CHAPTER-1

OBJECTIVE OF
THE STUDY

1.1 OBJECTIVE OF THE STUDY

To study the sources and uses of the working capital.

To study the liquidity position through various working capital related ratios.

To study the working capital components such as receivables accounts,

Cash management, Inventory management.

To make suggestions based on the finding of the study.

CHAPTER-2
INTRODUCTION

CHAPTER-2
2.1 BACKGROUND OF STUDY
"Cash is the lifeblood of business" is an often repeated maxim amongst financial managers.
Working capital management refers to the management of current or short-term assets and shortterm liabilities. Components of short-term assets include inventories, loans and advances,
debtors, investments and cash and bank balances. Short-term liabilities include creditors, trade
advances, borrowings and provisions. The major emphasis is, however, on short-term assets,
since short-term liabilities arise in the context of short-term assets. It is important that companies
minimize risk by prudent working capital management. This project deals with the study about
Working Capital Management in GDX PVT. LTD .There are numerous aspects of working
capital management that makes it an important topic for the study.
The management of assets in any organization is an essential part of overall management. The
enterprise, at the time of formation attaches great importance to fixed assets management, as a
part of investment decision-making.
However, in the overall day-to-day financial management, after the initial investment, the
management gives more importance to managing working capital. If we look at any financial
statement it will be evident that the investment in fixed assets remains more or less static but the
working capital is constantly changing.
A healthy working capital position is the sine-qua-non of a successful business. This is reflected
in adequate inventories, lowest level of debtors, minimum utilization of bank facilities for
working capital, etc. thus the study of working capital management occupies an important place
in financial management.

2.2 INTRODUCTION OF WORKING CAPITAL

Working capital means the funds (i.e.; capital) available and used for day to day operations (i.e.;
working) of an enterprise. It consists broadly of that portion of assets of a business which are
used in or related to its current operations. It refers to funds which are used during an accounting
period to generate a current income of a type which is consistent with major purpose of a firm
existence.
In Accounting:

2.3 OBJECTIVES OF WORKING CAPITAL MANAGEMENT

Effective management of working capital is means of accomplishing the firms goal of adequate
liquidity. It is concerned with the administration of current assets and current liabilities. It has the
main following objectives1. To maximize profit of the firm.
2. To help in timely payment of bills.
3. To maintain sufficient current assets.
4. To ensure adequate liquidity of the firms.
5. It protects the solvency of the firm.
6. To discharge current liabilities.
7. To increase the value of the firm.
8. To minimize the risk of business.

2.4 NEED FOR THE WORKING CAPITAL

The need for working capital arises due to the time gap between production and realization of
cash from sales. Working capital is must for every business for purchasing raw-materials, semi
finished goods, stores & spares etc and the following purposes.

1. To purchase raw materials, spare parts and other component.

A manufacturing firm needs raw-materials and other components parts for the purpose of
converting them in to final products, for this purpose it requires working capital. Trading
concern requires less working capital.
2. To meet over head expenses.
Working capital is required to meet recurring over head expenses such as cost
of fuel, power, office expenses and other manufacturing expenses.
3. To hold finished and spare parts etc.
Stock represents current asset. A firm that can afford to maintain stock of required
finished goods, work in progress & spares in required quantities can operate successfully.
So for that adequate quantity of working capital is required.
4. To pay selling & distribution expenses
Working capital is required to pay selling & distribution expenses. It includes cost of
packing, commission etc.
5. Working capital is required for repairs & maintenance both machinery as well as factory
buildings.
6. Working capital is required to pay wages, salaries and other charges.
7. It is helpful in maintain uncertainties involved in business field.

2.4 WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of current assets and current liabilities. The
major thrust of course is on the management of current assets .This is understandable because
current liabilities arise in the context of current assets. Working Capital Management is a
significant fact of financial management. Its Importance stems from two reasons:

Investment in current assets represents a substantial portion of total investment.

Investment in current assets and the level of current liabilities have to be geared quickly to
change in sales. To be sure, fixed asset investment and long term financing are responsive to
variation in sales. However, this relationship is not as close and direct as it is in the case of
working capital components.
Working capital management involves management of different components of working capital
such as cash, inventories, accounts receivables, creditors etc. A brief description follows
regarding various issues involves in the management if each of the above components of
working capital.

