Financial Analysis on Working Capital Management with

reference to Mentor Infocomm India Pvt. Ltd., Chennai

A PROJECT REPORT

Submitted by

Vengadathri B

(Reg. No.:712200084)

of
Department of Management Studies
in partial of fulfilment for award the degree
of

MASTER OF BUSINESS ADMINISTRATION

Mohamed Sathak College of Arts and Science

Chennai – 600 119

April 2024
 BONAFIDE CERTIFICATE

Certified that this project report titled “Financial Impact Analysis and Strategic
Financial Management in Mentor Infocomm India Pvt Ltd” is the bonafide work
of Vengadathri B (712200084)” who carried out the project work under my
supervision. Certified further that to the best of my knowledge the work reported here
does not form part of any other project / research work on the basis of which a degree
or award was conferred on an earlier occasion on this or any other candidate.

HEAD OF THE DEPARTMENT SUPERVISOR

Dr. Hemalatha Seeram Mr. Srikant Kapoor
Professor & Head Asst. Professor
MS-DoMS MS-DoMS

The Project Viva-Voce Examination is held on _______________

INTERNAL EXAMINER EXTERNAL EXAMINER

 DECLARATION

I, Mr./Ms VENGADATHRI B (712200084) hereby declare that the Project Work titled “Financial
Analysis on Working Capital Management with reference to Mentor Infocomm India Pvt.
Ltd., Chennai” is the original work done by me and submitted to the University of Madras in partial
fulfilment of requirements for the award of Master of Business Administration is a record of
original work done by me under the supervision of Mr. Srikant Kapoor, Assistant Professor,
Mohamed Sathak-Department of Management Studies (MS-DoMS).

(VENGADATHRI B)

Date:

Place:
 ACKNOWLEDGEMENT

First and foremost I would like to thank the Lord Almighty for his presence and immense blessings
throughout the project work.

It’s a matter of pride and privilege for me to express my deep gratitude to the Management –
Mohamed Sathak Trust for the opportunity given to do my MBA program in this prestigious
institution.

I thank Dr. Hemalatha Seeram, Head – Mohamed Sathak - Department of Management

Studies (MS-DoMS) for her constant motivation given in completing the project report.

I my sincere thanks to the company guide Mr. C. Sivakumar – Dupty Manager Operations, as
well as my academic guide, Prof. Srikant Kapoor for their support and guidance in successful
completion of this project report.

I also thank all the faculty members of MS-DoMS, for their expert advice in the preparation of this
project report.

Last but not the least I thank all my family and friends for their support to complete this study.
 TABLE OF CONTENTS

CHAPTER NO. TITLE PAGE NO.

Abstract
List of Tables
List of Figures

1 Introduction
1.1 Industry Profile
1.2 Company Profile
1.3 Objectives of the Study
1.4 Scope of the Study
1.5 Limitations of the Study

2 Review of Literature
2.1 Conceptual and theoretical review
2.2 Research review
2.3 Statement of the problem
2.4 Significance of the study

3 Research methodology
3.1 Methodology adopted / Research Design
3.2 Sources of Data Collection
3.3 Statistical tools adopted

4 Data Analysis and Interpretation

4.1 Data Analysis and Interpretation

5 Conclusion
5.1 Findings
5.2 Suggestions for further study

Bibliography
Appendix A X
Appendix B xii
 ABSTRACT
This project delves into the comprehensive analysis of Mentor Infocomm India Pvt Ltd, a promi-
nent player in the Information Technology & Communication Systems sector. The study encom-
passes an exploration of the company's financial performance, focusing on aspects like working
capital management, profitability-liquidity position, and cash, receivables, and inventory manage-
ment.

The scope of the study spans five years, from 2019-20 to 2023-24, evaluating annual reports for
each year. Adopting various financial concepts and management practices, the study aims to pro-
vide insights into the company's operational efficiency and financial health.

However, the study faces certain limitations, including restricted access to confidential financial
information, reliance on secondary sources, and challenges due to organizational commitments.
Despite these constraints, the project endeavors to offer valuable insights into Mentor Infocomm's
performance and its impact on sales activities.

Through this endeavor, the project contributes to a deeper understanding of the complexities and
dynamics within the Information Technology & Communication Systems sector, providing stake-
holders with valuable insights for informed decision-making and strategic planning.
 LIST OF TABLES
TABLE NO PARTICULARS PAGE NO
4.1 Components of Working Capital during the period 2019-20 to
2023-24
4.2 Statement showing the changes in Working capital for the year
2019-20 and 2020-21
4.3 Statement showing the changes in Working Capital for the year
2020-21 and 2021-22
4.4 Statement showing the changes in Working Capital for the year
2021-22 and 2022-23
4.5 Statement showing the changes in Working Capital for the year
2022-23 and 2023-24
4.6 Table showing Current Ratio
4.7 Table showing Quick Ratio
4.8 Table showing Cash Ratio
4.9 Computation of Net Working Capital Ratio
4.10 Computation of Debtors Turnover Ratio
4.11 Computation of Inventory Turnover Ratio
4.12 Computation of Current Assets Turnover Ratio
4.13 Computation of Working Capital Turnover Ratio
4.14 Statement showing Cash to Current Assets Ratio
4.15 Statement showing Cash to Sales Ratio
4.16 Statement showing Cash to Current Liabilities Ratio
4.17 I Statement showing Inventory to Current Assets Ratio
4.18 II Statement showing Inventory to Total Assets Ratio
 LIST OF FIGURES

FIG. NO. PARTICULARS PAGE NO.

1.1 Company Logo
2.1 Sources of working capital
2.2 Operating Cycle
4.1 Table showing Current Ratio
4.2 Table showing Quick Ratio
4.3 Table showing Cash Ratio
4.4 Computation of Net Working Capital Ratio
4.5 Computation of Debtors Turnover Ratio
4.6 Computation of Inventory Turnover Ratio
4.7 Computation of Current Assets Turnover Ratio
4.8 Computation of Working Capital Turnover Ratio
 CHAPTER – 1
INTRODUCTION

1.1 Industry Profile

Information Technology & Communication Systems Sector

The Information Technology (IT) & Communication Systems sector is a dynamic and rap-
idly evolving industry that plays a critical role in shaping modern businesses and society. It en-
compasses a wide range of products, services, and technologies aimed at facilitating communica-
tion, enhancing productivity, and driving innovation across various sectors.

Key Segments

1. Networking Solutions: This segment includes products and services related to data net-
working, wireless communication, and infrastructure management. It encompasses routers,
switches, access points, and network security solutions designed to ensure seamless con-
nectivity and reliable data transmission.
2. Unified Communication Systems: Unified communication systems integrate various
communication channels such as voice, video, messaging, and collaboration tools into a
single platform. These solutions enhance communication and collaboration among em-
ployees, regardless of their location or device, leading to increased efficiency and produc-
tivity.
3. Security Solutions: With the growing threat of cyber attacks and data breaches, security
solutions are essential for protecting sensitive information and infrastructure. This segment
includes products such as firewalls, antivirus software, intrusion detection systems, and
encryption tools to safeguard against cyber threats.
4. Audio-Visual Solutions: Audio-visual solutions encompass a wide range of products and
services for multimedia communication and presentation. This includes professional audio
 systems, video conferencing equipment, digital signage displays, and projection systems
used for conferences, presentations, and entertainment purposes.
5. Cloud Computing: Cloud computing has emerged as a key enabler of digital transfor-
mation, offering scalable and cost-effective solutions for storage, computing, and software
delivery. This segment includes public, private, and hybrid cloud services, as well as Soft-
ware as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service
(IaaS) offerings.

Market Dynamics

1. Technological Advancements: Rapid advancements in technology, such as artificial in-

telligence, Internet of Things (IoT), and 5G networks, drive innovation and competitive-
ness within the industry, leading to the development of new products and services.
2. Digital Transformation: Organizations across various industries are undergoing digital
transformation initiatives to stay competitive and meet evolving customer demands. This
has resulted in increased demand for IT and communication systems solutions to support
digital business processes and operations.
3. Remote Work Trends: The COVID-19 pandemic has accelerated the adoption of remote
work and virtual collaboration, leading to increased demand for communication and col-
laboration tools, cloud services, and cybersecurity solutions to support remote workforce
management.
4. Regulatory Compliance: Compliance with industry regulations and data privacy laws,
such as GDPR and CCPA, poses challenges for companies operating in the IT & Commu-
nication Systems sector. Compliance requirements influence product development, data
handling practices, and security protocols within the industry.

Future Outlook

The Information Technology & Communication Systems sector is poised for continued growth
and innovation, driven by ongoing digital transformation efforts, technological advancements, and
evolving customer needs. Emerging technologies such as artificial intelligence, edge computing,
and quantum computing are expected to further revolutionize the industry landscape, opening up
new opportunities for growth and development.

The Information Technology & Communication Systems sector is a vital component of the modern
economy, powering digital transformation, innovation, and connectivity across industries. As or-
ganizations continue to embrace technology to drive business success, the demand for innovative
IT and communication systems solutions is expected to remain strong, creating opportunities for
companies to thrive and succeed in the dynamic and competitive marketplace.

1.2 Company Profile

Mentor Infocomm India Pvt Ltd

Figure 1.1

Mentor Infocomm India Pvt Ltd is a leading provider of enterprise solutions, networking, security,
and IT infrastructure management solutions in India. Established in the beginning of 2021, the
company has quickly grown to become a trusted partner for organizations across various indus-
tries. With its headquarters in Chennai, India, Mentor Infocomm prides itself on delivering cus-
tomized and scalable solutions to safeguard the interests and investments of its customers.

Mission: “Safeguarding the interests and investments of our customers” is the core mission of
Mentor Infocomm India Pvt Ltd. The company is committed to providing customized and scalable
solutions in the Information Technology & Communication Systems and Solutions domain, en-
suring the satisfaction and success of its esteemed clients.

Vision: Mentor Infocomm India Pvt Ltd envisions a future where the solutions, consultancy, and
services rendered to its esteemed clients are flawless and make them delighted for having partnered
with the company. The vision emphasizes a commitment to excellence, innovation, and customer
satisfaction in every aspect of the business.

