Working capital direction refers to all direction determinations and actions that normally influence the size and effectivity of the on the job capital. The basic aim of working capital direction is to supply equal support for the smooth operation of the normal concern operations of any firm/company. The consequences of the analysis show that net working capital of the sample houses have grown quickly and got doubled in the several clip period. These little houses are holding a sound working capital ratio in the survey period. The highest portion of entire current assets has been contributed by stock and debitors. It was observed from the analysis of that a really high proportion of long term financess are being used to finance current assets.
Working capital direction is a really important country of fiscal direction patterns. Working capital can be viewed as the sum of capital required for the smooth and uninterrupted operation of the normal concern operations of a firm/company ranging from the procurance of natural stuffs, change overing the same into finished merchandises for sale and recognizing hard currency along with net incomes from the histories receivables that arise from the sale of finished goods on recognition. It includes all direction determinations and actions that normally influence the size and effectivity of the on the job capital. It is concerned with the most effectual pick of working capital beginnings and the finding of the appropriate degrees of the current assets and their usage. It focuses attending to the managing of the current assets, current liabilities and the relationship that exists between them. So we can state that it is the direction of a house ‘s liquid assets viz-cash, marketable securities, histories receivable and stock lists. This is one of the countries which are largely ignored in little sector. This research paper focuses on cognizing the working capital direction in little graduated table industries by analysing the constituents of current assets and current liabilities. Growth tendencies have been shown with the aid of indices.
2. Aims of the Study
The survey has been conducted with two wide aims:
To cognize about assorted constituents of current assets and current liabilities of little graduated table industries in Haryana ;
To analyze the tendencies in working capital demands of SSIs and to follow the causes responsible for it.
3. Methodology
Scope of the survey: – In footings of geographical country, the range of the survey was limited to the little graduated table endeavors located in Haryana State. The survey period belong to old ages runing from 2003-04 to 2007-08. The information covers 6 industries i.e. Export and Import, Steel and Metal, Paper and Printing, Polymers, Textiles and Pharma.
Beginnings of informations: -To achieve the aims of the survey, secondary beginnings of informations have been used. The major beginnings of secondary informations include the official records of Haryana Financial Corporation ( HFC ) and Haryana State Industrial Development Corporation ( HSIDC ) , Chandigarh and Panchkula. HFC and HSIDC emphasize the borrowers to subject their one-year histories on a regular basis so as to supervise the refunds of their loans. Besides the SSIs were contacted personally to roll up the secondary informations from their books of histories.
Sample size and design ; – A sample of 50 little scale units had been taken from the list of borrowers of HFC and HSIDC for the intent. Simple random sampling technique has been used for the choice of sample. The sample screens every bit many as 13 territories of Haryana viz. Hisar, Sonipat, Panchkula, Chandigarh, Gurgaon, Faridabad, Rohtak, Bhiwani, Jhajjhar, Jind, Ambala, Karnal and Fatehabad.
Datas Analysis: – The information has been presented in the signifier of tabular arraies. Percentage and index methods have been applied for the analysis.
Reappraisal of Literature
Very few surveies have been done to cognize the on the job capital direction in little graduated table industries. Review of such related surveies has been presented as under:
Khandelwal ( 1985 ) investigated the on the job capital procedure and patterns among 40 little graduated table industries in the province of Rajasthan between 1975-76 and 1979-80. The survey revealed that the direction of receivables was extremely uneffective and disorderly. It was found that measures receivables constituted every bit much as 50 per centum of entire current assets foregrounding the illness in the Jodhpur industrial estate, the survey attributed the chief ground to the inefficient direction of working capital. The survey besides showed that the enterprisers had to be educated on the constructs of working capital direction.
