CHAPTER - I

INTRODUCTION

The dimensions of business finance have undergone phenomenal transformation during the last

few decades. Until recent past, business finance was considered as an economic activity,

concerned with procurement of funds for business purposes and finance manager was considered

as keeper of books of accounts and provider of capital needed by enterprise.

However, manager has now become an integral part of enterprise and is involved in the problems

and decisions pertaining to management of assets of enterprise. Role of finance managers has

increased further in recent years following.... policy reforms in economic systems world over

leading to liberalization and globalization of business and enhanced competition. Hence,

comprehensive understanding of various concepts, principle, tools and techniques of finance

have become inescapable.

In order to understand more clearly the meaning of business finance it is worthwhile to highlight

scope of business finance. At the outset, it may be pointed out that business finance is concerned

with finances of profit seeing organizational only and is an important segment of private finance.

Finance is regarded as life blood of business enterprise. This is because, in modern money

oriented economy, finance is one of the basic foundations for all kinds of economic activities. It

is master key which provides access to all sources employed in manufacturing and

merchandising activities. It has rightly been said that money begets more money, only when it is

properly managed, and thus, from above important and need for finance in modern oriented

economy can be realized.

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1.1 Emergence of Corporate Finance

Finance in general may be defined as provision of money at time and place where it is wanted.

Corporate finance emerged as a distinct field at turn of century. It is evolution may be defined

into 3 types:

Traditional Phase: It constituted only about organizing money for business needs.

Transitional Phase: Though this phase was similar to traditional phase for greater

emphasis was being placed on day to day problems faced by finance managers.

Modern Phase: with modern phase, scope of financial management broadened and

central theme of financial management is considered to be rational matching of funds to

their uses in light of appropriate decision criteria.

1.2 Nature of finance:

Finance is concerned with rising of funds to meet the various cash flow needs of the

organization. Finance functions starts from gathering the cash flow information from the

accounting records and also prepare projections of cash flow. Finance activities are concerned

with preparing budgets and compare the same with the actual results for finding variances. Here,

the sources and application of funds are prepared for both the budgets and actual scenario.

1.3 Scope of Finance:

As the present state, the academic discipline of finance includes the following specialized areas

in its scope.

(i) Public Finance :

Like business organizations, governments (local, state or federal) raise and spend

large sum of money, but unlike business organizations, they pursue non-profit goals.

To deal with governmental financial matters, a separate and specialized field of

finance has emerged as public finance

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(ii) Securities And Investment Analysis :

This area is of interest to individuals and institutional investors. It covers mainly

measurement of risk and return on investment in securities.

(iii) Institutional Finance :

Institutional finance deals with issues of capital formation and the organizations that

perform the financing function of the economy. Therefore, it mainly studies saving

and capital formation and institutions involved in this process such as banks,

insurance companies, provident and pension funds, etc.

(iv) International Finance :

International finance studies economic transactions among nations, corporations

and individually internationally. It is concerned with flows of money across

international boundaries.

(v) Financial Management :

Business firms face problems dealing with acquisition of funds and optimum methods

of employing the funds. Thus, financial management studies financial problems in

individual firms, seeks low-cost funds and seeks profitable business activities.

1.4 Need for Finance

Right from the moment someone thinks of a business idea, there needs to be cash. As the

business grows there are inevitably greater calls for more money to finance expansion. The day

to day running of the business also needs money. A business needs finance for the following

vital reasons:

(i) Start a business: Depending on the type of business, it will need to finance the purchase of

assets, materials and employing people. There will also need to be money to cover the running

costs. It may be some time before the business generates enough cash from sales to pay for these

costs. Link to cash flow forecasting.

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(ii) Finance expansions to production capacity: As a business grows, it needs higher capacity

and new technology to cut unit costs and keep up with competitors. New technology can be

relatively expensive to the business and is seen as a long term investment, because the costs will

outweigh the money saved or generated for a considerable period of time. And remember new

technology is not just dealing with computer systems, but also new machinery and tools to

perform processes quicker, more efficiently and with greater quality.

(iii) To develop and market new products: In fast moving markets, where competitors are

constantly updating their products, a business needs to spend money on developing and

marketing new products e.g. to do marketing research and test new products in “pilot” markets.

These costs are not normally covered by sales of the products for some time (if at all), so money

needs to be raised to pay for the research.

(iv)To enter new markets: When a business seeks to expand it may look to sell their products

into new markets. These can be new geographical areas to sell to (e.g. export markets) or new

types of customers. This costs money in terms of research and marketing e.g. advertising

campaigns and setting up retail outlets.

(v) Take-over or acquisition: When a business buys another business, it will need to find

money to pay for the acquisition (acquisitions involve significant investment). This money will

be used to pay owners of the business which is being bought.

(vi) Moving to new premises: Finance is needed to pay for simple expenses such as the cost of

renting of removal vans, through to relocation packages for employees and the installation of

machinery.

(vii) To pay for the day to day running of business : A business has many calls on its cash on

a day to day basis, from paying a supplier for raw materials, paying the wages through to buying

a new printer cartridge.

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1.5 Objectives of Finance: A firm must be set within the parameters of corporate purpose and

mission. Corporate purpose of a firm provides clear indication about what the company is and

desires to be. It spells out the fundamental line of the business that it wishes to pursue.

Specific objectives:

1. Profit Maximization Objective: According to this objective, all such actions as increase

income and cut down costs should be undertaken and those that are likely to have an adverse

impact on profitability of the enterprise should be avoided. This in turn would help in optimal

utilization of the society’s economic resources.

2. Wealth Maximization Objective: It is a widely reorganized criterion with which the

performance of a business enterprise is evaluated. The word wealth refers to the net present

worth of the firm. Net present worth is the difference between gross present worth and the

amount of the capital investment required for achieving the benefit. Gross present worth

represents the present value of expected cash benefits discounted at a rate that deflects their

certainty or uncertainty.

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1.6 Importance of Finance

Finance is important to an organization as the firm has to know how viable it is and balance

profit with costs.

(i) Prepare and create financial accounts:  such as Trading, Profit and Loss Account and

the Balance Sheet.

(ii) Keep and maintain financial records: sales figures and records of expenditure would

be held by the Finance department and used by other departments also.

(iii) Prepare and plan internal financial information: this would mainly be

performed in the case of a budget, which is a financial plan and can help managers take

corrective action.

(iv)Analyse current financial performance: how the firm has done in trading or expenses

would be analysed primarily using ratio analysis tools.

(v) Pay creditors: Finance Department would ensure that bills are paid to people the firm

owes money to.

(vi)Pay employees wages and salaries: running the payroll system is another important

task for Finance to undertake.

1.7 Functions of Finance

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1.7.1 Traditional Concepts of Finance Function:

Primary responsibility of a finance manager, according to traditional scholars, is to raise

necessary funds to meet operating requirements of the business planning quantum & pattern of

fund requirements and allocation of funds as among different assets is concern of non-finance

executives.

(i) To take decisions regarding choice of optimal source from which funds would have to

be allocated

(ii) To look into financial problems of promotions, incorporation, merges, consolidation

& reorganizations.

(iii) To be concerned with long term problems of financing.

Finally, modern authorities charged that traditional approach placed more emphasis on problems

of long-term financing as if business enterprises do not have to encounter any financial trouble in

short-run. As a matter of fact, problem of working capital management is a very crucial one,

which has to be dealt with effectively by finance manager of an enterprise has to reach objective

of wealth maximization.

