1.

Introduction

1.1 Introduction to the Study

1

The ultimate objective of any organization is to maximize its profits. This

objective can be achieved through various means like increasing sales, reducing costs,
reducing overheads, reducing prices, increasing sales promotion and so on. All these
factors have an influence on the working capital and how effectively are being managed.
Profits will increase considerably if organization manages its working capital optimally.
Thus, efficient working capital is one of the perquisites for success of an enterprise.
These days, management experts device new techniques like JIT, TQM, six
sigma and so on. Since the resource being scarce, its utilization should be optimum.
Many times through the company may be operating well; the profitability level will be
low. One of the reasons for this could be lack of proper management of working capital.
For every business concern, irrespective of its size nature and age working capital is the
life blood of the firm. No business can be successfully run without adequate amount of
working capital. In ordinary parlance, working capital is taken to be the funds available
for meeting day- to-day requirements of an enterprise. Thus working capital management
is very significant facet of financial management.
Working capital management is mainly concerned with two factors, namely, the
level of current assets to be held and types of assets and methods by which these assets
are financed. Modern financial management aims at reducing the level of current assets
without ignoring the risk of stock outs. This occupies much of the finance managers time
in taking decisions. The performance of the economic activities of a company is best
judged by the value of what is credited by such performance, which is beneficiary of the
value. The company can reach these goals through different financial activities. One of
the important activities is the proper maintenance and use of working capital. Therefore,
management of working capital requires more attention and care.

1.2 Significance of the Study

TRACO CABLE COMPANY, a Premier Kerala Government Company,
commenced operations in the year 1964, manufacturing high quality Electric Cables and
Wires in Technical Collaboration with M/s. Kelsey Engineering Co. Ltd., Canada. Since
then TRACO has been in the forefront in meeting the needs of Public Sector
Undertakings in India like Railways, Electricity Boards of various states in the country
and others for AAC/ACSR, Power and Signaling Cables.
The study is very important because of the scale of the company. The study is
very helpful to know the working capital management. It also helps in ascertaining how
the company performs in future. This study will help the firm to male projections of
working capital requirements for the next two years. This study also helps to understand
the liquidity and profitability of the company.
2

1.3 Statement of the Problem

Presently many of the government owned public sector companies are not
performing well. The major reasons for this are under utilization of capacity and
inefficient financial management. Effective and sound financial management tools are
essential at all levels of operation for the efficient operations of any enterprises. The
problem of under utilization of capacities is more acute and this can be solved by
management of working capital.
The present study is an attempt to diagnose the working capital management of
TRACO CABLE COMPANY. The problem under study is stated as Working Capital
Requirement of Eastern Treads Ltd for the Next Two Years Based on the Current Growth
Trend.
1.4 Objective Of The Study

Primary Objectives

To project the working capital requirement of TRACO CABLE

COMPANY for the next two years.

To examine the solvency and liquidity positions of TRACO

CABLE COMPANY.

Secondary Objectives

To study the activities in each department.

To understand the production procedure.

To study the financial performance of TRACO CABLE

COMPANY.

1.5 Scope Of The Study

The present study is designed to cover the analysis of working capital, liquidity and
solvency of TRACO CABLE COMPANY by establishing ratios on the basis of financial
statements. The analysis is mainly done on the basis of annual reports of TRACO
CABLE COMPANY for the period of 5 years from 2008-2012.
1.6 Methodology

i)

ii)

Data Collection Methods

Primary Data: Primary data was collected through direct

interaction with various officials of the company.

Secondary Data: Secondary data was collected from sources

comprising of; websites, annual reports of TRACO CABLE
COMPANY

Tools of Analysis

Ratio Analysis to know the performance and financial position of

the company.

Trend Analysis to project the working capital requirement for the

next two years.

1.7 Limitations Of The Study

Time is the most important constraint. The study s mainly based on
secondary data. Findings and conclusions of its study are based on the
information given in the annual reports of the company and are valued only with
respect, to figures given there in. Through adequate measures have been taken to
verify the reliability of the secondary data, possibility of normal errors inherent to
research, cannot be completely avoided.

2. REVIEW OF LITRATURE

2.1 Review of Literature

Sagan in his paper (1955), perhaps the first theoretical paper on the theory of
working capital management, emphasized the need for management of working capital
accounts and warned that it could vitally affect the health of the company. He realized the
need to build up a theory of working capital management. He discussed mainly the role
and functions of money manager inefficient working capital management. Sagan pointed
out the money managers operations were primarily in the area of cash flows generated in
the course of business transactions. However, money manager must be familiar with what
is being done with the control of inventories, receivables and payables because all these
accounts affect cash position. Thus, Sagan concentrated mainly on cash component of
working capital
Realizing the dearth of pertinent literature on working capital management,
Walker in his study (1964) made a pioneering effort to develop a theory of working
capital management by empirically testing, though partially, three propositions based on
risk-return trade-off of working capital management. Walker studied the effect of the
change in the level of working capital on the rate of return in nine industries for the year
1961 and found the relationship between the level of working capital and the rate of
return to be negative.
Welter, in his study (1970), stated that working capital originated because of the
global delay between the moment expenditure for purchase of raw material was made and
the moment when payment were received for the sale of finished product. Delay centres
are located throughout the production and marketing functions. The study requires
specifying the delay centres and working capital tied up in each delay centre with the
help of information regarding average delay and added value. He recognized that by more
6

rapid and precise information through computers and improved professional ability of
management, saving through reduction of working capital could be possible by reducing
the length of global delay by rescuing and/or favorable redistribution of this global delay
among the different delay centres. However, better information and improved staff
involve cost.
Appavadhanulu (1971)

recognizing the lack of attention being given to

investment in working capital, analysed working capital management by examining the

impact of method of production on investment in working capital. He emphasized that
different production techniques require different amount of working capital by affecting
goods-in-process because different techniques have differences in the length of
production period, the rate of output flow per unit of time and time pattern of value
addition. Different techniques would also affect the stock of raw materials and finished
goods, by affecting lead-time, optimum lot size and marketing lag of output disposals.
He, therefore, hypothesised that choice of production technique could reduce the working
capital needs.
Chakraborty (1973)

approached working capital as a segment of capital

employed rather than a mere cover for creditors. He emphasized that working capital is
the fund to pay all the operating expenses of running a business. He pointed out that
return on capital employed, an aggregate measure of overall efficiency in running a
business, would be adversely affected by excessive working capital. Similarly, too little
working capital might reduce the earning capacity of the fixed capital employed over the
succeeding periods. For knowing the appropriateness of working capital amount, he
applied Operating Cycle (OC) Concept.
7

3. CONCEPTUAL OVERVIEW

3.1 History of Cables and Wires Industry

A cable is one or more wires bound together covered by a protective sheath or
jacket. The individual wires may be covered with coloured insulation for easy
identification used for in house laying and also for underground use. Bunching small
wires before concentric stranding adds the most flexibility and tight lays during stranding
9

makes the cable extensible. Bare conductors are used mainly for overhead lines by
stranding bare wires often reinforced by steel wire inside. Pulling and compressing forces
balance one another around the high-tensile centre cord that provides the necessary inner
stability. As a result the cable core remains stable even under maximum bending stress. In
this process, smaller individual wires are twisted or braided together to produce larger
size wires that are more flexible than solid wires of similar size.
In the 19th century and early 18th century, cable was often insulated using cloth or
paper. Plastic materials and PVC (Poly Vinyl Chloride) are generally used today except
for high reliability power cables. Polyethylene Granules such as HDPE (High Density
Polyethylene) and LDPE (Low Density Polyethylene) are commonly used for insulation
in telecommunication cables today. To limit fire hazard to cables jacketing materials that
are inherently fire retardant is used for jacketing.

3.2 Industry Profile

3.2.1 World Scenario
The economic liberalization and industrial globalization lead to spectacular
development of the infrastructure such as buildings, roads and cables are the crucial
element that wire up the length and breadth of the countries as power and telecom
networks. Now the world is all set to see a "war of the accesses" with ever increasing
demand for cables and conductors. World have learnt with time the philosophy of cooperation and co-existence obviously leading to pooling of both technical and financial
resources for a better economically viable environment for industrial growth and
development.
3.2.2 Indian Scenario
INDIA has made remarkable progress in recent years in the manufacture of cables
and conductors. The country has not only achieved self sufficiency in this field but has
also made a big head way into the international market. Rural electrification and
telecommunication networks undertaken by various state governments as part of national
policy lay the crucial infrastructure backbone for the recently liberalized industry with
10

increased Private Public Participation (PPP) and privatization. The investment strategy of
the government primarily relies on promoting investment through a combination of
public investment with private investment participation. PPP will promote and streamline
strategies for future development and management of the economic and social
infrastructures ensuring effective use of resources, access to modern technology, timely
implementation and operation for rapid economic growth. The Indian economy grew at
an average annual rate of 9% in 2008 before global economic meltdown. Despite the
adverse circumstances Indian economy grew by 6.7% in 2009, 7.9% in 2010, and 8.5% in
2011 and is expected to achieve a growth rate of 9% in the year 2012. The telecom sector
and the power sector needs infrastructure development which is crustal for fueling for the
growth for the economy however power shortage remain a problem in many part of the
country and the distribution segment (transition and distribution) shows steady growth in
the requirement for cables and conductors. In the telecom sector private investment
increased from Rs.6crores in 2003 to Rs.51crores in 2010 and competition and access to
consumers seems to be the driving force. Therefore the pace of economic and social
development of the nation depend to a very large extend of the development of
infrastructure in the power sector as well as in the telecommunication sector.
The market segmentation and structure of the cable industry in India are
there both in Power sector as well in Telecom sector. Power cables are segregated into
high and low voltage varieties. Telecom cables are classified as high capacity cables
(Optic Fiber Cables) and low capacity cables (Jelly Filled Telecom Cables). Organized
players have higher presence in Indian Telecom sector since it involves higher capital and
technology inputs when the higher presence of unorganized players in Indian power
cables segment is evident for reasons of low investment. The current scenario prevailing
in the Indian cables industry has ample focus on government policy along with demandsupply position. In this context, special focus has been given to the impact of government
decisions on the industry for direct foreign investment putting an end to Public sector
monopoly in the Industry.

