INTRODUCTION

Working capital management is significant in financial management due

to the fact that it plays a vital role in keeping the business enterprise
running. The management of the working capital of vital importance and
forms a major work load function of finance manager and his team in
every organization. The working capital of any business is the capital
required to fund its current assets .The term current assets current assets
refer to those assets in which the ordinary course of business can be or
will be converted into cash with in a year, without undergoing a
diminishment in value and without disrupting the operations of the firm.
The major current assets are cash, bank balance, marketable securities
and account receivables, inventories, prepaid expenses and short-term
advances etc.,
Working capital management is concerned with the problems that
arise in attempting to manage the current assets, current liabilities and
inter- relations that exist between them. The net working capital is the
difference between the current assets and current liabilities.
Current liabilities are those liabilities, which are intended at their
inception to be paid in the ordinary course of business with in a year, out
of the current assets or earning of the concern. The current liabilities
includes creditors of purchase of goods, accounts payable, Bills-payable,
bank over drafts, short-term borrowings, outstanding expenses, advances
received against the sales, taxes due, dividends payable and other
liabilities maturing with in a year.
Management of working capital is therefore, the management of
current assets and current liabilities of a company.

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Gross Working Capital

According to this concept, Working capital refers to the firm’s

investment in current assets. The amount of current liabilities is not
deducted from the total of currents assets.

Net Working Capital

The net working capital refers to the difference between current assts and
current liabilities. Positive or negative. Positive net working capital will
arise when current assets exceed current liabilities. A negative net
working capital occurs when currents liabilities are in excess of current
assets.

Need for the study:

The need for the working capital or current assets to form the day-to-day
business activities cannot be over emphasized. We can hardly find a
business firm that does not require any amount of working capital. Indeed
different requirement of the working capital. It is well known that any
firm aims at maximizing shareholders wealth. To attain this, a firm
should earn a steady amount of profit, which requires successful sales
activity. Current assets are needed because sales cannot convert into Cash
instantly since there is always an operating cycle involved in the
conversion of sales into cash. I opted this topic to identify the various
sources to get working capital to met the day-to-day operations and the
maximum utilization of the working capital in a profitable means.

2
NEED FOR WORKING CAPITAL
The objective of financial management i.e. maximization of wealth of
shareholder, cannot be attained if the operations of the firm are not
optimized. Thus every firm must have adequate working capital. It
should have neither the excessive working capital nor inadequate
working capital. Both the situations are risky and may have dangerous
outcome. The excessive working capital when the investment in working
capital is more than the required level, may result in:

a. Unnecessary accumulation of inventories resulting in waste, theft,

damage etc.
b. Delay in collection of receivables resulting in more liberal credit
terms to customers than warranted by the market conditions.
c. Adverse influence on the performance of the management.
The inadequate working capital situation, when the firm does not have
sufficient working capital to support its operations is also not good for
the firm. Such a situation may have following consequences.

a) The fixed assets may not be optimally used.

b) Firm’s growth may stagnate.
c) Interruption In production schedule may occur ultimately resulting in
lowering of the firm’s growth.
d) The firm may not be able to take the benefit of an opportunity.
e) Firm’s goodwill in the market is affected if it is not in a position to
meet its liabilities on time.
f) Inadequate working capital may result in loss of sales.
g) It may also lead to insolvency of the firm.

3
Scope of the study:

Working capital is the live blood of any business firm. As a matter of

fact, any Organization, whether profit oriented or otherwise, will not be
able to carry on its day-to-day activities without adequate working
capital. It being increasingly realized that the inadequacy or
mismanagement of working capital is the leading cause of the Business
failure. Problems may cause due to the inadequate working capital.
Manager has to forecast the problems of working capital and should
suggest the improvement of the profits; hence I think my project on
working capital management will help in order to maintain sufficient
working capital required level of production.

Objectives of the study:

1. To study the existing system of working capital management in

M/s. Integrated Thermoplastics Limited.

2. To study the financial ratios etc., this covers the purview of the
working capital.

3. To examine the feasibility of the present system of managing

working capital.

4. To suggest the better way for improving the working capital

management.

4
Research methodology & Database:

The methodology of study inter-relations is to understand the procedural

aspects of Thermoplastics Company and then to proceed with analysis of
the financial performance.

Name of data : company profile, financial results of years of period

of Study.
Source of data : Annual financial reports.
Collection methods : Directly approached to company.
Tools and techniques : Financial statements.

Limitations of the study:

1. The study is limited to working capital management of Integrated

Thermoplastics Limited only.

2. It may not be suitable for the other PVC pipes manufacturing

companies.

