working capital management of mts gurgaon

7/31/2019 working capital management of MTS gurgaon

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MALAVIYA NATIONAL INSTITUTE OF TECHNOLOGY JAIPUR

RAJASTHAN

TRAINING REPORT ON

WORKING CAPITAL MANAGEMENT OF

M T S

SISTEMA SHYAM TELESERVICES Ltd.

DATE :- 21/12/2011

SUBMITTED TO:- SUBMITTED BY:-

Mr. Kapil Sir UMESH CHANDRA YADAV

Department of management 2010PMB138

Studies(MNIT Jaipur) MBA 4th SEMESTER


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ACKNOWLEDGEMENT

I readly acknowledge my indebtedness to the finance department of M T S (Sistema Shyam

Teleservices Ltd.) in which I did my summer training. I am grateful to FR Head Mr. Sanjeev Kr.

Sinha who gave me golden opportunity to do training in the channel. I am also grateful to him for

motivating and encouraging me at every step. I deeply extend my gratitude and appreciaton to Ms.

Kanupriya, Senior lead Finance dept. (under whom I did my training) whose support, dedication

and honest effort have given me an immense help in preparing this project. I am also highly

thankful to Mr. Nagendra kumar, Mr. Ritendra Prakash and Mr. Saurabh whose valuable

knowledge, encouragement and suggestions gave backbone support in completing this project. At

last my special thanks to all the employees of finance department of MTS (Mobile Telecom

Services) for giving confidence and strength to initiate this venture.

I would also like to thanks the MNIT Jaipur for providing me the opportunity that helped me

to learn the first step of application of my theoretical knowledge.

I would like to thanks our teachers (Mentor Kapil sir ) without support and help this project

would not been possible and completion of my project. And also I would like to thanks our friends

without whose encouragement this project would not been possible and their help has gone a long

way in successful completion of my project.

UMESHCHANDRA YADAV


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TABLE OF CONTENT

Sl/No. Topic Page no.

1 Introduction 5

2 Major Player in Telecom Industry in India 7

3 Introduction to Sistema Shyam TeleServices Ltd 10

4 MTS Brand 12

5 Market shares world 13

6 History 15

7 Global recognition 16

8 Company Vision, Mission & Values 18

9 Company logo 20

10 SWOT Analysis of MTS 21

11 Components of Working Capital 22

12 Research Methodology 31

13 Balance Sheet as at March 31, 2011 33

14 Profit and Loss Account for the year EndedMarch 31, 2011

34

15 Analysis and Interpretation of data 41


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16 Liquidity Ratios 49

17 Summary of Findings 60

18

Suggestions61

19 Conclusions 62

20 References 63


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Introduction:

Industry Overview :

The Indian telecommunications industry is one of the fastest growing in the world and India is

projected to become the second largest telecom market globally. According to the Telecom

Regulatory Authority of India (TRAI), the number of telecom subscribers in the country

increased to 562.21 million in December 2010, an increase of 3.5 percent from 543.20 million in

November 2010. With this the overall teledensity (telephones per100 people) has touched

47.89.

According to Business Monitor International, India is currently adding 8-10

million mobile subscribers every month. It is estimated that by mid 2012, around half the

country's population will own a mobile phone. This would translate into 612 million mobile

subscribers, accounting for a teledensity of around 79 per cent by 2012. Moreover, according to a

study conducted by Nokia, the communications sector is expected to emerge as the single largest

component of the country's GDP with 15.4 per cent by 2014.


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With the availability of the 3G spectrum, about 275 million Indian subscribers will use 3G-

enabled services, and the number of 3G-enabled handsets will reach close to 395 million

by 2013-end, estimates the latest report by Evalueserve. According to a Frost & Sullivan industry

analyst, by 2012, fixed line revenues are expected to touch US$ 12.2 billion while mobile revenues

will reach US$ 39.8 billion in India.

State-run telecom operator BSNL has rolled out 3G services in 318 cities with 856,000

subscribers. BSNL has plans to cross 760 cities by September 2010. And even as debate on 3G

continues, TRAI has started consultation on the next level of telecom services. Fourth generation or

4G offers download at faster speeds.


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MAJOR PLAYER IN TELECOM INDUSTRY IN INDIA

Telecommunication industry is mainly classified into two sub headings voice and data. Voice

service can be provided through either wire-less or wire-line. Wire-less segment is

booming nowadays after investment of foreign companies. The major players in this field

are Bharti, Vodafone, Reliance, BSNL etc.

Market share of Basic Services in India

MTS operates in wireless segment, and in this segment the two technologies available are: GSM,

92%

8%


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and CDMA. GSM is prominent in India and has better margin than CDMA. MTS runs on the

CDMA technology, which is faster than GSM and is a newer technology. In CDMA big playersare

Reliance and TATA.

Indian Mobile Services

Market share

(As of June 2011)

GSM

54%CDMA

46%


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The second major source is internet. The use of internet is increasing and quite a number of

consumers are switching from wired-lines to wireless connections. But still wired lines are

preferred by a majority of consumers as it is cost affective and provides better

connectivity.


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INTRODUCTION TO SISTEMA SHYAM TELESERVICES

LTD[9]

Sistema Shyam TeleServices Ltd. (SSTL) is a venture, involving equity participation by Sistema

Joint Stock Financial Corporation of Russia (SISTEMA JSFC), the Russian Federation andthe Shyam Group of India. Sistema JSFC is the majority shareholder in the Company.