1.7.2 Modern Concept of Finance Function

It is an integral part of overall management rather than fund raising operations of staff

specialists. According to them, it is not sufficient for a finance manager to see that a firm has

sufficient funds to carry out its plan but at same time he has also to ensure wise application of

funds in productive process. Thus finance manager has following functions:

a) Recurring Finance Functions

i) Planning of Funds

ii) Raising of Funds

iii) Allocation of Funds

iv) Allocations of income

v) Control of Fund.

b) Non-Recurring finance functions :

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It refers to those financial activities that a finance manager has to perform very

infrequently. Preparation of the promotion of the enterprise, financial readjustments in times

of liquidity crisis, valuation of the firm at the time of merger and reorganizations of the firm

and similar other activities are of episodic character. Successful handling of such problems

requires skills and understanding of principles and techniques of financial peculiar to non-

recurring situations.

c) Public Sector concepts of Finance Functions :

Now the question arises whether the concept of private sector. Before examining this aspect

it would be pertinent to focus light on the genesis and aims of the public sector in India

because what is expected of public sector depends upon what are the goals, which it has to

attain. Principles techniques of prudent financial management that are adopted by the private

sector are by and large, the same in the public sector.

d) Organizations concept of Finance Functions :

An organization of these functions is not standardized one. It varies from enterprise to

enterprise depending essentially on the characteristics of the firm, size, nature and convention

etc. thus, in smaller companies where operations are relatively simple and less complicated and

delegation of management functions is very limited, no separate executive is appointed to handle

the finance functions.

1.8 Business Finance

Business Finance is that activity which is concerned with acquisition & conservation of

capital funds in meeting financial needs and overall objectives of business enterprise.

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Also, it is activity concerned with planning, raising, controlling and administering of the

funds used in business.

1.8.1 Scope of the Business Finance:

Finance as such is but one fact of broader economic activity of mobilizing savings and

directing them in investments. Finance includes both public and private finance. Public

finance is the study of principles and practices pertaining to the acquisitions of funds,

meeting the requirements of government bodies and administration of funds, and meeting

the requirements of government bodies and administration of these funds by the

government.

Business finance is further split into three categories, viz, finance of sole trading

organizations, partnership firms and corporate enterprises. However special attention is

devoted to the analysis of the problems and practice entailed in raising and utilization of

funds. It should be noted that problems of purchase, production and marketing are outside

the domain of business finance although their problems are so intimately linked to

problems of finance that is actual practice. It is difficult to discern them.

1.8.2 Types of Business Finance:

a) Long-Term Funds:

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Long-term sources or funds are required to create production facilities through purchases

of fixed assets such as plant, machinery, land, building, furniture, e.t.c. Investments in these

assets represent that part of firm`s capital which is blocked on a permanent or fixed basis and is

called fixed capital. The long-term sources of finance are:

(i) Ownership securities (ii) Creditor ship securities(iii) Loan Financing (iv) Internal financing

b) Short-Term Funds:

The sources of fund which has maturity one year or less basically called ass Short-term

Fund. Act of seeking or finding sources of monetary funds for a period of time of less than one

year. For example, project managers may seek short-term funding for unanticipated expenses.

Financial Instruments usually a type of debenture, which are used to provide financing to

a larger project. For example, a company can generate short-term funding by issuing short-

term bonds.

(i) Accrued Expenses (ii) Provisions(iii) Trade Credit(iv) Cash-Credit(v) Discounting of Bills(vi) Letter of Credit(vii) Public Deposits(viii) Commercial Papers

1.9 Working Capital:

Working capital is that part of the firm’s total capital which is required for financing short term

assets or current assets such as cash, debtors, inventories, marketable securities. It is also known

as circulating capital.

1.9.1 Nature of working Capital

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Working Capital Management is concerned with problem that arise in attempting to manage the current assets the current liabilities and inter-relationship that exist between them. The interaction between current assets and current liabilities is therefore the main theme of the theory of working capital management.

Working Capital =Current Assets – Current Liabilities

Types of Working Capital:

i) Fixed working capital :

Fixed or permanent working capital is the amount involved in current assets to conduct

business activities even in worst conditions. It represents the current assets which are required on

a continuing basis over the entire year.

ii) Temporary or variable Working Capital:

Temporary working capital refers to the amount involved in additional current assets

which are required on a continuing basis over the entire year.

1.9.2 Advantages and Disadvantages of Working Capital

The firm should maintain a sound working capital. It should have an adequate working capital to

run its business operations. Both excessive as well as inadequate working capital are dangerous

from firm’s point of view. Excessive working capital means holding costs and idle funds which

earn no profit for the firm.

Advantages of working capital:

i) Availability of raw-materials regularly

ii) Full utilization of Fixed assets

iii) Cash Discount

iv) Increase in Credit Rating

v) Advantages of Favorable Business opportunities

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vi) Facility in obtaining bank loans

vii) Increase in efficiency of management

Disadvantages of Working Capital:

i) Leads to low profitability even through sufficient cash is available

ii) Outstanding and losses may be faced

iii) One of the root causes over overcapitalization

iv) It leads to greater production level but not having a matching demand in market.

v) High level of inventories and its maintenance and storage cost increases.

vi) It may lead to carelessness about costs and therefore inefficiency of operations.

vii) Creates an imbalance between liquidity and profitability

viii) Unwise dividend policies.

ix) Excessive working capital is not a good indicator for future growth and

profitability for the organization. The management should avoid such a condition

and maintain a level of adequate working capital in the organization.

1.9.3 Kinds of working Capital

On the basis of Concept: It is divided into two types. They are-

i) Gross Working Capital

ii) Net Working Capital

On the basis of Time: It is divided into two types. They are –

i) Permanent or Fixed

Regular Working Capital

Reserve Working Capital

ii) Temporary or Variable

Seasonal working capital

Special Working Capital

1.9.4 Need for Working Capital:

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i) To pay wages and salaries.

ii) For the purchase of raw-materials, components and spares.

iii) To incur day-to-day expenses and overhead costs such as fuel, power and office

expenses etc.

iv) To meet the selling costs as packaging, advertising etc.

v) To provide credit facilities to the customers.

vi) To maintain the inventories of raw-materials, work-in-process, stores and spares and

finished stock. The amount of working capital needed goes on increasing with the growth and

expansion of the business till it attains maturity

1.9.5 Factors determining the Working Capital

i) Nature of business or Company

ii) Size of the business concern

iii) Length of the period of manufacture

iv) Degree of Mechanization

v) Size of Stock

vi) Seasonal Variations

vii) Storage Time Or Processing Period

viii) Credit Period

ix) Potential Growth Or Expansion Of Business

x) Operating Efficiency

xi) Access To Money Market

1.9.6 Working Capital Policy

There are three types of Working Capital Policy which are adopted.

Conservative Policy: It carries high level of Current Assets to sales, which results in

lower degree of risks and expected profitability. Its financing policy relies less on short

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term bank financing and more on long term sources of finance and hence lowers risks but

increase cost of financing.

Aggressive Policy : It carries low level of Current Assets is relation to sales, which

results in a higher degree of risks and a higher level of expected profitability. It financing

policy relies more on short-term bank finance and less on long-term sources of finance

which results in increase of risks and decrease in cost of financing.

Hedging or Matching Policy: Maturity of sources of funds matches nature of assets to

be financed, such as long-term sources are used for fixed assets and permanent assets.

Short-term sources are used for variable current assets.

1.9.7 Principles of Working Capital

Principles of Risk Variation: Risk refers to the inability of the firm to maintain

sufficient current assets to pay for its obligations. If working capital is varied relative to

sales, the amount of risk that a firm assumes is also varied and the opportunity for gain or

loss increased. There is a definite relationship between the degree of risk and the rate of

return. As a firm assumes more risk, the opportunity for gain or loss increases. As the

level of working capital relative to sales decreases, the degree of risk increases. When the

degree of risk increases, the opportunity for gain and loss also increases. Thus if the level

of working capital goes up, the amount of risk goes down, the opportunity for gain or loss

is likewise adversely affected. Depending upon their attitudes, the managements change

the size of their working capital.