Key Offerings: Mentor Infocomm India Pvt Ltd offers a comprehensive range of solutions and
products, including:

 Data Networking
 IP PBX/Intercom Systems
 Multimedia Projectors
 IP CCTV Security Systems
 Conference Mike Systems
 Professional Audio Systems
 Professional Display
 Videowall Display
 Digital Signage Systems
 Public Address Systems
 Telepresence Systems
 Videoconferencing
 Audio-Visual Integration
 Camcorders/Mixers

Partnerships: Mentor Infocomm India Pvt Ltd collaborates with top-of-the-line product manu-
facturers such as Avaya, Bosch, Panasonic, Samsung, Cisco Systems, and Extron Systems to de-
liver high-quality solutions to its customers. These partnerships enable the company to leverage
cutting-edge technology and innovation to meet the diverse needs of its clientele.

Core Values: The reputation of Mentor Infocomm India Pvt Ltd is built on its core values, which
include:
  Personal and corporate integrity
 Total customer satisfaction
 Onus towards top-quality products and solutions

The company upholds these values in every aspect of its operations, fostering trust, transparency,
and long-term relationships with its customers.

Clientele: Mentor Infocomm India Pvt Ltd serves a wide range of industries, including:

 Educational Institutions
 Banking
 Government Sectors
 Health Sectors
 IT & ITES

The company’s solutions are deployed across diverse sectors, demonstrating its versatility and
expertise in meeting the unique requirements of each industry segment.

Contact Information: Registered Office: 3rd Floor, K.R.J Building, #7, Welder Street, Anna Salai
Chennai 600002, India Email: mentor.infocomm@gmail.com Tel: +91 44 4551 8323 Mob: +91
98400 71540

New Office Address: Mentor Infocomm India Pvt. Ltd., New No.I28/F/A, First Floor,
Murugesan Complex, Greams Road, Thousand Lights, Chennai – 600 006. Tel: +91 44 4770 5770
E-mail: elan@mentorinfocomm.com Mob: +91 98400 71540

CIN No.: U74999TN2021PTC085455

GSTIN: 33AAHCM9079RIZI

WEB: www.mentorinfocomm.com

Branches: New Delhi, Mumbai, Hyderabad, Bangalore, Kolkata, Coimbatore & Madurai
Mentor Infocomm India Pvt Ltd is a trusted partner for organizations seeking reliable and innova-
tive solutions in the field of Information Technology & Communication Systems. With a commit-
ment to excellence, integrity, and customer satisfaction, the company continues to thrive and ex-
pand its presence in the market, delivering value-driven solutions that empower its clients to
achieve their business objectives.

1.3 Objectives of the Study

 To study the statement of changes in working capital.

 To understand the concept of Working Capital Management.

 To analyze the profitability-liquidity position of the company.

 To examine and evaluate the cash, receivables and inventory management performances.

1.4 Scope of the Study

 Scope of the study includes 15nalyse1515 both gross and net working capital to measure prof-
itability and liquidity.
 The period under focus spans five years from 2019-20 to 2023-24, covering annual reports for
the years 2019, 2020, 2021, 2022, and 2023.
 Adopted concepts involve assessing working capital measures, financial ratios, cash flow
analysis, and management practices.
 Objectives encompass studying changes in working capital, 15nalyse1515 profitability and
liquidity, evaluating management practices, and assessing the impact on sales activities.

1.5 Limitations of the Study

 As most of the financial information was considered confidential, the access to the information
was restricted.

 The results of the study are limited to the available information.

 Due to frequent camps and workload of the staff in the organization much time could not be
spared by them for the project.
 The project is based mainly on secondary sources of information.

CHAPTER – 2
REVIEW OF LITERATURE

2.1 Conceptual and theoretical review

One of the most important areas in the day-to-day management of the firm is the
management of working capital. Working capital management is the functional area of the finance
that covers all the current accounts of the firm. It is concerned with management of the level of
individual current assets as well as the management of total working capital. Financial
management means procurement of funds and effective utilization of these procured funds.
Procurement of funds is firstly concerned for financing working capital requirement of the firm
and secondary for financing fixed assets.

MEANING OF WORKING CAPITAL

Ordinarily, the term “working capital” stands for that part of the capital, which is required
for the financing of working or current needs of the company. Working capital is the lifetime of
every concern. Whether it is manufacturing or non-manufacturing one without adequate working
capital, there can be no progress in the industry.

Inadequate working capital means shortage of raw materials, labor etc., resulting in partial
current assets less current liabilities-has no economic meaning in the sense of implying some type
of normative behavior. According to this line of reasoning, it is largely an accounting artifact.
Working capital management, then, is a misnomer.

The working capital of the firm is not managed. The term describes a category of
management decisions affects specific types of current assets and current liabilities. In turn, those
decisions should be rooted in the overall Valuation of the firm.
DEFINITIONS

According to Western and Brigham, “Working capital refers to a firm’s investment in short
term assets- cash, short term securities, accounts receivables and inventories”.

According to Hoagland, “working capital is descriptive of that capital which is not fixed.
But the more common use of the working capital is to consider it as the difference between the
book value of the current assets and the current liabilities.

CONCEPTS OF WORKING CAPITAL

The term working capital can be used in two different ways: they are

B. Gross Working Capital

The gross working capital refers to investment in all the current assets taken together. The
total of investments in all current assets is known as gross working capital.

2. Net Working Capital

The term net working capital refers excess of total current assets over total current
liabilities. It may be noted that the current assets refers to these liabilities which are payable with
in a period of one year.

TYPES OF WORKING CAPITAL

From the point of view of time, the term working capital can be divided into two categories.

B. Permanent working capital

It is also refers to the hard core working capital. It is the minimum level of investment in
the current assets that is carried by the business at all times to carries our minimum level of its
activities.
2. Temporary working capital

It refers to the part of total working capital which is required by a business over and about
permanent working capital. It is also called variable working capital. Since the volume of the
temporary working capital keeps on fluctuating from time to time according to the business
activities it may be financed from short term resources.

Permanent working capital can be further divided into

1. Regular Working Capital

2. Reserve Working Capital

B. Regular Working Capital

It is the minimum amount of liquid capital needed to keep up the circulation of the capital
from cash to inventories to receivables and again to cash. This would include sufficient minimum
bank balance to discount all bills, maintain adequate supply of raw materials etc..

2. Reserve Working Capital

It is the excess over the needs or regular working capital that should be kept in reserve for
contingencies that may arise at any time these contingencies include rising prices, business
depression, strikes and special operations such as experiments with new products.
COMPOSITION OF WORKING CAPITAL

1.Current Assets:
a. Inventories Raw Materials
Work in progress
Finished goods
Stores and spares
Miscellaneous Goods
b. Receivables Trade debtors
Loans and advances
Other debtor balances
c. Marketable securities Govt securities
Semi-Government securities
Shares, Debenture, etc.,
d. Cash and bank balance Cash in Hand
Cash At Bank
Cash in Transit
2.Current Liabilities:

a. Sundry creditors Interest accused on loan

Advances received from customs
Short term loans from banks
Trade dues and other liabilities
Deposits from public, etc.,
Sources of Working Capital

Working Capital Sources

Long Term Sources Short Term Sources

Internal External

1. Sale of shares 1. Depreciation funds 1. Trade credit

2. Sale of Debentures 2. Provision of Taxation 2. Credit papers

3. Sale of idle fixed assets 3. Accrued Expenses 3. Bank credit

4. Long-term loans 4. Public Deposits

5. Customers credit

6. Loans from directors

7. Security of employee

8. Factoring

Figure 2.1
General factors determining working capital requirements

The working capital needs of a firm are determined & influenced by various factors. A
wide variety of considerations may affect the quantum of working capital required & these
considerations may vary from time to time. The working capital needed at one point of time may
not be good enough for some other situation. The determination of working capital requirements
is a continuous process & must be undertaken on a regular basis in the light of the changing
situations. Following are some of the factors which are relevant in determining the working capital
need of the firms.

1. Production policy

2. Nature of the business

3. Credit policy

4. Inventory policy

5. Abnormal factors

6. Market conditions

7. Conditions of supply

8. Business cycle

9. Growth and expansion

10. Level of taxes

11. Dividend policy

12. Price level changes

13. Operating efficiency

B. Production Policy

The production schedule i.e., the plan for production, has great influence on the level of
the inventories. In some cases raw materials can be produced only in a particular season and have
to be stocked for the production of the whole year. In many others the production cycle is limited
to a part of the year and raw materials have to be accumulated throughout the year. Thus, need for
working capital will very according to the production plans.

2. Nature of the Business

The size of business also has an important impact on its working capital needs. Size may
be measured in terms of the scale of operations. A firm with large scale of operation will need
working capital than small term. The working capital requirements of a firm are basically
influenced by the nature of the business trading and financial firm has a very less investment in
fixed assets, but require a large sum of money to be invested in working capital.

3. Credit Policy

A company, which allows liberal credit to its customers, may have higher sales but
consequently will have large amount of funds tied up in sundry debtors. Credit terms, Debt
collection system also influences the level of working capital.

B. Inventory policy

Large amount of funds is normally locked up in inventory. An efficient firm may stock raw
material for a smaller period and may therefore require lesser amount of working capital.

B. Abnormal factors

Abnormal factors like strikes, lockouts also require additional working capital.
Recessionary conditions necessitate a higher amount of stock of finished goods.

B. Market conditions

Market conditions like competition large inventory are essential as delivery has to be off
the self or credit has to be extended on liberal terms when market competition is fierce.
 B. Conditions of supply

If prompt and adequate supply of raw materials requires small investment in inventory. If
supply is scant, seasonal canalized, it is essential to keep longer stocks increasing working capital
requirements.

8. Business cycle

Business fluctuations lead to cyclical and seasonal changes in production, sales and effect
the working capital requirements.

9. Growth and expansion

The working capital needs of firm increases in growth in terms sales of fixed assets. If is
difficult to precisely determine the relationship between volume of sales and the working capital
needs. The critical fact however that is the need for increased working capital funds does not fallow
growth in business activities but precedes it.

10. Level of taxes

Taxation is a short term liability payable in cash. Advance payment of cash may have to
be paid on the basis of anticipated profits. Tax is first appropriation out of profits. Higher the tax,
greater is the stain on the working capital of the company. Working capital varies with tax rate and
advanced tax provisions.