3. The analysis may vary from time to time according to different

production schedules.
4. The study is confined to past few years only

5
 MANAGEMENT OF WORKING CAPITAL OF ITL

Introduction:
The management of the working capital is vital importance to companies
and forms a major workload function of finance manager and accountant.
It is the amount of fund, which a company must have to finance its day-
to-day operations.

It is an integral part of overall corporate management. The working

capital of any business is the capital required to funds its current assets.
Working capital management is concerned with the problems that arise in
attempting to manage the Current Assets, the Current Liabilities and the
inter-relations that exist between them. The Net Working is the
difference between the current assets and the liabilities and the inter-
relations that exist between them.

The term current assets refer to those assets in which the ordinary course
of business can be or will be converted in to cash within a year, without
undergoing a diminishment in value and disrupting the operations of the
firm. The major current assets are cash, marketable securities, accounts
receivables and inventories. The term current liabilities are those
liabilities that are intended at their inception to be paid in the ordinary
course of business with in a year out of the current assets or earning of
the concern. The current liabilities include accounts payable, bills-
payable, bank overdrafts and outgoing expenses. Management of

6
working capital therefore is the management of current assets and
liabilities of the company.
IMPORTANCE OF WORKING CAPITAL

We will hardly find a running business firm, which does not require same
amount of working capital. Even a fully equipped manufacturing firm is
sure to collapse if it cannot meet any of the following requirements:

1. An adequate supply of raw material for manufacturing process.

2. Cash to meet the wage bill and other expenses.

3. The capacity to wait for the market for its finished products sale.

4. The ability to grant credit to their customers.

Similarly, a commercial enterprise virtually good for nothing without

merchandising.

Working capital is the live blood of the business organization. As a

matter of fact, any organization, whether profit oriented or otherwise,
will not be able to carry on To-day activities without adequate working
capital. For day-to-day operations of a business a study of working
capital is a must. .

7
Neglect of management of working capital needs may result in technical
insolvency and even liquidation of business unit. Inefficient working
capital is dangerous for the organization.

Factors influencing Working Capital Requirements

Nature of business
The working capital requirement of a firm is closely related to the nature
of its business. Service firms like an electricity undertaking or a
transport corporation, which has a short operating cycle and which sells
redominantly on cash basis, has a modest working capital requirement.
On the other hand, a manufacturing concern like a machine tools unit,
which has a long operating cycle and which sells largely on credit, has a
very substantial working capital requirement
.
Seasonality of operations
Firms, which have marked seasonality in their operations usually, have
highly fluctuating working capital requirements. To illustrate, consider a
firm manufacturing air coolers. The sale of air coolers reaches a peak
during the summer months and drops sharply during the winter period.
The working capita need of such a firm is likely to increase considerably
in summer months and decrease significantly during the winter period.
On the other hand, a firm manufacturing a product like lamps, which
have fairly even sales round the year, tends to have stable working capital
needs.

Production policy

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A firm marked by pronounces seasonal fluctuation in its sales may
pursue a production policy, which may reduce the sharp variations in
working capital requirements. For example a manufacturer of air coolers
may maintain a steady production throughout the year rather than
intensity the production activity during the peak business season. Such a
production policy may dampen the fluctuations in working capital
requirements.
Market conditions

The degree of competition prevailing in the market place has an

important bearing on working capital needs. When competition is keen,
larger inventory of finished goods is required to promptly serve
customers who may not be inclined to wait because other manufacturers
are ready to meet their needs. Further, generous credit terms may have to
be offered to attract customers in a highly competitive market. Thus,
market capital needs tend to be high because of greater investment in
finished goods inventory and accounts receivable.
If the market is strong and competition weak, a firm can manage with a
smaller inventory of finished goods because customers can be served
with some delay. Further, in such a situation the firm can insist on cash
payment and avoid lock-up of funds in accounts receivable it can even
ask for advance payment, partial or total.

Conditions of supply
The inventory of raw materials, spares, and stores depends on the
conditions of supply. If the supply is prompt and adequate, the firm can
manage with small inventory. However, if the supply is unpredictable

9
and scant then the firm, to ensure continuity of production, Would have
to acquire stocks as and when they are available and carry larger
inventory on an average. A similar policy may have to be followed when
the raw material is available only seasonally and production operations
are carried out round the year.
permanent working capital

The magnitude of the current assets depends upon the firm’s operating
cycle. The operating cycle is a continuous process and the need for
current assets is also continuous. But the level of current assets needed is
not always same. It increases or decreases over time. However, there is
always minimum level of current assets, which is continuously required
by a firm to carry out its business operations. The minimum level of
current assets is called permanent working capital.

Variable working capital

The working capital required over and above the permanent working
capital depends upon the changes in production and sales are called
fluctuating or variable working capital. There may be changes either
increase or decrease in working capital. Working capital is variable
mostly in seasonal goods manufacturing companies.
Operating cycle

The time that elapses between the purchase of raw material and
collection of cash for sales is called operating cycle.

