TABLE OF CONTENT

CERTIFICATE
DECLARATION
ACKNOWLEGEMNET
LIST OF ABBREVIATION

1. INTRODUCTION (WORKING CAPITAL) ------------------------- 7-34

1.1 Nature and Scope --------------------------------------------------------- 7

1.3 Concept of working capital in Net and Gross ------------------------- 7-9
1.4 Component of Working Capital ----------------------------------------- 9
1.5 Why it is so important ---------------------------------------------------- 9
1.5 Operating Cycle ----------------------------------------------------------- 11
1.5 Optimal level of Working Capital -------------------------------------- 11-12
1.6 Techniques of determining Quantum of Working Capital ---------- 12-13
1.7 Objective of Working Capital -------------------------------------------- 14
1.8 Models of Working Capital -------------------------------------------------15-30
1.9 SMEs in India ------------------------------------------------------------- 31-32
1.10 SMEs Loan ---------------------------------------------------------------- 32-33
1.11 Working Capital Loan --------------------------------------------------- 33-34

2. LITERATIRE REVIEW ------------------------------------------------- 35-40

3. RESEARCH METHOLOGY-------------------------------------------- 41-43

3.1 Introduction --------------------------------------------------------------- 41

3.2 Scope the study ----------------------------------------------------------- 42
3.3 Objective of the study ---------------------------------------------------- 42
3.4 Research Design -----------------------------------------------------------42
3.5 Sampling Size ------------------------------------------------------------- 42
3.6 Targeting Population ----------------------------------------------------- 42
3.7 Data Collection --------------------------------------------------------- 43

4. DATA ANALYSIS AND INTERPRETATION---------------------- 44-70

4.1 Data analysis of questionnaire ----------------------------------------- 44-61
4.2 Data analysis of questionnaire ------------------------------------------ 62-70
5. FINDINGS, LIMITATION AND SUGGESTION -------------------- 71-74
5.1 Suggestion --------------------------------------------------------------- 71
5.2 Limitation --------------------------------------------------------------- 72
5.3 Findings ------------------------------------------------------------------- 73
5.4 Conclusion ---------------------------------------------------------------- 74
 CHAPTER - I

INTRODUCTION
Working Capital is the portion of total capital needed to keep a company firm
operating. To put it another way, working capital refers to the sum of money needed
to finance a company regular business activities. In this view, working capital is
regarded to be in the form of ideal cash, which is immediately usable in the short term.
This is not always the case, and it is not same to maintain all of the working capital in
idle cash form. It may take the shape of near-cash assets like bank deposits, customer
receivables, inventories, etc., which may be converted into cash quickly and with little
loss of time or value. Working capital is therefore a worry.
Working capital, also known as net working capital, is defined by the American
institute of Certified Public Accountants in the United States as “the relatively liquid
portion of total enterprise capital that serves as a margin or buffer for maturing
obligations within the normal operating cycle of the business and is represented by the
excess of current assets over current liabilities.”

Nature and Scope of Working Capital Management

The principle of working capital and the associated working capital management
components are covered in this chapter. Various areas of working capital management
has been examined in the context of the SMEs later in the chapter.

Concept of Working Capital in Net and Gross

Working Capital is divided into two categories: gross and net.
• The investment in current assets by the company is referred to as gross working
capital. In an accounting year (or operational cycle), current assets are those that can
be converted into cash. These assets include cash, short term securities, Debtors, Bill
receivables, Shares, and accounts receivable(inventory).
• The difference between current assets and current liabilities is referred to as net
working capital. Current liabilities include creditor’s (account payable) claims, bills
payable, and unpaid expenses that are scheduled to become due for payment within
the current accounting year. There are two possible values for net working capital.
When current assets are greater than current liabilities, a positive net working capital
will result. When current obligations exceed current assets, there is negative net
working capital.
From a managerial perspective, the two ideas of working capital—gross and net—are
not mutually exclusive; rather, they are equally important. The gross working capital
principles concentrate on two facets of managing current assets: (A) How can I invest
in current assets most effectively? (B) How ought current assets to be financed?
The excessive and inadequate investment in current assets should be avoided while
determining the appropriate level of current asset investment. Current asset
investments should be sufficient for the company firm's needs, neither more nor less.
The firm's profitability is harmed by excessive investment in current assets because
idle investment yields nothing. On the other side, insufficient operating capital can
pose a hazard to due to its inability to fulfil its current obligations, the company lacks
solvency. It should be understood that the company's needs for working capital may
change as business activity changes. This could frequently result in a surplus of
working capital shortages. The management should move swiftly to take appropriate
action and balances.
Another component of gross working capital suggests that finding money to finance
current assets is necessary. Quick finance arrangements should be formed whenever a
demand for working capital funds emerges because of an uptick in business activity or
for any other reason.
The qualitative idea is called net working capital. It shows the firm's liquidity position
and makes an inference about how much of the company's working capital
requirements could be covered by long-term sources of funding. Current assets should
be enough greater than current liabilities to serve as a margin buffer for commitments
that will mature within a firm' normal operating cycle. Short-term creditors always
want a corporation to keep the right assets at a greater level than current liabilities in
order to safeguard their interests. However, while calculating the level of current
assets in relation to current obligations, the quality of the current assets should be
taken into account. A precarious liquidity position puts the company's solvency at risk
and renders it unsound.

