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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
Current Liabilities excluding deferred tax assets/liabilities.assets cannot readily be converted into cash. or other current assets) or has decreased current liabilities. 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 . These accounts represent the areas of the business where managers have the most direct impact: • accounts receivable (current asset) inventory (current assets). surplus assets and/or deposit balances. for example has paid off some short-term creditors. An increase in working capital indicates that the business has either increased current assets (that is received cash. because it represents a short-term claim to current assets and is often secured by long term assets. Cash balance items often attract a one-for-one purchase price adjustment. Common types of short-term debt are bank loans and lines of credit. The management of working capital involves managing inventories. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. Calculation Current assets and current liabilities include three accounts which are of special importance. 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. The goal of working capital . excess cash. accounts receivable and payable and cash. and • accounts payable (current liability) The current portion of debt (payable within 12 months) is critical.
ROC measures are therefore useful as a management tool. and cash. such that cash flows and returns are acceptable. relating to the next one year period .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. management generally aims at a low net count. Decision criteria By definition. Return on equity (ROE) shows this result for the firm's shareholders. exceeds the cost of capital. These policies aim at managing the current assets (generally cash and cash equivalents. Cash management. As a management tool. as above) rather they will be based on cash flows and / or profitability. Identify the cash balance which allows for the business to • . Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities. Firm value is enhanced when. this metric makes explicit the interrelatedness of decisions relating to inventories. accounts receivable and payable. The result is shown as a percentage. inventories and debtors) and the short term financing. These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related. • In this context. the most useful measure of profitability is Return on capital (ROC). management will use a combination of policies and techniques for the management of working capital. 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". and if. which results from capital investment decisions as above. See Economic value added (EVA). the return on capital. which results from working capital management. Management of working capital Guided by the above criteria. determined by dividing relevant income for the 12 months by capital employed. working capital management entails short term decisions generally.
whether to finance that investment with equity or debt. the focus here is . 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).e.meet day to day expenses. 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.and hence increases cash flow. Although it is in principle different from managerial finance which studies the financial decisions of all firms. Identify the appropriate credit policy. This subject deals with the short-term balance of current assets and current liabilities. The primary goal of corporate finance is to maximize corporate value while managing the firm's financial risks. however. given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier. Just In Time (JIT). • Short term financing. • Inventory management. The discipline can be divided into long-term and short-term decisions and techniques. and when or whether to pay dividends to shareholders. • Debtor’s management. but reduces cash holding costs. or to "convert debtors to cash" through "factoring".and minimizes reordering costs . see Discounts and allowances. Economic order quantity (EOQ). the short term decisions can be grouped under the heading "Working capital management". see Supply chain management. Capital investment decisions are long-term choices about which projects receive investment. credit terms which will attract customers. i. it may be necessary to utilize a bank loan (or overdraft). Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials . Identify the appropriate source of financing. Economic production quantity (EPQ). the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. On the other hand. rather than corporations alone.
Making this capital allocation decision requires estimating the value of each opportunity or project: a function of the size. This requires estimating the size and timing of all of the incremental cash flows resulting from the . Capital investment decisions thus comprise an investment decision. maximizing shareholder value dictates that management return excess cash to shareholders. and the opportunity with the highest value. If no such opportunities exist. The terms Corporate finance and Corporate financier are also associated with investment banking. Project valuation In general. The investment decision Management must allocate limited resources between competing opportunities ("projects") in a process known as capital budgeting. timing and predictability of future cash flows. and a dividend decision.on managing cash. Decisions are based on several interrelated criteria. and short-term borrowing and lending (such as the terms on credit extended to customers). each project's value will be estimated using a discounted cash flow (DCF) valuation. Capital investment decisions Capital investment decisions  are long-term corporate finance decisions relating to fixed assets and capital structure. a financing decision. 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. see also Fisher separation theorem. These projects must also be financed appropriately. John Burr Williams: Theory). 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. as measured by the resultant net present value (NPV) will be selected (applied to Corporate Finance by Joel Dean in 1951. inventories.
but this reality will not typically be captured in a strict NPV approach. there are several other measures used as (secondary) selection criteria in corporate finance. and use the weighted average cost of capital (WACC) to reflect the financing mix selected. whereas in a DCF valuation the most likely or average or scenario specific cash flows are discounted. Managers use models such as the CAPM or the APT to estimate a discount rate appropriate for a particular project. . Valuing flexibility In many cases. and hence "all" potential payoffs are considered.project. The hurdle rate should reflect the risk of the investment. The hurdle rate is the minimum acceptable return on an investment—i. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Management will therefore (sometimes) employ tools which place an explicit value on these options.) In conjunction with NPV. here the “flexible and staged nature” of the investment is modeled. 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. Modified IRR. These are visible from the DCF and include discounted payback period. These future cash flows are then discounted to determine their present value (see Time value of money). see list of valuation topics. So. The NPV is greatly influenced by the discount rate. The difference between the two valuations is the "value of flexibility" inherent in the project. for example R&D projects. IRR. capital efficiency. typically measured by volatility of cash flows. These present values are then summed. the project appropriate discount rate. and must take into account the financing mix. Thus selecting the proper discount rate—the project "hurdle rate"—is critical to making the right decision. a project may open (or close) paths of action to the company.e. and this sum net of the initial investment outlay is the NPV. equivalent annuity. and ROI.
