...Overtrading WARMAH.COM - 1 - Overtrading Overtrading is sometimes referred to as under capitalisation; it is a term that is used to refer to a situation where an organisation is having increasing trading or business activities, especially where trading is made on credit sales without sufficient funds (capital) to support such increasing trading activities. This is where company has increasing sales volume, usually with lots of customers buying on credit (sometimes with more extended credit limits and periods than is often offered by its competitors and above the industry average), but the prolonged credit sales period (credit limit) means that company may not have immediate or sufficient funds from its credit sales and may run the risk of not having sufficient funds to meet its trading activities and possibly be faced with liquidation. This is often a big problem for small medium enterprise (SME) who are caught up in the excitement / thrill of increasing sales and business at the inception of business, such that if they are caught up with poor (and inadequate) debtor/receivable management policies, they run the risk of overtrading. Overtrading is often attributed to insufficient funds to meet organisations operating activities, or poor/inefficient management policies. When company has increasing sales, it is a good thing, especially if such increasing sales are on cash, or even if it is on credit, but customers pay promptly within the credit period, but where...
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...indicate whether a company can continue without going concern problem. Working capital is subtractive between current assets and current liabilities, and it is helpful to increase firm’s profitability in the short term but taking a risk of insolvency. Manager of a firm are desired to find a balance between liquidity and profitability to improve cash flow and maximize shareholder’s wealth. As soon as a company starts to run its business, it comes the decision and strategy about how much cash or inventory should be hold, how to financing and investing funds, how much debt to take and how long for the payment periods. Those decisions have serious influences on business cash flow and profitability. The Meaning of Working Capital The way to calculate working capital is: Working capital = Current Assets – Current Liabilities “Current assets may include inventories of raw materials, work-in-progress and finished goods, trade receivables, short-term investments and cash, while current liabilities may include trade payables, overdrafts and short-term loans.” (See table 1) “Working capital is the result of subtracting current liabilities from current assets. It is a measure of a company's solvency, its capacity to make large purchases and take advantage of bulk discounts, and its ability to attract customers by offering advantageous credit terms” (Conrad Carlberg, April 2, 2008) “Net working capital represents the excess of current assets over current liabilities and is...
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...SUMMER TRAINING REPORT SUBMITTED TOWARDS THE PARTIAL FULFILLMENT OF POST GRADUATE DEGREE IN INTERNATIONAL BUSINESS WORKING CAPITAL MANAGEMENT On Kotak Mahindra Group INDUSTRY GUIDE FACULTY GUIDE AMITY INTERNATIONAL BUSINESS SCHOOL, NOIDA AMITY UNIVERSITY – UTTAR PRADESH TABLE OF CONTENTS Chapter No. Subject Page No. Ch No.1 Executive Summary…………………. 6 Ch No.2 Research Methodology……………… 7 2.1 Primary Objective(s)…………. 2.2 Hypothesis…………………… 2.3 Research Design……………… 2.4 Sample Design……………….. 2.5 Scope of the Study……………. 2.6 Limitations……………………. Ch No.3 Critical Review of Literature……….. 9 Ch No.4 Company Profile ……………………. 18 Ch No.5 Industry Profile……………….. 21 Ch No.6 SWOT Analysis…………………. 45 Ch No.7 Data………………………………….. 46 7.1 Collection……………………… 7.2 Primary Data…………………… 7.3 Secondary Data….…………….. Ch No.8 Working Capital- Overall View……… 53 Ch No.9 Findings & Analysis…………………. 100 Ch No.10 Recommendations…………………… 112 Ch No.11 Bibliography…………………………. 114 Ch No.12 Annexure…………………………….. 115 12.1 Tables…………………………. 12.2 Graphs………………………… Ch No.13 Case Study...…..................................... 117 Ch...
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...ltdDabur India - Working Capital and Cost Management Dr. Narender L. Ahuja, Institute for Integrated Learning in Management, New Delhi, India Ms. Sweta Agarwal, Institute for Integrated Learning in Management, New Delhi, India ABSTRACT After running as a family business for over 100 years, when in late 1990s the management of the Dabur was handed over to a team of professional managers, the new management faced a gigantic task of improving performance in several critical areas. In particular, working capital and cost management required urgent attention as the company’s performance in these areas had been far from satisfactory. The then prevailing current ratio of 3.2 and quick ratio of 2.4 were considered too high and indicative of heavy unnecessary investments in working capital that would have a negative effect on company’s profitability. Efforts to improve the working capital efficiency were met with stiff resistance from various quarters, but finally yielded results. The case study discusses the measures taken to improve the working capital and cost management performance, and how with concerted efforts the management turned around a highly inefficient working capital management into one of the most efficient in the FMCG sector of Indian Industry. In fact, the company seemed to have taken the matter to the other extreme of negative working capital, with the current ratio declining to 0.8 and the quick ratio to just 0.4 in 2004-05. In 2005-06 as the company was ready...