Hossain and Akon ( 1997 ) analyzed the funding of working capital of Bangladesh Textile Mills Corporation ( BTMC ) . Net working capital in BTMC remained negative throughout the period of survey. Current liabilities were found to be 1.2 to 2.7 times larger than current assets demoing that a big sum of short term finance was used in funding fixed assets in add-on to financing current assets to the extent of 100 per centum. Such an attack had aggravated the job of hapless profitableness of the corporation, besides increasing the hazard of fiscal insolvency. Among the assorted constituents of current liabilities, bank loan accounted for a prevailing portion ( 59-81percent ) of entire current liabilities ( 5-19 per cent ) , trade recognition ( 3-21 per cent ) and revenue enhancement proviso ( 4-13 per cent ) . The of import ground for high per centum of bank finance was its easy handiness under hard currency recognition installations. They concluded that unsound on the job capital funding policy is at the bosom of the liquidness jobs of BTMC.
Peel and Wilson ( 1996 ) indicated that a comparatively high proportion of little houses in the sample claimed to utilize quantitative capital budgeting and working capital techniques, and to reexamine assorted facets of their companies ‘ working capital. Firms which had been active in footings of cut downing stock degrees or the debitors ‘ recognition period on norm, tended to be more active in regard of working capital direction patterns.
The survey undertaken by ( Peel et al. , 2000 ) revealed that little houses tend to hold a comparatively high proportion of current assets, less liquidness, exhibit volatile hard currency flows, and a high trust on short-run debt. Furthermore, Howorth and Westhead ( 2003 ) suggested that little companies focus merely on those countries of working capital direction where they expect to better fringy returns. Kannadharan ( 2007 ) concluded that uneffective direction of working capital is one of the of import factors doing industrial illness. By utilizing the information available in the one-year studies for the period from 1998-99 to 2004-05 of Titan Industries Limited, he found that the liquidness place of this company was good and managed efficaciously.
GarcA±a-Teruel and MartA±nez-Solano ( 2007 ) analyzed the consequence of working capital direction on the profitableness of a sample of little and moderate-sized ( SMEs ) Spanish houses. Analysiss carried out confirm the of import function of working capital direction in value coevals in little and moderate-sized houses. Padachi et Al. ( 2008 ) examined the structural differences in working capital and the funding form of 58 little fabrication houses, runing in five industry groups for the period 1998-2003. It was found that the stock degree and trade debitors ‘ history for 80 per centum of the short-run resources tied up in working capital. The survey besides showed an increasing tendency in the short-run constituent of working capital funding. While the short-run financess in peculiar trade recognition and other payables, have financed the major portion of the on the job capital, the per centum of long-run financess used to finance the working capital has declined systematically during the same period. It was besides found that short-run bank recognition plays a important and ruling function as a major external beginning of funding working capital demands. It ranges from 25 per centum to 32 per centum. This over-concentration on short-run financess is a world of the SMEs as they frequently faced troubles in raising finance to back up their concern activities.
Consequences and Discussion
Assorted constituents of current assets and current liabilities have been worked out for the period under mention to analyze the tendency of working capital. Tables 1 through 6 possess the information sing tendencies of working capital.
Sized Current Assets and Liabilities- Table 1 discerns the tendencies in current assets, current liabilities and net working capital for the sample houses along with the ratio of current assets to current liabilities over 5 old ages period.
