videocon industries ltd final
TRANSCRIPT
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Chapter 1
1.1 Introduction
Working Capital Management
The project undertaken is on Working Capital Management in Videocon Industries Ltd. It
describes about how the company manages its working capital and the various steps that are
reuired in the management o! working capital. Cash is the li!eline o! a company. I! this
li!eline deteriorates" so does the company#s ability to !und operations" reinvest and meet
capital reuirements and payments. $nderstanding a company#s cash !low health is essential
in making investment decisions. % good way to judge a company#s cash !low prospects is to
look at its working capital management &WCM'.
Working capital re!ers to the cash a business reuires !or day(to(day operations or"
more speci!ically" !or !inancing the conversion o! raw materials into !inished goods" which
the company sells !or payment. %mong the most important items o! working capital are levels
o! inventory" accounts receivable" and accounts payable. %nalysts look at these items !or
signs o! a company#s e!!iciency and !inancial strength.
The working capital is an important yardstick to measure the company)s operational
and !inancial e!!iciency. %ny company should have a right amount o! cash and lines o! credit
!or its business needs at all times. This project describes how the management o! working
capital takes place at Videocon Industries LT*.
There are numerous instances in the history o! business world where inadeuacy o!
working capital has led to business !ailures when a !irm !inds it di!!icult to meetings day to
day a!!airs. +perating e,penses essential out lays may have to be postponed !or want o!
!unds" operating plans will go out o! gear - enterprise objectives on investment slumps the
suppliers - creditors o! the !irm may have to wait longer to raise their dues - will hesitate to
e,tend !urther credit to the !irm. Thus e!!icient management o! working capital in an
important prereuisite !or success!ul working o! a business concern it reduces the chances o!
business !ailure generates a !eeling o! security and con!idence in the minds o! personnel in
the organiation it assurance solvency o! steady o! the organiation.
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The management o! working capital is concerned with two problems that arise in attempting
to manage the current assets" current liabilities and the inter relationship that asserts between
them.
The basic goal is working capital management is to manage current assets and current
liabilities o! a !irm in such a way that a satis!actory o! optimum level o! working capital is
maintained i.e. it is neither inadeuate nor e,cessive. This is so because both inadeuate as
well as e,cessive working capital position is bad !or business.
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Chapter 2
2.1 Industry Profile
There is no doubt about the !act that the consumer electronics industry in India is booming/
With an a!!luent middle class and the country#s economic growth being on a rapid track" the
consumer electronics industry has never be!ore witnessed such amaing growth. 0stimated to
be around 12 billion at the end o! 3445" the Indian consumer electronics industry is second
only to the Chinese and 6apanese markets in the %sia 7aci!ic region.
With the industry e,pected to witness a deceleration in growth in the coming years" %ruvian#s
8#search takes a look at the Consumer 0lectronics Industry in India. The industry is e,pected
to have a market value o! roughly 19.2 billion by the end o! 34:2.
In this scenario" This 8)search analyes the !ollowing sections o! the consumer electronics
industry in India;
( Television Market
( 8e!rigerator Market
( %ir Conditioner Market
( Mobile
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% very important !actor determining the success o! the Indian consumer electronics industry
is the in!usion o! capital in the Indian retail sector. This 8)search provides a well(grounded
analysis on this and e,plains the various options available !or attaining !unds" >*I in the
retail sector" venture !inancing options" and many other similar !actors.
The challenges and opportunities that !ace the consumer electronics industry in terms o!
investment are analyed based on competition" options !or investors" development o!
!inancing options in the industry" and the role o! private euity contributors.
2.2 Contribution of Sector towards !P
8ole o! 0lectronics and
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The main !actor pertaining to the success o! the Indian 0lectronics and
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2." Ma#or Players
Company $ame %e&enue &inbillions'
?amsung India A4B.349
Whirlpool India :5.5L= India 95.42
=odrej 3:B
Toshiba India B.943
?ony India @.3:9
?harp India Ltd 3.53
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2. Whirlpool India
The Whirlpool Corporation is an %merican multinational manu!acturer and marketer o! home
appliances" headuartered in Genton Charter Township" Michigan" $nited ?tates" near Genton
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). *oshiba India
Toshiba Corporation is a 6apanese multinational conglomerate corporation headuartered in
Tokyo" 6apan. Its diversi!ied products and services include in!ormation technology and
communications euipment and systems" electronic components and materials" power
systems" industrial and social in!rastructure systems" consumer electronics" household
appliances" medical euipment" o!!ice euipment" lighting and logistics.
Toshiba was !ounded in :5A@ as Tokyo ?hibaura 0lectric D.D. through the merger o!
?hibaura ?eisaku(sho &!ounded in :@9' and Tokyo *enki &!ounded in :@54'. The company
name was o!!icially changed to Toshiba Corporation in :5@. Toshiba has made numerous
corporate acuisitions during its history" including o! ?emp in :5" o! Westinghouse 0lectric
LLC" a nuclear energy company in 344B"o! LandisJ=yr in 34::" and o! IGM#s point(o!(sale
business in 34:3.