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...12: Inventory planning and... Study guide | This chapter is relatively unusual in so much as it takes more of a quantitative approach to its topic. While not avoiding quantitative models where they are appropriate, the general approach of this book is to deal with operations management from a ‘general management’ point of view. Here we include some quantitative models of how inventory is managed mainly to demonstrate that some parts of the inventory decision can be quantified. In practice, most of these decision models will be embedded within an operation’s routine stock control computer system. However, whilst working through them remember that it is the underlying principles behind the models which are more important than the mathematics on which the models are based.Your learning objectivesThis is what you should be able to do after reading Chapter 12 and working through this study guide. * Understand what is meant by an inventory and why they exist. * Identify some of the advantages and disadvantages of keeping inventory in an operation. * Understand the basic principles behind the quantitative approaches to deciding how much inventory to keep. * Be able to describe the limitations of traditional quantitative models of inventory decision making. * Identify the two main approaches to managing inventory on an on-going basis.What do we mean by inventory?The chapter discusses inventory (we use the word interchangeably with the word ‘stock’) predominantly as accumulations...
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...extent, thus minimizing the need for costly working capital. In past years, Dell has mainly financed its operations internally and secondly through the issuance of shareholder equity and small amounts of long term debt. Statement of Problem Being more flexible and responsive to market demands, Dell will bring new, superior products to market quicker than its competitors. This has created an expectation for large, double-digit growth in the upcoming year. Dell needs a plan for financing the large potential growth. Recommendations Dell has working capital advantages over its competitors which it should continue to pursue. Dell funded its FY 1996 growth both from internal and external funds. It was wise to seek external funding to support Dell’s healthy growth. If Dell were to grow by 50% in FY 1997, it is recommended to seek external funding for the amount not funded internally. Dell should issue debt and continue to take advantage of its strong internal cash conversion cycle to fund its continued growth. Dell should not reduce its external funding as it will limit its growth. Methods of analysis & Discussion (Q1) Dell’s advantageous working capital policy enabled the corporation to face its current growth. The Just-In-Time inventory system and Sales built to order allowed, reduced the cash conversion cycle and minimized the amount of capital Dell needed to finance its business. Compared to competitors, Dell working capital policy gave Dell the following advantages: ...
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...Working Capital Structure and Financing Pattern of Mauritian SMEs Kesseven Padachi*; C. Howorth[1]; M. S. Narasimhan[2] and R. Durbarry3 *School of Business, Management and Finance University of Technology, Mauritius La Tour Koenig, Pointe – aux – Sables, Mauritius kpadachi@utm.intnet.mu ABSTRACT The competitive nature of the business environment requires firms to adjust their strategies and adopt good financial policies to survive and sustain growth. Most firms have an important amount of cash invested in current assets, as well as substantial amounts of current liabilities as a source of financing. This paper therefore analyses the working capital structure and financing pattern of small to medium-sized Mauritian manufacturing firms, using primarily secondary data. Structural differences in working capital and the financing pattern of the sample firms are analysed and the results showed significant structural changes over the study period. The research finding revealed disproportionate increase in current asset investment in relation to sales resulting in sharp decline in working capital turnover. The analysis also revealed an increasing trend in the short-term component of working capital financing; in particular trade credit and other payables have financed the major part of working capital. This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance and they are viewed to be informationally opaque....
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...Cash Management Abstract The following paper will define cash management and discuss why it is especially critical in the healthcare industry. It is said that cash is the livelihood of any business operation. Any business that has control of the access to cash and generation of cash is most likely to endure and prosper. “Cash management is probably more important in the healthcare industry than in many other industries” (Cleverley, Song & Cleverley). Cash management is defined as” processes and techniques focused on the acceleration of receivables and the cash conversion cycle. Reduction of the cash conversion cycle, along with the related investment of surplus funds, should be a critical objective of financial managers” (Cleverley, Song & Cleverley). Good cash management is the key to a successful business. Cash management is especially crucial in the health care industry for several reasons. Large sums of investment eligible funds pertain to hospitals and other healthcare firms. Hospitals and other healthcare firms experience larger investment management needs than other industries for the following reasons: * Many healthcare firms are voluntary, not-for-profit firms and must set aside funds for replacement of plants and equipment. * Healthcare firms are increasingly beginning to self-insure all or a portion of their professional liability risk. * Many healthcare firms receive gifts and endowments. Although these sums may not be large for individual...