Approximately 2.5% equity stake is held by public. The company has been awarded Unified

Access Services License (UASL) by the Department of Telecommunication, Government of

India to provide telecom services across all 22 telecom circles of India.

With a strong focus on its Data Centric; Voice Enabled strategy, SSTL is one of the fastest

growing telecom companies in the Indian telecom market and is one of the top three data service

providers in the country. The Company nationally provides telecom services under the brand MTS

to 15 million wireless subscribers including more than 1,200,000 High Speed Mobile Broadband

customers in over 200 cities across the country. MTS is well recognized in India and worldwidefor its commitment to high quality and innovative telecom solutions. MTS has recently been

ranked by Millward Brown as 80th most valuable brand in the World.

Headquartered in Gurgaon, the Company has already invested over USD 2.5 billion in expanding

its telecom network across the country. It has so far opened more than 1200 branded retail

stores across India and engages customers through a retail universe of over 300,000 outlets.

SSTL is credited to have introduced a number of innovations in the Indian telecom industry. The

Company is the pioneer of Half Paisa Per Second Calling in the country. SSTL is also the first

telecom operator in the country to launch prepaid High Speed Mobile Broadband. It was the first

telecom operator to launch High Speed mobile broadband in Jharkhand and Sikkim. The company

has taken mobile broadband to another level with the launch of HSD services on National

Highways. Today, it is the only telecom operator to provide HSD services on Delhi - Jaipur and

Bangalore - Chennai National Highways.

SSTL has been focused on creating a strong portfolio of devices catering to customers across

various segments. The Company recently launched MTS Pulse, an Android powered Smartphone

that the users can get for free with no upfront payment. SSTL added to its range two more Android

Smartphones MTS Livewire and MTS MTag 3.1, both priced in the sub Rs. 5000 category. MTS

also offers its data customers innovative applications like MTS TV, a free to download application

that provides on the move access to more than 100 Live TV and video on demand channels.

Beyond business, the Company has partnered with India Unite to End Polio Now (IUEPN)

campaign organised to create awareness for Polio eradication amongst the masses.

The IUEPNcampaign is an initiative implemented by Aidmatrix Foundation, in partnership with

the Polio Eradication Programme in India, a collaborative effort between the Ministry of

Health and Family Welfare (MOHFW),United Nations Childrens Fund (UNICEF), World Health


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Organization (WHO), National Polio Surveillance Project (NPSP), Rotary International, and

the U.S. Centre for Disease Control (CDC). As part of the initiative, SSTL has actively

participated in awareness creation drives in several states, reminding people about the need to get

their children vaccinated against Polio.

The companys objective is to leverage the advancements in Information & CommunicationTechnologies (ICT) to contribute towards progressive socio-economic change, especially in the

fields of Health and Education.


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Service offers

Network quality

Pricing

Brand perception

MTS Uzbekistan

Low penetration rates characterize the wireless telecommunications market in Uzbekistan giving

MTS the opportunity to develop this market in the coming years. According to the Companys

estimates, in 2007, overall wireless penetration in Uzbekistan increased to 22% from 10%.

MTS is the number one provider of mobile telephone services in the country, with approximately

2.8 million subscribers accounting for nearly 48% of the Uzbek market.

MTS Turkmenistan

In Turkmenistan, MTS continues to dominate the market, increasing its subscriber base by 94% to

356,260 at the close of 2007 versus 183,788 at the end of 2006. MTS thereby increased its market

share by around five percentage points, with an 88% share of the total market in 2007.

Penetration in Turkmenistan is still very low, as it grew from 3.2% in 2006 to 7.4% in 2007

according to company estimates, but the countrys economic growth and low fixed-line penetration

give MTS every indication that Turkmenistan will continue to increase its visibility in the Group

results.

MTS Armenia

In September 2007, MTS acquired an 80% stake in K-Telekom, a mobile operator in Armenia

operating under the Viva-Cell brand and offering wireless services using GSM 900 and GSM 1800

technologies throughout the territory of Armenia. As of December 31, 2007, Viva-Cell had 1.4

million subscribers and a 73.9% market share according to AC&M-Consulting. At the end of 2007,

the overall wireless penetration in Armenia was 58%, or approximately 1.9 million subscribers,

according to AC&M-Consulting data.

In October 2007, K-Telekom was allocated frequencies valid for 10 years to offer 3G services in

the UMTS standard on the entire territory of Armenia.

HISTORY


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MTS was established in October 1993 by Moscow City Telephone Network (MGTS), T-Mobile

Deutschland GmbH (T-Mobile), an affiliate of Deutsche Telekom AG, Siemens AG (Siemens) and

several other shareholders. In late 1996, Sistema JSFC acquired a majority stake in MTS and has

remained the primary owner ever since.

MTS was the first company to launch GSM services in the Moscow region in 1994. In subsequentyears, MTS has expanded rapidly in Russia largely through the acquisition of smaller independent

players and became the leading national mobile operator.

MTS initiated its international expansion in 2002 through the establishment of Mobile

TeleSystems LLC, a joint venture with Beltelecom, the national fixed line operator in Belarus.

In 2003, MTS continued to expand in the CIS by acquiring the leading operator UMC in Ukraine,

the biggest CIS market outside of Russia.

MTS entered Central Asia in 2004 through the acquisition of the leading mobile phone operator in

Uzbekistan, Uzdunrobita. In June 2005, the Company acquired Barash Communications

Technologies, Inc., the number one operator in Turkmenistan.