less often for this purpose. by contrast. and outsource production otherwise. assumptions) to the DCF model.) Quantifying uncertainty Further information: Sensitivity analysis. The sensitivity of NPV to a change in that factor is then observed (calculated as Δ NPV / Δ factor). (2) given this “knowledge” of the events that could follow. management will develop the ore body. a company would build a factory given that demand for its product exceeded a certain level during the pilot-phase. using financial option theory as a framework. For example.valuation is then via the Binomial model or.) • ROA is used when the value of a project is contingent on the value of some other asset or underlying variable. it would similarly expand the factory. the probabilities of each event are determined or specified by management. management chooses the actions corresponding to the highest value path probability weighted. Again. management will abandon the mining rights. the decision to be taken is identified as corresponding to either a call option or a put option . (For example. In a DCF model. In the decision tree. each management decision in response to an "event" generates a "branch" or "path" which the company could follow. ceteris paribus. and Monte Carlo methods in finance Given the uncertainty inherent in project forecasting and valuation. Scenario planning.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. In a typical sensitivity analysis the analyst will vary one key factor while holding all other inputs constant. Once the tree is constructed: (1) "all" possible events and their resultant paths are visible to management. via Black Scholes. if sufficiently high. (3) (assuming rational decision making) this path is then taken as representative of project value. Here.e. 10% for "Likely . the analyst will set annual revenue growth rates at 5% for "Worst Case". In turn. and maintain it otherwise. if the price is too low. there is no "branching" – each scenario must be modeled separately. a DCF valuation would capture only one of these outcomes. The "true" value of the project is then the NPV of the "most likely" scenario plus the option value. the viability of a mining project is contingent on the price of gold. given further demand. See Decision theory: Choice under uncertainty. analysts will wish to assess the sensitivity of project NPV to the various inputs (i. see Contingent claim valuation. (For example.
"global" factors (exchange rates. Note that for scenario based analysis. extending the example above. typically using an add-in.the NPV for the project is then the probability-weighted average of the various scenarios. the various combinations of inputs must be internally consistent.Case" and 25% for "Best Case" . Using a related technique.. Another application of this methodology is to determine an "unbiased NPV". A further advancement is to construct stochastic or probabilistic financial models .. such as Crystal Ball. etc. For this purpose.). commodity prices. a scenario comprises a particular outcome for economy-wide. mathematically reflecting their "random characteristics". key inputs in addition to growth are also adjusted.and produce three corresponding NPVs. where management determines a (subjective) probability for each scenario . Under this technique. The simulation produces several thousand trials (in contrast to the scenario approach above) and outputs a histogram of project NPV. Analysts then plot these results to produce a "value-surface" (or even a "value-space"). today analysts are even able to run simulations in spreadsheet based DCF models. Here. whereas for the sensitivity approach these need not be so.. and NPV is calculated for the various scenarios. the most common method is to use Monte Carlo simulation to analyze the projects NPV. etc. Hertz in 1964. unit costs. the cash flow components that are (heavily) impacted by uncertainty is simulated.as opposed to the traditional static and deterministic models as above.) as well as for company-specific factors (revenue growth rates. although has only recently become common. The average NPV of the potential . Using simulation.. This method was introduced to finance by David B. where NPV is a function of several variables. analysts may also run scenario based forecasts so as to observe the value of the project under various outcomes.
generically. Fisher separation theorem. since both hurdle rate and cash flows (and hence the risk to the firm) will be affected.investment . 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. The cost of equity is also typically higher than the cost of .would then be "sampled" repeatedly so as to generate the several thousand realistic (but random) scenarios. Equity financing is less risky in the sense of cash flow commitments.is then observed. Management must therefore identify the "optimal mix" of financing—the capital structure that results in maximum value. the analyst would assign an appropriate probability distribution (commonly triangular or beta). 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. comprise some combination of debt and equity. instead of assigning three discrete values to revenue growth. representative set of valuations. This distribution . continuing the above example. (See Balance sheet. As above. WACC.as well as its volatility and other sensitivities . the financing mix can impact the valuation.) The sources of financing will.and that of the other sources of uncertainty . it allows for an estimate of the probability that a project has a net present value greater than zero (or any other value). but results in a dilution of ownership and earnings. and the output is a realistic. see also the Modigliani-Miller theorem. The financing decision Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. This histogram provides information not visible from the static DCF: for example. See: Monte Carlo Simulation versus “What If” Scenarios. but. Here.
If there are no NPV positive opportunities. Management must also decide on the form of the distribution. These involve managing the relationship between a firm's short-term assets and its short-term liabilities.debt (see CAPM and WACC). source of financing (debt or equity) and expenditure framework within a given economy and under given market conditions. policy framework. firm value is enhanced . then management must return excess cash to investors. generally as cash dividends or via a share buyback. Management must also attempt to match the financing mix to the asset being financed as closely as possible. the goal of Corporate Finance is the maximization of firm value. almost by definition. For example.e. in terms of both timing and cash flows. management may consider “investment flexibility” / potential payoffs and decide to retain cash flows. even though an opportunity is currently NPV negative. 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. see above and Real options. capital investment decisions. companies may elect to retain earnings. Today. One of the main theories of how firms make their financing decisions is the Pecking Order Theory. These free cash flows comprise cash remaining after all business expenses have been met. 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. investors in a "Growth stock". and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk. debt and equity. expect that the company will. In the context of long term. where returns exceed the hurdle rate. 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. some companies will pay "dividends" from stock rather than in cash. Working capital management Decisions relating to working capital and short term financing are referred to as working capital management. institutional structure. 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. retain earnings so as to fund growth internally. or to perform a stock buyback. it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem). This is the general case. There are various considerations: where shareholders pay tax on dividends. in both cases increasing the value of shares outstanding. 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. however there are exceptions. i. As above. In other cases.