Table 1: Tendencies in Current Assets, Current Liabilities and NWC for the period 2003-04 to 2007-08
Year
Current Assets Rs. In hundred thousand
Current Liabilities Rs. In hundred thousand
Net Working Capital Rs. In hundred thousand
CA/CL
2003-04
31766.28 ( 100 )
19294.91 ( 100 )
12471.38 ( 100 )
1.646
2004-05
34790.23 ( 110 )
17044.47 ( 88 )
17745.76 ( 142 )
2.041
2005-06
35472.92 ( 112 )
17351.60 ( 90 )
18121.32 ( 145 )
2.044
2006-07
41213.70 ( 130 )
16914.96 ( 88 )
24298.74 ( 195 )
2.436
2007-08
44556.42 ( 140 )
17340.15 ( 90 )
27216.27 ( 218 )
2.569
Beginning: Secondary informations from HFC and one-year studies
Note: Figures in brackets represent growing index by taking 2003-04 as base period
It can be observed from the tabular array that current assets of the sample houses are turning quickly from twelvemonth to twelvemonth. The degree of current assets which stood at Rs. 31766.28 hundred thousand in 2003-04, rose to Rs. 44,556.42 hundred thousand in 2007-08. This shows 40 per centum growing during the survey period. On the other manus current liabilities indicated fluctuations in these 5 old ages. Overall tendency of entire current liabilities had been negative. Entire current liabilities of sample houses which stood at Rs. 19,294.91 hundred thousand in 2003-04 decreased to a degree of Rs. 16,914.96 hundred thousand in 2006-07 which shows a ruin of 12 per centum merely in 4 old ages. Net working capital of the sample houses has grown quickly and got doubled during the survey period.
In add-on to the simple clip series analysis, current ratio ( which is besides known as working capital ratio ) is calculated by spliting current assets by current liabilities. The current ratio is therefore, a step of the house ‘s short term solvency. It indicates the handiness of current assets in rupees for every one rupee of current liability. A ratio of greater than one means that the house has more current assets than current claims against it. The ideal current ratio is 2:1 in normal conditions. The current ratio as shown in table 1 has been runing between 2 to 2.5 during the last four old ages. So we can reason from the above tabular array that these little houses are holding a sound working capital place.
After analysing the tendencies in current assets, current liabilities and net working capital, component wise analysis of entire current assets and current liabilities was carried out as it enables us to follow out assorted causes responsible for the on the job capital funding of little houses. Table 2 gives an component wise analysis of gross working capital, indicates clearly that there are 5 constituents of gross working capital. Stock ( stock lists ) and debitors ( receivables ) constitute the largest portion of current assets. On an mean 64 per centum of current assets was in the signifier of stock and debitors. These two constituents contribute every bit ( i.e. 32 % each ) .
Table 2: Component of Gross Working Capital with Respective ( % ) of Sample Firms ( in Rs. hundred thousand )
Components
2003-04
2004-05
2005-06
2006-07
2007-08
Average
Stock
11404.11
( 35.90 )
11620.71
( 33.40 )
11750.4
( 33.12 )
11912.02
( 28.90 )
11915.22
( 26.74 )
11404.11
( 35.90 )
Debtor
11292.41
( 35.54 )
12283.28
( 35.30 )
12000.23
( 33.82 )
11405.72
( 27.67 )
12076.33
( 27.10 )
11292.41
( 35.54 )
Cash & A ; Bank
5396.24
( 16.98 )
6098.07
( 17.52 )
6057.11
( 17.07 )
7293.61
( 17.69 )
9548.76
( 21.43 )
5396.242
( 16.98 )
Advances & A ; Prepaid Exp.
3657.06
( 11.51 )
4769.01
( 13.70 )
5657.12
( 15.94 )
10546.48
( 25.58 )
10814.76
( 24.27 )
3657.06
( 11.51 )
Other C.A.
16.46
( 0.051 )
19.16
( 0.055 )
8.07
( 0.022 )
55.86
( 0.135 )
201.35
( 0.451 )
16.46
( 0.051 )
Entire Current Assets or GWC
31766.28
( 100 )
34790.23
( 100 )
35472.92
( 100 )
41213.70
( 100 )
44556.4
( 100 )
31766.28
( 100 )
Beginning: Secondary informations from HFC and one-year studies
These findings are in line with determination of Padachi et al. , 2008. However, during the last five old ages period, the portion of investing in stocks and debitors has registered a important diminution. Cash and bank balance is one of the liquid parts of gross working capital, which shows prompt liquidness within the houses. In a comfortably financed concern, hard currency and bank will likely run ( non less than ) 5 per centum to 10 per centum ( Singh, 2008 ) . It can be seen from the tabular array that the sample houses are holding, on an norm, 18 per centum of gross working capital as hard currency and bank balance. This shows a really strong liquid place of little houses as against general perceptual experience. Progresss and prepaid disbursals besides constitute an of import component of working capital ( 18 % ) on an norm and the same has increased from 12 per centum in 2003-04 to 25 per centum in 2007-08.
