A STUDY ON WORKING CAPITAL MANAGEMENT WITH

SPECIAL REFERENCE TO SHAREKHAN LIMITED,

CHENNAI
The project report Submitted to the

BHARATHIDASAN UNIVERSITY, TIRUCHIRAPPALI,

In partial fulfillment of the requirements for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by
D.KALAIARASAN,
(Reg.no. 11290201)
Under the guidance of
Prof.R.VENKATESH,

(Asst.Professor, Adaikalamatha Institute of Management)

ADAIKALAMATHA
INSTITUTE OF
MANAGEMENT
ADAIKALAMATHA
COLLEGE
VALLAM, THANJAVUR-6130403.
MARCH-2013
ADAIKALAMATHA INSTITUTE OF MANAGEMENT
ADAIKALAMATHA COLLEGE
Arun Nagar, Vallam,
Thanjavur- 613 403.
Fax : 04362-266265
Phone: 043632-266265 / 266201

Mr.R.VENKATESH
-03.2013

Date:

Asst.Professor, Adaikalamatha Institute of Management.

CERTIFICATE
This is to certify that the project report entitled A STUDY ON
WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE
TO SHAREKHAN LIMITED, CHENNAI is the bonafide research work done
and submitted by D.KALAIARASAN (Reg. No.11290201) under my guidance in
partial fulfillment of the requirements for the award of MASTER OF BUSINESS
ADMINISTRATION and the project has not previously formed the basis for the
award of any degree.

Signature of the Director

Signature of the

Guide

Signature of the External Examiner

KALAIARASAN.D, II M.B.A.,
Reg.No.11290201,
Adikalamatha Institute of Management,
Adakalamathacollege,
Vallam, Thanjavur-613403

DECLARATION

I hereby declare that this project report entitled A STUDY ON

WORKING CAPITAL MANAGEMENT WITH SPECIAL REFERENCE TO
SHAREKHAN.LIMITED, CHENNAI submitted for the M.B.A., degree is my

original work and the project report has not formed the basis for award of any
other degree.

DATE: 03-2013
PLACE: VALLAM

(KALAIARASAN.D)

ACKNOWLEDGEMENT
3

I am deeply indebted to
Dr.A.ARUNACHALAM,MA.,M.L.,M.B.A.,Ph.D., Chairman of
Adaikalamatha College, Vallam, Thanjavur, for having given me an
opportunity to undergo M.B.A., Course in this institution.

I express my sincere gratitude to Prof. Dr.A.RAVIKUMAR M.Com.,

MBA.,Ph.D., Vice Chairman,Adaikalamatha group of Institution,Vallam for
his encouragement to pursue this project.

I am happy to thank our Dr.N.SUMATHI B.E., MBA.,Ph.D.,

Director, Adaikalamatha institute of management, for her inspiring
encouragement to take up this project.

I express my sincere and deep sense of gratitude to

Prof.S.AROCKIARAJ, M.Sc.,M.Phil., M.Ed., (Ph.D.,) Principal, for
having promoted strict discipline and hard work during the period of my
study in this college.

I take this opportunity to convey my deep sense of gratitude and respect

to my beloved Guide Prof.R.VENKATESH,
MBA.,M.com.,M.Phil.,PGDCA.,(Ph.D.,) Adaikalamtha institute of
management, Thanjavur for the valuable guidance, without which it would
not be possible for me to complete this project report successfully.
My sincere thanks are also due to Mr.M.THIRUMURUGAN,
EXCUTIVE-CLIENT ACQSTION, Sharekhan.ltd,Chennai, for scholarly
guidance and inspiration. He was kind enough to guide me for collecting
data for the project right from the formulation of the problem till its
completion, and other members of staff who helped in various ways while
completing this work.

Place: Vallam
Date: -03-2013
Signature of the student

INTRODUCTION
The working capital of a business enterprise, said to be that portion of its
total financial resources which is put to a valuable operative purpose.
Shubin defines working capital is the amount of funds necessary to cover the cost
of operating the enterprise.
The facilities that are necessary to carry out the productive activity and
represented by fixed asset investment are to be operated by working capital. This
working capital is otherwise called operating capital or trading capital.
Working capital is always at a more from one form to another [cash to
inventory, inventory to finished goods, finished goods to debtors and finally
debtors to cash]. Making a circle during the operating period. It is called
circulating capital or revolving capital or floating capital.
CLASSIFICATION OF WORKING CAPTITAL
Working capital can be classified on the basis of forms or investments and
the sources resorted for, into gross working capital and net working capital.
Another classification is made on the basis of period of investment a time
perspective as permanent and temporary working capital.
1. Gross working capital
In a going concern, in the investment point of view, the working capital
means gross working capital. Gross working capital a quantitative concept refers

to the amount of funds invested in current assets. It is the base of judge

profitability since it implies the utilization of working capital.
2. Net working capital
From the point of view of financing, the working capital denotes net
working capital. Net working capital, a quantitative concept refers to the
difference between the current assets and current liabilities. It may be positive or
negative. Positive networking capital occurs when current assets exceed the
current liabilities. This indicates the use of long-term capital in financing the
current assets.
Negative networking capital is rare but comes only when current liabilities
are in excess of current assets. This is otherwise called working capital deficit,
which shows the use of short-term funds in financing the fixed assets. Networking
capital is a measure of protection and security to the short-term creditors. It is also
acting as a proof of short-term solvency, the liquidity. Thus it must better be
positive networking capital rather than negative.
3. Permanent working capital
Permanent working capital is the amount of funds required for production
of goods and services to satisfy the normal demand. It refers to the irreducible
minimum amount necessary for starting the circulation of current assets and to
keep it moving. It is perpetually locked up in the business and it is otherwise

called fixed or regular working capital. The quantum of the permanent working
capital will be increasing whenever the concern adopts growth and expansion.
Permanent working capital is entirely different from net working capital.
But it is the same as the core current asset specified by the Tandem committee.
Permanent working capital is purely investment aspect and it indicates the amount
permanent locked up in the business. Net working capital is purely financial aspect
and it denotes the use of long term capital for financing current assets.
4. Temporary working capital
Temporary working capital is the extra working capital needed to support
the changes in production and sales activities, and to satisfy the additional or
special or seasonal demand. It is otherwise called valuable or fluctuating working
capital.
5. Bankers concepts of working capital
For the purpose of Bank finance towards working capital, the total current assets
have been classified into chargeable current assets or core current assets [CCA]
and other current Assets [OCA]. And total current liabilities.
The total current assets minus other current liabilities have been termed as
the working capital Gap [WCG] of the borrower which needs to be bridged. Part
of the working capital gap is to be met from long term sources as per longstanding
convention and current policies and practice followed by the controller of capital

issues and financial institutions. Making borrowings from bank that is bank loan
fills the other part.
COMPONENTS OF WORKING CAPITAL
Working capital of current assets and current liabilities. This in other words
explains the pattern of investment and pattern of financing.
1. Current assets
Current Assets denotes cash and other assets or resources which are
reasonably expected to be realized in cash or sold or consumed during the normal
operating cycle of the business.

It consists of cash and bank balance, market

securities, short term investments, bills Receivables, sundry debtors, short term
loans and advances, inventories in the form of
(a) Raw materials;
(b) Work in Progress [WIP];
(c) Stores and spares;
(d) Finished goods;
(e) Prepaid Expenses &
(f) Accrued Income.
2. Current liabilities
Current liabilities are those liabilities which are payable within an
accounting period and out of current assets or by creating new current liabilities.

It comprises a) trade creditors, b) trade advances, c) Bills payable: d)

Borrowing from commercial banks or (e) Commercial financing companies (f)
Commercial paper brokers and (g) Provisions.
WORKING CAPITAL MANAGEMENT
Working capital management is concerned with all decisions and acts that
influence the size and effectiveness of working capital. It can also be defined as
that aspect of financial management, which is concerned with safe guarding and
controlling the firms current assets and the planning for sufficient funds to pay
current bills.
Working capital management refers to the administration of the pattern of
investment and financing. The working capital, which is nothing but the
administration of current assets and current liabilities are the integral part of the
working capital management.

10

OBJECTIVES OF THE STUDY

To know the financial performance of the sharekhan limited, Chennai.
To study the liquidity position of the study unit.
To analysis the working capital performance of the sharekhan limited,
Chennai.
To know the performance of inventory and receivables.

SCOPE OF THE STUDY

A study on working capital management is confined in sharekhan
limited, Chennai, this study is covered from 2006-2007 to 2010-2011.

11

NEED FOR THE STUDY

It is the objective of the financial manager in making decisions to maximize
the share holders wealth. To achieve this it is necessary to generate sufficient
profits.
A successful sales program is necessary for earning profits by an enterprise.
However , sales do not convert into cash immediately. There is a time lag between
sale of goods and receipt of cash. The financial manager should have the
knowledge of ascertaining the level of cash balance and where the idle funds
(surplus funds ) are to be temporarily invested.
Therefore, there is a need for management of current assets to deal with the
problem arising out of lack of immediate realization of cash against goods sold.

12

RESEARCH METHODOLOGY
One of the goals of science is description (other goals include prediction
and explanation). Descriptive research methods are pretty much as they sound
they describe situations. They do not make accurate predictions, and they do not
determine cause and effect.
Case Study Method
Case study research involves an in-depth study of an individual or group of
individuals. Case studies often lead to testable hypotheses and allow us to study
rare phenomena. Case studies should not be used to determine cause and effect,
and they have limited use for making accurate predictions.
The study depends on both primary and secondary data.
Primary data:
Primary data is collected by interacting with the officials of the company.
Secondary data :
It is collected through company manuals , broachers , journals and
reference books and website etc.

