Introduction

“The study of working capital management”

As a part of curriculum, every student studying MBA has to undertake a project on a particular
subject assigned to him/her. Accordingly I have been assigned the project work on the study of
working capital management in GG Organics Pvt Ltd.

Decisions relating to working capital (Current assets-Current liabilities) and short term financing
are known as working capital management. It involves the relationship between a firm’s short-
term assets and its short term liabilities.

The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.

Working capital is used in GG Private ltd., for the following purpose:-

Raw material, work in progress, finished goods, inventories, sundry debtors, and day to day cash
requirements. The GG Private ltd., keep certain funds which is automatically available to finance
the current assets requirements.

The various information regarding “Working Capital Management” such as classification,

determinants, sources have been discussed relating to GG Private ltd.,

Ratio Analysis has been Carried out using Financial Information for last five accounting years
i.e. from 2013 to 2017 Ratios like Working capital Turnover Ratio, Quick Ratio, Current Ratio,
Inventory Turnover Ratio, Debtor Turnover Ratio, Creditors turnover rario have also been
analyzed. A Statement of Changes in Working Capital has also been analyzed.

At GG private ltd., the working capital management has shown increase in the period of study.
This shows working capital is managed effectively and all the other departments are working in
perfect co-ordination to ensure the progress of GG Private ltd., but I have given some
Suggestions & Conclusions on the basis of my Project Study.
INTRODUCTION :-

Working capital is the life blood and nerve centre of a business. Just as circulation of blood is

essential in the human body for maintaining life, working capital is very essential to maintain the

smooth running of a business. No business can run successfully without an adequate amount of

working capital.

There is operative aspects of working capital i.e. current assets which is known as funds also
employed to the business process from the gross working capital Current asset comprises cash
receivables, inventories, marketable securities held as short term investment and other items
nearer to cash or equivalent to cash. Working capital comes into business operation when actual
operation takes place generally the requirement of quantum of working capital is determined by
the level of production which depends upon the management attitude towards risk and the factors
which influence the amount of cash, inventories, receivables and other current assets required to
support given volume of production.

Working capital management as usually concerned with administration of the current assets as
well as current liabilities. The area includes the requirement of funds from various resources and
to utilize them in all result oriented manner. It can be stated without exaggeration that effective
working capital management is the short requirement of long term success.

The importance of working capital management is indisputable; Business liability relies on its
ability to effective management of receivables, inventory, and payables. By minimizing the
amount of funds tied up in current assets. Firms are able to reduce financing costs or increase the
funds available for expansion. Many managerial efforts are put into bringing non-optimal level
of current assets and liabilities back towards their optimal levels.
SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The main scope
of the study was to put into practical the theoretical aspect of the study into real life work
experience. The study of working capital is based on tools like, Statement of changes in working
capital. Further the study is based on last 5 years Annual Reports of GG Organics Pvt
Ltd

LIMITATIONS OF THE STUDY

 The study duration is short.

 The analysis is limited to just five years of data study (from 2013year to 2017year ) for
financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.

 The findings of the study are based on the information retrieved by the selected unit.
THE NEED FOR THE WORKING CAPITAL:-
The need for working capital arises due to the time gap between production and realization of

cash from sales. Working capital is must for every business for purchasing raw-materials, semi

finished goods, stores & spares etc and the following purposes.

1. To purchase raw materials, spare parts and other component

A manufacturing firm needs raw-materials and other components parts for the
purpose of converting them in to final products, for this purpose it requires working capital.
Trading concern requires less working capital.

2. To meet over head expenses.

Working capital is required to meet recurring over head expenses such as cost
of fuel, power, office expenses and other manufacturing expenses.

3. To hold finished and spare parts etc.

Stock represents current asset. A firm that can afford to maintain stock of required

finished goods, work in progress & spares in required quantities can operate successfully.

So for that adequate quantity of working capital is required.

4. To pay selling & distribution expenses.

Working capital is required to pay selling & distribution expenses. It includes cost of

packing, commission etc.

