This action might not be possible to undo. Are you sure you want to continue?
ABSTRACT According to Weston and Brigham working capital refers to the firm’s investment, its shorter current assets and short term securities accounting receivables and inventory. According to the Guttmann and Doug all working capital is excess of current assets over liabilities. According to the Shubin working capital is an amount of funds necessary to cover the cost of operating the enterprise. Working capital management is concerned with the problems that arise in attempting to manage the current assets, and the current liabilities, and their relationships their arise between them. The current assets refers to those assets, which to the ordinary course of business can be, or will be turned into cash within one year without undergoing a diminution in value and with out disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivables, and their inception to be paid in the ordinary course of business within a year, out of current assets earnings of the concern. The basis current liabilities are Bills payables, Bank Overdrafts and Outstanding expenses. The goal of working capital management is to manage the firm current assets, and current liabilities in such way that a satisfactory level of working capital is maintained. INTRODUCTION : Working capital management is concerned with the problems that arise in attempting to manage the current assets, and the current liabilities, and their relationships their arise between them. The current assets refers to those assets, which to the ordinary course of business can be, or will be turned into cash within one year without undergoing a diminution in value and with out disrupting the operations of the firm. The major current assets are cash, marketable securities, accounts receivables, and their inception to be paid in the ordinary course of business within a year, out of current assets earnings of the concern. The basis current liabilities are Bills payables, Bank Overdrafts and Outstanding expenses. The goal of working capital management is to manage the firm current assets, and current liabilities in such way that a satisfactory level of working capital is maintained. Thus, the current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety, each of the current assets must be managed efficiently in order to maintain the liquidity of the short term sources of financing must be continuously
managed to ensure that they are obtained and used in a best possible way. Therefore, interaction between current assets and current liabilities in the main theme of working capital management. Profits are earned with the help of assets which are partly fixed and partly current. Working capital sometimes referred to as “CIRCULATING CAPITAL”. OBJECTIVES 1) USE appropriate technology.
2) Identify the potential areas and equipments for Energy Conservation. 3) Periodic In-house Energy Audit, Continuous Monitoring, Review of Targets and Bench Marks for energy consumption. 4) Implement innovative ideas / modifications, improvements and up gradation of the equipments. 5) Explore the possibility of using modern technology to utilize the waste heat to maximum extent. 6) To create awareness employees to conserve energy. through training/seminars among all
METHODOLOGY: For the preparation of a project the collection of data is very essential. They are primary data and secondary data.
SOURCES OF DATA
PRIMARY DATA : From directing personnel and oral investigation. SECONDARY DATA : The secondary data is obtained from the 1. Annual reports of the unit. 2. Other reports of the unit. 3. Brochures. 4. House magazines of the unit and 5. Internet. REVIEW OF LITERATURE Working capital Working capital, also known as net working capital, is a financial metric which represents operating liquidity available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its
and • accounts payable (current liability) The current portion of debt (payable within 12 months) is critical. The goal of working capital . These accounts represent the areas of the business where managers have the most direct impact: • accounts receivable (current asset) inventory (current assets). for example has paid off some short-term creditors.Current Liabilities excluding deferred tax assets/liabilities. Calculation Current assets and current liabilities include three accounts which are of special importance. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. Cash balance items often attract a one-for-one purchase price adjustment. surplus assets and/or deposit balances. accounts receivable and payable and cash. or other current assets) or has decreased current liabilities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. An increase in working capital indicates that the business has either increased current assets (that is received cash. The management of working capital involves managing inventories.assets cannot readily be converted into cash. excess cash. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. because it represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. Implications on M&A: The common commercial definition of working capital for the purpose of a working capital adjustment in an M&A transaction (ie for a working capital adjustment mechanism in a sale and purchase agreement) is equal to: Current Assets .
and cash. the most useful measure of profitability is Return on capital (ROC).management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses. Cash management. management generally aims at a low net count. management will use a combination of policies and techniques for the management of working capital. and if. As a management tool. Firm value is enhanced when. relating to the next one year period . Identify the cash balance which allows for the business to • . this metric makes explicit the interrelatedness of decisions relating to inventories. in that they link short-term policy with long-term decision making. • One measure of cash flow is provided by the cash conversion cycle the net number of days from the outlay of cash for raw material to receiving payment from the customer.which is "reversible". exceeds the cost of capital. The result is shown as a percentage. Management of working capital Guided by the above criteria. See Economic value added (EVA). Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities. inventories and debtors) and the short term financing. determined by dividing relevant income for the 12 months by capital employed. which results from working capital management. which results from capital investment decisions as above. These policies aim at managing the current assets (generally cash and cash equivalents. such that cash flows and returns are acceptable. ROC measures are therefore useful as a management tool. working capital management entails short term decisions generally. Return on equity (ROE) shows this result for the firm's shareholders. accounts receivable and payable. as above) rather they will be based on cash flows and / or profitability. Decision criteria By definition. the return on capital. • In this context. These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related.
see Discounts and allowances.meet day to day expenses. however. it may be necessary to utilize a bank loan (or overdraft). credit terms which will attract customers. Economic order quantity (EOQ). see Supply chain management. Identify the appropriate source of financing. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms.and minimizes reordering costs . • Inventory management. The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment. given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier.e. Economic production quantity (EPQ). rather than corporations alone. the short term decisions can be grouped under the heading "Working capital management". • Short term financing. i. On the other hand. Working capital management Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. Identify the appropriate credit policy. or to "convert debtors to cash" through "factoring". such that any impact on cash flows and the cash? conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa). • Debtor’s management. whether to finance that investment with equity or debt. the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. Just In Time (JIT). but reduces cash holding costs.and hence increases cash flow. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials . This subject deals with the short-term balance of current assets and current liabilities. the focus here is . and when or whether to pay dividends to shareholders.
Capital investment decisions thus comprise an investment decision. These projects must also be financed appropriately. John Burr Williams: Theory). Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. Project valuation In general. inventories. This requires estimating the size and timing of all of the incremental cash flows resulting from the . each project's value will be estimated using a discounted cash flow (DCF) valuation. and the opportunity with the highest value. as measured by the resultant net present value (NPV) will be selected (applied to Corporate Finance by Joel Dean in 1951. a financing decision. and a dividend decision. and short-term borrowing and lending (such as the terms on credit extended to customers). Decisions are based on several interrelated criteria. The investment decision Management must allocate limited resources between competing opportunities ("projects") in a process known as capital budgeting. see also Fisher separation theorem. The terms Corporate finance and Corporate financier are also associated with investment banking. If no such opportunities exist. timing and predictability of future cash flows.on managing cash. The typical role of an investment banker is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs. Capital investment decisions Capital investment decisions  are long-term corporate finance decisions relating to fixed assets and capital structure. maximizing shareholder value dictates that management return excess cash to shareholders. Making this capital allocation decision requires estimating the value of each opportunity or project: a function of the size.