13

LIMITATIONS OF THE STUDY

The report is based entirely on the annual reports published by the
company.
Only 5 years data of SHAREKHAN LTD is used.
The confidential matters of the company are not disclosed.
The study is confined to only segment i.e., current assets.

CHAPTERIZATION:
Chapter I deals with international and research methodology.
Chapter II deals with review of literature.
Chapter III deals with company profile.
Chapter IV deals with Analysis and interpretation.
Chapter V deals with findings, suggestions and conclusions

14

LITERATURE OF THE STUDY

STUDIES ON WORKING CAPITAL MANAGEMENT
SAGAN in his paper (1955), perhaps the first theoretical paper on the
theory of working capital management, emphasized the need for management of
working capital accounts and warned that it could vitally affect the health of the
company. He realized the need to build up a theory of Working capital
management. He discussed mainly the role and functions of money manager
inefficient working capital management. Sagan pointed out the money managers
operations were primarily in the area of cash flows generated in the course of
business transactions. However, money manager must be familiar with what is
being done with the control of inventories, receivables and payables because all
these accounts affect cash position.
WALKER(1964)
Realizing the dearth of pertinent literature on working capital management,
Walker in his study (1964) made pioneering effort to develop a theory of
working capital management by empirically testing, though partially, three
propositions based on risk-return trade-off of working capital management.
Walker studied the effect of the change in the level of working capital on the rate
of return in nine industries for the year 1961 and found the relationship between

15

the level of working capital and the rate of return to be negative. On the basis of
this observation, Walker formulated three following propositions management.
Walker studied the effect of the change in the level of working capital on the rate
of return in nine industries for the year 1961 and found the relationship between
the level of working capital and the rate of return to be negative. On the basis of
this observation, Walker formulated three following propositions:
PROPOSITION I
If the amount of working capital is to fixed capital, the amount of risk the firm
assumes is also varied and the opportunities for gain or loss are increased. Walker
further stated that if a firm wished to reduce its risk to the minimum, it should
employ only equity capital for financing of working capital; however by doing so,
the firm reduced its opportunities for higher gains on equity capital as it would not
be taking advantage of leverage. In fact, the problem is not whether to use debt
capital but how much debt capital to use, which would depend on management
attitude towards risk and return. On the basis of this, he developed his second
proposition.
PROPOSITION II
The type of capital (debt or equity) used to finance working capital directly affects
the amount of risk that a firm assumes as well as the opportunities for gain or loss.
Walker again suggested that not only the debt-equity ratio, but also the maturity
period of debt would affect the risk-return trade-off. The longer the period of debt,
the lower be the risk. For, management would have enough opportunity to acquire
16

funds from operations to meet the debt obligations. But at the same time, longterm debt is costlier. On the basis of this, he developed his third proposition
PROPOSITION III
The greater the disparity between the maturities of a firms debt instruments
and its flow of internally generated funds, the greater the risk andvice-versa. Thus,
Walker tried to build-up a theory of working capital management by developing
three prepositions. However, Walker tested empirically the first proposition only.
WESTON AND BRIGHAM (1972)
Further extended the second proposition suggested by Walker by dividing
debt into long-term debt and short-term debt. They suggested that short-term debt
should Be used in place of long-term debt whenever their use would lower the
average cost of capital to the firm. They suggested that a business would hold
short-term marketable securities only if there were excess funds after meeting
short-term debt obligations. They further suggested that current assets holding
should be expanded to the point where marginal returns on increase In these assets
would just equal the cost of capital required to finance such increases.
VAN HORNE: in his study (1969) recognizing working capital
management as an area largely lacking in theoretical perspective, attempted to
develop a framework in terms of probabilistic cash budget for evaluating decisions
concerning the level of liquid assets and the maturity composition of debt
involving risk-return trade-off. He proposed calculation of different forecasted
liquid asset requirements along with their subjective probabilities under different
possible assumptions of sales, receivables, payables and other related receipts and
17

disbursements. He suggested preparing a schedule showing, under each alternative

of debt maturity, probability distributions of liquid asset balances for future
periods, opportunity cost, maximum probability of running out of cash and
number of future periods in which there was a chance of cash stock-out. Once the
risk and opportunity cost for different alternatives were estimated, the form could
determine the best alternative by balancing the risk of running out of cash against
the cost of providing a solution to avoid such a possibility depending on
managements risk tolerance limits. Thus, Van Horne study presented a risk-return
trade-off of working capital management in entirely new perspective by
considering some of the variables probabilistically. However, the usefulness of the
framework suggested by Van Horne is limited because of the difficulties in
obtaining information about the probability distributions of liquid-asset balances,
the opportunity cost and the probability of running out of cash for different
alternative of debt maturities.
WELTER, in his study (1970), stated that
working capital originated because of the global delay between the moment
expenditure for purchase of raw material was made and the

moment when

payment were received for the sale of finished product. Delay center are located
throughout the production and marketing functions. The study requires specifying
the delay center and working capital tied up in each delay center with the help of
information regarding average delay and added value. He recognized that by more
rapid and precise information through computers and improved professional
18

ability of management, saving through reduction of working capital could be

possible by reducing the length of global delay by rescuing and/or favorable
redistribution of this global delay among the different delay centers. However,
better information and improved staff involve cost. Therefore, savings through
reduction of working capital should be tried till these saving are greater or equal to
the cost of these savings. Thus, this study is concerned only with return aspect of
working capital management ignoring risk. Enterprises, following this approach,
can adversely affect its short-term liquidity position in an attempt to achieve
saving through reduction of working capital. Thus, firms should be conscious Of
the effect of law current assets on its ability to pay-off current liabilities.
CAMBRIC AND SINGHVI (1979) adopting
the working capital cycle approach to the working capital management, also
suggested that investment in working capital could be optimized and cash flows
could be improved by reducing the time frame of the physical flow from receipt of
raw material to shipment of finished goods, i.e. inventory management, and by
improving the terms on which firm sells goods as well as receipt of cash.
However, the further suggested that working capital investment could be
optimized also (1) by improving the terms on which firms bought goods i.e.
creditors and payment of cash, and (2) by eliminating the administrative delays i.e.
the deficiencies of paper-work flow which tended to extend the time-frame of the
movement of goods and cash.

19

WARREN AND SHELTON (1971) applied financial simulation to

simulate future financial statements of a firm, based on a set of simultaneous
equations. Financial simulation approach makes it possible to incorporate both the
uncertainty of the future and the many interrelationships between current assets,
current liabilities and other balance sheet accounts. The strength of simulation as a
tool of analysis is that it permits the financial manager to incorporate in his
planning both the most likely value of an activity and the margin of error
associated with this estimate. Warren and Shelton presented a model in which
twenty simultaneous equations were used to forecast future balance sheet of the
firm including forecasted current assets and forecasted current liabilities. The
current assets and current liabilities were forecasted in aggregate by directly
relating to firm sales. However, individual working capital accounts can also be
forecasted in a larger simulation system. Moreover, future financial statements can
be simulated over a range of different assumptions to portray inherent uncertainty
of the future.
DARLING AND LOVELL (1965) modified Metzlers formulation based
on simple acceleration principle and obtained, the relationship based on flexible
accelerator principle. There are several reasons physical, financial and technical
those motivate partial adjustment. The length of such lags is connected with the
source of supply, foreign or domestic availability. Import licensing procedures on
account of foreign exchange scarcity could cause further delays in adjustment.
20

Among the financial factors, cost advantages associated with bulk buying and
higher procurement costs for speedy delivery are also mentioned. Uncertainties in
the market for raw materials and in the demand for final product also play a role in
influencing the speed of adjustment. Technically, firms like to make sure that
changes in demand are of a permanent character before making full adjustment.
The acceleration principle has great relevance in inventory analysis than in the
analysis of fixed investment, as there are limits to liquidate fixed capital in the face
of declining demand. Other variables influencing inventories have been introduced
in the literature in the context of accelerator model. Rate of interest is used as a
proxy for the opportunity cost of carrying stocks or as a measure of the cost of
funds needed to hold inventories.
It has been found significant in the studies of Hilton (1976) and Irwin
(1981). Time-trend is expected to be important because inventories generally
accumulate with the expansion of economic activities of

the company.

Anticipated price changes, measured by changes in wholesale price index of

inventories, are taken as an explanatory variable to capture speculative element in
inventory. This suggests a positive relationship between price changes and
inventory. An increase in sales is expected to increase the demand for stocks to
meet orders regularly. An increase in capacity utilization is also expected to
increase the demand for stock by increasing the demand for raw materials and
increasing the inventories of finished goods. Thus, the variable, capacity
utilization, is postulated to have a positive coefficient in the equation.
21

Current asset management includes :

1. Cash Management
2. Receivables Management
3. Inventory Management

CASH MANAGEMENT :
Cash is the business enterprise may be compared to the blood of the human
body, blood gives life and strength to the human body, and cash imparts life and
strength profits and solvency to the business organization.
Cash is the important current asset for the operations of the business. Cash
is the basic input needed to keep the business running on a continuous basis; it is
also the ultimate output expected to be realized by selling the service or produce
manufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firms manufacturing operation while
excessive cash will simply remain idle, without contributing anything towards the
firms profitability. Thus a major function of the financial manager is to maintain a
sound cash position.
Cash is the money, which a firm can disburse immediately without any
restriction. The term cash includes coins, currency and cheques held by the firm,
and balances in its bank accounts. Cash is an important liquid assets.