3.2.3 State Scenario

11

Emphasis is given for 100% electrification giving importance to rural

electrification as a government policy in Kerala State. Moreover telecommunication
network is wide spread all over the state including remote rural areas. Power connection
and telephone connection have become a basic need for everyone in the state. Due to the
onslaught of the mobile phones, in the country, the requirement for telecom cables are
diminishing in the state also. TRACO in public sector and around ten manufacturers in
the private sector compete in the market for power cables and conductors in the state.
TRACO has got a manufacturing capacity of 6000 metric ton conductors/per annum,
where as the manufacturing capacity of all the private manufacturers taken together
constitute only 5500 metric ton/per annum. All the private companies are located in the
southern part of the state in Trivandrum and Kollam district. TRACO is logistically
located at central Kerala. When Kerala State Electricity Board floats tenders for
conductors the private manufacturers does not quote for consignees at northern part of
Kerala due to high transportation cost. Hence TRACO has got a monopoly in bare
conductors, distribution cables and control cable market when transmission cables are
mostly dominated by private players of outside state.

3.3 Company Profile

Traco Cable Company

TRACO CABLE COMPANY is incorporated in the year 1960; the foundation stone of
Irumpanam unit was laid down by Shri Manubhai.M Shai. The then Union Minister for
Industries on March 19th 1960.The company started its operation in the year 1964. Shri
M.D Jose was the first chairman and the managing director on whose initiation
Irumpanam unit of the Traco Cable Company commenced its operation.
12

TRACO CABLE COMPANY, a Premier Kerala Government Company,

commenced operations in the year 1964, manufacturing high quality Electric Cables and
Wires in Technical Collaboration with M/s. Kelsey Engineering Co. Ltd., Canada. Since
then TRACO has been in the forefront in meeting the needs of Public Sector
Undertakings in India like Railways, Electricity Boards of various states in the country
and others for AAC/ACSR, Power and Signaling Cables. One of India's most sought after
Paper Insulated Lead Sheathed Telecommunication Cables were produced by TRACO in
collaboration with Hindustan Cables, West Bengal under an agreement signed in 1974
until the liberalization of Licensing policy in the country, TRACO was one of the two
manufactures of Telephone Cables in India and the only one in the whole of South India.
Always playing its humble role in the process of nation building, TRACOs cables carry
energy, actuate signals and help to connect people in far flying areas in this vast sub
continent, thats India with its quality products.
The superiority of TRACO cables is the result of better know-how
combined with well equipped machinery and efficient work force. Rigorous quality
control is maintained during every stage of production, which ensures, that the products
going into the market are according to the IS specifications. With the progress in Cable
Technology, Paper Insulated Cables gave way to the much more sophisticated Jelly Filled
Telephone cables which are superbly suited for communications. TRACO was one
among those who first perceived the opportunities inherent in this new development. It
soon went into Technical collaboration with M/s. General Cables Inc., USA, world
leaders in the Communication cable field and manufactured them in India to exacting
standards
The company started its function with a capital of Rupees one core divided into
250000 per: shares of Rs.10 each and 750000 equity shares of Rs.10 each. The unit was
has been manufacturing cables required for the Railways, the BSNL and the KSEB.
Traco's power cable manufacturing unit has a workforce of 210 and the telephone cable
division around 450. The estimated turnover of Traco cables is around Rs 44.8crore.

RISING FROM UNDERGROUND TO THE SKIES

13

It is true that all these years much of our time and effort was spent on making
underground cables that are as fail proof as can be. As a result, we have connected
millions of people, playing an important role in communications. And our efforts are still
on, to bring you better products. But there are no plans to stop with underground cables
alone. And thereby ignore people who could not be connected with underground cables
due to geographic and economic reasons. In short, TRACO has diversified into Aerial
Cables.
TRACO's new range of self support Aerial Cables connect people aerially at the
same time, economically. They are manufactured to both national and international
standards.
TRACO has developed Aerially Bunched Cables for LT Overhead lines also. They
are polythene Insulated Aluminum Cables of specification: REC Specification
No.s2/1984 and have a rated voltage of 1.1 K V. These types of cables help in reducing
the power interruptions to the barest minimum level possible. Many of the advanced
countries are all ready switching over to these cables from the bare counter system.

UNITS OF TRACO CABLE COMPANY LIMITED

1. Corporate office
The registered and corporate office of traco cable Company is located in Cochin,
panampilly nagar the industrial city of Kerala. Board of directors, MDs office, and
all main heads of traco Cable Company is located at the registered and corporate
office.

2. Tiruvalla unit
In tiruvalla unit of traco cables having two major divisions they are power cable
division and telephone cable divisions

3. Irimpanam unit
In irimpanam unit also having two divisions
14

Power cable division.

Telephone cable division.

4. Kannur unit
Kannur unit mainly focused on house wiring cables.

INFRASTRUCTURE AVAILABLE(IRUMPANAM UNIT)

Land

: 15.38 Hectares

Plant area

: 7500 sq.mtrs

Total built up area

: 9500 sq. mtrs

Electricity

: 2 nos. 1000KVA transformers in addition to

K.S.E.B. power connection.

Water

: 3 nos. bore wells for process water and

3 nos. well for Drinking water (7000ltrs/day)

Cooling tower

: 1 FRP/ Spray cooling tower with an

overhead tank and ground level tank

ORGANISATIONAL POLICY

15

BOARD OF DIRECTORS
CHAIRMAN
Shri.K.S.SRINIVAS, IAS,
ADDITIONAL SECRETARY TO GOVERNMENT,
INDUSTRIES DEPARTMENT,
GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM.
MANAGING DIRECTOR
Cdr. (Retd) K.SHAMSUDDIN
MANAGING DIRECTOR
TRACO CABLE COMPANY LIMITED,
COCHIN 682036.
DIRECTORS
1, Shri.K.S.SRINIVAS , IAS
ADDITIONAL SECRETARY TO GOVERNMENT,
INDUSTRIES DEPARTMENT,
GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM.
2, Cdr. (Retd) K.SHAMSUDDIN
MANAGING DIRECTOR,
TRACO CABLE COMPANY LIMITED,
COCHIN 682036.
3, Shri.M.RADHAKRISHNAN
JOINT SECRETARY TO GOVERNMENT,
FINANCE DEPARTMENT,
GOVERNMENT OF KERALA,
THIRUVANANTHAPURAM- 695001
4, Shri.R.MADHUSOODHANAN NAIR
MANAGING DIRECTOR
INDUSTRIES DEPARTMENT,
GOVERNMENT OF KERALA,

16

5, Shri.K.ASOKAN,
MEMBER (TRANSMISSION & TRANSMISSION),
KSEB,
THIRUVANANTHAPURAM.
6, Shri.S.VENKADEESWARAN
MANAGING DIRECTOR,
TELK,
ANGAMALY SOUTH P.O,
ERNAKULAM DIST.

ORGANISATIONAL SETUP
The companys Registered office is at Panampilly Nagar, Kochi with
manufacturing units at Irimpanam in Ernakulam District and Thiruvalla in Pathanamthitta
District and also a new Unit at Thalassery in Kannur District. TRACO CABLE
COMPANY LIMITED maintains the traditional lines of management having pyramid
structure of hierarchy. The Board of Directors consists of members appointed by the
Government of Kerala and the Managing Director is the Chief Executive Officer who
delegates the authority to the Unit Chiefs and other department heads. The Head of
Irimpanam unit is Mr.Boban George, Senior Manager and different departments such as
Production, Quality Assurance, Finance, Maintenance, Personnel & Administration,
Stores, Purchase and Marketing are having department heads reporting to the unit head.