Principle of Cost of Capital: This principle emphasizes the different sources of finance,

for each source has a different cost of capital. It should be remembered that the cost of

capital moves inversely with risk. Thus, additional risk capital results in the decline in the

cost of capital.

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Principle of Equity position: According to this principle, the amount of working capital

invested in each component should be adequately justified by a firm’s equity position.

Every rupee invested in the working capital should contribute to the new worth of the

firm.

Principle of Maturity of Payment: A company should make every effort to relate

maturities of payment to its flow of internally generated funds. There should be the least

disparity between the maturities of a firm’s short-term debt instruments and its flow of

internally generated funds because a greater risk is generated with greater disparity. A

margin of safety should, however, be provided for short-term debt payments.

1.9.8 Factors requiring consideration while estimating working capital

i) Total costs incurred on material, wages and overheads.

ii) Length of time for which raw-materials are to remain in stores before they are issued

for production.

iii) Length of production cycle or work-in-progress, i.e; time taken for conversation of

raw-materials into finished goods.

iv) Length of sales cycle during which finished goods are to be kept waiting for sales.

v) Average period of credit allowed to customers.

vi) Amount of cash required to pay day-to-day expenses of business.

vii) Average credit period expected to be allowed by suppliers.

viii) Time-lag in payment of wages & other expenses.

1.2 Showing Components of Working Capital:

Working Capital

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1.3 Showing Working capital Cycle:

1.9.9 Functions of Financial Management

i) Estimation of Financial Management.

ii) Selection of right source of fund.

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Cash Inventory Receivables (Creditors)

Cash

Raw-materials

Work-in-progress

Finished goods

Debtors

iii) Allocation of Fund.

iv) Analysis & interpretation of performance.

v) Analysis of cost-volume-profit.

vi) Profit Planning & control.

vii)Maintaining liquidity and wealth maximizations.

1.9.10 Working capital analysis/ measuring working capital

Ratio Analysis :

i) Current ratio

ii) Acid test ratio

iii) Absolute liquid ratio

iv) Inventory turnover ratio

v) Receivables turnover ratio

vi) Payables turnover ratio

vii) Working capital turnover ratio

Fund Flow analysis :

i) Preparing schedule of changes in Working Capital

ii) Statements of sources and applications of funds

Working capital Budget.

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1.10 Working Capital Management

Meaning:

Working capital management is an act of planning, organizing and controlling the components of

working capital like cash, bank balance, inventory, receivables, payables, overdraft and short-

term loans.

Definition:

According to Smith K.V, “Working capital management is concerned with the problems that

arise in attempting to manage the current asset, current liabilities and the interrelationship that

exist between them”.

According to Weston and Brigham, “Working capital generally stands for excess of current

assets over current liabilities. Working capital management therefore refers to all aspects of the

administration of both current assets and current liabilities”.

1.10.1 Concept of Working Capital

Generally, there are two concepts of working capital i.e. gross concept and net concept.

1. Gross Concept of Working Capital:

According to gross concept, working capital refers to all the current assets and represents the

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amount of funds invested in current assets. Thus, gross working capital is the capital invested in

current assets. Current assets are those assets which can be converted into cash within the short-

time period.

Gross Working Capital = Total current assets

In this way, gross working capital refers to the firm's investment in current assets. Gross working

capital represents total of current assets which includes cash in hand, cash at bank, inventory,

prepaid expenses, bills receivable etc.

2. Net Concept of Working Capital:

According to the net concept, working capital is the excess of current assets over current

liabilities. In other words, the difference between current assets and current liabilities is called

net working capital. 

Net Working Capital = Current Assets - Current liabilities

In this way, net working capital is the difference of current assets and current liabilities.

1.10.2 Cash Management:

Business concern needs cash to make payments for acquisition of resources and services for the

normal conduct of business. Cash is one of the important and key parts of the current assets.

Cash is the money which a business concern can disburse immediately without any restriction.

The term cash includes coins, currency, cheques held by the business concern and balance in its

bank accounts. Management of cash consists of cash inflow and outflows, cash flow within the

concern and cash balance held by the concern etc.

1.10.3 Motives for Holding Cash

1. Transaction motive:

It is a motive for holding cash or near cash to meet routine cash requirements

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to finance transaction in the normal course of business. Cash is needed to make

purchases of raw materials, pay expenses, taxes, dividends etc.

2. Precautionary motive:

It is the motive for holding cash or near cash as a cushion to meet unexpected

contingencies. Cash is needed to meet the unexpected situation like, floods

strikes etc.

3. Speculative motive:

It is the motive for holding cash to quickly take advantage of opportunities

typically outside the normal course of business. Certain amount of cash is needed to meet an

opportunity to purchase raw materials at a reduced price or make purchase at favorable prices.

4. Compensating motive:

It is a motive for holding cash to compensate banks for providing certain services or loans.

Banks provide variety of services to the business concern, such as clearance of cheque, transfer

of funds etc.

1.10.4 Receivables Management:

The term receivable is defined as debt owed to the concern by customers arising from sale of

goods or services in the ordinary course of business. Receivables are also one of the major parts

of the current assets of the business concerns. It arises only due to credit sales

to customers, hence, it is also known as Account Receivables or Bills Receivables.

Management of account receivable is defined as the process of making decision resulting to the

investment of funds in these assets which will result in maximizing the overall return on the

investment of the firm.

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The objective of receivable management is to promote sales and profit until that point is reached

where the return on investment in further funding receivables is less than the cost of funds raised

to finance that additional credit.

Factors Considering the Receivable Size

Receivables size of the business concern depends upon various factors. Some of the important

factors are as follows:

1. Sales Level

2. Credit Policy

3. Credit Terms

4. Credit Period

5. Cash Discount

6. Management of Receivable

Cost of Maintaining Receivables

A. Collection Cost

B. Capital Cost

C. Administrative Cost

D. Default Cost.

Collection Cost:

This cost incurred in collecting the receivables from the customers to whom credit sales have

been made.

Capital Cost:

This is the cost on the use of additional capital to support credit sales which alternatively could

have been employed elsewhere.

Administrative Cost:

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This is an additional administrative cost for maintaining account receivable in the form of

salaries to the staff kept for maintaining accounting records relating to customers, cost of

investigation etc.

Default Cost:

Default costs are the over dues that cannot be recovered. Business concern may not be able to

recover the over dues because of the inability of the customers.

1.10.5 Inventory Management

Inventories constitute the most significant part of current assets of the business concern. It is also

essential for smooth running of the business activities.

A proper planning of purchasing of raw material, handling, storing and recording is to be

considered as a part of inventory management. Inventory management means, management of

raw materials and related items. Inventory management considers what to purchase, how to

purchase, how much to purchase, from where to purchase, where to store and when to use for

production etc.

Meaning

The meaning of the inventory is stock of goods or a list of goods. In accounting language,

inventory means stock of finished goods. In a manufacturing point of view, inventory includes,

raw material, work in process, stores, etc.

Kinds of Inventories

Inventories can be classified into five major categories.

A. Raw Material:

It is basic and important part of inventories. These are goods which have not yet

been committed to production in a manufacturing business concern.

B. Work in Progress:

These include those materials which have been committed to production process

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but have not yet been completed.

C. Consumables:

These are the materials which are needed to smooth running of the manufacturing process.

D. Finished Goods:

These are the final output of the production process of the business concern. It

is ready for consumers.

E. Spares:

It is also a part of inventories, which includes small spares and parts.

