taken an active role in promoting the growth and development of Indian domestic chemical industry. The Department of Chemicals & Petro-Chemicals that has been part of the Ministry of Chemicals and Fertilizers since 1991, is responsible for making policy making, planning, development, and regulation of the industry. In the private sector, several organizations, including the Indian Chemical Manufacturers Association, the Chemicals and Petrochemicals

Manufacturers Association, and the Pesticides Manufacturers and Formulators Association of India, all work with the prime objective of promoting the growth of industry and the export of Indian chemicals. For example, the Indian Chemical Manufacturers Association represents a large number of Indian companies, which produce and export a variety of chemicals, which have legitimate commercial applications, but also can be used as precursors and intermediates for production of chemical weapons.

COMPANY PROFILE

MR.M.PONNUSWAMI FOUNDER Mr.M.Ponnuswami, a first generation entrepreneur, has built the company with a strong vision and Pan India presence. The passion for customized service catalyzed the growth of the company. Over the last 27 years, the commitment to business and goodwill earned brought the company new agencies of domestic and international manufacturers & the new agencies brought avenues to provide basket of product to different segment of the industry. Pure Chemicals group with the core business of Chemical distribution has been built on strong values such as Integrity, Customer Satisfaction, Ethical Business Practice and commitment to SHE (Safety, Health & Environment). Mr. M.Ponnuswami, a first generation entrepreneur, has built the company with a strong vision and Pan India presence. The passion for customized service catalyzed the growth of the company. Over the last 27 Years, the commitment to business and goodwill earned brought the company new agencies of domestic and International manufacturers & the new agencies brought avenues to provide basket of product to different segment of the industry. The company exports chemicals, as part of the growth strategy, by leveraging on the benefit of SEZ established in Kandla. The group provides value addition in the supply chain by offering infrastructure such as, Network of Branches with ware house, Qualified Sales Team, Underground Storage Tanks with barrel filling station for solvents in strategically important places, Quality control lab, Technical service lab for specialty chemicals and Ethical work culture. With the support of Customers & Suppliers, today the company finds place in the list of leading distribution companies in India.

The group has diversified in to renewable Energy operations. The Company has established Regional & Branch Managers to closely interact with end users and to serve them. Recognizing the service requirements, the company operates two broad SBUs, Basic Chemicals & Specialty Chemicals. The company meets the requirements both in bulk and standard packing. Agencies of Domestic and International manufacturers are being lined up aligning with the business need of the SBU's. Bulk imports are carried out in Kandla, Mumbai & Ennore ports while FCL lots are being imported in all leading ports to meet customer requirements with best possible cost to serve. The bulk solvents, from Domestic & International manufacturers are repacked in standard packing size to meet the retail requirements of the consumers. SOP is set in place to monitor and to ensure quality parameters in line with the manufacturer. All branches are connected by Oracle based ERP network to provide MIS data to give the Managers an edge to take decisions. As a part of the growth plan, chemicals from India are being exported to countries like Srilanka, Nigeria, Bangladesh and Middle East. The warehouse established in Kandla Special Economic Zone operates in the same way as they are in Singapore and Middle East, by providing a competitive edge. Corporate Social Responsibility: As a way of giving back to the society we have formed a company in the name of PON PURE CHARITIES. INTERNATIONAL TRADE IMPORTS Pure Chemicals is one of the leading importers of Chemicals into India in Bulk as well as containers through different ports in India like Kandla, Mumbai, Nhava Sheva, Mangalore, kochi, Tuticorin, Chennai, Visakhapatnam and so on. Imported chemicals are stored at in Port Tank terminals and Bonded Warehouses and re-distributed by inland Road Transport to the various cities in India. Pure Chemicals has expertise to handle chemicals with various hazards. Pure Chemicals imports products from manufacturers of Global repute like ExxonMobil Chemical, Bayer, BASF, Dow, Degussa, TRONOX Pigments, LyondellBasell, SHELL, ARKEMA, INNOSPEC, SHAMROCK, LCY - Taiwan,TOSOH etc

EXPORTS

Started our export operations from 2006. Currently exporting from kandla Special Economic Zone to SriLanka, Bangladesh, Nepal, Myanmar, UAE, Oman, Egypt, Iran and Nigeria. Gearing to export diversified products like Chemicals, Pharmaceuticals, Agro products etc.

GROUP COMPANIES

STRENGTH OF THE COMPANY Large customer base spanning different industries. Strong distribution network with branch offices with large warehouses spread all over India. Strong professional sales force qualified to handle products with technical knowledge. Strong market research team for providing continuous feedback on industry trends, products, principal activities, customer activities. Facilities and expertise to handle lab trials, field trials for specialty chemicals.

ABOUT THE TOPIC

INTRODUCTION- WORKING CAPITAL MANAGEMENT Working capital occupies a peculiar position in the capital structure of a company. The decision as to the adequacy of working capital is a complicated and yet a very important decision. Working capital is the life-blood of all types of enterprises, manufacturing and trading both. It is constantly required to buy raw materials for payment of wages and other day-to-day expenses. Without adequate working capital, manufacturing operations will be crippled. For trading enterprises, the capacity to stock a variety of goods for sale depends upon its working capital. It is a base on which all the activities of business enterprise depend. Many companies still under estimate the importance of working capital management as a lever for freeing up cash from inventory, accounts receivable, and accounts payable. By effectively managing these components, companies can sharply reduce their dependence on outside funding and can use the released cash for further investments or acquisitions. This will not only lead to more financial flexibility, but also create value and have a strong impact on a companys enterprise value by reducing capital employed and thus increasing asset productivity. High working capital ratios often mean that too much money is tied up in receivables and inventories. Typically, the knee-jerk reaction to this problem is to apply the big squeeze by aggressively collecting receivables, ruthlessly delaying payments to suppliers and cutting inventories across the board. But that only attacks the symptoms of working capital issues, not the root causes. A more effective approach is to fundamentally rethink and streamline key processes across the value chain. This will not only free up cash but lead to significant cost reductions at the same time. Only those enterprises which have adequate working capital can survive in times of depression. The investment in raw materials becomes long- term investments during depression and cash flow declines due to fall in sale. In such circumstances only enterprises with adequate working capital can survive. Excessive working capital is equally unprofitable. The extra working capital is not utilized in business operations and earns no profit for the firm. It results in unnecessary accumulation of