In September 2007, MTS continued its international expansion through the acquisition of the

leading mobile operator in Armenia, K-Telecom.

In December 2008, MTS started to expose its brand outside the CIS borders. MTS and Shyam

Telelink Limited, JSFC Sistema's telecommunications subsidiary in India, announces the

agreement to allow Shyam Telelink to use MTS brand in India. The decision to introduce the brand

to India is reflective of the brands success in the Companys markets of operation since its launch

in May 2006. In April 2008, MTS brand was recognized as one of the BRANDZ Top 100 MostPowerful Brands, a ranking published by the Financial Times and Millward Brown, a leading

global market research and consulting firm.

Today, Mobile TeleSystems is the largest mobile phone operator in Russia and the CIS. MTS is a

multinational corporation of a new type, based in a high-growth emerging market and

simultaneously entering other developing markets with a unified brand. Having been recognized

internationally for corporate governance and transparency, MTS is not only a leading Russian

blue-chip company, but a truly global organization.

GLOBAL RECOGNITION


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Top 100 Most Powerful Brands

In April 2008, MTS was named as one of the BRANDZ Top 100 Most Powerful Brands, a

ranking published by the Financial Times and Millward Brown, a leading global market research

and consulting firm. MTS became the first and only Russian company to join the ranks of the most

powerful brands in the world, which stands as a recognition of its leadership across the CIS andincreasing global relevance. MTS entered the Top 100 Most Powerful Brands ranking at 89th place

with a Brand Value of $8.077 billion.

BusinessWeek InfoTech 100

In May 2008, MTS was included in the InfoTech 100 ranking of the best-performing tech

companies by BusinessWeek. MTS was ranked as the 14th company globally, based on four

criteria: shareholder return, return on equity, total revenues, and revenue growth. MTS became the

highest-ranked company from Russia, and above such companies as AT&T, LG and Microsoft.

Trusted Brand 2008

In June 2008, MTS was recognized by Readers Digest as the most Trusted Brand among mobile

operators in Russia. The European Trusted Brands 2008 survey was conducted in 16 countries in

14 different languages. In Russia, over 40% of consumers nominated MTS as the most Trusted

Brand in Mobile Phone Network category.

World Communications Awards 2008

In September 2008, MTS received three nominations for the World Communications Awards

2008. The Company made the shortlist in the Best Brand, Best Mobile Operator and Best

Project Management award categories.

GSMA Board

In April 2008, the CEO of MTS joined the Board of the GSM Association (GSMA), the global

trade association for the mobile industry. GSMA's board members include 25 operator

representatives, the Chair of the Executive Management Committee - the body that manages the

Association's ongoing activities in the area of products and services - and the GSMA CEO Rob

Conway. Board members include executives of such leading global operators as China Mobile,

AT&T, Orange, Telefonica O2 Europe, T-Mobile, Vodafone, and Telenor Mobile.

GSMA 13th Annual Global Mobile Awards

In January 2008, MTS became the first Russian company to receive a nomination in the 13th

Annual Global Mobile Awards hosted by the GSM Association (GSMA). MTS was recognized for

its WAP-portal wap.kids.mts.ru designed specifically for children in the Best Mobile

Infotainment Portal for News/Entertainment category.


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Corporate Governance

MTS was ranked as the most transparent company in Russia by Standard & Poors in 2005, 2006

and 2007. The ranking was based on the analysis of ownership structure and shareholders rights,

financial and operational openness and composition and procedures of the Board of Directors and

Management Committee.

Investor Relations

In 2006 and 2007, MTS was recognized as having the best Investor Relations department in the

telecom sector in Russia. The award was based on the results of the Extel Survey Focus Russia

study, conducted jointly by Interfax and Thomson Financial.

Top 100 Most Powerful Brands

For the second year in a row, MTS joins the ranks of the most powerful brands in the world with a

value of $9.2 billion at the 71st position. As in 2008, MTS is the most valuable Russian brand inthe ranking and one of the 10 most valuable telecoms brands in the world. MTS brand has risen 18

spots to become the 71st most powerful brand globally with a value of $9.2 billion, up from $8.1

billion in 2008.

COMPANY VISION, MISSION & VALUES


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Vision

MTS shares common values with people who know what they want to achieve in their lives and

are full of energy to hit their goals.

"We empower people to pursue their purpose in a modern networked world."

Mission

"MTS customers can actively shape their lives anytime and anywhere with a range of innovative

telecom products and services."

We offer people greater choice and inspiration in how they spend their most valuable assets: their

time and energy.

Our Values

Delivering Excellence

We serve our customers by delivering the best. We believe in meeting or exceeding our

customers expectations by utilizing our resources while adhering to best in class processes and

quality standards. We articulate our goals clearly and align our strategies, resources and assets to

deliver excellence. This we believe translates into superior value for our customers and

stakeholders.

Mutuality

We believe shared and reciprocal benefits around common objectives help us meet our quality

commitments. We work with our colleagues and business partners to deliver the highest value for

our customers. We build supportive relationships and ensure fair returns to all who help us achieve

our goals. We inspire trust in our relationships by keeping long term success of all parties in mind.

Entrepreneurial Spirit

We demonstrate ownership to meet our commitments by acting like co-owners. Every day we

deliver our best by assuming complete responsibility and by being passionate about our goals. We

encourage and reward those who look for ways to improve the current and search for the new.