MANAGEMENT IN IRIMPANAM UNIT

SENIOR MANAGER (UNIT HEAD)

SENIOR MANAGER(MAINTENENCE)
MANAGER( P&A)
MANAGER (P&A)
MANAGER (MARKETING)
MANAGER (FINANCE)
MANAGER (PRODUCTION)
MANAGER (QA&STORES)

17

BOBAN GEORGE
K.S. KRISHNAKUMAR
JOSHY ABRAHAM
JOHN VARKEY
BOBY GEORGE
MANOJ BINDHU
MANOJ A.T
DEEPA MERIN JACOB

ORGANIZATION STRUCTURE OF THE COMPANY

18

FUNCTIONAL DEPARTMENTS
The major functional departments at Traco Cables Ltd are:

MARKETING DEPARTMENT
19

Marketing department serves as the face of the organization, coordinating and

producing all materials representing the company. It is the marketing department's job to
reach out to potential customers, investors and the community, and create an image that
represents the company in a positive light. Marketing departments often collaborate with
other divisions within the company, such as advertising, promotions, sales, product
development and market research.
The marketing department moreover plays a vital role in the production planning as
a constant feedback of the quality of finished products is verified regularly to check the
possibility of finishing the production of the uses specified products in time. Hence, the
department plays an overall significant role in the functioning of the organization.
Marketing is a matching process by which a producer provides a marketing mix (product,
price, promotion and physical distribution) that meets consumer demand of a target
market within the limits of society. Since the inception company has been managing its
activities with a centralized control. Due to the increase in competition and necessity to
exert full control over the system the company has introduced a Decentralized way of
managing the departmental activities from this fiscal year.
(a) Responsibilities of the marketing department.
Major responsibilities of a Marketing Department are as follows:
1. Focus on the Customer
2. Monitor the Competition
3. Find & Direct Outside Vendors
4. Create New Ideas
5. Communicate Internally
6. Manage a Budget
7. Understand the ROI
8. Set the Strategy, Plan the Attack, and Execute
(b) Functions of the marketing department

20

1. Order canvassing:
The department continuously monitors the media, newspapers, sites etc. for
canvassing the orders.
2. Tender participation:
The company participates in tenders. There are two types of bids namely price bid
and technical bid. The companies qualifying in the techno-commercial bid are allowed
to participate in the price bid. The Techno Commercial bid includes details such as
capability of the company, quality of products and processes, status of past orders etc. If
qualified in it, the company can apply for the actual bid. Performance bank guarantee
and security deposit bank guarantee is required to participate in the bid.
3. Monitoring the activities of the agents:
All over India, the company has fixed agents for order canvassing. They are given a
commission of 1% or 2%.
4. Giving information:
The department is entrusted with the responsibility of giving necessary information
to all the other departments. Once the order is received, it is forwarded to the costing
department for evaluation, finance department for funding purposes, purchase
department for the purchase of raw materials and finally to the factory for production
planning.

PRODUCTION DEPARTMENT
The production department is the driving force turning the wheels of every
manufacturing company because without it there are no goods to sell to customers. Along
21

with producing the goods a manufacturer sells, the production department determines
how much of those goods can be produced in a certain time frame.
The main role of production is to turn inputs (raw materials) into outputs (finished
goods). Outputs refer to a finished product or service and inputs are the materials that are
needed to manufacture certain goods. When a business completes this process they are
able to achieve customer satisfaction by producing products that are ready to be used and
fit for purpose.
The production department is responsible for ensuring quality is achieved in each
item produced. They will need to carry out inspections and implement suitable quality
initiatives.
(a) Quality of goods
The production department's main duty is to ensure the goods being produced meet
the customer's quality expectations. Even though the quality assurance department
inspects the goods through the manufacturing process, the production department has
certain quality duties too. Each step measures the raw material to make sure it is within
the tolerances recommended before it goes to the next step.
(b) Production scheduling
A production department can only manufacture or assemble so many products in a
certain amount of time. It is the duty of the production department to maintain a
production schedule so other departments know what is being produced and how long it
takes to produce that quantity.
(c) Coordinating duties
This is the last step in a long production process. The production department
coordinates the production of each part of the assembled goods to ensure all parts are
being produced in conjunction with each other. All parts of an assembled product are
formed from raw material. This process takes several steps from the production
department to make sure each part of the product is being produced simultaneously or
within the same time frame.
22

(d) The production department in Traco

The production department in TRACO Cable Company is located in the
factory sites. The Production Department is headed by the Production Manager. His main
objective is to do production planning and to carry out the work according to the plans
prepared. The investigator analyses the Production process and notes the purchased raw
materials. The major raw materials are aluminums, steel and copper.
(e) Production planning
a. Material planning
On receipt of trial order / anticipated order /work order from the marketing
department, a material indent is prepared with reference to the customer specification
showing quantity and delivery time. The material indent is forwarded to the Head of
Materials for procurement. Material position is reviewed daily and intended to materials
departments for corrective action.
b. Production scheduling
Monthly production planning and scheduling is prepared based on orders
depending on priority as informed by marketing department. The monthly planning
schedule copy is giving to the Materials, Marketing, Finance, and QA&IT and Stores
departments to facilitate advance arrangements in their respective areas.
According to the schedule, different shifts are planned. And on completion, the
finished goods are handed over to the Quality Assurance Department. The Quality
Assurance Department conducts various tests and after testing, if they are satisfied they
issue a clearance and the finished goods are dispatched from the stores
department.
(f) The books maintained in production department are:1) Production log book :- Quantity level assigned to each machine
recorded in this book.
2) Daily production report: - Records details of daily production.
23

3) Daily

production

review

report :- It

reviews

weather

the

daily

production is
Achieved as planned or not.
4) Raw material stock position :- Records the position of stock of raw
materials.

PURCHASE DEPARTMENT
The Purchasing Department is an important player in any company's operations.
For an organization to excel, it must have a solid group of capable individuals executing
agreements on its behalf so that it's not over-paying for goods and services and so that it
can focus on business at hand. Purchasing provides a necessary support service to its
organization. Inter-departmental cooperation is another key duty of purchasing
management, because the Purchasing Department is the liaison between the organization
and its suppliers. Excellent vendor relations are vital in obtaining best value and best
pricing. Most purchasing departments have two types of purchasing agents: capital and
non-capital. Non-capital purchasing agents must have a general knowledge of materials
acquisition, and they must possess the ability to use their professional judgment in
matters of pricing, bids and quotations, and vendor selection. Purchasing agents are the
front-line liaisons between vendors and company departments. . In addition, purchasing
agents ensure that departments follow company policy when they submit their requests
for supplies. . In addition, purchasing agents ensure that departments follow company
policy when they submit their

requests for supplies. Capital purchasing agents perform

many of the same duties described above, but they also have additional tasks. They not
only purchase capital equipment and assist with renovation projects; they monitor capital
leases

and

compare

purchase

prices

with

the

(a) Duties and responsibilities of purchase department

24

allotted

capital

budget.

 Consults with users to develop specifications; makes recommendations regarding

purchases.
Contacts and receives informal quotes from appropriate vendors; compares costs and
evaluates the quality and suitability of equipment, materials and supplies.
Prepares and processes requisition forms; recommends vendors.
Prepares requests for removal and disposal of surplus items.
Verifies budget codes and availability of funds.
(b) Purchase department in Traco
Main duties of purchase department are to purchase the raw materials, machinery,
spares and general goods. purchase department has a very important role to ensue the
purchasing and delivery of the materials on time then only the production process will
done without any time lag.
(c) Duties of purchase department:
Duties of purchase department are to purchase various materials for the production
process.
Materials which are purchased by purchasing department are as follows: General consumables, Calibrated equipments
Machinery
Packing materials
Raw materials
Spare parts etc.
(d) Packing materials:
Raw materials purchased for packing are as follows:

Wooden drum
Wooden batten
Packing paper
Hoop iron etc.
25

(e) Machinery:
Machineries are purchase according to the increase in number of orders for
production.
Traco Cable Company has both imported machineries and Indian made machineries.
(f) Spare parts:
Any spare parts required for maintenance is also purchased by the purchasing
department.
(g) Rating criteria
The vendors are assessed on the basis of a wide variety of factors are as following:
Compliance with other specifications
Co-operation
Credit terms
Discounts received
Freight and delivery charges
Installation cost
Maintenance of specifications
Management Competence
Market information
Price
Promptness of delivery
Service
(h) Purchasing process
1. Indents duly approved with delivery schedule for the procurement of raw
materials and packing materials are received by the materials department from the
units and corporate office.
2. The indents are scrutinized by the Materials department for its correctness,
completeness in specification / description.
26

3. If any discrepancy is found in the indent will be returned to the respective

intender for rectification of discrepancies. Items for which specific details are
available, the indents will be rectified in the Corporate Office and the same will
be intimated to the intender.
4. Depending upon the nature and status of the indent, Tenders / quotation will be
invited from approved list of suppliers and schedules will be given to the
suppliers based on the indent and stock position of different raw materials on day
to day basis. In case of indents from Irimpanam Unit for manufacture of Jelly
Filled Telephone Cables, raw materials will be arranged either by transfers from
Tiruvalla unit or diverting from the suppliers. Depending upon the urgency, raw
materials are transferred between the two units.
5. Updating of the approved list of suppliers will be as detailed in the Work
Instruction.
6. The tenders / quotations are analyzed on the basis of technical and commercial
aspects. If the offers are found technically and commercially viable, purchase
proposal is prepared and put up through the commercial advisory committee
before the Chairman and Managing Director/ Board for approval. In urgent cases
orders will be placed and ratified later.
7. Purchase proposal is made on self generated indents as per work instruction.
8. Once the purchase proposal is approved, purchase order will be prepared by the
respective officers. The purchase order will be signed by the Head of Materials /
AM (Mat) on behalf of Managing Director.
9. Details of indent, Purchase orders placed, supplies made, Stores Receipt Vouchers
indicating whether quality of material is as per the purchase order, quality of
packing etc., will be entered in the Purchase Register. Steps will be taken to get
the replacement for rejected material.
10. Copies of the purchase order will be forwarded to the Indenter, Finance
department and Stores department.
27

11. If any changes are required in the Purchase Order, it will be intimated to the
supplier by amendments after necessary discussions with the concerned
departments. Copies of the amendments will be forwarded to the concerned
departments as above.
12. In case of advance payment/ clearance of documents from bank are required;
assistance from Finance Department will be obtained.
13. In case of rejection due to non-conformity to quality specification of the material,
appropriate action will be taken for alternate arrangement or replacement.
14. On receipt and acceptance of the consignment, intimation will be made to Finance
department to regularize/ release the payment based on the suppliers invoice and
Stores Receipt Voucher.
15. Once material acceptance is confirmed and payment is released, all records will
be kept in the respective files.
16. The vendor performance will be evaluated on the basis of quality, delivery,
packing, and service and unsatisfactory performance if any will be intimated to
the supplier as detailed in the work instruction.
17. In case of exigencies, raw material can be procured from stockiest/ other cable
manufacturer confirming to specifications/ standards.