inventories, leading to inventory mishandling, waste, theft etc. The abundance of working capital would lead to waste and inefficiency Shortage of working capital funds renders the firm unable to avail attractive credit opportunities etc. The firm loses its reputation when it is not in a position to honor its short term obligations. As a result, the firm faces tight credit terms. It stagnates growth. Definition:1.According to Guttmann & Dougall:Working capital is defined as current assets minus current liabilities. A positive position means that a company is able to support its day-to-day operations. i.e. to serve both maturing short-term debt and upcoming operational expenses. 2. According to Park & Gladson:The excess of current assets of a business (i.e. cash, accounts receivables, inventories) over current items owned to employees and others (such as salaries & wages payable, accounts payable, taxes owned to government) Working capital like many other accounting terms and financial terms has been used by different people in different senses. One school of thought believes that, as all capital resources available to a business organization From shareholders, bondholders, and creditors (secured and unsecured) works up in the business activities to generate revenues and facilitate future expansion and growth; they are to be considered as working capital. Another school of thought links working capital with current assets and current liabilities. According to them, the excess of current assets over current liabilities is to be rightly considered as the working capital of a business organization. According to Shubin working capital is the amount of funds necessary to cover the cost of operating the enterprise. Working capital in a going concern is a revolving (circulating fund), it consists of cash receipts from sales which are used to cover the cost of current operations.

Circulating capital means current assets of the company that are changed in the ordinary course of business from one form to another, as for example from cash to inventories, inventories to receivables and receivables to cash.

Working capital is descriptive of that capital which is not fixed. But, the more common use of working capital is to consider it as the difference between the current assets and the current liabilities. Current assets and current liabilities are assets and liabilities which arise in the course of business. The WC demonstrates the amount of liquid assets that are available to sustain and build the business by measuring companys efficiency and short-term financial health. As such, it carries great value to those who might be interested in investing in business or even purchasing it. Working capital, also known as net working capital, is a measurement of a businesss current assets, after subtracting its short-term liabilities, typically short term. Sometimes referred to as operating capital, it is a valuation of the assets that a business or organization has available to manage and build the business. Generally speaking, companies with higher amounts of working capital are better positioned for success because they have the liquid assets that are essential to expand their business operations when required. Characteristics of Working Capital Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully with out an adequate amount of working capital. The features of working capital distinguishing it from the fixed capital are as follows: 1 Short term Needs:

Working capital is used to acquire current assets which get converted into cash in a short period. In this respect it differs from fixed capital which represents funds locked in long term assets. The duration of the working capital depends on the length of production process, the time that elapses in the sale and the waiting period of the cash receipt. 2 Circular Movement:

Working capital is constantly converted into cash which again turns into working capital. This process of conversion goes on continuously. The cash is used to purchase current assets and when the goods are produced and sold out; those current assets are transformed into cash. Thus it moves in a circular away. That is why working capital is also described as circulating capital. 3 An Element of Permanency:

Though working capital is a short term capital, it is required always and forever. As stated before, working capital is necessary to continue the productive activity of the enterprise. Hence so long as production continues, the enterprise will constantly remain in need of working capital. The working capital that is required permanently is called permanent or regular working capital. 4 An Element of Fluctuation:

Though the requirement of working capital is felt permanently, its requirement fluctuates more widely than that of fixed capital. The requirement of working capital varies directly with the level of production. It varies with the variation of the purchase and sale policy; price level and the level of demand also. The portion of working capital that changes with production, sale, price etc. is called variable working capital. 5 Liquidity:

Working capital is more liquid than fixed capital. If need arises, working capital can be converted into cash within a short period and without much loss. A company in need of cash can get it through the conversion of its working capital by insisting on quick recovery of its bills receivable and by expediting sales of its product. It is due to this trait of working capital that the companies with a larger amount of working capital feel more secure. 6 Less Risky:

Funds invested in fixed assets get locked up for a long period of time and can not be recovered easily. There is also a danger of fixed assets like machinery getting obsolete due to technological innovations. Hence investment in fixed capital is comparatively more risky. As against this, investment in current assets is less risky as it is a short term investment. Working capital involves more of physical risk only, and that too is limited. Moreover, working capital gets converted into cash again and again; therefore, it is free from the risk arising out of technological changes.

Special Accounting System not needed:

Since fixed capital is invested in long term assets, it becomes necessary to adopt various systems of estimating depreciation. On the other hand working capital is invested in short term assets which last for one year only. Hence it is not necessary to adopt special accounting system for them. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable. Working capital can be expressed as a positive or a negative number. When a company has more debts than current assets, it has negative working capital; When current assets outweigh debts, a company has positive working capital.

A company will try to manage cash by: Identifying the cash balance that allows it to meet day-to-day expenses but minimizes the cost of holding cash; Finding the level of inventory that allows for continuous production but lessens the investment in raw materials and reduces reordering costs; Identifying the appropriate source of financing, given the cash-conversion cycle.