firm value is enhanced when. and to satisfy both maturing short-term debt and upcoming operational expenses. determined by dividing relevant income for the 12 months by capital employed. In addition to time horizon. exceeds the cost of capital. (Considerations as to Risk appetite and return targets remain identical. management will use a combination of policies and techniques for the management of working capital. This represents the time difference between cash payment for raw materials and cash collection for sales. ROC measures are therefore useful as a management tool. the return on capital. In so doing. As a result. .may be more relevant here). i. Decision criteria Working capital is the amount of capital which is readily available to an organization.cash flow is probably the more important of the two. although some constraints . • The most widely used measure of cash flow is the net operating cycle. working capital is the difference between resources in cash or readily convertible into cash (Current Assets). decisions. and if. they are also "reversible" to some extent. That is. The goal of Working capital management is therefore to ensure that the firm is able to operate. These policies aim at managing the current assets (generally cash and cash equivalents.) • In this context. Management of working capital Guided by the above criteria. and cash requirements (Current Liabilities). The cash conversion cycle indicates the firm's ability to convert its resources into cash. working capital decisions differ from capital investment decisions in terms of discounting and profitability considerations.such as those imposed by loan covenants . have implications in terms of cash flow and cost of capital. the most useful measure of profitability is Return on capital (ROC). and if. The result is shown as a percentage. firm value is enhanced when. in turn. Return on equity (ROE) shows this result for the firm's shareholders. or cash conversion cycle. management generally aims at a low net count. the return on capital exceeds the cost of capital. the decisions relating to working capital are always current. These investments. short term. and that it has sufficient cash flow to service long term debt.e.through appropriately selecting and funding NPV positive investments. (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. See Economic value added (EVA). and different criteria are applied here: the main considerations are cash flow and liquidity . Because this number effectively corresponds to the time that the firm's cash is tied up in operations and unavailable for other activities. Working capital management decisions are therefore not taken on the same basis as long term decisions. As above. in that they link shortterm policy with long-term decision making.
such that cash flows and returns are acceptable. to describe activities.e. as above. Derivatives are the instruments most commonly used in Financial risk management.  . see Supply chain management. if not formal. i. however. Default (finance). Financial risk management focuses on risks that can be managed ("hedged") using traded financial instruments (typically changes in commodity prices.and hence increases cash flow.and minimizes reordering costs . Firstly. • Debtors management. both disciplines share the goal of creating. the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets. firm value. and swaps. decisions and techniques that deal with many aspects of a company’s finances and capital. Financial risk management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. risk management. it may be necessary to utilize a bank loan (or overdraft). interest rates. • Cash management. or enhancing. Operational risk. credit terms which will attract customers. but reduces cash holding costs. Identify the cash balance which allows for the business to meet day to day expenses. see Discounts and allowances. Identify the appropriate credit policy.i. Economic production quantity (EPQ). Interest rate risk. foreign exchange rates and stock prices). and small firms practice informal. futures contracts. • Inventory management. Secondly. Just In Time (JIT). Relationship with other areas in finance Investment banking Use of the term “corporate finance” varies considerably across the world. firm exposure to business risk is a direct result of previous Investment and Financing decisions. the terms “corporate finance” and “corporate financier” tend to be associated with investment banking . Financial risk. See: Financial engineering. This area is related to corporate finance in two ways. • Short term financing. 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). Volatility risk. or to "convert debtors to cash" through "factoring". In the United Kingdom and Commonwealth countries. with transactions in which capital is raised for the corporation. Identify the appropriate source of financing. All large corporations have risk management teams. Liquidity risk. Credit risk. In the United States it is used. Settlement risk. Financial risk management will also play an important role in cash management. given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier. Economic order quantity (EOQ). Market risk. Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials . forward contracts. Because unique derivative contracts tend to be costly to create and monitor.inventories and debtors) and the short term financing.e. These standard derivative instruments include options.
But in other cases their application is very limited outside of the corporate finance arena. . A part of these finished goods like the shape of Accounts receivables as a result or cash sales. Because corporations deal in quantities of money much greater than individuals.Personal and public finance Corporate finance utilizes tools from almost all areas of finance. Bills payable and outstanding expenses. CONCEPTS GROSS WORKING CAPITAL : The Gross Working Capital is the firm’s investment in current assets. (1) Inventory which are further classified into A) Raw materials B) Work in progress C) Finished goods. sole proprietorships. 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. The current assets are the assets which can be converted into cash with in as accounting year and include cash. Short term securities like Debtors. mutual funds. or payment within an accounting year and include creditors. for example.. constituted Current Assets i. which are expected to mature. NET WORKING CAPITAL: Net Working capital refers to the difference between Current Assets and Current Liabilities are those claims of outsides.e. and personal wealth management. So that it can carry on its business operation smoothly These Assets are essentially circulating in nature. not-for-profit organizations. to partnerships. Bills Receivables and Investor. (2) Accounts Receivables A) Cash and bank balance. It can be differentiated from personal finance and public finance. Gross working capital. Some of the tools developed by and for corporations have broad application to entities other than corporations. Any business firm needs to provide itself with enough of these Current Assets. the analysis has developed into a discipline of its own. governments.
cyclical changes in the economy leading to ups and downs in business activity will influence the level of working capital. 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. An increase in the volume of sales is bound to be accompanying by higher levels of cash. in inventory and receivables. NEED FOR WORKING CAPITAL: Business firms aim at maximizing the wealth of shareholders.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. In its endeavor to maximize shareholders wealth a firm should earn sufficient return from its operation. The changes in this factor may occur due top three reasons. 2. necessitating the holding of a larger inventory. Changes in the operating expenses rise or fall will have a similar effect on the level of working capital. there is always an operating cycle involved in the conversion of sales into cash. 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. 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. Changes in level of sales and or operating expenses. First. A firm following a conservative policy in this respect having a . Earning a steady amount of profit required successful sales activity. Policy changes. Current assets are needed because sales do not convert into cash instantaneously. The term current assets and sales volume. There is a wide choice in the matter of current assets policy. which are partly current working capital sometimes referred as “CIRCULATING CAPITAL”. The change is sales always and operating expenses may either in the form of an increase or decrease. 3. The third source of change is seasonality in sales activity. For instance the price of raw materials. The secular trends would mainly affect the need for payment current assets. say oil may constantly rise. In the second place. there may be a long run trend of changes. POLICY CHANGES: The second major cause of changes in the level of working capital is policy changes initiated by the management.