+. Sony India
?ony Corporation commonly re!erred to as ?ony" is a 6apanese multinational conglomerate
corporation headuartered in DKnan Minato" Tokyo" 6apan. Its diversi!ied business is
primarily !ocused on the electronics &TV" gaming consoles" re!rigerators'" game"
entertainment and !inancial services sectors. The company is one o! the leading
manu!acturers o! electronic products !or the consumer and pro!essional markets. ?ony isranked :49th on the 34:2 list o! >ortune =lobal 944.
?ony Corporation is the electronics business unit and the parent company o! the ?ony =roup"
which is engaged in business through its !our operating segments electronics &including
video games" network services and medical business'" motion pictures" music and !inancial
services. These make ?ony one o! the most comprehensive entertainment companies in the
world. ?ony#s principal business operations include ?ony Corporation &?ony 0lectronics in
the $.?.'" ?ony 7ictures 0ntertainment" ?ony Computer 0ntertainment" ?ony Music
0ntertainment" ?ony Mobile Communications &!ormerly ?ony 0ricsson'" and ?ony >inancial.
?ony is among the Worldwide Top 34 ?emiconductor ?ales Leaders and as o! 34:A" the
!ourth(largest television manu!acturer in the world" a!ter ?amsung 0lectronics" L=
0lectronics and TCL.
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,. Sharp India 'td
?harp Corporation is a 6apanese multinational corporation that designs and manu!actures
electronic products. inancial ?ervices" 7ower ?ystems" 0lectronic ?ystems
- 0uipment" %utomotive ?ystems" 8ailway - $rban ?ystems" *igital Media - Consumer
7roducts" Construction Machinery and +ther Components - ?ystems.
ortune =lobal 944 and :35th in the 34:3
>orbes =lobal 3444.+n 6anuary 3:" 34:2" numerous tech articles around the globe published
!indings !rom the cloud storage provider Gackblae that
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/. 0oltas
Voltas Limited is an engineering" air conditioning and re!rigeration company based in
Mumbai" India. It makes euipment !or industries in areas such as heating" ventilation and air
conditioning" re!rigeration" construction euipment" materials handling" water management"
building management systems" indoor air uality and chemicals.
The Company was incorporated on B ?eptember :592 at Mumbai. The Company was
promoted in :592 by MPs. Volkart Grothers and Tatas
Voltas is a part o! the Tata =roup. The managing director is Mr. ?anjay 6ohri. Its shares are
traded on the Gombay ?tock 0,change under symbol 94499 with a turnover o! IF8 9AB2.A9
crore in 34::(:3.Voltas provided the air(conditioning !or the world#s biggest ocean liner" the
8M? ueen Mary 3 and also the world#s tallest building" the Gurj Dhali!a.
The Voltas Company has large ?ervice Fetwork. Voltas has its own service center in each
major city. In 34:2" Voltas was ranked A5th among India#s most trusted brands according to
the Grand Trust 8eport" a study conducted by Trust 8esearch %dvisory.
1. Philips India
Doninklijke 7hilips F.V. &8oyal 7hilips" commonly known as 7hilips' is a *utch diversi!ied
technology company headuartered in %msterdam with primary divisions !ocused in the
areas o! electronics" healthcare and lighting. It was !ounded in 0indhoven in :@5: by =erard
7hilips and his !ather >rederik. It is one o! the largest electronics companies in the world and
employs around :49"444 people across more than B4 countries.
7hilips is organied into three main divisions; 7hilips Consumer Li!estyle &!ormerly 7hilips
Consumer 0lectronics and 7hilips *omestic %ppliances and 7ersonal Care'" 7hilips
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Chapter "
".1 rgani3ational Profile and 4usiness &er&iew
0ideocon Industries 'imited
Videocon Industries Ltd o!!ers range o! products in televisions" washing machines" air(
conditioners" re!rigerators" audio products" home theatre systems and microwave ovens. The
company operates in !our segments; Consumer 0lectronics and
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".2 Mission and 0ision
%t Videocon" all our e!!orts are centered on the customer and his needs. We are committed to
delight and deliver beyond what is e,pected. Gy !ocusing on the right means" we have been
success!ul in building a robust and dependable Videocon Value Chain.
Ingenious Strategy
In today)s competitive world" what it takes !or a business to survive is a lot o! advance
planning and a clear strategy. There is a strong need !or bounded rationality" spontaneity and
out(o!(the(bo, thinking to tackle every scenario that could be imaginable or unthinkable.
Fow that)s something which cannot be !ound in a te,tbook. Videocon)s resource!ul strategies
are !le,ible enough to change with changing ground realities" and even change the rules o!
the game when needed.
Intrepid 5ntrepreneurship
%n enterprise with odds stacked against it makes a great business sense. This is because
higher the obstacles lower the number o! players likely to be active in that !ieldQ thus paving
the way !or e,traordinary returns. What is reuired is a bold approach" a con!idence and a
willingness to brave the odds. Videocon)s !oray into oil and gas is one such brave endeavor
that arises !rom immense !aith in the competence o! the company)s in(house managerial
talent.