It may be necessary to use a bank loan or overdraft. However, inventory is preferably financed by credit arranged with the supplier. If a company is not operating efficiently, this will show up as an increase in the working capital. This can be judged by comparing the amounts of working capital from one period to another. Slow collection and inventory turnover may signal an underlying problem in the companys operations. Advantages Proper management of working capital gives a firm the assurance that it is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses. Disadvantages If a companys current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term.

A declining working-capital ratio over a longer time period could also be a red flag that merits further analysis. For example, it could be that the companys sales volumes are decreasing and, as a result, its accounts receivable are diminishing.

FACTORS INFLUENCING WORKING CAPITAL NEED OF WORKING CAPITAL Working capital is among the many important things that contribute to the success of a business. Without it, a business may cease to function properly or at all. Not only does a lack of working capital render a company unable to build and grow, but it may also leave a company with too little cash to pay its short-term obligations. Simply put, a company with a very low amount of working capital may be at risk of running out of money. When a company has too little working capital, it can face financial difficulties and may even be forced toward bankruptcy. This is true of both very small companies and billion-dollar organizations. A company with this problem may pay creditors late or even skip payments. It may borrow money in an attempt to remain afloat. If late payments have affected the companys credit rating, it may have difficulty obtaining a loan at an affordable interest rate. The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales can not convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore

sufficient working capital is necessary to sustain sales activity. Technically this is refers to operating or cash cycle. CONCEPT OF WORKING CAPITAL There are two concepts of working capital: 1. 2. Gross working capital Net working capital

Gross Working Capital The gross working capital is the capital invested in the total current assets of the enterprises. Current assets are those Assets which can convert in to cash within a short period normally one accounting year. Constituents of Current Assets. Current assets are assets which are expected to be sold or otherwise used within one fiscal year. Typically, current assets include cash, cash equivalents, accounts receivable, inventory, prepaid accounts which will be used within a year, and short-term investments. 1 2 3 4 Cash in hand and cash at bank Bills receivables/Sundry debtors Short term loans and advances. Inventories of stock as: 4.1 Raw material 4.2 Work in process 4.3 Stores and spares 4.4 Finished goods 5 6 7 8 Temporary investment of surplus funds. Prepaid expenses Accrued incomes. Marketable securities.

Net Working Capital In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liability NET WORKING CAPITAL = CURRENT ASSETS CURRENT

LIABILITIES. Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable and outstanding expenses. Net working capital can be positive or negative Constituents of Current liabilities Current liabilities are considered as liabilities of the business that are to be settled in cash within the fiscal year. Current liabilities include accounts payable for goods, services or supplies, short-term loans, long-term loans with maturity within one year, dividends and interest payable, or accrued liabilities such as accrued taxes. 1. Accrued or outstanding expenses. 2. Short term loans, advances and deposits. 3. Dividends payable. 4. Bank overdraft. 5. Provision for taxation, if it does not amount to appropriation of profit. 6. Bills payable. 7. Sundry creditors. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: 1. It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. 2. IT indicates the margin of protection available to the short term creditors. 3. It is an indicator of the financial soundness of enterprises. 4. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.

Working capital, on the one hand, can be seen as a metric for evaluating a companys operating liquidity. A positive working capital position indicates that a company can meet its short-term obligations. On the other hand, a companys working capital position signals its operating efficiency. Comparably high working capital levels may indicate that too much money is tied up in the business.

The most important positions for effective working capital management are inventory, accounts receivable, and accounts payable. Depending on the industry and business, prepayments received from customers and prepayments paid to suppliers may also play an important role in the companys cash flow. Excess cash and no operational items may be excluded from the calculation for better comparison.

CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in to ways: On the basis of concept. On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: Permanent or fixed working capital. Temporary or variable working capital

A-Permanent OR Fixed Working Capital. The operating cycle is a continuous feature in almost all the going concerns and therefore creates the need for working capital and their efficient management. However the magnitude of working capital required will not be constant, but will fluctuate. At any time, there is always a minimum level of current assets which is constantly and continuously required by a business unit to carry on its operations. This minimum amount of current assets, which is required on a continuous and uninterrupted basis, is after referred to as fixed or permanent working capital. This type of working capital should be financed (along with other fixed assets) out of long term funds of the unit. However in practice, a portion of these requirements also is met through short term borrowings from banks and suppliers credit.

Chart 4-1 Permanent Working Capital

The amoutnt of Curren Assets require to meet a firms long term minimum needs

Value

Permanent Current Asset

Time Permanent Working Capital

The amount of current assets required to meet a firms long-term minimum needs are called Permanent current assets. For e.g., In a manufacturing unit, basic raw materials required for production has to be available at all times and this has to be financed without any disturbance. B-Temporary OR Variable Working Capital. Any amount over and above the permanent level of working capital is variable, temporary or fluctuating working capital. This type of working capital is generally financed from short term sources of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency. As the name implies, the level of fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the permanent working capital which remains constant over a period of time. The Temporary or Variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital

can further be classified as Seasonal Working Capital and Special Working Capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from Permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business. Chart 1-2 Temporary Working Capital

The amount of Current Asset required to meet short term minimum needs

Temporary current assets Value permanent working capital x Time Temporary Working Capital

DETERMINANTS OF WORKING CAPITAL Working capital management is an indispensable functional area of management. However the total working capital requirements of the firm are influenced by the large number of factors. It may however be added that these factors affect differently to the different units and these keep varying from time to time. In general, the determinants of working capital which are common to all organizations can be summarized as under:

Nature of Business

This is one of the main factors. Usually in trading businesses the working capital needs are higher as most of their investment is concentrated in stock or inventory. Manufacturing businesses also need a good amount of working capital to meet their production requirements. Whereas, those companies that sell services and not goods, on a cash basis require least working capital because there is no requirement on their part to maintain heavy inventories. Size of Business

In very small company the working capital requirement is quit high due to high overhead, higher buying and selling cost etc. as such medium size business positively has edge over the small companies. But if the business start growing after certain limit, the working capital requirements may adversely affect by the increasing size. Credit Terms / Credit Policy

Some time due to competition or custom, it may be necessary for the company to extend more and more credit to customers, as result which more and more amount is locked up in debtors or bills receivables which increase the working capital requirement. On the other hand, in the case of purchase, if the credit is offered by suppliers of goods and services, a part of working capital requirement may be financed by them, but it is necessary to purchase on cash basis, the working capital requirement will be higher. Credit terms greatly influence working capital needs. If terms are: buy on credit and sell by cash, working capital is lower buy on credit and sell on credit, working capital is medium buy on cash and sell on cash, working capital is medium buy on cash and sell on credit, working capital is higher.