Objectives of Inventory Management:

Inventory occupies 30–80% of the total current assets of the business concern. It is also very

essential part not only in the field of Financial Management but also it is closely associated with

production management. Hence, in any working capital decision regarding the inventories, it will

affect both financial and production function of the concern. Hence, efficient management of

inventories is an essential part of any kind of manufacturing process concern.

The major objectives of the inventory management are as follows:

i) To efficient and smooth production process.

ii) To maintain optimum inventory to maximize the profitability.

iii) To meet the seasonal demand of the products.

iv) To avoid price increase in future.

v) To ensure the level and site of inventories required.

vi) To plan when to purchase and where to purchase.

vii) To avoid both over stock and under stock of inventory.

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CHAPTER-2

Review of Literature & Research Design

2.1. Review of Literature

The purpose of the literature review is to identify and discuss about the problem stated

given by various authors. To gather the information and understand about the problem and make

new findings.

Studies on Working Capital Management Studies adopting a new approach towards working capital management are reviewed here:

1. 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 manager’s 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. Thus, Sagan concentrated mainly on cash component of working capital. Sagan indicated that the task of money manager was to provide funds as and when needed and to invest temporarily surplus funds as profitably as possible in view of his particular requirements of safety and liquidity of funds by examining the risk and return of various investment opportunities. He suggested that money manager should take his decisions on the basis of cash budget and total current assets position rather than on the basis of traditional working capital ratios. This is important because

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efficient money manager can avoid borrowing from outside even when his net working capital position is low. The study pointed out that there was a need to improve the collection of funds but it remained silent about the method of doing it. Moreover, this study is descriptive without any empirical support.

2. Walker in his study (1964) made a 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 the level of working capital and the rate of return to be negative.

3. Darling and Lovell (1965) modified Metzler’s 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. Among the physical factors, mention may be made of procurement lags between orders and deliveries. 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. 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.

4. 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. 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.

5. Weston and Brigham (1972)3 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

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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.

6. Cohn and Pringle in their study (1973) illustrated the extension of Capital Asset Pricing

Model (CAPM) for working capital management decisions. They tried to inter-relate long-term investment and financing decisions and working capital management decisions through CAPM. They emphasized that an active working capital management policy based on CAPM could be employed to keep the firm’s shares in a given risk class. By risk, he meant unsystematic risk, the only risk deemed relevant by CAPM. Owing to the lumpy nature for long-term financial decisions, the firm is continually subject to shifts in the risk of its equity. The fluid nature of working capital, on the other hand, can be exploited so as to offset or moderate such swings. For example they suggested that a policy using CAPM could be adopted for the management of marketable securities portfolio such that the appropriate risk level at any point in time was that which maintains the risk of the company’s common stock at a constant level.

7. Lambrix 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.

8. Adesh Sharma (1994) applied accelerator model with financial variables to determine the factors influencing investment in inventories in pesticides industry in India. Data had been taken form the Stock Exchange Official Directory, Mumbai for the period 1978-1992 in respect of 18 firms in this industry. The coefficients of the accelerator and financial variables were found to be significant and positive. The coefficient of inventory of inventory stock was significant and negative.

The above brief review of studies in Indian context shows that no attempts have been made to analyse working capital management in Hotel industry in India. Secondly, there have been many studies exploring the determinants of inventory investment; no attempt has been made to study the factors influencing investment in total working capital. On the basis of previous studies, the present study aims at filling both these gaps.

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9. Vijaykumar and Venkatachalam (1995) studied the impact of working capital on profitability in sugar industry in Tamil Nadu by selecting a sample of 13 companies; 6 companies in co-operative sector and 7 companies in private sector over the period 1982-83 to 1991-92. They applied simple correlation and multiple regression analysis on working capital and profitability ratios. They concluded through correlation and regression analysis that liquid ratio inventory turnover ratio, receivables turnover ratio and cash turnover ratio influenced the profitability of sugar industry in Tamil Nadu. They also estimated the demand functions of working capital and its components i.e. cash, receivables, inventory, gross working capital and net working capital, by applying regression analysis. They showed the impact of sales and interest rate on working capital and its components. When only sales was taken as independent variable, coefficient of sales was more than unity in all the equations of working capital and its components showing more than unity sales elasticity and diseconomies of scale.When sales and interest rate were taken as independent variable, sales elasticity was again more than unity in demand functions of working capital and its components except cash. So far as capital costs were concerned, these had negative signs in all the equations but significant only in inventory, gross working capital and net working capital showing negative impact of interest rates on investment in working capital and its components. Thus study showed that demand for working capital and its components was a function of both sales and carrying costs.

10. ColophonTitle: ‘Impact of Working Capital Management on the Profitability

AbstractThis study investigates how public listed firms in The Netherlands manage their working capital. A sample of 37 firms is used, which are among the fifty largest companies in The Netherlands. The working capital policies during the non-crisis period of 2004-2006 and during the Financial Crisis of 2008 and 2009 are compared. This comparison investigates whether companies have to change their non-crisis working capital policies when the economy is into a recession. The results of this study indicate that, in crisis periods, firms don’t need to change their working capital policy concerning accounts payables and inventory, if their goal is to enhance profit. For the working capital policy managing accounts receivables this is not the case. This is because during a crisis accounts receivables have a positive effect on a firm’s profitability of the next year. These results are on short-term basis. On the long-term, benefits of aiding customers during crisis periods are likely to grow, because future sales will still be there. Also the risks taken by these aiding firms are relatively low and for large reputable firms it is also relatively cheap.

11. Filbeck and Krueger (2005), defined working capital management as follows : “it is the difference between resources in cash or readily convertible into cash (current assets) and organizational commitments for which cash soon will be required (current liabilities)”.

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The importance of working capital is defined by Wild, Subramanyam, and Halsey (2004,p519), as follows :”It is important as a measure of liquid asset that provide a safety cushion to creditors. It is also important in measuring the liquid reserve available to meet contingencies and the uncertainties surrounding a company’s balance of cash and outflows.”

In general, working capital management is simple and a straight forward concept of ensuring the ability of the organization to fund the difference between the short-term assets and short term liabilities (Harris, 2005, cited in Afza & Nazir, 2007). In practice, working capital management has become one of the most important issues in the organizations where many financial executives are struggling to identify the basic working capital drivers and the appropriate level of working capital (Lamberson, 1995).

2.2 RESEARCH DESIGN

The quality and reliability of research study is dependent on the information collected in a scientific and methodological manner. Scientific planning of designing of research method is a blue print for any research study. Efficient design is that which ensure that the relevant data are collected accurately.

2.2.1 Statement of the Problem

The statement of the problem is the Working Capital Management in Rittal India private limited.

The project topic is taken because it is identified that working capital plays a major role in managing funds of the company and also that, if calculated properly, it brings in better cash stock and inventory maintenance from the management towards the progress of the organization. So through this project, the researcher shall try to maximize the working capital contribution towards the growth of Rittal India private ltd.

2.2.2 Objectives of the Study

To understand the concept of working capital and its importance. To know how working capital is efficiently managed in organization. To find out various causes or problem in working capital management. To increase the effectiveness of the functions of the financial management. To know how the organizations or company functions or works in any external or internal

environment.

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2.2.3 Scope of the Study

This study enables us to know the scope of the working capital management (W.C.M) in the business organizations or dealings. It helps to understand the various levels of functions and requirements which are necessary for studying scope of the topic. It also helps us to understand the working process of Rittal India private limited and how efficient it is in generating funds for the company.

However the following areas are covered in this project:

Various ratios of different categories like gross working capital, turnover ratio Net working capital, Current ratio are calculated to know the financial soundness of the company.

Comparative statements are prepared to know the financial position of the company. Balance Sheets are used to evaluate the current position of the company.