Impro&ed *echnology
With the rapidly changing industrial scenario" technology is no longer a premium value(add.
8ather" in recent years" a constant update o! technology has become a bare necessity. %s a
!orward looking company" Videocon is e,tremely vigilant in terms o! staying updated with
the latest technology and replacing outdated technology with the best(in(class o!!ers o! the
times.
Inno&ati&e Products
7roduct development" innovation and customiation are the tools Videocon uses to stay ahead
o! the competition. %!ter all" we do realie that continuous stream o! innovative products
e,cites the market and enhances brand recall. This is a strategy that Videocon highly banks
on" especially on the domestic !ront.
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Insightful Marketing
The market share battle scene has long shi!ted !rom technology and processes to the psyche
o! the customer. This means that those with deeper insights into the elusive mind o! the buyer
are likely to dominate. Videocon is rein!orcing marketing strengths to read the pulse o! the
market more broadly and clearlyQ to create products that !it per!ectly into the customer)s
pre!erences.
Inspired *hinking
The !uture is unpredictable" but i! we don)t do anything about it" the road ahead will be!raught with grave risk. %nd so" Videocon e,trapolates !uture trends on the basis o! current
changes in technology and pre!erences" as well as sheer gut !eel. Gusiness instincts are worth
their weight in gold. *riven by these instincts" the company has made some bold !orays into
!ields o! oil and gas" which has proved to be absolute money(spinners.
"." %egistered 6ddress7$umber of branches
Videocon Industries Ltd.
:2 Dms ?tone"
%urangabad(7aithan 8oad"
Chitegaon" T. 7aithan"
*ist. %urangabad ( 2A: :49 &India'
Corporate +!!ice;
>ort ort"
Mumbai( 244 44:&India'
Corporate +!!ice&Marketing" ?ervice - ?upport';
35B" $dyog Vihar 7hase(II"
=urgaon"
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".( Composition of 4oard
4oard of !irectors
Mr. Venugopal F. *hoot
Maj. =en. ?. C. F. 6atar
Mr. %. =. 6oshi
Mr. 8adhey ?hyam %garwal
Mr. G. 8avindranath Fominee I*GI Limited
".) 6chie&ements
%ccording to the Grand Trust 8eport 34:3 published by Trust 8esearch %dvisory" a
brand analytics company" Videocon#s was positioned 9:st among India#s most trusted
brands. ?ubseuently" in Grand Trust 8eport 34:A" Videocon was ranked 39th among
the most trusted brands in India while according to the Grand Trust 8eport 34:2" L-T
was elevated to the :th position among India#s most trusted brands
The largest panel production !acility in the world under one roo! providing very high
economies o! scale
+ne o! the world#s largest and most respected C8T glass manu!acturers
>iring the largest !urnace o! its kind in the world with a tank sie o! AA44 s !t +ne o! the !ew companies in the world to convert sand to TV
+ne o! the largest and most acknowledged C7T manu!acturer in the world
Manu!actured India#s !irst rust(!ree Washing Machine
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".+ rgani3ational Structure
"., 8unctional &er&iew
1.
1. Consu
mer
electronics
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In India" the group sells consumer products like colour televisions" washing machines" air
conditioners" re!rigerators" microwave ovens and many
other home appliances" through a multi(brand strategy with the
largest sales and service network in India.
?ince the entry o! Dorean Chaebols and their risingpopularity in the Indian market" Videocon !rom a
stand(point o! market leader has seen a slow decline
to become a no A player in India. The company
continues to do well in the washing machine and
re!rigerator segment but has signi!icantly lost
ground in the consumer electronics space.
2. Mobile phones
In Fovember 3445" Videocon launched its new line o! mobile phones. Videocon has" since
launched a number o! handsets ranging !rom basic colour >M
phones to high( end %ndroid devices. In >ebruary 34::" Videocon
Mobile 7hones launched the hitherto unknown
concept o! #Rero# paise &: paise is the :44th unit
o! :IF8' per second with bundled ?IM cards o!
Videocon mobile services !or o! its handset
models.In 6une 34:A" Videocon Mobiles launched its own
!lagship smartphone Videocon %99
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%n important asset !or the group is its 8avva oil !ield with
one o! the lowest operating costs in the world producing
94"4444 barrels o! oil per day.
(. !*
Videocon d3h
In 3445" Videocon launched its *T< product" called #d3h#. %s a pioneering o!!er in the Indian
*T< market" Videocon o!!ered LC* - TVs with built(in *T< satellite
receiver with sies :5H to 23H.
). *elecommunication
Videocon Telecommunications Limited has a license !or
mobile service operations across India. It launched its
services on %pril 34:4 in Mumbai.