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...Impact of Working Capital Management on Profitability 1 IMPACT OF WORKING CAPITAL MANAGEMENT ON PROFITABILITY Impact of Working Capital Management on Profitability of Textile Sector of Pakistan Sumaira Tufail Hailey College of Commerce University of the Punjab, Lahore Sumaira_08sep@yahoo.com This paper has been presented in the organized by School of Business and Economics University of Management and Technology, Lahore, Pakistan This paper has been included in the conference proceedings with good intentions, where the conference and its organizers are not liable at all for the contents of this paper and / or any part of it. For more information about the conference please visit the conference website: http://cgr.umt.edu.pk/icobm2013/index.html or write the organizers at icobm@umt.edu.pk Proceedings of 3rd International Conference on Business Management (ISBN: 978-969-9368-07-3) Impact of Working Capital Management on Profitability 2 ABSTRACT Working capital can be considered as source of existence for a financial body and management of working capital is regarded as one of the most essential part of business management. This study aims to find out the impact of working capital policies on profitability. Return on assets is used as a measure of profitability. Current assets to total assets ratio is used to compute the investment policy of working capital management and to determine financing policy of working capital management current liabilities to total assets ratio...
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...A STUDY ON FINANCIAL ANALYSIS IN RANE ENGINE VALVES PVT LTD AT ALANTHUR A Project Report Submitted by P.KOKILA (30307631027) Under the guidance of Mr.P.Ganesh,M.com,M.B.A,M.phil,(Ph.D) FACULTY OF MANAGEMENT STUDIES In partial fulfillment of the requirements for the award of the degree of MBA IN Department of Management Studies Anand Institute Of higher Technology ANNA UNIVERSITY CHENNAI 600 025 JUNE 2009 I BONAFIDE CERTIFICATE Certified that this project report titled “A Study on Financial Analysis in Rane Engine Valves Pvt Ltd at Alanthur “is the bonafide work of Mr./Ms.KOKILA.P (Registration Number: 30307631027)Who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported herein does not form part of any other project report or dissertion on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate. Internal Guide Head of the Department (P.Ganesh,M.Com., M.B.A.,M.Phil,( Ph.D.) (Dr.M.Kavitha, M.B.A, M.Phil, PhD.) Submitted to Project and Viva Examination held on_____________. Internal Examiner External Examiner II KOKILA.P (Registration Number: 30307631027) II MBA ANAND INSTITUTE OF HIGHER TECHNOLOGY, KAZHIPATTUR - 603103 DECLARATION I hereby declare that the project entitled A Study on Financial Analysis in Rane Engine Valves Pvt Ltd at Alanthur in partial fulfillment of the requirements...
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...1. How was Dell`s Working Capital Policy a Competitive Advantage? Dell used its working capital policy as a competitive advantage by reducing the amount of WIP and finished goods inventory in its system. As a result of maintaining a minimum amount of inventory, Dell reduced its need for inventory financing, warehousing and inventory control. Dell kept its accounts payable (A/P) account to a minimum volume by waiting until the customers order was received before placing the “release” order with their suppliers. Dell’s suppliers were all located very close to Dells manufacturing plants, and made daily deliveries to Dell based on just-in-time delivery. By not receiving the parts until the last minute, Dell kept both its inventory and its accounts payable to a minimum. On the sales side, Dell took orders directly from consumers who normally pay with a credit card online, or over the phone. Because Dell waited until they received the order from the customer to start building the computer, Dell kept the CCC (cash conversion cycle to a minimum). If Dell were to operate at Compaq’s DSI level, we estimate that Dell would have to increase its 1995 inventory from $293m to $668m, which is an increase of $375 million. This would mean that Dell would have needed to invest in $668 million in inventory. I believe that the main reason that Dell was able to maintain such a low level of inventory compared to their competition has a direct result of their competitive strategy to maintain a minimum...