22

There are three general motives for holding inventories are :

Transaction motive : emphasizes the need to maintain inventories to
facilitate smooth production and sales operations.
Precautionary motive : necessities holding of inventories to guard against
the risk of unpredictable changes in demand and supply forces and other factors.
Speculative motive : influence the decision to increases or reduce inventory
levels to take advantage of price fluctuations.
GOALS OF CASH MANAGEMENT
To satisfy day to day business requirements.
To provide for scheduled major payments.
To face unexpected cash drains.
To meet requirements of bank relationships.
To build image of credit worthiness.
To earn on cash balance.
To build reservoir for net cash inflow till the availability of better users of
funds by conscious planning.
To minimize the operating costs of cash management.

23

OBJECTIVES OF CASH MANAGEMENT

1. TO MAKE CASH PAYMENTS :
Very objective of holding cash is to meet the various types of expenditure to
be incurred in business operations. Several types of expenditure to be met at
different points of time and the firm should be prepared to make such cash
payments. The firm should remain liquid to meet the obligations. Otherwise,
their business suffers. Thus, one of the basic objectives of cash management is
to maintain the image of the organization by making prompt payments to
creditor.
2. TO MAINTAIN MINIMUM CASH RESERVE :
Another important objective of cash management is to maintain minimum
reserve. This means, in the process of meeting obligations on cannot keep the
cash idle. Excess cash balance should be made productive that is it should be
invested.

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IMPORTANCE OF CASH MANAGEMENT

Cash management assumes more importance than other current assets
because cash is the most significant and the least productive asset that the firm
holds. It is significant because it is used to pay firms holds. It is significant
because it is used to pay firms obligations. However , cash is unproductive and as
such, the aim of cash management is to maintain adequate cash position to keep
the firm sufficiently liquid and to use excess cash in some profitable way.
Management of cash is also important because it is difficult to predict cash
inflows accurately and that there is no perfect coincidence between inflows and
outflows of cash. Thus , during some periods, cash outflows exceed cash inflows
and at other times cash will be more than cash payments or cash outflows.
EFFECTIVE CASH MANAGEMENT :
Big corporation with sizeable funds generally display a highly independent
management of cash assets. In these firms a responsible fiscal officer is charged
with the responsibility of managing working cash balance in relation to needs for
payment of obligations. A proper cash management necessitates the development
and application of some practical administrative procedures to accelerate the
inflow of cash and to improve the utilization of excess funds. These practical
administrative procedures include:
1. Planning of cash requirements
25

2. Effective control of cash flow

3. Productive utilization of excess funds.

1. PLANNING FOR CASH REQUIREMENTS :

In planning its cash requirements and proper use of the funds
subsequently generated through its operations management should use two
tools : a long range cash projections and a short range forecast of cash
position. Two key objectives of modern corporate cash management are
maximization of a return on liquid assets and minimization of the cost of
financing the assets. The minimization of idle of cash balance is basic to the
achievements of these objectives.

2. EFFECTIVE CONTROL OF CASH FLOW :

The inflows and outflows of cash should be properly managed. The
inflows of cash should be accelerate while the outflows of cash should be
decelerated as far as possible. Thus the twin objective in managing in cash
flows should be accelerated or delay cash disbursement as much as
possible.

3. PRODUCTIVE UTILIZATION OF EXCESS FUNDS :

26

The idle cash or precautionary cash balances should by properly

invested to earn profit. The firm should decide on the division of such cash
balances between back deposits an marketable securities.

ADVANTAGES OF CASH MANAGEMENT

The availability of cash be a matter of life or death. A sufficient of cash can
keep and unsuccessful firm going despite losses. Conversely and insufficiency of
cash can bring failure in the face of actual or prospective earnings. An efficient
cash management through a relevant and timely cash budget may enable a firm to
obtain optimum working capital and ease the strains of cash shortage facilitating
temporarily investment of cash and providing funds for normal growth.

A. Cash may be set to be like the blood stream in the living body: for it is very
much life blood of business. It much lifeblood of business. It must be kept
circulating.
B. It helps to avoid uncertainty in the future.
C. Cash budget involves balance sheet changes and other cash flows. That
doesnt appear in the profit and loss account , such as capital expenditure.
D. It gives an inventory of the financial reserves , which are available in the
event of recession.
E. It yields a plan as integral part of the procedure.
F. It views problems in a dynamic context over a period of time.
27

DISADVANTAGES OF CASH MANAGEMENT

It may offer a solution of compensation, which is not justified on the basic
of a concrete notion, particularly when the business economy operates in a certain
world.
It considers an economic recessions as the main sources of uncertainty but
ignores technological developments, shift in consumer preference, political
changes etc. the cost of holding cash is the profit that could have been earned as
the funds been put to another use.
MOTIVES FOR HOLDING CASH
The firms need to hold cash may be attributed to the following three motives :
1) The Transaction motive
2) The Precautionary motive
3) The Speculative motive

1. TRANSACTION MOTIVE:
Firms need cash to meet their transaction needs. The collection of cash
( from the sale of goods and services, sale of assets, and additional financing)

28

should be perfectly synchronized with the disbursement of cash ( for purchase of

goods and services, acquisition of capital assets and meeting other obligations).
The need to hold cash arises because cash receipts and cash payments are not
perfectly synchronized.

2. PRECAUTIONARY MOTIVE:
Cash is also maintained by the firm and even by individuals to meet
unforeseen expenses at a future date. There are uncontrollable factors like
governments polices, competition, natural calamities and consumer
behavior that will have heavy impact on business operations. In such
situations, the firm may require cash to meet additional obligations. Hence ,
the firm should hold cash to meet such contingencies.

3. SPECULATIVE MOTIVE:
The speculative motive relates to the holding of cash for investing in
profit-making opportunities as and when they arise. To make profit may
arise when the security prices change. Thus, to make advantage of
unexpected opportunities, a firm holds cash for investing in profit-making
opportunities.
CASH MANAGEMENT IS CONCERNED WITH THE MANAGING OF:
Cash inflows into and out of the firm.
Cash flows within the firm and
29

 Cash balances held by the firm at a point of time by financing deficit or

investing surplus cash.

OPERATIONAL DEFINITIONS
CURRENT ASSETS:
Current assets are those which are generally converted into cash within one
year without disturbing the operation of the concern. Current assets include ; cash
and bank balances investments fixed deposits with banks ( maturing within one
year ).
CURRENT LIABILITIES:
Current liabilities are claims of out sides discharged within one year.
Current liabilities are : short term borrowings (including bills purchased and
discounted from the banks and others).
Unsecured loans maturing within one year.
Public deposits maturing within one year.
Interest and other charges due for payments.

WORKING CAPITAL:

30

Working capital means net working capital which is different between

current assets and the company liabilities working capital represents the total of all
current assets in other words it is gross working capital. It is also known as
circulating capital or current capital for current assets are rotating in their nature.
Where current liabilities and provisions exceed current assets the
difference is referred to as negative working capital.

CASH:
Cash is the most important liquid asset, which is initial importance to the
daily operations of the business firms. cash is the basic input needed to keep the
business on continuous basis. It is the ultimate output expected to be realized by
the selling the service or product manufactured by the firm.
ACCOUNTS RECEIVABLES:
The term accounts receivables refers to the sundry debtors and bills
receivables. Receivables and debtors are arises on account of credit sales in the
organization. Firms grant trade credit to protect its sales from the competitors and
to attract the potential customers to buy its products or services. The basic
objective of receivables management is to maximize return of investment in this
asset.

31

CASH MANAGEMENT CYCLE:

Sales generated cash , which has to be disturbing out. The surplus cash has
to be invested which deficit has to be borrowed. Cash management seeks to

32

accomplish this cycle at a minimum cost.

collections

Informat
ion and
control.

Borrow
Or
Invest

Payments

33

INVENTORY MANAGEMENT

DEFINITION OF INVENTORIES:
Inventories are stock of materials of any kind of stored for future use,
mainly in the production process. Thus, todays inventory is tomorrows
production. However, semi-finished goods awaiting in the next process or finished
goods awaiting release for sale are also included in the broad categories of
inventories, which are nothing but idle resources. Therefore, inventories are
materials or resources of any kind having some economic value, either awaiting
conversation or use in future.
A part from these, there are also many indirect materials , such as,
maintenance materials, fuels and lubricants, etc, which are used in a
manufacturing organization. They are also classified as inventories of materials for
future use, buy they differ only in their use and classification from raw and other
direct materials. All of them earn nothing, yet they are broadly required to be used
as and when the needs arise.

34

Inventories constitutes about 60 percent current assets of public limited companies

in India.
A firm which carries a number of items of inventory that differ in value, can
follow a selective control system. A selective control system, such as the A-B-C
analysis, classifies inventories into three categories according to the value of
items:
A-category consists of highest value items, B- category consists of high values
items and C-category consists of lowest values items. More categories of
inventories can also be created. Tight control for low-value items.
Large number of companies these days follow the total quality management
system which requires companies to adopt just in time and computerized system of
inventory management.
THE NEED FOR INVENTORY & CONTROL
Inventories or material are needed by all manufacturing organization big or
small. But inventories tend to become big without proper control. Materials and
inventories serve some social purpose in industries which from some economic
motive.
Broadly , they may be classified under three groups, speculation,
transaction ,and precaution. Typically speculative motive which affords ample
scope for holding large amount of inventories is not important for purposes of
industrial activities.

