biranchi project(3)

8/9/2019 Biranchi Project(3)

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PGDM-(AICTE)

Reliance Retail has total 24stores in Orrisa.The overall most probably dump and

shrinkage items in those stores are as follows-

FRESH FRUITS & VEG ONIONFRESH FRUITS & VEG APPLE RED DELICIOUS(KG)STAPLES GOLDENDOVE AROMATIC RICE 1KGSTAPLES Hy Kabuli ChanaDAIRY ANIK GHEE 1LTR TINBEVERAGES RED LABEL TEA LEAF 950GMPROCESSED FOOD SMITH & JONES MASALA NOODLES 300GMBEVERAGES STANDARD HORLICKS 500GM JAR STAPLES HY LONG GRAIN BASMATI RICE SS

Onion-Reason of dump-

Excess delivery of stock from DC.

Improper handling of of stock by the store worker.

Customers always prefers which are available in the upper bay and which are

looks fresh, so the old stocks are get damaged.

Prevention-

Stock should be delivered from the DC according to the selling quantity or

according to the store requirement.

Stock shod is kept in the proper bay which will be easily get available to the

customers by the store workers.

Fresh onions should be kept separately.

Damaged stock should be removed from the bay immediately. Stock should keep according to the FIFO (First in first out) method in the store.

Daily overlook should be made by the store manager

APPLE RED DELICIOUS (KG)-

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Reason of dump-

The quantity of stock which are available in the store are not matched with the

GRN (Goods Received Note) quantity

Mishandling by the store worker while putting the stock in the bay.

Availability of excess stock according to the requirement.

Prevention-

Proper checking of stock whether the quantity is matched with the GRN

quantity or not.

Stock should be available according to the requirement.

Stock should be handled properly by the store worker while putting the stock

in the bay.

GOLDENDOVE AROMATIC RICE 1KG

Reasons of dump-

Improper storing of stock in the bay.

Stocks are not kept according to there expiry date.

Prevention-

Stock should be keep properly in the bay.

Stock should be keep according to the FEFO (First Expiry First Out) in the bay.

Hy Kabuli Chana

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Reasons of dump

Expiry date is only for 90 days.

Stocks are not kept on there proper bay.

Prevention-

Stock should be handled by the store worker while keeping them in the bay and

while selling them to the customers.

Stock should be kept on the FEFO method on the bay.

ANIK GHEE 1LTR TIN---

Reasons of dump-

Improper handling of stock.

Duration is 12 month.

Prevention

Stock should be kept according to the FEFO method in the bay.

It should store in the right bay for easy availability to the customers.

RED LABEL TEA LEAF 950GM----

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Reasons of dump

Improper handling of of stock by the store worker.

Customers always prefer which are available in the front bay and which are easily

available, so the stocks which are kept in the Back Bay are get damaged.

Prevention

Handling should be maid properly by the store worker.

Stock should be kept in FEFO method and in front bay for easy availability to the

customers.

Each and every quantity stocks should be available in on place.

STANDARD HORLICKS 500GM JAR

Reasons for dump

Not kept in the proper bay, so dump occurs if jars are broken. Excess amounts of stocks are kept in small bay.

All stocks are not kept in one place.

Stock should not keep according to the quantity wise.

Prevention

Should keep in a safe space. Stock should be kept according to the FEFO method.

Selling should be made according to the FEFO method also.

Stock should be properly counted by the staffs so that no stocks are kept in any

other place in the store.

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Each and every quantity stocks should be available in on place.

HY LONG GRAIN BASMATI RICE SS

Reasons of dump---

Excess amount of stocks are available

Stocks are getting damaged with in a short time period.

Mishandling is made while keeping the stock in the store and also while selling it

to the customers.

Stocks available in the stores are not matched with the stocks in GRN.

Stocks are kept for a long period of time.

Prevention

Stocks should be kept according to the required quantity in the store.

Proper handling of stocks should be there by the store workers in the time of

selling.

Stocks should be matched with the GRN quantity.

WORKING CAPITAL

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Every business needs investment to procure fixed assets, which remain in use for a longer

period. Money invested in these assets is called Long term Funds or Fixed Capital.

Business also needs funds for short-term purposes to finance current operations.

Investment in short term assets like cash, inventories, debtors etc., is called Short-term

Funds or Working Capital. The Working Capital can be categorized, as funds needed

for carrying out day-to-day operations of the business smoothly. The management of the

working capital is equally important

as the management of long-term financial investment.

Every running business needs working capital. Even a business which is fully equipped

with all types of fixed assets required is bound to collapse without

o adequate supply of raw materials for processing;o cash to pay for wages, power and other costs;

o creating a stock of finished goods to feed the market demand regularly; and,

o The ability to grant credit to its customers.

All these require working capital. Working capital is thus like the lifeblood of a business.

The business will not be able to carry on day-to-day activities without the availability of

adequate working capital.

Working capital cycle involves conversions and rotation of various constituents

Components of the working capital. Initially cash is converted into raw materials.

Subsequently, with the usage of fixed assets resulting in value additions, the raw

materials get converted into work in process and then into finished goods. When sold on

credit, the finished goods assume the form of debtors who give the business cash on due

date. Thus cash assumes its original form again at the end of one such working capital

cycle but in the course it passes through various other forms of current assets too. This is

how various components of current assets keep on changing their forms due to value

addition. As a result, they rotate and business operations continue. Thus, the working

capital cycle involves rotation of various constituents of the working capital.

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While managing the working capital, two characteristics of current assets should be kept

in mind viz. (i) short life span, and (ii) swift transformation into other form of current

asset.