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...Case Study “A study of Working Capital Management -Policies and Practices at SABMiller India” Author - Dr Anubha srivastava Sr. lecturer (Finance) Amity Business School Noida Co-Author Pankaj Ishpujani Management trainee HCL B Serve Noida Summary Indian beer market is valued at INR 41 billion for the year ending 31st march 2010 and it is expected to grow at 17.2% for the next year. Indian growth rates compare favorably with the global beer industry. Foreign brewers are eyeing the Indian beer market which is largely untapped and has growth potential. Apart from providing strong growth, India also provides attractive profit margins due to the consolidated nature of the industry. The effect of this consolidation can be seen in the fact that beer prices in India rarely go down with the competitive pressures of new product or brand launches. In the past, whenever beer prices have gone down, it has been due to either the lowering of duties by the government or the deregulation of distribution (leading to lower margins for the distribution channel partners). The Indian beer market has been growing rapidly over the last 10 years, due to the positive impact of demographic trends and expected changes, like: ➢ Rising income levels ➢ Changing age profile ➢ Changing lifestyles The case study attempts to calculate various ratios and working capital requirement of SABMiller India and compare it with the market...
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...marks. NO. 1 COOKING LPG LTD DETERMINATION OF WORKING CAPTIAL Introduction Cooking LPG Ltd, Gurgaon, is a private sector firm dealing in the bottling and supply of domestic LPG for household consumption since 1995. The firm has a network of distributors in the districts of Gurgaon and Faridabad. The bottling plant of the firm is located on National Highway – 8 (New Delhi – Jaipur), approx. 12 kms from Gurgaon. The firm has been consistently performing we.” and plans to expand its market to include the whole National Capital Region. The production process of the plant consists of receipt of the bulk LPG through tank trucks, storage in tanks, bottling operations and distribution to dealers. During the bottling process, the cylinders are subjected to pressurized filling of LPG followed by quality control and safety checks such as weight, leakage and other defects. The cylinders passing through this process are sealed and dispatched to dealers through trucks. The supply and distribution section of the plant prepares the invoice which goes along with the truck to the distributor. Statement of the Problem : Mr. I. M. Smart, DGM(Finance) of the company, was analyzing the financial performance of the company during the current year. The various profitability ratios and parameters of the company indicated a very satisfactory performance. Still, Mr. Smart was not fully content-specially with the management of the working capital by the company. He could recall that during...
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...Lawrence Sports Simulation Lawrence Sports experienced difficult times in March and April when their biggest consumer could not pay for its products. Because of this, the cash conversion cycle was examined as well as the working capital management presently used. Additional views were studied to determine the best course of action for the company. Although multiple factors play a role in determining the best working capital management policy, Team D will offer recommendations and how each philosophy would be beneficial for Lawrence Sports. Cash Conversion Cycle Emery, Finnerty, and Stowe (2007) summarized that “the cash conversion cycle is the length of time between when a firm pays its accounts payable and when it collects on its accounts receivable and is equal to the inventory conversion period plus the receivables collection period minus the payables deferral period” (p. 659). The initial start for the cash implementation plan would be to create and demonstrate a vendor program, such as a payable deferral period program and create longer cash conversion cycles for floating payment programs for payments going to the banks. Next pre-arrange the short term borrowing program by using short term marketable securities. The Lawrence Sports Company financial departments need to begin following strict money formulas before any transactions pertaining to the market are made. Then it would be smart to hold cash balances for pertinent needs. This will allow and open doors for...
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...IJMBs Vol. 1, Issue 3, septeMBer 2011 I S S N : 2 3 3 0 - 9 5 1 9 (O n l i n e ) | I S S N : 2 2 3 1-2463 ( P r in t) Working Capital Management in Cement Company a Study 1 1 T.Chandrabai, 2Dr.K.Venkata Janardhan Rao Dept. of Mgmt. Studies, Padmasri Dr.B.V.Raju Institute of Tech., Narsapur, Medak, AP, India 2 Dept. of Commerce and Business Management, Kakatiya University, Warangal, AP, India Abstract Working capital is considered to be life-giving force to an economic entity and managing working capital one of the most important functions of corporate management. Working capital management (WCM) is the management of short-term financing requirements of a firm which includes maintaining optimum balance of working capital components – receivables, inventory and payables – and using the cash efficiently for day-to-day operations. The main objectives of this study are to examine and evaluate the working capital management in ACC Limited, examine the management pattern of inventory, liquidity, cash position and receivables management. This also finds the relationship between Working Capital Efficiency and Profitability, Profitability and Market ratios. Keywords Working Capital, Liquidity, Profitability, Market ratios, Inventory I. Introduction Global slowdown that severely affected several countries had its invariable effect on Indian Industrial production as also on other important sectors of Indian Economy. The Cement Industry, which exhibited...
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