It stagnates growth and become difficult for the firm to undertake profitable project for non-availability of working capital 2. 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. 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. THE DANGERS OF EXCESSIVE WORKING CAPITAL: 1. higher incidence of bad debts results. another factor than can cause changes in the level of working capital is technological changes. PROBLEMS OF WORKING CAPITAL MANAGEMENT The firm should maintain a sound working position. waste theft and losses increases. If a new process emerges as result of technology development. Tendencies of accumulating inventories to make speculation profits grow. It is an indication of defective credit policy and slacks collection period. which shortness the operating cycle. Fixed assets are not efficiently utilized for the lack of working capital funds. 4. it will reduce the need for working capital. 4. TECHNOLOGICAL CHANGES: Finally.very level of current assets in relating to sales may deliberately opt foe less conservative policy and vice versa. which degenerated into managerial inefficiency. Excessive working capital makes management complacent. 2. which adversely effect profits. Operating inefficiencies creep in when it become difficult even to meet day-to-day commitments. 3. Excessive working capital makes management complacent. thus the firms profitability would deteriorate. These conscious managerial decisions will certainly have an impact on the level of working capital. It becomes difficult to implement operating plans and achieve the firms profit target. . which degenerated into managerial inefficiency. Consequently. It results in unnecessary accumulation of inventories thus chances of inventory miss-handling. 3.
Cash in the basic input to keep the business running on continuous basis. and cash balances held by the firm at appoint of time by financing deficit investing surplus . Paucity of working “capital funds renders the firm unable to avail attractive credit opportunities etc. cash flow with in the firm. The financial manager should pay special attention to the management of current assets on continuing basis. 3.” 6. Working capital management requires most of the finance manager time as it represents a large of investment in assets. 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. Thus enlightened management should. All precautions should be taken for the effective and efficient management of working capital 5. therefore maintain a right amount of working capital on continuous basis which helps to develop the organization effectively and efficiently. Working capital management requires much of the finance manager time as it represents larger portion of investment in assets. Cash management is concerned with the managing or cash flow into and out of the firm. 4. 2.5. the firm faces tight credit terms. This firm looses its reputation when it is not in honor its short term obligation as result. Cash shortage will disrupt the firms manufacturing operation while excessive cash will simply remains without contributing anything towards the firm’s in profitable way. ROLE OF FINANCIAL MANAGEMENT MANAGER IN WORKING CAPITAL 1. 6. Action should be taken to curtail unnecessary investment in current assets. MANAGEMENT OF CASH CASH MANAGEMENT: Cash is the important assets for the operation of the business.
CASH PLANNING: Cash planning is a technique to plan and control of the use of funds. 3. 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. To help to evaluate proposed capital projects It helps to improve corporate planning 4. 2. It protects the financial condition of the firm by developing the overall operating plans of the firms. Speculative Motive RECEIVABLES MANAGEMENT: . 1. The basic strategies payable without affecting credit of the firm. Transaction Motive. Cash forecasting helps to plan for future and to formulate projects carefully. It indicates company’s future financial need especially for its working capital requirements. Precautionary Motive. Speedy collection of accounts receivables Thus the main objectives of cash management are to reconcile and to minimize funds committed to cash. USES OF CASH MANAGEMENT: 1. 2. CASH MANAGEMENT STRATEGIES: The cash management strategies are intended to minimize the operating cash balance requirement. 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. 2.: 1.
progress facilitate . To keep down the average collection of sales. Raw materials are those which have been purchased and stored for future production.The Receivables represent as important component of the Current Asset of a firm. The maintenance of receivables involves direct and indirect costs. the recording of bills and preparing statement. Direct cost includes the cost of investments. The various forms in which ventures exist in a manufacturing company are Raw Material. To control the cost of credit allowed and to keep it at the minimum possible level. The levels of three kinds of inventories for a firm depend on the nature of its business. Receivables Management is also called “Trade Credit Management”. Administrative costs connected with collection of receivables. and Finished goods. which are ready for sale. allowance and concession to customers and also losses on account of bad debts. FINISHED GOODS: Finished goods inventories are those completed manufactures products. Stocks of raw material and work-in. inflationary costs legal expenses are indirect costs. INVENTORY MANAGEMENT Inventories are stock of the product a company is manufacturing for sale and components that make up the product. WORK-IN-PROGRESS: Inventories are semi-manufactured products they represent that need more before they become finished products for sale. work in progress. OBJECTIVES OF RECEIVABLE MANAGEMENT: The goals of Receivables Management are: To maintain an optimum level of investment in receivables. 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. RAW MATERIALS: Raw Materials are those basic inputs that are converted into finished product through the manufacturing process. To obtain the optimum volume of sales. The three crucial decision areas Receivables Management are: o Credit Policies o Credit Terms o Collection Policies.