Worsening stock list proportion in the current assets followed by addition in proportion of hard currency and bank balances is a healthy symptom in footings of liquidness. But we know liquidness and profitableness are two major aims of working capital direction, really high liquidness of sample houses shows a defensive policy and obstruction of financess. This can take to inefficiency and decreased profitableness in future.
Deciding the size and agencies of financing the current assets is a uninterrupted challenge to fiscal directors of proprietor directors of little houses. Table 3 shows the tendencies and composing of current liabilities and the funding forms of working capital for the sample houses.
Table 3.Composition of Current Liabilitiess: Beginnings of Working Capital ( In Rs. hundred thousand )
Components
2003-04
2004-05
2005-06
2006-07
2007-08
Average
Trade Credit
9877.63
( 51.19 )
7441.48
( 43.65 )
7826.73
( 45.10 )
7826.84
( 46.27 )
8655.06
( 49.91 )
8325.55
( 47.33 )
Payables & A ; Out.Lia.
6503.47
( 33.70 )
6190.88
( 36.32 )
6561.79
( 37.81 )
6279.23
( 37.12 )
6147.49
( 35.45 )
6336.57
( 36.02 )
Progresss
1956.84
( 10.14 )
2484.34
( 14.57 )
2080.09
( 11.98 )
1920.33
( 11.35 )
1869.61
( 10.78 )
2062.24
( 11.72 )
Commissariats
13.66
( 0.07 )
8.58
( 0.05 )
6.15
( 0.035 )
9.36
( 0.055 )
9.90
( 0.057 )
9.53
( 0.054 )
Other C.L.
943.31
( 4.89 )
919.19
( 5.39 )
876.86
( 5.05 )
879.21
( 5.20 )
658.09
( 3.79 )
855.33
( 4.86 )
Entire Current Liabilitiess
19294.91
( 100 )
17044.47
( 100 )
17351.60
( 100 )
16914.96
( 100 )
17340.15
( 100 )
17589.22
( 100 )
Beginning: Secondary informations from HFC and one-year studies
It can be observed from above mentioned tabular array that trade recognition has kept fluctuating. The tabular array clearly reveals that trade recognition had been the most of import beginning of short term finance for little sample houses. This beginning accounts for 44 per centum to 51 per centum of the entire current liabilities. The 2nd of import beginning of short term finance is payables and other outstanding liabilities. Payabless accounted for 36 per centum of the entire current liabilities. Progresss for short period are the 3rd of import beginning of funding current assets. Commissariats such as proviso for revenue enhancement accounted merely for a negligible portion of entire current liabilities.
Composition of Working Capital Finance- Total current assets minus ‘total current liabilities ‘ represents the ‘working capital spread ‘ . This, as a portion of gross working capital, is being financed through banking finance ( hard currency recognition, overdraft, short term loans ) and the remainder by utilizing long term beginnings.
Table 4: Percentage Composition of Working Capital Finance ( Rs. in hundred thousand )
2003-04
2004-05
2005-06
2006-07
2007-08
Trade Credit
9877.63 ( 31.09 )
7441.48 ( 21.38 )
7826.73 ( 22.06 )
7826.84 ( 18.99 )
8655.06 ( 19.42 )
Payables & A ; Out.Lia.