Each constituent of current asset has comparatively very short life span. Investment

remains in a particular form of current asset for a short period. The life span of current

assets depends upon the time required in the activities of procurement; production, sales

and collection and degree of synchronization among them. A very short life span of

current assets results into swift transformation into other form of current assets for a

running business.

These characteristics have certain implications :

Decision regarding management of the working capital has to be taken frequently

and on a repeat basis.

The various components of the working capital are closely related and

mismanagement of any one component adversely affects the other components

too.

The difference between the present value and the book value of profit is not

significant.

The working capital has the following components, which are in several

forms of current assets:

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o Stock of Cash

o Stock of Raw Material

o Stock of Finished Goods

o Value of Debtors

o

Miscellaneous current assets like short term investment loans & Advances

A number of definitions have been formulated: perhaps the most widely

acceptable would be;

WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT

LIABILITIES

The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES:

Funds thus invested in current assets keep revolving fast and are being constantly

converted in to cash and this cash flows out again in exchange for other current assets.

Thus it is known as revolving or circulating capital or short term capital.

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These are two concepts of working capital :-

a. Gross Working Capital.

b. Net Working Capital.

Gross working capital is the total of all current assets. Net working capital is the

difference between current assets and current liabilities. Though the later concept of

working capital is commonly used it is an accounting concept with little sense to say that

a firm manages its net working capital. What a firm really does is to take decisions with

respect to various current assets and current liabilities. The constituents of current assets

and current liabilities are shown in table A.

Constituents of Current Assets and Current Liabilities

Current Assets

Inventories Raw materials and components, Work in progress, Finished

goods, other.

Trade Debtors. Loans and Advances. Investments. Cash and Bank balance.

Current Liabilities

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Sundry Creditors. Trade Advances. Borrowings. Provisions.

The working capital needs of a business are influenced by numerous

factors. The important ones are discussed in brief as given below :

Nature of Enterprise

The nature and the working capital requirements of an enterprise are interlinked. While a

manufacturing industry has a long cycle of operation of the working capital, the same

would be short in an enterprise involved in providing services. The amount required also

varies as per the nature; an enterprise involved in production would require more working

capital than a service sector enterprise.

Manufacturing/Production Policy

Each enterprise in the manufacturing sector has its own production policy, some follow

the policy of uniform production even if the demand varies from time to time, and others

may follow the principle of 'demand-based production' in which production is based on

the demand during that particular phase of time. Accordingly, the working capital

requirements vary for both of them.

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Working Capital Cycle

In manufacturing concern, working capital cycle starts with the purchase of raw materials

and ends with realization of cash from the sale of finished goods. The cycle involves the

purchase of raw materials and ends with the realization of cash from the sale of finished

products. The cycle involves purchase of raw materials and stores, its conversion in to

stock of finished goods through work in progress with progressive increment of labor and

service cost, conversion of finished stick in to sales and receivables and ultimately

realization of cash and this cycle continuous again from cash to purchase of raw materials

and so on.

Operations

The requirement of working capital fluctuates for seasonal business. The working capital

needs of such businesses may increase considerably during the busy season and decrease

during the slack season. Ice creams and cold drinks have a great demand during summers,

while in winters the sales are negligible.

Market Condition

If there is high competition in the chosen product category, then one shall need to offer

sops like credit, immediate delivery of goods etc. for which the working capital

requirement will be high. Otherwise, if there is no competition or less competition in themarket then the working capital requirements will be low.

Credit Policy

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The credit policy is concerned in its dealings with debtors and creditors influence

considerably the requirements of the working capital. A concern that purchases its

requirements on credit and sells its products/services on cash requires lesser amount of

working capital. On the other hand a concern buying its requirements for cash and

allowing credit to its customers, shall need larger amount of funds are bound to be tied up

in debtors or bills receivables.

Business Cycle

Business Cycle refers to alternate expansion and contraction in general business

activities. In a period of born i.e. when the business is prosperous there is a need for

larger amount of working capital due to increase in sales, rise in prices, optimistic

expansion of business etc. On the country at he time of depression i.e. when there is a

down swing of the cycle, business contracts, sales decline, difficulties are faced in

collections from debtors and firms may have a large amount of working capital lying

ideal

Availability of Raw Material

If raw material is readily available then one need not maintain a large stock of the same,

thereby reducing the working capital investment in raw material stock. On the other hand,

if raw material is not readily available then a large inventory/stock needs to be

maintained, thereby calling for substantial investment in the same.

Growth and Expansion

Growth and expansion in the volume of business results in enhancement of the working

capital requirement. As business grows and expands, it needs a larger amount of working

capital. Normally, the need for increased working capital funds precedes growth in

business activities.

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Earning Capacity and Dividend policy

Some firms have more earning capacity than others due to the quality of their products,

monopoly conditions etc. Such firms with high earning capacity may generate cash

profits from operations and contribute to their capital. The dividend policy of a concern

also influences the requirements of the working capital. A firm that maintains steady high

rate of cash dividend irrespective of its generation of profits needs more capital than the

firm retains larger part of its profits and does not pay high rate of cash dividend.

Price Level Changes

Generally, rising price level requires a higher investment in the working capital. With

increasing prices, the same level of current assets needs enhanced investment.

Manufacturing Cycle

The manufacturing cycle starts with the purchase of raw material and is completed with

the production of finished goods. If the manufacturing cycle involves a longer period, the

need for working capital would be more. At times, business needs to estimate the

requirement of working capital in advance for proper control and management. The

factors discussed above influence the quantum of working capital in the business. The

assessment of working capital requirement is made keeping these factors in view. Each

constituent of working capital retains its form for a certain period and that holding period

is determined by the factors discussed above. So for correct assessment of the working

capital requirement, the duration at various stages of the working capital cycle is

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estimated. Thereafter, proper value is assigned to the respective current assets, depending

on its level of completion.