Prevailing trade practices and changing economic condition do generally exert greater influence on the credit policy of concern. A liberal credit policy if adopted more trade debtors would result and when the same is tightened, size of debtors gets slim. Credit periods also influence the size and composition of working capital. When longer credit period is allowed to debtors as against the one extended to the firm by its creditors, more working capital is needed and vice versa. Collection policy is another influencing factor. A stringent collection policy might not only deter away some credit customers, but also force the existing customers to be prompt in

settling dues resulting in lower level of working capital. The opposite holds well with a liberal collection policy. Collection procedure also influences the working capital needs. A decentralized collection of dues from customers and centralized payments to suppliers shall reduce the size of working capital. Centralized collections and centralized payments would lead to moderate level of working capital. But with centralized collections and decentralized payments, the working capital need would be the highest. Seasonality Seasonality of Production Agriculture and food processing and preservation industries have a seasonal production. During seasons, when production activities are in their peak, working capital need is high. Seasonality in supply of raw materials This also affects the size of working capital. Industries that use raw materials which are available during seasons only, have to buy and stock those raw materials. They cannot afford to buy these items in a phased way, since either supplies would get reduced or prices would be higher. Also, from the point of view of quality of raw materials, it pays to buy in bulk during the seasons. Hence the high level of working capital needed when season exists for raw materials. Seasonality of demand for finished goods In case of products like umbrella, rain-coats and other seasonal items, the demand is high during peak seasons. But the production of these items has to be continuous throughout the year to meet the high demand during peak seasons. Thus, working capital requirement would be higher. Since Arabian Industries LLC is a contracting company, the above mentioned seasonal factors do not affect its operation or its business cycle.

Business Trade Cycle Trade cycle refers to the periodic turns in business opportunities from extremely peak levels, via a slackening to extremely tough levels and from there, via a recovery phase to peak levels, thus completing a business cycle. There are 4 phases of trade cycle.

Boom Period more business, more production, more working capital. Depression period less business, less production, less working capital. Recession period slackening business, stock pile-up, more working capital. Recovery period recouping business, stock speedily converts to sales, less working capital.

Inflation

Under inflationary conditions generally working capital increases, since with rising prices demand reduces resulting in stock pile-up and consequent increase in working capital. Length of Production cycle

The time lapse between feeding of raw material into the machine and obtaining the finished goods out from the machine is what is described as the length of manufacturing process. It is otherwise known as conversion time. Longer this time period, higher is the volume and value of work-in-progress and hence higher the requirement of working capital and vice versa. System of Production process

If capital intensive, high-technology automated system is adopted for production, more investment in fixed assets and less investment in current assets are involved. Also, the conversion time is likely to be lower, resulting in further drop in the level of working capital. On the other hand, if labor intensive technology is adopted, less investment in fixed assets and more investment in current assets which would lead to higher requirement of working capital. Growth and expansion plans

Growth and expansion industries need more working capital than those that are static. Profitability

The profitability of the business may be vary in each and every individual case, which is in turn its depend on numerous factors, but high profitability will positively reduce the strain on working capital requirement of the company, because the profits to the extend that they earned in cash may be used to meet the working capital requirement of the company.

Operating efficiency

If the business is carried on more efficiently, it can operate in profits which may reduce the strain on working capital; it may ensure proper utilization of existing resources by eliminating the waste and improved coordination etc. Apart from the above factors, dividend policy, depreciation policy, price level changes, operating efficiency and government regulations also influence the level and the size of working capital.

Inflation Length of Production cycle Business Trade cycle

System of Production process

Seasonality

WORKING CAPITAL Nature of the Business

Profitability

Operating efficiency Size of the Business

Credit term or Credit policy

NEED AND IMPORTANCE OF THE STUDY.

1. This project is helpful in knowing the companys position of fund maintenance and setting the standards for working capital inventory levels, current ratio level, quick ratio, current asset turnover level & current liability etc. 2. This project is helpful to the managements for expanding the dualism & the project viability & present availability of funds. 3. This project is also useful as it combines the present year data with the previous year data and there by it shows the trend analysis, i.e. increasing fund or decreasing fund. 4. The project is done as a whole entirely. It will give overall view of the organization and it is useful in further expansion decision to be taken by management.

OBJECTIVES OF THE STUDY

The main objective of the study is to determine the effect of working capital on business profitability which has to do with:1. Maintenance of working capital at appropriate level, and 2. Availability of ample funds as and when they are needed To accomplish these two objectives, the management has consider the composition of current assets pool. The working capital position sets the various policies in the business with respect to general operations like purchasing, financing, expansion and dividend etc, The subsidiary Objective of Working Capital Management is to provide adequate support for the smooth functioning of the normal business operations of a company. This Objective can be sub-divided into 2 parts:1. Liquidity 2. Profitability 1) Liquidity The quantum of Investment in Current Assets has to be made in a manner that it not only meets the needs of the forecasted sales but also provides a built in cushion in the form of safety stocks to meet unforeseen contingencies arising out of factors such as delays in arrival of Raw Material, sudden spurts in demand etc. Consequently, the investment in current assets for a given level of forecasted sales will be higher if the management follows a conservative attitude than when it follows an aggressive attitude. Thus, a company following a conservative approach is subject to a lower degree of risk than the one following an aggressive approach. Further, in the former situation the high amount of Investment in Current Assets imparts greater liquidity to the company than under the latter situation wherein the quantum of investment in Current Asset is less. This aspect exclusively covers the liquidity dimension of Working Capital.