6503.47 ( 20.47 )
6190.88 ( 17.79 )
6561.79 ( 18.49 )
6279.23 ( 15.23 )
6147.49 ( 13.79 )
Progresss
1956.84 ( 6.16 )
2484.34 ( 7.140 )
2080.09 ( 5.86 )
1920.33 ( 4.66 )
1869.61 ( 4.20 )
Commissariats
13.66 ( 0.04 )
8.58 ( 0.024 )
6.15 ( 0.017 )
9.36 ( 0.022 )
9.90 ( 0.022 )
Other Current Liabilitiess
943.31 ( 2.97 )
919.19 ( 2.64 )
876.86 ( 2.47 )
879.21 ( 2.13 )
658.09 ( 1.48 )
Networking Capital
12471.38 ( 39.25 )
17745.76 ( 51.00 )
18121.32 ( 51.08 )
24298.74 ( 58.95 )
27216.27 ( 61.08 )
Entire Current Assets or GWC
31766.28 ( 100 )
34790.23 ( 100 )
35472.92 ( 100 )
41213.70 ( 100 )
44556.42 ( 100 )
Beginning: Secondary informations from HFC and one-year studies
One really of import point which is traced out from table 4 is the behaviour of net working capital in these little houses in Haryana. The per centum portion of these long term beginnings rose from 39 per centum to 62 per centum over the last 5 old ages. In other words, the pattern of funding working capital from long term beginnings going more popular among little units. It may be attributed to the of all time worsening involvement rates on long-period adoption.
The tabular array 5 shows the overall form of turning indexes of the constituents of working capital. It shows that the current assets are increasing every twelvemonth. Rest of the variables in tabular array are worsening from twelvemonth 2003-04 to twelvemonth 2007-08.
Table 5: Growth Trends of Current Assets and its Other Elementss
2003-04
2004-05
2005-06
2006-07
2007-08
Growth Trend Index
Entire Current Assets
Trade Credit & A ; Payabless
Progresss
Commissariats
Other C.L.
Index: 2003-2007 Base=100
100
110
112
130
140
100
83
88
86
90
100
127
106
98
96
100
63
45
68
73
100
97
93
93
70
Beginning: Secondary informations from HFC and one-year studies
Decision
The consequences of the analysis show that net working capital of the sample houses have grown quickly and got doubled in the several clip period. These little houses are holding a sound working capital ratio in the survey period. The liquidness place of these houses has been found good which carries some advantages and some restrictions excessively. Having extra financess in footings of hard currency and bank implies liquidness of the house but at the other manus it represents the idle funds/resources. These financess might be used to do short term investings so as to increase profitableness of the house. Furthermore, it is found that the highest portion of entire current assets has been contributed by stock and debitors. High degree of stock and debitors once more shows the obstruction of financess which eventually leads to increased cost of capital ( as money is blocked in stock list or receivables we may be forced to borrow short term loans from the market in exigency at higher involvement rates. So this phenomenon eventually leads to high cost of capital and hence reduced profitableness of the house. ) Increasing degree of current assets and diminishing degree of current liabilities besides strengthens the same fact.
It was besides observed from the analysis of that a really high proportion of long term financess are being used to finance current assets. Generally it is expected that little houses have a limited entree to external long term debt and therefore hold to trust on stockholders loan to finance the concern activities. But the consequences reported here reject the old findings ( as discussed in reappraisal of literature ) . There may be certain grounds responsible for high degree of long term finance. First of all we had a big figure of company signifier of organisation in our survey ( Annexure-I ) . Second the aggregation of information has been done from HFC and HSIDC which had the informations of those units which are holding long term loans of immense sums sanctioned from them. Third the mean age of sample houses was about 25 old ages and most of the firms/companies are at a phase of growing or adulthood. These houses are able to acquire long term finance from development Bankss and other private or public sector Bankss easy.
Annexure-I
List of Sample Firms
Sr. No.
Name of the house
Address
1
M/s L & A ; T Overseas Ltd.
Kakroe route, Sonipat
2
Shivani locks limited
Plot no.58-60, Sector27 A Faridabad
3
Toshi Auto Industries pvt. Ltd.