Thus selecting the proper discount rate—the project "hurdle rate"—is critical to making the right decision. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project. here the “flexible and staged nature” of the investment is modeled. IRR.) In conjunction with NPV. and hence "all" potential payoffs are considered. These are visible from the DCF and include discounted payback period. and use the weighted average cost of capital (WACC) to reflect the financing mix selected. equivalent annuity.e. and this sum net of the initial investment outlay is the NPV. These future cash flows are then discounted to determine their present value (see Time value of money). Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets. Management will therefore (sometimes) employ tools which place an explicit value on these options. The NPV is greatly influenced by the discount rate. typically measured by volatility of cash flows. there are several other measures used as (secondary) selection criteria in corporate finance. The hurdle rate should reflect the risk of the investment. for example R&D projects. and ROI. Modified IRR. a project may open (or close) paths of action to the company. The difference between the two valuations is the "value of flexibility" inherent in the project. the project appropriate discount rate. see list of valuation topics.project. capital efficiency. whereas in a DCF valuation the most likely or average or scenario specific cash flows are discounted. The hurdle rate is the minimum acceptable return on an investment—i. and must take into account the financing mix. but this reality will not typically be captured in a strict NPV approach. So. Valuing flexibility In many cases. These present values are then summed. .
) • ROA is used when the value of a project is contingent on the value of some other asset or underlying variable. (3) (assuming rational decision making) this path is then taken as representative of project value. and Monte Carlo methods in finance Given the uncertainty inherent in project forecasting and valuation.The two most common tools are Decision Tree Analysis (DTA) and Real options analysis (ROA): • DTA values flexibility by incorporating possible events (or states) and consequent management decisions. The sensitivity of NPV to a change in that factor is then observed (calculated as Δ NPV / Δ factor). if the price is too low. Once the tree is constructed: (1) "all" possible events and their resultant paths are visible to management. In the decision tree. ceteris paribus. if sufficiently high. analysts will wish to assess the sensitivity of project NPV to the various inputs (i. see Contingent claim valuation. each management decision in response to an "event" generates a "branch" or "path" which the company could follow.e. via Black Scholes. 10% for "Likely . management will abandon the mining rights. assumptions) to the DCF model. there is no "branching" – each scenario must be modeled separately. by contrast. the viability of a mining project is contingent on the price of gold. less often for this purpose. Here. In a DCF model. The "true" value of the project is then the NPV of the "most likely" scenario plus the option value. In a typical sensitivity analysis the analyst will vary one key factor while holding all other inputs constant. and maintain it otherwise. Again. (For example. management chooses the actions corresponding to the highest value path probability weighted. (2) given this “knowledge” of the events that could follow. management will develop the ore body. the analyst will set annual revenue growth rates at 5% for "Worst Case". using financial option theory as a framework. the decision to be taken is identified as corresponding to either a call option or a put option . it would similarly expand the factory. For example. (For example.valuation is then via the Binomial model or. a company would build a factory given that demand for its product exceeded a certain level during the pilot-phase. and outsource production otherwise. See Decision theory: Choice under uncertainty. a DCF valuation would capture only one of these outcomes. Scenario planning. given further demand.) Quantifying uncertainty Further information: Sensitivity analysis. In turn. the probabilities of each event are determined or specified by management.
extending the example above. etc. such as Crystal Ball.as opposed to the traditional static and deterministic models as above. A further advancement is to construct stochastic or probabilistic financial models .) as well as for company-specific factors (revenue growth rates. This method was introduced to finance by David B.). Using a related technique. Note that for scenario based analysis. today analysts are even able to run simulations in spreadsheet based DCF models. Analysts then plot these results to produce a "value-surface" (or even a "value-space"). whereas for the sensitivity approach these need not be so.and produce three corresponding NPVs. analysts may also run scenario based forecasts so as to observe the value of the project under various outcomes.the NPV for the project is then the probability-weighted average of the various scenarios. Hertz in 1964. unit costs. typically using an add-in.. where management determines a (subjective) probability for each scenario . although has only recently become common. The average NPV of the potential . etc.. For this purpose. Under this technique.Case" and 25% for "Best Case" . "global" factors (exchange rates. Here.. Using simulation. key inputs in addition to growth are also adjusted.. where NPV is a function of several variables. the various combinations of inputs must be internally consistent. a scenario comprises a particular outcome for economy-wide. Another application of this methodology is to determine an "unbiased NPV". the most common method is to use Monte Carlo simulation to analyze the projects NPV. the cash flow components that are (heavily) impacted by uncertainty is simulated. The simulation produces several thousand trials (in contrast to the scenario approach above) and outputs a histogram of project NPV. commodity prices. and NPV is calculated for the various scenarios. mathematically reflecting their "random characteristics".
is then observed. generically. The cost of equity is also typically higher than the cost of . WACC.) The sources of financing will. As above. see also the Modigliani-Miller theorem. See: Monte Carlo Simulation versus “What If” Scenarios.as well as its volatility and other sensitivities . representative set of valuations. comprise some combination of debt and equity. the financing mix can impact the valuation. Here. Equity financing is less risky in the sense of cash flow commitments. The financing decision Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. The resultant statistics (average NPV and standard deviation of NPV) will be a more accurate mirror of the project's "randomness" than the variance observed under the traditional scenario based approach.would then be "sampled" repeatedly so as to generate the several thousand realistic (but random) scenarios. instead of assigning three discrete values to revenue growth. since both hurdle rate and cash flows (and hence the risk to the firm) will be affected. but. the analyst would assign an appropriate probability distribution (commonly triangular or beta). but results in a dilution of ownership and earnings. This distribution . continuing the above example. Fisher separation theorem.and that of the other sources of uncertainty . and the output is a realistic. Management must therefore identify the "optimal mix" of financing—the capital structure that results in maximum value.investment . (See Balance sheet. Financing a project through debt results in a liability that must be serviced— and hence there are cash flow implications regardless of the project's success. it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value). This histogram provides information not visible from the static DCF: for example.