35

The other two motives are important here. The transaction motives results
from the desire to match inflow and outflow of materials under certain controlled
conditions. Precautionary motives arises out of the inability to predict future
demands precisely and getting the materials ready in time, with incurring some
extra costs. Thus, there also arises the need to maintain some safety or buffer stock
on order to maintain the smooth flow of materials without impairing production.
But, more and more stock of materials are held, this not only entails greater
investment, but carrying and other associated costs increase pair pass. On the other
hand, if minimum inventory is held, with the increase in the frequency of buying
the cost of ordering and processing increase. Also the cost of stock-out poses
economic problem.
TYPES OF INVENTORIES
Inventories are broadly classified into:
RAW MATERIALS AND PRODUCTION INVENTORIES :
These are raw materials and other supplies, parts and components which
enter into the product during the production process and generally from part of the
product.
IN-PROCESS INVENTORIES:
These are semi-finished, work in progress and partly finished products
formed at various stages of production.
MRO INVENTORIES:

36

Maintenance , Repairs and Operating supplies which are consumed during

the production process and generally do not form part of the product itself are
referred to as MRO inventories.
FINISHED GOODS INVENTORIES:
These are complete products ready for sale.

OBJECTIVES OF INVENTORY MANAGEMENT

To maintain a large size of inventory for efficient and smooth production
and sales operation.
To maintain a minimum investment in inventories to maximize profitability.
To facilitate smooth production and sales operation ( transaction motive).
To guard against the risk of unpredictable changes in usage rate and
delivery time (precautionary motive).
To take advantage of price fluctuations ( speculative motive ).
Inventories represent investment of a firms funds. The objective of the
inventory management should be the maximization of the value of the firm.
The firm should therefore, consider costs return and risk factors in
establishing its inventory policy.
BASIC INVENTORY CONTROL SYSTEMS
1. PERIODIC REVIEW SYSTEM :

37

This a time bound system which requires periodic reviews of the stock
levels of all items. Here, period of review is fixed either, 3months,
6months or one year, when requirements of all items are worked out a
fresh and the quantity is varied. This system works well for production of
raw materials and components for which long lead times are necessary.

2. FIXED ORDER QUANTITY SYSTEM:

Under this system, the order quantity is fixed but the time varied. This
system recognizes the fact that each item in inventory possesses its own
unique characteristics and optimum order quantity. Designing of this
system requires consideration of many factors, such as price, usage rate and
other pertinent factors.
Inventories
Inventories are valued at lower of cost or net realizable value. The cost of
Raw materials, components, construction Materials, loose tools and stores and
spare parts are assigned by using weighted average cost formula.
Goods under inspection and in Transit are valued at cost.
A miscellaneous store is valued at estimated realizable value.
Work-in-progress is shown at cost or realizable value or the evaluated value
whichever is less.

38

 Stock in trade is valued at cost or realizable value, whichever is less.

Semi perishable , welfare and miscellaneous equipment are valued at cost
and items costing individual Rs. 10, 000/- and below are charged to revenue
at the time of issue and those costing above Rs. 10000 /- are charged to
revenue in two equal annual installments including the year of issue.
Raw materials , components , construction materials, loose tools and stores
and spare parts declared surplus/ unserviceable/ redundant are charged to
revenue.
VARIOUS TECHNIQUES
ABC analysis
1) Economic order quantity
2) FSN analysis
3) Inventory turnover ratio
4) Safety stock
GENERAL MOTIVES FOR HOLDING INVENTORIES ARE:
Transaction motive : emphasizes the need to maintain inventories to facilitate
smooth production and sales operations.
Precautionary motive: necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.
Speculative motive : influence the decision to increase or reduce inventory levels
to take advantage of price fluctuations.

39

BENEFITS OF HOLDING INVENTORY:

1) AVOID LOSSES OF PRODUCTION :
Holding inventories are necessary to continue smooth production and sales.
For smooth production it is necessary to hold adequate raw materials and
spare parts, lubricants etc.

2 . REDUCING ORDERING COSTS:

More the amount of inventory stocked up lesser will be the number of
orders placed during the year. By placing a few large orders instead of
many orders, variables ordering costs can be saved.
MANAGEEMENT OF ACCOUNTS RECEIVABLES
Receivables constitute a substantial portion of current assets of several firms.
Accounts receivables are created when a firm sells its products on credit. A firm
offers trade credit to protect its sales from the competitor and to attract potential
customers. Receivables after inventories, are the major components of current
assets.
The three traits of receivables are
1. It involves an element of risk.
2. It is based on economic value.
3. It implies futurity.
40

ESTABLISHING OPTIMUM CREDIT POLICY

A firms investment in account receivables depends on
1. The volume of credit sales, and
2. The collection period.
Receivables are directly influenced by credit policy of the firm. A firm may
follow either lenient credit policy or stringent credit policy depending upon its
nature of business and the norms of the industry. Most of the firms follow credit
policy ranging between stringent to lenient. The firm will have to evaluate, its
policy in terms of both written and cost of additional sales. The cost includes
production and selling costs, administration costs and bad debts losses. By cost
benefit analysis, the firm has to arrive at its optimum credit policy.
GOALS OF CREDIT POLICY
A firm may follow a lenient or stringent credit policy. The firm following a
lenient credit policy tends to sell to credit to customers on very liberal terms and
standards. Credits are granted for longer periods even to those customers whose
credit worthiness is not fully known or whose financial position is doubtful. In
contrast, a firm following stringent credit policy sells on credit on a highly
selective basis only to those customers who have proven credit worthiness and
who are financially strong. In practice firms follow credit policies ranging between
stringent to lenient .

CREDIT POLICY VARIABLES

41

An optimum credit policy formulation demands the consideration of the

important decision variables that influence the level of receivables.
The major controllable decision variables include the following
Credit standards and analysis:
Credit standards are the criteria, which a firm follow in selection customers
for the purpose of credit extension. The firm may sell mostly on cash basis and
may grant credit to reliable and financially strong customers, on the other hand, it
may follow loose credit standards. But each policy will have its own risk and
returns. The trade of credit analysis: the quality of the customer is assessed by
The time taken to repay credit obligations.
The default rate
The profitability of default rate can be estimated by considering three C of the
customers. They are
Character
Capacity
Condition
CREDIT TERMS
There are the rules that the firm follows in its trade credit. They include
Credit period : the length of time for which credit is extended to customers
is called the credit period.

42

 Cash discounts : it is a reduction in payment offered to customers to include

them to repay within specific period of time. Cash discounts will be less
than the normal credit period. It is usually expressed in percentage of sales.
In practice, credit terms would include
Rate of cash discounts
The cash discount period
The net credit period

COLLECTION POLICY AND PROCEDURES :

A collection policy is needed because all customers did not pay bills in
time. A collection policy should ensured prompt and regular collection it will
improve the turnover of working capital and lowers the collection costs and bad
debts. The collection policy should pay down clear collection procedures. The
responsibility for collection and follow up should be explicitly fixed. The
coordination between sales and accounts departments is necessary to ensure
prompt and smooth collection.
CREDIT EVALUATION
The process of credit evaluations consists of the following steps
1) Credit information : the information regarding the ability to make the
payment of customer is known from various sources like
Financial statements

43

 Bank references
Trade references
2) It may consists to give names of such persons / firm with whom the
customers has current dealings.
3) Credit investigation and analysis : once the information is obtained the
next step is to investigation on the following factors.
Credit file of each customer
Financial relations

4) Credit limit: it refers maximum amount of credit, which the firm will
extend at a point of time. It refers the extent of risk taken by the firm by
supplying goods on credit to the customer. The credit limit must be
reviewed periodically. If the tendencies of slow pain are found, the
credit can be revised downward. If profits exceeds costs, the collection
period may be extended otherwise not.
5) Collection efforts: the collection procedure of the firm should be clearcut and well administered. The purpose of collection policy should be to
speed up the collection of dues. If collections are delayed, alternative
arrangement of finances to sustain production and sales will have to
make. The chances of bad debts also increase as the collection is

44

delayed. The firm should developed collection policy, which will enable
it to collect in time.
The main purpose of receivables management is as follows :
To obtain best or most favorable volume of sales.
To control the cost of credit and keep it at minimum.
To maintain investment in debtors at a most favorable level.
To keep the track of risk of bad debts minimum.

3.PROFILE OF THE STUDY IN AREA

INDUSTRY PROFILE
Following diagram gives the structure of Indian financial system:

45

FINANCIAL MARKET
Financial markets are helpful to provide liquidity in the system and for
smooth functioning of the system. These markets are the centers that provide
facilities for buying and selling of financial claims and services. The financial
46

markets match the demands of investment with the supply of capital from various
sources.

According to functional basis financial markets are classified into two types.
They are:

Money markets (short-term)

Capital markets (long-term)

According to institutional basis again classified in to two types. They are

Organized financial market

Non-organized financial market.

The organized market comprises of official market represented by

recognized institutions, bank and government (SEBI) registered/controlled
activities and intermediaries. The unorganized market is composed of indigenous
bankers, moneylenders, individual professional and non-professionals.
MONEY MARKET:
Money market is a place where we can raise short-term capital.
Again the money market is classified in to

Interbank call money market

Bill market and

Bank loan market Etc.

47

E.g.; treasury bills, commercial papers, CD's etc.

CAPITAL MARKET:
Capital market is a place where we can raise long-term capital.
Again the capital market is classified in to two types and they are

Primary market and

Secondary market.

E.g.: Shares, Debentures, and Loans etc.