2) Profitability Once we recognize the fact that the total amount of financial resources at the disposal of a company is limited and these can be put to alternative uses, the larger the amount of investment in current assets, the smaller will be the amount available for investment in other profitable avenues at hand with the company. A conservative approach in respect of Investment in Current Assets leaves fewer amounts for other Investments than an aggressive approach does.

SCOPE OF THE STUDY

The study finds out the operational efficiency of the organization and suggests the proper utilization and allocation of cash resources, to improve the efficiency of the organization

The working capital of the organization will be further revealed through the adoption of various techniques available for analysis.

These techniques reveal the measures that can adopt to improve the existing trend

LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project: 1) Limited data:This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality. 2) Limited period:-

This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real

working capital position of the company 3) Limited area:-

Also it was difficult to collect the data regarding the competitors and their financial information. Companys figures were also difficult to get.

RESEARCH METHODOLOGY

INTRODUCTION Research Methodology is a purposeful, precise and systematic search for new knowledge, skills, attitudes and values, or for the re-interpretation of existing knowledge, skills, attitudes and values. Research methodology is a way to systematically solve the research problem. It may be understood as a science of studying now research is done systematically. In that various steps, those are generally adopted by a researcher in studying his problem along with the logic behind them.

Data collection is important step in any project and success of any project will be largely depend upon now much accurate you will be able to collect and how much time, money and effort will be required to collect that necessary data, this is also important step.

Various Steps for Research Methodology

This project requires a detailed understanding of the concept Working Capital Management. Therefore, firstly we need to have a clear idea of what is working capital, how it is managed in pon pure chem(p)ltd, what are the different ways in which the financing of working capital is done in the company.

The management of working capital involves managing inventories, accounts receivable and payable and cash. Therefore one also needs to have a sound knowledge about cash management, inventory management and receivables management. Then comes the financing of working capital requirement, i.e. how the working capital is financed, what are the various sources through which it is done. And, in the end, suggestions and recommendations on ways for better management and control of working capital are provided. Statement of the Problem The present study seeks to collect in depth information of the working capital management of pon pure chem(p) ltd on an examination of the management performance in regard to financial management .one among the reason the company could perform well is the efficient management of the companys working capital ,which automatically includes inventory ,accounts receivables and cash i.e., the proper management of working capital has brought access to this company. The present study undertakes to the deal with the net concept of working capital i.e., excess of current assets over current liabilities. Research methodology The project study mainly focus on the critical assessment of working capital management of pon pure chem(p)ltd and deals with the liquidity dimension of working capital and the profitability. Research design Research in an organized activity focused on specific objective with the support of data collection involving tools for analysis deriving logically sound inferences. Research design is purely and simply the framework or plan for study that gudies the collection and analysis of data. The function of researcher is to ensure that requires the data collected or accurate and economically. Secondary data Secondary data is data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Primary data, by contrast, are collected by the investigator conducting the research.

Method of Collection The information is collected through the Primary Source like: Discussion with the head of the Finance department and Procurement department. Getting information from MIS department. Interviewing the employees of the department.

The Data was collected from following Secondary Sources like: Procurement department Finance department

Project is based on: The period of study will be carried out from last five Financial year i.e., from (20062007) to (2010-2011) Tools and techniques for collection of data Ratio analysis and interpretation Statement of changes in working capital Financing and estimation Comparative balance sheet

Statistical tools implemented are Regression analysis

Ratio analysis

Current ratio

Current assets , loans & advances Current ratio = ------------------------------------------Current liabilities & provision

This ratio measures the solvency of the company in the short-term. Current assets are those assets ,which can be converted into cash within year. Current liabilities and provisions are those liabilities that are payable within a year. A current ratio of 2:1 indicates a highly solvent position

Quick ratio or liquid ratio:

Current assets , loans & advances - inventories Quick ratio = ------------------------------------------------------------Current liabilities & provision bank overdraft

Quick ratio is used as a measures of the companys ability to meet its current obligations. Since bank overdraft is secured by the inventories, the other current assets must be sufficient to meet other current liabilities. A quick ratio of 1:1 indicates highly solvent position. This ratio is called the acid test ratio. This ratio serves as a supplement to the current ratio in analyzing liquidity.

Comparative balance sheet statements:

The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheet of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of business. The changes can be observed by the comparison of the balance sheet at the beginning and at the end of the period and these changes can help in forming an opinion about the progress of an enterprise.

Balance sheets as on two or more different dates are used for comparing the assets, liabilities and the net worth of the company. Comparative balance sheet analysis is useful for studying the trends of an undertaking.

Advantages

Comparative statements help the analyst to evaluate the performance of the company

Comparative statements can also be used to compare the performances of the firm with the average performance of the industry between different years.

It helps in identification of the weakness of the firm and remedial measures can be taken accordingly

Operating cycle analysis : A new concept, which is gaining more and more important in recent years, is the operating cycle of working capital. The operating cycle refers to the average time elapses between the acquisition of raw materials and the final realization. operating cycle consists of four stages : The Raw materials and stores inventory stage. The work in progress inventory stages. The finished goods inventory stage. The receivable stage

Regression analysis: A fundamental and versatile research technique that seeks to explain an outcome (dependent) Variable in terms of multiple predictor ( independent ) variables. This analysis reveals the nature and the strength of the relationship between each predictor variables and the outcome , independent of the influence from all other predictors . The term typically refers to Ordinary Least Squares (OLS ) regression, which models a linear relationship among variables.