Chapter (
(.1 'iterature %e&iew
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Working Capital
Working Capital is needed !or the smooth conduct o! day to day business activities. It is
needed to !inance the current assets o! the !irm. The working capital should neither be in
e,cess nor should it be inadeuate. 0,cessive investment in current assets would have a
negative impact on the !irmSs pro!itability because o! idle investment on the other hand"
inadeuate working capital would lead to inability to meet the current obligations which
would hamper the !irmSs creditability and thereby its reputation.
$sually the current assets are maintained at twice the level o! current liabilities i.e." the
current ratio is 3;:. Gut the uality o! current assets is important. The current assets should be
easily marketable i.e." they should be liuid. I! the Liuidity is harm!ul" it may be due to miss
management o! current assets.
6. n the basics of Concept
1. $et Working Capital9
This is the di!!erence between current assets and current liabilities. Current Liabilities are
those that are e,pected to mature within an accounting year and include creditors" bills
payable and outstanding e,penses. Investment is current assets represent a very signi!icant
portion o! the total investment in assets. In case o! public limited companies in India" current
assets constitute around B4E o! the total capital employed. There!ore the !inance manager
should be attention to working capital management. Working Capital Management is no
doubt signi!icant !or all !irms" but its signi!icance is enhanced in cases o! small !irms. % small
!irm has more investment in current assets than !i,ed assets and there!ore current assets
should be e!!iciently managed. The working capital needs increase as the !irm grows. %s
sales grow" the !irm needs to invest more in debtors and inventories. The !inance manager
should be aware o! such needs and !inance them uickly.
Current %ssets can be !inanced through long(term and short(term sources. The ratio o! long(
term to short(term source will depend on whether the !irm is aggressive o! conservative.
It the !irm is aggressive then it will !inance a part o! its permanent current assets with short
term !unds. +n the other hand" a conservative !irm will !inance its permanent assets and also
a part o! temporary current assets with long(term !inancing.
2. ross Working Capital9
This re!ers to the !irmSs investment in current assets. Current %ssets are the assets which can
be converted into cash within a short period say" an accounting year. Current assets include
cash" debtors" and bill receivable" short(term securities. etc.
4. n the basis of *ime
1. Permanent Working Capital
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7ermanent Working Capital is permanently locked up in the circulation o! current assets. It
covers the minimum amount reuested !or maintaining the circulation o! current assets.
I. Initial Working Capital
%t its inception and during the !ormative period o! its operations a company must haveenough cash !und to meet its obligations. The need !or initial working capital is !or every
company to consolidate its position.
II. 8egular Working Capital
It re!ers to the minimum amount o! liuid capital reuired to keep up the circulation o! the
capital !rom the cash inventories to account receivable and !rom account receivables to back
again cash. It consists o! adeuate cash balance on hand and at bank" adeuate stock o! raw
materials and !inished goods and amount o! receivables.
2. 0ariable Working Capital
It re!ers to the past o! the Working Capital that changes with the volume o! business" it may
be divided into two classes.
I. ?easonal Working Capital
There is many line o! business where the volumes o! operations are di!!erent and hence the
amount o! working capital varies with seasons. The capital reuired to meet the seasonal
needs o! the enterprise knows as ?easonal Working Capital.
II. ?pecial Working Capital
The capital reuired to meet any special operations such as e,periments with new products or
new techniues o! production and making interior advertising campaign etc" are also know as
?pecial Working Capital.
6d&antages and !isad&antages of Working Capital
6d&antage of 6de:uate Working Capital
:. Sol&ency of the business; %deuate working capital helps in maintaining the
solvency o! the business by providing uninterrupted o! production.3. oodwill; ?u!!icient amount o! working capital enables a !irm to make prompt
payments and makes and maintain the goodwill.
A. 5asy loans; %deuate working capital leads to high solvency and credit standing canarrange loans !rom banks and other on easy and !avorable terms.
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2. Cash !iscounts; %deuate working capital also enables a concern to avail cash
discounts on the purchases and hence reduces cost.
9. %egular Supply of %aw Material; ?u!!icient working capital ensures regular supply
o! raw material and continuous production.
B. %egular Payment of Salaries; Wages and ther !ay * !ay Commitments ; It
leads to the satis!action o! the employees and raises the morale o! its employees"
increases their e!!iciency" reduces wastage and costs and enhances production and
pro!its.
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3. 8edundant working capital leads to unnecessary purchasing and accumulation o!
inventories.
A. 0,cessive working capital implies e,cessive debtors and de!ective credit policy which
causes higher incidence o! bad debts.
2. It may reduce the overall e!!iciency o! the business.
9. I! a !irm is having e,cessive working capital then the relations with banks and other
!inancial institution may not be maintained.
B. *ue to lower rate o! return on investments" the values o! shares may also !all.
. The redundant working capital gives rise to speculative transactions
!isad&antages of Inade:uate Working Capital
0very business needs some amounts o! working capital. The need !or working capital arises
due to the time gap between production and realiation o! cash !rom sales. There is an
operating cycle involved in sales and realiation o! cash. There are time gaps in purchase o!
raw material and productionQ production and salesQ and realiation o! cash.