5. Working capital is required for repairs & maintenance both machinery as well as

factory buildings.

6. Working capital is required to pay wages, salaries and other charges.

7. It is helpful in maintain uncertainties involved in business field.

OBJECTIVES OF THE STUDY

 To study the sources and uses of the working capital.

 To study the liquidity position through various working capital related ratios.

 To study the working capital components such as receivables accounts,

Cash management, Inventory management.

 To make suggestions based on the finding of the study.

 To maximize profit of the firm.
 To help in timely payment of bills.
 To maintain sufficient current assets.
 To ensure adequate liquidity of the firms.
 It protects the solvency of the firm.
 To discharge current liabilities.
 To increase the value of the firm.
 To minimize the risk of business.
 COMPANY PROFILE

GG ORGANICS (Pvt) Limited is a small-scale industry. The company purchased and

constructed building in the year 2006. It started production in the year 2008. It is a private
company situated in the Industrial estate, Tambaram. On the outskirts of Chennai city which is
enjoying all the required facilities like water, power, transport, labors and good environment and
materials.

The company is achieving its sales target with some ups and downs. The company has been
receiving good response from customers and expected to achieve better sales in coming years
.The Company has its nature of business.

The company has not accepted any deposits from public as per the provisions of section
58A of the company Act, 1956.
 PROFILE OF GG ORGANICS PVT. LTD

GG ORGANICS PVT.LTD, TAMBARAM

Name of the company CHENNAI– 6000045.

Year of establishment 2008.

Managing Director Mr. D. Raja

Type of company Private Limited.

Area of operation MEPZ ZONE

Nature of Business Manufacturing of Fast Moving Consuming Goods

(Named “MUGI”)

Export places Dandeli, Harihar, Goa, Hyderbad, Hubli, Dharwad,

Banglore, Nagpur, and South East Asia Countries

No. of departments 6 [Six] Departments.

Number of employees 127

Number of working 6 days in a week.

days
. INDUSTRIAL PROFILE

One of the greatest Concerns today is the rise in pollution, the depletion of ozone layer
and global warming. Every industry, every company, every individual should be, and is,
concerned about the use of increasing awareness about the use of environment friendly,
biodegradable products so that the stress on the environment is reduced. GG Organics,
abbreviation for Green Global Organics, believe that individual contributions collectively will
help in achieving better results and the each of us has a responsibility towards ensuring the use
of eco-friendly ingredients in their products. Having established as a renowned producer for the
range of products for the tanning industry Since 2008, We believe that it is now time to do a bit
for our surrounding atmosphere. GG Organics is a name to reckon with in five continents
Europe, South Africa, Australia and the Asian countries like China, Thailand, Taiwan, Pakistan,
Vietnam, Singapore, Korea, Bangladesh, Sri Lanka for its Chrome-free Phenol-free, Free
Formaldehyde free products Even GGO Having an experience of 10 Years with successful
innovations in leather chemical technology, is diversified 5 Years before its dream project in
HOME CARE products with the registered brand name “MUGI” Starting our journey with Mugi
Products.
.
PRODUCT PROFILE:-

The Common thread connecting various businesses is the company culture of bringing out new
products which are significantly winning and highly differentiated by offering all in one Liquid
detergent, as opposed to the competition. As a result, G.G. Organics has launched successful
brand “Mugi” Ultra Liquid Detergent an unconstested brand which is the fast selling Liquid
Detergent. G.G. Organics has a strong distribution Network in Tamil Nadu, Karnataka, Andhra
Pradesh and Telangana. We also export the product with a focus on South Asia, South East
Asia and GCC Countries. The journey of G.G Organics continues with product innovation and
customer satisfication.
 Table 1: Statement of Changes in Working Capital for the Year 2012-2013

Effect on working capital

Particulars As on 31-3- As on 31-3-
2012 2013
Increase Decrease
CURRENT ASSETS
Inventories 2001305.00 1532455.00 __ 468850.00
Sundry debtors 1438810.00 2201381.00 762571.00 __
Cash & Bank balance 503667.00 493742.00 __ 9925.00
Other current assets 134364.00 148822.00 14458.00 __
Loans and Advances 193081.00 186699.00 __ 6382.00