Analysis and interpretation

Ratio analysis and interpretation Current assets ratio

FINANICAL YEAR TOTAL ASSETS 2006-2007 2007-2008 9527.30 2008-2009 9835.92 2009-2010 21395.54 2010-2011 37163.41

CURRENT 6251.52

TOTAL CURRENT 2916.62 LIABILITIES CURRENT RATIO (Rs. In lakhs) 2.14

4947.93

3810.32

9212.60

12751.05

1.93

2.58

2.32

2.91

INFERENCE: The ideal ratio between current assets and current liabilities is 2:1.this is insisted because even if current assets are reduced to half i.e., 1,the creditors will be able to get their dues in full. Thus the company performance over current ratio shows a moderately manage system

Graphical representation of change of direction of current ratio

CURRENT RATIO
3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 CURRENT RATIO

Quick ratio
FINANICAL YEAR TOTAL CURRENT ASSETS INVENTORY LIQUID ASSETS TOTAL CURRENY LIABILITIES QUICK RATIO 2006-2007 6251.52 2230.46 4021.06 2916.62 1.38 2007-2008 9527.30 3718.41 5808.88 4947.93 1.17 2008-2009 9835.92 2284.45 7551.47 3810.32 1.98 2009-2010 21395.54 8238.11 13157.43 9212.60 1.43 2010-2011 37163.41 12274.47 24888.93 12751.05 1.95

INFERENCE:
The ideal quick ratio is 1.here,they analysis shows as decreases trend due to inventory level which has resulted in increases in current liabilities. the company shows a variation with regards to stop fluctuation in past five years.

Graphical representation of change of direction of quick ratio

QUICK RATIO
2.50 2.00 1.50 1.00 0.50 0.00 QUICK RATIO

Debtors turn over ratio

FINANICAL YEAR GROSS SALES AVERAGE ACCOUNT RECEIVABLE DEBTORS TURN OVER RATIO 2006-2007 18096.157 3156.0196 2007-2008 29073.59663 4924.67321 2008-2009 40651.1055 6010.8312 2009-2010 57063.13658 11109.39517 2010-2011 103057.1722 21832.13207

5.73

5.90

6.76

5.14

4.72

INFERENCE:
The debtors turnover ratio shows a decreasing trend and the debtors collection period is increasing. This implies that the collection of payments from debtors has been delayed. In others words, company has allowed extended credit period to its customers.

Graphical representation of change of direction of debtors turn over ratio

DEBTORS TURN OVER RATIO

8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 DEBTORS TURN OVER RATIO

Working capital turn over ratio

FINANICAL YEAR GROSS SALES COST OF GOODS SOLD NET SALES NET WORKING CAPITAL WC TURN OVER RATIO 2006-2007 18096.16 17042.20 1053.96 3334.89 0.32 2007-2008 29073.60 26661.00 2412.60 4579.37 0.53 2008-2009 40651.11 38466.49 2184.62 6025.60 0.36 2009-2010 57063.14 51493.90 5569.24 12182.93 0.46 2010-2011 103057.17 95928.62 7128.55 24412.36 0.29

INFERENCE:
This analysis help to measures effective utilization of working capital. Here, as the sales grown the ratio has also gone up , but current year 2010-2011, the ratio shows a decreasing tread, the working capital ratio can be effectively reduced.

Graphical representation of change of direction of working capital turn over ratio

WC TURN OVER RATIO

0.60 0.50 0.40 0.30 0.20 0.10 0.00 WC TURN OVER RATIO

FIXED ASSETS TURNOVER RATIO

FINANICAL YEAR SALES FIXED ASSETS FIXED ASSETES RATIO 2006-2007 18096.16 750.14 TURNOVER 24.12 2007-2008 29073.60 3553.85 8.18 2008-2009 40651.11 3452.96 11.77 2009-2010 57063.14 3447.12 16.55 2010-2011 103057.17 4748.47 21.70

INFERENCE:

Graphical representation of changes of fixed assets turnover ratio

30.00 25.00 20.00 15.00 10.00 5.00 0.00

FIXED ASSETES TURNOVER RATIO

FIXED ASSETES TURNOVER RATIO

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Absolute liquid ratio

LIQUID ASSETS sundry debtors cash&bank balance TOTAL LIQUID ASSETS LIQUID LIABILITIES ABSOLUTE LIQUID RATIO

2006-2007 3156.02 468.40 3624.42 2916.62 1.24

2007-2008 4924.67 561.17 5485.84 4947.93 1.11

2008-2009 6010.83 1083.30 7094.14 3810.32 1.86

2009-2010 11109.40 1519.42 12628.82 9212.60 1.37

2010-2011 21832.13 2089.26 23921.39 12751.05 1.88

INFERENCE:
The company shows a variation due the nature of liability with regard to the liquid assets. The company has a slowdown of liquidity position of the cash value and outside debt. Therefore the variation in regard to the fluctuation has created a effective management.

Graphical representation of changes of absolute liquid ratio

ABSOLUTE LIQUID RATIO

2.00 1.50 1.00 0.50 0.00 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

ABSOLUTE LIQUID RATIO

INVENTORY TURN OVER RATIO

FINANICAL YEAR COST OF GOODS SOLD AVERAGE INVENTORY INVENTORY TURN OVER RATIO

2006-2007 17042.20 1524.82 11.18

2007-2008 26661.00 2974.43 8.96

2008-2009 38466.49 3001.43 12.82

2009-2010 51493.90 5261.28 9.79

2010-2011 95928.62 10256.29 9.35

INFERENCE:
The ratio indicates that the stock is moving with a constant range, which is reasonable.