Thus working capital is needed !or the !ollowing purposes;
>or the purpose o! raw material" components and spares
To pay wages and salaries
To incur day(to(day e,penses and overload costs such as o!!ice e,penses.
To meet the selling costs as packing" advertising" etc.
To provide credit !acilities to the customer.
To maintain the inventories o! the raw material" work(in(progress" stores and spares and!inished stock.
>or studying the need o! working capital in a business" one has to study the business under
varying circumstances such as a new concern reuires a lot o! !unds to meet its initial
reuirements such as promotion and !ormation etc. These e,penses are called preliminary
e,penses and are capitalied. The amount needed !or working capital depends upon the sie
o! the company and ambitions o! its promoters. =reater the sie o! the business unit"
generally larger will be the reuirements o! the working capital.
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The reuirement o! the working capital goes on increasing with the growth and e,pensing o!
the business till it gains maturity. %t maturity the amount o! working capital reuired is called
normal working capital.
8actors !etermining the Working Capital %e:uirements
:. $ature of business; The reuirements o! working is very limited in public utility
undertakings such as electricity" water supply and railways because they o!!er cash sale only
and supply services not products" and no !unds are tied up in inventories and receivables. +n
the other hand the trading and !inancial !irms reuires less investment in !i,ed assets but have
to invest large amt. o! working capital along with !i,ed investments.
2.Si3e of the business; =reater the sie o! the business" greater is the reuirement o! working
capital.
".Production policy; I! the policy is to keep production steady by accumulating inventories
it will reuire higher working capital.
(. 'ength of production cycle; The longer the manu!acturing time the raw material and
other supplies have to be carried !or a longer in the process with progressive increment o!
labor and service costs be!ore the !inal product is obtained. ?o working capital is directly
proportional to the length o! the manu!acturing process.
). Seasonal &ariations; =enerally" during the busy season" a !irm reuires larger working
capital than in slack season.
+. Working capital cycle; The speed with which the working cycle completes one cycle
determines the reuirements o! working capital. Longer the cycle larger is the reuirement o!
working capital.
,. %ate of stock turno&er; There is an inverse co(relationship between the uestion o!
working capital and the velocity or speed with which the sales are a!!ected. % !irm having a
high rate o! stock turnover will needs lower amt. o! working capital as compared to a !irmhaving a low rate o! turnover.
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-.Credit policy; % concern that purchases its reuirements on credit and sales its product P
services on cash reuires lesser amt. o! working capital and vice(versa.
/. 4usiness cycle; In period o! boom" when the business is prosperous" there is need !or
larger amt. o! working capital due to rise in sales" rise in prices" optimistic e,pansion o!
business" etc. +n the contrary in time o! depression" the business contracts" sales decline"
di!!iculties are !aced in collection !rom debtor and the !irm may have a large amt. o! working
capital.
1.%ate of growth of business; In !aster growing concern" we shall reuire large amt. o!
working capital.
11. 5arning capacity and di&idend policy; ?ome !irms have more earning capacity than
other due to uality o! their products" monopoly conditions" etc. ?uch !irms may generate
cash pro!its !rom operations and contribute to their working capital. The dividend policy also
a!!ects the reuirement o! working capital. % !irm maintaining a steady high rate o! cash
dividend irrespective o! its pro!its needs working capital than the !irm that retains larger part
o! its pro!its and does not pay so high rate o! cash dividend.
12. Price le&el changes; Changes in the price level also a!!ect the working capital
reuirements. =enerally rise in prices leads to increase in working capital.
(.2 Working Capital9 Policy
There is an inevitable relationship" between the sales and current assets. The actual and
!orecasted sales have major impact on the amount o! current assets which the !irm must
maintain. ?o" depending upon the sales !orecast" the !inancial manager should also estimate
the reuirement o! current assets.
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There are three types o! working capital policies which a !irm may adopt i.e. moderate
working capital policy" conservative working capital policy" and aggressive working capital
policy. These policies describe the relationship between sales level and the level o! current
assets.
*ypes of working capital policies
In case o! moderate working capital policy" the increase in sales level will be coupled with
proportionate increase in level o! current assets also e.g. i! the sales increase or e,pected to
increase by :4E" then the level o! current assets will also be increased by :4E.
In case o! conservative working capital policy" the !irm does not like to take risk. >or every
increase in sales" the level o! current assets will be increased more than proportionately. ?uch
a policy tends to reduce the risk o! shortage o! working capital by increasing the sa!etycomponent o! current assets. The conservative working capital policy also reduces the risk o!
non(payment to liabilities.
In case o! aggressive working capital policy the increase in sales does not result in
proportionate increase in current asset. >or e,ample" !or :4E increase in sales the level o!
current asset is increased by E only.
This aggressive policy has many implications(
The risk o! insolvency o! the !irm increases as the !irm maintains low liuidity.
