Working Capital Management free essay sample

Introduction: Working Capital is the lifeblood and controlling nerve of an organization. ONGC being a large organization, dealing in exploration and exploitation of hydrocarbons requires a large amount of funds. The complexity and risks involved in exploration business like whole procedure of search of oil, geographical and physical conditions, day to day reduction in oil reserves and many other things tend to maintain a substantial amount of working capital. Hence, there is a need for proper management of working capital, so that day by day operations do not hamper; at the same time there would not be any idle investment in working capital.Number of Pages of Project Report: 60 Package Includes: Synopsis/Project Proposal + Project Report Project Format: Document (. doc) Table of Contents of Project Report: Chapter 1: Introduction 1. 1. Preface 1. 2. Acknowledgement 1. 3. Meaning of Project 1. 4. Executive Summary 1. 5. Objectives of the Project Chapter 2: Company Profile 2. 1 History of ONGC 2. We will write a custom essay sample on Working Capital Management or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 2 Profile of ONGC 2. 3 Global Ranking 2. 4 Vision and Mission of ONGC 2. 5 Community Development of ONGC 2. 6 Products of ONGC 2. 7 Subsidiaries of ONGC 2. 8 Research MethodologyChapter 3: Working Capital Management 3. 1 Meaning of Working Capital 3. 2 Kinds of Working Capital 3. 3 Need for Working Capital 3. 4 Factors determining the Working Capital Requirements 3. 5 Working Capital Cycle 3. 6 Components of Working Capital 3. 7 Working Capital Management in ONGC 3. 8 Position of Current Assets and Current Liabilities in ONGC 3. 9 Factors requiring consideration while estimating Working Capital 3. 10 Swot Analysis Chapter 4: Findings Chapter 5: Suggestions Chapter 6: Conclusions Chapter 7: Bibliography Working Capital Management free essay sample The Reliant Electrical Systems is in its final planning stages for FY2013 and Management is concerned about low profitability. RES management would like to increase NPM to 6 percent or more next year. There are several proposals being suggested that will be computer-generated in order to assess the results on operating cash flows and profitability. The goal is to determine which options will improve profitability, and furthermore, which mixture or stack of suggestions will maximize profitability. I am part of a management task team assigned to analyze the following suggestions from various members of the firm to obtain the goal of maximizing profitability and obtaining a NPM above 6 percent for next year. (A1) The sales staff’s decision to increase FOB price by $125. 00 per unit, which resulted in a decrease in sales by 2. 5%, had a positive effect on NPM, OI, and NI. NPM increased to 6. 52%, OI increased by $3,322,201, and NI increased by $2,202,070, which is a significant benefit for the company. We will write a custom essay sample on Working Capital Management or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Though sales went down, the increase in NPM is what caused the overall increase in both OI and NI. (A2) The ad agency’s decision to decrease the FOB price by $75. 00, resulting in a %5 increase in sales had a substantially negative effect on NPM, OI, and NI. NPM decreased to 2. 97%, OI increased by $3,322,201, and NI increased by $2,202,070 which is a significant loss for the company. Though sales went up, the decrease in NPM from the result of decreased FOB price is what caused the overall decrease in both OI and NI. B) The engineer’s decision to redesign the base product to reduce the assembly time to 11. 0 hours had a fairly positive impact on OI and NI. The OI was increased by $705,870 and NI increased by $467,865, but NPM was only increased to 4. 65% which would not make this option alone beneficial for the company. (C) The CFO’s decision to operate with 0. 5 times next month’s level resulted in very insignificant savings for the company. There was no change in OI or NPM and NI only increased by $4,985. These results justify the CEO and COO’s skepticism of the CFO’s decision. The Accounts Receivable Supervisors beliefs that tightening the credit standard by reducing the bad debt experience to 1. 25% of sales, which results in a $4,200 increase in administrative cost per month, would have an overall negative impact on the firm. NPM is reduced to 3. 85%, OI is decreased by $341,316, and NI is decreased by $185,329. This option would not be beneficial for the firm. The addition of a new employee would end up costing more in the long run. (D) The sales manager has suggested that the firm should increase the rate of collection by offering a discount with the terms 2/10 Net 30. The results of the discount incentive was speculated to increase cash payments to 35% in the month of sale, 25% in the month after sale, and % two months after the sale, with a 20% balance collected 90 days after the sales. Though the speculation sounds great, the result of the changes would actually produce a significantly negative impact on the company’s profitability. The OI was decreased by $597,303, NI decreased by $384,766, and the NPM was decreased to 3. 67%. (E) The sales manager has suggested that the firm should increase the rate of collection by offering a discount with the terms 2/10 Net 30. The results of the discount incentive was speculated to increase cash payments to 35% in the month of sale, 25% in the month after sale, and % two months after the sale, with a 20% balance collected 90 days after the sales. Though the speculation sounds great, the result of the changes would actually produce a significantly negative impact on the company’s profitability. The OI was decreased by $705,870 and NI decreased by $467,865, and the NPM was decreased to 4. 65%. (F) The Marketing Manager’s belief that the firm should increase its advertising and sales promotion budget to 4. %, which would result in an increase in sales by 6. 0%, is somewhat beneficial for the firm. The OI was increased by $143,886 and NI increased by $80,061, but NPM was only decreased to 3. 95% which would not make this option alone beneficial for the company. (G) The manufacturing manager’s suggestion to increase the finished goods inventory from 1 to 2 weeks would not have a very signif icant change in the firms OI, NPM, and NI. The OI is only increased by $164,707, NPM is only increased to 4. 19% which is below the company’s expectations, and NI is only increased by $80,063. This option alone would not be significantly beneficial for the company. Recommendation to Management After analyzing each proposal and combining the effects of all the options that improved profitability, I have created a stack that maximizes the firm’s profitability and meet management’s goals of obtaining a NPM above 6 percent for next year. The combination of the suggestions made by the sales staff (A1), engineers (B), and manufacturing manager (G) has resulted in the optimal stack of options. OI increased by $4,012,094, NI increased by $2,639,300, and NPM increased to 7. 02%.