2.2.4 Methodology of data collection

It is an evaluative study where in both primary as well as secondary data will be used.

The two ways that are used to collect the data are:

Primary data Secondary data

Sources of data

1. Primary data: The primary data/information is collected from the Rittal Company through observation Method and following the working process that exists in the company.

2. Secondary data: The secondary data is collected from the company records and statements, company websites, and other information through internet (sources)

The information and records collected from company include:

Balance sheet of five years and tax statement of the company Company information in the prospectus provided by the company. Company Websites

Sample Size

Here the sample size for the project study relating to the topic is taken from the year 2009-2010 to 2013-2014 balance sheets. All the five years was calculated and verified from the finance department manager and also from the head of the company. So it is taken for evaluation purpose in detail and used in the project study. Comparative study is taken as the criteria to compare between the five years and to study the working capital and profits of the company for the last five years of the company.

TOOLS USED IN THE STUDY

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Ratios is used a Financial tool for analysis the data collected. Other statistical tools such as tables, bar-charts and graphs are used to support the analysis and interpretation.

2.2.5 Operational definitions of concepts used

The operational definition of concepts used here is particularly based on the topic of the project – working capital management:

(i) Working Capital(ii) Working Capital Management(iii) Gross Working Capital(iv) Net Working Capital(v) Current Ratio(vi) Turnover Ratio(vii) Quick Ratio(viii) Current Asset Turnover Ratio(ix) Working Capital Turnover Ratio(x) Total Asset Turnover Ratio

i) Working Capital: A measure of both a company's efficiency and its short-term financial health. The working capital is calculated as:

The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term.

Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, company will show up as an increase in the working capital if it is not operating in the most efficient manner (slow collection). This can be

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seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations. Working capital is money available to a company for day-to-day operations.

Working capital is a common measure of a company's liquidity, efficiency, and overall health. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts, a company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers.

ii) Working Capital Management : A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. 'Working Capital Management' is an implementation of effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

The process of managing activities and processes related to working capital. This level of management serves as a check and balances system to ensure that the amount of cash flowing into the business is enough to sustain the company's operations. This is an ongoing process that must be evaluated using the current level of assets and liabilities. Working capital management may involve implementing short-term decisions that may or may not carry over from one earnings period to the next.

iii) Gross Working Capital: The sum of all of a company's current assets (assets that are convertible to cash within a year or less). Gross working capital includes assets such as cash, checking and savings account balances, accounts receivable, short-term investments, inventory and marketable securities. From gross working capital, subtract the sum of all of a company's current liabilities to get net working capital. A company needs just the right amount of working capital to function optimally. With too much working capital, some current assets would be better put to other uses. With too little working capital, a company may not be able to meet its day-to-day cash requirements. The correct balance is obtained through working capital management. The liquid funds available to a business and any assets that are anticipated will be exchanged for cash within a one year period. An assessment of the level of gross working capital for a business can be used to estimate its anticipated annual cash flow that will be available for use, although the measure does not take into account current liabilities.

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iv) Net Working Capital: Net working capital is the current assets of a business, minus its current liabilities. In more detail to calculate net working capital. Net working capital can also be used to estimate the ability of a company to grow quickly. If it has substantial cash reserves, it may have enough cash to rapidly scale up the business. Conversely, a tight working capital situation makes it quite unlikely that a business has the financial means to accelerate its rate of growth. A more specific indicator of the ability to grow is when accounts receivable payment terms are shorter than the accounts payable terms, which means that a company can collect cash from its customers before it needs to pay its suppliers. To calculate net working capital, use the following formula:

+ Cash

+ Marketable investments

+ Trade accounts receivable

+ Inventory

- Trade accounts payable

= Net working capital

Net working capital gives a general indication of the short-term financial condition of a business.

v) Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. The Current Ratio formula is:

The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. The current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations. Because business operations differ in each industry, it is always more useful to compare companies within the same industry. This ratio is similar to the acid-test ratio except that the acid-test ratio does not include inventory and prepaid as assets that can be liquidated. The components of current ratio (current assets and current liabilities) can be used to derive working capital (difference between current assets and current liabilities). Working capital is frequently used to derive the working capital ratio, which is working capital as a ratio of sales.

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vi) Turnover Ratio: The percentage of a mutual fund or other investment vehicle's holdings that have been "turned over" or replaced with other holdings in a given year. The type of mutual fund, its investment objective and/or the portfolio manager's investing style will play an important role in determining its turnover ratio. Turnover ratios for a mutual fund will vary from year to year, but the general range can be assessed by looking at the figure over a few consecutive years.

A measure of the number of times a company's inventory is replaced during a given time period. Turnover ratio is calculated as cost of goods sold divided by average inventory during the time period. A high turnover ratio is a sign that the company is producing and selling its goods or services very quickly. Turnover ratios are also known as activity or efficiency ratios. The total funds raised by the company are invested in acquiring various assets for its operations. The assets are acquired to generate the sales revenue and the position of profit depends upon the value of sales. Turnover ratios establish the relationship of sales with various assets. Turnover ratios are expressed in integers or times rather than as a percentage or proportion. The turnover ratios are mostly computed to measure the efficiency.

vii) Quick Ratio: An indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows

Quick ratio = (current assets – inventories) / current liabilities

Or

Quick ratio = (cash and equivalents + marketable securities + accounts receivable) / current liabilities.

The quick ratio measures the dollar amount of liquid assets available for each dollar of current liabilities. Thus, a quick ratio of 1.5 means that a company has $1.50 of liquid assets available to cover each $1 of current liabilities. The higher the quick ratio, the better the company's liquidity position. Also known as the “acid-test ratio" or "quick assets ratio."

The quick ratio is more conservative than the current ratio because it excludes inventories from current assets. The ratio derives its name presumably from the fact that assets such as cash and marketable securities are quick sources of cash. Inventories generally take time to be converted into cash, and if they have to be sold quickly, the company may have to accept a lower price than book value of these inventories. As a result, they are justifiably excluded from assets that are ready sources of immediate cash. The quick ratio is a measure of how well a company can meet its short-term financial liabilities. Also known as the acid-test ratio.

viii) Current Assets Turnover Ratio: Current assets turnover ratio shows the relationship between net sales and current assets. When we divide the net sales with current assets and multiply with 100, we find that value net sale which has been possible due to $ 100 investment of current assets.

Current Assets Turnover Ratio = Sales / Current Assets

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a) While calculate current assets turnover ratio with other turnover ratios like stock turnover ratio, creditor turnover ratio, debtor turnover ratio, working capital turnover ratio and fixed assets turnover ratio. Only then, we can analyze our performance.

b) For calculating net sales, we will deduct sales return from total sales.

c) Higher this ratio is better because it will tell that we can sell more products with less investment in current assets.

d) Ratio that indicates how efficiently a firm is using its current assets to generate revenue.

ix) Working Capital Turnover Ratio: A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales.

Working Capital Turnover = Sales / Working Capital

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

It is a Ratio that shows the number of times the working capital is converted into revenue in an accounting period, or how efficient the management is in using its working capital to generate sales revenue. The working capital turnover ratio measures how well a company is utilizing its working capital to support a given level of sales. Working capital is current assets minus current liabilities. A high turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales. Conversely, a low ratio indicates that a business is investing in too many accounts receivable and inventory assets to support its sales, which could eventually lead to an excessive amount of bad debts and obsolete inventory.

x) Total Assets Turnover Ratio: The amount of sales or revenues generated per dollar of assets. The Asset Turnover ratio is an indicator of the efficiency with which a company is deploying its assets.