Other Factors

Certain other factors such as operating efficiency, management ability, irregularities a

supply, import policy, asset structure, importance of labor, banking facilities etc. also

influences the requirement of working capital.

Component of Working Capital Basis of Valuation

Stock of raw material Purchase cost of raw materials

Stock of work in process At cost or market value, whichever is lower

Stock of finished goods Cost of production

Debtors Cost of sales or sales value

Cash Working expenses

Each constituent of the working capital is valued on the basis of valuation

Enumerated above for the holding period estimated. The total of all such valuation

becomes the total estimated working capital requirement.

The assessment of the working capital should be accurate even in the case of small and

micro enterprises where business operation is not very large. We know that working

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capital has a very close relationship with day-to-day operations of a business. Negligence

in proper assessment of the working capital, therefore, can affect the day-to-day

operations severely. It may lead to cash crisis and ultimately to liquidation. An inaccurate

assessment of the working capital may cause either under-assessment or over-assessment

of the working capital and both of them are dangerous.

WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and currentliabilities. The major thrust of course is on the management of current assets .This is

understandable because current liabilities arise in the context of current assets. Working

Capital Management is a significant fact of financial management. Its importance stems

from two reasons:-

Investment in current assets represents a substantial portion of total investment.

Investment in current assets and the level of current liabilities have to be geared

quickly to change in sales. To be sure, fixed asset investment and long term

financing are responsive to variation in sales. However, this relationship is not as

close and direct as it is in the case of working capital components.

The importance of working capital management is effected in the fact that financial

manages spend a great deal of time in managing current assets and current liabilities.

Arranging short term financing, negotiating favorable credit terms, controlling the

movement of cash, administering the accounts receivable, and monitoring the inventories

consume a great deal of time of financial managers.

The problem of working capital management is one of the best utilization of a scarce

resource.

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Thus the job of efficient working capital management is a formidable one, since it

depends upon several variables such as character of the business, the lengths of the

merchandising cycle, rapidity of turnover, scale of operations, volume and terms of

purchase & sales and seasonal and other variations.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL

o Growth may be stunted. It may become difficult for the enterprise to undertake

profitable projects due to non-availability of working capital.

o Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.

o Cash crisis may emerge due to paucity of working funds.

o Optimum capacity utilization of fixed assets may not be achieved due to non

availability of the working capital.

o The business may fail to honour its commitment in time, thereby adversely

affecting its credibility. This situation may lead to business closure.

o The business may be compelled to buy raw materials on credit and sell finished

goods on cash. In the process it may end up with increasing cost of purchases and

reducing selling prices by offering discounts. Both these situations would affect

profitability adversely.

o Non-availability of stocks due to non-availability of funds may result in

production stoppage.

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2. Regular working capital . This type of working capital remains always in the

enterprise for the successful operation. It supplies the funds necessary to meet the current

working expenses i.e. for purchasing raw material and supplies, payment of wages,

salaries and other sundry expenses.

3. Fluctuating working capital . This capital is needed to meet the seasonal

requirements of the business. It is used to raise the volume of production by improvement

or extension of machinery. It may be secured from any financial institution which can, of

course, be met with short term capital. It is also called variable working capital.

4. Reserve margin working capital . It represents the amount utilized at the time of contingencies. These unpleasant events may occur at any time in the running life of the

business such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and

unavoidable competition etc. In this case greater amount of capital is required for

maintenance of the business.

Financing Working Capital

Now let us understand the means to finance the working capital. Working capital or

current assets are those assets, which unlike fixed assets change their forms rapidly. Due

to this nature, they need to be financed through short-term funds. Short-term funds are

also called current liabilities. The following are the major sources of raising short-term

funds:

I . Suppliers Credit

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At times, business gets raw material on credit from the suppliers. The cost of raw

material is paid after some time, i.e. upon completion of the credit period. Thus, without

having an outflow of cash the business is in a position to use raw material and continue

the activities. The credit given by the suppliers of raw materials is for a short period and

is considered current liabilities. These funds should be used for creating current assets

like stock of raw material, work in process, finished goods, etc.

ii. Bank Loan for Working Capital

This is a major source for raising short-term funds. Banks extend loans to businesses to

help them create necessary current assets so as to achieve the Required business level.

The loans are available for creating the following current Assets:

Stock of Raw Materials

Stock of Work in Process

Stock of Finished Goods

Debtors

Banks give short-term loans against these assets, keeping some security margin.

The advances given by banks against current assets are short-term in nature and banks

have the right to ask for immediate repayment if they consider doing so. Thus bank loans

for creation of current assets are also current liabilities.

iii . Promoters Fund

It is advisable to finance a portion of current assets from the promoters funds. They are

long-term funds and, therefore do not require immediate repayment.

These funds increase the liquidity of the business.

Management of Inventory

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Inventories constitute the most significant part of current assets of a large majority of

companies in India. On an average, inventories are approximately 60 % of current assets

in public limited companies in India.

Because of the large size of inventories maintained by firms maintained by firms, a

considerable amount of funds is required to be committed to them. It is, therefore very

necessary to manage inventories efficiently and effectively in order to avoid unnecessary

investments. A firm neglecting a firm the management of inventories will be jeopardizing

its long run profitability and may fail ultimately.

The purpose of inventory management is to ensure availability of materials in sufficient

quantity as and when required and also to minimize investment in inventories at

considerable degrees, without any adverse effect on production and sales, by using simple

inventory planning and control techniques.