PRIMARY MARKET:
Primary market is generally referred to the market of new issues or market
for mobilization of resources by the companies and government undertakings, for
new projects as also for expansion, modernization, addition, and diversification
and up gradation. Primary market is also referred to as New Issue Market.
Primary market operations include new issues of shares by new and existing
companies, further and right issues to existing shareholders, public offers, and
issue of debt instruments such as debentures, bonds, etc.
The primary market is regulated by the Securities and Exchange Board of
India (SEBI a government regulated authority).

Function:

48

The main services of the primary market are origination, underwriting, and
distribution. Origination deals with the origin of the new issue. Underwriting
contract make the shares predictable and remove the element of uncertainty in
the subscription. Distribution refers to the sale of securities to the investors.
The following are the market intermediaries associated with the market:
1. Merchant banker/book building lead manager
2. Registrar and transfer agent
3. Underwriter/broker to the issue
4. Adviser to the issue
5. Banker to the issue
6. Depository
7. Depository participant.
Investors protection in the primary market:
To ensure healthy growth of primary market, the investing public should be
protected. The term investor protection has a wider meaning in the primary
market. The principal ingredients of investors protection are:

Provision of all the relevant information

Provision of accurate information and

Transparent allotment procedures without any bias.

49

SECONDARY MARKET
The primary market deals with the new issues of securities. Outstanding
securities are traded in the secondary market, which is commonly known as stock
market or stock exchange. The secondary market is a market where scrips
are traded. It is a market place which provides liquidity to the scrips issued in
the primary market. Thus, the growth of secondary market depends on the
primary market. More the number of companies entering the primary market, the
greater are the volume of trade at the secondary market. Trading activities in the
secondary market are done through the recognized stock exchanges which are 23
in number including Over the Counter Exchange of India (OTCE), National
Stock Exchange of India and Interconnected Stock Exchange of India.
Secondary market operations involve buying and selling of securities
on the stock exchange through its members. The companies hitting the primary
market are mandatory to list their shares on one or more stock exchanges in
India. Listing of scrips provides liquidity and offers an opportunity to the
investors to buy or sell the scrips.
The following are the intermediaries in the secondary market:
1.

Broker/member of stock exchange buyers broker and sellers broker

2.

Portfolio Manager

3.

Investment advisor

4.

Share transfer agent

5.

Depository
50

STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities whether of
government and semi-govt bodies or other public bodies as also for shares and
debentures issued by the joint-stock companies. In the stock market, purchases
and sales of shares are affected in conditions of free competition. Government
securities are traded outside the trading ring in the form of over the counter sales
or purchase. The bargains that are struck in the trading ring by the members of
the stock exchanges are at the fairest prices determined by the basic laws of
supply and demand.
Definition of a stock exchange:
Stock exchange means anybody or individuals whether incorporated or
not, constituted for the purpose of assisting, regulating or controlling the business
of buying, selling or dealing in securities. The securities include:

Shares of public company.

Government securities.

Bonds

History of Stock Exchanges:

The only stock exchanges operating in the 19 th century were those of
Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as
voluntary non-profit-marking associations of brokers to regulate and protect their
interests. Before the control on securities under the constitution in 1950, it was a

51

state subject and the Bombay securities contracts (control) act of 1925 used to
regulate trading in securities. Under this act, the Mumbai stock exchange was
recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of
stock exchanges were organized. Soon after it became a central subject, central
legislation was proposed and a committee headed by A.D.Gorwala went into the
bill for securities regulation. On the basis of the committees recommendations
and public discussion, the securities contract (regulation) act became law in
1956.
Functions of Stock Exchanges:
Stock exchanges provide liquidity to the listed companies. By giving
quotations to the listed companies, they help trading and raise funds from the
market. Over the hundred and twenty years during which the stock exchanges
have existed in this country and through their medium, the central and state
government have raised crores of rupees by floating public loans. Municipal
corporations, trust and local bodies have obtained from the public their financial
requirements, and industry, trade and commerce- the backbone of the countrys
economy-have secured capital of crores or rupees through the issue of stocks,
shares and debentures for financing their day-to-day activities, organizing new
ventures

and

completing

projects

of

expansion,

diversification

and

modernization.. The quoted companies with wide public interest have enjoyed
some benefits and assets valuation has become easier for tax and other purposes.

52

Various Stock Exchanges in India:

At present there are 23 stock exchanges recognized under the securities contracts
(regulation), Act, 1956. Those are:
Ahmadabad Stock Exchange Association Ltd.
Bangalore Stock Exchange
Bhubaneswar Stock Exchange Association
Calcutta Stock Exchange
Cochin Stock Exchange Ltd.
Coimbatore Stock Exchange
Delhi Stock Exchange Association
Guwahati Stock Exchange Ltd
Hyderabad Stock Exchange Ltd.
Ludhiana Stock Exchange Association Ltd
Madras Stock Exchange
Madhya Pradesh Stock Exchange Ltd.
Magadha Stock Exchange Limited
Meerut Stock Exchange Ltd.
Mumbai Stock Exchange
National Stock Exchange of India

53

 Uttar Pradesh Stock Exchange Association

Vadodara Stock Exchange Ltd.

Out of these major stock exchanges were:

NSE
The National Stock Exchange of India Limited has genesis in the report of
the High Powered Study Group on Establishment of New Stock Exchanges,
which recommended promotion of a National Stock Exchange by financial
institutions (FIs) to provide access to investors from all across the country on an
equal footing. Based on the recommendations, NSE was promoted by leading
Financial Institutions at the behest of the Government of India and was
incorporated in November 1992 as a tax-paying company unlike other stock
exchanges in the country. On its recognition as a stock exchange under the
Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced
operations in the Wholesale Debt Market (WDM) segment in June 1994. The
Capital Market (Equities) segment commenced operations in November 1994
and operations in Derivatives segment commenced in June 2000
NSE's mission is setting the agenda for change in the securities markets in India.
The NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities and debt instruments.

54

Ensuring equal access to investors all over the country through an

appropriate communication network.

Providing a fair, efficient and transparent securities market to investors

using electronic trading systems.

Enabling shorter settlement cycles and book entry settlements systems, and

Meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology, have

become industry benchmarks and are being emulated by other market

participants. NSE is more than a mere market facilitator. It's that force which is
guiding the industry towards new horizons and greater opportunities
BSE
The Stock Exchange, Mumbai, popularly known as "BSE" was established
in 1875 as "The Native Share and Stock Brokers Association". It is the oldest
one in Asia, even older than the Tokyo Stock Exchange, which was established in
1878. It is a voluntary non-profit making Association of Persons (AOP) and is
currently engaged in the process of converting itself into demutualized and
corporate entity. It has evolved over the years into its present status as the
premier Stock Exchange in the country. It is the first Stock Exchange in the
Country to have obtained permanent recognition in 1956 from the Govt. of India
under the Securities Contracts (Regulation) Act 1956.The Exchange, while

55

providing an efficient and transparent market for trading in securities, debt and
derivatives upholds the interests of the investors and ensures redresses of their
grievances whether against the companies or its own member-brokers. It also
strives to educate and enlighten the investors by conducting investor education
programmers and making available to them necessary informative inputs.
A Governing Board having 20 directors is the apex body, which decides the
policies and regulates the affairs of the Exchange. The Governing Board consists
of 9 elected directors, who are from the broking community (one third of them
retire ever year by rotation), three SEBI nominees, six public representatives and
an Executive Director & Chief Executive Officer and a Chief Operating Officer
The Executive Director as the Chief Executive Officer is responsible for the
day-to-day administration of the Exchange and the Chief Operating Officer and
other Heads of Department assist him.
The Exchange has inserted new Rule No.126 A in its Rules, Byelaws
pertaining to constitution of the Executive Committee of the Exchange.
Accordingly, an Executive Committee, consisting of three elected directors, three
SEBI nominees or public representatives, Executive Director & CEO and Chief
Operating Officer has been constituted. The Committee considers judicial &
quasi matters in which the Governing Board has powers as an Appellate
Authority, matters regarding annulment of transactions, admission, continuance
and suspension of member-brokers, declaration of a member-broker as defaulter,
56

norms, procedures and other matters relating to arbitration, fees, deposits,

margins and other monies payable by the member-brokers to the Exchange, etc
Regulatory Frame Work of Stock Exchange
A comprehensive legal framework was provided by the Securities Contract
Regulation Act, 1956 and Securities Exchange Board of India 1952. Three tier
regulatory structure comprising

Ministry of finance

The Securities And Exchange Board of India

Governing body

Members of the stock exchange:

The securities contract regulation act 1956 has provided uniform regulation
for the admission of members in the stock exchanges. The qualifications for
becoming a member of a recognized stock exchange are given below:

The minimum age prescribed for the members is 21 years.

He should be an Indian citizen.

He should be neither a bankrupt nor compound with the creditors.

He should not be convicted for fraud or dishonesty.

He should not be engaged in any other business connected with a

company.

He should not be a defaulter of any other stock exchange.

The minimum required education is a pass in 12th standard examination.

57

STOCK EXCHANGE BOARD OF INDIA (SEBI)

The securities and exchange board of India was
constituted in 1988 under a resolution of government of India. It was later made
statutory body by the SEBI act 1992.according to this act, the SEBI shall
constitute of a chairman and four other members appointed by the central
government.
With the coming into effect of the securities and exchange board of India
act, 1992 some of the powers and functions exercised by the central government,
in respect of the regulation of stock exchange were transferred to the SEBI.
OBJECTIVES AND FUNCTIONS OF SEBI

To protect the interest of investors in securities.

Regulating the business in stock exchanges and any other securities

market.

Registering and regulating the working of intermediaries associated

with securities market as well as working of mutual funds.