almost by definition. For example. In other cases. generally as cash dividends or via a share buyback. institutional structure. and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk. some companies will pay "dividends" from stock rather than in cash. see above and Real options. An emerging area in finance theory is right-financing whereby investment banks and corporations can enhance investment return and company value over time by determining the right investment objectives. see Corporate action. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. however there are exceptions. management may consider “investment flexibility” / potential payoffs and decide to retain cash flows. policy framework.e. One last theory about this decision is the Market timing hypothesis which states that firms look for the cheaper type of financing regardless of their current levels of internal resources. source of financing (debt or equity) and expenditure framework within a given economy and under given market conditions. Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the tax benefits of debt with the bankruptcy costs of debt when making their decisions. which suggests that firms avoid external financing while they have internal available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Management must also attempt to match the financing mix to the asset being financed as closely as possible. firm value is enhanced . in both cases increasing the value of shares outstanding. expect that the company will. investors in a "Growth stock". debt and equity. then management must return excess cash to investors. in terms of both timing and cash flows. or to perform a stock buyback. i. There are various considerations: where shareholders pay tax on dividends. retain earnings so as to fund growth internally. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. the goal of Corporate Finance is the maximization of firm value. capital investment decisions. This is the general case. The dividend decision The dividend is calculated mainly on the basis of the company's inappropriate profit and its business prospects for the coming year. In the context of long term. As above. companies may elect to retain earnings. even though an opportunity is currently NPV negative. it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem). where returns exceed the hurdle rate. Management must also decide on the form of the distribution.debt (see CAPM and WACC). These free cash flows comprise cash remaining after all business expenses have been met. Today. One of the main theories of how firms make their financing decisions is the Pecking Order Theory. If there are no NPV positive opportunities.
That is. and to satisfy both maturing short-term debt and upcoming operational expenses. As a result. Decision criteria Working capital is the amount of capital which is readily available to an organization. firm value is enhanced when. decisions. management will use a combination of policies and techniques for the management of working capital. the decisions relating to working capital are always current. The result is shown as a percentage. have implications in terms of cash flow and cost of capital. working capital decisions differ from capital investment decisions in terms of discounting and profitability considerations.through appropriately selecting and funding NPV positive investments.such as those imposed by loan covenants . This represents the time difference between cash payment for raw materials and cash collection for sales. and if. in that they link shortterm policy with long-term decision making. although some constraints . they are also "reversible" to some extent. the most useful measure of profitability is Return on capital (ROC). As above. short term. the return on capital. The goal of Working capital management is therefore to ensure that the firm is able to operate. and cash requirements (Current Liabilities). ROC measures are therefore useful as a management tool. . These investments. Working capital management decisions are therefore not taken on the same basis as long term decisions. exceeds the cost of capital. Return on equity (ROE) shows this result for the firm's shareholders.cash flow is probably the more important of the two. (Another measure is gross operating cycle which is the same as net operating cycle except that it does not take into account the creditor’s deferral period. in turn. The cash conversion cycle indicates the firm's ability to convert its resources into cash. In addition to time horizon. Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities. See Economic value added (EVA). determined by dividing relevant income for the 12 months by capital employed. In so doing.e. management generally aims at a low net count. • The most widely used measure of cash flow is the net operating cycle. and different criteria are applied here: the main considerations are cash flow and liquidity . (Considerations as to Risk appetite and return targets remain identical. These policies aim at managing the current assets (generally cash and cash equivalents.) • In this context. working capital is the difference between resources in cash or readily convertible into cash (Current Assets). Management of working capital Guided by the above criteria. or cash conversion cycle. the return on capital exceeds the cost of capital. i. and that it has sufficient cash flow to service long term debt.may be more relevant here). and if. firm value is enhanced when.
i. Financial risk management will also play an important role in cash management. Economic order quantity (EOQ). firm value. if not formal. and small firms practice informal. Market risk. however. the terms “corporate finance” and “corporate financier” tend to be associated with investment banking . Identify the appropriate credit policy. Settlement risk. Economic production quantity (EPQ). Financial risk management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. both disciplines share the goal of creating. such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa). In the United Kingdom and Commonwealth countries. All large corporations have risk management teams. Firstly. Just In Time (JIT). This area is related to corporate finance in two ways.e. • Inventory management. and swaps. the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets. Volatility risk. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials . it may be necessary to utilize a bank loan (or overdraft). to describe activities. • Short term financing.inventories and debtors) and the short term financing. • Debtors management. Default (finance). In the United States it is used. Interest rate risk. Because unique derivative contracts tend to be costly to create and monitor. but reduces cash holding costs. Derivatives are the instruments most commonly used in Financial risk management. Credit risk.  . i. see Discounts and allowances. futures contracts. Relationship with other areas in finance Investment banking Use of the term “corporate finance” varies considerably across the world. decisions and techniques that deal with many aspects of a company’s finances and capital. Operational risk. or to "convert debtors to cash" through "factoring". such that cash flows and returns are acceptable. forward contracts. Secondly. Financial risk. as above.and minimizes reordering costs . These standard derivative instruments include options. credit terms which will attract customers. Financial risk management focuses on risks that can be managed ("hedged") using traded financial instruments (typically changes in commodity prices. given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier.e. firm exposure to business risk is a direct result of previous Investment and Financing decisions. interest rates. • Cash management. foreign exchange rates and stock prices). See: Financial engineering. Identify the cash balance which allows for the business to meet day to day expenses.and hence increases cash flow. with transactions in which capital is raised for the corporation. Liquidity risk. Identify the appropriate source of financing. risk management. see Supply chain management. or enhancing.
But in other cases their application is very limited outside of the corporate finance arena. governments. NET WORKING CAPITAL: Net Working capital refers to the difference between Current Assets and Current Liabilities are those claims of outsides. The current assets are the assets which can be converted into cash with in as accounting year and include cash. or payment within an accounting year and include creditors. to partnerships. Short term securities like Debtors. CONCEPTS GROSS WORKING CAPITAL : The Gross Working Capital is the firm’s investment in current assets. Some of the tools developed by and for corporations have broad application to entities other than corporations. It can be differentiated from personal finance and public finance. Any business firm needs to provide itself with enough of these Current Assets.Personal and public finance Corporate finance utilizes tools from almost all areas of finance. and personal wealth management. Bills payable and outstanding expenses. mutual funds. which are expected to mature. for example.e. not-for-profit organizations. (2) Accounts Receivables A) Cash and bank balance. A part of these finished goods like the shape of Accounts receivables as a result or cash sales. So that it can carry on its business operation smoothly These Assets are essentially circulating in nature. constituted Current Assets i. Gross working capital. the analysis has developed into a discipline of its own. sole proprietorships.. (1) Inventory which are further classified into A) Raw materials B) Work in progress C) Finished goods. Because corporations deal in quantities of money much greater than individuals. That is to say that the business buys raw materials with cash available and then the raw material are processed into work in process and ultimately these get converted into finished goods. Bills Receivables and Investor. .