Plot No.-98, Udhyog vihar Phase IV, Gurgaon
4
Usha Fabs
861,876, Phase V, Gurgaon
5
Shivalic Global Ltd.
12/6 Mil Stone, Mathura Road, Faridabad
6
Rexor India Ltd.
Plot No.99, Sector 24, Faridabad
7
Surya Vinayak Industories Ltd
Plot no122, Faridabad
8
Pearl Polymers Ltd.
Plot No. 2 A, Sector- 18, Gurgaon
9
Supar Screws Pvt. Ltd.
Plot no. 30 and 96 Faridabad
10
Orphic Dyeing & A ; Printing Mills Pvt. Ltd.
120-121, Sector 24 Faridabad
11
I.P. Engineering Contract Co. Ltd.
Plot no.879, Phase V, Udhyog Vihar, Gurgaon
12
Panchmukhi Ceramics Pvt. Ltd.
Hisar
13
Aakash Tubes private Ltd.
Narwana, Jind
14
Surya Spinners
Industrial Area, Hisar
15
Amar Alloys Pvt. Ltd.
Hisar
16
Pharma Health India Pvt. Ltd.
Phase V, Udhyog Vihar, Gurgaon
17
Jai Bharat Industries
Plot no. 64, Sector 27 and 28, Hisar
18
Hisar Paper Products Pvt. Ltd.
Plot No. 69, Sector-27-28, Industrial country Hisar
19
Meera Cotspin Pvt. Ltd.
Hansi, GT Road Hansi
20
Kaler Hatchery semen Layers, Farm
Meond Khurd
21
J. S Industories
Hansi
22
Shrinath Polymers
Hisar
23
AMFIL Autotech constituents Pvt. Ltd.
Uklana
24
Parmount abroad Pvt. Ltd.
Hisar
25
Shyam revenue enhancement international Ltd.
Hansi
26
Kim research labs
Kuldeep Nagar Ambala Cantt.
27
M/s Ganpati Polymers, Punchkula
Plot 9, Industrial Area, Phase I, Panchkula, Harayana
28
Jagan tubes Ltd. , Chandigarh
SCF 18-19, Sector 28-C, Chandigarh
29
Chetan Industries Ltd.
Panchkula
30
M/s Lords Fibre,
Ambala
31
Vishwas Extractions Pvt. Limited,
Chandigarh
32
Great Ocean Pvt. Ltd.
Chandigarh
33
Bhatia Agriculture Shop
Camp at Tohana
34
Jagan Nath Bansal
Hisar
35
M/s JMD Polymers
Village- Bhagwanpur, Karnal
36
Subhash Chander & A ; Co.
Camp at Tohana
37
Chandigarh Chemicals
Camp at Tohana
38
M/s Surbhi Medical Agencies Hisar ( Medical )
Jain Gali, Inside Nagori Gate Hisar
39
M/s Jai Santoshi Maa Stone Crusher Khanak ( Crusher )
Village-Khanak ( Bhiwani )
40
Toshi Auto Industries Pvt. Ltd.
Plot No-10, Mathura Road, Faridabad
41
Chaudhary Rice Mills
Camp at Tohana
42
Shree Om Steel
Camp at Tohana
43
M/s Jaganath Bansal
Hisar
44
M/s Surya Vinyak Industries Pvt. Ltd.
Vill- Nayabans, the. Sampla, Rohtak
45
Hanuman Rice Mills
Camp at Tohana
46
M/s Hindustan Industrial Products
118, Sector 27 and 28 Hudaa, Hisar
47
Hindustan Polymer Ltd
118, Sector 27 and 28 Hudaa, Hisar
48
M/s Raman Engineers
Hisar
49
M/s Anil Wooden Industries
Hisar
50
M/s Ess Ess Medical Agency
Sankar market CT Thana Road, Hisar