a) Ordering Costs. 3. involves an opportunity cost. such as the cost of storage and handling insurance also increase in proportion to the volume of inventory. The carrying costs. b) Carrying Costs.production while stock of finished goods is required for smooth marketing operations. which will amount to a permanent loss to a firm. OBJECTIVES OF INVENTORY MANAGEMENT: 1. 5. 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. 2. Determining an optimum level involves two types of costs. The consequences of inadequate investment in inventory are production holds up failure to meet delivery commitments. To minimize the carrying costs and time. 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. 4. To maintain sufficient finished goods inventory for smooth sales operation and efficient customer service. To ensure a continuous supply of raw material to facilitate uninterrupted production. . Maintaining a liquidates level of inventory is also dangerous. Excessive level of inventory consumes the finds of a firm. Since inventory enables uncoupling of the key activities of a firm each of them can be operated at the most efficient rate. which cannot be used for any other purpose and thus. To control investment in inventories and keep it at an optimum level. To maintain sufficient stocks of raw material in period of short supply and anticipate price charges.
the most efficient is the management of assets. as the emerging demands cannot be met. IMPORTANCE OF RATIO ANALYSIS: As a tool of financial management they are two crucial significance. because of these expenses the firm does not have profitability position. DEBTORS TURN OVER RATIO: This Ratio indicates the number of items on an average debtors or receivables turnover each year. The term analysis implies computing and commenting up on the accounting ratios. The technique reveals the weakness and soundness of various aspects of Financial Management viewed from difference angles. 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. Debtor’s turnover Ratio expresses the relation between debtors and sales. The appropriate level of inventory should determine in term of a trade off between the benefits the costs associated with maintaining inventory. because of these expenses the firm does not have profitability position. the chances of disruption of operations are reduced. but there is a risk that the operation will be disturbed. The importance of Ratio Analysis lies in the fact that it presents facts on a comparative basis and enables the drawing of inferences. By holding a large inventory.An inventory enables firms in the short-run to product at a rate than purchase of raw materials and vice-versa. It is calculated as expenses are very high during the study period. Expenses are very high during the study period. Generally. By holding less inventory cost can be minimized. The performance of . but the cost will increase. or sell at rate greater than production and vice-versa. The analysis techniques is the most convenient and acceptable technique for the analysis and interpretation of Financial Statement. The maintenance of inventory also helps a firm to enhance its sales efforts. The term Ratio refers to the numerical or Quantitative relationship between two items variables. the higher value of debtor’s turnover.
the firm. Leverage ratios. can be grouped into various classes according to financial activity. Management is interested in evaluating every aspect of the firms performance. and also it obligations due to lack of sufficient liquidity will result in poor credit worthiness. The long-term solvency of a firm is measured by the leverage/ capital structure and profitability ratios. The analysis of liquidity needs the preparation of ash budgets and cash fund flow statements. Profitability ratios. A firm should ensure that it does not suffer from lack of liquidity. but liquidity ratios by establishing relationship between cash and other current assets to current obligations.term creditors are more interested in the long-term solvency and profitability of the firm. Ratio Analysis is relevant in assessing the performance of the firm in the following aspects. loss of creditors confidence or even in legal Liquidity ratios. This ability reflected in the liquidity ratios of a firm. LONG TERM SOLVENCY: Ratio Analysis is equally useful for assessing the long term financial viability of firm. On the other hand Long. provide a quick measure of liquidity. if it is able to meet its Current obligations when they become due. which focus on earning power and operation efficiency TYPES OF RATIOS: Several ratios calculated from the accounting data. owners and management short-term creditors are mainly interested in the liquidity position or short-term solvency of the firm. Similarly owners are more interested on the firm’s profitability and financial condition. (a) (b) (c) LIQUIDITY RATIOS: Liquidity ratio measure the ability of the firm to meet the current obligations. They have to protect interest of all the parties. LIQUIDITY POSITION: The liquidity position of a firm would be satisfactory. The parties interested in financial analysis are short and long term creditors. 1. The ratios are classified into three types. .
is now a major plant with a production capacity of 3.20 million tones per annum. My Home Industries Limited started as 600 TPD mini cement plant in 1998. 1. from a meager 600 tonnes per day to a massive 10. prepaid expenses and short term or temporary investments. Under his leadership. Current Ratio= Current Assets/ Current liabilities A Current ratio of 2:1 is considered as ideal.40 Million Tonnes per annum. The second Unit has been designed and installed as a much more efficient and modern unit. CURRENT RATIO OF WORKING CAPITAL RATIO: Current ratio is the ratio of the current liabilities.000 . LIQUIDITY OR SHORT TERM SOLVENCY RATIOS: Liquidity ratios measure the short term solvency of the firm. stock of raw materials. which are to be repaid within a period of 1 year and include bills payable. If current ratio is less than 2 it indicates that the business does not enjoy adequate liquidity. Thus. et. net sundry debtors. This is one of the very few highly energy efficient plants in the world and it is very friendly to ecology and environment.tangles resulting in the closure of the company. Short term loans and Advances. etc. Bank Overdraft. which is expected to be commissioned during Dec 2006.. all the state of art technology is incorporated. Here again. has a production capacity of 1. Unit – 3.. in a short span of one decade. are repayable within 1 year. The following are the important liquidity ratios. company has grown by leaps and bounds. Outstanding Expenses. bills receivables. which was founded by Dr Rameswar Rao J Chairman and Managing Director. sundry creditors. A very high degree of liquidity is also bad assets which earn nothing. However a high current ratio of more than 3 indicates that the firm is having idle funds and has not invested them properly. Current assets are assets which can be converted into cash within one year and include cash in hand and cash at bank. current liabilities are liabilities. My Home Industries has vertically grown very fast in capacity. COMPANY PROFILE My Home Industries Limited was the most ambitious diversification of the My Home Group. The firm’s funds will be unnecessarily tied up in current assets.