STORE DEPARTMENT
28

TRACO Cable Company has a fell functioning store department. Duty of store
department is to take care of raw materials, finished goods, spares and tools. Materials
required for all departments are deals with general store. In TRACO Cable Company the
store department usually follows FIFO method of storage. This FIFO method will help to
avoid deterioration of materials and to avoid confusion on fluctuation of prices. A day
book is maintained in this store department for recording all the daily transaction taken
place.
There are mainly three stores TRACO namely:
General store
Spare and tools store
Finished goods store
(a) General store:
In general store all materials which required for all departments are maintained
Materials handled by general store are as follows:

Raw materials
Printed stationary and other stationary materials
Packaging materials
Miscellaneous materials
Electrical consumable materials
Building materials
All consumable materials

(b) Spare and Tool Store:

In spare and tools store all tools, spares, machinery, etc. for production process
(c) Finished goods store:
In finished goods store all final products are stored here. After testing, the goods are
packed and dispatched.
(d) various auditing conducted in each financial year are as follows: Statutory auditing
29

 Outside auditing
Accounts general auditing etc.
(e) Short term objectives in store department
Scrap due to deterioration of materials in storage should be ZERO
Damage on raw materials and finished materials due to bad handling should be
ZERO
Time for dispatch for finished goods for which commercial clearance is available
48 hours
Customer complaints on packing should be ZERO
(f) Responsibilities of personnel working in store department
a) Stores officer
Stores Officer is responsible for the maintenance of the system for the storage,
packing, preservation dispatch of both the incoming raw materials and the
outgoing final product.
b) Store keeper (general store)
Storage and preservation of materials
Preparation of stores receipt voucher
Monthly stock taking
Materials receipt and issue
Maintenance of stock with identification tags;
Maintaining ledgers and material requisitions
Intimating the material receipt to Inspection & Testing department for
inspection and testing
Handling of raw materials, packing materials, consumables and stationery
items
Annual physical inventory taking
c) Store keeper (spares and tools)

Storage and preservation of materials

Preparation of stores receipt voucher
Periodical stock taking
Material receipt and issue
30

Maintenance of stock with identification tags

Maintaining ledgers and material requisitions
Handling of spares, tools plant equipments & machines
Annual physical inventory taking

d) Storekeeper (finished goods store)

Packing and dispatching of finished goods ;
In case of power cables, the inspection certificate is receiving from Quality
Assurance/ Inspection& Testing department and accordingly packing is done
as per specification.

FINANCE DEPARTMENT
The roles and responsibilities of a finance manager require a sincere commitment
and an inexhaustible need for new challenges. Each industry has its own rules and
spending regulations so that finance managers must adhere to and more importantly hold
each department of the business accountable to in order to maintain a fully functioning
and federally compliant organization. Finance managers may allocate resources to each
department and draw up plans for future departmental budgeting in an effort to maximize
company finances for optimal performance and also have final approval for all financial
transactions for purchases occurring from outside the business.
(a) Duties and responsibilities of finance department
Duties and responsibilities of finance manager are as follows: Cheque payments.
Control of bank and cash.
Coordinating the audit of Statutory, Internal and Comptroller& Auditor General of
India.
Dealing with income tax matters.
Dealing with sales accounting and cost accounting.
Dealings with the sales tax cases.
Finalization of accounts
31

 Furnishing of CMA data and other details with banks.

Furnishing of sales tax returns.
Overall supervision of the finance department.
Passing of bills for payment like statutory dues.
Preparation of pass orders.
Preparation of various reports
Preparing monthly report to the government.
(b) Functions of the department
The head of finance department is responsible for the control and financial
accounting of the company, budgeting and performance appraisal, funding of projects,
control on budgeting and non budgeted expenditures and liaison with banks, financial
institutions and government.
The major functions of the Finance Department are:
1. Making Arrangements for Funds.
2. Working Capital Management.
3. Maintaining Accounts.
4. Costing System
a. Making arrangements for funds.
The Finance Department makes arrangements for funds from banks. Presently
the company has got an arrangement with a consortium of four banks for the arrangement
of funds. The banks issue a credit monitoring arrangement in which the Finance
Department has to convince the bank for lending funds to the company. Every month the
company has to submit a stock statement to the bank containing the current position of
the companys raw materials, funds available, debtors, stock etc. The bank is given an
idea as to how much fund is required by the company and according to that the bank
lends funds to the company. Only 75% of funds are issued by the bank. Rest has to be
financed by the companys funds.
Even if the sanctioned amount by the bank is high, the company can draw only according
to the present position of the companys stock, funds, debtors etc.
b. Working capital management.
32

Working Capital Management is another important function of the Finance

Department. The raw materials are used for work in progress. It is then converted into
finished goods. The finished goods are then sold on credit, thereby resulting in the
creation of debtors. On receiving the payment from debtors, the cash is used as funds.
The Finance Department assures that the processes in the cycle are not blocked at any
stage. This cycle can get blocked if there is a delay in dispatch of finished goods or if
there is a delay in payment of debts. Whenever there is a shortage of funds the finance
department assures maximum and apt use of available funds. There are certain Working
Capital facilities available to the organization. Some of these facilities are: 1. Letter of
Credit. 2. Bank Guarantee 3. Bills Discounting.
(c) Letter of credit
Here the organization opens letter of credit account and within about ninety days, if
the organization is not able to pay, the bank pays to the supplier. The supplier dispatches
the supplies only after the buyer opens a letter of credit account.
(d) Bank guarantee.
Once an order is taken up by the company for supplying the goods, a guarantee is
given by the companys bank that the goods will be supplied as undertaken by the
company. All the details about the supply is given and also the time period within which
the goods will be supplied.
(e) Bills discounting
The bills are discounted if there is a shortage of funds. For long term loans to the
Finance Department of the company approaches the banks.
(f) Maintaining of accounts.
At present the accounting system in use is partially computerized and partially
manual. Till 2001 the accounts were maintained fully manually. In 2001 Tally 5.4 was
introduced in the organization for the purpose of keeping accounts. Here again the
accounts maintained are not fully computerized. Only the financial accounts are
maintained in computerized form. The transactions done are first recorded in vouchers
manually and the net effect is taken and recorded in the computer. Other functions of the
Finance Department includes overseeing the payment to Income Tax, payment of Sales
33

Tax, TDS (Tax Deduction at Stores) and also to comply along with the statutory
requirements of the company.

(g) Costing system

When an order is received, the product is manufactured according to the
specifications as required by the customer. Here the machine centre is treated as the cost
centre and the cost is accumulated on it and then allocated to each product. On the basis
of this cost sheet is prepared.
This is then sent to the Marketing Department. The price fixation is done by the
marketing department. The marketing department is provided with the cost of the product
and according to the cost incurred on the particular product and a specific profit margin
the price of the product is fixed. They are using the cost plus margin method.
(h) Accounting policies
(1) General
The financial statements are prepared under historical cost convention on accrual basis
except where otherwise stated and in accordance with applicable account standards.
(2) Fixed Assets and Depreciation
a. Fixed Assets are stated at acquisition cost less depreciation.
b. Depreciation is provided on written down value method.
(3) Inventories
Various items of closing stock have been valued as under:
a. Finished goods At lower cost or net realizable price inclusive of excise duty
b. Work in Progress- At material cost plus the labour and overhead Expenses to material
consumed.
c. Raw Material- At cost
d. Stores, Loose Tools and Packing materials- At cost.
e. Scrap At net realizable price.
f. The company recognizes sales at the point of dispatch of goods to the customer. Sales
are net of duty and sales tax.
34

(i) Budgeting
The budget is prepared within the company itself. The budget is prepared by fixing
an estimate sale and accordingly all other expenses are fixed.