11. Dividend policy

Payment of dividend utilizes cash while retaining profits acts as a source of working
capital.

12. Price Level changes

Inflationary trends in the economy necessitate more working capital maintain the same
level of activity.
 B. Operating efficiency

The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The firm will be effectively contributing in keeping the working capital
investment at a lower level if it is efficient to controlling operating costs and utilizing current
assets. The use of working capital is improved and pace of a cash conversion cycle is accelerated
with operating efficiency.

ADVANTAGES OF GOOD WORKING CAPITAL MANAGEMENT

The main advantages of sound working capital are as follows:

Solvency of the business: adequate working capital helps in maintaining solvency of the
business by providing uninterrupted flow of production.

1. Goodwill: sufficient working capital enables a business concern to make prompt payments
and hence helps in crating and maintaining goodwill.

2. Easy loans: a concern having adequate working capital, high solvency and good Credit
standing can arrange loans from banks on easy and favorable terms.

3. Cash discount: adequate working capital also enables a concern to avail cash discounts on
the purchases and maintaining goodwill.

4. Regular supply of raw materials: sufficient working capital ensures regular supply of raw
materials and continuous production.

5. Regular payment of salaries, wages and other day-to-day commitments: a company which
has ample working capital can make regular payment towards it day-today commitments
which would raise the morale of its employees, increase their efficiency, reduce wastage
cost and enhance production and profits.

6. Exploitation of favorable market conditions: only concerns with adequate working capital
exploit favorable market conditions such as purchasing its requirements in bulk when the
prices are lower and holding its inventories for higher prices.
 7. Crisis handling ability: adequate working capital enables a concern to face business crisis,
such as depression, inflation successfully.

8. Quick and regular return on investments: sufficiency of working capital enables a concern
to pay quick and regular dividends to its investors, as there may not be much pressure to
plough back profits.

9. High morale: adequacy of working capital creates an environment of security, confidence

and high morale and improves the overall efficiency of a business.

Disadvantages of Inadequate Working Capital

1. A concern which has inadequate working capital cannot pay its short-term liabilities in
time. Thus, it will lose its reputation and shall not be able to obtain good credit facilities.

2. It cannot buy its requirements in bulk and cannot avail discounts.

3. It becomes difficult for the firm exploits favorable market conditions and under take prof-
itable projects.

4. The firm cannot pay its day-to-day expenses, which would increase cost and reduce the
profit of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to the non-availability of
liquid funds.

6. The rate of return on investments will also fall with the shortage of working capital.

Working capital cycle (the operating cycle)

The working capital cycle refers to the length of time between the firm’s paying cash for
materials, etc., entering in to the production process/ stock and the inflow of cash from debtors.
Suppose a company has a certain amount of cash it will need raw materials. Some raw materials
will be available on credit but, cash will be paid out for the other part immediately. Then it has to
pay labour cost and incurs factory overheads. These three combined together will constitute work -
in-progress. After the production cycle is complete, work-in-progress will get converted into
sundry debtors. Sundry debtors will be realized in cash after the expiry of credit period. This cash
can again be used for financing of raw materials, work-in-progress, etc. thus there is a complete
cycle from cash to cash where in cash gets converted into raw materials, work-in-progress, finished
goods, debtors and finally into cash again. Short term funds are required to meet the requirements
of funds during this period. This time period is dependent upon the length of time within which
the original cash gets converted into cash again. This cycle is also known as operating cycle or
cash cycle.

OPERATING CYCLE

Cash

Bills Receivables Raw Materials

Or Debtors

Working in
Credit Sales progress

Finished goods

Figure 2.2

Working capital cycle indicates the length of time between companies paying for materials,
entering into stock and receiving the cash from sales of finished goods. It can be determined by
adding the number of days required for each stage in the cycle. For e.g., a company holds raw
materials on an average for 60 days, it gets credit from the supplier for 15 days, production process
needs 15 days, finished goods are held for 30 days and 30 days credit is extended to debtors. The
total of all these 120 days, i.e., 60-15+15+30+30 days is the total working capital cycle.

The determination of working capital cycle helps in the forecast, control and management
of working capital. It indicates the total time lag and the relative significance of its constituting
parts. The duration of working capital cycle may vary depending on the nature of the business.

The Operating Cycle consists of the following events which continues through the life of
business

 conversion of cash into raw materials

 conversion of raw materials into work in progress

 conversion of WIP into finished stock

 conversion sales

 conversion of account receivable into cash

Components of Working Capital

Working Capital management involves different components such as

Management of cash

1. Management of Inventory

2. Management of Receivables

B. Management of cash

Cash is the important current asset for the operation of the business. Cash is the basic input
needed to keep the business running on continuous basis; it is also the ultimate output expected to
be realized by selling the services of product manufactures by the firm. The firm should keep
sufficient cash, neither more nor less. Cash shortage will disrupt the firm’s manufacturing
operations while excessive cash will simply remain idle, with out contributing anything towards
the firm’s profitability. Thus, major functions of the financial manager to maintain a sound cash
position.

Cash is the money, which a firm can disburse immediately with out any restriction. The
term cash includes coins, currency and cheques held by the firm, and balance in its bank accounts.
Some times near cash items, such as marketable securities or bank times deposits, are also includes
in cash. The basic characteristic of near cash assets is that they can readily be converted to cash.
Generally when a firm has excess of near cash, it invests it in marketable securities. This kind of
investment contributes some profit to the firm.

B. Facets of cash management

Cash management is concerned with the managing of

1) Cash flows into and out of the firm

2) Cash flows with in the firm and

B) Cash balance held by the firm a points of time by financing deficit or investing surplus
cash. It can be represented by a cash management cycle as showing fig1.sales generates
cash, which has to be disbursed out. The surplus cash has to be invested while deficit has
to be borrowed. Cash management seeks to accomplish this cycle at a minimum cost. At
the same time, it also seeks to achieve liquidity and control.

Cash management assumes more importance than other current assets because it is the most
significant and the least productive asset that a firm holds. It is a significant because it is used to
pay the firm’s obligations. However, cash is unproductive. Unlike fixed assets or inventories, it
does not produce goods for sales. Therefore, the aim of cash management is to maintain adequate
control over cash position to keep the firm sufficiently liquid and to be use excess cash in some
profitable way.

b. Cash Planning

Cash inflows and outflows should be planned to project cash surplus or deficit for each
period of the planning period. Cash budget should be prepared for this purpose.
C. Managing the cash flows

The flow of cash should be properly managed. The cash should be accelerated while, as far
as possible, the cash outflows should be decelerated.

d. Optimum cash level

The firm should decide about the appropriate level of cash balances. The cost of excess
cash and danger of deficiency should be matched to determine the optimum level of cash balances.

e. Investing surplus cash

The surplus balance should be properly invested to earn profits. The firm should decide
about the division of cash balances between alternative short-term investment opportunities such
as bank deposits, marketable securities, or inter corporation lending.

The ideal cash management system will depends on the firm’s products, organization
structure, competition, culture and option available. The task is complex, and decisions taken can
affect important areas of the firm. For example, to improve collection if the credit period is
reduced, it may affect sales. However, in certain cases, even without fundamental changes, it
possible to significantly reduce cost of cash management system by choosing a right bank and
controlling the collections properly.

f. Motives for holding cash

The firm’s needs for cash may be attributed to the following needs

i. Transaction motive

ii. Precautionary motive

iii. Speculation motive

iv. Translation motive

i. Transaction motive

The transaction motive requires a firm to hold cash to conduct its business in the ordinary
cost. The firm needs cash primarily to make payments for purchases, wages and salaries, other
operating expenses, taxes, dividends etc. the need to hold cash would not arise if there were perfect
synchronization between cash receipts and cash payments, i.e., enough cash is received when the
payment has to be made. But cash receipts and payments are not perfectly synchronized. For those
periods, when cash payments exceed cash receipts, the firm should maintain some cash balance to
be able to make required payments. For transaction purpose, a firm may invest its cash in
marketable securities; usually the firm will purchase securities whose maturity corresponds with
some anticipated payments. Such as dividends, or taxes in the future. Notice that the transactions
motive mainly refers to holding cash to met anticipated payments whose timing is not perfectly
matched with receipts.

h. Precautionary motive

A firm also keeps cash balances to meet unexpected cash needs arising out of unexpected
contingencies such as floods, strikes, presentment of bills for payment earlier than expected date,
sharp increase in raw materials price etc,. The more is the possibility of such contingencies, the
more is the amount of cash kept by the firm for meeting them.

B. Speculative motive

A firm also keeps cash balance to take advantage of unexpected opportunities typically
outside the normal course of business, such motive is therefore a purely speculative for example a
firm may like to take advantage of an opportunity to purchase raw material at reduced prices in
anticipation of decline prices, similarly, it may like to keep some c ash balance to make profit by
buying securities at ties when their prices fall due to tight money conditions etc,.

j. Cash planning

Cash planning is a technique to plan and control the use of cash. It protects the financial
condition of the firm by developing a projected cash statement from a forecast of expected cash
inflows and outflows for a given period. The forecast may be used on the present operations or
anticipated future operations. Cash plans are very crucial in developing the overall operating plans
of the firm.

k. Cash forecasting and budgeting

Cash budget is the most significant device to plan for and control cash receipts and
payments. A cash budget is a summary of the firm’s expected cash inflows over a projected period.
It gives information on the timing and magnitude of expected cash flows and cash balances over
the projected period. This information helps the financial manager to determine the future cash
needs of the firm, plan for the financing of these needs and exercise control over the cash and
liquidity of the firm.

The time horizon of a cash budget may differ from firm to firm. A firm whose business is
affected by seasonal variations may prepare monthly cash budgets. Daily or weekly budgets should
be prepared for determine cash requirements if cash flows extreme fluctuations. Cash budgets for
a longer interval may be prepared if cash flows are relatively stable.

