Working Capital

Topics: Inventory, Milk, Financial ratio Pages: 42 (12753 words) Published: August 20, 2010

The project entitled” A study on liquidity, profitability and risk with regard to working capital management and inventory management at Milma Cattle feed Plant, Pattanakkad” is done to assess the efficiency in managing the inventory, solvency and liquidity position and profitability of the company. Efficient management of working capital is extremely important to any organization. Holding of too much working capital is inefficient and holding too little is dangerous to the survival of the organization. A company can be endowed with assets and profitability but short of liquidity if assets cannot be converted in to cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivables and payables and cash. Inventory control helps to ensure timely availability of materials, better use of financial resources, protecting inventory from losses, provides protection against uncertainties of demand and supply, preparation of accurate material reports and minimize wastages and rate of deterioration 1.2 SCOPE OF THE STUDY

Working capital may be regarded as the life blood of a business. Its effective provision can do much to ensure the success of a business. Its inefficient management can lead not only loss of profit but also to the downfall of business. A study of working capital is of major importance to internal and external analysis because of its close relationship with its close relationship with its current day-to-day operations of a business. Working capital is required to sustain the sales activity. In case adequate working capital is not available for the period the firm will not be in a position to purchase raw material, pay wages and other manufacturing expenses required for goods to be sold. Working capital management is an integral part of overall corporate management. In this highly competitive environment working capital management is one of the most important factors. Such studies can highlight the recent trends that have been incorporated in the industrial financial practice and also enable to make a comparative analysis which the current trends of the management in general to that of existing practices in the organization. Its aim is to assess the working capital position, management of inventory, liquidity position, solvency and profitability of the organization. They are also useful in identifying areas where more focus is required and also provide with opportunity to bench mark successful finance practices with regard to corporate financing. 1.3 OBJECTIVES OF THE STUDY

To study the liquidity, profitability and risk position of Milma Cattle feed plant, Pattanakkad. •To study the working capital management
To analyze the impact of inventories on the liquidity and profitability of the firm. •To study the operating cycle
The period of study is 2004-05 to 2008-09. The project carried out in the Milma cattle feed plant, Pattanakkad, for a period of two months (15-06-2010 to 15-08-2010). 1.5 LIMITATIONS OF THE STUDY

1.Availability of data has been restricted to last 5years of annual reports 2.The study is based on published information only
3.The result of this study is applicable for this company and is not suited to any other company. 1.6 STATEMENT OF PROBLEM
Working capital management is the process of planning and controlling the level and mix of the current assets of the firm as well as financing these assets. Working capital should be optimum to run the business operation in a more effective manner. The excess as well as shortage of working capital is dangerous for any business. Excessive working capital results in idle funds on which no...
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