QUALITY ASSURANCE DEPARTMENT

Quality control is there to ensure that the product being sold is not in any way
harmful or defective. Quality control is a process employed to ensure a certain level of
quality in a product or service. It may include whatever actions a business deems
necessary to provide for the control and verification of certain characteristics of a product
or service. The basic goal of quality control is to ensure that the products, services, or
processes provided meet specific requirements and are dependable, satisfactory, and
fiscally sound. Quality control involves the examination of a product or process for
certain minimum levels of quality. The goal of a quality control team is to identify
products or services that do not meet a companys specified standards of quality.
(a) Quality policy of the company
TRACO Cable Company Limited shall strive for continual improvement in its
performance, by meeting the needs of internal and external customers, complying
with regulations through the involvement of all its employees.
Purpose of quality assurance department:
To provide an instruction for functions of quality control department.
Objective of quality assurance department:
To provide a documented procedure for functions of quality control department.
Scope of quality assurance department:
This procedure is applicable for functions of quality control department.
Procedure of quality assurance department:
35

 Testing and release or rejection of all incoming raw materials, packing materials, inprocess / intermediates and finished products as per specified specifications.
Maintaining testing records as per standard procedures for raw materials, packing
materials, in-process / intermediates and finished products.
(b) Quality assurance in traco cable company
TRACO CABLE COMPANY has a well known label of quality products. Main duty
of quality assurance department is to ensure the products have reached its international
standard specification and also ensure that the quality is higher than the competitors.
Traco has ISO certification so that it is the responsibility to ensure the right quality for
the products. It is also the responsibility of the Quality Assurance Department to
check whether the quality of the finished goods match the International standard.
(c) Functions of the quality assurance department
The following are the major functions of the Quality Assurance Department :
Incoming inspection
In process inspection
Finished goods inspection.
(d) Incoming inspection
Incoming inspection the inspection of raw materials that are brought into the
organization.
The inspection and testing of raw materials carried against Raw Material receipt
in stores.
Raw materials kept in the respective go downs are visually inspected.
Samples are collected and tested according to the raw material specification.
(e) In process inspection and testing procedure
Inspection and testing as per work instructions after the following stages of
production.

RBD
fine wire drawing and insulating
aging
36

 twinning
stranding
rewinding and printing
co extrusion of conductors with fiber glass roving
Records of inspection and testing after each stage shall be maintained.
Identification tags in the drums, coils shall be marked with inspection status.
In case of non conformity, non conformity report shall prepare and the material shall
be kept with STOP CARD. The non conformity report shall be forwarded to the
head of production.
head of production and head of QA and IT will decide on the course of action to be
taken for disposal and the decision recorded in the STOP CARD
The re worked material shall be re inspected to verify conformance.
(f) Final inspection and testing procedure

Receiving finished materials from production department for inspection

Carrying out tests on each drum of cable/ coil as per relevant work instruction
Preparation of test reports and authorization
Identification of accepted material with QA PASSED / TESTED OK stamp
Holding up material with STOP CARD
Decision on disposal
Re inspection of re worked material.

(g) The various tests are as follows.

1. Tests for aluminium coil
Breaking load
Diameter is checked.
Resistance
Wrapping test.
2. Tests for steel wire
Breaking load
Diameter is checked.
Wrapping test

37

MAINTENANCE DEPARTMENT
TRACO cables have a well functioning maintenance department. The main
duty of the maintenance department is to maintenance and preservation of machinery and
infrastructure. It is the responsibility of the maintenance department to make sure that the
factory premises are clean and all the necessary facilities are available for a good working
environment. The maintenance department should ensure that all machines are well
functioning for the production. The machines which is used for production should be
properly maintained and repaired whenever it necessary. This will result in smooth
working of the production process without any disruption.
(a) Responsibilities of maintenance department
The main responsibilities of maintenance department is to
Timely inspection and servicing of equipment,
Instructing workers on proper use of equipment,
Raising timely indent for replacement of equipment or spare parts.

(b) Functions of the maintenance department

The main functions of the maintenance department are as follows: Controlling maintenance personnel.
Deciding inspection methods and routine.
Developing and issuing standard instructions.
Issuing maintenance work orders.
Maintaining maintenance records.
Measuring efficiency of maintenance.
Planning maintenance work on a long term basis.
Storing maintenance materials e.g., tools, spare parts, lubricants, etc.

(c) mainly there are two types of maintenance

38

 Breakdown maintenance
Preventive maintenance
Breakdown maintenance
Break down Maintenance is done when any of the machines in the production unit
fails to do its particular work. It refers to the repair work taken after the failure of a
machine or equipment. For example Replacement of the torn belt is a case of breakdown
maintenance. Breakdown maintenance is corrective maintenance as it is undertaken to
restore equipment to an accepted standard. It involves mainly the repair of defective
equipment.

Procedure followed in the company:

When there is a break down, the shift in charge first examines the nature of break
down and reports immediately on its occurrence to the Maintenance Department
by sending the Requisition for Machine Maintenance (RMM)
Maintenance Department analyses the report and assigns a person for carrying out
the maintenance and records it in the Machine History book.
If necessary the spares are arranged and the maintenance is carried out by the
person from the Maintenance Department.
The authorized personnel from the Maintenance Department and User department
shall jointly inspect the machine/equipment after repair and RMM should be
closed after ensuring the smooth operation of the machine/equipment by the User
department.
The Engineer in charge keeps a record of the major maintenance works done. This
is record is known as the machine history book.

39

 The reports regarding the machine breakdown time shall be prepared and based in
the breakdown report, Monthly Machine availability will be presented in the
review meeting which will be held with the Unit chief and Maintenance Head.
Preventive maintenance
Preventive Maintenance is a precautionary measure that is taken so as to prevent any
kind of machine breakdown in the future. It consists of routine actions taken in a planned
manner to prevent breakdowns.
There are two constituents of preventive maintenance they are:Lubrication: Lubrication ensures long and safe working of the equipment
without mishaps.
Inspection: Inspection facilitates detection of faults in equipment so that repairs
and replacements may be undertaken before the faults assume the proportion and
shape

of a breakdown.

(d) Procedure followed in the company:

The annual schedule for Preventive Maintenance for all critical machinery and
auxiliary equipments are prepared before the starting of the financial year. Also
the detailed monthly update schedule is prepared before the beginning of each
month and distributed to the concerned sections. This is done by the Head of
Maintenance Department.
The Engineer in charge sees that the instructions/check lists for carrying out
inspection and maintenance of each machines/auxiliary equipments are followed
according to the work instruction/check lists.
Any suggestion/complaint that is brought up against the machine during the
course of preventive maintenance must be done with and records are properly
maintained.
Also during Preventive Maintenance the Engineer in charge does the calibration
of measuring devices which form part of the machines as and when required, as
per the work instructions/check list.

40

 After Preventive Maintenance is done the records of the work carried out and the
spares consumed is maintained in history books by the Engineer in charge.
Also the modification made on the machine/equipment is recorded and
maintained in the history book.
The status of Preventive Maintenance done is also shown on the equipment.

PERSONNEL AND ADMINISTRATION DEPARTMENT

Personnel and Administration Department to providing a growth oriented,
employees friendly working environment. The Personnel and Administration
Department takes care of recruitment and selection as well as industrial relation. . It refers
to a set of programs, activities of functions designed to carry out in order to maximize
both employee as well as organizational effectiveness. A personnel administrative
specialist provides support to the staff of the personnel department by ensuring the
department accomplishes assigned responsibilities on a daily basis. This can include
coordinating events, arranging meetings and travel plans, creating presentations,
preparing reports.
(a) Duties and functions of P&A department
Utilize the human power at the right place at right time
Develop the human resource by proper training.
Administrative functions including canteen, security, housekeeping, vehicle for
employees
Determine and manage work environment
Basic functions of P&A department are as follows:

Discipline
Grievance handling
Industrial relations
Job description
Manpower planning
Performance appraisal
Recruitment
Training
Welfare function
41

(b) Functions of P&A department in Traco Cable Company

Appointing of temporary hands/ casuals if required.
Calculation of retirement/ Terminal benefits to retiring, resigning and terminated
employees or employees dying in service.
Grievance handling.
Issuing of promotions/ personal grade to each employee.
Maintaining of attendance of employees, late coming, early going, absenteeism,
overtime etc.
Maintaining of personnel files.
Mede-claim policy, personal accidents claim etc.
Providing facilities like housekeeping, lighting, telephone etc.
Work connected with loans and advances of employees.
Work related to Employment leave, deputation of employees to other organizations
and transfer of employees.
Implementation of Long Term Agreement, promotion policy, pay revision, pay
fixation etc.
(c)Time office
A well functioning Time office also functioned under the P&A department. Punching
system is following regularly
Main duty in time office is to maintain
Attendance marking
Salary details
Leave marking
Over time
Short leave
Late and cut etc.