B. Management of Inventory

The preceding two chapter’s basic strategies and consideration in managing current assets
namely, cash and receivables are stocks of product a company is manufacturing for sale and
components that make up a product. Inventories like receivables are also a significant portion of
most firms’ assets and accordingly require substantial investment. To keep these investments from
becoming unnecessarily large, inventories must be managed efficiently. The various forms in
which inventories exist in a manufacturing company are

a) Raw Materials: Raw materials are those basic inputs that are converted into finished prod-
ucts through the manufacturing process. Raw material inventories are those units, which have
been purchased and stored for future productions.

b) Work-in-progress: The work-in-progress is that stage of stock, which is in between raw

materials and finished goods. They are semi-finished products that need more work before
they become finished products for sale. The quantum of WIP depends on the time taken in
the manufacturing process. The greater the time taken in manufacturing, the more will be the
amount of work-in-progress.
 c) Finished goods: Finished goods inventories are those completely manufactured products,
which are ready for sale. Stocks of raw material and work-in-process facilitate production
while stock of finished goods is required for smooth marketing operations.

The level of three kinds of inventories for a firm depends on the nature of its business. A
manufacturing firm will have substantially high level of all three kinds of inventories.

A fourth kind of inventory Firm also maintains suppliers. Suppliers include office and
plant cleaning material oil, fuel, light bulbs etc. these materials do not directly enter into
production, but are necessary for production process, usually these supplies are small part of
inventory and do not involve significant investment. Therefore a sophisticated system of inventory
control may not be maintained for them.

B (a) Need for holding inventory

There are generally three major motives for holding inventories.

There transactions motive which emphasis the need to maintain inventories to facilitate
smooth production and sale operations.

The precautionary motive, which necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.

The speculative motive which includes the decision to increase or reduce inventory levels
to take advantage of price fluctuations.

A company should maintain adequate stock of material, as it is not possible for a company
to procure raw material whenever it is needed and also for a continuous and smooth and
uninterrupted production process.

2(b) Inventory management techniques

In managing inventories the firm should determine the optimum level of inventory.
Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in
unbalanced inventory and inflexibility, the firm may be sometimes out of stock and sometimes
may pile up unnecessary stocks. This increases the level of investment and makes the firm
unprofitable.
 To manage inventories efficiently and effectively answers should to the following two
questions? How much should be ordered? When should it be ordered?

The first question, how much to order, related in the problem of determining economic
order quantity (EOQ) and is answered with an analysis of costs of maintaining certain level of
inventories. The second question when to order arises because of uncertainty and is a problem of
determining the re-order point.

B. Management of Receivables

Accounts receivable or trade credit is the most prominent force of the modern business. It
is considered as an essential marketable tool, acting as a bridge for the movement of goods through
production and distribution stages to customers finally. A firm grants credit to protect its sales
from the competitor and to attract potential customers. Trade credit, thus credit receivable or book
debts, which the firm is expected to, collect in future. It also involved an element of risk as the
cash payment has get to be received, hence they has to be carefully analyzed.

Receivables constitute a substantial portion of current assets of several firms. They form
about 1/3 part of current assets in India. As substantial amounts are tied up in trade debtors, it
needs careful analysis and proper management, for proper management of receivable a concern
must adopt an optimum credit policy.

B.3 Research Review

Research on working capital management spans various industries and company sizes, offering
insights into optimal practices and their impact on financial performance. Several key studies have
contributed to our understanding of this field:

1. Bhatt V. V. (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be de-
vised for other sectors such as agriculture, trade etc. The author is of the view that banks
while providing short-term finance, concentrate their attention on adequacy of security and
repayment capacity. On being satisfied with these two criteria they do not generally carry
out any detail appraisal of the working of the concerns.
2. Smith Keith V. (1973) believes that Research which concerns shorter range or working
capital decision making would appear to have been less productive. The inability of finan-
cial managers to plan and control properly the current assets and current liabilities of their
respective firms has been the probable cause of business failure in recent years. Current
assets collectively represent the single largest investment for many firms, while current
liabilities account for a major part of total financing in many instances. This paper covers
eight distinct approaches to working capital management. The first three – aggregate guide-
lines, constraints set and cost balancing are partial models; two other approaches – proba-
bility models and portfolio theory, emphasize future uncertainty and interdepencies while
the remaining three approaches – mathematical programming, multiple goals and financial
simulation have a wider systematic focus.

3. Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet
working capital. The analysis is based on the following dimensions: a) Working capital in
common parlance b) Operating cycle concept b) Computation of operating cycle period in
all the four cases. The purpose of the analysis is to demonstrate operating cycle concepts
based on published annual reports of the firms.

4. Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is exer-
cised primarily through credit controls. The Tandon Study Group has provided a compre-
hensive operational framework for the same. In operational terms, efficient working capital
consists of determining the optimum level of working capital, financing it imaginatively
and exercising control over it. He concludes that at the corporate level investment in work-
ing capital is as important as investment in fixed assets. And especially for a company
which is not growing, survival will be possible only so long as it can match increase in
operational cost with improved operational efficiency, one of the most important aspects
of which is management of working capital.
5. Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e.,
the accounting years ending in 1979 and 1983 and is based on the data as given in the
Reserve Bank of India on studies of these companies for the respective dates. He observes
that the Indian industry has by and large failed to change its pattern of working capital
financing in keeping with the norms suggested by the Chore Committee. While the position
of working capital management showed some investment between 1975-79 and 1979-83,
industries have not succeeded in widening the base of long-term funds to the desired extent.
The author concludes with the observation that despite giving sufficient time to the indus-
tries to readjust the capital structure so as to shift from the first method to the second
method, progress achieved towards this end fell short of what was desired under the second
method of working capital finance.

6. Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of

working capital management from the system‟s point of view. According to this study,
capital is often used to refer to capital goods consisting of a great variety of things, namely,
machines of various kinds, plants, houses, tools, raw materials and goods-in-process. A
finance manager of a firm looks for these things on the assets side of the balance sheet. For
capital he turns his attention to the other side of the balance sheet and never commits a
mistake. His purpose is to balance the two sides in such a way that net worth of the firm
increases without increasing the riskiness of the business. This balancing is financing, i.e.,
financing the assets of the firm by generating streams of liabilities continuously to match
with the dynamism of the former. The study is an improvement of the concept of Park and
Gladson who were not able to capture the entire techno- financial operating structure of a
firm.

7. Hamlin Alan P. and Heath field David F. (1991) opine that working capital is necessary
input to the production process and yet is ignored in most economic models of production.
The implications of modeling the time dimension of production, and hence, the working
 capital requirements of firms are explored, with the particular stress placed on the compet-
itive advantage gained by firms that retained flexibility in the time structure of their pro-
duction. In this article they have attempted to explore only this most basic role of time in
the production process and so focus is on the implications of explicitly recognizing the
need for working capital.

8. Fazzari Steven M. and Petersen Bruce C. (1993) throws light on new tests for finance
constraints on investment by 36nalyse3636e36 the often neglected role of working capital
as both a use and a source of funds. The authors believe that working capital is also a source
of liquidity that should be used to smooth fixed investment relative to cash-flow shocks if
firms face finance constraints. They have found that working capital investment is “exces-
sively sensitive” to cash- flow fluctuations. Besides, when working capital investment is
included in a fixed-investment regression as a use or source of funds, it has a negative
coefficient. They conclude that controlling for the smoothing role of working capital results
in a much larger estimate of the long-run impact of finance constraints than reported in
other studies.

9. Hossain Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic
objective of working capital management i.e., to arrange the needed working capital funds
at the right time, at right cost and from right source with a view to achieving a trade-off
between liquidity and profitability. The analysis reveals that BTMC had followed an ag-
gressive working capital financing policy taking the risk of liquidity. There was uninter-
rupted increasing trend in negative net working capital throughout the period of the study
which suggested that BTMC had exploited the entire short-term sources available to it
without considering the actual needs.

10. Ahmed Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using a rational expecta-
tions model where production decisions of firm required debt finance working capital.
 Working capital is an important factor and its cost, the rate of interest, affects the supply
of goods by firms. Monetary policy shocks, thus, affect the interest rate and the supply
side, and as a result price and output produced by firms. The model indicates that this can
cause the predictive power of monetary shocks on output to diminish when the interest rate
is used in empirical analysis. The model also alludes to the effects of monetary policy on
the price level through the supply side (cost push) factors.

11. Prof. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working
capital on its profitability during the period 1986-87 to 1995- 96. The author has explored
the co-relation between ROI and several ratios relating to working capital management. On
the whole, this study of the co- relation between the selected ratios in the area of working
capital management and profitability of the company revealed both negative and positive
effects. Moreover, the WCL of the company recorded a fluctuating trend during the period
under study.

12. Hossain, Syed Zabid (1999) throws light on the various aspects of working capital posi-
tion. He has evaluated working capital and its components through the use of ratio analysis.
For each aspect of analysis certain ratios are computed and then results are compared with
the standard ratio or industry average.

13. Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity
and profitability, of which sufficiency of liquidity comes in the first preference followed
by sufficiency of working capital and profitability. The article is an in-depth analysis of
liquidity and its interrelationship with working capital and profitability. As the working
capital, liquidity and profitability are in triangular position, none is dispensable at the sat-
isfaction of the other. Excess of stock-in-trade over bank over-draft and excess of liquid
assets over current liabilities other than bank over-draft generate working capital for the
 business. Alternatively working capital requirements are made for long-term funds which
affect the profitability.
14. Jain P. K. and Yadav Surendra S. (2001) study the corporate practices related to man-
agement of working capital in India, Singapore and Thailand. In this paper the authors have
tried to understand the working capital management and current assets and current liabili-
ties, and their inter-relationship. Further the authors have shown an aggregative analysis of
current assets and current liabilities in terms of major liquidity ratios. It also states working
capital position in terms of these ratios pertaining to various industries. From the paper one
can infer that the available data in respect of the sample companies from the three countries
confirm the wide inter-industry variations in liquidity ratios. Towards the end, the authors
suggest that serious consideration needs to be given by the respective governments as well
as industry groups in these three countries in order to take corrective measures to take care
of and rectify the areas of concern.

15. 28. Deloof Marc. (2003) presents a picture of how working capital management affects
the profitability of Belgium firms. The writer has made use of empirical analysis for the
sample firms. It was observed that most of the firms have a large amount of cash invested
in working capital. It can, therefore, be deduced that the way in which working capital is
managed will have a significant impact on the profitability of the firms.