From 29% of Fly ash addition last year. they are having the following plans and started implementing during this year. warranting attention for energy efficiency to improve the bottom line. A energy conservation Team in . this year they are planning to go up to 33% In the recent past. Mission: The cost of energy as part of the total production costs in the Cement industry is significant. 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.. Management is deeply committed to continuously make efforts to reduce energy cost through technological innovation . Energy cell members have been asked to identify energy deficient areas / equipment to make the areas / equipment energy efficient. 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. Power Generation Units and also Consultancy for power plants. In addition group has Construction Division dealing with Estate development and Transport. Periodic discussions with equipment supplier on latest technological development in field. and usage of large quantities of additives in Blended Cement & through Quality Circles & & TPM activities. The total Group annual turnover is Rs 800 Crore. Vision: In line with philosophy of using waste materials like Fly ash and to conserve limestone and other materials like coal etc. Monitoring of Benchmarking activity. Visit to other Cement Plants.in house R&D efforts. They have gradually phased out the production of OPC and converting the same to PPC. Continuous monitoring of energy norms fixed by Expert Committee based on latest Bench Marking data of CMA.tonnes per day.
the form of an Energy Cell which is headed by AVP(Tech). For the last 3 years. Variable frequency drive in all Cooler fans were installed to minimize the power consumption and to have a stable operation of Cooler.2002 (RS.3% of the total production of cement Total power savings for the year 2005 – 2006 38. AWARDS AND FELICITATIONS Introduction of MFR Cooler in I Grate during Kiln up gradation. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors 2001 2002 Increase Decrease 14531.298 Kwh. which has resulted 7 M T per hour production increase and thereby reduced the power consumption of 0. our Thermal Energy consumption has reduced from 760 to 720 KCL per Kg.03 4372. a) ACHIEVEMENTS. supported by functional heads of various departments followed by the dedicated .93 16681.115.99 14662.11 10158.29. 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. This plant was started producing ‘POZZALONA PORTLAND CEMENT’ by adding Fly ash from 2002.92 . Cost Savings for the above Rs.67 Kwh per tonne of clinker Introduced the deflector plate in the VRM Nozzle Ring and Dynamic Separator. committed & motivated cross sectional teams to continuously make efforts to monitor & reduce energy consumption & implement ideas for energy savings.85 lakhs DATA ANALYSIS AND INTERPERTATION STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2000-2001TO 2001. of clinker.40 KWH per M T of the material. Replaced the pre heater top cyclones with LP Cyclones which has resulted in power saving to the tune of 0.94 31344. the Fly ash addition is gradually increased from 14% and last year it was to the extent of 30%.
35 9931.75 2492.03 22820.12 677.07 10710.86 42946.94 31344.62 872. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance Loans & Advances 2003 2004 Increase Decrease 10158.Cash & Bank Balance 21582.29 59087.84 1638.01 1237.28 50194.62 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2002-2003TO 2003. cash and bank balance has increased from 1237.58 .2004 (RS.44 7164.89 71487.87 21182.09 17095.02 Interest accrued on .92 11602.44 7164.86 10654.65 18587.22 51939.65 INTERPRETATION : The above statement shows that the net working capital has increased 10654.65 551.06 10654.15 19548.05 Loans & Advances 6292.82 22820.49 51262.15 18587.15 3560.34 19548.29.03 8893.07 .37 1815.01 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 Working 19548.
42 9475.3 2804.98 22570.48 69561.57 22086.26 8819.12 6671.34 INTERPRETATION : The above statement shows that the net working capital has decrease by Rs.8819.57 8824.15 8819.42 Working 22373.49 91935.42 in 60086.2006 (RS.34 22086.90 22373.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 .01 0 .86 42946.01 71487.08 Loans & Advances 17095.87 21182.57 22373.64 58074.34 13554.29 11749.09 6622.57 0 4088.22 57933.22 15127.47 51262. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance 2005 2006 Increase Decrease 10710.11 1388.42 cash and bank balance has decreased from 1638.35 STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2004-2005TO 2005.20 5346.65 Interest accrued on 0 Investments .
42 9475.06 25002.82 13887.49 61561.89 2978.57 2628.47 99017.42 25002.49 cash and bank balance has increased from 1388 .06 2628.63 Working 25002.06 13887.82 INTERPRETATION: The above statement shows that the net working capital has increase by Rs 2628.31 12454.11 74015.TOTAL(a) CURRENT LIABILITIES Current Liabilities Provision TOTAL(b) WORKING CAPITAL(a-b) Net Increase/Decrease Working Capital Total of Capital in 91935.49 1474.48 60086.9 22373.48 69561.
67 25309.61 Working 27969.61 cash and bank balance has increased from 3629.39 949.35 1906.70 3629.94 13655. In lakhs) PARTICULARS CURRENT ASSETS Inventories Sundry Debtors Cash & Bank Balance 2007 2008 Increase Decrease 6622.89 27969.96 79468.68 18940.35 INTERPRETATION: The above statement shows that the net working capital has decrease by Rs 2967.61 80273.32 21393.92 2967.19 91777.57 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 99015.41 Loans & Advances 11749.11 74015.STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 2006-2007TO 2007.70 11504.2008 (RS.67 27969.42 25002.98 22570.98 0 1059.06 2967.48 119747.67 18712.35 25309.56 61561.64 58072 .35 .29 7681.31 12454.