Needs to hold inventories:-

There are three general motives for holding inventories:-

Transaction motive emphasizes the need to maintain inventories to facilitate

smooth production and sales operation.

Precautionary motive necessities holding of inventories to guard against the risk

of unpredictable changes in demand and supply forces and other factors.

Speculative motive influences the decision to increases or reduce inventory

levels to take advantage of price fluctuations and also for saving in re-ordering

costs and quantity discounts etc.

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Objective of Inventory Management :-

The main objectives of inventory management are operational and financial. Theoperational mean that means that the materials and spares should be available in

sufficient quantity so that work is not disrupted for want of inventory. The financial

objective means that investments in inventories should not remain ideal and minimum

working capital should be locked in it.

The following are the objectives of inventory management:-

o To ensure continuous supply of materials, spares and finished goods.o To avoid both over-stocking of inventory.

o To maintain investments in inventories at the optimum level as required by the

operational and sale activities.

o To keep material cost under control so that they contribute in reducing cost of

production and overall purchases.

o To eliminate duplication in ordering or replenishing stocks. This is possible with

the help of centralizing purchases.o To minimize losses through deterioration, pilferage, wastages and damages.

o To design proper organization for inventory control so that management. Clear

cut account ability should be fixed at various levels of the organization.

o To ensure perpetual inventory control so that materials shown in stock ledgers

should be actually lying in the stores.

o To ensure right quality of goods at reasonable prices.

o

To facilitate furnishing of data for short-term and long term planning and controlof inventory

Management of cash

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Cash is the important current asset for the operation of the business. Cash is the basic

input needed to keep the business running in the continuous basis, it is also the ultimate

output expected to be realized by selling or product manufactured by the firm.

The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the

firms manufacturing operations while excessive cash will simply remain ideal 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

account. Sometimes near cash items such as marketing securities or bank term deposits

are also included in cash. Generally when a firm has excess cash, it invests it is

marketable securities. This kind of investment contributes some profit to the firm.

Need to hold cash

The firms need to hold cash may be attributed to the following three motives:-

The Transaction Motive : The transaction motive requires a firm to hold cash to

conduct its business in the ordinary course. The firm needs cash primarily to make

payments for purchases, wages and salaries, other operating expenses, taxes, dividends,

etc.

The Precautionary Motive: A firm is required to keep cash for meeting various

contingencies. Though cash inflows and outflows are anticipated but there may bevariations in these estimates. For example a debtor who pays after 7 days may inform of

his inability to pay, on the other hand a supplier who used to give credit for 15 days may

not have the stock to supply or he may not be in opposition to give credit at present.

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Speculative Motive : - The speculative motive relates to the holding of cash for

investing in profit making opportunities as and when they arise.

The opportunities to make profit changes. The firm will hold cash, when it is expected

that interest rates will rise and security price will fall.

Components of working capital are calculated as follows :

1) Raw Materials Storage Period =Average stock of raw materials/Average costof raw material consumption per day.

2.) W-I-P Holding period= Average w-i-p in inventory/Average cost of production

per day.

3.) Stores and spares conversion period= Average stock of Stores and spares/

Average consumption per day.

4.) Finished goods conversion period= Average stock of finished goods/Average

cost of goods sold per day.

5.) Debtors collection period= Average book debts/Average credit sales per day.

6.) Credit period availed= Average trade creditors/Average credit purchase per

day.

Management of Receivables

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A sound managerial control requires proper management of liquid assets and inventory.

These assets are a part of working capital of the business. An efficient use of financial

resources is necessary to avoid financial distress. Receivables result from credit sales.

A concern is required to allow credit sales in order to expand its sales volume. It is not

always possible to sell goods on cash basis only. Sometimes other concern in that line

might have established a practice of selling goods on credit basis. Under these

circumstances, it is not possible to avoid credit sales without adversely affecting sales.

The increase in sales is also essential to increases profitability. After a certain level of

sales the increase in sales will not proportionately increase production costs. The increase

in sales will bring in more profits. Thus, receivables constitute a significant portion of

current assets of a firm. But for investment in receivables, a firm has to insure certain

costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a

proper control and management of receivables.

Needs to hold cash:

Receivables management is the process of making decisions relating to investment in

trade debtors. Certain investments in receivables are necessary to increase the sales and

the profits of a firm. But at the same time investment in this asset involves cost

consideration also. Further, there is always a risk of bad debts too.

Thus, the objective of receivable management is to take a sound decision as regards

investments in debtors. In the words of Bolton, S.E., the need of receivables management

is to promote sales and profits until that point is reached where the return of investment

in further funding of receivables is less than the cost of funds raised to finance that

additional credit.

Important Terms ---

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Working Capital Cycle

Cash flows in a cycle into, around and out of a business. It is the business's life blood and

every manager's primary task is to help keep it flowing and to use the cash flow to

generate profits. If a business is operating profitably, then it should, in theory, generate

cash surpluses. If it doesn't generate surpluses, the business will eventually run out of

cash and expire.

The faster a business expands , the more cash it will need for working capital and

investment. The cheapest and best sources of cash exist as working capital right within

business. Good management of working capital will generate cash will help improve

profits and reduce risks. Bear in mind that the cost of providing credit to customers and

holding stocks can represent a substantial proportion of a firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks and

work-in-progress) and Receivables (debtors owing you money). The main sources of

cash are Payables (your creditors) and Equity and Loans .