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Operating cycle period

The length or time duration of the operating cycle of any firm can be
defined as the sum of its inventory conversion period and the receivable
conversion period.
Inventory conversion period

It is the time required for the conversion of raw material in to finished

goods. In a manufacturing firm the inventory conversion period is
consisting of raw material conversion period, work-in-progress
conversion period and the finished goods conversion period.

The raw material conversion period refers to the period for which the raw
material is generally kept in stores before it is issued to the production
department. The work-in-progress conversion period for which the raw
materials remain in the production process before it’s taken out as a
finished unit.

The finished goods conversion period refers to the period for which
finished units remain in stores before being sold to the customers.

Receivables conversion period

It’s the time required to convert the credit sales into cash realization. It
refers to the period between the occurrence of credit sales and collection
of debtors.

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Gross operating cycle = Inventory conversion period + receivables
conversion period.

Net operating cycle = Inventory conversion period + receivables

conversion period – Deferred period.
Deferred period

The firm might be getting some credit facilities from the supplier of raw
materials, wages/ salaries earners etc., this period for which the payments
to these parties are deferred or delayed is known as deferral period.

Raw material conversion period = Average value of raw material stock

Average cost of consumption of raw material per
day

Work in progress conversion period = Average work-in-progress

Average cost of goods sold per day

Finished goods conversion period= Average stock of finished goods

Average cost of goods sold per day

Debtors conversion period = Average value of receivables

Average value of sales per day

Payables deferral period = Average level of creditors

Average purchases of raw materials per day

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Components of working capital
Current Assets:

Current assets defined as either cash or those assets that can be converted
into cash within the current year. The major components of these current
assets are cash and bank balance, inventories, accounts receivable, short-
term deposits, investments, advance payments and prepaid expenses.

Cash and bank balances: Cash and bank balances are most liquid assets.
All payments are made through cash or bank payments.

Inventories: These are the materials, commodities or goods used in day-

to-day operation of production or in the form of finished goods. These
include raw materials, work-in-progress and finished goods.

Accounts receivables: These are short-term debts owned by company

arising from credit sales made to customers of the firm.
Advances: These represent amount paid for which the goods and services
have not yet received, including advances given to suppliers and
employees, advance tax payments made etc,.
Short-term deposits: These are deposits kept in banks to meet the future
expenses when they fall due. These deposits will earn interest also.

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Current liabilities:

Liabilities are the claims against the company to be paid in the ordinary
course of business with in a year, out of earnings of the company.

Short-term loans: Money borrowed from various banking and non-

banking sources for short periods of time.

Other liabilities: These include tax payments due with in one year and
proposed dividends and other payments to be made.

Accounts payable: Payable against purchases of raw materials, packing

material, intermediaries and others for manufacture of finished goods.
Generally credit period is allowed for a short period of time.

Bills payable: Against purchase bills may be accepted and payable with
in a short period of time.

Bank overdraft: With the consonant of the banks a business unit can get
short-term credits and overdrafts. Bank generally allows these credits
keeping the view of credit worthiness of the organization and
management. These are to be repaid in short term to the bank.

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 Outstanding expenses: Expenses due but not paid.

MEANS TO INCREASE WORKING CAPITAL

1. With a reasonable working capital, a firm can concentrate either;

a). Increase in sales without increasing inventory, receivables and
bank
financing.
b). Reduction in receivables, inventory or blank financing while
maintaining
sales at their current levels.
A defensive move is to construct format contingency plan to combat
working Capital.

2. Investing surplus cash to earn interest. The investment should be done

after defining the objectives and ruling the benefits, seeking in an order
of ranking-security-maturity-liquidity-and yield.

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INTEGRATED THERMO PLASTICS LIMITED WORKING
CAPITAL
ITL was started in the year 1994 with a paid up capital of 137 lakhs. Out
of the said amount Rs.129 lakhs has been applied towards purchasing of
fixed assets from time to time.

Since ITL has a long production cycle, it has to hold substantial amount
of cash, investment and Receivable accounts to commensurate with its
requirement.

ITL sources of Working Capital constitute capital in work in progress,

investments, inventories, holding of debtors, cash & bank balance, loans
& advance and also other corporate deposits. ITL also gets Working
Capital from various provisions like provisions for gratuity, depreciation.

Current Liabilities include Sundry Creditors, provisions and other

Current Liability and Out standings.

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COMPANY PROFILE

NAME: INTEGRATED THERMOPLASTICS LIMITED

ESTABLISHMENT:

The company was incorporated on 25th January 1994 as a limited

company namely “TORRENT THERMOPLASTICS LIMITED”. It was

subsequently converted in to a public limited company on 26th may 1994;

the company’s name was changed by ‘INTEGRATED

THERMOPLASTICS LIMITED’ on 5th august, 1994.