The !irm is e,posed to greater risk as it may not be able to !ace une,pected change" in the
market.
8educed investment in current assets will result in increase in pro!itability o! the !irm
Sources of Working Capital
Mainly there are two sources o! working capital;
I. Long Term ?ourcesII. ?hort Term ?ources
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In any concern" a part o! the working capital investments are as investment in !i,ed assets.
This is so because there is always a minimum level o! current assets" which are copiously
reuired by the enterprise to carry out its day(to(day business operation and this minimum"
cannot be e,pected to reduce at any time. This minimum level o! current assets need long
term working capital" which is permanently blocked.
?imilarly" some amount o! working capital may be reuired to meet the seasonal demands
and some special e,igencies such as rise in prices" strikes" etc. this gives rise to short term
working capital which is reuired !or day to day transaction also.
The !i,ed proportion o! working capital should be generally !inanced !rom the !i,ed capital
sources while the temporary or variable working capital euipment may be met !rom the
short term sources o! capital.
'ong *erm Sources of Working Capital 8inancing9
Long term sources can also be divided into internal and e,ternal
sources. Long term internal sources o! !inance are retained pro!its and provision !or
depreciation whereas e,ternal sources are share capital" long term loan" and debentures.
8etained pro!its and accumulated depreciation are as good as !unds available to the business
without any e,plicit cost. These are the !unds completely earned and owned by the business
itsel!. They are utilied !or e,pansion as well as working capital !inance. Long term e,ternal
sources o! !inance like share capital is a cheaper source o! !inance but are not commonly used
!or working capital !inance.
Short *erm Sources of Working Capital 8inance9
?hort term sources can be !urther divided into internal and
e,ternal sources o! working capital !inance. ?hort term internal sources include ta,
provisions" dividend provisions etc. ?hort term e,ternal sources include short term working
capital !inancing !rom banks such as bank overdra!ts" cash credits" trade deposits" bills
discounting" short(term loans" inter(corporate loans" commercial paper" etc
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?ources o! Working Capital
(." Working Capital components
Current 6ssets9
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Current assets are items that can be turned into cash uickly. 0,amples o! current assets are
cash in hand" short(term investments" inventory and accounts receivable. %ccounts receivable
must be collected in a timely manner the sooner you receive money owed" the sooner it can
be reinvested to earn a pro!it. 0!!ective inventory management is also essential. The goal is to
have enough inventory to complete orders but not an e,cess. 0,cess inventory createsadditional costs such as paying !or storage space and inventory spoilage.
Components o! Current %ssets are as !ollows;
Cash - Gank Galance
?tock o! 8aw Material at cost( work in process and >inished =oods.
%dvanced 8ecoverable in Cash or kind or kind or !or value to be received.
?ecurity deposits with electricity board(telephone department balances with
customers.
*eposits under the company scheme.
7repaid 0,penses.
Miscellaneous ?tores implements goods in transit.
%dvanced payment o! income takes credit certi!icates.
0,cise duty and sales ta, recoverable.
+utstanding debts !or a period e,ceeding si, months.
Current 'iabilities9
% company normally incurs liabilities during the operating period to meet its operations
budget. 0,amples o! current liabilities are inventory purchases" employee wages" ta,es and
accounts payable. $nearned revenue is also considered a current liability" meaning you#ve
been paid !or goods or services but have not yet delivered the product. =enerally" current
liabilities are e,pected to be paid during a one(year time period.
Components o! Current Liabilities are as !ollows;
Fon(8e!undable non(interest bearing advances against subscription to shares.
?undry Creditors !or the goods and e,penses.
Income ta, deducted at sources !rom contractors. 0,penses 7ayable.
%mount due to promoter o! company.
$nclaimed *ividend.
?ecurity *eposits.
*ealers *eposits.
Liabilities !or bills discounted.
Gank +verdra!t %cceptance.
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(.( %atio 6nalysis
8atio analysis is a techniue o! analysis and interpretation o! !inancial statements. It is the
process o! establishing and interpreting various ratios !or helping in making decisions. It only
means o! better understanding o! !inancial strengths and weaknesses o! a !irm. The main
emphasis has been on calculating the ratios related to a working capital management.
Current %atio9
It may be de!ined as the relationship between current assets and current liabilities. This ratio
is also known as working capital ratio and measures the ability o! the !irm to meet current
liabilities.
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Working Capital Turnover 8atio U Fet %nnual ?alesFet working Capital
In&entory *urno&er %atio9
This ratio tells the story by which stock is converted into sales. % high stock turnover ratioreveals the liuidity o! the inventory i.e." how many times on an average" inventory is turnedover or sold during the year.
Inventory Turnover 8atio U ?ales%verage Inventory
Chapter )
).1 b#ecti&e of Pro#ect
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1. *o study the working capital components.
2. *o study the sources of the working capital.
". *o study the working capital structure of the 0ideocon Industry 'td.