2.5 IMPORTANCE OF WORKING CAPITAL

1. Solvency of the business: Adequate working capital helps in maintaining the solvency of
the business by providing uninterrupted of production.
2. Goodwill:

Sufficient amount of working capital enables a firm to make prompt

payments and makes and maintain the goodwill.

3. Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
4. Cash discounts:

Adequate working capital also enables a concern to avail cash

discounts on the purchases and hence reduces cost.

5. Regular Supply of Raw Material: Sufficient working capital ensures regular supply of
raw material and continuous production.

6. Regular payment of salaries, wages and other day to day commitments: It leads to
the satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.
7. Exploitation of favourable market conditions: If a firm is having adequate working
capital then it can exploit the favourable market conditions such as purchasing its
requirements in bulk when the prices are lower and holdings its inventories for higher
prices.
8. Ability to Face Crises: A concern can face the situation during the depression.
9. Quick and regular return on investments:

Sufficient working capital enables a

concern to pay quick and regular of dividends to its investors and gains confidence of the
investors and can raise more funds in future.
10. High morale: Adequate working capital brings an environment of securities, confidence,
high morale which results in overall efficiency in a business.

2.6 DETERMINANTS OF WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by the firm a number of factors have
to be considered by finance manager. These factors are explained below.
1. Nature of Business:
The Nature of the business effects the working capital
instance public utilities like railways, electric

requirements

companies, etc. need

to a great extent. For

very

little

working

capital because they need not hold large inventories and their operations are mostly on
cash basis, but in case of manufacturing firms and trading firms, the requirement of
working capital is sufficiently large as they have to invest substantially in inventories
and accounts receivables .
2. Production Policies:
The production policies also determine the Working capital requirement.
production schedule i.e. the plan for production, production process etc.

Through the

3. Credit Policy:
The credit policy relating to sales and affects the working capital. The credit policy influence the
requirement of working capital in two ways:
1. Through credit terms granted by the firm to its customers/buyers.
2. Credit terms available to the firm from its creditors.
The credit terms granted to customers have a bearing on the Magnitude of Working capital by
determining the level of book debts. The credit sales results is higher book debts (re available)
higher book debt means more Working capital.
On the other hand, if liberal credit terms are available from the suppliers of goods [Trade
creditors], the need for working capital is less. The working capital requirements of business are,
thus, affected by the terms of purchase and sale, and the role given to credit by a company in its
dealings with Creditors and Debtors.
4. Changes in Technology:
Technology used in manufacturing process is mainly determined need of working capital.
Modernize technology needs low working capital, where as old and traditional technology needs
greater working capital.
5.

Size of the Business Unit:

The size of the business unit is also important factor in influencing the working capital needs of a
firm. Large Scale Industries requires huge amount of working capital compared to Small scale
Industries.
6. Growth and Expansion:
The growth in volume and growth in working capital go hand in hand, however, the change may
not be proportionate and the increased need for working capital is felt right from the initial stages
of growth.
7. Dividend Policy:

Another appropriation of profits which has a bearing on working capital is dividend payment.
Payment of dividend utilizes cash while retaining profits acts as a source as working capital Thus
working capital gets affected by dividend policies. .
8. Supply Conditions:
If supply of raw material and spares is timely and adequate, the firm can get by with a
comparatively low inventory level. If supply is scarce and unpredictable or available during
particular seasons, the firm will have to obtain raw material when it is available. It is essential to
keep larger stocks increasing working capital requirements.
9. Market Conditions:
The level of competition existing in the market also influences working capital requirement.
When competition is high, the company should have enough inventories of finished goods to
WORKING
CAPITAL
meet a certain level of demand.
Otherwise,
customers are highly likely to switch over to

competitors products. It thus has greater working capital needs. When competition is low, but
demand for the product is high, the firm can afford to have a smaller inventory and would
consequently require lesser working capital. But this factor has not applied in these technological
andThe
competitive
On
Basis ofdays
Concepts