In the year 1998 it has been taken over by NANDI GROUP OF

COMPANIES, after that tremendous change have been noticed in
production under the dynamic and energic leadership of Mr.s.p.y.reddy,
the monarch in manufacturing of quality pvc pipes.

The unit also has world-class quality assurance systems in place.

The company ensures products of uncompromising quality meeting all
relevant ISI, BS, DIN and ASTM standards with a view to effectively
cater, to the needs of the International markets.

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Integrated thermoplastics limited has achieved ISO 9001-2000
accreditation on 2003 in implementing and maintaining quality systems
management with the scope of PVC pipes and became a member of
selected brand of elite group of companies. In addition extensive R&D
facilities provide reliable and committed support for new product
development.
TECHNICAL INFORMATION

ITL rigid PVC pipes are manufactured in accordance with

Indian standards specifications 4985:1998 and other international

specifications. The company also manufactures special ranges of

commercial pipes under different ranges to satisfy the customer

requirements. ITL PVC pipes are normally manufactured in uniform

length of 6 meters with plain ends both the sides and also with self

socked one side. Varied length can be manufactured according to the

customer requirement. Integrated Thermoplastics Limited is

manufacturing rigid PVC pipes from 20mm to 400 mm in conformity to

ISI 4985:2000 and other international specifications.

QUALITY CONTROL ASSURANCE

Integrated Thermoplastics Limited is having well equipped quality

testing machines in their labs as per the ISI standards for testing of all

18
diameters and gets excellent result. We at ITL Pipes are proud to say that

we follow world-class QCM (Quality control management) techniques in

our Quality Control lab to achieve the best quality. Stringent quality

control tests are regularly conducted to ensure top quality production of

PVC products.

MAINTENANCE AND SERVICE

This company is better equipped with excellent workshop to provide

maintenance and service of machinery in electrical, mechanical and civil

lines all the time, We assure service at any time to enable our equipment

and machinery to perform efficiently, thus reducing production down

time.

EXPLORING NEW HORIZONS: EXPORTS

Integrated Thermoplastics Limited are trying very hard in exporting

their products like rigid PVC pipes of water, electrical conduits and SWR

pipes to Middle East, Europe, Africa and other Asian countries. Taking

an example our esteemed overseas customers, we are proud to say that

we are associate with “CEYLON ELECTRICTY BOARD – SRILANK’

supplying electrical conduits to their project requirements.

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GENERATING EMPLOYMENT

The Integrated Thermoplastics Limited has the work force of more

than 400 workers working at our manufacturing plant located at

Manoharbad village, Toopran mandal, Medak district. In this way the

company generates employment to several people.

DYNAMIC WORK FORCE

The dynamic work force is the strong base for the success of the

company. The administrative as well as the technical staff are well

qualified and skilled. The company follows the specialization of work,

which helps the company to assign the right job to the right person.

The technical staff at the manufacturing units is well versed in the

field of production, which generates new innovative ideas and concepts.

All the workers are dedicated to work and responsible for their work

done.

DISTRIBUTION NETWORK

One of the most important parts of the company’s effective

functioning in the competitive market is its distribution network. The

company has its own dealer’s network with a number of nearly more than

100 dealers through out the state.

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 The company has its own vehicles for transportation which helps the

Sales department to cater the needs of the customers at the right time and

at the right place.

MARKET NETWORK

Integrated Thermoplastics Limited covers the national level markets,

but their main target market areas are Andhra Pradesh, Karnataka, Tamil

Naidu, Maharashtra, Bihar and Jharkhand etc.

DISTRIBUTION CHANNELS

The company has got two levels of distribution channels they are,

1) Zero Level

2) Single Level

ZERO LEVEL

Manufacturer customer

2 SINGLE level

Manufacturer dealer customer

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PRODUCTS OF THE COMPANY

The ITL has the ISI registration for its products, which speaks of high

quality and commitment. The main brand of ITL is

1. ITL (ISI) and the other brands which belong to company are

2. SAGAR

3. SAGAR (special)

These brands namely sager and sagar special are characterized as the

commercial quality, which enables the customers to have a second choice

Other than the superior quality products with the brand name of ITL.

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SIGNIFICANT ACCOUNTING POLICIES

Basis of accounting

The financial statements are prepared under historical costs convention

on an accrual basis and are in compliance with accounting standards
referred to in Section 211 (3c) of the companies act, 1956, except in case
of AS-15 Accounting for Retirement Benefits in the financial statements
of employers.

Fixed Assets

Fixed assets are stated at cost less accumulated depreciation. cost

comprises of the purchase price and any attributable cost of bringing the

asset to working condition less excise duty taken as CENVAT credit, for

it’s intended use.