There is a wide choice in the matter of current assets policy. Policy changes. A firm following a conservative policy in this respect having a . For instance the price of raw materials. in inventory and receivables. 2. The term current assets and sales volume. necessitating the holding of a larger inventory. Earning a steady amount of profit required successful sales activity. Current assets are needed because sales do not convert into cash instantaneously. Changes in level of sales and or operating expenses. there may be a long run trend of changes. NEED FOR WORKING CAPITAL: Business firms aim at maximizing the wealth of shareholders. An increase in the volume of sales is bound to be accompanying by higher levels of cash. The third source of change is seasonality in sales activity. The firm has to invest enough funds in current assets for the success of sales activity. The decline in sales will have exactly the opposite effect a decline in the need for working capital. POLICY CHANGES: The second major cause of changes in the level of working capital is policy changes initiated by the management. Profits are earned with the help of assets. CHANGES IN WORKING CAPITAL: The changes in working capital occur for the following three basic reasons: 1. 3. The change is sales always and operating expenses may either in the form of an increase or decrease. Changes in technology CHANGES IN SALES AND OPERATING EXPENSES: The first factor causing a change in the working capital requirement is a change in the sales and operating expenses. The changes in this factor may occur due top three reasons.Next working helps the management to look after the permanent sources for its financing working capital under this approach does not increase with increase in short term borrowings. Changes in the operating expenses rise or fall will have a similar effect on the level of working capital. First. In the second place. there is always an operating cycle involved in the conversion of sales into cash. The secular trends would mainly affect the need for payment current assets. cyclical changes in the economy leading to ups and downs in business activity will influence the level of working capital. which are partly current working capital sometimes referred as “CIRCULATING CAPITAL”. say oil may constantly rise. In its endeavor to maximize shareholders wealth a firm should earn sufficient return from its operation.
which degenerated into managerial inefficiency. waste theft and losses increases. THE DANGERS OF EXCESSIVE WORKING CAPITAL: 1. Fixed assets are not efficiently utilized for the lack of working capital funds. . which shortness the operating cycle. TECHNOLOGICAL CHANGES: Finally. These conscious managerial decisions will certainly have an impact on the level of working capital. thus the firms profitability would deteriorate. Operating inefficiencies creep in when it become difficult even to meet day-to-day commitments. PROBLEMS OF WORKING CAPITAL MANAGEMENT The firm should maintain a sound working position. which degenerated into managerial inefficiency. 4. It stagnates growth and become difficult for the firm to undertake profitable project for non-availability of working capital 2. It is an indication of defective credit policy and slacks collection period. another factor than can cause changes in the level of working capital is technological changes. 2.very level of current assets in relating to sales may deliberately opt foe less conservative policy and vice versa. It should have adequate working capital to run its business operations excessive as well as inadequate working positions are dangerous from the firm’s point of view. 4. If a new process emerges as result of technology development. It becomes difficult to implement operating plans and achieve the firms profit target. It results in unnecessary accumulation of inventories thus chances of inventory miss-handling. Excessive working capital makes management complacent. 3. Consequently. it will reduce the need for working capital. Tendencies of accumulating inventories to make speculation profits grow. This may tend to make dividend policy liberal and difficult to cope with in future when the firm is unable to make speculative profits INADEQUATE WORKING CAPITAL: 1. higher incidence of bad debts results. which adversely effect profits. Excessive working capital makes management complacent. 3.
This firm looses its reputation when it is not in honor its short term obligation as result. The financial manager should pay special attention to the management of current assets on continuing basis. Cash shortage will disrupt the firms manufacturing operation while excessive cash will simply remains without contributing anything towards the firm’s in profitable way. 2. ROLE OF FINANCIAL MANAGEMENT MANAGER IN WORKING CAPITAL 1. Paucity of working “capital funds renders the firm unable to avail attractive credit opportunities etc. Thus enlightened management should. Working capital management requires most of the finance manager time as it represents a large of investment in assets.5. Cash management is concerned with the managing or cash flow into and out of the firm.” 6. Action should be taken to curtail unnecessary investment in current assets. All precautions should be taken for the effective and efficient management of working capital 5. Working capital management requires much of the finance manager time as it represents larger portion of investment in assets. cash flow with in the firm. Cash in the basic input to keep the business running on continuous basis. 3. MANAGEMENT OF CASH CASH MANAGEMENT: Cash is the important assets for the operation of the business. 4. and cash balances held by the firm at appoint of time by financing deficit investing surplus . the firm faces tight credit terms. Large firms have to manage their current assets and current liabilities very carefully and should see that the work should be done properly in order to achieve predetermined organizational goals. 6. therefore maintain a right amount of working capital on continuous basis which helps to develop the organization effectively and efficiently.
CASH PLANNING: Cash planning is a technique to plan and control of the use of funds. Cash forecasting helps to plan for future and to formulate projects carefully.: 1. 2. Efficient Inventory management 3.Cash management is to maintain adequate control over cash position to keep the firm sufficiently liquidated and to use excess cash in some profitable way. 3. Speedy collection of accounts receivables Thus the main objectives of cash management are to reconcile and to minimize funds committed to cash. 2. 2. It protects the financial condition of the firm by developing the overall operating plans of the firms. Transaction Motive. To help to evaluate proposed capital projects It helps to improve corporate planning 4. The basic strategies payable without affecting credit of the firm. Speculative Motive RECEIVABLES MANAGEMENT: . Precautionary Motive. 1. 3. USES OF CASH MANAGEMENT: 1. MOTIVE OF HOLDING CASH: The firm needs to hold cash to the following three motives. Stretching account payable without affecting the credit of the firm. CASH MANAGEMENT STRATEGIES: The cash management strategies are intended to minimize the operating cash balance requirement. It indicates company’s future financial need especially for its working capital requirements.