16. Sarawat B. P. and Agrawal R. S. (2004) have tried to evaluate working capital position
of Nepal cement industry.
 The study has the following major objectives:
 To find the trend and tendency of working capital
 To analyse and evaluate working capital management
 To suggest an effective way for management of working capital.
 The study attributes the losses or low level of profits of the public enterprises in Nepal
to ineffective and inefficient utilization of working capital. The failure of an enterprise
is due to shortage of working capital.
17. Filbeck Greg and Krueger Thomas M. (2005) base their study on the ratings of working
capital management published in CFO magazines. The findings of the study provides in-
sight into working capital performance and working capital management, which is ex-
plained by macro economic factors, interest rates, competition, etc., and their impact on
working capital management. The article further studies the impact of working capital man-
agement on stock prices.

18. Meszek Wieslaw and Polewski Marcin (2006) examine the profiles of selected construc-
tion companies from the viewpoint of working capital formation and their management
strategies applied to working capital. The analysis is based on the financial ratios. The
authors conclude with the observation that complex working capital management requires
controlling methodology to be developed. A specific character of the construction industry,
including operational factors and market requirements make working capital management
a task exceeding the financial sphere, as it embraces the issues of organization of invest-
ment processes, the organization of production processes and logistics.

19. Chowdhury Anup and Amin Md. Muntasir (2007) examine the working capital man-
agement practice in pharmaceutical companies listed in Dhaka Stock Exchange. Among
all the problems of financial management, the problems of working capital management
have been recognized as the most crucial one. It is because of the fact that working capital
always helps a business concern to gain vitality and life strength. The objective of the study
is to critically evaluate the working capital management practices in the selected firms of
the pharmaceutical industry. To achieve this goal, the study also examines the policies and
practices of cash management and evaluates the principles, procedures and techniques of
inventory management, receivables management and payable management. From the anal-
ysis, the authors conclude that the pharmaceutical firms operated in Bangladesh efficiently
deal with their liquidity preferences and investment criteria. And this is due to the compet-
itive nature of this industry.
20. Samiloglu F. and Demirgunes K. (2008) intend to analyse the effect of working capital
management on firm‟s profitability. To consider statistically significant relationship be-
tween the firm‟s profitability and the components of cash conversion cycle at length, a
sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the pe-
riod from 1989 to 2007 has been analysed under a multiple regression model. Empirical
findings of the study show that accounts receivable period, inventory period and leverage
affect firm‟s profitability negatively, while growth (in sales) affects firm‟s profitability
positively.

21. Baig Viqar Ali (2009) aims at reporting comparative findings of a survey of working cap-
ital management practices of selected agribusiness firms from diary co-operatives, private
and MNC diary firms as a part of the research thesis completed in July 2008. Besides, an
attempt has been made to know the effect of the ownership, government regulations, man-
agerial empowerment and cultural factor on the working capital decision making.

22. Bhunia Amalendu (2010) shows how Indian Pharmaceutical Industry has played a key
role in promoting and sustaining development in the vital field of medicines. Financial
analysis often assesses a firm‟s production and productivity performance, profitability per-
formance, liquidity performance, working capital performance, fixed assets performance,
fund flow performance and social performance. The study concludes with the observation
that the financial performance of the selected pharmaceuticals‟ liquidity position was
strong in case of KAPL and RDPL, thereby reflecting the ability of companies to pay short
term obligations on due dates. Long-term solvency in case of KAPL and RDPL in all the
years shows that companies relied more on external funds in terms of long-term borrow-
ings, thereby providing a lower degree of protection to the creditors. Debtors turnover ratio
of RDPL needs to be improved as the solvency of the firm depends upon the sales income
generated from the use of various assets.
 23. Rahman Mohammad M. (2011) focuses on the co-relation between working capital and
profitability. An effective working capital management has a positive impact on profitabil-
ity of firms. From the study it is seen that in the textile industry profitability and working
capital management position are found to be up to the mark.

24. Ramadu Janaki P. and Parasuraman N. R. (2012) focus on the growth and sales com-
pared with the changes in profitability and in working capital of Indian Pharmaceutical
Industries. The study revealed that the growth rate in profits was disproportional to the
sales and working capital components like inventory and debtors. The study ends with the
view that there was no rationale or relationship between the sales growth and other com-
ponents like net working capital, inventory turnover and debtors turnover. Further, it can
be deduced that growth rate in sales need not reflect the growth rate in profitability and
inventory turnover, and debtors turnover also need not exercise any impact on profitability
of the firms.

25. Banos-Caballero, et al. (2020): This study explored the relationship between working
capital management and profitability in manufacturing firms. It found that efficient man-
agement of receivables and inventory positively impacted profitability, highlighting the
importance of optimizing working capital components.

B.3 Statement of the Problem

The efficient management of working capital is crucial for the financial health and operational
continuity of any organization. However, many companies face challenges in optimizing their
working capital components, which can lead to liquidity issues, increased financing costs, and
reduced profitability.
For Mentor Infcomm India Pvt Ltd, the statement of the problem revolves around assessing the
effectiveness of its working capital management practices and identifying areas for improvement.
Key issues to address include:

1. Working Capital Efficiency: Is Mentor Infcomm India Pvt Ltd effectively managing its
current assets and liabilities to ensure smooth operations while minimizing financing costs?
2. Cash Conversion Cycle: What is the length of Mentor Infcomm India Pvt Ltd’s cash con-
version cycle, and how does it compare to industry benchmarks? Are there opportunities
to shorten this cycle and improve cash flow management?
3. Inventory Management: How efficiently is Mentor Infcomm India Pvt Ltd managing its
inventory levels? Are there excess stocks tying up capital, or are there shortages impacting
production and sales?
4. Accounts Receivable: Is Mentor Infcomm India Pvt Ltd optimizing its credit policies and
collection efforts to minimize the time between credit sales and cash receipts? Are there
overdue receivables impacting cash flow?
5. Financing Costs: To what extent are financing costs affecting Mentor Infcomm India Pvt
Ltd’s profitability? Are there opportunities to reduce reliance on external financing by im-
proving working capital management?
6. Industry Comparison: How does Mentor Infcomm India Pvt Ltd’s working capital man-
agement performance compare to industry peers? Are there best practices or strategies em-
ployed by competitors that could be adopted for improvement?

3.4 Significance of the Study

The study on working capital management with reference to Mentor Infcomm India Pvt Ltd holds
significant importance for several stakeholders, including the company itself, investors, creditors,
and the broader industry. The following points outline the significance of this study:

1. Operational Efficiency: Understanding and optimizing working capital management

practices can enhance Mentor Infcomm India Pvt Ltd’s operational efficiency. By stream-
lining processes related to cash, inventory, and receivables, the company can improve its
ability to meet short-term obligations and fund day-to-day operations.
2. Financial Health: Effective working capital management is essential for maintaining the
financial health of Mentor Infcomm India Pvt Ltd. By ensuring adequate liquidity and min-
imizing financing costs, the company can mitigate the risk of financial distress and insol-
vency.
3. Profitability: The study will shed light on the impact of working capital management on
Mentor Infcomm India Pvt Ltd’s profitability. By reducing excess inventory, optimizing
credit policies, and accelerating cash conversion cycles, the company can improve its bot-
tom line and maximize shareholder value.
4. Investor Confidence: Investors rely on financial indicators such as working capital ratios
to assess a company’s financial health and future prospects. A comprehensive analysis of
working capital management practices at Mentor Infcomm India Pvt Ltd can enhance in-
vestor confidence and attract potential investors.
5. Creditor Relations: Creditors, including suppliers and lenders, are interested in the liquid-
ity and solvency of Mentor Infcomm India Pvt Ltd. By demonstrating efficient working
capital management, the company can strengthen its relationships with creditors and nego-
tiate 43nalyse4343e credit terms.
6. Industry Benchmarking: Benchmarking Mentor Infcomm India Pvt Ltd’s working capi-
tal performance against industry peers can provide valuable insights into best practices and
areas for improvement. This comparative analysis can inform strategic decisions and help
the company remain competitive in the industry.
7. Strategic Planning: The findings of the study will inform strategic planning and decision-
making processes at Mentor Infcomm India Pvt Ltd. By identifying weaknesses and op-
portunities in working capital management, the company can develop targeted strategies
to drive sustainable growth and success.
 CHAPTER – 3
RESEARCH METHODOLOGY

3.1 Methodology Adopted

The methodology adopted for this study involves a comprehensive analysis of secondary data
obtained from the annual and financial statements of the company. The research design focuses
on utilizing established financial analysis techniques to assess the company’s working capital
management practices and financial performance over the specified period.

3.2 Sources of Data Collection

The primary source of data for this study is the secondary sources, specifically the annual and
financial statements of the company. These documents provide detailed information about the
company’s financial activities, including its balance sheet, income statement, and cash flow state-
ment, which are crucial for conducting a thorough analysis of its working capital management.

In addition to secondary sources such as the annual and financial statements of the company,
valuable insights were obtained through direct engagement with key personnel within the organ-
ization. The primary source of data collection involved comprehensive discussions and consul-
tations with the company’s director, operation managers, and superiors. These interactions pro-
vided invaluable qualitative data and contextual understanding essential for enriching the analy-
sis conducted in this study.

The involvement of the director and operational managers facilitated a deeper comprehension of
the intricacies of the company’s working capital management practices and operational pro-
cesses. Their first-hand insights into day-to-day operations, strategic decision-making, and chal-
lenges encountered within the organization were instrumental in refining the project work and
guiding the analysis of data.
Through collaborative efforts, various nuances and intricacies that may not have been apparent
solely through secondary data analysis were brought to light. The input from these key stake-
holders not only contributed to the accuracy and relevance of the study but also enabled the
identification of areas for potential improvement and optimization within the company’s working
capital management framework.

Furthermore, the guidance provided by superiors ensured that the methodology adopted for this
study was aligned with the company’s objectives and expectations. Their expertise and oversight
played a crucial role in ensuring the integrity and reliability of the data collected and 45nalyse45.

By incorporating insights gathered from both secondary sources and direct interactions with com-
pany representatives, this study aims to offer a comprehensive and holistic assessment of the
company’s working capital management practices and financial performance.