Promoting and regulating self-regulatory organizations.

Prohibiting insider trading in securities.

Regulating substantial acquisition of shares and takeover of companies.

58

Performing such functions and exercising such powers under the

provisions of capital issues (control) act, 1947and the securities to it by
the central government.

GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):

Board of Directors of Stock Exchange has to be reconstituted so as to include
non-members, public representatives and government representatives to the
extent of 50% of total number of members.
Capital adequacy norms have been laid down for the members of various
stock exchanges depending upon their turnover of trade and other factors.
All recognized stock exchanges will have to inform about transactions within
24 hrs.
TYPES OF ORDERS:
Buy and sell orders placed with members of the stock exchange by the
investors. The orders are of different types.
Limit orders: Orders are limited by a fixed price. E.g. buy Reliance Petroleum
at Rs.50.Here, the order has clearly indicated the price at which it has to be
bought and the investor is not willing to give more than Rs.50.
Best rate order: Here, the buyer or seller gives the freedom to the broker to
execute the order at the best possible rate quoted on the particular date for
buying. It may be lowest rate for buying and highest rate for selling.

59

Discretionary order: The investor gives the range of price for purchase and sale.
The broker can use his discretion to buy within the specified limit. Generally the
approximation price is fixed. The order stands as this buy BRC 100 shares
around Rs.40.

Stop loss order: The orders are given to limit the loss due to unfavorable price
movement in the market. A particular limit is given for waiting. If the price falls
below the limit, the broker is authorized to sell the shares to prevent further loss.
E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.
Buying and selling shares:
To buy and sell the shares the investor has to locate register broker or sub
broker who render prompt and efficient service to him. The order to buy or sell
specifying the number of shares of the company of investors choice is placed
with the broker. The order may be of any type. After receiving the order the
broker tries to execute the order in his computer terminal. Once matching order is
found, the order is executed. The broker then delivers the contract note to the
investor. It gives the details regarding the name of the company, number of
shares bought, price, brokerage, and the date of delivery of share. In this physical
trading form, once the broker gets the share certificate through the clearing
houses he delivers the share certificate along with transfer deed to the investor.
The investor has to fill the transfer deed and stamp it. If it is bought in the
DEMAT form, the broker has to give a matching instruction to his depository
60

participant to transfer shares bought to the investors account. The investor should
be account holder in any of the depository participant. In the case of sale of
shares on receiving payment from the purchasing broker, the broker effects the
payment to the investor.

Share groups:
The

scraps

traded

on

the

BSE

have

been

classified

into

A,B1,B2,C,F and Z groups. The A group represents those, which are

in the carry forward system. The F group represents the debt market segment
(fixed income securities). The Z group scraps are of the blacklisted companies.
The C group covers the odd lot securities in A, B1&B2 groups.
ROLLING SETTLEMENT SYSTEM:
Under rolling settlement system, the settlement takes place n days (usually
1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in for
n days after the trading day of the particular transaction. Share settlement is
likely to be completed much sooner after the transaction than under the fixed
settlement system.
The rolling settlement system is noted by T+N i.e. the settlement period is n
days after the trading day. A rolling period which offers a large number of days
negates the advantages of the system. Generally longer settlement periods are
shortened gradually.

61

SEBI made RS compulsory for trading in 10 securities selected on the basis

of the criteria that they were in compulsory demats list and had daily turnover of
about Rs.1 crore or more. Then it was extended to A stocks in Modified Carry
Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM) and
Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31,
2001.
SEBI has introduced T+5 rolling settlement in equity market from July 2001
and subsequently shortened the cycle to T+3 from April 2002. After the T+3
rolling settlement experience it was further reduced to T+2 to reduce the risk in
the market and to protect the interest of the investors from 1st April 2003.
Activities on T+1:
Conformation of the institutional trades by the custodian is sent to the stock
exchange by 11.00 am. A provision of an exception window would be available
for late confirmation.
The exchanges/clearing house/ clearing corporation would process and
download the obligation files to the brokers terminals late by 1.30 p.m on T+1.
Depository participants accept the instructions for pay in securities by investors
in physical form up to 4 p.m and in electronic form up to 6 p.m. the depositories
accept from other DPs till 8p.m for same day processing.
Activities on T+2:
The depository permits the download of the paying in files of securities and
funds till 10.30 am on T+2 from the brokers pool accounts. The depository
62

processes the pay in requests and transfers the consolidated pay in files to
clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing
house/clearing corporation executes the pay-out of securities and funds latest by
1.30 p.m on T+2 to the depositories and clearing banks. In the demat mode net
basis settlement is allowed. The buy and sale positions in the same scrip can be
settled and net quantity has to be settled.
COMPANY PROFILE
Sharekhan is one of the top retail brokerage houses in India with a strong online
trading platform. The company provides equity based products (research, equities,
derivatives, depository, margin funding, etc.). It has one of the largest networks in
the country with 1200+ share shops in 400 cities and Indias premier online
trading portal www.sharekhan.com. With their research expertise, customer
commitment and superior technology, they provide investors with end-to-end
solutions in investments. They provide trade execution services through multiple
channels - an Internet platform, telephone and retail outlets.
Sharekhan was established by Morakhia family in 1999-2000 and Morakhia
family, continues to remain the largest shareholder. It is the retail broking arm of
the Mumbai-based SSKI [SHRIPAL SHEWANTILAL KANTILAL ISWARNATH
LIMITED] Group. SSKI which is established in 1930 is the parent company of
Sharekhan ltd. With a legacy of more than 80 years in the stock markets, the SSKI
group ventured into institutional broking and corporate finance over a decade ago.

63

Presently SSKI is one of the leading players in institutional broking and corporate
finance activities. Sharekhan offers its customers a wide range of equity related
services including trade execution on BSE, NSE, and Derivatives. Depository
services, online trading, Investment advice, Commodities, etc.
Sharekhan Ltd. is a brokerage firm which is established on 8th February
2000 and now it is having all the rights of SSKI. The company was awarded the
2005 Most Preferred Stock Broking Brand by Awaaz Consumer Vote. It is first
brokerage Company to go online. The Company's online trading and investment
site - www.Sharekhan.com - was also launched on Feb 8, 2000. This site gives
access to superior content and transaction facility to retail customers across the
country. Known for its jargon-free, investor friendly language and high quality
research, the content-rich and research oriented portal has stood out among its
contemporaries because of its steadfast dedication to offering customers best-ofbreed technology and superior market information.
Sharekhan has one of the best states of art web portal providing
fundamental and statistical information across equity, mutual funds and IPOs. One
can surf across 5,500 companies for in-depth information, details about more than
1,500 mutual fund schemes and IPO data. One can also access other market
related details such as board meetings, result announcements, FII transactions,
buying/selling by mutual funds and much more.

64

Sharekhan's management team is one of the strongest in the sector and has
positioned Sharekhan to take advantage of the growing consumer demand for
financial services products in India through investments in research, pan-Indian
branch network and an outstanding technology platform. Further, Sharekhan's
lineage and relationship with SSKI Group provide it a unique position to
understand and leverage the growth of the financial services sector. We look
forward to providing strategic counsel to Sharekhan's management as they
continue their expansion for the benefit of all shareholders.
SSKI Corporate Finance Private Limited (SSKI) is a leading India-based
investment bank with strong research-driven focus. Their team members are
widely respected for their commitment to transactions and their specialized
knowledge in their areas of strength. The team has completed over US$5 billion
worth of deals in the last 5 years - making it among the most significant players
raising equity in the Indian market. SSKI, a veteran equities solutions company
has over 8 decades of experience in the Indian stock markets.
If we experience their language, presentation style, content or for that
matter the online trading facility, we'll find a common thread; one that helps us
make informed decisions and simplifies investing in stocks. The common thread
of empowerment is what Sharekhan's all about.

65

"Sharekhan has always believed in collaborating with like-minded

Corporate into forming strategic associations for mutual benefit relationships" says
Jaideep Arora, Director - Sharekhan Limited.
Sharekhan is also about focus. Sharekhan does not claim expertise in too
many things. Sharekhan's expertise lies in stocks and that's what he talks about
with authority. So when he says that investing in stocks should not be confused
with trading in stocks or a portfolio-based strategy is better than betting on a single
horse, it is something that is spoken with years of focused learning and experience
in the stock markets.
And these beliefs are reflected in everything Sharekhan does for us!
Sharekhan is a part of the SSKI group, an Indian financial services power house,
with strong presence in Retail equities Institutional equities Investment banking.
PROFILE OF THE COMPANY :
Name of the company

: Sharekhan ltd.

Year of Establishment

: 1925

Headquarter

: Sharekhan SSKI
A-206 Phoenix House
Phoenix Mills Compound
Lower Parel
Mumbai Maharashtra, INDIA 400013

66

Nature of Business

: Service Provider

Services

: Depository Services, Online Services and Technical

Research.

Number of Employees

: Over 3500

Website

: www.sharekhan.com

Slogan

: Your Guide to the Financial Jungle.

ACHIEVEMENTS OF SHAREKHAN :
A Rated among the top 20 wired companies along with Reliance, HUJI,
Infosys, etc by Business Today, January 2004 edition.
Awarded Top Domestic Brokerage House four times by Euro money and
Asia money.
Pioneers of online trading in India amongst the top 3 online trading
websites from India. Most preferred financial destination amongst online
broking customers.
Winners of Best Financial website award.
Indias most preferred brokers within 5 years. Awaaz customer Award
2005.
VISION
To be the best retail brokering Brand in the retail business of stock market.
MISSION
To educate and empower the individual investor to make better investment
decisions through quality advice and superior service.
67

Sharekhan is infacto Among the top 3 branded retail service providers

o No. 1 player in online business
o Largest network of branded broking outlets in the country serving more
than 7,00,000 clients.

o All you have to do is walk into any of our 640 share shops across 280
cities in India to get a host of trading related services our friendly
customer service staff will also help you with any accounts related queries
you may have.