52 79468.03 42946. Generally the higher the debtor turnover the greater the efficient of credit management.10 0. DEBTORS TURNOVER Years 2004 2005 2006 2007 2008 Month in a year 12 12 12 12 12 Debtors Turnover Ratios Ratio 4.18 2. the current year ratio has been decreased by 0.64 Interpretation: The above table shows the average collection period of the company.20 3. the shorter period. It shows the nature of the firm’s credit policy too.98 93455.88 which shows there is lesser efficiency of credit management AVERAGE COLLECTION PERIOD: This ratio is other device used to measure the quality of debtors.76 70029. An excessively long period implies a too long. Compared to previous year.64 months in 2005-06.18 5.68 Ratios 4.65 100055. It shows that the company is unable to collect the money from the .88 13.04 2. which is very high.20 2.11 31344.DEBTORS TURNOVER RATIO = CURRENT SALES AVERAGE DEBTORS DEBTORS TURNOVER RATIO = TOTAL SALES CLOSING DEBTORS Years 2004 2005 2006 2007 2008 Net sales 67411. and liberal and inefficient credit and collection performance where as a too low period indicates a very strict credit and collection policy. The better the quality of debtors since the shorter collection period implies prompt payment be debtors.04 3.71 0.87 36774.97 3. The ratio was recorded as 13.75 2.10 5.50 2.88 INTERPRETATION: The above table shows the debtors turn over ratio of the company.40 77066.03 Debtors 16681. Generally. less the chance of bad debts. higher the ratio more the chance of bad debts and the lower there ratio.
QUICK RATIO = Current Assets / Current Liabilities The standard ratio is 1:1 IDEAL.71 to 13. as Funds can be more profitably employed.70 Ratios 1. The management must take effective recovery measures so that Average collection period reduces as bad debts will lock the funds available to the company. cash at bank and short term or Temporary investment. The higher the current ratio.12 60086.03 Current Liabilities 47701. But when compared to previous year this ratio has increased from 5.76 70029.39 1. Absolute Liquid Assets include cash in hand. the greater the short term solvency. Absolute Liquid Assets = Absolute Liquid Assets / Current liabilities . ABSOLUTE LIQUID RATIO: It is the ratio of absolute Liquid Assets to Quick Liabilities. As very quick ratio is also not advisable.98 93455.40 77066. However.33.49% in the year 200506. RATIO ANALYSIS Years 2004 2005 2006 2007 2008 Current Assets 67411. QUICK RATIO OR ACID TEST RATIO: Quick Ratio is defined as the relationship between quick assets and Current liabilities. A quick ratio of less than 1 is indicative of inadequate liquidity of the business.64 higher than 2004 -2005. So it is suggested to the company that should try to reduce this credit period because there is more chance of bad debts. 3. Current liabilities are those liabilities which does not included Bank Overdraft.24 1.31 80273.53 1.42 61561.65 100055.customer in proper time.75 51262. Quick assets are those assets than can be converted into cash very quickly without much loss. 2. The above table shows the current ratio has been decreased when compare to previous year by 1.61 1.49 INTERPRETATION : The general norm for current ratio is 1. for calculation purpose it is taken as ratio of Absolute Liquid Assets to Current Liabilities.
refers to longterm liabilities. PROPRIETORY RATIO: It expresses the relationship between net worth and total assets.82 47701.26 61561. LEVERAGE OR CAPITAL STRUCTURE RATIOS: Leverage ratios indicate the relative interests of owners and creditors in a business.Absolute Liquid Assets = Cash in hand + cash at bank + Short Term The Ideal Absolute Liquid Ratio is taken as 1:2 or 0.25 44. In other words it measures the relative claims of creditors and shareholders against the assets of a business. The significant leverage ratios are. 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 .44 51262.12 21182.52 35. DEBIT EQUITY RATIO: This ratio examines the relationship between borrowed funds and owner’s funds of a firm. II.66 23.5.70 Ratios 45.42 22570. Years 2004 2005 2006 2007 2008 Cash in hand & Current Liabilities Bank 21582.51:1 In the previous year 2005 it was increased and in the current year 2006 it was decreased.09 60086. DEBIT EQUITY RATIO = LONG TERM LIABILITIES SHARE HOLDER’SFUNDS The Debt Equity Ratio is 2:1 considered as Ideal. This Ratio is also known as debt to net worth ratio. Equity and preference share capital and reserves.25 36. Debt usually.94 80273.60 INTERPRETATION: From the above table it can be interpreted that the absolute liquid ratio is also not up to the standard ratio that is 0.31 18940.75 22820.
20 80045. It indicates that the higher proprietary ratio shows that the better position of the company. A high proprietary ratio is indicative of strong financial position of the company. This Ratio indicates the mode of financing of fixed assets financially manage company will have its fixed assets finance by long term funds.28 This Ratio shows the relationship between Fixed Asset and Capital employed. FIXED ASSETS RATIO: Net worth 14610.23 0.25 107878.023 in 2002-2003 and then 0.74 Total assets 64844. . Years 2004 2005 2006 2007 2008 INTERPRETATION: The ratio is increasing and it becomes .76 29927.77 20167.25 0. So fixed asset ratio should never be more then one.53 Ratio 0. FIXED ASSETS RATIO = FIXED ASSET CAPITAL EMPLOYED Capital Employed = Equity share capital + Preference share capital + Reserves +Long term liabilities – Fictitious Assets.58 32154.28. 25 in 2003-2004. Then in 2006 it was decreased to 0.30 0.16 36342.07 101687.29 0.(Excluding fictitious assets) ANALYSIS : In this ratio it shows that the proprietary ratio position is increasing year by year. 1.19 129316.