3.3 Statistical Tools Adopted

To 45nalyse the data acquired from the secondary sources, the following statistical tools are uti-
lized:

 Statement of Changes in Working Capital: This tool helps in understanding the

changes in the company’s working capital over time, providing insights into its liquidity
position and operational efficiency.
 Ratio Analysis: Ratio analysis involves calculating and interpreting various financial ra-

tios based on the company’s financial statements. These ratios, such as liquidity ratios,
profitability ratios, and efficiency ratios, enable a comprehensive assessment of the com-
pany’s financial performance and working capital management practices.
 CHAPTER – 4
DATA ANALYSIS AND INTERPRETATION

4.1 Data Analysis and Interpretation:

The study was assessed the balance sheet of Mentor Incomm India Pvt. Ltd. for

Components of working capital during the period 2019-20 to 2023-24

Particulars 2019-20 2020-21 2021-22 2022-23 2023-24

A) Current
Assets
Inventory 2,77,88,120 92,48,773 2,23,06,584 79,54,977 1,78,23,396
Sundry Debtors 2,10,20,651.10 3,26,57,425.39
2,83,80,062.46 6,24,34,864.64 5,35,87,898.08
Cash & Bank 1,26,80,162.10 4,12,017.87 4,89,987.94 10,30,357.33 12,75,758.21
Other Current 66,17,386.77 1,97,21,730.74
85,29,097 96,83,354 1,20,68,081
Assets

Total Current 6,81,06,320 6,20,39,947 5,97,05,731.40 8,11,03,552.97

Assets(1)

B)
Current Lia
bilities
Sundry 3,54,94,571.72 1,58,05,553 88,76,129.86 1,01,04,429.37 90,20,956.63
Creditors

Total Current 3,54,94,571.72 1,58,05,553 88,76,129.86 1,01,04,429.37 90,20,956.63

Liabilities(2)

Net Working 3,26,11,748.28 4,62,34,394 5,08,29,601.53 7,09,99,123.60 7,57,34,176.66

Capital(1-2)
 Table 4.1

Analysis

From the above table it is clear that the net working capital has been increasing during the above
years of study period. In the year 2019-20 it is Rs.3,26,11,748.28 and it has increased to Rs.7,57,34,176.66
in the year 2023-24.
Statement showing the changes in Working capital for the year 2019-20 and 2020-21

Particulars 31/3/20 31/3/21 Increase Decrease

A) Current Assets
Inventory 2,77,88,120 92,48,773 ------- 1,85,39,347
Sundry Debtors 2,10,20,651.10 3,26,57,425.39 1,16,36,774.26 -------
Cash & Bank 1,26,80,162.10 4,12,017.87 -------- 1,22,68,144.23
Other Current Assets 66,17,386.77 1,97,21,730.74 1,31,04,343.97 ---------

Gross Working Capital(1) 6,81,06,320 6,20,39,947

B) Current Liabilities
Sundry Creditors 3,54,94,571.72 1,58,05,553 1,96,89,018.72 ---------

Total Current Liabilities(2) 3,54,94,571.72 1,58,05,553

Working Capital(1-2) 3,26,11,748.28 4,62,34,394

Increase in Working Capital 1,36,22,645.72 --------- ------------- 1,36,22,645.72

Total 4,62,34,394 4,62,34,394 4,44,30,136.95 4,44,30,136.95

Table 4.2

Analysis

The above table shows that there is net increase in the working capital of Rs.1,36,22,645.72 during
the year 2019-20 with compared to the year 2020-21. This is because of significant increase in sundry
debtors, other current assets but there is a downfall in the inventory, cash and bank balances. On the other
hand current liabilities are decreased. The net effect of the above changes has brought an increa se in net
working capital.
Statement showing the changes in Working Capital for the year 2020-21 and 2021-22

Particulars 31/3/21 31/3/22 Increase Decrease

A) Current Assets
Inventory 92,48,773 2,23,06,584 1,30,57,811 ----------
Sundry Debtors 3,26,57,425.39 2,83,80,062.46 ---------- 42,77,362.93
Cash & Bank 4,12,017.87 4,89,987.94 77,970.07 -----------
Other Current Assets 1,97,21,730.74 85,29,097 ---------- 1,11,92,633.74

Gross Working Capital(1) 6,20,39,947 5,97,05,731.40

B) Current Liabilities
Sundry Creditors 1,58,05,553 88,76,129.86 69,29,423.14 -----------

Total Current 1,58,05,553 88,76,129.86

Liabilities(2)

Working Capital (1-2) 4,62,34,394 5,08,29,601.53

Increase in Working 45,95,207.53 ------------- ------------- 45,95,207.53
Capital

Total 5,08,29,601.53 5,08,29,601.53 2,00,65,204.21 2,00,65,204.21

Table 4.3

Analysis

The above table shows that there is net increase in the working capital of Rs.45,95,207.53 during
the year 2020-21 with compared to the year 2021-22. This is because of significant increase in inventory,
cash and bank balances. But there is a downfall in the sundry debtors and other current assets On the other
hand current liabilities are decreased. The net effect of the above changes has brought an increase in net
working capital.
Statement showing the changes in Working Capital for the year 2021-22 and 2022-23

Particulars 31/3/22 31/3/23 Increase Decrease

A) Current Assets
Inventory 2,23,06,584 79,54,977 ----------- 1,43,51,607
Sundry Debtors 2,83,80,062.46 6,24,34,864.64 3,40,54,802.18 ----------
Cash & Bank 4,89,987.94 10,30,357.33 5,40,369.39 ----------
Other Current Assets 85,29,097 96,83,354 11,54,257 -----------

Gross Working Capital(1) 5,97,05,731.40 8,11,03,552.97

B) Current Liabilities
Sundry Creditors 88,76,129.86 1,01,04,429.37 --------- 12,28,299.51

Total Current Liabilities(2) 88,76,129.86 1,01,04,429.37

Working Capital(1-2) 5,08,29,601.53 7,09,99,123.60

Increase in Working Capital 2,01,69,522.07 ------------ ----------- 2,01,69,522.07

Total 7,09,99,123.60 7,09,99,123.60 3,57,49,428.57 3,57,49,428.57

Table 4.4

Analysis

The above table shows that there is net increase in the working capital of Rs.2,01,69,522.07 during
the year 2021-22 with compared to the year 2022-23. This is because of significant increase in sundry
debtors, other current assets, cash and bank balances. But there is a downfall in the inventory. On the other
hand current liabilities are increased. The net effect of the above changes has brought an increase in net
working capital.
Statement showing the changes in Working Capital for the year 2022-23 and 2023-24

Particulars 31/3/23 31/3/24 Increase Decrease

A) Current Assets
Inventory 79,54,977 1,78,23,396 98,68,419 ----------
Sundry Debtors 6,24,34,864.64 5,35,87,898.08 ----------- 88,46,966.56
Cash & Bank 10,30,357.33 12,75,758.21 2,45,400.88 ----------
Other Current Assets 96,83,354 1,20,68,081 23,84,727 ----------

Gross Working Capital(1) 8,11,03,552.97

B) Current Liabilities
Sundry Creditors 1,01,04,429.37 90,20,956.63 10,83,472.74 -----------

Total Current 1,01,04,429.37 90,20,956.63

Liabilities(2)

Working Capital(1-2) 7,09,99,123.60 7,57,34,176.66

Increase in Working 47,35,053.06 ----------- ------------- 47,35,053.06
Capital

Total 7,57,34,176.66 7,57,34,176.66 1,35,82,019.62 1,35,82,019.62

Table 4.5

Analysis

The above table shows that there is net increase in the working capital of Rs.47,35,053.06 during
the year 2022-23 with compared to the year 2023-24. This is because of significant increase in inventory,
other current assets, cash and bank balances. But there is a downfall in the sundry debtors. On the other
hand current liabilities are decreased. The net effect of the above changes has brought an increase in net
working capital.
RATIO ANALYSIS

1.Liquidity Ratios

These ratios measure the firm’s ability to meet its current obligations as and when they become due.
Liquidity is a prerequisite for the survival of a firm. A firm should ensure that it does not suffer from lack
of liquidity. The failure of the company to use its obligations put in a dangerous situation on the other
named idle assets earns nothing. Therefore a proper balance between the two contradictory requirements
i.e., liquidity and profitability is required for efficient financial management. The liquidity ratios measure
the ability of a firm to meet its short term obligations and reflect the short-term financial strength/solvency
of a firm.

The ratios, which indicate liquidity of a firm, are

a) Current ratio:

Current ratio is calculated by dividing total current assets to total liabilities. This ratio is also known
as “working capital ratio”.

Current assets

Current ratio = --------------------------

Current Liabilities

Current assets include cash and those assets in marketable securities, debtors, stock, prepaid
expenses, which can be converted in to cash with in a year. Current liabilities defined as liabilities, which
are short term maturing obligation to be met, current liabilities include creditors, Bills payable , Bank credit,
and provision for taxation, dividend payable, outstanding expenses.

A ratio greater than one means that the firm has more current claims against them. Its conventional
rule that a current ratio of 2 to 1 or more to be considered as satisfactory. However current ratio is a crude
and quick measure of firm’s liquidity.
 TABLE SHOWING CURRENT RATIO

Current
Years Current Assets Current Ratio
Liabilities
31/3/20 6,81,06,320 3,54,94,571.72 1.92
31/3/21 6,20,39,947 1,58,05,553 3.93
31/3/22 5,97,05,731.39 88,76,129.86 6.73
31/3/23 8,11,03,552.97 1,01,04,429.37 8.03
31/3/24 8,47,55,133.29 90,20,956.63 9.40

Table 4.6

90,000,000 10
80,000,000 9

70,000,000 8
7
60,000,000
6
50,000,000
5
40,000,000
4
30,000,000
3
20,000,000 2
10,000,000 1
0 0
1/1/2020 1/1/2021 1/1/2022 1/1/2023 1/1/2024

Current Assets Current Liabilities Current Ratio

Figure 4.1

Analysis

The Current ratio is an index of firm’s financial ability. The ideal current ratio is 2:1. Higher the
ratios better the coverage. From the above table it is clear that the current ratio has been showing increasing
trend during the above years of study period. Even though in the year 2019-20 company’s current ratio is
less than the ideal ratio it has been increased year by year. It is important to note that the poor current ratio
is a danger signal to the management and also higher current ratio would indicate lack of utilizing various
investment opportunities.
 b) Quick Ratio

Quick ratio or acid test ratio is more refined measure of firm’s liquidity. This ratio establishes a
relationship between quick or liquid assets and current liabilities. Stock and prepaid expenses are
considered to be less liquid.