68

SSKI Group Companies

SSKI Investor Services Ltd (ShareKhan)

S.S. Kantilal Ishwarlal Securities
SSKI Corporate Finance
I Dream Productions
Palm spring estates Pvt Ltd.
Fin flow Investment Pvt Ltd.
I Dream Productions UK Pvt Ltd.
Sharekhan Commodities Pvt Ltd.
Archfund Properties Pvt Ltd.

SHAREKHAN LIMITEDS MANAGEMENT TEAM:

Mr. Dinesh Murikya Owner of the company:
The Sharekhan Group of Companies was bought to life by Mr. Dinesh Murikya.
He ventured into stock trading with an intention to raise capital for his own
independent enterprise.
Mr. Tarun Shah Chief Executive Officer of the company:

69

Mr. Shankar Vailaya Director (Operations) of the company:

Mr. Jaideep Arora Director (Products & Technology) of the company:

Pathik Gandotra

: Head of Research

Rishi Kohli

: Vice President of Equity Derivatives

Nikhil Vora

: Vice President of Research

70

PRODUCTS AND SERVICES OF SHAREKHAN LIMITED :

The different types of products and services offered by Sharekhan Ltd. are as
follows :

Equity and derivatives trading

Depository services
Online services
Commodities trading

Dial-n-trade
Portfolio management
Fundamental research
Technical research
DATA ANALYSIS AND INTERPRETATION

CLASSIFICATION OF RATIOS

71

The uses of ratios analysis is not confined to financial manager only. There
are different parties interested in the ratio analysis for knowing the financial
position of the firm for different purpose. In view of various users of ratios, there
are many types of ratio that can be calculated from information given in the
financial statements. The particular purpose of the user determines the particular
ratio that might be used for financial analysis.
Ratio calculated from accounting data are grouped into various classes
according to financial activity or function to be evaluated. The parties interested in
financial analysis are short and long term creditor, owners and management. Short
term creditors interested is in the liquidity position or the short term solvency.
On the other hand, financial institution ( share holder ) and the management
also differ. The share holder are generally interested in the profitability or divided
position of the firm(financial condition), while management requires information
on almost all the financial aspects and performance of the to enable it to protect
the interest of all parties.
In view of the financial management or according to the test satisfied , various
ratios have been classified into following:
Liquidity ratios : measures the firms ability to meet current obligations.
Leverage ratios : show the proportions of debt and equity in financing the
firms assets. Suppliers of debt capital would like to equity as margin of

72

safety; but owners would borrow to maintain control with limited

investment.
Activities ratios: Reflect the firms efficiency in utilizing its assets. The
profitability ratios measure the over all performance and effectiveness of
the firm as shown by returns generated on sales and investment.
1. CURRENT RATIO :
The current ratio is defined as the relationship between current assets and
current liabilities. Current ratio is a general and quick measure of liquidity of a
firm. It represents the margin of safety of cushion available to the creditors and
other current liabilities. The ratio is most widely used to make the analysis of a
short term financial position or liquidity of a firm. It is calculated as:
Current Assets
Current Ratio = ------------------------Current Liabilities
A current ratio of 2: 1 or more is considered satisfactory.
2. QUICK RATIO :
It is also called as Acid test ratio. It establishes a relationship between quick, or
liquid, assets and current liabilities.
Quick Assets
Quick Ratio = ---------------------------Current Liabilities

A Quick Ratio of 1 to 1 is considered a satisfactory current financial condition.

73

3. WORKING CAPITAL RATIO:

Working Capital is difference between current assets and current liabilities,
working capital used for daily business operations in short term requirements of
cash.
It indicates what extent working funds have been employed in business towards
sales.
W.C = SALES / WORKING CAPITAL
4. INVENTORY TURNOVER RATIO :
The inventory turnover / stock turnover ratio shows how rapidly the
inventory is into receivables through sales though sales. This ratio is an indicator
of the efficiency of the use of investment in stock. It is calculated as
Net Sales
Inventory turnover Ratio = -------------------------------Average inventory
Days of inventory holdings :
It indicates then inventory stock available with respect to the time in days
for days for use in production. It is calculated as
Days in a year
Collection / conversion period = ------------------------------Inventory turnover

74

5. DEBTORS TURNOVER RATIO :

Debtors turnover indicates the no of times debtors turnover each year / this
ratio measures the net credit sales of a firm to the recorded trade debtors there by
indicating the rate at which cash is generated by turnover of receivable ( or )
debtors. This is calculated as
Net Sales
Debtors turnover ratio = -------------------------Total Debtors
Collection / conversion period :
This indicates the extent tom which the debts have been collected in time. It is
calculated as
Days in a year
Collection / conversion period = --------------------Debtors turnover
6.) DEBT COLLECTION PERIOD :
This indicates the extent tom which the debts have been collected in time. It is
calculated as
Debt collection period = months / days in a year
Debtors turnover ratio

75

TABLE-1
CURRENT RATIO :
The current ratio is defined as the relationship between current assets and current
liabilities.
Current assets
Current Ratio = ------------------------Current Liabilities

YEAR

CURRENT

LIABILITIES

RATIO

2006-07
2007-08
2008-09
2009-10
2010-11

ASSETS
174416.1
165556.1
18607.5
180484.3
213328.2

135829.9
121722.7
140381.7
134466.3
167417.8

1.28
1.36
1.32
1.34
1.27

CHART-1
CURRENT RATIO

76

Interpretation :
The current Ratio in 2006-07 was 1.28 and in 07-08 was 1.36 & 08-09 1.32, 09-10
was in 1.34 and 10-11 is 1.27.

TABLE-2
QUICK RATIO :
77

This ratio establishes a relationship between quick assets and current

liabilities.
Quick assets
Quick ratio = ___________________
Current Liabilities

YEAR
2006-07
2007-08
2008-09
2009-10
2010-11

QUICK ASSETS
145259.63
125094.18
140622.32
146592.59
169903.62

LIABILITIES
135829.88
121722.74
140381.7
134466.3
167417.8

CHART-2
QUICK RATIO

78

RATIO
1.07
1.03
1
1.09
1.01

Interpretation :
During the period of the study, it is observed that the Quick Ratio is increasing
from 1.07 to 1.09.

TABLE-3
WORKING CAPITAL RATIO:
Working Capital is difference between current assets and current liabilities,
working capital used for daily business operations in short term requirements of
cash.
79

It indicates what extent working funds have been employed in business towards
sales.
W.C = SALES / WORKING CAPITAL

YEAR
2006-07
2007-08
2008-09
2009-10
2010-11

SALES

WORKING

RATIO

524
449.19
531.53
433.51
454.38

CAPITAL
312.19
316.21
361.94
371.79
384.96

1.67
1.42
1.46
1.16
1.18

CHART-3
WORKING CAPITAL RATIO

80

Interpretation:
This ratio shows the no. of times working capital used in the firm is able to
generate the sales. This ratio measures the efficiency with which the working
capital is being used by the company.
The higher the ratio , the lower is the investment in working capital and greater is
the efficiency in working capital management. SHAREKHAN LTD is improving
its working ratio during the period of study.

TABLE-4
INVENTORY TURNOVER RATIO :
The inventory turnover / stock turnover ratio shows how rapidly the inventory is
into receivables through sales though sales. This ratio is an indicator of the
efficiency of the use of investment in stock. It is calculated as
81

Net Sales
Inventory turnover Ratio = -------------------------------Average inventory

YEAR
2006-07
2007-08
2008-09
2009-10
2010-11

SALES
5240.45
45097.71
53153.31
43351.31
45438.02

INVENTORY
35826.54
38461.9
45452.65
33891.7
43424.59

CHART-4
INVENTORY TURNOVER RATIO

82

RATIO
1.46
1.17
1.16
1.28
1.04

Interpretation:
This ratio reveals the no. of times finished stock is turned over during a
given accounting period.
Higher the ratio, the better it is because it shows the finished stock is rapidly
turned into sales. On the other hand, a low stock turnover not desirable because it
reveals accumulation of stock.

TABLE-5
DEBTORS TURNOVER RATIO :

83

Debtors turnover indicates the no of times debtors turnover each year / this
ratio measures the net credit sales of a firm to the recorded trade debtors there by
indicating the rate at which cash is generated by turnover of receivable ( or )
debtors. This is calculated as
Net Sales
Debtors turnover ratio = -------------------------Total Debtors
YEAR
2006-07
2007-08
2008-09
2009-10
2010-11

SALES
524
450.98
531.53
433.51
454.38

DEBTOR
1493.44
2417.04
1387.33
1951.41
2154.2

CHART-5
DEBTORS TURNOVER RATIO

84

RATIO
0.35
0.18
0.38
0.22
0.21

Interpretation:

During the year 2006-07 the debtors turnover ratio decreased from .35 to .21.

TABLE-6
DEBT COLLECTION PERIOD :
This indicates the extent tom which the debts have been collected in time. It
is calculated as
Debt collection period = months / days in a year
85

Debtors turnover ratio

YEAR
2006-07
2007-08
2008-09
2009-10
2010-11

DTOR

NO.OF DAYS

COLLECTION

312
312
312
312
312

PERIOD
891.42
1733.33
821.05
1418.18
1485.71

0.35
0.18
0.38
0.22
0.21

CHART-6
DEBT COLLECTION PERIOD

86

INTERPRETATION:
The debt collection period has increased from 891.42 to 1485.71 there
implies that firm is not able to collect the receivables in time. High debit collection
on period is not a satisfactory sign.