To keep down the average collection of sales. which are ready for sale. RAW MATERIALS: Raw Materials are those basic inputs that are converted into finished product through the manufacturing process. The maintenance of receivables involves direct and indirect costs. Raw materials are those which have been purchased and stored for future production. Stocks of raw material and work-in. work in progress. The three crucial decision areas Receivables Management are: o Credit Policies o Credit Terms o Collection Policies. The levels of three kinds of inventories for a firm depend on the nature of its business. inflationary costs legal expenses are indirect costs. To obtain the optimum volume of sales. Direct cost includes the cost of investments. allowance and concession to customers and also losses on account of bad debts. WORK-IN-PROGRESS: Inventories are semi-manufactured products they represent that need more before they become finished products for sale. OBJECTIVES OF RECEIVABLE MANAGEMENT: The goals of Receivables Management are: To maintain an optimum level of investment in receivables. and Finished goods. INVENTORY MANAGEMENT Inventories are stock of the product a company is manufacturing for sale and components that make up the product.progress facilitate . To control the cost of credit allowed and to keep it at the minimum possible level. The term receivables are defined as “Debt owned to the firm by customers arising from sale of goods or service in the ordinary course of business. Administrative costs connected with collection of receivables. The various forms in which ventures exist in a manufacturing company are Raw Material. FINISHED GOODS: Finished goods inventories are those completed manufactures products.The Receivables represent as important component of the Current Asset of a firm. the recording of bills and preparing statement. Receivables Management is also called “Trade Credit Management”.
a) Ordering Costs. 4. involves an opportunity cost. which will amount to a permanent loss to a firm. 5.production while stock of finished goods is required for smooth marketing operations. . To control investment in inventories and keep it at an optimum level. 2. such as the cost of storage and handling insurance also increase in proportion to the volume of inventory. Since inventory enables uncoupling of the key activities of a firm each of them can be operated at the most efficient rate. OBJECTIVES OF INVENTORY MANAGEMENT: 1. The consequences of inadequate investment in inventory are production holds up failure to meet delivery commitments. which cannot be used for any other purpose and thus. BENEFITS OF HOLDING INVENTORY: It acts as a buffer to decouple or uncouple the various activities of a firm so that all do not have to be pursued exactly the same rate. Maintaining a liquidates level of inventory is also dangerous. To maintain sufficient stocks of raw material in period of short supply and anticipate price charges. b) Carrying Costs. Excessive level of inventory consumes the finds of a firm. Determining an optimum level involves two types of costs. To maintain sufficient finished goods inventory for smooth sales operation and efficient customer service. 3. The carrying costs. If inventory is not sufficient to meet the demand of the customers regularly that may shift to other competitors. INVENTORY MANAGEMENT TECHNIQUES: The firm should determine the optimum level of inventory efficiently controlled inventories make the firm flexible. To ensure a continuous supply of raw material to facilitate uninterrupted production. To minimize the carrying costs and time.
the chances of disruption of operations are reduced. By holding less inventory cost can be minimized. By holding a large inventory. The performance of . the most efficient is the management of assets. Expenses are very high during the study period. The technique reveals the weakness and soundness of various aspects of Financial Management viewed from difference angles. DEBTORS TURN OVER RATIO: This Ratio indicates the number of items on an average debtors or receivables turnover each year. but the cost will increase. Generally. Debtor’s turnover Ratio expresses the relation between debtors and sales. because of these expenses the firm does not have profitability position. The analysis techniques is the most convenient and acceptable technique for the analysis and interpretation of Financial Statement.An inventory enables firms in the short-run to product at a rate than purchase of raw materials and vice-versa. The importance of Ratio Analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences. because of these expenses the firm does not have profitability position. as the emerging demands cannot be met. IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management they are two crucial significance. It is calculated as expenses are very high during the study period. The term analysis implies computing and commenting up on the accounting ratios. The appropriate level of inventory should determine in term of a trade off between the benefits the costs associated with maintaining inventory. or sell at rate greater than production and vice-versa. The term Ratio refers to the numerical or Quantitative relationship between two items variables. The maintenance of inventory also helps a firm to enhance its sales efforts. the higher value of debtor’s turnover. but there is a risk that the operation will be disturbed. RATIO ANALYSIS For the analysis and interpretation of Financial Account Data there are a various tools and techniques available of which the Ratio Analysis technique is an important one.
Leverage ratios. Profitability ratios. loss of creditors confidence or even in legal Liquidity ratios. They have to protect interest of all the parties. Similarly owners are more interested on the firm’s profitability and financial condition. LONG TERM SOLVENCY: Ratio Analysis is equally useful for assessing the long term financial viability of firm. A firm should ensure that it does not suffer from lack of liquidity. The analysis of liquidity needs the preparation of ash budgets and cash fund flow statements. . Management is interested in evaluating every aspect of the firms performance. 1. but liquidity ratios by establishing relationship between cash and other current assets to current obligations. (a) (b) (c) LIQUIDITY RATIOS: Liquidity ratio measure the ability of the firm to meet the current obligations. On the other hand Long. LIQUIDITY POSITION: The liquidity position of a firm would be satisfactory. and also it obligations due to lack of sufficient liquidity will result in poor credit worthiness. if it is able to meet its Current obligations when they become due. The ratios are classified into three types. owners and management short-term creditors are mainly interested in the liquidity position or short-term solvency of the firm. Ratio Analysis is relevant in assessing the performance of the firm in the following aspects.term creditors are more interested in the long-term solvency and profitability of the firm.the firm. which focus on earning power and operation efficiency TYPES OF RATIOS: Several ratios calculated from the accounting data. provide a quick measure of liquidity. This ability reflected in the liquidity ratios of a firm. The long-term solvency of a firm is measured by the leverage/ capital structure and profitability ratios. The parties interested in financial analysis are short and long term creditors. can be grouped into various classes according to financial activity.
company has grown by leaps and bounds. My Home Industries Limited started as 600 TPD mini cement plant in 1998. Current Ratio= Current Assets/ Current liabilities A Current ratio of 2:1 is considered as ideal. et. stock of raw materials. sundry creditors. My Home Industries has vertically grown very fast in capacity. is now a major plant with a production capacity of 3. However a high current ratio of more than 3 indicates that the firm is having idle funds and has not invested them properly. prepaid expenses and short term or temporary investments.. which is expected to be commissioned during Dec 2006. COMPANY PROFILE My Home Industries Limited was the most ambitious diversification of the My Home Group. Current assets are assets which can be converted into cash within one year and include cash in hand and cash at bank. LIQUIDITY OR SHORT TERM SOLVENCY RATIOS: Liquidity ratios measure the short term solvency of the firm. current liabilities are liabilities. bills receivables. Unit – 3. This is one of the very few highly energy efficient plants in the world and it is very friendly to ecology and environment. If current ratio is less than 2 it indicates that the business does not enjoy adequate liquidity.40 Million Tonnes per annum. Here again.20 million tones per annum. etc. are repayable within 1 year. CURRENT RATIO OF WORKING CAPITAL RATIO: Current ratio is the ratio of the current liabilities. 1.tangles resulting in the closure of the company.. Under his leadership. Outstanding Expenses. from a meager 600 tonnes per day to a massive 10. which was founded by Dr Rameswar Rao J Chairman and Managing Director. Thus. which are to be repaid within a period of 1 year and include bills payable. in a short span of one decade. The second Unit has been designed and installed as a much more efficient and modern unit. all the state of art technology is incorporated.000 . The firm’s funds will be unnecessarily tied up in current assets. has a production capacity of 1. The following are the important liquidity ratios. Bank Overdraft. A very high degree of liquidity is also bad assets which earn nothing. Short term loans and Advances. net sundry debtors.