Depreciation

Depreciation on Fixed Assets is provided on straight-line method at the

rates specified from time to time in Schedule xiv of the Companies Act,

1956. Depreciation on additions/deductions during the year is calculated

pro-rata from/to date of additions/deductions.

23
Investments

Long-term investments are carried at cost including accrued interest

thereon.

Inventories

Inventories of finished goods are valued at cost or market price

whichever is lower. Whereas, raw material and semi-finished reusable

scrap and stores and valued at cost on FIFO basis.

Sales

Sales comprises of invoiced value of goods supplied net off discounts

and returns.

Miscellaneous expenditure

i) Preliminary Expenditure:

Preliminary and public issue expenses are being written off over a period

of ten year.

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Staff benefits

The provisions of Accounting Standard 15 on Accounting for Retirement

Benefits in the financial Statement of employers, issued by the council of

The institute of Chartered Accountants of India is being complied with

by the company under the provident fund Act.

Prior period and Extra-Ordinary items

Income and expenditure pertaining to prior period as well as

extraordinary items, where material, are disclosed separately.

Accounting for taxes on income

The company has unabsorbed losses available for set off under the

income Tax Act, 1961. However in view of the present uncertainty

regarding generation of sufficient further taxable income, deferred tax

assets at the year end including related credit for the year have not been

recognized in the accounts on prudent basis, as per the accounting

standard 22 “Accounting for taxes on income” issued by the institute of

Chartered Accountants of India.

25
BOARD OF DIRECTORS

1. Mr.S. P.Y.REDDY Chairman

2. Mr.N.RAMA SUBBAIAH Managing Director

3. Mr. SHEIK CHAND BASHA Director

4. Mr.Y.SRINIVASA REDDY Director

5. Mr.S.V.RAGHU Director

REGISTERED OFFICE &WORKS:

Survey no. 375

Manoharabad (V)
Toopram (M)
Medak (District) –502 334

ADMN. & CORPORATE OFFICE:

701, 7th floor,
Paigah Plaza,
Basheerbagh.
Hyderabad-500 063

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STATUTORY AUDITORS:
M/s M.T.R. & Associates
Chartered Accountants
Hyderbad-500038

BANKERS
M/S. The Dhanalakshmi Bank Ltd.
Abids Road,
Abids, Hyderabad-500 001

REGISTRARS & SHARE TRANSFER AGENTS:

M/S KARVY CONSULTANTS LIMITED
KARVY HOUSE, 46 AVENUE 4, STREET NO.1,
BANAJARA HILLS,
HYDERABAD-500 034

27
 WORKING CAPITAL OF ITL

Rs. Lakhs
PARTICULA 2001- 2002- 2003- 2004- 2005-
RS 02 03 04 05 06
CURRENT
ASSETS
INVENTORIE 43744 56606 58130 72540 63246
S
BOOK DEBTS 84558 84880 85001 81237 82829
CASH/BANK 845 957 899 1280 473
BALANCES
LOANS AND 14287 12859 11763 11612 9104
ADVANCES
SUB TOTAL 14343 15530 15579 16666 15565
(B) 4 2 3 9 2
CURRENT
LIABILITIES
ADVANCES 29116 28822 31636 32228 44162
FROM
CUSTOMERS
SUNDRY 19484 22543 29738 27610 20637
CREDITORS
OTHER 4295 4549 2824 2612 3353
LIABILITIES
PROVISIONS 10843 8376 8931 11977 16838
SUB TOTAL ( 63738 64290 73129 74427 84990
C)

NET 79696 91012 82664 92242 70662

WORKING
CAPITAL
(B)-(C)

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From the above table ITL, is having a good Working Capital. By
comparing the Working capital of past 5 years we can that there was a
steady increase from 2001-02 to 2002-03. Although there was a decrease
in 2003-04, the Working Capital has considerably increased in the
financial year 2004-05. And again there is been a decrease in the year
2005-06 where compared to the remaining years it is due to decrease in
cash balances and also due to maintenance of more provisions.

29
 STATEMENT OF CHANGES IN WORKING CAPITAL

THE YEAR 2000-’01 AND 2001-‘02

(Rs Lakhs)
Particulars 2000 – 2001 – Increas Decrease
‘01 ‘02 e
Current Assets:
Inventories 39869 43744 3875
Book debts 71736 84558 12822
Cash/Bank Bal 718 845 127
Loans and 11767 14287 2520
Advances
Total(a) 124090 143434
Current
Liabilities:
Advances From 28036 29116 1080
Customers
Sundry Creditors 13871 19484 5613
Other Liabilities 2877 4295 1418
Provisions 10638 10843 205
Total (b) 55422 63738
Net Working 68668 79696
Capital (a-b)
Net Increase In 11028 11028
Working Capital
Total 79696 79696 19344 19344

From the above table There is an increase in working capital during this
year as compared to previous year. It is due to increase in inventories and
book debts. With this we can conclude that it is maintaining an efficient
working capital.