SO it is suggested to the company that should try to improve this ratio by investing more in fixed assets.3263 0. A ratio of 0.2351 0.96 6942.26 6564.64 7411.79 Ratios 0.74 Ratio 0.3737 in 2002.1965 in 2005-06 the highest ratio was recorded as 0.ANALYSIS: This ratio indicates the modes of financing the fixed assets.12 20118. A financially well managed company will its fixed assets financed by long term funds.77 20167.27 33627.79 31524. It means the firm does no raise adequate long-term.3749 0.64 7411.67 is considered ideal.26 6564. which is also too below from the standard ratio 0.72 Net worth 14610.67:1.1965 INTERPRETATION: The above table shows the fixed assets ratio during the study period.16 36342.88 7207.91 35329. 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. the fixed assets ratio should never be more than 1.2242 0.2477 0.3255 0. funds to meet its fixed asset requirements.88 7207.2143 0. 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 5308.3737 0.72 Capital Employed 14202. Therefore. The lowest ratio was recorded as 0.58 32154.76 29927.96 6942. 2.1910 .
The significant activity or turnover ratios are.04 1.76 70029. A lower ratio indicated that the assets are laying idle while a higher ratio may indicate that there is over trading. get converted into sales.98 93455. FIXED ASSET TURNOVER RATIO = NET SALES Net sales 67411. Years 2004 2005 2006 2007 2008 INTERPRETATION: .From the above table it shows that in the year 2006 .03 Total assets 64844. The company should try to improve this ratio by investing more in fixed assets.54 . That indicated a low shareholders funds have been used to finance the fixed assets.07 101687. and the highest ratio was recorded as 1. They calculate the speed with which various assets.19 1293165.25 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.65 100055.54.25 107878. III. 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 2:1.53 Ratio 1.92 0.1910:1 in 2006 and the highest ratio.3749 in 2002 which is also very low. in which funds are blocked up. TOTAL ASSET TURNOVER RATIO: Overall performance and efficiency of the firm are measured by this ratio.25 0. This ratio is calculated by dividing the annual sales value by the value of total assets. Its resources or assets.71 0.20 80045. 1. the lowest ratio was recorded as 0. The lowest ratio which we got 0.INTERPRETATION: The above table shows the ratio of gross fixed assets to share holder’s funds. This ratio assumes importance for firms having large investments in fixed assets.40 77066. we got 0.
242 in 2003.88 7207.69 10.09 in 2006.76 70029.08 which indicates there is lower contribution of current asset to the organization.61 10.09 1. But in the year 2006 it has been decreased by 1.FIXED ASSETS Years 2004 2005 2006 2007 2008 Net sales 67411.03 Current Assets 59087.56 Ratios 1.24 12.64 7411.26 6564. It is calculated by dividing the net sales value by current assets value.65 100055. So it is suggested that the firm should properly utilize its fixed assets.48 119747.12 1.98 93455. So it is suggested that the firm should properly utilize the current assets.08 INTERPRETATION: The above table shows the current assets turn over ratio.70 15.10 1.03 Fixed assets 5308.11 1. the highest ratio was recorded as 1.49 91935. The lowest ratio was recorded as 10.98 93455. CURRENT ASSETS TURNOVER RATIO = TOTAL SALES CURRENT ASSETS Years 2004 2005 2006 2007 2008 Net sales 67411.72 Ratios 12.89 71487. It indicates that the firm does not efficiently utilized fixed assets.40 77066.65 100055.40 77066.96 6942. which shows the contribution of current assets in generating of sales.12 in 2003.09 INTERPRETATION: The above table shows the fixed assets turn over ratio during the pried 2002 to 2006.76 70029. . CURRENT ASSETS TURNOVER RATIO: The ratio measured the efficiency of current asset generation. and the highest ratio was recorded as 15.47 99015.
79 Ratios 4.40 77066. .75 4. Years 2004 2005 2006 2007 2008 Net sales 67411. Capital employed ratio is also very poor during the study and profits are lower. The company’s gross profit ratio is quite good during the study period.65 100055.96 2.97 of 2003 which was the indicate sufficient sales has been made and higher are the profits. Capital employed is equal to the owner’s equity plus non-current liabilities.98 93455. The proprietary ratio is near to the standards in the year 2001-2002. It means that sufficient sales are not being made.CAPITAL EMPLOYED TURNOVER RATIO: This ratio is also known as sales net worth ratio.91 35329.29 1. The fixed assets ratio is very less that indicates the company is utilizing very less capital funds to invest in fixed assets. This ratio measures the effectiveness with capital employed is used by the firm.12 20118. But after that year.79 31524. Operating expenses are very high during the study period.03 Capital Employed 14202. because of these expenses the firm does not have profitability position.98 which is a lower ratio than compare to the ratio 4. 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. the ratio is gradually increased.27 33627.76 70029.97 2. FINDINGS & CONCLUSIONS On the basis of the analysis the following conclusions have been found out.98 INTERPRETATION: The table shows the capital employed turn over ratio in the year 2006 is 1. This represents the long-term funds.
The sundry debtors should be efficiently managed so that the outstanding are to be cleared at short intervals.E. 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. 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. making for certain products should be continued as it will help in developing the confidence of foreign buyers. Gross Fixed Assets shareholder’s fund of the firm was decreasing year by year.
BY PRASANNA .BIBILOGRAPHY BOOKS REFERRED: • • FINANCIAL MANAGEMENT .PANDEY FINANCIAL ACCOUNTING AND ANALYSIS .K.myhomeindustries.JAIN & .P.L.NARANG APPRISAL .mahacements.CHANDRA WEBSITES REFERRED: • www.BY I.com BUDGETING AND • PROJECTS PREPARATION IMPLEMENTATION .M.com • www.BY S.
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