working capital management for construction company in india ppt
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Need to have a presentation of working capital management for construction company in india ppt.

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Working capital management
1. Working Capital Management
2. Construction Industry <ul><li>The construction industry has grown to be a very important sector in India because of the infrastructure development it needs. </li></ul><ul><li>Over the past five years, the construction sector has grown faster than overall GDP. While the GDP growth rate has been in the range of 6 to 7 per cent, the construction industry has been growing at a rate between 10% and 15 % annually. </li></ul><ul><li>The sector is also second biggest in terms of employment opportunities. It employs almost 14% of the total employable population of India. </li></ul><ul><li>Further, the construction industry creates a multiplier effect on core industries such as steel, cement, aluminum and petroleum etc. </li></ul>
3. Nature of the industry <ul><li>It is an unorganized sector </li></ul><ul><li>Traditionally, the sector has been dominated by small and medium enterprises (SMEs) </li></ul><ul><li>It’s a highly competitive market </li></ul><ul><li>There are three major types of segments in this industry infrastructure, real estate and industrial. </li></ul><ul><li>Business in the construction industry is mainly tender based. At times if not tender based, there can be negotiated contracts. </li></ul>
4. Financial Issues In this Industry <ul><li>The majority of investments come from the public sector. </li></ul><ul><li>Public- private partnership (PPP) projects have been identified as the most suitable mode for the implementation of projects. </li></ul><ul><li>The current budget has given a lot of importance to this sector. </li></ul><ul><li>Finance here is of two types: fund based and non-fund based. </li></ul><ul><li>In this industry a contract between the owner and the contractor defines the financial matters of the project. </li></ul><ul><li>The working capital depends largely, on the contractual terms & conditions. </li></ul>
5. Contract <ul><li>Contract is considered the most important document in this industry. </li></ul><ul><li>The execution of the project is defined by the contract. </li></ul><ul><li>The flow of working capital largely depends on the type of contract that the company has entered into. </li></ul><ul><li>The following are the types of contract seen in this industry: </li></ul><ul><li>Lump sum contract </li></ul><ul><li>Item rate (Normal, basic rate, formula) </li></ul><ul><li>Fixed price contract </li></ul><ul><li>The contractor had to follow the BOQs, if given in the contract purchasing materials, and execution of other work. </li></ul>
6. JMC Projects (India) Ltd. &quot;It is about commitment for customer satisfaction through engineering excellence and quality construction.&quot; Founded in 1982 as a construction company, JMC has successfully defined its objectives & positioned itself as one of the leading organizations in the construction industry. Today, JMC has well equipped autonomous offices at strategic locations to effectively & efficiently serve it's customers spread across the nation. JMC got listed on NSE/BSE in 1994.KALPTARU POWER TRANSMISSION LTD. TOOK 51% stake of JMC in feb’05.
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What is 'Working Capital Management'
Working capital management refers to a company's managerial accounting strategy designed to monitor and utilize the two components of working capital, current assets and current liabilities, to ensure the most financially efficient operation of the company. The primary purpose of working capital management is to make sure the company always maintains sufficient cash flow to meet its short-term operating costs and short-term debt obligations

BREAKING DOWN 'Working Capital Management'
Working capital management commonly involves monitoring cash flow, assets and liabilities through ratio analysis of key elements of operating expenses, including the working capital ratio, collection ratio and the inventory turnover ratio. Efficient working capital management helps with a company's smooth financial operation, and can also help to improve the company's earnings and profitability. Management of working capital includes inventory management and management of accounts receivables and accounts payables.
Elements of Working Capital Management
The working capital ratio, calculated as current assets divided by current liabilities, is considered a key indicator of a company's fundamental financial health since it indicates the company's ability to successfully meet all of its short-term financial obligations. Although numbers vary by industry, a working capital ratio below 1.0 is generally indicative of a company having trouble meeting short-term obligations, usually due to insufficient cash flow. Working capital ratios of 1.2 to 2.0 are considered desirable, but a ratio higher than 2.0 may indicate a company is not making the most effective use of its assets to increase revenues.

The collection ratio, also known as the average collection period ratio, is a principal measure of how efficiently a company manages its accounts receivables. The collection ratio is calculated as the number of days in an accounting period, such as one month, multiplied by the average amount of outstanding accounts receivables, with that total then divided by the total amount of net credit sales during the accounting period. The collection ratio calculation provides the average number of days it takes a company to receive payment, in other words, to convert sales into cash. The lower a company's collection ratio, the more efficient its cash flow.

The final element of working capital management is inventory management. To operate with maximum efficiency and maintain a comfortably high level of working capital, a company has to carefully balance sufficient inventory on hand to meet customers' needs while avoiding unnecessary inventory that ties up working capital for a long period of time before it is converted into cash. Companies typically measure how efficiently that balance is maintained by monitoring the inventory turnover ratio. The inventory turnover ratio, calculated as revenues divided by inventory cost, reveals how rapidly a company's inventory is being sold and replenished. A relatively low ratio compared to industry peers indicates inventory levels are excessively high, while a relatively high ratio indicates the efficiency of inventory ordering can be improved.



Read more: Working Capital Management Definition | Investopedia http://investopediaterms/w/workingcapitalmanagement.asp#ixzz4H5ogvXxM
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