Current assets – Inventory

Quick Ratio = ---------------------------------------

Current Liabilities

Generally, a quick ratio of 1:1 is considered, representing a satisfactory current financial condition.
This ratio is of great important for banks and financial institutions.

TABLE SHOWING QUICK RATIO

Years Quick Assets Current Quick Ratio

Liabilities
2020 4,03,18,200 3,54,94,571.72 1.14
2021 5,27,91,174 1,58,05,553 3.34
2022 3,73,99,147.40 88,76,129.86 4.21
2023 7,31,48,575.97 1,01,04,429.37 7.24
2024 6,68,92,817.29 90,20,956.63 7.42

Table 4.7
 80,000,000 8

70,000,000 7

60,000,000 6

50,000,000 5

40,000,000 4

30,000,000 3

20,000,000 2

10,000,000 1

0 0
2020 2021 2022 2023 2024

Quick Assets Current Liabilities Quick Ratio

Figure 4.2

Analysis

Generally Quick Ratio of 1:1 considered to be satisfactory. From the above table it is observed that
in 2019-20 the ratio is 1.92. It is continuously increasing and reached to 7.42 in 2023-24. This indicates
that the company is in favorable position. That is the firm is liquid and it has the ability to pay its current
obligations.

c) Cash Ratio

It is the ratio of absolute liquid assets to quick liabilities. However for calculation purposes it is
taken as ratio of absolute liquid assets to current liabilities. Absolute liquid assets include cash in hand and
short term investments.

Cash in hand and bank

Cash Ratio = ------------------------------------

Current Liabilities
 TABLE SHOWING CASH RATIO

Years Cash & Bank Current Cash Ratio

Liabilities
2020 5,39,003.70 3,54,94,571.72 0.02
2021 4,12,017.87 1,58,05,553 0.03
2022 4,89,987.94 88,76,129.86 0.06
2023 10,30,357.33 1,01,04,429.37 0.10
2024 12,75,758.21 90,20,956.63 0.14

Table 4.8

Chart Title
450,000,000 30
400,000,000
25
350,000,000
300,000,000 20
250,000,000
15
200,000,000
150,000,000 10
100,000,000
5
50,000,000
0 0
2020 2021 2022 2023 2024

Sales Average Inventory Ratio

Figure 4.3

Analysis

The above table shows that cash ratio is showing increasing trend. But it is not reaching the standard
ratio 0.51:1 so it might have faced the difficulty of short liquidity in terms of cash. So it has to maintain its
cash resources effectively in order to cover its current liabilities.
d) Net working capital ratio

Net working capital is sometimes used as a measure of firm’s liquidity. It is considered that between
two firms the one having the larger net working capital has the greater ability to meet current obligations.
NWC however measures firm’s potential of funds. It can be related to net assets.

Net working capital

Net working capital ratio = ----------------------------------------

Net Assets

COMPUTATION OF NET WORKING CAPITAL RATIO

Net working
Years Net Assets NWC Ratio
Capital
2020 3,26,11,748.28 5,66,67,463.28 0.58
2021 4,62,34,394 7,92,61,853 0.58
2022 5,08,29,601.53 7,12,40,478.48 0.71
2023 7,09,99,123.60 8,89,77,044.55 0.80
2024 7,57,34,176.66 9,22,27,498.61 0.82

Table 4.9

WORKING CAPITAL RATIO

450,000,000 30
400,000,000
25
350,000,000
300,000,000 20
250,000,000
15
200,000,000
150,000,000 10
100,000,000
5
50,000,000
0 0
2020 2021 2022 2023 2024

Sales Average Inventory Ratio

Figure 4.4
Analysis

From the above table it is clear that the net working capital ratio has been showing increasing trend
during the above years of study period. In the year 2019-20 the ratio is 0.58 and it has increased to o.82 in
the year 2023-24. The net working capital ratio is satisfied.

2) Turnover Ratios

Turnover ratios measure how efficiently the enterprise employs the resources or assets at its
command. They indicate the performance of the business. The performance of an enterprise is judged with
its sales (turnover). Turnover ratios are otherwise called as activity ratios.

The ratios, which indicate efficiency of the firm, are

a) Debtors Turnover Ratio:

Debtors turnover ratio expresses the relationship between average debtors and sales. It is calculated
as follows:

Sales

Debtors Turnover Ratio = ----------------------------

Average Debtors

Average debtors are the simple average of debtors at the beginning and at the end of year. The
analysis of the debtors turnover ratio supplements the information regarding the liquidity of one item of
current assets of the firm. The ratio measures how rapidly receivables are collected. A high ratio is
indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that debts are not
being collected rapidly.
 COMPUTATION OF DEBTORS TURNOVER RATIO

Average Debtors Turnover

Years Sales
Debtors Ratio
2020 38,10,13,523 3,26,43,229.68 11.67
2021 27,36,30,389 2,68,39,038.26 10.20
2022 35,65,74,550.48 3,05,18,743.92 11.68
2023 33,23,96,494.49 4,54,07,463.54 7.32
2024 35,92,77,141.83 5,80,11,381.36 6.19

Table 4.10

450,000,000 30
400,000,000
25
350,000,000
300,000,000 20
250,000,000
15
200,000,000
150,000,000 10
100,000,000
5
50,000,000
0 0
2020 2021 2022 2023 2024

Sales Average Inventory Ratio

Figure 4.5

Analysis

Debtors turnover ratio has been showing the fluctuating trend. During the study period, it is good
sign that the company is following good collections and credit policies.
b) Inventory Turnover Ratio

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It
is calculated by dividing the cost of goods sold by the average inventory. The average inventory is the
average of operating and closing balances of inventory. In a manufacturing company inventory of finished
goods is used to calculate inventory turnover.

Sales

Inventory Turnover Ratio = --------------------------------

Average Inventory

Opening inventory + Closing inventory

Average Inventory = --------------------------------------------------------

COMPUTATION OF INVENTORY TURNOVER RATIO

Average
Years Sales Ratio
Inventory
2020 38,10,13,523 1,99,36,527 19.11
2021 27,36,30,389 1,85,18,446.50 14.78
2022 35,65,74,550.48 1,57,77,678.50 22.60
2023 33,23,96,494.49 1,51,30,780.50 21.97
2024 35,92,77,141.83 1,28,89,186.50 27.87

Table 4.11
 INVENTORY TURNOVER RATIO
450,000,000 30
400,000,000
25
350,000,000
300,000,000 20
250,000,000
15
200,000,000
150,000,000 10
100,000,000
5
50,000,000
0 0
2020 2021 2022 2023 2024

Sales Average Inventory Ratio

Figure 4.6

Analysis

From the above table it is observed that the inventory turnover ratio is showing fluctuating trend. In
the year 2019-20, the ratio is 19.11 that means the company is converting its inventory into sales 19.11
times in a year and it has been increased to 27.87 in the year 2023-24. This shows that company is making
good use of its inventory.

d) Current Assets Turnover Ratio

Current Assets turnover ratio expresses the relationship between net current assets and sales. It is
calculated as follows:

Sales

Current assets turnover ratio = ------------------------

Net Current Assets

 COMPUTATION OF CURRENT ASSETS TURNOVER RATIO

Years Sales Net Current Ratio

Assets
2020 38,10,13,523 3,26,11,748.28 11.68
2021 27,36,30,389 4,62,34,394 5.92
2022 35,65,74,550.48 5,08,29,601.53 7.02
2023 33,23,96,494.49 7,09,99,123.60 4.68
2024 35,92,77,141.83 7,57,34,176.66 4.74

Table 4.12

CURRENT ASSTES TURNOVER RATIO

450,000,000 14
400,000,000 12
350,000,000
10
300,000,000
250,000,000 8
200,000,000 6
150,000,000
4
100,000,000
50,000,000 2

0 0
2020 2021 2022 2023 2024

Sales Working Capital Ratio

Figure 4.7

Analysis

From the above table it is clear that use of current assets is fluctuating year by year. In the year
2019-20 the ratio is 11.68 and it has decreased to 4.74 in the year 2023-24.
a) Working Capital Turnover Ratio

This ratio measures the relationship between working capital and sales. The ratio shows the number
of times the working capital results. In sales working capital as usual is the excess of current assets over
the current liabilities.

Sales

Working Capital Turnover Ratio = ---------------------------

Working Capital

Comment

Higher the ratio the greater are the profit, a low working capital over indicates that working capital
is not efficiently utilized.

COMPUTATION OF WORKING CAPITAL TURNOVER RATIO

Years Sales Working Capital Ratio

2020 38,10,13,523 3,26,11,748.28 11.68
2021 27,36,30,389 4,62,34,394 5.92
2022 35,65,74,550.48 5,08,29,601.53 7.02
2023 33,23,96,494.49 7,09,99,123.60 4.68
2024 35,92,77,141.83 7,57,34,176.66 4.74

Table 4.13
 WORKING CAPTIAL TURNOVER RATIO
450,000,000 14
400,000,000 12
350,000,000
10
300,000,000
250,000,000 8
200,000,000 6
150,000,000
4
100,000,000
50,000,000 2

0 0
2020 2021 2022 2023 2024

Sales Working Capital Ratio

Figure 4.8

Analysis

From the above table it shows that the higher working capital turnover ratio is 11.68 in the year
2019-20 it indicates that greater are the profits. A low working capital turnover ratio is 4.74 in the year
2023-24 it indicates that working capital is not effectively utilized.
 CASH MANAGEMENT

Cash is a vital component of working capital, because it is the cash, which keeps a business going.
It is hub around which all other financial matters center. There is no denying the fact that cash is the very
life blood of a business enterprise.

Steady and healthy circulation of cash in the entire business operation is the basis of business
running on a continuous basis. It is also the ultimate output expected to be realized by selling the service or
product manufactured by the firm. Ultimately, every transaction in a business in either an inflow or an
outflow of cash.

Therefore, effective management of cash is the key determinant of efficient working capital
management. There should be sufficient cash with a firm all the time to meet need of the business. Both
excess and inadequate cash situations are undesirable from the point of view of profitability and liquidity.

Inadequate cash may degenerate a firm into a state of technical insolvency and even lead to its
liquidation. It will eventually disrupt the firm’s manufacturing operation. On the other hand, excess cash
remains idle without contributing anything towards the firm’s profitability.