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Each component of working capital (namely inventory, receivables and payables) has two

dimensions ........TIME ......... and MONEY. When it comes to managing working capital

- TIME IS MONEY . If you can get money to move faster around the cycle (e.g. collect

monies due from debtors more quickly) or reduce the amount of money tied up (e.g.

reduce inventory levels relative to sales), the business will generate more cash or it will

need to borrow less money to fund working capital. As a consequence, you could reduce

the cost of bank interest or you'll have additional free money available to support

additional sales growth or investment. Similarly, if you can negotiate improved terms

with suppliers e.g. get longer credit or an increased credit limit; you effectively create

free finance to help fund future sales.

If you....... Then...... Collect receivables (debtors) faster You release cash from

the cycle Collect receivables (debtors) slower Your receivables soak

up cash Get better credit (in terms of duration

or amount) from suppliers

You increase your

cash resources

Shift inventory (stocks) faster You free up cash Move inventory (stocks) slower You consume more

cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles

etc. If you do pay cash, remember that this is now longer available for working capital.

Therefore, if cash is tight, consider other ways of financing capital investment - loans,

equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash

outflows and, like water flowing downs a plug hole, they remove liquidity from the

business.

More businesses fail for lack of cash than for want of profit.

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Sources of Additional Working Capital

Sources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-

stretch the financial resources of the business.

This is called overtrading . Early warning signs include:

o Pressure on existing cash

o Exceptional cash generating activities e.g. offering high discounts for early cash

payment

o Bank overdraft exceeds authorized limit

o Seeking greater overdrafts or lines of credit

o Part-paying suppliers or other creditors

o Paying bills in cash to secure additional supplies

o Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages, pending receipt

of a cheque).

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Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are collected

faster. Every business needs to know.... who owes them money.... how much is owed....

how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad

debts.

Slow payment has a crippling effect on business; in particular on small businesses

who can least afford it. If you don't manage debtors, they will begin to manage your

business as you will gradually lose control due to reduced cash flow and, of course, you

could experience an increased incidence of bad debt.

The following measures will help manage your debtors :

1. Have the right mental attitude to the control of credit and make sure that it gets

the priority it deserves.

2. Establish clear credit practices as a matter of company policy.

3. Make sure that these practices are clearly understood by staff, suppliers and

customers.

4. Be professional when accepting new accounts, and especially larger ones.

5. Check out each customer thoroughly before you offer credit. Use credit agencies,

bank references, industry sources etc.

6. Establish credit limits for each customer... and stick to them.

7. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector.

8. Keep very close to your larger customers.

9. Invoice promptly and clearly.

10. Consider charging penalties on overdue accounts.

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11. Consider accepting credit /debit cards as a payment option.

12. Monitor your debtor balances and ageing schedules, and don't let any debts get

too large or too old.

Recognize that the longer someone owes you, the greater the chance you will never get

paid. If the average age of your debtors is getting longer, or is already very long, you may

need to look for the following possible defects:

weak credit judgement poor collection procedures lax enforcement of credit terms slow issue of invoices or statements errors in invoices or statements Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand

immediate attention. Look for the warning signs of a future bad debt. For example.........

o longer credit terms taken with approval, particularly for smaller orders

o use of post-dated checks by debtors who normally settle within agreed terms

o evidence of customers switching to additional suppliers for the same goods

o new customers who are reluctant to give credit references

o Receiving part payments from debtors.

Profits only come from paid sales.

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The act of collecting money is one which most people dislike for many reasons and

therefore put on the long finger because they convince themselves there is something

more urgent or important that demand their attention now. There is nothing more

important than getting paid for your product or service. A customer who does not

pay is not a customer.

Managing Payables (Creditors)

Creditors are a vital part of effective cash management and should be managed carefully

to enhance the cash position.

Purchasing initiates cash outflows and an over-zealous purchasing function can create

liquidity problems. Consider the following:

o Who authorizes purchasing in your company - is it tightly managed or spread

among a number of (junior) people?

o Are purchase quantities geared to demand forecasts?

o Do you use order quantities which take account of stock-holding and purchasing

costs?

o Do you know the cost to the company of carrying stock?

o Do you have alternative sources of supply? If not, get quotes from major suppliers

and shop around for the best discounts, credit terms, and reduce dependence on a

single supplier.

o How many of your suppliers have a returns policy?

o Are you in a position to pass on cost increases quickly through price increases to

your customers?o If a supplier of goods or services lets you down can you charge back the cost of

the delay?

o Can you arrange (with confidence!) to have delivery of supplies staggered or on a

just-in-time basis?

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There is an old adage in business that if you can buy well then you can sell well .

Management of your creditors and suppliers is just as important as the management of

your debtors. It is important to look after your creditors - slow payment by you may

create ill-feeling and can signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to

enhance the future viability and profitability of your company

Key Working Capital Ratios

The following, easily calculated, ratios are important measures of working capital

utilization.

Ratio Formulae Result InterpretationStock

Turnover

Average Stock

* 365/

= x

days

On average, you turn over the value of your

entire stock every x days. You may need to

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(in days)Cost of Goods

Sold

break this down into product groups for

effective stock management.

Obsolete stock, slow moving lines will extend

overall stock turnover days. Faster production,

fewer product lines, just in time ordering will

reduce average days.

Receivables

Ratio

(in days)

Debtors * 365/

Sales

= x

days

It takes you on average x days to collect

monies due to you. If youre official credit

terms are 45 day and it takes you 65 days...

why?

One or more large or slow debts can drag out

the average days. Effective debtor managementwill minimize the days.