Graphical representation of changes of inventory turn over ratio

INVENTORY TURN OVER RATIO

14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 2006-20072007-20082008-20092009-20102010-2011 INVENTORY TURN OVER RATIO

OWNED CAPITAL TURNOVER RATIO

FININACIAL YEAR SALES SHAREHOLDER'S FUND CAPITAL TURNOVER RATIO 76.05 79.11 110.61 155.26 280.41

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

18096.16 29073.60 40651.11 57063.14 103057.17

237.94 367.52 367.52 367.52 367.52

INFERENCE:
This ratio has shown some improvement over the period of time. This means that the company has made use of the owners fund efficiently. However ,the company is searching for the better growth of the company by improving the turnover of the company thus ,its aim now being to maximize the profit and to maximize the wealth of the shareholders.

Graphical representation of changes of owned capital turn over ratio

OWNED CAPITAL TURNOVER RATIO

300.00 250.00 200.00 150.00 100.00 50.00 0.00 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 CAPITAL TURNOVER RATIO

FINANCING AND ESTIMATION

SIZE OF RECEIVABLES
FINANICAL YEAR TRADE RECEIVABLES RECEIVABLE INDEX 2006-2007 3156.02 100 2007-2008 4924.67 156.04 2008-2009 6010.83 190.46 2009-2010 11109.40 352.01 2010-2011 21832.13 691.76

Graphical representation of changes of trade receivables

TRADE RECEIVABLES
25000.00 20000.00 15000.00 10000.00 5000.00 0.00 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 TRADE RECEIVABLES

AVERAGE COLLECTION PERIOD FINANICAL YEAR GROSS SALES TRADE RECEIVABLES RECEIVABLE TURN OVER RATIO AVERAGE COLLECTION PERIOD 2006-2007 1809615650 315601961 5.73 2007-2008 2008-2009 2009-2010 2010-2011

2907359663 4065110550 492467321 5.90 601083120 6.76

5706313658 10305717223 1110939517 2183213207 5.14 4.72

63.66

61.83

53.97

71.06

77.32

Graphical representation of changes of average collection of period

80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 RECEIVABLE TURN OVER RATIO AVERAGE COLLECTION PERIOD

INVENTORY TURNOVER PERIOD FINANICAL YEAR INVENTORY TURN OVER RATIO INVENTORY TURNOVER PERIOD 2006-2007 11.18 32.65 2007-2008 8.96 40.74 2008-2009 12.82 28.47 2009-2010 9.79 37.28 2010-2011 9.35 39.04

Graphical representation of changes of inventory turnover period

INVENTORY TURNOVER PERIOD

45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00

INVENTORY TURNOVER PERIOD

SIZE AND INDEX OF CASH FINANICAL YEAR CASH & BANK CASH INDEX 2006-2007 46840458 100.00 2007-2008 56116935 119.80 2008-2009 108330387 231.28 2009-2010 151942238 324.38 2010-2011 208925980 446.04

Graphical representation of changes of index and cash

250000000 200000000 150000000 100000000 50000000 0 CASH & BANK CASH INDEX

NET OPERATING CYCLE FINANICAL YEAR DEBTORS INVENTORIES TOTAL CREDITORS NET OPERATING CYCLE 2006-2007 3156.01 2230.45 5386.46 2429.09 2957.37 2007-2008 4924.67 3718.41 8643.08 4892.72 3750.36 2008-2009 6010.83 2284.44 8295.27 3756.38 4538.89 2009-2010 11109.39 8238.1 19347.49 9107.66 10239.83 2010-2011 21832.13 12274.47 34106.6 12616.61 21489.99

NET OPERATING CYCLE

25000 20000 15000 10000 5000 0 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 NET OPERATING CYCLE

COMPERETIVE OF BALANCE SHEET 0F 2009-2010 TO 2010-2011

SOURCES OF FUNDS 2009-210 20102011 Absolute change change %

1. Shareholders' Funds (a) Share Capital (c) Reserves and Surplus total 2. Loan Funds (a)Secured Loans (b)Unsecured Loans Total 3. Deferred Tax Liability TOTAL

1 2

367.52 5493.68 5861.2 9693.25 214 9907.25 88.4

367.52 7735.2 8102.72 20938.16 214 21152.16 132.74

0 2241.52 2241.52 11244.91 0 11244.91 44.34

0.00 40.80 38.24 116.01 0.00 113.50 50.16

3 4

15857 29388 13531 85.33

APPLICATION OF FUNDS 1. Fixed Assets (a)Gross Block (b)Less: Depreciation (c)Net Block 2. Investments 3. Current Assets, Loans & Advances (a)Inventories (b)Sundry Debtors (c)Cash & Bank Balances (d)Loans & Advances Less: Current Liabilities & Provisions (a)Current Liabilities (b)Provisions Net Current Assets TOTAL

4029.92 582.79 3447.13 226.8 8238.1 11109.39 1519.42 528.6 21395.51

5449.24 700.77 4748.47 226.8 12274.47 21832.13 2089.25 967.54 37163.39

1419.32 117.98 1301.34 0 4036.37 10722.74 569.83 438.94 15767.88

35.22 20.24 37.75 0.00 49.00 96.52 37.50 83.04 73.70

6 7 8 9 10

11 12

9187.39 25.2 9212.59 12182.92

12708.03 43.01 12751.04 24412.35

3520.64 17.81 3538.45 12229.43

38.32 70.67 38.41 100.38

15857 29388 13531 85.33

CHANGES IN WORKING CAPITAL

current assets a)inventories b)sundry debtors c)cash&bank balance d) loan &advances TOTAL CA -A