Fixed Working Capital and Variable Working Capital

Typically, a business needs two type of working cash.
1. Consistent, regular, or fixed working capital
2. Variable, seasonal, or unique working capital that is temporary
There are numerous additional types of working capital, including the following:
• Working capital on the balance sheet
• Working capital in cash
• Working capital deficit
• CONSISTENT, REGULAR, OR FIXED WORKING CAPITAL: No matter how
business activity changes, fixed working capital represents the absolute minimum
investment in working capital. This level of net working capital, sometimes referred to
as permanent working capital, has never been reached on any day of the fiscal year.
Current assets minus current liabilities is referred to as net working capital (NWC).
The features of permanent working capital are as follows:
a) It continuously switches between different assets while staying within the
operational framework.
b) The time factor is used to categorise it.
c) It also gets bigger as business operations expand.

• TEMPORARY, VARIABLE SEASONAL OR SPECIAL WORKING CAPITAL:

Its alternate name, variable working capital, refers to the additional funding a
company need over and above its permanent equivalent. It has to do with how much a
corporation produces. Working capital needs may change throughout the year due to
fluctuations in sales and output.
The following traits describe temporary working capital:
a) It is not always employed for financial benefit, however it may switch from one
asset to another.
b) It is especially well suited to a seasonal or cyclical industry.
Seasonal and special working capital are further divisions of the variable working
capital.
 SEASONAL WORKING CAPITAL: This is a reference to the extra operating
capital that a firm requires during the busiest time of the year. Even borrowing
money may be necessary for a business to cover its working capital needs.
Such a working capital specifically satisfies the needs of seasonal businesses.
 SPECIAL WORKING CAPITAL: The increase in temporary working capital
caused by a one-time event that would not typically occur is known as special
working capital. It is impossible to predict and typically only happens
infrequently.
COMPONENT OF WORKING CAPITAL
Knowing the makeup of working capital is essential for effective working capital
management. An organization's operating capital generally consists of:
A. CURRENT ASSETS INCLUDE:
• Cash and Bank Balances
• Marketable Securities
• Marketable Securities
• Book Debts and Advances.
• Inventories (Raw materials, Packing materials, Work-in-Process Finished
goods, Spares & Consumables etc.)
B. CURRENT LIABILITIES INCLUDE:
• Trade Creditors
• Short term Borrowings like bank loans and pubic deposits
• Provisions like tax provisions and other current provision
C. NON-WORKING CAPITAL COMPONENTS
• For instance, unused inventory, bad debts, prepayable bills, etc. It is important
to regularly identify the non-working capital components of total working
capital and take steps to reduce them.

WORKING CAPITAL: WHY IS IT IMPORTANT

Operating costs and urgent demands are covered by working capital. Even when faced
with cash flow issues, a business can continue to pay its staff, suppliers, and other
debts like taxes and interest if it has enough working capital.
Working capital can also be utilised to finance company expansion without taking on
debt. If the business does need to borrow money, being able to show that it has a
healthy working capital position may help it become more credit-worthy.
The objectives for finance teams are to: have a clear understanding of the amount of
cash on hand at any one moment; and collaborate with the business to keep enough
working capital to cover liabilities, plus enough wiggle room for expansion and
contingencies.
OPERATING CYCLE
There is usually a lag in a firm between the sale of items and the cash receiving. This
period of time is referred to as an Operating Cycle in technical jargon. To continue its
sales activity at this time, a company needs working capital.
An operating cycle is the period of time that begins with the purchase of commodities
or raw materials and ends with the realisation of sales. The type and duration of an
operational cycle differ from one company to the next depending on the size and
nature of the business.
The operation cycle of a manufacturing company (SMEs) is the amount of time
needed to finish the following series of action:
• The transformation of money into raw commodities.
• Transforming basic supplies into active projects.
• Transforming unfinished efforts into final products.
• Completed items are transformed into accounts receivable.