Payables

Ratio

(in days)

Creditors * 365/

Cost of Sales

(or Purchases)

= x

days

On average, you pay your suppliers every x

days. If you negotiate better credit terms this

will increase. If you pay earlier, say, to get a

discount this will decline. If you simply defer

paying your suppliers (without agreement) this

will also increase - but your reputation, the

quality of service and any flexibility provided

by your suppliers may suffer.

Current

Ratio

Total Current

Assets/

Total CurrentLiabilities

= x

times

Current Assets are assets that you can readily

turn in to cash or will do so within 12 months

in the course of business. Current Liabilities

are amount you are due to pay within the

coming 12 months. For example, 1.5 times

means that you should be able to lay your

hands on $1.50 for every $1.00 you owe. Less

than 1 times e.g. 0.75 means that you could

have liquidity problems and be under pressure

to generate sufficient cash to meet oncoming

demands.

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Quick Ratio

(Total Current

Assets -

Inventory)/

Total Current

Liabilities

= x

times

Similar to the Current Ratio but takes account

of the fact that it may take time to convert

inventory into cash.

Working

Capital

Ratio

(Inventory +

Receivables -

Payables)/

Sales

As %

Sales

A high percentage means that working capital

needs are high relative to your sales.

Current

Ratio

Total Current

Assets/

Total Current

Liabilities

= x

times

Current Assets are assets that you can readily

turn in to cash or will do so within 12 months

in the course of business. Current Liabilities

are amount you are due to pay within the

coming 12 months. For example, 1.5 times

means that you should be able to lay your

hands on $1.50 for every $1.00 you owe. Less

than 1 times e.g. 0.75 means that you could

have liquidity problems and be under pressure

to generate sufficient cash to meet oncoming

demands.

Quick Ratio

(Total Current

Assets -

Inventory)/

Total Current

Liabilities

= x

times

Similar to the Current Ratio but takes account

of the fact that it may take time to convert

inventory into cash.

Working

CapitalRatio

(Inventory +

Receivables -

Payables)/

Sales

As %

Sales

A high percentage means that working capital

needs are high relative to your sales.

Other working capital measures include the following:

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Bad debts expressed as a percentage of sales. Cost of bank loans, lines of credit, invoice discounting etc. Debtor concentration - degree of dependency on a limited number

of customers.

Once ratios have been established for your business, it is important to track them over

time and to compare them with ratios for other comparable businesses or industry sectors.

When planning the development of a business, it is critical that the impact of working

capital be fully assessed when making cash flow forecasts .

DATA ANALYSIS AND INTERPRETATION ( for east zone )

(Rs in cores)

2006/7 2007/8

A: CURRENT ASSETS:

Inventories: 634.96 686.65

Sundry debtors: 34.13 60.65

Cash and bank balance: 3686.53 3516.46

Other current assets: 212.4 236.46

Loans and advances: 406.42 541.10

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..

TOTAL: 5041.33 4974.08

B: CURRENT LIABELITIES:

Sundry creditors:

a) On capital a/c: 102.09 272.78

b) on others: 260.74 324.94

Other liabilities 424.64 557.94

Security deposit: 74.66 162.69

Book over draft 9.98 .

Provisions: 346.49 222.57

TOTAL: 1218.61 1540.40

WORKING CAPITAL (A-B): 3822.72 3433.68

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RESEARCH OBJECTIVES

To know about the Dump & Shrinkage percentage in reliance retail, Orissa.

To recognize the procedure to reduce the dump & shrinkage percentage in the

retail sector. .

To study the reasons due to which it is lacking.

To calculate the working capital for the year ended 2006-2008.

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.

RESEARCH METHODOLOGY

The Research methodology for the present study is outlined below:-

(A) Developing a Research Design:

Problem Definition Type of research adopted

Method used in the research

(B) Sampling Design:

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Type of approach followed

Sample size

(C) Data Collection:

Basic method adopted

Questionnaire-Design & Construction

(D) Analysis & Interpretation:

Developing a research design

Significance of Research

All progress is born of inquiry. Doubt is often better than overconfidence. For it

leads to inquiry leads to invention is a famous Hudson Maxim in context of with the

significance of research can be understood. Increased amounts of research make progress

possible. Research includes scientific and inductive thinking and prompted the

development of logical habits of thinking and organization. The role of research in

several fields of applied economics, whether related to business or to the economy as a

whole, ahs greatly. Increased in modern times. The increasingly complex nature of

business and government has focused attention on the use of research and solving

operational problems. Research, as and aid to economic policy, has gained assed

importance, both for government and business. Research provides the basis for nearly all

government policies in our economic system. Research has its special significance in

solving various operational and planning problems of the business and industry. Research

is equally important for social scientists in studying social relationship and in seeking

answers to various social problems. To philosophers and thinkers, research methodology, research may mean

a source of livelihood.

To philosophers and thinkers, research may be development of new

ideas and insights.

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Generalization and Interpretation

Preparation of the report of presentation of the results, i.e. formal write-up of conclusion

reached.

Research methodology:

Research in common parlance refers to search for knowledge. One can also define

research as scientific and systematic search for pertinent information on specific topics.

In fact, research is an art of scientific investigation.

According to Clifford Woody, Research comprises defining and refining a problem.

Formatting hypothesis or suggested solution: and at last carefully testing the conclusion:

to determine whether they fit the formulating hypothesis.

Objectives of Research:

The purpose of research is to discover answers to questions through the

application of scientific procedures. The main aim of research is to find out the truth

which is hidden and which has not been discovered as yet. Though each research study

has its own specific purpose, we may think of research objectives as falling into a number

of following broad grouping: To gain familiarity with a phenomenon or to achieve new insights into (studies

with this object in view are know as descriptive research studies).

