Case Study on Working Capital Mangement

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St. Kabir Institute of Professional Studies

Aries Dyes and Intermediates Limited: Managing the Working Capital (A) The results are out! Mr. Suresh Agrawal the V.P. of Aries Chemicals Ltd. is very happy with performance of the company compared to the last year. There is a year on year growth for the company and the sales and profits of the company are showing a bullish trend. He was discussing the results of the company and was planning for the next year fund management with Mr. Mitesh Panchal Sr. Manager (Accounts & Finance) and some issues regarding the working capital cropped up, they were really worried about the piling up of Inventory and Debtors Receivable Period. Though the company showed good profitability and sales compared to the previous year 2007-08 but the Inventory and debtors piled up hindered the performance of the company. Aries Chemicals Ltd is a US $ 260 million Ahmedabad based company initiated in the year of 1977. It was together promoted by Mr. Soparkar and Mr. Jayanti Patel to manufacture Direct Turquoise Blue along with Reactive Turquoise Blue. Today the Aries Chemicals has 18 plants spread over 370,000 square meters of land and is equipped with the latest machinery to manufacture a wide range of dyestuffs, pigment powders and dye intermediates. When the V.P and the Sr. Manager were discussing the issues regarding the future fund allocation, the new management trainee came into the cabin of V.P. and gave some information about the Debt collection and it was seen that there were three parties whose dues were yet to be received from the past three years. The amount accumulated from those three debtors was Rs.2.5 crore. Mr. Suresh Agrawal talked about the financial performance of the C.Y. 2008-09 to that trainee and gave him the work to present the information and make an analysis of the data in the Board meeting which was scheduled after one week. Mr. Suresh Agrawal gave him all the information which he required and asked him to report within two days. The management trainee accepted that responsibility and headed towards the new work which was assigned to him. The trainee came with the following information and he emphasised mainly on the Inventory Management and the Debtors collection Period. Sales: The Company deals in the export and the local market, after the recession company’s export sales are declining whereas the local sales are increasing year on year. The sales for the current year were around Rs.155 crores and with that the company’s profitability was also showing an upward trend which was a good sign for the company. The expenditures of the company namely the Operating, Administrative and the Selling were showing the same trends compared to the previous years. The combination of Cash: Credit sales are 20:80.The figures of the sales and profits are shown in the (Exhibit 1). Inventory Management: The term inventory is used to designate the aggregate of those items of tangible assets which are a.Finished goods (saleable)

b.Work-in-progress (convertible)
c.Material and supplies (consumable)
In company there should be an optimum level of investment for any asset, whether it is plant, cash or inventories. Again inadequate disrupts in production causes losses in sales. Efficient management of inventory should ultimately result in wealth maximization of owner’s wealth. It implies that while the management should try to pursue financial objective of turning inventory as quickly as possible, it must ensure that there are sufficient inventories to satisfy production and sales demand. The company is producing more than 200 products in chemicals with more than 1000 variants of it. For e.g.: K Acid is one type of product and K Acid 125%, 135%, 150% etc. are its variants. There were two items in the inventory at the end of the year which was stocked in anticipation of the price increase, H Acid 100 tonnes and K Acid 130 tonnes. The company...
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