Inspiration to be a Doer


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We believe in people, their abilities and potential. We support them to deliver under different

conditions and unleash their talent. We do everything possible to help every member of our

organization become a doer, a role model and inspiration to all. Our environment promotes risk

taking, innovation, agility and responsiveness.

COMPANY LOGO:


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COMPANY SLOGAN: Badlo life ka plan

SWOT ANALYSIS OF MTS:

Strengths of the company

Experience in Russia


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Pan India presence

Low tariff plan

Innovative schemes

Parent company is financially sound

Weaknesses of the company

Experience in Russia

New entrant in Indian Telecom market

Pan India presence

Least Brand Recall in Customers mind

in India Low tariff plan

Less Promotional Activities

Innovative schemes

Parent company is financially sound

Opportunities for the company

Latest technology and low cost advantage

Huge market

Threats for the company

Competition from other cellulars

Latest technology and low cost

Less product awareness in the market advantage

Brand perception

COMPONENTS OF WORKING CAPITAL[6][7]


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Current assets:-

Current assets are those assets which are convertible into cash within a period of one year and

those which are required to meet the day operations of the business. The working capital

management, to be more precise the management of current assets are cash or near cash resources.

These include:

(a)Cash and bank balances

(b)Temporary investments

(c)Short-term advances

(d)Prepaid expenses

(e)Receivables

(f)Inventory of raw materials, stores and spares

(g)Inventory of work-in-progress

(h)Inventory of finished goods

(i)Inventory in government Securities

(j)Amount due from subsidiary companies

(k)Bills of exchange

(l)Deposits

(m)Outstanding incomes

Current liabilities:-

Current liabilities are those claims of outsiders which are expected to mature for payment within an

accounting year.

These include:

(a)Creditors for goods purchased

(b)Outstanding expenses

(c)Short-term borrowings(d)Advances received against sales

(e)Taxes and dividends payable

(f)Other liabilities maturing within a year

(g)Liabilities towards gratuity, etc

(h)Loans from Bank and others


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Concepts of working capital:-

The concepts of Working Capital are of two types.

They are:

a) Gross Working Capital

b) Net Working Capital

Gross working capital:-

The term gross working capital refers to the firms investment in current assets. According to this

concept working capital refers to a firms investment in current assets. The amount of current

liabilities is not deducted from the total of current assets. The concept of gross working capital is

advocated for the reasons:(a)Profits of the firm are earned by making investments of its funds in fixed and current assets.

This suggests the part of the earning relate to investment in current assets. Therefore, aggregate of

current assets should be taken to mean the working capital.

(b)The management is more concerned with the total current assets as they constitute the total

funds available for operating purposes than with the sources from which the funds come.

(c)An increase in the overall investment in the firm brings an increase in the working capital.

Net working capital:-

The term net working capital refers to the excess of current assets over currentliabilities and it is

the difference between current assets and current liabilities. The net working capital is a qualitative

concept which indicates the liquidity position of a firm andthe extent to which working capital

needs may be financed by permanent source of funds. The concept looks into the angle of judicious

mix of long- term and short-termfunds for financing current assets. A portion of net working

capital should be financedwith permanent sources of funds.

Types of Working Capital:-[8]

The types of Working Capital are:-


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Permanent working capital:-

The magnitude of investment in working capital may increase or decrease over a period of time

according to the level of production. But, there is a need for minimum level of working capital to

carry its business irrespective of change in level of sales or production. Such minimum level of

working capital is called permanent working capital or fixed working capital. It is the

irreducible minimum amount necessary for maintaining the circulation of current assets. The

minimum level of investment in current assets is permanently locked-up in business and it is also

referred to as regular working capital.

Temporary working:-

It is also called as fluctuating working capital. It depends upon the changes in production and

sales, over and above the permanent working capital. It is the extra working capital needed to

support the changing business activities. It represents additional assets required at different items

during the operation of the year.

Working capital requirement:-

There is no set of universally applicable rules to ascertain working capital needs of a business

organization. Factors which influence the need level are discussed below:

Nature of business - If we look at the balance sheet of any trading organization, we find major

part of the resources are deployed on current assets, particularly stock-in trade. Where as in case of

a transport organization, major part of funds would be locked up in fixed assets like motor

vehicles, spares and work sheet etc. and the working capital should negligible. The service

organizations need lesser working capital than trading and financial organizations. Therefore the

requirement of working capital depends upon the nature of business carried by the organization.

Manufacturing cycle - Time span required for conversion of raw materials into finished goods is

a block period. The period, in reality extends a little before and after the WIP. This cycle

determines the need of working capital. In case of industries with long manufacturing process or

production cycle, more funds are required for working capital. The industries involved in quick


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conversion of raw materials into finished units or having lesser production cycle requires lesser

amount of working capital.

Production process - In case of labour intensive industries high working capital is needed. But in

case of capital intensive industries the production process is faster and it requires lesser amount of

working capital due to lesser conversion costs.

Business cycle - This is another factor which determines the need level. Barring exceptional cases,

there are variations in the demand for goods/services by any organization. Economic boom or

recession etc., have their influence on the transactions and consequently on the quantum of

working capital required. More working capital is needed during peak or boom conditions. But in

case of economic recession or low inflator conditions, the company requires low moderate working

capital.