Chapter +
+.1 %esearch Methodology
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Meaning of %esearch
8esearch in common parlance re!ers to a search !or knowledge. +nce can also de!ine
research as a scienti!ic and systematic search !or pertinent in!ormation on a speci!ic topic. In!act" research is an art o! scienti!ic investigation. The %dvanced Learner)s *ictionary o!
Current 0nglish lays down the meaning o! research as a care!ul investigation or inuiry
especially through search !or new !acts in any branch o! knowledge. 8edman and Mory
de!ine research as a systematied e!!ort to gain new knowledge. ?ome people consider
research as a movement" a movement !rom the known to the unknown. It is actually a voyage
o! discovery. We all possess the vital instinct o! inuisitiveness !or" when the unknown
con!ronts us" we wonder and our inuisitiveness makes us probe and attain !ull and !uller
understanding o! the unknown. This inuisitiveness is the mother o! all knowledge and the
method" which man employs !or obtaining the knowledge o! whatever the unknown" can be
termed as research.
Collection of !ata9
*ata has been collected !rom various sources like;
%nnual reports o! last !our years.
Mostly secondary data is used. Manual o! concerned departments.
Internet web sites.
+.2 6ssumptions
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%ll purchases have been taken as credit purchases and all sales have been taken as
credit sales.
In the absence o! relevant data the data !rom internet site is taken as the relevant
in!ormation.
+." 'imitations
The data is mostly secondary in nature
*ata has been recalculated - regrouped wherever necessary
In the absence o! su!!icient data personnel judgment have been taken on reasonable
assumption.
In the absence o! su!!icient data in(depth study o! cash" 8eceivables and inventorymanagement was not possible.
Chapter ,
,.1 6nalysis and 8indings
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6nalysis9
%bove statement shows changes in working capital !or the year 344@(45 and 3445(:4.
Working capital has increased in the year 34:4 by 8s. AB:. Increase in working capital is
seen because inventories" sundry debtors" cash and bank balance" loans and advances has
shown increment !rom year 344@(45 to 3445(:4. %mong current liabilities provisions have
decreased and current liabilities has increased. There!ore the overall net working capital has
increased.
Statement showing changes in working capital
Particulars 21
>1)month
211
>12month
Increase !ecrease
33
Statement showing changes in working capital
Particulars
2/
>12months
?
21
>1)months
? Increase !ecrease6? Current 6ssets
Inventories :BA9 3424: 3BB (
?undry *ebtors :4@: 3B2A 5A53 (
Cash and Gank Galances 25@9 :A:B2 @:5 (
+ther Current %ssets A34 999 3A9 (
Loans and %dvances 25A9 B922: :94B (
*otal current assets @59B :3B4A2 ( (
4? Current 'iabilities Current Liabilities @9A 5:34 ( 9@A
7rovisions :A43 ::@4 :33 (
*otal current liabilities 5@A5 :4A44 ( (
Changes in Working capital&%(G' @:: ::9A2
Increase in Working Capital AB: ( ( AB:
*otal ::9A2 ::9A2 A@344 A@344
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s? s?
6? Current 6ssets
Inventories 3424: 34@4 24B (
?undry *ebtors 3B2A 3942 :4A: (
Cash and Gank Galances :A:B2 9429 @::5
+ther Current %ssets 999 @55 A22 (
Loans and %dvances B922: :92A@A @@523 (
*otal current assets :3B4A2 34@BA@ ( (
4? Current 'iabilities
Current Liabilities 5:34 39::3 ( :9553
7rovisions ::@4 :449 :9
*otal current liabilities :4A44 3B:: ( (Changes in Working capital&%(G' ::9A2 :@393:
Increase in Working Capital BB@ ( ( BB@
*otal :@393: :@393: 54@5@ 54@5@
6nalysis9
%bove statement again shows increase in working capital in year 34:: by 8s. BB@. %mong
current assets inventories" sundry debtors" other current assets" loans and advances has shown
increment again in year 3445(:4 to 34:4(:: and cash and bank balance has shown decrease.
Current liabilities has increased in year 3445(:4 to 34:4(:: but provisions has shown
decrease in this year. Current liabilities were less as compared to current assets so net
working capital again increased in this year.
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6nalysis9
%bove statement shows that working capital has been decreased by 8s. 2A@@3 in year 34:A.%mong current assets inventories" sundry debtors shows increment in year 34:4(:: to 34:3(
:A and cash and bank balances" other current assets and loan and advances has shown
decrement in this year. Current liabilities has increased in year 34:3(:A and provisions shows
decrease. There!ore there is decrease in net working capital.
1. Working Capital *urno&er %atio9
Working Capital Turnover 8atio U Fet %nnual ?alesFet working Capital
35
Statement showing changes in working capital
Particulars
211
>12months?
