CHAPTER 1

INTRODUCTION
1.1 Background of The Study :
WORKING CAPITAL MANAGEMENT

Working capital management refers to a company’s managerial accounting strategy designed

to monitor and utilize the two components of working capital, current assets and current
liabilities, to ensure the most financially efficient operation of the company.
The primary purpose of working capital management is to make sure the company always
maintains sufficient cash flow to meet its short-term operating costs and short- term debt
obligations.
Working capital management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the interrelationship that exists between
them. The term current assets refer to those assets which in the ordinary course of business can
be, or will be, converted in to cash within one year without undergoing a diminution in value
and without disrupting the operation of the firm.
The goal of working capital management is to ensure that a firm is able to continue its
operations and that it has sufficient ability to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable, and cash. The excess current
assets of a business organization over its current liabilities are termed as the working
capital of that organization. The major current assets are cash, marketable security,
account receivable and inventory. Current liabilities are those liabilities which are
intended, at their inception, too be paid in the ordinary course of business, within a
year, out of the current assets or earning of the concern. The basic current liabilities
are account payable, bills payable, bank overdraft and outstanding expenses.

1.2 JUSTIFICATION of study:

Working capital Management is referred as short term Financial Management .The need
of working capital management is to: Ensure that a firm is able to continue its operations
and that it has sufficient ability to satisfy both maturing short-term debt and upcoming
operational expenses. Maintain the optimum balance of each of the working capital
components. Increase the Profitability of the company.
1.3 Brief review of The Literature:
Many researchers have studied Working Capital from different views and in
different Environment. The following once were very interesting and useful for our
research:
 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
correlation 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 .
 Chalam G. V. and Manohar Babu B. V. (1999) observe that liquidity
performance is very low as compared to the ideal norms. It is suggested that for
managing working capital effectively the operating and other required budgets
should be prepared by the respective levels of the management on short-term as
well as long-term basis. It is further suggested that these are the people
concerned who can really influence the process of production activity to such an
extent that there should be optimum utilization of the investment in working
capital.
 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 insight into working capital performance and working capital
management, which is explained by macro-economic factors, interest rates,
competition, etc., and their impact on working capital management. The article
further studies the impact of working capital management on stock prices.
 Akoto Richard K., Vitor Dadson A. and Angmor Peter L.(2013)
closely study the relationship between working capital management policies and
profitability of the thirteen listed manufacturing firms in Ghana. At the end of the
study, a significantly negative relationship between profitability and accounts
receivable days is found to exist. Profitability is significantly positively influenced
by the firm’s cash conversion cycle (CCC), current assets ratio and current asset
turnover. It is also suggested that managers can create value for the shareholders
by creating incentives to reduce their accounts receivable to 30 days.
1.4 OBJECTIVES OF THE STUDY:
Study of working capital management is important because unless
the working capital is managed effectively, a company cannot earn
profit and increase its turnover. With these primary objectives of
study, the following further objectives are required:
 To analyze the effective utilization of working capital.
 To evaluate the performance of receivables and cash.
 To study the structure of working capital.
 To study the sources of working capital finance.
 To study need of working capital requirement in organization.
 To appraise the utilization of current asset and current liabilities and
find out shortcomings if any.
 To measure and evaluate the liquidity and profitability position of
RELIANCE INDUSTRIES LIMITED.
 To analyze the financial efficiency of the company through ratio
analysis.
1.5 METHODOLOGY OF THE STUDY:
Sources of Data:
There were mainly two major sources of data namely:

Primary Data:
Primary data is the one which is collected specifically for the purpose of
the project with the help of a questionnaire prepared.

Secondary Data:
Secondary data refers to the statistical material which is not originated
by the investigate himself but obtained from someone else’s records,
websites, newspapers, magazines, etc. But it plays a significant role in
the project.
For this study, the secondary data has been obtained from published
reports like the annual reports of the company, balance sheets, and profit
and loss account, websites, records such as files, reports etc.
Hence, my entire project is based on the Secondary Data due to the
pandemic situation.
1.6 LIMITATIONS OF THE STUDY:
✓ Time factor is the most crucial one. The study was conducted within a
short period of time.
✓ Amazon executives were hesitating to provide information.
✓ We didn’t get to have a face-to-face interaction with the executives
because of the current pandemic situation.
✓ We had to wait for a long time to get online appointments with them
because they were busy with their work.
✓ Due to their busy work schedule detailed work discussions were not
possible.
✓ Competitors from RELIANCE INDUSTRIES has provided us with less
information and data.
✓ It is also found that some of the executives lack interest, enthusiasm,
initiative and involvement which de-motivated me.
✓ It was difficult to collect the data regarding the competitions and their
financial information. Industry figures were difficult to get.
✓ There may be some fractional differences in calculating ratios.
✓ Lot of time were consumed during the survey.

1.7 CHAPTER PLANNING:

CHAPTER 2 CONCEPTUAL FRAMEWORK

CHAPTER 3 PRESENTATION OF DATA,

ANALYSIS AND FINDINGS
CHAPTER 4 CONCLUSION AND
RECOMMENDATION