Seasonal variations - Variation apart, seasonality factor creates production or even storage

problem. Mustard and many other oil seeds are Rabi crops. These are to be purchased in a season

to ensure continuous operation of oil plant.Furthur there are woolen garments which have demand

during winter only. But manufacturing operation has to be conducted during the whole year

resulting in working capital blockage during off season.

Scale of operations - operational level determines working capital demand during a given period.

Higher the scale, higher will be the need for working capital. However, pace of sales turn over

(quick or slow) is another. Quick turnover calls for lesser investment in inventory, while low

turnover rate necessitates larger investment.

Inventory policy - The traditional production systems generate more stocks of finished goods and

high levels of raw materials and WIP stocks are maintained and the stock holding period is also

more. In such cases more working capital is needed. The adoption of JIT, supply chain

management, vendor management will drastically reduce the levels of raw materials, WIP and

finished goods stocks and therefore, less amount of funds are invested in inventory.


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Credit policy - Credit policy of the business organization includes to whom, when and

to what extent credit may be allowed. Amount of money locked up in account

receivables has its impact on working capital.

Estimation of Working Capital Requirements:

Estimation of working capital can be stated as a four step process:

Step 1:- Determining the duration of blockage of funds. This gives the time period for

which the money will be tied up in the various components of the operating cycle. It is

the same as estimating the time it takes to complete one stage in the operating cycle

and transferring the output of this stage to the succeeding stage. Hence it is

alternatively referred to as conversion period. The duration of the different component of

the operating cycle can be estimated as follows:

Duration of Raw Material (DRM):-

Average Raw Material Inventory= ---------------------------------------------

Raw material consumed/365

Duration of Work-in-process (DWIP):-

Work-in-process inventory

= -------------------------------------Cost of production/365

Duration of Finished goods (DFG):-

Finished goods inventory= ---------------------------------------

Cost of goods sold/365

Duration of Accounts Receivable (DAR):-

Average debtors

= -------------------------Credit sales/365

Duration of Accounts payable (DAP):-

Average Creditors= -----------------------------

Credit purchase/365


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Duration of Raw materials, Duration of work-in-process and Duration of Accounts Receivable

denote the total time period it takes to convert the raw material inventory, the work-in-process

inventory, and the receivables (or debtors) into their next stages, and eventually into realization of

cash. The longer the duration, the more the blockage of funds in the three components of

inventory, and the more the blockage, the more the requirement for working capital. If the

estimation is to be done on a weekly or monthly basis, the denominator should be divided by 52 or

12 respectively.

Step 2:- Estimation of weights of the different components of operating cycle in the total funds to

be blocked in working capital. The weights can be computed as follows:

Weight of Raw Material (WRM):-

Raw Material and Stores cost per unit= -----------------------------------------------------Selling price per unit

Weight of work-in-process (WWIP):-

Raw material and Store cost per unit {(Processing cost per unit)*.52}

= -----------------------------------------------------------------------------------------------

Selling price per unit

Weight of finished goods (WFG):-

Cost of goods sold unit= ------------------------------Selling price per unit

Weight of Accounts Receivable (WAR):-

Cost of sales per unit= ---------------------------

Selling price per unit

Weight of Accounts Payable for credit purchase of material (WAP):-

Raw Material and Stores cost per unit

= ------------------------------------------------Selling price per unit

Step 3:- Determination of weighted operating cycle (WOC). WOC can be computed as

follows:

WOC=DRM * WRM + DWIP * WWIP + DFG * WFG + DAR * WAR DAP * WAP


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Step 4:- Computation of working capital requirements is as follows:

Working Capital Requirement = Sales per day * WOC + cash Balance required

Methods of Estimating Working Capital:-

Usually there are two methods followed for Estimating Working Capital requirements:

1) Conventional Method:-

In this method, cash inflows and outflows are matched with each other. Greater

emphasis is laid on liquidity and greater importance is attached to current ratio, liquidity

ratio, etc. which pertains to the liquidity of the business.

2) Operating cycle method:-

Operating cycle refers to the length of the time involved between the Sales

and their actual realization in cash.

In other words, it is the cycle time required in conversion of:

a) Cash to Raw materials

b) Raw materials to Work-in-process

c) Accounts receivables to cash

d) Work-in-process to finished goodse) Finished goods to accounts receivables

Significance of the Working Capital:-

The Working Capital need arises for the following purpose:

For purchasing Raw materials, components and spare parts

For paying Wages and salaries

To incur day-to-day expenses and overhead costs like fuel, power and office expenses etc.

To meet selling costs of packing advertising etc

To finance operations during the time gap between sale of goods on credit and realization

of money from customers of the firm.


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To maintain inventories of Raw materials, Work-in-progress, Spare parts and finished

goods

To finance investments in Current Assets for achieving the growth target.

To incur day-to-day expenses and overhead costs like fuel, power and office expenses etc.

PROBLEMS ASSOCIATED WITH EXCESS WORKING CAPITAL.

Several dangers are associated with excess working capital, they are,

Excess working capital results in idle funds and there by lowers the profitability of the

business

If the excess working capital takes the form of unnecessary accumulation of inventories,

there may be mishandling wastage, theft etc. of inventories, may reduce the profit of the

firm.

Excess working capital makes the management co placement in there work. This may

contribute to managerial inefficiency.

If the excess working capital takes the firm of huge accounts receivable, the inference is

that the credit policy of the firm is defective and the collection of debts is not efficient.

Further, in such a situation, there may be higher incidence of bad debts, which will

adversely affect the profit of the firm.