Moreover, holding of cash balance has an implicit cost in the form of its opportunity cost. The larger
the idle cash, the greater will be its opportunity cost in the form of loss of interest bearing securities or by
reducing the burden of interest charges by paying off the past loans.

The carrying of cash and near cash reserves beyond the irreducible operating needs cuts assets
turnover and rate of return. If the cash balances with a firm at any time are surplus or deficit, it is obvious
that the finances are mismanaged. Today when cash, like any other assets of the company, is a tool for
profits, the emphasis is on right amount of cash at the right time, at the right place and at the right cost.

VARIATIONS IN SIZE OF CASH

To achieve the objectives of maximum profitability and liquidity in a concern, the firm has to
employ its cash resources to the fullest extent possible. The opportunity cost of holding excess cash and
liquidity risk of inadequate cash are two forces, which affect the determination of size of cash in an
enterprise. On the basis of past experience, a management can decide what position of current assets should
be kept in cash form.

Besides this, cash to sales ratio and cash to current liabilities ratio are other tools for such
comparison. Thus, three ratios have been computed here for the purpose of analyzing the variations in cash
balances. These ratios include:

I. Cash to current assets ratio.

II. Cash to sales ratio.

III. Cash to current liabilities ratio.

STATEMENT SHOWING CASH TO CURRENT ASSETS RATIO

Years Cash & Bank Current % of Cash to

Assets CA
2020 5,39,003.70 6,81,06,320 0.79
2021 4,12,017.87 6,20,39,947 0.66
2022 4,89,987.94 5,97,05,731.39 0.82
2023 10,30,357.33 8,11,03,552.97 1.27
2024 12,75,758.21 8,47,55,133.29 1.51
Average = 1.01

Table 4.14

Analysis

The above table shows that the average value for cash to current assets ratio is 1.01%. This ratio
indicates that 1.01% of current assets are in the form of cash.

Cash and bank balances have been registered a fluctuating trend during the period of study. It is
suggestive of the fact that the company has to exercise better control over cash and bank balances.
 STATEMENT SHOWING CASH TO SALES RATIO

% of Cash to
Years Cash & Bank Sales
Sales
2020 5,39,003.70 38,10,13,523 0.14
2021 4,12,017.87 27,36,30,389 0.15
2022 4,89,987.94 35,65,74,550.48 0.14
2023 10,30,357.33 33,23,96,494.49 0.31
2024 12,75,758.21 35,92,77,141.83 0.36
Average = 0.22

Table 4.15

Analysis

The ratio of cash to sales provides a deep insight into cash balances hold by the company, is pointer
to the fact that, on an average, 0.22% of sales in the company has remained cash during the period of study.

STATEMENT SHOWING CASH TO CURRENT LIABILITIES RATIO

Years Cash & Bank Current Liabilities % of Cash to CL

2020 5,39,003.70 3,54,94,571.72 1.52
2021 4,12,017.87 1,58,05,553 2.61
2022 4,89,987.94 88,76,129.86 5.52
2023 10,30,357.33 1,01,04,429.37 10.20
2024 12,75,758.21 90,20,956.63 14.14
Average = 6.80

Table 4.16

Analysis

Another way of looking at the variations in cash balance is to compare with current liabilities. The
above table depicts that cash and bank balance on an average have constituted 6.8% of current liabilities.
INVENTORY MANAGEMENT

Inventory constitutes a major component of working capital. To a large extent, the success or failure
of a business depend upon its inventory management performance. Proper management and control of
inventory not only solve the problem of liquidity but also increase profitability. Inventory establishes link
between production and sales. Every business undertaking needs inventory in adequate quantity for efficient
processing and intransitive handling. Since, inventory itself is an idle asset and involves holding cost; it is
always desirable that investment in this asset should be kept at the minimum possible level. Inventory
should be available in proper quantity at all the times, neither more nor less than what is required.
Inadequate inventory adversely affects smooth running of business, where as excess of it involves extra
cost, thus reducing profits.

The basic objective of inventory management is to optimize the size of inventory in a firm. So that
smooth performance of production and sales functions may be possible at the minimum costs.

An attempt has been made to analyze the size and composition of inventory and circulation of
inventory during the period under study.

Thus, two ratios have been computed here for the purpose of analyzing the size of inventory in a
firm. These ratios include:

I. Inventory to Current Assets ratio

II. Inventory to Total Assets ratio

I. Statement Showing Inventory to Current Assets ratio

% of inventory to
Years Inventory Current Assets
CA
2020 2,77,88,120 6,81,06,320 40.8
2021 92,48,773 6,20,39,947 14.9
2022 2,23,06,584 5,97,05,731.39 37.4
2023 79,54,977 8,11,03,552.97 9.8
2024 1,78,23,396 8,47,55,133.29 21
Average = 24.78

Table 4.17

Analysis

The average value of inventory to current assets amounts to 24.78%. It is a good sign that it has been
decreasing carrying cost which affects profitability of the firm.
II. Statement Showing Inventory to Total Assets ratio

Years Inventory Total Assets % of inventory to TA

2020 2,77,88,120 9,21,62,035 30.2
2021 92,48,773 9,50,67,406 9.7
2022 2,23,06,584 8,02,66,164.34 27.8
2023 79,54,977 9,91,93,640.92 8.02
2024 1,78,23,396 10,13,23,143.2 17.6
Average = 18.66

Table 4.18

Analysis

The above table reveals that the inventory has constituted a very high proportion of total investment
in the company. The average value of inventory to total assets ratio amounts to 18.66%.

To conclude, it may be said that the size of inventory in the company has been adequate and has
constituted a adequate proportion of current assets and total assets.
 CHAPTER – 5
CONCLUSION

5.1 Findings:
1) Networking capital of Mentor Infocomm India Pvt Ltd is increasing year by year during the period
of study and which is good for the company.

2) The working capital is financed mostly by the long-term sources and marginally by short-term
sources. The company also used the retained earnings to finance the working capital needs. As per
the annual reports, working capital demand loan is secured by the hypothecation of raw materials,
stores and spares, work in progress finished goods and book debts both present and future.

3) Current ratio of the company for the years 2019-20, 2020-21, 2021-22, 2022-23 and 2023-24 are
1.92, 3.93, 6.73, 8.03, and 9.40 respectively. Higher the ratio better is coverage. Standard ratio is
2:1, which shows that the company’s current ratio is more than the standard ratio.

4) Quick ratio during the study period has been increasing that is for the year 2019-20 is 1.14, 2020-
21 is 3.34, 2021-22 is 4.21, 2022-23 is 7.24, 2023-24 is 7.42, which shows these ratios are above
the standard ratio of 1:1

5) Cash ratio which shows the short-term solvency of the firm in terms of cash during the study period
are 0.02, 0.03, 0.06, 0.10, and 0.14 which is not up to the standard ratio of 0.5:1.

6) The liquidity ratios indicate that Mentor Infocomm India Pvt Ltd liquidity position is satisfactory.

7) Debtor’s turnover ratio has been showing the decreasing trend during the study period except in the
year 2020-21 which is not good for the company.

8) The inventory turnover ratio except in the years 2020-21 and 2022-23 is showing increasing trend.
The trend is 19.11, 14.78, 22.60, 21.97& 27.87.

9) The components of working capital as well as sales are showing fluctuating trends.

10) The company carries a small amount of cash. There is nothing to be worried about the lack of cash,
if the company has reserve borrowing power. Since, the company position is satisfactory and it is
able to get the required funds with not much difficulty.
 11) The company has a very strict credit policy and has been collecting debts promptly. The credit
policy is effective.

12) 24-25% of the current assets are in the form of inventories, which shows the company is making
good use of its inventories.

5.2 Suggestions for further study

1) The company depends more on bank borrowings and long term sources of funds for working capital
needs.

2) The working capital required by the company is increasing over years. The company should try to
curtail the unnecessary expenditure in order to reduce the cost of production and promote high return
on sales.

3) As the company’s current ratio is more than the standard ratio, it should decrease the current assets
which are in the form of sundry debtors, inventory etc.

4) The firm so maintaining the current assets satisfactory, but at the same time more than 50% of
current assets are blocked in the form of receivables. This is due to giving credit sales to his cus-
tomers and maximum portion of sales are in credit terms only. If at still there is any possibility, the
company should reduce the credit sales and receivables holding period and to bridge the gap be-
tween the excess and shortage of working capital.

5) The inventory position of the company is satisfactory. If the company will increase its stock of
inventory, then it will be more satisfactory in future.

6) The company needs to invest in marketable securities in order to increase its cash ratio.

7) Debtors’ turnover ratio has been showing fluctuating trend. So it is suggested to the company that
it should have proper control on debtors’ turnover ratio.

8) As the company maintaining low cash resources it should try to maintain balance between debtors
and cash. That means it should reduce its debtors and increase cash resources.

9) The sales of the company are showing fluctuating trends. So the company should maintain proper
control on sales.
To conclude, the comprehensive financial analysis conducted on Mentor Infocomm India Pvt Ltd sheds
light on the company's robust working capital management practices and overall financial health. Through-
out the study period, the company has exhibited steady growth in its networking capital, primarily financed
through long-term sources with supplementary support from retained earnings and short-term sources. De-
spite occasional fluctuations, the liquidity position remains satisfactory, with liquidity ratios consistently
surpassing industry standards. Efficiency ratios suggest effective inventory management but highlight areas
for improvement in debt collection. Moreover, while the cash ratio indicates a need for enhancing cash
reserves or investing in marketable securities, overall, the company's financial performance demonstrates
resilience and stability. Moving forward, recommendations for further study emphasize exploring alterna-
tive financing avenues, optimizing current asset composition, and implementing strategies to improve cash
flow and stabilize sales trends. These insights provide a solid foundation for strategic decision-making
aimed at enhancing profitability, liquidity, and long-term sustainability for Mentor Infocomm India Pvt
Ltd.
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Search Engines:

1. Mentor Infocomm site: [www.mentorinfocomm.com]

2. Google Scholar: [https://scholar.google.com/]
3. PubMed: [https://pubmed.ncbi.nlm.nih.gov/]
4. IEEE Xplore: [https://ieeexplore.ieee.org/]
5. ScienceDirect: [https://www.sciencedirect.com/]