21"
>1-months? Increase !ecrease
6? Current 6ssets
Inventories 34@4 3:95 3 (
?undry *ebtors 3942 3@A3 @3A (
Cash and Gank Galances 9429 2@9@ ( :@
+ther Current %ssets @55 5B ( :4A
Loans and %dvances :92A@A :3ABBA ( A434
*otal current assets 34@BA@ :533A ( (
4? Current 'iabilities
Current Liabilities 39::3 A5BA ( :2939
7rovisions :449 52 9@ (
*otal current liabilities 3B:: 249@2 ( (
Changes in Working capital&%(G' :@393: :A@BA5
*ecrease in Working Capital ( 2A@@3 2A@@3 (
*otal :@393: :@393: 299A9 299A9
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2009 2010 2011 20130
0.2
0.4
0.6
0.8
1
1.2
1.41.17
1.24
0.69
1.3
Working Capital Turnover Ratio
6nalysis9
This ratio indicates the number o! times the working capital is turned over in the course o! a
year. % high working capital ratio indicates the e!!ective utiliation o! working capital and
less working capital ratio indicates less utiliation. The above table shows that working
capital ratio o! company in year 3445 was :.: and was increasing but in year 34:: itdecreased and was lowest as compared to other years. In year 34:A it shows increment to :.A"
the ratio o! company is satis!actory.
2. =uick %atio9
uick 8atioP%cid Test 8atio U Current %ssets Inventories
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Current Liabilities
2009 2010 2011 20130
1
2
3
4
5
6
7
4.62
6.19
2.31
4.73
Quick Ratio
6nalysis9
%ccording to rule o! thumb" it should be :;:. The above table shows that company is in good
position to pay its debt. In year 34:4 ratio was highest B.:5 but in year 34:: it shows
decreased !rom B.:5 to 3.A:. The decrement in the ratio is not satis!actory" however the ratio
3.A: in 34:: is more than the rule o! thumb but it should be uite more than the rule o!
thumb. In year 34:A again it increased to 2.A.
". Current %atio9
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Current 8atio U Current %ssetsCurrent Liabilities
2009 2010 2011 20130
1
2
3
4
5
6
3.94
5.01
1.07
1.78
Current Ratio
6nalysis9
The current ratio was above the standard !or year 3445 and 34:4 but in year 34:: current
ratio showed decrement !rom 9.4: to :.4 which shows that company)s current assets were
less as compared to current liabilities !or the year 34::. In year 34:A company managed to
increase current ratio this shows that company invested more in current assets.
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(. In&entory *urno&er %atio9
Inventory Turnover 8atio U ?ales%verage Inventory
2009 2010 2011 20130
1
2
34
5
6
7
8
9
5.32
7.19
6.21
8.41
nventor! Turnover Ratio
6nalysis9
The above table shows that inventory ratio o! company was 9.A3 in year 3445 and it
increased to @.2: in year 34:A which is good !or company because standard norm is 9 to B
times and it should not be less than 9 to B times. This shows e!!icient inventory management
o! company.
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,.2 8indings and Suggestions
8indings9
+verall the working capital Turnover 8atio is low it shows that the current assets have
been utilied properly by the company.
The uick ratio or acid ratio o! the company shows that the liuidity position o! the
company is good.
Current 8atio changes in year 34:: which shows current liabilities were more than
that o! other year.
Inventory o! company is well managed by the company which can be seen !rom
inventory turnover ratio.
The company is in good position to meet its current obligation.
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Suggestions9
Inventory is managed well by company and Inventory Turnover 8atio o! company is
good but it is not constant" to maintain it company should use inventory control like
%GC analysis" 0.+.. etc.
The company has to take some measures to increase their current assets in order to
maintain 3;: Current 8atio.
Working Capital o! company was increasing !or two year but then it decreased" companyshould try to maintain its positive working capital.
*ue to competition" prices are market driven and !or earning more margin company
should give the more concentration on cost reduction by improving its e!!iciency.
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Chapter -
-.1 Conclusions
The study o! working capital management is conducted in Videocon Industries Ltd. to
analye !inancial position o! the company. The company)s !inancial position is analyed by
using annual reports o! the company 344@(45 to 34:3(:A.
I !ound out that working capital management o! Videocon Industries Ltd. is good. Videocon
Industries Ltd. has su!!icient !unds to meet its current obligation every time" which is due tosu!!icient pro!its and e!!icient management o! the company. % >irm should always invest in
current assets !or smooth - uninterrupted production - sale.
Videocon Industry Limited is using ?%7 B.4 versions which is very advanced to do every
transaction o! any organiation. S?%7) B.4 also applicable !or e(transaction.
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Chapter /
@ey 'earnings and Contribution to the ost rganisation
It has been an e,cellent opportunity !or me to carry out the study on working capital
management at Videocon Industries Ltd. it has helped me to a great e,tent to have an
insight into the practical realities o! the subject.
=ain insight into the working environment and understanding the culture o! the !irm.
*eveloped time management skills and the ability to be responsible.
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4ibliography
8inance !epartment of 0ideocon Industry 'imited
6nnual %eport of 0ideocon Industry 'imited
https;PP&ideoconworld.comP
https;PPen.wikipedia.orgP
www.moneycontrol.com
www.&ideoconindustriesltd.comP
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