Dr. Purnima Joshi

A Study of Working Capital Management in Public Enterprise with Special Reference to GAIL (India) Limited

Minor Research Project
Funded by U.G.C.
F. No. MH-178/102054/XII/14-15-CRO
2015 - 2017

 

Summary
This project is based on the study of Working Capital Management in Public Enterprises - The GAIL (India) Ltd.
Working capital is the life blood of all types of Enterprises manufacturing and trading both. It is constantly required to buy raw materials, for payment of wages and other day to day expenses. Without adequate working capital manufacturing operations will be crippled. It is a base on which all the activities of business enterprise depend. The working capital management refers to the management of working capital or precisely to the management of current assets. A company's working capital consists of its investments in current assets, which includes short-term assets- cash and bank balance, inventories, receivables, and marketable securities.

The project tries to evaluate how the management of working capital is done in GAIL (India) Ltd., through inventory ratios, working capital ratios, trends, operating cycle analysis, schedule of changes in working capital. Working capital is primarily concerned with inventories management, receivables management, cash management and payable management.

Objectives of the Study
The main objective of the study is to determine the effect of working capital on business profitability, which has to do with:-

  1. To find out the importance of factors affecting working capital requirements.
  2. To study the liquidity position of the company by taking four measures at a time, namely- inventory to current assets, debtors to current assets and other current assets including loans and advances to current assets.
  3. To analyze the trends in the investment in working capital components.
  4. To suggest ways to increase the efficiency of the working capital management.

Findings, Conclusion and Suggestions
As we know that the working capital management is concerned with the problems arise in attempting to manage the current assets, the current liabilities and the inter-relationship that exist between them. The goal of working capital management is to manage the company’s current assets and current liabilities in such a way that the satisfactory level of working capital is maintained. Here, in Gail (India) ltd. the researcher is now in the position to find out the status of working capital and how it is managed in a company during the study period i.e from 2010-11 to 2012-13. The study has been done from all the angles of working capital,keeping the objective of the study. The tools which we applied for the analysis of working capital are – Trend analysis, Ratio analysis, Working Capital Leverages, Operating Cycle analysis and Schedule of Changes in Working Capital.

Conclusion and Suggestions
As organization become more global, and processes more complex, the impact of each of these on working capital is being more keenly felt. Thus organizations increasingly including elements of Working Capital as metrics. This is cascading doing to many arms of the Enterprise- Operations, Sales, Supply Chain, Procurement, IT, Quality Control which are being made aware of the consequences of their processes and actions on the cash flow of the enterprises.
Companies that manage their working capital well ideally benchmark themselves against their peers in the industry and outside, and absorb best- in- class practice.
Working capital management is given higher priorities by the corporate world. Companies which are effectively using their working capital components are likely to have competitive advantages over their competitors. It is a lifeline of every industry, irrespective of whether it’s a manufacturing industry or service industry. It is the prime and most important requirement for carrying out the day to day operations of the business.
The company is performing not so well during the study period. Though the prices of oil & gas rising in the global market as well as in domestic market. Not all the areas but in some areas, the company’s operations were quite good. The company is using some innovative schemes for improving its operations.

  1. The working capital position of the company is just good. The current ratio is just neck to neck of liquid ratio. But the various sources through which it is funded are optimal
  2. The company has used its investment decision and because of that some good effect can be seen. Many times it was seen that funds are blocked in fixed assets which show the company’s future planning.
  3. The various ratio’s has been calculated. Some of the ratios touches the ideal one and some are adverse to the ideal. The company has to pay much attention  towards it.
  4. The company has not compromises on profitability despite the high liquidity is commendable.
  5. The company must pay attention towards the decrease in working capital as we have seen while making schedule of changes in working capital.
  6. Company must raise funds through short term sources for requirement of short term funds, which comparatively economical as compare to long term funds.
  7. Company should take control on debtor’s collection period which is major part of current assets.
  8. Company has to take control on cash balance because cash is a non- earning asset and increasing cost of funds.
  9. Company should reduce the inventory holding period with the use of zero inventory concepts.
  10. The current assets should be managed more effectively so as to avoid unnecessary blocking of capital that could be used for other purposes.
  11. There are various global challenges that are faced by every company in the present competitive environment and Gail (India) Ltd. is not an exemption. To face the present global challenges the human resources department should be develop to improve various skills among the employees especially the motivational skills and having the regular training for the employees about various developments in the market.
  12. Though the company has an adequate working capital, it will enable the company to avail cash discount in purchases.
  13. Because of adequacy in working capital, the Gail (India) Limited easily meet the situations of crises and emergencies. The company can easily move from depression period.
  14. Gail India (Limited) has a credit worthiness and because of this, the company enables in getting loans from banks and other financial institution on easy and favorable terms.
  15. The Gail India (Ltd.) not have a financial crunch for the expansion of markets for its product. As they have enough working capital with them, it can create favorable market conditions for them. They can easily but the material required in bulk when prices are lower and holding its inventories for higher. If the company takes this step, it will definitely helpful for the company to increase its profit.
  16. Not only working capital is concerned with the current assets, but it is related with the fixed assets also. Fixed assets of the company cannot work without having the enough working capital.
  17. The Gail India Limited haveResearch and Development department with them. This department enhance the research program, innovations, how technically a company should be sound such things possible only when Gail (India) Ltd. have enough working capital. The Gail (India) Ltd. maintained little bit this position.
  18. The Gail (India) Ltd. should little bit think to increase its working capital from par level. This can be possible when company invest their funds more in working capital.
  19. The net operating cycle also indicates company have an ability to convert their finished products into cash. Here, Gail (India) Ltd. have a sound position because between 10 to 13 days company easily able to convert the raw material, finished goods, receivables collections into cash after paying the payables. The company has to maintain this, in long period also.
  20. The Debt equity ratio also highlighted that company has enough equity to meet its debt. The company should maintain it with ideal ratio.
  21. As far as fund flow statement is concerned, the Gail (India) Ltd. should try to invest in current assets to increase the working capital.
  22. For increasing the working capital the company should apply long term funds towards other current assets

Overall, the liquidity position of the company demands more attention towards it. The Gail (India) Ltd. had par level of working capital during the study period. Company became little bit unobservable as concerned the financial policy and thus maintaining less current assets balance. But sales volume of the company increases during 2010-11 to 2012-13 financial year.
Summarizing the overall project work, it can be said that the project was a good learning experience. The entire staff in Bhopal was very co-operative and they helped in all phases of this project. It was an opportunity to learn about the working capital management. How to manage the working capital is just like a jumping into an ocean. There more lot of difficulties in the beginning of the project but slowly, it got the grip on the road towards future.