Power Generation Units and also Consultancy for power plants. Continuous monitoring of energy norms fixed by Expert Committee based on latest Bench Marking data of CMA. Mission: The cost of energy as part of the total production costs in the Cement industry is significant. Periodic discussions with equipment supplier on latest technological development in field. From 29% of Fly ash addition last year.in house R&D efforts. Visit to other Cement Plants..tonnes per day. The total Group annual turnover is Rs 800 Crore. Energy Cell members are being sent to energy conservation seminars for getting new ideas of energy saving and find the ways to implement the same. and usage of large quantities of additives in Blended Cement & through Quality Circles & & TPM activities. they are having the following plans and started implementing during this year. warranting attention for energy efficiency to improve the bottom line. this year they are planning to go up to 33% In the recent past. A energy conservation Team in . Energy cell members have been asked to identify energy deficient areas / equipment to make the areas / equipment energy efficient. Monitoring of Benchmarking activity. Company is on the right track to sustain its reputation as one of the most efficient cement manufacturers in the world. they have substituted imported coal in place of indigenous coal to get more heat value. In addition group has Construction Division dealing with Estate development and Transport. Vision: In line with philosophy of using waste materials like Fly ash and to conserve limestone and other materials like coal etc. They have gradually phased out the production of OPC and converting the same to PPC. Management is deeply committed to continuously make efforts to reduce energy cost through technological innovation .
a) ACHIEVEMENTS.85 lakhs DATA ANALYSIS AND INTERPERTATION STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2000-2001TO 2001.3% of the total production of cement Total power savings for the year 2005 – 2006 38.11 10158. our Thermal Energy consumption has reduced from 760 to 720 KCL per Kg.94 31344.2002 (RS.03 4372. Replaced the pre heater top cyclones with LP Cyclones which has resulted in power saving to the tune of 0. Replaced Multi cones with ESP for Cooler vent air which in turn helped to reduce the power consumption by 40 kwh of Cooler ID Fan (because of reduction of pressure drop) Production of Blended Cement increased to 40. For the last 3 years.29. of clinker. This plant was started producing ‘POZZALONA PORTLAND CEMENT’ by adding Fly ash from 2002. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors 2001 2002 Increase Decrease 14531. supported by functional heads of various departments followed by the dedicated .298 Kwh. Variable frequency drive in all Cooler fans were installed to minimize the power consumption and to have a stable operation of Cooler.93 16681. AWARDS AND FELICITATIONS Introduction of MFR Cooler in I Grate during Kiln up gradation. committed & motivated cross sectional teams to continuously make efforts to monitor & reduce energy consumption & implement ideas for energy savings.the form of an Energy Cell which is headed by AVP(Tech). Cost Savings for the above Rs.99 14662. which has resulted 7 M T per hour production increase and thereby reduced the power consumption of 0.115.92 . the Fly ash addition is gradually increased from 14% and last year it was to the extent of 30%.40 KWH per M T of the material.67 Kwh per tonne of clinker Introduced the deflector plate in the VRM Nozzle Ring and Dynamic Separator.
86 10654.02 Interest accrued on .22 51939.92 11602.29 Working 19548.01 1237.89 71487.29.44 7164.01 Investments TOTAL(a) CURRENT LIABILITIES Current Liabilities Provision TOTAL(b) WORKING CAPITAL(a-b) Net Increase/Decrease Working Capital Total of Capital in 47701.29 59087.03 8893.94 31344.37 1815.58 .65 551. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance Loans & Advances 2003 2004 Increase Decrease 10158.07 .65 INTERPRETATION : The above statement shows that the net working capital has increased 10654.35 9931.07 10710.87 21182.05 Loans & Advances 6292.12 677.34 19548.44 7164.06 10654.28 50194.86 42946.15 18587.2004 (RS.15 19548.09 17095.Cash & Bank Balance 21582.62 872.49 51262.15 3560.75 2492. cash and bank balance has increased from 1237.82 22820.03 22820.62 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2002-2003TO 2003.84 1638.65 18587.
57 22086.22 57933.35 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2004-2005TO 2005.01 0 .42 9475.8819. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance 2005 2006 Increase Decrease 10710.98 22570.15 8819.11 1388.34 INTERPRETATION : The above statement shows that the net working capital has decrease by Rs.08 Loans & Advances 17095.29 11749.34 22086.34 13554.09 6622.86 42946.01 71487.26 8819.90 22373.42 Working 22373.48 69561.64 58074.47 51262.57 0 4088.42 in 60086.57 8824.57 22373.3 2804.87 21182.42 cash and bank balance has decreased from 1638.2006 (RS.22 15127.20 5346.Interest accrued Investments TOTAL(a) CURRENT LIABILITIES Current Liabilities Provision TOTAL(b) WORKING CAPITAL(a-b) Net Increase/Decrease Working Capital Total of Capital on .12 6671.65 Interest accrued on 0 Investments .49 91935.
48 60086.49 cash and bank balance has increased from 1388 .TOTAL(a) CURRENT LIABILITIES Current Liabilities Provision TOTAL(b) WORKING CAPITAL(a-b) Net Increase/Decrease Working Capital Total of Capital in 91935.06 13887.47 99017.31 12454.63 Working 25002.82 INTERPRETATION: The above statement shows that the net working capital has increase by Rs 2628.49 1474.9 22373.82 13887.06 25002.49 61561.11 74015.89 2978.48 69561.57 2628.42 9475.06 2628.42 25002.
70 3629.70 11504.92 2967.2008 (RS.94 13655.98 0 1059.64 58072 .31 12454.06 2967.61 cash and bank balance has increased from 3629.19 91777.89 27969.96 79468.61 80273.35 25309.57 Interest accrued on 0 Investments TOTAL(a) CURRENT LIABILITIES Current Liabilities Provision TOTAL(b) WORKING CAPITAL(a-b) Net Increase/Decrease Working Capital Total of Capital in 99015.67 25309.29 7681.STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2006-2007TO 2007.42 25002. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance 2007 2008 Increase Decrease 6622.35 1906.67 18712.35 .41 Loans & Advances 11749.68 18940.11 74015.98 22570.56 61561.35 INTERPRETATION: The above statement shows that the net working capital has decrease by Rs 2967.48 119747.67 27969.39 949.32 21393.61 Working 27969.