When inventories accumulate because of excess working capital, the tendency to

speculative profits grows the tendency to speculative profits may lead to liberal dividend

policy. The liberal dividend policy may make it difficult for the firm to keep up the

dividend, especially when it false to make speculative profits.

PROBLEMS ASSOCIATED WITH INADEQUATE WORKING CAPITAL. Inadequate capital makes bit difficult for the firm to execute the operating plans to achieve

the profit target.

Inadequate capital makes it difficult for the firm to undertake profitable activities.

This will result in stagnation in the growth of the firm.


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When there is shortage of working capital, it will be difficult for the firm to meet the day

to-day commitments. As a result, operation inefficiency may creep in day to day operations

of the firm.

When a firm has shortage of working capital, it may not be able to enjoy attractive credit

terms from the suppliers and creditors.

When a concern fails to meet its day-to-day financial commitments due to inadequate

working capital. There is the danger of the firm losing its reputation.

When a firm suffers from inadequate capital fixed assets may not be utilized efficiently.

This will result in reduction in the return on investments.

RESEARCH METHODOLOGY

Title of the Study:-

A study on Working Capital Management in MTS Gurgaon.


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Statement of the problem:-

The Financial management of a business firm is entirely responsible to ensure its top management

that the Working Capital managed in such a way that it takes care of the needs of day-to-day

operations besides winning over the confidence of its stakeholders. An attempt has been made

through this study as to know, whether the finance managers of MTS were successful in managing

Working Capital effectively.

Research methodology:-

Research methodology is a systematic way for solving any research problem. It is a science of

analyzing how research is done scientifically. It studies the various steps that are generally adopted

by a researcher is studying the research problem. The study has been undertaken for a period of

three years commencing the year 2009-10 to 2010-11. The secondary data is collected by Profit

and Loss Accounts and Balance Sheet of three years of MTS have been properly analyzed by

applying the ratio analysis technique to analyze the working capital portion of the company. So as

to achieve the objectives of the study.

Research Design:-

Working capital management with respect to unit under study has collected from the audit Balance

Sheet and published reports of the company for the last three years. A part of information

pertaining to receivables management was collected through response forms data about the

company.

Sample Size:-

Sample size is used in the analysis of Working Capital Management in three years financial data

from companys books of accounts.

Types of data used:-

It has been carried out by tapping two source of data i.e.

Primary data : By asking question directly to the mentor in the company.


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Secondary data

The secondary data are those which have been collected by some other and which have been

processed. Generally speaking secondary data are information which have been previously

collected by some organization to satisfy its own need. But the department under reference for an

entirely different reason is using it. It is also collected through Internet, Profit and Loss Account

and Balance Sheet of the company.

Data has been gathered from the following sources:

The internal sources of the company

Annual reports of the company for the year 2008-09,2009-10,2010-11

Profit and loss account and Balance Sheet

Manuals provided by the company books and articles

Statistical tools:

1. Percentage Analysis

2. Tables and Bar Graphs

3. Charts

Limitations of the study:-

The span of study is confined to only three years. The comparison of various ratios may not

have the same conditions, which may result in unrelated comparisons.

The other limiting factor being the confidential in nature of certain aspects. The study was

conducted to the extent of information provided.

Time constraint: - It is not possible to study in detail the finance operations of the company.


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Analysis and Interpretation of data

Evaluating the Financial Performance of MTS

Schedule showing the working capital for financial years (2008-09 to 2010-11)Calculation of Net Working Capital[2][3]

Particulars/years 2009 2010 2011

A. Current

Assets

Inventories 8,360 1,153 --

Sundry Debtors 111,261 61,076 138,888

Cash and Bank

balances

12,247,782 5,774,322 22,760,616

Loans and Advances 2,238,406 4,671,532 6,463,649

Other current Assets 107,080 60,900 614,914

Total Current Assets

or Gross Working

Capital

14,712,889 10,568,983 29,978,094

B. Current

Liabilities

and

Provisions

Current Liabilities 3,537,784 7,369,335 8,945,114

Provisions 689,126 1,272,246 1,633,435

Total current

Liabilities

4,226,910 8,641,581 10,578,549

(A-B) Net WorkingCapital

10,485,979 1,927,402 19,399,545

Graph showing the changes in Current Assets and Current Liabilities:-


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Decrease in Working Capital.(2008-09 to 2009-2010)[2][3]


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Particulars/years March 31st 2009 March 31st 2010 Increase in

working

capital

Decrease in

working

capital

A. Current

Assets

Inventories 8,360 1,153 7,207

Sundry Debtors 111,261 61,076 50,185

Cash and Bank

balances

12,247,782 5,774,322 6,473,460

Loans and

Advances

2,238,406 4,671,532 2,433,126

Other current

Assets

107,080 60,900 46,180

Total Current

Assets or Gross

Working Capital

14,712,889 10,568,983 4,143,906

B. Current

Liabilities

andProvisions


Provisions 689,126 1,272,246 583,120

Total current

Liabilities

4,226,910 8,641,581 4,414671

(A-B) Net Working

Capital

10,485,979 1,927,402 8,558,577

Increase in Working Capital.(2009-10 to 2010-2011)[2][3]


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Particulars/years March 31st 2010 March 31st 2011

Increase in

working

capital

Decrease in

working

capital

C. CurrentAssets

Inventories 1,153 -- 1,153

Sundry Debtors 61,076 138,888 77,812

Cash and Bank

balances5,774,322 22,760,616 16,986,294

Loans and

Advances4,671,532 6,463,649 1,792,117

Other current

Assets60,900 614,914 554,014

Total Current

Assets or Gross

Working Capital

10,568,983 29,978,094 19,409,111

D. Current

Liabilities

and

Provisions


Provisions 1,272,246 1,633,435 361,189

Total current

Liabilities8,641,581 10,578,549 1,936,968

(A-B) Net WorkingCapital

1,927,402 19,399,545 17,472,143

Graph showing the changes in Current Assets and Current Liabilities:-


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Interpretation:-

The change in the Working Capital results of the years 2008-09 to 2009-10 and 2009-10 to

2010-11 is in the increase position.