30
 STATEMENT OF CHANGES IN WORKING CAPITAL
THE YEAR 2001-’02 AND 2002-‘03

(Rs
Lakhs)
Particulars 2001 – 2002 – Increas Decrease
‘02 ‘03 e
Current Assets:
Inventories 43744 56606 12862
Book debts 84558 84880 322
Cash/Bank Bal 845 957 112
Loans and 14287 12859 1428
Advances
Total (a) 147343 155302
4
Current Liabilities:
Advances From 29116 28822 294
Customers
Sundry Creditors 19484 22543 3059
Other Liabilities 4295 4549 254
Provisions 10843 8376 2467
Total (b) 63738 64290
Net Working 79696 91012
Capital(a-b)
Net Increase In 11316 11316
Working Capital
Total 91012 91012 16057 16057

From the above table during this year there is a significant increase in
working capital as compared to previous year, it is due to increase in
inventories and also due to the reduction in maintenance of provisions.
Overall it has good working capital.

31
 STATEMENT OF CHANGES IN WORKING CAPITAL

THE YEAR 2002-’03 AND 2003-‘04

(Rs.in Lakhs)
Particulars 2002-03 2003-04 Increas Decrease
e
Current Assets:
Inventories 56606 58130 1524
Book debts 84880 85001 121
Cash/Bank Bal 957 899 58
Loans and 12859 11763 1096
Advances
Total (a) 155302 155793
Current Liabilities:
Advances From 28822 31636 2814
Customers
Sundry Creditors 22543 29738 7195
Other Liabilities 4549 2824 1725
Provisions 8376 8931 555
Total (b) 64290 73129
Net Working 91012 82664
Capital(a-b)
Net decrease in 8348 8348
Working Capital
Total 91012 91012 11718 11718

From the above table In this year there is a decrease in working capital
as compared to the previous year, it is due to increase in sundry creditors
and also maintenance of more provisions. At last we can conclude that
working capital is unsatisfactory.

32
 STATEMENT OF CHANGES IN WORKING CAPITAL

THE YEAR 2003-’04 AND 2004-‘05

(Rs.in
Lakhs)
Particulars 2003 – 2004 – Increas Decrease
‘04 ‘05 e
Current Assets:
Inventories 58130 72540 14410
Book debts 85001 81237 3764
Cash/Bank Bal 899 1280 381
Loans and 11763 11612 151
Advances
Total 155793 166669
Current Liabilities:
Advances From 31636 32228 592
Customers
Sundry Creditors 29738 27610 2128
Other Liabilities 2824 2612 212
Provisions 8931 11977 3046
Total 73129 74427
Net Working 82664 92242
Capital(a-b)
Net Increase In 9578 9578
Working Capital
Total 92242 92242 17133 17133

From the above table. There is an increase in working capital in this

year as compared to previous year. It is because of increase in inventories
and cash balances, which has increased current assets to current
liabilities. Overall we can conclude that working capital is satisfactory.

33
 STATEMENT OF CHANGES IN WORKING CAPITAL

THE YEAR 2004-’05 AND 2005-‘06

(Rs.in
Lakhs)
Particulars 2004 – 2005 – Increas Decrease
05 06 e
Current Assets:
Inventories 72540 63246 9294
Book debts 81237 82829 1592
Cash/Bank Bal 1280 473 807
Loans and 11612 9104 2508
Advances
Total (a) 166669 155652
Current Liabilities:
Advances From 32228 44162 11934
Customers
Sundry Creditors 27610 20738 6872
Other Liabilities 2612 3253 641
Provisions 11977 16838 4861
Total (b) 74427 84990
Net Working 92242 70662
Capital(a-b)
Net decrease In 21580 21580
Working Capital
Total 92242 92242 30045 30045

From the above table During this year working capital has shown
adverse balances as compared to previous year. it is due to slash down in
maintenance of inventories and cash balances which has lead to decrease
in current assets to current liabilities. at last it has unsatisfactory working
capital

34
1. CURRENT RATIO:
In times
YEAR CURRENT CURRENT RATIO
ASSETS LIABILITIES
2001-02 143434 63738 2.25

2002-03 155302 64290 2.41

2003-04 155793 73129 2.13

2004-05 166669 74427 2.23

2005-06 155652 84990 1.83

The ratio equal to or near to 2:1, i.e., current assets double the current
liabilities is considered to be satisfactory. In the context of ITL, the
current ratio is more than standard. It has always been above 2. Thus it is
an indication of efficiency of the firm of maintaining current assets. But
as on the year 2005-06 there is a slight decrease of 0.2% , as it does not
make much difference.