It shows that the company is unable to collect the money from the . Generally.97 3. Generally the higher the debtor turnover the greater the efficient of credit management.20 3. The better the quality of debtors since the shorter collection period implies prompt payment be debtors.64 Interpretation: The above table shows the average collection period of the company.65 100055.64 months in 2005-06. DEBTORS TURNOVER Years 2004 2005 2006 2007 2008 Month in a year 12 12 12 12 12 Debtors Turnover Ratios Ratio 4. The ratio was recorded as 13. less the chance of bad debts.18 5. Compared to previous year.98 93455. An excessively long period implies a too long.10 5.68 Ratios 4. and liberal and inefficient credit and collection performance where as a too low period indicates a very strict credit and collection policy.10 0.03 42946.88 which shows there is lesser efficiency of credit management AVERAGE COLLECTION PERIOD: This ratio is other device used to measure the quality of debtors.75 2. the shorter period.03 Debtors 16681.87 36774.52 79468.04 3. which is very high.20 2. higher the ratio more the chance of bad debts and the lower there ratio.18 2.DEBTORS TURNOVER RATIO = CURRENT SALES AVERAGE DEBTORS DEBTORS TURNOVER RATIO = TOTAL SALES CLOSING DEBTORS Years 2004 2005 2006 2007 2008 Net sales 67411. It shows the nature of the firm’s credit policy too.50 2.04 2. the current year ratio has been decreased by 0.88 13.71 0.11 31344.40 77066.88 INTERPRETATION: The above table shows the debtors turn over ratio of the company.76 70029.
The higher the current ratio.53 1. QUICK RATIO OR ACID TEST RATIO: Quick Ratio is defined as the relationship between quick assets and Current liabilities.39 1. As very quick ratio is also not advisable. However. The above table shows the current ratio has been decreased when compare to previous year by 1. ABSOLUTE LIQUID RATIO: It is the ratio of absolute Liquid Assets to Quick Liabilities. cash at bank and short term or Temporary investment. QUICK RATIO = Current Assets / Current Liabilities The standard ratio is 1:1 IDEAL.31 80273. Absolute Liquid Assets = Absolute Liquid Assets / Current liabilities .61 1. So it is suggested to the company that should try to reduce this credit period because there is more chance of bad debts.98 93455. as Funds can be more profitably employed.customer in proper time. Current liabilities are those liabilities which does not included Bank Overdraft.64 higher than 2004 -2005. 2.49% in the year 200506. Absolute Liquid Assets include cash in hand. But when compared to previous year this ratio has increased from 5.49 INTERPRETATION : The general norm for current ratio is 1. the greater the short term solvency. RATIO ANALYSIS Years 2004 2005 2006 2007 2008 Current Assets 67411. for calculation purpose it is taken as ratio of Absolute Liquid Assets to Current Liabilities.75 51262.71 to 13. A quick ratio of less than 1 is indicative of inadequate liquidity of the business.40 77066.70 Ratios 1.76 70029. Quick assets are those assets than can be converted into cash very quickly without much loss.42 61561.65 100055.33.12 60086.24 1.03 Current Liabilities 47701. The management must take effective recovery measures so that Average collection period reduces as bad debts will lock the funds available to the company. 3.
Debt usually.52 35.25 44.94 80273.31 18940.75 22820. The significant leverage ratios are.25 36. Equity and preference share capital and reserves.82 47701.51:1 In the previous year 2005 it was increased and in the current year 2006 it was decreased.66 23.09 60086.5. LEVERAGE OR CAPITAL STRUCTURE RATIOS: Leverage ratios indicate the relative interests of owners and creditors in a business.70 Ratios 45. PROPRIETORY RATIO: It expresses the relationship between net worth and total assets. PROPRIETORY RATIO = NET WORTH/TOTAL ASSETS NET WORTH = Equity share capital + Preference share capital + Preference Share capital + Reserves – Fictitious Assets TOTAL ASSETS = Fixed Assets + Current Assets . DEBIT EQUITY RATIO: This ratio examines the relationship between borrowed funds and owner’s funds of a firm. refers to longterm liabilities.42 22570. Years 2004 2005 2006 2007 2008 Cash in hand & Current Liabilities Bank 21582.Absolute Liquid Assets = Cash in hand + cash at bank + Short Term The Ideal Absolute Liquid Ratio is taken as 1:2 or 0.26 61561.44 51262. DEBIT EQUITY RATIO = LONG TERM LIABILITIES SHARE HOLDER’SFUNDS The Debt Equity Ratio is 2:1 considered as Ideal.12 21182. This Ratio is also known as debt to net worth ratio. In other words it measures the relative claims of creditors and shareholders against the assets of a business.60 INTERPRETATION: From the above table it can be interpreted that the absolute liquid ratio is also not up to the standard ratio that is 0. II.
This Ratio indicates the mode of financing of fixed assets financially manage company will have its fixed assets finance by long term funds.53 Ratio 0.28 This Ratio shows the relationship between Fixed Asset and Capital employed.30 0.77 20167.19 129316. It indicates that the higher proprietary ratio shows that the better position of the company.28.58 32154.23 0.29 0.74 Total assets 64844. 1. FIXED ASSETS RATIO = FIXED ASSET CAPITAL EMPLOYED Capital Employed = Equity share capital + Preference share capital + Reserves +Long term liabilities – Fictitious Assets.20 80045.07 101687. 25 in 2003-2004. FIXED ASSETS RATIO: Net worth 14610.(Excluding fictitious assets) ANALYSIS : In this ratio it shows that the proprietary ratio position is increasing year by year.25 107878. Then in 2006 it was decreased to 0.16 36342. So fixed asset ratio should never be more then one.25 0. Years 2004 2005 2006 2007 2008 INTERPRETATION: The ratio is increasing and it becomes . A high proprietary ratio is indicative of strong financial position of the company.76 29927. .023 in 2002-2003 and then 0.