To portray accurately the characteristics of a particular individual, situation or a

group (studies with this object in view are know as descriptive research studies).

To determine, with which something occurs or with which it associated with

something else (studies with this object in view are know as diagnostic research

studies). To test a hypothesis of a casual relationship between variables (such studies are

know as hypothesis sting research studies).

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Types of Research:

The basic types of research are as follows:

(1) Descriptive v/s Analytical:

Descriptive research includes surveys and fact-finding enquires of

different kinds. The major purpose of descriptive research is description of

the state of affairs, as it exists at present. In social science and business

research we quite often use the term Ex post facto research for descriptive

research has no control over the variables; he can only report what has

happened or what is happening.

(2) Applied v/s Fundamental:

Research can either be applied (or action) research or fundamental (or

basic or pure) research. Applied Research aims at finding solution for an

immediate problem facing a society or an industrial / business

organization, whereas fundamental research is mainly concerned with

generalization and with the formulation of a theory. Gathering

Knowledges sake is termed pure or basic research.

(3) Quantitative v/s Qualitative:

Quantitative research is based on the measurement of quantity or amount.

It is applicable to phenomenon that can be expressed in terms of quantity

phenomenon, i.e. phenomenon relating to or involving quality or kind. For

instance, when we are interested in investigating the reasons for human

behavior (i.e. why people think or do certain things), we quite often talk of

Motivation Research, an important type of qualitative research. The type

of research aims at discovering the underlying motives and desires, using

in depth interviews for the purpose.

(4) Conceptual v/s Empirical:

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Conceptual research is that related to some abstract idea (s) or theory.

Philosophers and thinkers to develop new concepts or to reinterpret

existing ones generally use it. On the other hand, empirical research relies

on experience or observation alone, often without due regard for system

and theory. It is data based research, coming up with conclusion, which is

capable of being verified, by observation or experiment. We can also call

it as experimental type of research.

(5) Some other types of research:

All other types of research are variation is one or more of the above stated

approaches, based on either the purpose of research, or the time required

to accomplish research, or the environment in which research is done, or on the basis of some other similar factor, from the point of view of item,

we can think or research either as one time research of longitudinal

research. In the former case the research is confined to single time-period,

whereas in the latter is carried on over several time-period. Research can

be field-setting research of laboratory research or simulation research,

depending upon the environment in which is to be carried out. Research

can as well be understood as clinical or diagnostics research. Such

researchers follow case-study methods or in depth usually go deep into the

causes of things or events that interest us, using very small samples and

very deep probing data gathering devices. The objectives of exploratory or

it may be formalized. The objectives of exploratory research is the

development of hypothesis rather than their testing; whereas formalized

research studies are those with substantial structure and with specific

hypothesis to be tested. Historical research is that utilized historical

sources like documents remain, etc. to study events or ideas of the past,

including the philosophy of persons and groups at any remote point of

time. Research can also; be classified as conclusion-oriented and decision-

oriented. While doing conclusion-oriented research, a researcher is free to

pick up a problem, redesign the enquiry as he proceeds and is prepared to

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conceptualize as he wished. Decision maker and the researcher in the case

are not free to embark on research according to his own inclination.

Operations research is an example of decision-oriented research since it is

scientific methods of providing executive departments with a quantitative

basis for decisions regarding operations under their control.

What is a Research Problem?

A research problem, in general, refers to some difficulty, which a researchers

experiences in the context of either a theoretical or practical situation and wants to obtain

a solution for the same.

Selecting the Problem:

The research problem undertaken for study must be carefully selected. The task is

a difficult one, although is may not appear to be so. Nevertheless, every taken from a

researcher must find out his own salvation for research problems cannot be borrowed. A

problem must spring from the researchers mind like a plant springing from its own see.

We have to see ourselves and enable him to prescribe for us the right number by

cooperating with him. Thus, a research guide can at the most only help a researcher

choose a subject. However, the following points may observe by a researcher in selectinga research problem or a subject for research.

(a) Subject that is overdone should not be normally chosen, for it will be a difficult

task to throw any new light in such case.

(b) Controversial subject should not become the choice of an average researcher.

(c) To narrow or too vague problems should be avoided. The subject selected for

research should be familiar and feasible so that the related research material or

sources of research are within ones reach. Even that it is quite difficult to supply

definitive ideas concerning how a researcher should obtain for his research.

(d) The importance of the subject, the qualification and the training of a researcher,

the cost involved, at a time factor are few other criteria that must also be

considered in selecting a problem.

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(e) The selection of problem must be preceded by a preliminary study. This may not

be necessary.

(f) When the problem requires the conduct of a research closely similar to one that

has already been done. But when the field of inquiry is relatively new and does

not have available a set of well-developed techniques, a brief feasibility study

must always be undertaken.

Research Design:

The formulated problem that follows the task of defining the research problem

that follows the task of defining is the preparation of the design of the research project,

popularly known as the research design. A research design is the arrangement of

conditions for collection and analysis of data is a manner that aims to combine relevance

to the research purpose with economy in procedure.

Features of a good design:

A good design is often characterized by adjectives like flexible, appropriate,

efficient and economical and so on. Generally, the design which minimizes bias andmaximizes the reliability of the data collected and analyzed is considered a good design.

The design that gives the smallest experimental error is supposed to be the best design in

many investigations.

A research design appropriate for a particular research problem, usually involves

the consideration of the following factors:

The means of obtaining information.

The availability and skills of the researchers and his staff, if any

The objectives of the problem to be studied.

The availability of time and money for the research work.

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Developing a Research Plan:

Research plan must contain the following items:

(1) Research objectives should be clearly stated in a line or two, which tells exactly

what it is that the researcher expects to do.