35
2. QUICK RATIO
In times
YEAR QUICK CURRENT RATIOS
ASSETS LIABILITIES
2001- 99690 63738 1.56
02
2002- 98696 64290 1.53
03
2003- 97663 73129 1.33
04
2004- 94129 74427 1.26
05
2005- 92406 84990 1.09
06

As a convention Quick Ratio of 1:1 is considered satisfactory. From the

above analysis we can see that Quick Ratio for the past five years has
been above “1” which is good, even though it is in a decreasing trend.

36
3. ABSOLUTE QUICK RATIO (OR) CASH RATIO
(In times)
YEAR LIQUID ASSETS CURRENT RATIO
LIABILITIES
2001-02 845 63738 0.013

2002-03 957 64290 0.014

2003-04 899 73129 0.012

2004-05 1280 74427 0.017

2005-06 473 84990 0.005

The acceptable norm for this ratio is 50% or 0.5:1 or 1:2, but the
ratios for 2004 as shown in the trend are not according to the standard
norms there is no proper maintenance of cash in the current assets.

37
4. INVENTORY TURNOVER RATIO
(In times)
YEAR COST OF RATIO
GOODS AVERAGE
SOLD INVENTORY(OR)C.S
2001-02 104269 41806 2.49

2002-03 127545 56606 2.25

2003-04 130749 58130 2.25

2004-05 121566 72540 1.67

2005-06 129833 63246 2.05

C.S=closing stock
Cost of goods sold=gross turnover net of exercise duty – profit before tax

We can see that the I.T.R of ITL is rapidly decreasing from 2001-02 to
2004-05. This shows that the rate at which the stock is turned over,
during the accounting period, over the past five years is becoming lesser
and lesser. And again at the period of 2005-06 there was an increase by
2.05 %.

38
5. INVENTORY CONVERSION PERIOD

YEAR NO.OF DAYS INVENTORY INV.CONV.

IN TURNOVER RATIO PERIOD
A YEAR
2001-02 365 2.49 146

2002-03 365 2.25 162

2003-04 365 2.25 162

2004-05 365 1.67 218

2005-06 365 2.05 178

From the above we can say that the Inventory Conversion Period has
shown a steady inverse from 2001-02 to 2002-03, although there was a
fall in 2003-04. But in the financial year 2004-05 the conversion period
has increased by 56 days. As then there was a decrease by 40 days in
the year 2005-06.

39
6. DEBTORS TURNOVER RATIO
(In
times)
YEAR TURNOVER AVG DEBTORS RATIO

2001-02 132265 78147 1.69

2002-03 131972 84719 1.56

2003-04 153205 84940.5 1.80

2004-05 137838 83119 1.66

2005-06 174490 82033 2.13

The debtor’s turnover ratio of ITL has been considerably decreasing

from 1.69 in the accounting year 2001-02 to 1.56 in 2002-03, which
increased to 1.80 in 2003-04. However, in the next year it again
decreased to 1.7 and again there was an increase by 2.13 in the current
year 2005-06
.

40
7.AVERAGE COLLECTION PERIOD

YEAR NO.OF DAYS DEBTORS AVG. COLL.

IN A YEAR TURNOVER PERIOD
RATIO
2001-02 365 1.69 216

2002-03 365 1.56 234

2003-04 365 1.80 203

2004-05 365 1.66 220

2005-06 365 2.13 171

The Average Collection Period i.e., the duration provided for the
collection of debts has been increasing from 216 days in2001-02 to 234
days in 2002-03 but it decreased in 2003-04 to 203 days and again it has
increased to 220 in the year 2004-05 and that after there is a decrease to
171 in financial year 2005-06

41
8.CREDITORS TURNOVER RATIO
(In times)
YEAR CREDIT AVG. RATIO
PURCHASES CREDITO
RS
2001-02 65934 16677.5 3.95

2002-03 79819 21013.5 3.80

2003-04 78387 26140.5 3.00

2004-05 72202 28674 2.52

2005-06 78006 24174 3.23

Here the Creditors Turnover Ratio was 3.95 in the year 2001-02 and has
decreased rapidly to 2.43 in 2004-05, which shows that the management
is making its payments in time, thus providing its efficiency, and again in
the financial year 2005-06 there was an increase by 3.23 even by this
there no difference in the efficiency of the management.

42
9.AVERAGE PAYMENT PERIOD

YEAR NO.OF DAYS CREDITORS A.P.P

IN A YEAR TURNOVER
RATIO
2001-02 365 3.95 92

2002-03 365 3.80 96

2003-04 365 3.00 112

2004-05 365 2.52 145

2005-06 365 3.23 113

The Average Payment Period has steadily increased from 92 days in

2001-02 to 145 days in 2004-05; this shows the confidence of the
creditors in the organization. And suddenly there is a fall by 113 days in
the financial year 005-06 though there is decrease the confidence of the
creditors with the organization has no difference.