Asset Turnover = Sales or Revenues/Total Assets

In the assets Turnover Ratio the higher the ratio, the better it is, since it implies the company is generating more revenues per dollar of assets. But since this ratio varies widely from one industry to the next, comparisons are only meaningful when they are made for different companies in the same sector. The Asset Turnover ratio is also a key component of DuPont Analysis, which breaks down Return on Equity into three parts, the other two being profit margin and financial leverage. Asset Turnover is typically calculated over an annual basis – either fiscal or calendar year – with the “Total Assets” figure used in the denominator calculated as the average of assets at the beginning and end of the year.

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For a specific company, the trend in the asset turnover ratio over a period of time should also be reviewed to check whether asset usage is improving or deteriorating.

2.2.6 Data Analysis of the study

In this process of analysis, the collected or gathered data/information and processed data is briefly analyzed and interpreted to know the results or outcomes of the findings and based on the findings, solutions are given in the analysis and interpretation & suggestions part of the project and concluded.

2.2.7 Limitations of the Study

This study or report also suffers from the limitations/problems. This study is also having some disadvantages or drawbacks in the process of the study on the project report data and analysis and outcome of the report. Thus it has some loss and limitations in the process of evaluating the study.

2.2.8 CHAPTER SCHEME

Chapter 1: Introduction

This chapter is all about explaining the broad and specific area of Working Capital Managements and its Working process. Then also it explains the overview of Electrics & Electronics industry.

Chapter 2: Research methodology and review of literature

This chapter tells about the topic told by different authors, and simultaneously it discusses about

the statement of the problem, its objectives, and the ratios used.

Chapter 3: Company Profile

This chapter tells about the Rittal India Pvt Ltd Mission, Vision, Values, achievements, and SWOT Analysis.

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Chapter 4: Data analysis and Interpretation

By using Ratio analysis, researcher analyzed how the Working Capital is managed for the purpose of the Liquidity in the Company’s daily process.

Chapter 5: Summary of Findings, Suggestions & recommendations

It all tells about the findings found by the analysis and gives suggestions and some recommendations.

Chapter 6: ConclusionsIt gives the overall conclusion by explaining scope for further research and any financial implications.

CHAPTER-3

COMPANY PROFILE

3.1 EVOLUTION OF THE COMPANY

Founded in 1961, Rittal has grown and developed into one of the largest enclosure manufacturers

in the world. Supported by the most modern computer technology and automation, Rittal

manufactures a wide range of enclosures and accessories to provide the ultimate in protection

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and mounting capabilities—there are more than 13,000 different products included in their

offering, and literally hundreds of innovative new items added each year.

Rittal India Pvt Ltd fabricates sheet metal components in any type of enclosures, and assists in

subassembly production, from the simple to the complex. Their experience includes industrial

enclosures, IT solutions, electronic packaging, system climate control, power distribution,

communication systems and many other parts for a wide variety of industries.

Sheet metal fabrication and precision engineering are at the core of Rittal’s capabilities. Whether

customers require engineering manufacturing and/or design services, sheet metal prototyping

low cost assembly or supply chain management, Rittal India Pvt Ltd. will be their partner from

co-development to delivery.

The Rittal concept is a unique blend of smart engineering, cost efficiency, perfect protection and

attractive design. Whether an industrial, electronic, data communication or telecommunication

application, you’ll find an ideal Rittal solution.

Rittal India Pvt Ltd has invested in state-of-the-art sheet metal fabrication technology that allows

it to manufacture components with precision and efficiency. Rittal India Pvt Ltd is a company

primarily belonging to sheet metal fabrication industry.

3.2 COMPANY PRINCIPLE

1. The capability and cooperation of our staff harnessed to their goal focused motivation is a key asset of our company.

2. We recognize the correlation between skills and knowledge development, motivation and company success. To that end, we encourage and sponsor our staff in training and further education and to share in the overall company success.

3. We view our customers as partners who determine the success of the company: We must satisfy our customers’ wishes and help to solve their problems for they

are the guarantors of our future. Our products and services must offer clear benefits to our customers in particular

with regard to quality, technical capability, range and availability.4. We must be quicker and better than the competition, and we must prove this to our

customers on a daily basis.

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5. Our inspiration and creativity result in our competitive advantage. We must, therefore, continually strive to generate ideas and initiatives that can translate into effective implementation.

6. Perfect mastery of our daily business secures our existence and positions us to meet the challenges of the future.

7. Our goal is to develop long term and meaningful relationships on a partnership basis with our suppliers. This requires a strategic outlook based on competitive focused quality, delivery service, price and cooperative problem solving.

8. We focus all of our energies on cost effective designing, developing and delivery of products and services in a professional and timely manner.

9. We are aware of our responsibility to the environment and the world in which we live. We want, therefore, to take part in shaping and improving it.

10. We power the system– faster – better – worldwide.

3.3 ORIGIN

Rittal India Pvt Ltd is 100% subsidiary of Rittal – GmbH & Co. KG, Germany. Rittal is the

world’s largest manufacture of enclosure systems. It belongs to the Friedhelm Loh group of

companies in Germany. Founded in 1961 the company rapidly developed to become the world’s

number one enclosure manufacturer.

The Friedhelm Loh group of companies now has number of employees’ worldwide with a

number of production plants. Rittal has worldwide presence with subsidiaries and agencies in

over 100 countries. Rittal is an US 2 billion company.

Rittal – A powerful alliance with the Friedhelm Loh Group. Rittal today is the world’s leading

supplier of enclosures of housing systems with

10,000 employees world-wide

49 subsidiaries at home and abroad

14 companies

70 international agencies

20 production sites

3.4 GROWTH AND DEVELOPMENT

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Rittal started its operation in India in the month of june 1995. In the initial phase, Rittal products

where imported from Germany and introduced to the Indian customers. The plant in india started

its operations in November 97. The market development phase met with a great success. Known

for their world-class quality, customers welcomed Rittal products as their first choice.

The Indian users sensed and adapted quickly to the advantages of latest technology, modular

construction, product variety and a wide range of Accessories. The Quality and aesthetics of

Rittal products was clearly distinguishes to the Indian users.

Head quarter in India

Rittal India Pvt Ltd,

#23&24, KIADB, Industrial area,

Veerapura, Doddbalapur-561203,

Bangalore district,

Ph: 080-27623075.

E-mail: info@rittal-india.com

Rittal plant is 15,000 Sq. plot equipped with the

latest state of art machinery and paint plant from Germany. The plant also has a stocking facility

of over 2,200 sq. mts area to ensure immediate /ex-stock delivery / service to our customers.

About 500 highly motivated employees are working in Rittal India. This plant has sufficient

capacity to cater to the Indian as well as to the Asia-Pacific market.

It currently operates in three shifts and produce approximately 50,000 freestanding large

enclosure and 1, 00,000 small boxes per year.

Rittal ha lang since made the transition from housing and enclosure solutions to sophisticated

complete systems. Enclosure, mechanical and electrical component installations, climate and

computer-assisted monitoring are now interacting elements of an integrated product.

The company has also come up with new products. Some of them are:

IP 54 fan and filter units.

Immersible recooling systems.

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Top-thermo cooling units for enclosures.

ISV power distribution for installation up to 630A and 1600A applications.

Maxi PLS for installations up to 3200 Acne.

3.5 Organization culture

Type of the organization

Rittal India Pvt Ltd is a private sector company.

Nature of Business

Rittal India Pvt Ltd is a Multi-National Company (MNC). Rittal India Pvt Ltd is a premier

9001-2000 Company in India and currently a market leader in manufacturing enclosures

climate control in India. A multi-location and multi-product company, Rittal has vital

applications in the diverse sectors of Industrial enclosures, IT solutions, and transport

technology, automation industry and beyond.