There is a decrease in the Current Liabilities so the Working Capital is in the increasing level.

There is a increase in the current Assets and decrease in the current liabilities so working

capital is not in a good position.

The financial performance of the company is good.

LIQUIDITY RATIOS


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Liquidity of a firm refers to its ability to pay short-term liabilities from the short-term assets.

Current assets are defined as those assets that are convertible into cash within types of liquidity

Ratios are:[7]

1. Current Ratio

2. Acid Test Ratio

3. Cash Ratio

4. Interval measure

5. Net Working Capital Turn Over Ratio

1. CURRENT RATIO:

This is the widely used ratio. It is the ratio of current assets and current liabilities. It shows a firms

ability to cover its current liabilities with its current assets. It is also known as two in one ratio or

working capital ratio. It expresses the relationship between current assets and current liabilities.

It can be expressed as:

Current ratio = Current assets/Current liability[7]

TABLE SHOWING CURRENT RATIO:[2][3]

Year 2008-09 2009-10 2010-11

Current Assets 14,712,889 10,568,983 29,978,094

Current Liability 4,226,910 8,641,581 10,578,549

Current Ratio 3.48:1 5.22:1 2.83:1


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Analysis on current ratio: From the above table and graph it can be analyzed that in 2008-09 it

was 3.48 and in 2009-10 it has increased to 5.22 and again in 2010-11 it has decreased to 2.83.

Interpretation on Current ratio: The ideal current ratio is 2:1. Current ratio indicates the

companys present financial position. In the year 2008-09 the current ratio was 3.48 this is a

healthy sign for the company and where as in 2009-2010 it has increased to 5.22 which is again

going in the right direction and in 2010- 2011 it has decreased eventually to the level of 2.83 but

still it has the value above the ideal hence financial position is healthy.

2. ACID TEST RATIO:


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This ratio tries to overcome the defect of the current ratio. This ratio considers the qualitative

aspects of the current assets. It projects relatively clear picture than the current ratio. This

distinguishes the relative liquidity of the different current assets. This is called quick ratio, as it is a

measurement of a companys ability to pay off its current liabilities. The acid test ratio is the ratio

of quick current assets and quick current liabilities as:

Acid Test Ratio = (Currents assets Inventories)/ Current Liabilities[7].

TABLE SHOWING ACID TEST RATIO:[2][3]

Year 2008-09 2009-10 2010-11

Current Assets 14,712,889 10,568,983 29,978,094

Inventory (8,360) (1,153) (0)

Total 14,704,529 10,567,830 29,978,094

Current liabilities 4,226,910 8,641,581 10,578,549

Acid Test Ratio 3.48:1 1.22:1 2.83:1


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Analysis on acid test ratio: From the above table and graph it can be analyzed that in 2008-09 it

was 3.48 and in 2009-10 it has reduced to 1.22 and in year 2010-11 it has increased to 2.83.

Interpretation on Current ratio: An ideal current ratio would be 2, indicating that even if the

current assets are to be reduced by half, the creditors will be able to able to get their money in full.

In the above table and graph we can see that in year 2009-10 the ratio was not up to the mark but it

has again reached to satisfactory value in the year 2010-11 with the value 2.83.


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3. CASH RATIO: The cash ratio measures the extent to which a business could quickly cover

short-term liabilities, and therefore is of particular interest to short-term creditors. A ratio of 1.0

would indicate that all current liabilities would be covered at any average point in time by cash and

marketable securities that could be readily sold and converted to cash. A ratio of less than 1.0

would mean that other assets, such as accounts receivable or inventory, would have to be

converted to cash to cover short-term obligations. A ratio of greater than 1.0 means that there is

more than enough cash on hand.

Cash ratio = (Cash + Marketable securities)/Current liabilities[7]

TABLE SHOWING CASH RATIO:[2][3]

Year 2008-09 2009-10 2010-11

Cash + Marketable

securities12,247,782 5,774,322 22,760,616


Cash Ratio 2.89 0.67 2.15


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Analysis on cash ratio: From the above table and graph it can be analyzed that in 2008-09 it was

2.89 and in 2009-10 it has reduced to 0.69 and in year 2010-11 it has increased to 2.15.

Interpretation on Current ratio: A ratio of 1.0 would indicate that all current liabilities would be

covered at any average point in time by cash and marketable securities that could be readily sold

and converted to cash. A ratio of less than 1.0 would mean that other assets, such as accounts


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receivable or inventory, would have to be converted to cash to cover short-term obligations. A

ratio of greater than 1.0 means that there is more than enough cash on hand. Here in year 2008-09

the value is quite higher than 1 that is 2.89 but it has reduced to 0.69 in 2009-10, it means they may

have convert receivable or inventory into cash to cover short-term obligations. In year 2010-11 it

has again reached to 2.15 which means that they have more cash in hand.