TABLE-7
PARTICULARS

Statement Showing changes in working capital for the year

2002-2003 and 2003-2004
PREVIOUS CURRENT
INCREASE
DECREASE
YEAR
YEAR
(2002-2003) (2003-2004)

87

A) CURRENT ASSETS
Inventories

34292.49

35826.54

1534.05

Sundry Debtors

504.60

1493.44

988.84

Cash & Bank balances

136431.09

116738.78

19692.31

Loans & Advances

23493.61

20357.33

3136.28

Total Current Assets

194721.79

174416.09

Sundry Creditors

9621.53

8458.10

1163.43

Advances from Government

143736.60

120541.16

23195.44

Other Advances

3022.75

2912.38

110.37

Deposits

87.26

199.10

111.84

Other liabilities

2557.09

3719.14

1162.05

Total Current Liabilities

159025.23

135829.88

Net Working Capital(A-B)

35696.56

38586.21

Increase in Working Capital

2889.65

38586.21

38586.21

B) CURRENT LIABILITIES
-

2889.65
26992.13

26992.13

TABLE-8
Statement showing changes in working capital for the years
2003-2004 and 2004-2005
PARTICULARS

PREVIOUS
YEAR
(2003-2004)

CURRENT
YEAR
(2004-2005)

A) CURRENT ASSETS

88

INCREASE

DEGREASE

Inventories

35826.54

38461.90

2635.36

Sundry Debtors

1493.44

2417.04

923.60

Cash & Bank balances

116738.78

100127.94

16610.84

Loans & Advances

20357.33

22549.20

Total Current Assets

174416.09

163556.08

Sundry Creditors

8458.10

9122.54

Advances from
Government

120541.16

105490.57

15050.59

Other Advances

2912.38

2572.36

340.02

Deposits

199.10

255.32

56.22

Other liabilities

3719.14

4331.95

612.81

Total Current Liabilities

135829.88

121772.74

Net Working Capital(A-B)

38586.21

41783.34

Increase in Working
Capital

3197.13

2191.87

B) CURRENT
LIABILITIES

41783.34

41783.34

664.44
-

21141.44

21141.44

TABLE-9
Statement showing changes in working capital for the years
2005-2006 and 2006-2007
PARTICULARS

PREVIOUS CURRENT
YEAR
YEAR
(2005-2006) (2006-2007)

A) CURRENT
89

INCREASE

DECREASE

ASSETS
Inventories

38461.90

45452.65

6990.75

Sundry debtors

2417.04

1387.33

Cash & bank balance

100127.94

117623.44

17495.50

Loans & advances

22549.20

21611.55

Total current assets

163556.80

186074.97

B) CURRENT
LIABILITIES
Sundry creditors

9122.54

8455.68

Advances from
government
Other advances

105490.57

123984.55

2572.36

1765.99

806.37

Deposits

255.32

119.11

136.21

136.21

Other liabilities

4331.95

6059.41

Total current liabilities

121772.74

140384.74

Net working capital(AB)

Increase in working
capital

41783.34

45690.23

3906.89

45690.23

45690.23

1029.71
937.65

666.86
-

26095.69

18493.98

1727.46

3906.89
26095.69

TABLE-10
Statement showing changes in working capital for the years
2007-2008 and 2008-2009
PREVIOUS CURRENT
INCREASE
DEGREASE
YEAR
(2007-2008)

YEAR
(2008-2009)

A) CURRENT ASSETS
Inventories

45452.65

33891.70

Sundry Debtors

1387.33

1951.41

564.08

Cash & Bank balances

117623.44

121103.09

3479.65

90

11560.95
-

Loans & Advances

21611.55

2358.09

1926.54

Total Current Assets

186074.97

180484.29

Sundry Creditors

8455.68

6623.87

1831.81

Advances from
Government

123984.55

111939.10

12045.45

Other Advances

1765.99

1279.46

486.53

Deposits

119.11

155.66

36.55

Other liabilities

6059.41

14468.17

8408.76

Total Current Liabilities

140384.74

134466.26

Net Working Capital(AB)

45690.23

46018.03

Increase in Working
Capital

3270.80

B) CURRENT
LIABILITIES

46018.03

3270.80
20334.06

20334.06

46018.03

TABLE-11
Statement showing changes in working capital for the years
2009-2010 and 2010-2011
PARTICULARS
PREVIOUS CURRENT INCREASE
DECREASE
YEAR
YEAR
(2009-2010) (2010-2011)
A) CURRENT
ASSETS
Inventories
33891.70
43424.59
9532.89
Sundry Debtors

1951.41

2154.20

202.79

Cash & Bank balances

121103.09

146477.80

25374.71

Loans & Advances

2358.09

21271.62

18913.53

91

Total Current Assets

Or
Gross working capital
B) CURRENT
LIABILITIES

180484.29

213328.21

Sundry Creditors

6623.87

7109.21

485.34

Advances from
Government

111939.10

142435.30

30496.20

Other Advances

1279.46

1020.09

Deposits

155.66

185.57

29.91

Other liabilities

14468.17

16667.65

2199.48

Total Current
Liabilities

134499.26

167417.82

Net Working
Capital(A-B)

46018.03

45910.39

Increase in Working
Capital

21072.36
45910.39

259.37

21072.36
45910.39

54283.29

54283.29

TABLE-12
Statement of changes in Financial position for the year ended 31st March, 2011
(Rs. In lakhs)
PARTICULARS
CURRENT
PREVIOUS YEAR
YEAR(2010-2011)
(2009-2010)

92

Sources of funds
a) internal generation from operations
profit after tax
Capital profit on assets
Depreciation / amortization
Capital work in progress
Provisions
b) External generations
Equity
Loans
Deferred debt
Decrease in working capital
Application of funds
a) Addition to
Fixed assets
Special tools & equipments
Capital work in progress
Miscellaneous expenditure
Deferred tax assets
b) dividend
interim dividend
proposed dividend
c) Repayment of long terms loans
Deferred debts
Deferred credits
Increase in working capital
Working Capital Management
Increase / Decrease
Inventories
Sundry Debtors
Cash & Bank balances
Loans & Advances
Less: Sundry Creditors and other
Liabilities
Increase / Decrease in working capital

2883.42
930.05
(656.99)
(523.92)
-

473.22
-

2632.56

7878.80

901.60
244.69
(445.87)

138.79
183.69
534.04

36.73
238.99

139.12
175.75

2300.00

2300

(554.59)

500.52
3906.89
7878.80

327.80
2632.56
(11560.95)
564.08
3479.65
3926.54
-3590.68
-3918.48
327.80

FINDINGS
The following are the findings of the study :

93

7349.46
7.88
714.14
(665.90)
-

6990.75
(1029.71)
17495.50
(937.65)
22518.89
18612.00
3906.89

 Every year the inventory is going on increasing. The company is

maintaining very high level of inventory.
We can conclude basing on the Net working Capital that the firm is highly
liquid i.e., the liquidity of the company is very high.
The company is having a high level of Cash / Bank balance in the form of
short term deposits is scheduled banks.
The company is almost maintaining 312 days of sales of inventory.
By Sundry Creditors we can conclude that only 20% - 25% of Net Working
Capital is financed through Sundry Creditors.

SUGGESTIONS

94

 As the inventory is high the steps have to be taken to identify the nonmoving items in the inventory and action to be taken for disposing the
same.
As the company is having high level of Cash and Bank balances the
company may concentrate on better utilization of cash and bank balances
than the keeping them in banks.
As the company is almost maintaining 312 days of sales as inventory, the
company should look at the various means for reducing the inventory
levels.
Presently only 20% - 25% of Net Working Capital is financed through
Sundry Creditors, the company may focus on increasing the Sundry
Creditors to at least 50% of its purchases, by this we can reduce the Net
Working Capital.
The company is limiting itself to one year term deposits with banks, this
conservative policy is restricting the company to less than normal growth
despite having huge cash and bank balances and high liquidity levels.
The company is spending about 6 crores every year on power, the company
may effectively utilize its cash balances by partly diverting it to power
generation.

95

CONCLUSION
In view of the importance attached by varied groups to the financial
position of a company, it is necessary to evaluate the companys ability in utilizing
and managing the funds in the business. Thus, the Current Assets Management
involves the determination of companys liquidity position, its ability in utilizing
the assets in generating business and its profitability position.
Thus current assets management involves the determination of companys
ability in mobilizing the funds required for the business and utilizing the funds in
the business.

96

BIBLIOGRAPHY
Annual Repots of SHAREKHAN LIMITED
1) Financial Management, Vikas Publishing House Pvt.Ltd.New Delhi. Pandey,
I.M., (2000),
2) Financial Management, Sultan Chad & Sons, New Delhi. Maheswari, S.N.,
(2002),
3) Financial Management, Tata McGraw-Hill Publishing Ltd, New Delhi.
Khan, M.Y. & Jain, P.K., (2002)
4) Financial Management, Tata McGraw-Hill Publishing Company Ltd, New
Delhi. Chandra, p., (2001),
5) Financial Management, Lakshmi publications. Gnanasekaran, E (2009)
6) Management Accounting Margham publication Reddy .T.S,.(2005)

WEB SITE : www.bdl.ap.nic.in.

www.nce.com
www.bse.com

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