Rittal solves all tasks for a wide variety of applications areas – always with an eye on the

future. Over 10,000 employees worldwide are thinking and acting on Customer behalf – with

precise knowledge of the industry, practical expertise, Curiosity and farsightedness. Progress

is possible with Rittal in all sectors and for all applications-is their mission. Rittal is already

working enthusiastically on the solutions of the future. This is their tradition, and is the key

to their innovativeness in the field of technology packaging. Experience the future of

communications technology and automation with Rittal, trendsetter in holistic solutions.

Understanding customers, creating future safe solutions, and being forward thinking is called

Setting trends. Industrial Ethernet, nano-spray-finishing and Rittal cooling systems are just

some of the examples, which impressively underscore their commitment to this principle.

Trendsetters in modern technology packaging

Around 2000 patents worldwide

Over 300 registered designs

National and international approvals

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(E.g. UL, CSA, VDE, GS, CUL, Nema....)

Certification to ISO 9001

Environment certification to ISO 14001

Pioneering designs.

Area of operation

Rittal has been spread its area of operation across the globe since it is an International Company.

Rittal has a global proximity and the experience of the International markets that leads to holistic

customer solutions. It also promotes the use of state-of-the-art technologies to be at par with its

competitors. Rittal is present all around the globe and serves all major markets with 8000

standard products.

Production sites in Germany

Rittershausen – Rittal’s Birth place

Manufacturing of large enclosure systems in a CIM- oriented, fully automated

production process

Production of PS, ES and TS enclosures as well as DL production

World distribution center for large enclosures systems with a capacity for 14,000

pallets

Total site area of more than 65000 meter square

State-of-the-art, environmentally friendly spray finishing plant with dip coat

priming and powder coating

Herborn – Rittal’s Head Quarters

Rittal’s headquarters are a melting pot for invaluable impetuses from every region

of the Rittal universe

State-of-the-art production and manufacturing systems ensure cost-optimized

production of Rittal’s successful classics—AE, KL and EB

Total production areas in excess of 30,000 meter square

60 different variants of small enclosures are manufactured here.

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Burbach

This plant specializes in the production of large enclosures (free-standing

enclosures and console systems) and accessory components

Individually configured command panels are assembled by dedicated team

Rennerod – Rittal’s center for modern climate control technology

Energy saving technology ensures that the mass-production climate control

components, cooling units and air/water heat exchagers environmentally-friendly

State-of-the-art climate control components are manufactured for the worldwide

markets on a production area in excess of 6,000 meter square

Wissenbach – Stainless steel professionals

The Wissenbach plant specializes exclusively in the processing of stainless steel

Products manufactured here for use in the chemical and foodstuff industries

include TS8,PS 4000 and K, plus a range of accessory components

Haiger

Rittal’s logistical center

Development and production of CS Outdoor enclosures, primarily for the use in

the mobile communications industry, with system integration up to Level 4

21,000 meter square of warehousing space

Capacity of more than 21,000 pallets

From here, Rittal products are distributed to the national and international markets

Bad kostritz

At Bad kostritz, Rittal’s steel processing expertise is channeled into the numerous

components for enclosure interior installation

This plant specializes in cost-effective customer-specific solutions and

preassembly of system accessories

Eckental-escheneu

A modern logistical center

Consultancy, development, production and forwarding of microcomputer

packaging systems for the Rittal Electronic Systems division takes place here

3.6 Product profile

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Rittal has long since made the transition from housing and enclosure solutions to sophisticated

complete systems. Enclosures, mechanical and electrical component installations, climate control

and computer – assisted monitoring are now interacting elements of an integrated product.

Rittal product range comprises of 6 Strategic Business Units (SBUs):

1. Industrial Enclosure Systems: The new diversity of the enclosure product range offers

perfect and economical solutions for every application.

2. Electronic Packaging System: Rittal continues to present new ideas with one of the

most comprehensive packaging ranges in the world.

3. System Climate Control: Rittal climate control components predestined for the

solution of integrated tasks

4. Power Distribution: Rittla offers a broad spectrum of solutions for low voltage

distribution

5. IT Solutions: Comprehensive system solutions to meet the needs of the IT market

6. Communication Systems: Rittal communication system outdoor enclosures set

standards with their high level of security.

For experts and beginners alike, the product overview facilitates fast selection of individual

product groups within the range.

1. Industrial Enclosures Systems

Small enclosures

Compact enclosures

Large enclosures

PC cases and enclosure systems

Console systems

Industrial workstations

Command panel systems

Stainless steel enclosures and support arm systems

EMC shielded enclosures

Ex enclosures

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Explosion proof enclosures

Polycarbonate enclosures

2. Electronic Packaging Systems

MPS microcomputer packaging systems

Sub racks and Card frames

Desktop enclosures

Industrial PCs

Wall-mounted electronic enclosures

Electronic enclosure systems

Instrument cases

3. System climate control

Climate control enclosures

Cooling units

Recooling systems

Heat exchangers

Fan-and-filter units

Rack-mounted climate control systems

Enclosure heaters

4. Power distribution

40mm busbar systems up to 360 A, e.g. Rittal Mini-PLS

60mm busbar systems up to 1600 A, e.g. Rittal PLS

100/185 mm busbar systems up to 1600A

Rittal Maxi-PLS, type-tested components up to 3200A

Rittal ISV installation distribution enclosures up to 630

5. IT solutions

Network enclosures

Server enclosures / server administration

ISP / ASP racks

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Telecommunications racks

Office solutions

Distributor racks

Wall-mounted enclosures

IT controlling

Interactive terminal systems

Data racks

Server racks and structured

6. Communication systems

CS outdoor enclosures

CS indoor racks

CS climate control modules

Containers / shelters

System integration

Compact enclosures

The system platform for IE and IT

Industrial automation (IE)

Control system and plant construction

Low-voltage distribution

Electronic packaging

Information technology (IT)

Networking

Servers / providing

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Telecommunications

3.7 Customers Profile

Few of Rittal’s Industrial Engineer clients are

ABB

ROCKWELL AUTOMATION

ENERCON

SIEMENS

INVESYS

HONEYWELL

LMW

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TISCO

TATA

MARUTI

MICO

SUZLON ENERGY LTD

HMT

Few of Rittal’s Information Technology clients are

BHARTI

GOLDMAN SACHS

CADENCE

CISCO SYSTEMS

HP

DELL

INFOSYS

WIPRO

TATA CONSULTANCY SERVICES

RELIANCE INDUSTRY LIMITED

MAHINDRA AND MAHINDRA

MOTOROLA

Few of Rittal’s wind energy customers are

ALSTOM

SUZLON

REGEN

Win WinD

Gamesa

Leitner Shriram Manufacturing Ltd.

KENERSYS

REPOWER

VESTAS

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SIEMENS

ENERCON

SAMSUNG

DOOSAN

CLIPPER

VENSYS

VERGNET

FUHRLANDER

BARD

AREVA

GOLDWIND

IMPSA WIND

DEC

CSIC

ENVISION

MINGYANG WIND POWER

HEAG

ACCIONA

HYOSUNG

DAQO GROUP

SCHULER

Rittal Enclosure has been supplied to following reputed projects:

Industrial Engineering projects:

o Delhi Metro Rail Corporation (DMRC)

o G D Goenka International school

o SHELL Petrol Pump

o MRPL VFD Project

o BEL Traffic Signal Project

o Enercon and Suzion Wind Mill Project

o Maruti for Foundary Project

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o Hyundai, Daweoo car Project

o YIL for OMIFFCO Project

o ABB for Syria Project

o TISCO Expansion Project

o Nestle Mysore and Goa expansion Project

Information technology Project

Goldman Sachs Project

Lehman Brothers Project

Network Application Project

IIT Chennai ERNET Project

Reliance Infocomm (POI Enclosure)

Reliance web store kiosks

State Bank of India Network Project

3.8 Competitors in world market

Few of Rittal’s competitors are

APW, President

VALRACK

HCI

BHARAT AND CUTLUR

BCH

ELSTEEL

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ELMA

SCHROFF

ADVANCE

SUNBEAM

WOHNER

Competitive factors favoring Rittal in comparison with competitors are:

Wide product range with accessories- customers can source from a single vendor.