(A)Total Current Assets 4271227.00 4563099.00

CURRENT LIABILITIES
Sundry creditors 1606195.00 1673515.00 __ 67320.00
Provisions 511561.00 368028.00 143533.00 __

(B)Total Current Liabilities 2117756.00 2041543.00

(A)-(B) Net Working Capital 2153471.00 2521556.00

Increase in Working Capital 368085.00* __ __ 368085.00*

TOTAL 2521556.00 2521556.00 920562.00 930487.00

INTERPRETATION:

In the above table, it is seen that during the year 2012-13 and 2013-14 there was a net
increase in working capital of Rs 368085.00. It indicates an adequate working capital in GG
Organics Pvt Ltd,
This is because of
 1. Increase current assets such as Sundry debtors by Rs 762571.00, other current assets by Rs
14458.00. And decrease in Inventories by Rs 468850.00, Cash & Bank balance by Rs 9925.00,
Loans and Advances by Rs 6382.00.

2. Increase in current liabilities such as in Sundry creditors by Rs 67320.00 and decrease in

Provisions by Rs 143533.00.

Table 2: Statement of Changes in Working Capital for the Year 2013-2014

Effect on working capital

Particulars As on 31-3- As on 31-3-
2013 2014
Increase Decrease
CURRENT ASSETS
Inventories 1532455.00 2161071.00 628616.00 __
Sundry debtors 2201381.00 4958527.00 2757146.00 __
Cash & Bank balance 493742.00 1205660.00 711918.00 __
Other current assets 148822.00 78260.00 __ 70562.00
Loans and Advances 186699.00 1196128.00 1009429.00 __

(A)Total Current Assets 4563099.00 9599646.00

CURRENT LIABILITIES
Sundry creditors 1673515.00 3492127.00 __ 1818612.00
Provisions 368028.00 395638.00 __ 27610.00

(B)Total Current Liabilities 2041543.00 3887765.00

(A)-(B) Net Working Capital 2521556.00 5711881.00

Increase in Working Capital 3190325.00* __ __ 3190325.00*

TOTAL 5711881.00 5711881.00 5107109.00 5107109.00

INTERPRETATION:
In the above table, it is seen that during the year 2013-14 and 2014-15 there was huge net
increase in working capital by Rs 3190325.00 As Compare to 2012-13 and 2013-14. This is
because
1. There is Increase in current assets such as Inventories by Rs 628616.00, Sundry debtors by
Rs 2757146.00, Cash & Bank balance by Rs 711918.00, Loans and Advances by Rs
1009429.00. And decrease in other current assets by Rs 70562.00.

2. There is Increase in current liabilities such as Sundry creditors by Rs 1818612.00,

Provisions by Rs 27610.00.
Table 3: Statement of Changes in Working Capital for the Year 2014-2015

Effect on working capital

Particulars As on 31-3- As on 31-3-
2014 2015
Increase Decrease
CURRENT ASSETS
Inventories 2161071.00 3336430.00 1175359.00 __
Sundry debtors 4958527.00 1805948.00 __ 3152579.00
Cash & Bank balance 1205660.00 1033152.00 __ 172508.00
Other current assets 78260.00 189683.00 111423.00 __
Loans and Advances 1196128.00 2712404.00 1516276.00 __

(A)Total Current Assets 9599646.00 9077617.00

CURRENT LIABILITIES
Sundry creditors 3492127.00 2649781.00 842346.00 __
Provisions 395638.00 179298.00 216340.00 __
(B)Total Current Liabilities 3887765.00 2829079.00

(A)-(B) Net Working Capital 5711881.00 6248538.00

__ __
536657.00* 536657.00*
Increase in Working Capital

TOTAL 6248538.00 6248538.00 3861744.00 3861744.00

INTERPRETATION:

In the above table, it is seen that during the year 2014-15 and 2015-16 there was also net
increase in working capital by Rs 536657.00. As compare to 2013-14 and 2014-15.
This is because
1. There is Increase in current assets such as Inventories by Rs 1175359.00, other current
assets by Rs 111423.00, Loans and Advances by Rs 1516276.00 and decrease in Sundry
debtors by Rs 3152579.00, Cash & Bank balance by Rs 113618.00.
2. There is Decrease in current liabilities such as Sundry creditors by Rs 842346.00, Provisions by Rs
216340.00.