(d) Recruitment and selection process in Traco cable company

42

Since TRACO is a Government Company, the recruitment is through Public

Service Commission (PSC) tests and through employment exchange. In this selection
process it also includes the selection of semi-skilled workers to the Grade 3 officer post.
For the managerial post advertisement are given in newspapers. According to the
performance of the candidate in the group discussions and interview, the selection is
carried out. Recruitment and selection of the managerial post were conducted in
corporate office which is situated at Panampilly Nagar. Unskilled workers will be
promoted to the semi-skilled position after much experience and training. The
appointment procedure is as per government rules. Currently, no recruitment is being
done in the company since the existing employees are in excess.
(e) Training
Training is very important for efficient performance in the job. There is a procedure
called TNA (Training Need Assessment). The

higher

level

managers

of

all

departments assess the training needs of the employees under them. After this TNA
report is forwarded to the Head Office for approval. At the Head Office, the Managing
Director decides as to what type of training has to be provided. Based on the TNA an
annual training plan is prepared in March of every year. There are two types of training:
1. In house Training
Here, the training is given in the organization itself. It can be of two types, using
Internal Faculty and External Faculty.
2. External Training
Here the employees who need training are sent outside for training in
institutions that conduct training programs.
If there is more number of employees with training needs, the organization goes for an
in-house training programmed and if only a few employees need training, they are sent
outside for training. After the training programmed is completed the employee needs to
submit a feedback assessment of the training programmed based on how they can
improve the performance. Later the employee is observed as to whether any changes have
happened in the performance of the employee. It also helps in the promotion of
employee.

43

(f) Performance appraisal

Performance appraisal is done twice a year. Its main objectives performance appraisal
is:
Personal grading of each person. Grading is done according to performance in their
jobs.
There are certain parameters that are established and according to these parameters
the employees job performance is measured.
Parameters include: increase in productivity, inter personal relations, ability to adjust
to working environment etc.
The main parameters are
1) Attendance,
2) Punctuality and
3) Job knowledge.
It is then grouped into five categories such as poor, satisfactory, good, very good and
excellent. Points are given for each category and then grouped into grades. A skill
matrix is prepared and based on that training need is assessed.
(g) Wages and salaries
All employees are appointed in their respective scales of pay, which is finalized as
part of long term agreement made in periodic settlements. There is an increment in
wages and salaries every year. Here at TRACO, wages are also paid per work and
additions are made for overtime. Deductions are also made for reasons of leave,
late entry etc.
(h) Discipline
There are certain standing orders set by the organization on the conduct of
employees. Standing orders works as the main guideline regarding the discipline. In case
of misconduct, the following steps are taken:
First the management issues a note to the delinquent furnish replay on the allegation
regarding misconduct
Then it sends a charge memo asking for explanation and the reasons for not taking
disciplinary action as per standing orders.
44

 An enquiry officer is appointed for a domestic enquiry considering the gravity of the
misconduct management witnesses as well as witnesses from the delinquent with
opportunity to give evidence and to produce documents related to the matter.
Management side represented by presenting officer and delinquent side can be
represented by a co worker or an advocate.
Then a decision is taken based on finding of the enquiry report
Disciplinary authority communicates the enquiry report to the delinquent calling for
his explanation and if no satisfactory replay is furnished disciplinary action taken.
Disciplinary actions like
Barring increments without cumulative effect
Barring increments with cumulative effect
Warning MEMO or reprimand
Frequent instants of disciplinary action
Absenteeism
Failure to obey orders of superiors affecting the work
Causing damages to company property due to accidents
Using abuse languages against superiors or co-workers
Man handling other
(i) Incentives and fringe benefits
Incentives are usually given to the workers. A production target will be given to
the workers. Incentives will be given accordingly by cash. Also, there is a special pay.
Several fringe benefits given by the company to employees such as regards fringe benefit
they are:
Milk allowance,
Heavy duty allowance,
Night shift allowance and
Over time allowance.
Special allowance.
(j) Welfare measures
There is a welfare fund provided by the company. On retirement, a fixed amount will
be given to the employees. This is applicable to the workers and officers. There is a
provident fund for the employees.
(k) Participatory management
45

As a part of participatory management, a production meeting is being held in the

company. All the trade unions are called together for discussions. There exists a works
committee also in TRACO. Under Industrial Disputes Act 1947, every establishment
employing 100 or more workers is required to constitute a works committee. Such a
committee consists of equal number of representatives of employer and workers. The
main purpose of works committees is providing measures for securing and preserving
amity and good relations between the employer and employees.
(l) Transfer and promotion
Transfer of the employees depends upon the vacancy created in the company. Job
rotation is not here. Promotion is done according to the performance appraisal.
(m) Trade unions
There are two recognized trade unions in the company. They are:
TCEU TRACO Cable Employees Union (CITU)
TCEA TRACO Cable Employees Association (INTUC)
There are two more UN recognized but registered trade unions of AITUC and
STU who was not success full in the referendum.

(n) Manpower details

CATEGORY

NUMBER

ADMINISTRATIVE AND MANAGERIAL

14

FOREMAN AND CHARGEHAND

11

SKILLED WORKMEN

45

SEMI-SKILLED WORKMEN

105

UNSKILLED

CASUAL LABOUR

46

4. THEORETICAL FRAME WORK OF WORKING CAPITAL

MANAGEMENT

47

Theoretical Frame Work of Working Capital Management

A successful sales program is necessary for earning profits by any business enterprises.
Sales dont convert into cash instantly. There is a time lag between the sale of goods and
receipt of cash. Therefore there is a need for working capital in the form of current assets
to deal with the problem arising out of the lack of immediate realization of cash against
goods sold. Therefore sufficient working capital is necessary to sustain sales activity.
The working capital management is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities and the relationship that exists
between them. The term current asset refers to those assets which are the ordinary course
of business within a year, out of the current or earnings of the concern. Current liabilities
are accounts payable, bills payable, bank overdraft and outstanding expenses. Working
capital is that portion of firms asset which is financed by long-term funds. Interaction
between current assets and current liabilities is the main theme of the theory of working
capital management.
Goal of working capital management is to manage the firms current assets and current
liabilities in such a way so that a satisfactory level of working capital management is
deciding the optimum level of investment in various current assets. There are three
important current assets, cash, accounts receivables and inventory.
4.1 Definitions of Working Capital
Working capital is ordinarily defined as the excess of current asset over current
liabilities
Working capital management involves the relationship between a firms short-term
assets and its short-term liabilities. 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, accounts payable
and cash.
4.2 Management of Working Capital
Management will use a combination of policies and techniques for the management of
working capital. These require managing the current assets generally cash and cash
equivalents, inventories and debtors. There are also a variety of short term financing
options which are considered;

48

Cash Management- identifies the cash balance which allows for the business to
meet day to day expenses, but reduces cash holding costs.

Inventory management- identifies the level of inventory which allows for

uninterrupted production but reduces the investment in raw material and hence
increases cash flow; see Just In Time (JIT) and Economic Order Quantity (EOQ).

Debtors management- identify the appropriate credit policy, i.e. credit terms
which will attract customers, such that any impact on cash flow and cash
conversion cycle will be offset by increased revenue and hence Return on Capital
(or vice versa); see Discount and allowances.

Short term financing- inventory id ideally financed by credit granted by

supplier; dependent on the cash conversion cycle, it may be necessary to utilize a
bank loan (or overdraft), or to convert debtors to cash through factoring.

4.3 Kinds of Working Capital

Working capital can be classified either on the basis of concept or on the basis of
periodicity of its requirement.
On the basis of concept
On the basis of concept working capital is of two types.

Gross working capital - Gross working capital is represented by the total

current assets.

Net working capital Net working capital is the excess of current asset
over current liabilities.

Net working capital = Current Assets Current Liabilities

On the basis of requirement
On the basis of requirement working capital is of two types.

Permanent working capital It is that amount of investment which

should always be there in the fixes or minimum current assets like
inventory, accounts receivables or cash balance etc. to carry out business
smoothly. Such an amount cant be reduced if the firm wants to carry on
business operations without interruption.
49

Variable working capital The excess the amount of working capital

over permanent working capital is known as variable working capital. It
may also be subdivided into two parts.
o Seasonal working capital Such capital is required to meet out
the seasonal demands of busy periods occurring at stated intervals.
o Special working capital Such capital is required to meet out the
extra ordinary needs of contingencies. Events like strike, fire,
unexpected competition, rising price tendencies, or initiating a big
advertisement campaign require such capital.

4.4 Objectives of Working Capital

For purchase of raw material, components and spares.
To pay wages and salary.
To incur day to day expenses and overhead cost like power, office expense etc.
To meet various selling costs as packaging, advertising etc.
To provide credit facility to customers.
To maintain inventories of raw materials, work in progress, stores and spares and
finished goods.
4.5 Advantage of Maintaining Adequate Working Capital
Solvency of business: adequate working capital helps in maintaining solvency of
business by providing uninterrupted flow of production.
Goodwill: sufficient working capital helps a business to make prompt payments
and thus helps in creating and maintaining goodwill.
Easy loans: a concern having adequate working capital, high solvency and good
credit standing can arrange loan from banks and others on easy and favorable
terms
Cash discounts: adequate working capital helps a concern to avail cash discounts
on purchase and hence it reduces costs.

50

 Regular supply of raw materials: sufficient working capital ensures regular

supply of raw materials and continuous production.
Regular payment of expenses: a company having working capital can make
regular payment of salaries, wages etc which raises the morale of its employees,
increases their efficiency, reduces wastages there by enhances production and
profits.
Exploitation of favorable market condition: concern with adequate working
capital can exploit favorable market condition like purchasing its requirements in
bulk. When the prices are lower and holding its inventories for higher prices.
Ability to face crisis: only concerns with adequate working capital can face
business crisis on emergencies such as depression, because during such periods
there is much pressure on working capital.
Quick & regular return of investments: sufficient working capital enables a
concern to pay quick and regular to its investors as there may not be much
pressure to plough back profits. This gains the confidence of its investors and
creates a favourable market to raise additional funds in future.
High morale: adequate working capital creates an environment of security,
confidence and high morale and creates overall efficiency in a business.
4.6 Determinants of Working Capital
A host factors influencing the levels of wept needs for a firm can be categorized into two
groups:

Internal factors
External factors

A.