4.INTERVAL MEASURE: A calculation to measure the approximate numberof days

a company could operatesimply on the cash it currently has on hand. It is equal to quick

assetsdivided by daily operating expenses, and the valueit returns is the average number of days

that company could use those assets to meet all its expenses. The interval measure is similar to

both the current ratio and the quick ratio, in that it gives an idea of how easily a company could

fulfill its obligations. The interval measure is sometimes preferred to the otherratios because it

returns an approximation of the actualnumber of days, as opposed to the other ratios, which

just return a value that indicates the easeof making thepayments.

The formulae for Interval Measure can be written as:

Interval measure = (Current assets - Inventory)/average operating expenses[7]

Here average daily operating expenses will be equal to the cost of goods sold plus selling,

administrative and general expenses less depreciation.

Table showing Interval measure.[2][3]

Year 2008-09 2009-10 2010-11

Current Assets 14,712,889 10,568,983 29,978,094

Inventory (8,360) (1,153) (0)

Average Operating

Expense

2,376,612 11,100,072 20,128,461

Interval measure in

day (*360 days)

6.19*360 = 2229 days 0.95*360 = 342 days 1.49*360 = 537days
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Analysis on Interval Measure: From the above table and graph it can be analyzed that in 2008-09

it was 2229 days and in 2009-10 it has reduced to 342 days and in year 2010-11 it has increased to

537 days.


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Interpretation on Current ratio: Ideally higher value is shows healthier condition of the MTS

than lower. Here in year 2008-09 the value is 2229 days which is quite well condition of any

company but it has reduced to 342 days in 2009-10 which is quite lower than the earlier year but in

year 2010-11 it has again reached to 542 days which is quite satisfactory.

5. NET WORKING CAPITAL RATIO: The difference between current assets and current

liabilities excluding short-term bank borrowing is called Net Working Capital (NWC). NWC is

sometimes used as a measure of a firms liquidity.

This ratio is calculated as follows:

NWC Ratio = Net Working Capital(NWC) / Net Assets(NA)[7]

TABLE SHOWING NET WORKING CAPITAL RATIO:[2][3]

Year 2008-09 2009-10 2010-11

Net Working Capital 10,485,979 1,927,402 19,399,545

Net Assets 14,712,889 10,568,983 29,978,094

NWC Ratio 0.71 0.18 0.65


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Analysis on NWC Ratio: From the above table and graph it can be analyzed that in 2008-09 its

value is 0.71 and is reduced to 0.18 in next year that is 2009-10. But it again reach to 0.65 in 2010-

11.


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Interpretation on Current ratio: It is considered that between different years the year having

larger NWC has the greater ability to meet its current obligations. Here in year 2008-09 the

financial year was good in all respond to the obligations. The power is reduced in 2009-10 to 0.18

quite less than the earlier year, but it has again reached to a satisfactory value in 2010-11 that is

0.65 which can be considered as satisfactory.


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Summary of Findings

On the basis of Analysis and Interpretation the following findings have come to light.

Growth of Working Capital is volatile year to year it is average sign of the industry.

In the year 2008-09 the current ratio was 3.48 this is a healthy sign for the company and

where as in 2009-2010 it has increased to 5.22 which is again going in the right direction

and in 2010- 2011 it has decreased eventually to the level of 2.83 but still it has the value

above the ideal hence financial position is healthy.

It is considered that between different years the year having larger NWC has the greater

ability to meet its current obligations. Which is there in financial year 2010-11.

There is free communication between staff and staff to top level managers.

The company is gradually developing. There is no consistency in earning profit.

Compare to the above factors in spite of the loss for the year 2009-10, 2010-11


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Suggestions:-

The company should take effective steps to increase the profit, which is helpful for its future

growth and expansion.

The company should try to minimize the operating expenses which enable the company to savelots of money in order to increase Gross profit.

Company must try to control the indirect costs like manufacturing expenses and should reduce

the wastages.

Company enjoying gradual increase in sales but still it has to implement management

techniques and marketing techniques to maximize the sales.


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Conclusions:-

The study was undertaken to analyze the financial statements and financial performance and to

suggest the measures to improve the current performance.

The organization should take proper steps to increase the sales, which is helpful for itsupcoming growth and expansion.

Liquidity position of the company is deposited compared from Current Ratio to Liquidity

Ratio. This shows the excess of idle funds in the company i.e., company is having more

stock which is ideal. So, the company should make the great attempts to make use of

Current Assets more effectively.


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References

[1]. 14th Annual Report for 2008-09

[2]. 15th Annual Reports for 2009-10

[3]. 16th Annual Report -2010-2011[4]. MTS in the News - 14th Jan 2012 to 20th Jan 2012

[5]. MTS in the News - 21st Jan 2012 to 27th Jan 2012

[6]. MTS in the News - 30th December 2011 to 6th January 2012

[7]. Financial Management book by I. M. Pandey (financial statement analysis..liquidity ratio

page584)

[8]. Financial Management book by I. M. Pandey (financial statement analysis..concepts of

working capital page648)

[9].http://mtsindia.in/ (official website of MTS)
http://mtsindia.in/%20(officialhttp://mtsindia.in/%20(officialhttp://mtsindia.in/%20(official

working capital management of mts gurgaon

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