Table 4: Statement of Changes in Working Capital for the Year 2015-2016

Effect on working capital

Particulars As on 31-3- As on 31-3-
2015 2016
Increase Decrease
CURRENT ASSETS
Inventories 3336430.00 2622901.00 __ 713529.00
Sundry debtors 1805948.00 3787274.00 1981326.00 __
Cash & Bank balance 1033152.00 1720815.00 687663.00 __
Other current assets 189683.00 206206.00 16523.00 __
Loans and Advances 2712404.00 2666232.00 __ 46172.00

(A)Total Current Assets 9077617.00 11003428.00

CURRENT LIABILITIES
Sundry creditors 2649781.00 2658999.00 __ 9218.00
Provisions 179298.00 1230900.00 __ 1051602.00

(B)Total Current Liabilities 2829079.00 3889899.00

(A)-(B) Net Working Capital 6248538.00 7113529.00

__ __
Increase in Working Capital 864991.00* 864991.00*

TOTAL 7113529.00 7113529.00 2667512.00 2667512.00

INTERPRETATION:

In the above table, it is seen that during the year 2015-16 and 2016-17 there was also net
increase in working capital by Rs 864991.00 As compare to 2014-15 and 2015-16.
This is because
1. There is Increase in current assets such as Sundry debtors by Rs 1981326.00, Cash & Bank
balance by Rs 687663.00, Other current assets by Rs 16523.00 and decrease in Inventories by
Rs 713529.00, Loans and Advances by Rs 46172.00.
2. There is Increase in current liabilities such as Sundry creditors by Rs 9218.00, Provisions by Rs
1051602.00.

Table 5: Statement of Changes in Working Capital for the Year 2016-2017

As on 31-3- As on 31-3- Effect on working capital

Particulars
2009 2010
Increase Decrease
CURRENT ASSETS
Inventories 2622901.00 2360611.00 __ 262290.00
Sundry debtors 3787274.00 4355365.00 568091.00 __
Cash & Bank balance 1720815.00 1978938.00 258123 .00 __
Other current assets 206206.00 185585.00 __ 20621.00
Loans and Advances 2666232.00 3066167.00 399935.00 __

(A)Total Current Assets 11003428.00 11946666.00

CURRENT LIABILITIES
Sundry creditors 2658999.00 3057849.00 __ 398850.00
Provisions 1230900.00 1107810.00 123090.00 __

(B)Total Current Liabilities 3889899.00 4165659.00

(A)-(B) Net Working Capital 7113529.00 7781007.00

Increase in Working Capital 667478.00* __ __ 667478.00*

TOTAL 8270981.00 8270981.00 1349239.00 1349239.00

INTERPRETATION:
In the above table, it is seen that during the year 2015-16 and 2016-17 there was also net increase
in working capital by Rs 1157452.00 As compare to 2014-15 and 2015-16.
This is because

TOTAL NET WORKING CAPITAL

An analysis of the net working capital will be very help full for knowing the operational
efficiency of the company. The following table provides the data relating to the net working
capital of GG .

NET WORKING CAPITAL = CURRENT ASSETS-CURRENT LIABILITIS

Years Current Asset Current Liabilities NWC
2005-06 4563099.00 2041543.00 2521556.00
2006-07 9599646.00 3887765.00 5711881.00
2007-08 9077617.00 2829079.00 6248538.00
2008-09 11003428.00 3889899.00 7113529.00
2009-10 11946666.00 4165659.00 7781007.00