Internal Factors

1.

Nature of Business

The composition of current asset is a function of the size of a business and the industry to
which it belongs. Small companies have smaller proportion of cash, receivable and

51

inventory than large corporations. This difference becomes more marked in large
corporations.
2.

Size of business

The size of business have also an important impact on its working capital needs. Size
may be measured in terms of a scale of operations. A firm large scale of operations will
need more working capital than a small firm.
3.

Firms Production Policy

A firm following uniform production policy will have to stocks of material during the
off season periods and thus incur greater inventory and risk. The effect of seasonal
fluctuations upon Working Capital can be offset by pursuing the policy of adjusting
production plan to seasonal changes. In this case, inventories are kept at minimum
levels but the production manger must shoulder the responsibility of constantly,
varying production schedules in accordance with the changing firm's production
policy has also an important impact on its working capital needs.
4.

Firm's Credit Policy

Credit control included such factors as the volume of credit sales, the terms of credit
sales, the collection policy, etc., with a sound credit control policy; it is possible for a
firm to improve its cash inflow.
5.

Access to Money Market

The WCPL requirements of a firm are conditioned by the firm's access different sources
of money market. Credit facilities at liberal terms will be able to get by with less
working capital than a firm without such facilities.
52

6.

Growth and Expansion of Business

Working capital requirements of an enterprise tend to increase in correspondence with

growth in volume of sales. Additional current asset will be needed to support increased
scale of operations.
7.

Profit Margin & Dividend Policy

Magnitude of Working Capital in a firm is dependent upon its profit margin and
dividend policy. As a matter of fact, a high net profit margin reduces the Working
Capital requirements of firm because it contributes towards the Working Capital pool.
Distributions of high proportion of profits in of cash dividend results in drain on cash
resources and thus reduce company's Working Capital to that extent.
8.

Depreciation Policy

The depreciation policy influences the level of Working Capital by affecting tax
liability and retained earnings of the enterprise.
9.

Operating Efficiency Of A Firm

Operating efficiency of the firm results in optimum utilization of resources at minimum

cost.
10.

Co-Ordination of Activities in Firm

Where production and distribution activities are co-ordinate pressure on WPCL will be
minimized.

53

B.

External factors

1.

Business Fluctuations

Seasonal fluctuations in sales affect the level of variable WCPL. Business expands
during the period of prosperity and decline during the period of depression.
Consequently, more WCPL is required during the period of prosperity and less
during the period of depression.
2.

Technological Developments

Technical development in the area of production can have sharp effects o the need for
WCPL. If the firm switches over to new manufacturing process and installs new
equipments with which it is able to cut period involved in converting raw materials into
finished goods, permanent WCPL requirements of the firm will decrease. If new machine
can utilize less expensive raw materials, the inventory needs may be reduced.
3.

Import Policy

Import policy of the government may also have its bearing on the levels of Working
Capital of the enterprises since they have to arrange funds for importing goods at specified
times.
4.

Taxation Policy

In the event of regressive taxation policy of the government as it exists today in India,
imposing heavy tax burdens on business enterprises, they are left with very little profits
for distribution and retention purpose, consequently, they have to borrow additional
funds to meet the increased WCPL needs. Thus pressure on WCPL is minimized
particularly when liberal taxation policy is followed.
5.

Transport and Communication Developments

54

Where the means of transport and communication in a country are not well developed,
industries may need additional funds to maintain big inventory of raw materials and
other accessories which would otherwise not be needed where the transport and
communication system are high developed.
6.

Just In Time (JIT) Approach

This is an approach to manufacturing developed in Japan. The objective is to have a

perfect matching between the outputs of a manufacturing firm and needs of the
market. Effort is made to minimize the time interval between starting the
manufacturing process and the product being ready for delivery to the customers.

4.7 Working Capital Cycle

Working capital cycle indicates the length of time between firmss paying for materials
entering into stock and receiving the cash from sales of finished goods. In a
manufacturing firm, the duration of time required to complete the sequence of events is
called operating cycle. In case of manufacturing company, the operating cycle is the
length of time necessary to complete the following cycle of events: Conversion of cash into raw materials
Conversion of raw materials into work-in-progress
Conversion of work-in-progress into finished goods
Conversion of finished goods into accounts receivables
Conversion of accounts receivables into cash
OPERATING CYCLE OF A MANUFACTURING FIRM

Cash

Debtors
55

Raw
materials

Work in
progress

Sales

Finished
goods

In case of a trading firm the operating cycle will include the length of time required to
convert.
Cash into inventory
Inventory into receivables
Accounts receivables into cash

OPERATING CYCLE OF A TRADING FIRM

CASH

ACCOUNTS
RECEIVABLES

56

INVENTORY

4.8 Nature of Working Capital Management

Working capital management is three dimensional in nature;
It is concerned with formulation of policies with regard to profitability, liquidity
and risk.
It is concerned with the decisions about the composition and level of current
assets.
It is concerned with the decisions about the composition and level of current
liabilities.

57

5. DATA ANALYSIS AND INTERPRETATION

5.1 Net Working Capital Analysis

Net working capital can be defined in two ways
Net working capital is the difference between current assets and current liabilities.
Net working capital is that portion of firms current assets, which is financed with
long term funds.
58

As long as the current asset exceeds the current liabilities, the excess must be financed
with long term fund. Thus net working capital is a qualitative concept, which indicates
the liquidity position of the firm and suggests the extent to which working capital needs
may be financed by permanent or long term sources funds.
Net working capital = Current Assets - Current Liabilities
The following table shows the working capital of Traco Cable Company from 2005-2006
to 2009-2010.

Table 5.1
ANALYSIS OF NET WORKING CAPITAL (RS IN LAKHS)

YEAR

CURRENT
ASSETS

CURRENT
LIABILITIES

NET
WORKING
CAPITAL

2005-2006

2492.91

1081.32

1411.59

2006-2007

3266.39

1810.43

3084.96

2007-2008

3677.07

2123.88

1553.19

2008-2009

3278.89

1796.58

1482.31

2009-2010

3144.94

1525.61

1619.33

It is revealed from the table 5.1 that the net working capital of Traco Cable Company
shows a positive trend up in the year 2009-2010 after huge fall in 2007-2008.
Graph 5.1
NET WORKING CAPITAL

59

5.2Ratio of Gross Working Capital to Sales

This ratio indicates the amount of working capital employed rupee of sales. It is getting
by dividing gross working capital by sales. A lower ratio implies more efficient use of
funds.

60

Gross Working Capital Ratio = Gross Working Capital / Net assets

Table 5.2
RATIO OF GROSS WORKING CAPITAL TO SALES (RS IN LAKHS)

YEAR

GROSS
WORKING
CAPITAL

SALES

RATIO

2005-2006

2492.91

3684.87

0.677

2006-2007

3266.39

5143.31

0.635

2007-2008

3677.07

3216.36

1.143

2008-2009

3278.89

4967.83

0.660

2009-2010

3144.94

7168.65

0.439

From the table 5.2 it is revealed that the ratios are fluctuating trend. During 2005-06 it
was 0.677 and then it was decreased to 0.439 in 2009-10 because of decrease in loans and
advances.

Graph 5.2
GROSS WORKING CAPITAL TO SALES

61

5.3 Net Working Capital Turnover Ratio

62

The net working capital turnover ratio shows the relationship between net
working capital and sales; and help to measure whether the working capital is effectively
utilized in making sales. There is no standard ratio for net working capital turnover. High
ratio is an indication of efficient utilization of current assets of the firm.
Table 5.3
NET WORKING CAPITAL TURNOVER RATIO (RS IN LAKHS)

YEAR

SALES

NET
WORKING
CAPITAL

NET WORKING
CAPITAL
TURNOVER
RATIO

2005-2006

3684.87

1411.59

2.61

2006-2007

5143.31

3084.96

1.67

2007-2008

3216.36

1553.19

2.07

2008-2009

4967.83

1482.31

3.35

2009-2010

7168.65

1619.33

4.43

Table 5.3 indicates the net working capital turnover ratio of Traco Cable
Company. There is slight fluctuation in the year 2006-07 than increasing trend. High Net
Working Capital indicates the efficient working capital management.

Graph 5.3
NET WORKING CAPITAL TURNOVER RATIO
63

Liquidity Analysis
5.4 Current Ratio

64

Current ratio indicates the availability of current assets in rupees for every one
rupee of current liabilities. A ratio of greater than one means that the firm has more
current assets than current liabilities. As a conventional rule, a current ratio of 2 to 1or
more is considered satisfactory
Current Ratio = Current Assets / Current Liabilities

Table 5.4
CURRENT RATIO (RS IN LAKHS)

YEAR

CURRENT
ASSETS

CURRENT
LIABILITIES

CURRENT
RATIO

2005-2006

2492.91

1081.32

2.3

2006-2007

3266.39

1810.43

1.8

2007-2008

3677.07

2123.88

1.7

2008-2009

3278.89

1796.58

1.8

2009-2010

3144.94

1525.61

2.1

As per the above table the current ratio indicates Traco Cable Company has a
standard level of liquidity from the year 2005-06 to 2009-10. In 2009-10 current ratio is
2.1. It shows a good liquidity position of the company.