High brand image-known globally.

Can manufacture large quantities in short time

High tech manufacturing with latest technology.

Products have approval from UL, CSA, LR, and TUV for customers who export.

Superior product quality.

After sales service – support locally in India which offices in 11 large cities.

After sales service – support in 100 major countries.

3.9 INFRASTRUCTURE FACILITIES

CANTEEN FACILITY

Rittal has developed and acquired a good canteen facility for employees. Hygienic food is

provided to the employees at low cost and some amount is deducted from the salary. Rittal also

provides mineral water facilities to its employees.

TRAVELING ALLOWANCE

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In addition to salary the company also provides Traveling Allowance to its employees. Rittal

also runs its own vehicles to bring forth its employees from the various corners of the city.

Transport facility with the perfect timing makes the employees reach the work place in time.

HEALTH SCHEMES

Medical Scheme-Rittal provides its worker a medical claim policy up to Rs. 7500 in ESI

hospital.

Insurance-Rittal also provides an overall insurance coverage of Rs. 1, 00,000.

DISTRIBUTION CHANNEL

The company has a well-devised distribution channel all not only in the country but also all over

the world. Apart from L&T as their main distributors who in turn had 380 stockiest located

across the country; they have 8 additional distributors located at Baroda, Chennai, Bangalore,

Mumbai and Calcutta.

OFFICE SYSTEM

Rittal maintains a well-equipped office system. A separate individual cabins and PCs are

provided to each employee. The company also provides all the necessities required to perform

their work efficiently and effectively. The office is divided in to different departments such as –

reception, visitor’s hall, conference hall, meeting hall, purchase department, operation

department, production department, quality control department, human resource department,

finance department, internal sales department, Managing Director chamber, Joint Managing

Director chamber and Vice president Chamber.

WORK ENVIRONMENT

The working environment acts as the primary motivator for all employees. Rittal has an amiable

and conductive working environment. The quintessence of the organization lies in the people

working there. It has been their constant endeavor to achieve and provide an atmosphere of

perpetual growth and learning to all their employees. They have ceaselessly tried to promote a

team-based culture and encourage a sense of innovation and positive thought.

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3.10 PRESENT STATUS OF THE ORGANIZATION

Rittal India Pvt Ltd is currently a market leader in enclosure climate control in India. They have

a market share capital over 22% vis-a-vis other suppliers in Indian market, both India and

foreign.

They currently manufacture and supply around 3000 cooling units per day besides selling units

imported from their principles. Demand for cooling units and chillers have increased steadily as

customers are realizing the benefits and superiority of their technology and manufacturing. They

have been able to cut costs compared to equivalent imported models and pass on these benefits to

customers.

The Friedhelm Loh group of companies now has about 10000 employees worldwide with 20

production plants –

9 plants in Germany

3 plants in USA

2 plants in France

2 plants in Italy

2 plants in UK

1plant in India and latest one in China.

Rittal has worldwide presence with subsidiaries and agencies in over 100 countries.

Rittal world-wide

Production sites worldwide

The Plymouth plant, England

Production site for modern electrical engineering packaging.

Rittal enclosure systems for electronics are dispatched around the globe from this

plant.

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The Springfield plant, USA

Production focuses on the enclosure systems KL, AE, TS and ES.

Modern, sales-oriented production and distribution control for the entire US

market.

The Fremont plant, USA

Production of industrial enclosures in accordance with traditional American

NEMA standards as well as cable ducts for machine cabling.

It is a key distribution site for the North American market.

The Urbana plant, USA

State-of-the-art logistical center for the US market.

High-tech production of large enclosure based on TS8, PS 4000 as well as

outdoor enclosures and special enclosures for the US market.

The Bangalore plant, India

Standardized cases and enclosures such as KL, AE, ES and PS are mass-produced

here for the entire Indian market.

Together with its climate control production facility, Rittal has one of the most

modern plants in India.

The Shanghai plant , china

As well as large production of housing and enclosure for industry, such as KL,

AE, PS and ES, this plant also specializes in products for IT market.

The Waterloo plant, Canada

High-tech production of back planes to meet the complex requirements of the

electronic packaging sector.

System solution both mass-produced and tailored to specific customer

requirements.

The Valeggio plant, Italy

State-of-the-art production of Rittal’s complete range of recooling systems.

Both mass-produced and customized.

The Joigny plant, France

Production of sheet steel parts through to series production.

Expert assembly and integration of electronic components.

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Turnkey services, from conception through to system integration.

3.11 FUTURE PROSPECTUS OF THE COMPANY

The Overall target for next 5 years is intended to double sales every two and a half years, so their

target to reach 4-5 times current sales. With the rapid growth of automobile and machine tool

industry in India as well as increased use of enclosure air conditioning for electronic drives,

inverters and crane applications in the process industry there is huge market potentials for them

to tap. The primary goal is “To serve large and growing domestic market as well as SAARC

countries, which are serves from India”.

Rittal is a well-known company for its customer service. It always maintains a close contact with

its customers.

Comprehensive customer advice

Trade fairs

Expert days

Seminars

Mobile product shows

Delivery and information centers

Rittal’s “Lights Out” automation process means their equipment can produce customers’

components through the night, providing the ultimate in production efficiency. Rittal gives

customers all the benefits of just-in-time-delivery.

Rittal believes in building long and close relationship with customers. They prefer to be viewed

as a working partner, so that they can solve issues together in the most profitable way. Their

personal attention allows them to anticipate customers’ sheet metal fabrication need and to offer

ideas and suggestions, which will benefit your business.

3.12 Accreditations

Around 2000 patents worldwide

Over 300 registered designs

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National and international approvals

Product approval: CSA

Product approval: UL

Product approval: BV

Product approval: LR

Certification to ISO 9001

Environment certification to ISO 14001

Pioneering designs.

3.13 SWOT ANALYSIS

STRENGTHS:

Rittal has global distribution and service strength.

Company provides immediate global availability of standard products.

It ensures customized maintenance and spare parts service, particularly in the climate

control sector.

International Sales service is strength of the company.

Local knowledge of markets due to membership of standardization of committees.

Company enables permanent innovations due to constant dialogue with customers in

different ways.

Company maintains very high Quality standards.

Cost effective product diversity.

Rittal is an ISO-9001, CSA and LR certified company.

Rittal has an excellent brand image.

WEAKNESS:

Product manufactured by the company are very expensive and of high price.

The cost involved in completion of the product is high.

As customers’ expectation is increasing day by day it has become difficult to satisfy them

completely.

Less importance for advertisements.

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OPPORTUNITIES:

Capacity of meeting higher demand and attain optimum utilization of existing resources.

Due to advance in technology there is scope for recruiting and retaining right people in

the right job.

Scope in expansion of exports on a wider network of countries around the globe.

Scope for expansion in producing other ancillaries of enclosure by utilizing the existing

resources.

Utilize the opportunity of developing USP (Unique Selling Proposition) for its product to

generate and retain customers.

THREATS:

Price of the goods is comparatively high.

Adopting automatic machines may cause fear among the existing employees of job loss

which may affect morale and productivity of employees.

New entrants in the market may dilute the market share of the company.

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