(2) The problem to be studied while researcher must be explicitly stated so that one

may know what information is to be obtained for solving the problem.

(3) Each major concept which researcher wants to measure should be defined in

operational terms in context of the research project.

(4) The plan should contain the method to be used in solving the problem. An overall

description of the approach to be adopted is usually given and assumption, if any,

of the concerning method to be used are clearly mentioned in the research plan.

(5) The plan must also state the details of the techniques to be adopted. For instance,

if interview method if too used, an account of the nature of the contemplated

interviews procedure should be given. Similarly, if test are to be given, the

condition under which they are to be used. If public records are to be consulted as

sources of data, the fact should be recorded in the research plan. Procedure for

quantifying data should also be written about in all details.

(6) A clear mention of the population to be studied should be made. If the studyhappens based, the research plan should state sampling plan i.e. how the samples

is to be identified. The method of identifying the sample should be such that

generalization form the sample to be original population is feasible.

(7) The plan must also contain the method to be used in processing the data statistical

and other to be used must be indicated in the plan. Such methods should not be

left until the data have been collected. This part of the plan may be reviewed by

experts in the field for they can often suggest changes that result in substantial

saving of time and feasible.

(8) Result of pilot test, if any should be reported. Time and cost budgets for the

researcher project should also be prepared and laid down it.

Sampling Design:

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Census and Sample Survey:

All items in any field of inquiry constitute a Universe or Population. A population

complete enumeration of all in the population is known as a census inquiry.

Steps in Sampling Design:

(1) Type of Universe:

The first step in developing any sample design is to clearly define the set

of objects, called technically called the Universe, to be studied. The

Universe can be finite or infinite. In finite universe the numbers of items is

certain, but in case of an infinite universe the number of the number of

items if infinite.

(2) Sampling List:

A decision has to be taken concerning a sampling unit before selecting

sampling. Sampling unit may be geographical one such as state, district,

village etc. it may be a social unit as family, club, school etc. or it may bean individual.

(3) Source List:

It is known as sampling frame which sample is to be drawn. It contains the name of all

items of a universe. It is extremely for the source list to be as representative of the

population as possible.

(4) Size of Sample:

This refers to the number of items to be selected from the universe to constitute a sample.

This is a major problem before a researcher. The size of sample should neither be

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excessively large, nor too small. It should be optimum. Cost too dictates the size of

sample that we can draw. As such, budgetary constraint must invariably be taken

consideration when we decide the samples size.

(5) Parameters of Interest:

For instance, we may be interested in estimating the proportion of person with some

characteristics in the population of in knowing some average or the measure concerning

the population. There may also be important sub-groups in the population about whom

we should like to make estimates. All this impact upon the sample design we would

accept.

(6) Budgetary Constraint:

Cost consideration from practical point of view, have a major impact upon decision

relating to not only the size of a non-probability sample.

(7) Sampling Procedure:

Finally, the researcher must decide the type of sample he will use. There are several

sample designs (explained in the pages that follows) out of which the researcher must

select that design which for a given sample size and for a given cost, has smaller

sampling error.

RECOMMENDATION:

First and forecast important things that there must be regular feedback.

Taking by the consumers about Reliance retail..

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Reliance Retail Ltd. should focus on small cities to increase there sails.

Image of the Reliance Retail in small towns and cities is not so good as

compression to Bigbazar & Subhiksha so Reliance Retail also focus to create

awareness.

After the filing the application form by the customer the investigation process has

taken to must time because of this customer fall well so HDFC should increase of

in this case of services.

After purchasing goods from Reliance retail store some of the customers are not

satisfied with the after sales service

Customers believe towards the Reliance Retail in major cities attractiveness but

as compare to the minor cities.

The Reliance Retail Ltd. should adopt surrogate advertising to create awareness

about the facility services provided by it.

Reliance Ltd should be in close contact with the competitors strategy and

chances in the product facilities must be done regularly to fight the competitors

brand.

Questionnaire for Customer

Name: Age: Contact no.:

Income level: (a) Less than 5000 (b) Between 5000 to 15000 (c) More than 15000

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Q1. Do you purchase goods from Reliance Retail stores regularly or occasionally?

(a) Regularly (b) Occasionally

Q2. How long you are using goods from Reliance Retail store?

(a) Less than 1 year (b) 1 to 2 year (c) More than 2 year

Q3. Do you recognize new products of Reliance Retail store?

(a) Yes (b) No

Q4. Which new feature do you like most in Reliance Retail store?

(a) Packaging (b) Taste

Q5. Any suggestion regarding new product packaging of Reliance Retail store.?

Q6. Which Retail store you like to purchase goods when Reliance Retail store is notavailable?

.

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Q7 How long you are using ?

(a) Less than 1 year (b) 1 to 2 year (c) more than 2 year

Q8. Before Reliance Retail from which stores

you purchase your product?

.

Q9. What is the reason of switch over to Reliance Retail Storey?

..

Q10. Will you like to change your brand?

(a) Yes (b) No

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Thanks for giving your valuable time and views.

BIBLIOGRAPHY

1. Financial Management..Prasanna Chandra

2. Financial Management.I.M.Pandey

3. Research Methodology by C.R. Kothari.

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4. Annual Report of Reliance retail east zone

5. Auditors Report, Directors Report and Investors Report.

6. www.Reliance Retail.com

7. www.google.com

Source:

EIU, AT Kearney analysis

TSMG Analysis

The India retail story, Images F&R Research, India Retail Forum2008, businesWorld.

biranchi project(3)

Documents