2009-2010 8238.11 11109.40 1519.42 528.61 21395.54

2010-2011 12274.47 21832.13 2089.26 967.54 37163.41

Increase 4036.37 10722.74 569.84 438.93 15767.87

Decrease

current liabilities & provisions a)current liabilities b)provisions TOTAL CL B NET WORKING CAPITAL (A-B) 9187.40 25.21 9212.60 12182.93 12708.03 43.02 12751.05 24412.36 31535.75 INCREASE IN WORKING CAPITAL 12229.43 7076.90 24458.85 3520.64 17.81 3538.45

TOTAL

24412.36

24412.36

31535.75

31535.75

CHANGES IN WORKING CAPITAL INCREASE IN 2010-2011

12000.00 10000.00 8000.00 6000.00 4000.00 2000.00 0.00 1 2 3 4 5 6 7 CHANGES IN WORKING CAPITAL INCREASE IN 20102011

REGRESSION ANALYSIS PROFIT ON SALES YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 TOTAL SALES(X) 180.96 290.73 406.51 570.63 1030.57 2479.40 PROFIT(Y) 2.46 5.86 5.68 17.71 22.41 54.12 XY 445.1616 1703.6778 2308.9768 10105.8573 23095.0737 37658.7472 X2 32746.5216 84523.9329 165250.3801 325618.5969 1062074.525 1670213.956

X= independent variable (sales) Y= dependent variable (profit) a, b =constants Regression equation y on x is Yc = a + bx To find out the value of a, b y = na + bx xy = ax + bx2 By substituting this Equation 54.12 = 5a + 2479.40b ---------------------------- (multiplied by 2479.40)

37658.74 = 2479.40a + 1670213.95b ------------------------ (multiplied by 5)

134185.128 = 12397a + 6147424.36b 188293.7 = 12397a + 8351069.75b

-------------------------------------------------54108.57 = 2203645.39b

--------------------------------------------------b = 0.0245 By substituting b value in equation (1) 54.12 = 5a + 2479.40b a = -1.3250 The future sales estimation for the year 2012 is 1350 crore and for the year 2013, it is 1500 crore. By substituting the value of a and b in the regression line y on x is For 2012 Y = - 1.3250 + 0.0245(1350) Y= Rs. 31.75 cr. For 2013 Y = - 1.3250 + 0.0245(1500) Y = Rs. 35.425 cr. INFERENCE: Thus the regression analysis estimates a higher quantum of profitability for the organization in the coming two years 2012 and 2013

Debtors to sales YEAR 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 TOTAL SALES(X) 180.96 290.73 406.51 570.63 1030.57 2479.40 DEBTORS(Y) 31.56 49.24 60.1 111.09 218.32 470.31 XY 5711.0976 14315.5452 24431.251 63391.2867 224994.0424 332843.2229 X2 32746.5216 84523.9329 165250.3801 325618.5969 1062074.525 1670213.956

X= independent variable (sales) Y= dependent variable (debtors) a, b =constants

Regression equation y on x is Yc = a + bx To find out the value of a, b y = na + bx xy = ax + bx2

By substituting this Equation

470.31

= 5a

+ 2479.40b ---------------------------- (multiplied by 2479.40) + 1670213.95b ------------------------ (multiplied by 5)

332843.22 = 2479.40a

1166086.614 = 12397a + 6147424.36b 1664216.1 = 12397a + 8351069.75b

-------------------------------------------------498129.486 = 2203645.39b

--------------------------------------------------b = 0.2260 By substituting b value in equation (1) 470.31 = 5a + 2479.40 (0.2260) a = -18.006 The future sales estimation for the year 2012 is 1350 crore and for the year 2013, it is 1500 crore. By substituting the value of a and b in the regression line y on x is For 2012 Y = -18.006 + 0.2260(1350) Y= Rs. 287.09 cr. For 2013 Y = -18.006 + 0.2260(1500) Y=Rs. 320.9 cr.

INFERENCE: Thus the regression analysis estimates a higher quantum of sundry debtors for the organization in the coming two years 2012 and 2013

SALES OF DEBTORS YEAR SALES(X) WORKING CAPITAL(Y) 33.35 45.79 60.26 121.83 244.12 505.35 XY
X2

2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 TOTAL

180.96 290.73 406.51 570.63 1030.57 2479.40

6034.823929 13313.60074 24494.67916 69519.47737 251586.4547 364949.0359

32746.5216 84523.9329 165250.3801 325618.5969 1062074.525 1670213.956

X= independent variable (sales) Y= dependent variable (debtors) a, b =constants

Regression equation y on x is Yc = a + bx To find out the value of a, b y = na + bx xy = ax + bx2

By substituting this Equation

505.35

= 5a

+ 2479.40b ---------------------------- (multiplied by 2479.40) + 1670213.95b ------------------------ (multiplied by 5)

364949.03 = 2479.40a

1252964.79 = 12397a + 6147424.36b 1824745.1 = 12397a + 8351069.75b --------------------------------------------------571780.36= 22036645.39

-------------------------------------------------b = 0.2594 By substituting b value in equation (1) 505.35 = 5a + 2479.40 (0.2594) a = - 27.5612 The future sales estimation for the year 2012 is 1350 crore and for the year 2013, it is 1500 crore. By substituting the value of a and b in the regression line y on x is For 2012 Y = -27.5612 + 0.2594(1350) Y= Rs. 322.62 cr. For 2013 Y = -27.5612 + 0.2594(1500) Y = Rs 361.53 cr. INFERENCE: Thus the regression analysis estimates a higher quantum of working capital (net) for the organization in the coming two years 2012 and 2013

FINDING