3749 0.91 35329.ANALYSIS: This ratio indicates the modes of financing the fixed assets.88 7207.26 6564.64 7411.3737 0.72 Net worth 14610.79 Ratios 0.72 Capital Employed 14202.76 29927.74 Ratio 0. 2.96 6942.2351 0.79 31524.96 6942. GROSS FIXED ASSET TO SHARE HOLDERS FUNDS: have been used to This Ratio measures the extent to shareholders funds finance the Fixed Assets and it is calculated as: GROSS FIXED ASSET TO SHARE HOLDERS FUNDS = FIXED ASSETS Net worth = Equity Share Capital + Preference Share Capital + Reserves Fixed Asset = Fixed Assets (Excluding assets) Years 2004 2005 2006 2007 2008 Fixed assets 5308. A ratio of 0.3263 0. The lowest ratio was recorded as 0.3255 0.26 6564. SO it is suggested to the company that should try to improve this ratio by investing more in fixed assets.58 32154.88 7207.67:1.64 7411.12 20118. Therefore. A financially well managed company will its fixed assets financed by long term funds.1965 INTERPRETATION: The above table shows the fixed assets ratio during the study period. The fixed assets ratio is not getting properly so that this ratio of the company is very less from the ideal point of view Years 2004 2005 2006 2007 2008 Fixed Assets 5308.2242 0.1910 .3737 in 2002. funds to meet its fixed asset requirements. which is also too below from the standard ratio 0. the fixed assets ratio should never be more than 1.77 20167.1965 in 2005-06 the highest ratio was recorded as 0.2143 0.16 36342. It means the firm does no raise adequate long-term.2477 0.67 is considered ideal.27 33627.
Its resources or assets.92 0. ACTIVITY RATIOS OR TURNOVER RATIOS: Activity ratios measure the efficiency or effectiveness with which a firm manages. A high ratio is an indicator of over trading. The norm that is usually adopted for this ratio is 2:1. in which funds are blocked up.07 101687. The significant activity or turnover ratios are.54 . we got 0.INTERPRETATION: The above table shows the ratio of gross fixed assets to share holder’s funds.65 100055.25 in the year 2003 FIXED ASSET TURNOVER RATIO: The efficiency with which a firm uses its fixed assets is measured by its measured by this ratio.71 0.04 1.25 107878.54.40 77066.03 Total assets 64844.3749 in 2002 which is also very low.98 93455. the lowest ratio was recorded as 0.From the above table it shows that in the year 2006 . They calculate the speed with which various assets. Years 2004 2005 2006 2007 2008 INTERPRETATION: .25 0. This ratio is calculated by dividing the annual sales value by the value of total assets.20 80045. A lower ratio indicated that the assets are laying idle while a higher ratio may indicate that there is over trading.53 Ratio 1.76 70029. That indicated a low shareholders funds have been used to finance the fixed assets. FIXED ASSET TURNOVER RATIO = NET SALES Net sales 67411. III. The lowest ratio which we got 0. The company should try to improve this ratio by investing more in fixed assets. and the highest ratio was recorded as 1. get converted into sales. This ratio assumes importance for firms having large investments in fixed assets.19 1293165. 1.1910:1 in 2006 and the highest ratio. TOTAL ASSET TURNOVER RATIO: Overall performance and efficiency of the firm are measured by this ratio.
the highest ratio was recorded as 1.49 91935.76 70029.09 1. .98 93455.47 99015.72 Ratios 12.26 6564. which shows the contribution of current assets in generating of sales. and the highest ratio was recorded as 15.40 77066.96 6942.98 93455.08 INTERPRETATION: The above table shows the current assets turn over ratio.88 7207.12 in 2003.242 in 2003.03 Current Assets 59087.89 71487.65 100055.61 10.12 1.56 Ratios 1.69 10. So it is suggested that the firm should properly utilize the current assets. The lowest ratio was recorded as 10. CURRENT ASSETS TURNOVER RATIO: The ratio measured the efficiency of current asset generation.70 15. So it is suggested that the firm should properly utilize its fixed assets. It is calculated by dividing the net sales value by current assets value. It indicates that the firm does not efficiently utilized fixed assets.40 77066.09 INTERPRETATION: The above table shows the fixed assets turn over ratio during the pried 2002 to 2006.24 12. CURRENT ASSETS TURNOVER RATIO = TOTAL SALES CURRENT ASSETS Years 2004 2005 2006 2007 2008 Net sales 67411.65 100055.11 1.76 70029.48 119747.08 which indicates there is lower contribution of current asset to the organization.10 1.09 in 2006.FIXED ASSETS Years 2004 2005 2006 2007 2008 Net sales 67411.64 7411. But in the year 2006 it has been decreased by 1.03 Fixed assets 5308.
Capital employed ratio is also very poor during the study and profits are lower. The fixed assets ratio is very less that indicates the company is utilizing very less capital funds to invest in fixed assets.75 4.40 77066. Years 2004 2005 2006 2007 2008 Net sales 67411.97 of 2003 which was the indicate sufficient sales has been made and higher are the profits.91 35329.98 which is a lower ratio than compare to the ratio 4.98 INTERPRETATION: The table shows the capital employed turn over ratio in the year 2006 is 1. because of these expenses the firm does not have profitability position.96 2.03 Capital Employed 14202. The company’s gross profit ratio is quite good during the study period. FINDINGS & CONCLUSIONS On the basis of the analysis the following conclusions have been found out.79 31524.29 1. the ratio is gradually increased. But after that year. Capital employed is equal to the owner’s equity plus non-current liabilities.97 2.76 70029. This ratio measures the effectiveness with capital employed is used by the firm.98 93455.12 20118. CAPITAL EMPLOYED TURNOVER RATIO = SALES CAPITAL EMPLOYED Capital Employed = Equity share capital + preference share capital + Reserves + Long term loans and Debentures – Fictitious assets – non-operating assets.79 Ratios 4. .CAPITAL EMPLOYED TURNOVER RATIO: This ratio is also known as sales net worth ratio. Operating expenses are very high during the study period. It means that sufficient sales are not being made.27 33627.65 100055. This represents the long-term funds. The proprietary ratio is near to the standards in the year 2001-2002.
Gross Fixed Assets shareholder’s fund of the firm was decreasing year by year. . making for certain products should be continued as it will help in developing the confidence of foreign buyers. The current assets should be managed more effectively so as to avoid unnecessary blocking capital that could be used for other purposes. The debt equity of the company are nil during stable period which is favorable to the firm. The sundry debtors should be efficiently managed so that the outstanding are to be cleared at short intervals. SUGGESTIONS & RECOMENDATIONS The policy of developing new markets with accreditation of ISO-9001 and C. The company should appoint consultants in different areas on a successful basis to collect the debtors.E.
com BUDGETING AND • PROJECTS PREPARATION IMPLEMENTATION .myhomeindustries.CHANDRA WEBSITES REFERRED: • www.BY S.PANDEY FINANCIAL ACCOUNTING AND ANALYSIS .K.com • www.BY PRASANNA .mahacements.NARANG APPRISAL .BY I.BIBILOGRAPHY BOOKS REFERRED: • • FINANCIAL MANAGEMENT .P.M.JAIN & .L.
This action might not be possible to undo. Are you sure you want to continue?
We've moved you to where you read on your other device.
Get the full title to continue listening from where you left off, or restart the preview.