Graph 5.4
CURRENT RATIO

65

5.5 Quick Ratio

A quick ratio of 1 to 1is considered as a satisfactory current financial condition. A
quick ratio of more than one may not say it sound liquidity position because all debtors
66

may not be liquid and inventories are not absolutely liquid. If the quick ratio is in low
value may say the management of debtors and inventories in efficiently.
Quick ratio = (Current Assets Inventories) / Current Liabilities
Table 5.5
QUICK RATIO (RS IN LAKHS)

YEAR

CURRENT
ASSETS

INVENTORIES

CURRENT
LIABILITIES

QUICK
RATIO

2005-2006

2492.91

526.67

1081.32

1.8

2006-2007

3266.39

887.8

1810.43

1.1

2007-2008

3677.07

106.8

2123.88

1.7

2008-2009

3278.89

451.22

1796.58

1.6

2009-2010

3144.94

811.7

1525.61

1.5

From the above table the quick ratio of the company is higher than the standards.
But it does not show the sound liquidity of the company because all debtors may not be
liquid and inventories are not absolutely liquid.

GRAPH 5.5
QUICK RATIO

67

5.6 Solvency Ratio

68

Solvency ratio is used to test the solvency of a firm. Solvency means the ability to meet
the outside liabilities. It consists of long term debt and current liability. Total assets
stands for total of fixed assets and current asset.
Solvency ratio = Total outside liability / Total asset
Table 5.6
SOLVENCY RATIO
YEAR

OUTSIDE
LIABILITY

TOTAL ASSET

RATIO

2005-2006

3357.81

3015.50

1.11

2006-2007

3988.66

3893.85

1.02

2007-2008

2964.83

4236.07

0.7

2008-2009

3154.23

3784.89

0.83

2009-2010

4266.11

3594.31

1.19

The above table shows that the solvency position of the company presented a
downward trend till 2007-08. From 2008-09 shows an upward trend.

Graph 5.6
69

SOLVENCY RATIO

5.7 DuPont Analysis

A method of performance measurement that was started by the DuPont corporation in the
70

1920s and has been used by them ever since. With this method assets are measured at
their gross book value rather than at net book value in order to produce higher ROI. It is
believed that measuring assets at gross book value removes the incentive to avoid
investing in new assets. New asset avoidance can occur as financial accounting
depreciation method artificially produces lower ROI in the initial year that an asset is
placed into service.
The DuPont analysis is a means of analyzing the three components of return on equity;
1. Net margin=net income/ sales. How much profit a company makes for every $1.00 it
generates in revenue. The higher a companies profit margin the better.
2. Asset turnover=sales/total assets. The amount of sales generated for every dollars
worth of asset. This measures the firms efficiency at using assets. The higher the number
the better.
3. Leverage factor=total asset/ shareholders equity. The higher the number, the more the
debt company has.
The DuPont analysis is a means of analyzing the components of return on total assets.
DuPont analysis= net profit / sales * sales / total asset

Table 5.7
DUPONT ANALYSIS
71

YEAR

NET PROFIT

SALES

TOTAL ASSETS

ROI

2005-06

Nil

3684.87

5387.28

Nil

2006-07

Nil

5143.31

5694.85

Nil

2007-08

Nil

3216.36

6004.71

Nil

2008-09

31.88

4967.83

5979.18

0.005

2009-10

594.01

7168.65

5426.97

0.11

Graph 5.7
DUPONT ANALYSIS

72

On the basis of DuPont analysis the Traco Cable Companys return on total asset
is less than zero. It means the company is facing a nominal loss. The firm cannot able to
obtain an adequate return on total asset.

5.8 Projection of Working Capital for the Next Two Years

Traco Cable Companys working capital for the past 5 years are
73

Table 5.8
WORKING CAPITAL (RS IN LAKHS)
YEAR

WORKING CAPITAL

2005-2006

1411.59

2006-2007

3084.96

2007-2008

1553.19

2008-2009

1482.31

2009-2010

1619.33

TREND ANALYSIS
Trend analysis is the tool used to project the working capital for the next two years.
Table 5.9
TREND ANALYSYS (RS IN LAKHS)
YEAR

XY

X2

Y2

2005-2006

-2

1411.59

-2823.18

1992.59

2006-2007

-1

3084.96

-3084.96

9516.98

2007-2008

1553.19

2412.4

2008-2009

1482.31

1482.31

2197.24

2009-2010

1619.33

3238.66

2622.23

TOTAL

9151.38

-1187.17

10

18741.44

b = (NXY (X) (Y)) / (NX2 (X)2)

b= (5 x -1187.17- (0) (9151.38)) / (5 x 10 0)
= -5935.85 / 50
= -118.717
a = (Y b (X)) / N
74

a = (9151.38 ((-118.717) x 0) / 5
= 9151.38 / 5
= 1830.276
FOR THE YEAR 2011
a + bx
= 1830.276 + (-118.717 x 3)
=1474.13
FOR THE YEAR 2012
a + bx
= 1830.276 + (-118.717 x 4)
=1355.41
WORKING CAPITAL FOR THE NEXT TWO YEARS
Table 5.10
YEAR

WORKING CAPITAL

2011

1474.13

2012

1355.41

Graph 5.8
WORKING CAPITAL TREND

75

76

6. Findings, Suggestions & Conclusion

6.1Findings
The net working capital of the company is showing a fluctuating trend. In the year
2007 the net working capital of the company was Rs3084.96 Lack s and it was decreased
in 2008 to Rs 1553.19 Lacks because of increase in current liabilities. From 2009 it
showed an upward trend. Companys present proportion of current asset is good enough
77

to meet working capital needs. The amount of working capital shows increasing trend
throughout the years under study indicating positive liquidity.
It is revealed that the Gross Working Capital ratios are fluctuating trend. During
2005-06 it was 0.677 and then it was decreased to 0.439 in 2009-10 because of decrease
in loans and advances.
From the study it shows that the working capital turnover ratio is fluctuating
between 2.61 to 1.67 in between 2005-06 and 2006-07. And in 2007-08 ratio increased to
2.07 and in 2008-09 it again increased to 3.35. High ratio indicates efficient utilization of
working capital and. low ratio indicates it is not effectively utilized.
Current ratio indicates Traco Cable Company has a standard level of liquidity
from the year 2005-06 to 2009-10. In 2009-10 current ratio is 2.1. It shows a good
liquidity position of the company.
The quick ratio of the company is higher than the standards. But it does not show
the sound liquidity of the company because all debtors may not be liquid and inventories
are not absolutely liquid.
Liquidity analysis reveals that current ratio and quick ratio of company is almost
up to the standard ratio in all the years of the study. The average current ratio is 1.94; the
standard ratio is 2:1. The average quick ratio is 1.54; The standard ratio is 1:1.
The study shows that the solvency position of the company presented a downward
trend till 2007-08. From 2008-09 shows an upward trend.
On the basis of DuPont analysis the Traco Cable Companys return on total asset
78

is less than zero. It means the company is facing a nominal loss. The firm cannot able to
obtain an adequate return on total asset.
The company has been doing well in terms of sales and revenue for the last two
years of study 2008-09 and 2009-10.

6.2 Suggestions
The company should make more steps to meet competition by making significant
investment in technology.
The company must make more investment in advertising. That makes awareness
to the customers more about companys product. It also helps to achieve more market
share.
The company should borrow funds only if it is necessary for productive purpose.
Through reducing the loan amount the company can eliminate fixed interest charges.
If the company can sell more products, they can maintain the cash position or by
reducing the current liability by paying their amount from long term sources the cash
position can be improved as compared to current liability.
The company should follow long term loans from banks and other financial
institution or issue long term securities.
Recruit efficient and skilled officials at the regional official who can make prompt
effort in the payment collection from the debtors.
To increase the efficiency of the receivables system computerization of the whole
system is preferable.

79

6.3 Conclusion
The project Study titled A Study on Working Capital Requirement of Traco
Cable Company for the Next Two Years Based on Current Growth Trend is an
attempt to study the working capital management and evaluate the liquidity and
profitability of the company for a period of 5 years. It also shows the efficiency with
which the company is in managing its working capital needs. Through the financial
statement analysis the financial position is also studied and it shows that the long term as
well as the short term solvency of the firm is in a good position. On the whole it can be
concluded that the working capital efficiency has been increasing every year. It needs to
be maintained and increased further by effective utiliszation and control of current assets.

Bibliography
Books

IM Pandey, Financial Management

Prasanna Chadra, Financial Management, Tata McGraw Hill, New Delhi,2004
Accountancy, S N Maheshwari, S K Maheshwari
Sashi K.Gupta &R.K. Sharma, Management Accounting Principles and Practice
80

Reports
Annual Reports of Traco Cable Company for the year 2005-2006 to 2009-2010
Websites
www.tracocable.com

81