43
10.WORKING CAPITAL TURNOVER RATIO
In times
YEAR TURNOVER WORKING RATIO
CAPITAL
2001-02 132265 79696 1.66

2002-03 131972 91012 1.45

2003-04 153205 82664 1.85

2004-05 137838 92242 1.49

2005-06 174490 70662 2.46

A higher Working Capital Turnover Ratio indicates efficient utilization

of Working Capital. But for ITL IS ratio has been decreasing from 1.66
in 2001-02 to 1.49 in 2004-05, although it showed a slight increase of
1.85 in 2003-04 it again decreased in the next year. Again there was an
increase in the ratio by 2.46 in current year 2005-06 by which we can tell
that there is an efficient utilization of Working Capital.

44
11.RAW MATERIAL INVENTORY TURNOVER RATIO
Rs. Lakhs
YEAR RAW AVERAGE RATIO
MATERIAL RAW
CONSUMED MATERIAL
INVENTORY
2001-02 63265 8890.5 7.12

2002-03 76903 8953.5 8.59

2003-04 73677 10753 6.85

2004-05 65085 14353.5 4.53

2005-06 75818 16478.5 4.60

The Raw Material Inventory turnover Ratio for the organization has been
increasing at a fast pace from 7.12 in 2001-02 to 8.59 in 2002-03,but in
the subsequent year 2004-05 there was a decrease and again an increase
by 4.60 in the financial year.

45
 CONCLUSIONS

1. The ratio equal to or near to 2:1, i.e., current assets double the current
liabilities is considered to be satisfactory. In the context of ITL, the
current ratio is more than standard. It has always been above 2. Thus it is
an indication of efficiency of the firm of maintaining current assets. But
as on in the year 2005-06 there is a slight decrease of 0.2% , as it does
not make much difference.

2. The acceptable norm for this ratio is 50% or 0.5:1 or 1:2, but the
ratios for 2004 as shown in the trend are not according to the standard
norms there is no proper maintenance of cash in the current assets.

3.We can see that the I.T.R of ITL is rapidly decreasing from 2001-02 to
2004-05. This shows that the rate at which the stock is turned over,
during the accounting period, over the past five years is becoming lesser
and lesser. And again at the period of 2005-06 there was an increase by
2.05 %.

4.Here the Creditors Turnover Ratio was 3.95% in the year 2001-02 and
has decreased rapidly to 2.43% in 2004-05, which shows that the
management is making its payments in time, thus providing its
efficiency, and again in the financial year 2005-06 there was an increase
by 3.23% even by this there no difference in the efficiency of the
management.

46
5. The Average Payment Period has steadily increased from 92 days in

2001-02 to 145 days in 2004-05; this shows the confidence of the

creditors in the organization. And suddenly there is a fall by 113 days in

the financial year

6. A higher Working Capital Turnover Ratio indicates efficient utilization

of Working Capital. But for ITL IS ratio has been decreasing from
1.66% in 2001-02 to 1.49 in 2004-05, although it showed a slight
increase of 1.85% in 2003-04 it again decreased in the next year. Again
there was an increase in the ratio by 2.46% in current year 2005-06 by
which we can tell that there is an efficient utilization of Working Capital.

7.The Raw Material Inventory turnover Ratio for the organization has
been increasing at a fast pace from 7.12% in 2001-02 to 8.59% in 2002-
03,but in the subsequent year 2004-05 there was a decrease and again an
increase by 4.60% in the financial year.

47
 SUGGESTIONS

 The Net Working Capital is positive for all the past five years except
in the year 2005-06, therefore surplus amount should be invested in the
short-term bonds.
 There has been an increase in the Finished Goods Conversion Period,
which is mainly due to the increase in the manufacturing cycle time.
Thus, it is recommended to reduce the Operating Cycle time to the
possible extent.
 ITL is using ABC analysis partly in the inventory control. It is
suggestible to point other methods, such as JIT (Just in Time) and VED
(vital Essential Desirable) for managing inventory, wherever applicable,
so as to reduce the Cycle period and blockage of excess funds in
inventory.
 As ITL is following the centralized cash management it would be
better for the company to follow decentralized system, so that the
company can take immediate action to any requirements.
 The Company should make more efforts to quickly transform the
accounts receivables into cash, as the collection period is above the ideal
period i.e., 3-4 months or maximum of 120 days.
 Compared to the 2003-04 scraps, 2005-06 has been increased to
100%, as this indicated a negative sign. Company has to assess its

48
production capability and reasons for pile up of scrap. In addition, it is
advisable to dispose sc

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