On The Basis of Time

2.6 CLASSIFICATION OF WORKING CAPITAL

Permanent / Fixed Working
Capital
Temporary
/ Fluctuating Working Capital
Gross Working Capital Net Working Capital

Initial Working Capital

Regular Working
Capital

Seasonal Working Capital Special Working Capital

On The Basis of Concepts

1) Gross Working Capital
Gross working capital is the amount of funds invested in various components of current assets.
Current assets are those assets which are easily / immediately converted into cash within a short
period of time say, an accounting year. Current assets includes Cash in hand and cash at bank,
Inventories, Bills receivables, Sundry debtors, short term loans and advances.
2) Net Working Capital
This is the difference between current assets and current liabilities. Current liabilities are those
that are expected to mature within an accounting year and include creditors, bills payable and
outstanding expenses.
II. On The Basis of Time
1)

Permanent / Fixed Working Capital

Permanent or fixed working capital is minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every firm
has to maintain a minimum level of raw material, work- in-process, finished goods and cash

balance. This minimum level of current assts is called permanent or fixed working capital as
this part of working is permanently blocked in current assets. As the business grow the
requirements of working capital also increases due to increase in current assets.
a) Initial working capital
At its inception and during the formative period of its operations a company must have
enough cash fund to meet its obligations. The need for initial working capital is for every
company to consolidate its position.
b) Regular working capital
Regular working capital refers to the minimum amount of liquid capital required to keep
up the circulation of the capital from the cash inventories to accounts receivable and from
account receivables to back again cash. It consists of adequate cash balance on hand and at
bank, adequate stock of raw materials and finished goods and amount of receivables.

2)

Temporary / Fluctuating Working Capital

Temporary / Fluctuating working capital is the working capital needed to meet seasonal as

well as unforeseen requirements. It may be divided into two types.

a) Seasonal Working Capital
There are many lines of business where the volume of operations are different and
hence the amount of working capital vary with the seasons. The capital required to
meet the seasonal needs of the enterprise is known as seasonal Working capital.
b) Special Working Capital
The Capital required to meet any special operations such as experiments with new
products or new techniques of production and making interior advertising campaign
etc, are also known as special Working Capital.

2.7 OPERATING CYCLE OF WORKING CAPITAL:

CASH

The working capital cycle reserves to the length of time between the firm paying cash for
materials etc., this working capital also known as operating cycle. Working capital cycle or
operating cycle indicates the length or time between companies paying for materials entering
into stock and receiving the cash from sales of finished goods. The operating cycle (Working
Capital) consists of the following events. Which continues throughout the life of business?

Conversion of cash into raw materials.

Conversion of raw materials into work in progress.
Conversion of work in progress into finished stock.

DEBTORS

Conversion of finished stock into accounts receivables(Debtors)through sale and

Conversion of account receivables into cash.

2.8 COMPONENTS OF WORKING CAPITAL

FINISHED STOCK

(a) Management of cash

The term cash with reference to cash management is used in low senses. In a narrower sense it
includes coins, currency notes, cheques, bank draft held by a company with it and the demands
deposits held by it in banks. In the broader sense it includes near cash assets such as
marketable securities and time deposits with banks.

A distinguishing feature of cash as an asset, irrespective of the firm in which it is held, is that it
does not earn any substantial return for the business. In spite of this fact cash is held by the firm
with the following motives.
Transaction motive
A firm enters into variety of business transaction resulting in both inflows and outflows. In order
to meet the business obligation in such situation, it is necessary to maintain adequate cash
balance.
Precautionary motive
A firm keeps cash balance to meet unexpected cash needs arising out of unexpected
contingencies such as floods, strikes presentation of bills for payment earlier than the expected
date, sharp increase in the price of raw material etc.
Speculative motive
A firm keeps cash to take advantage of unexpected opportunities, typically outside the normal
course of the business. For e.g. the firm may make some profit by buying securities when their
prices all on account of tight money condition etc.
Compensation motive
Banks provide certain services to their clients free of charge. They therefore usually require
clients to keep minimum cash balance with them, which helps them to earn interest and thus
compensate them for the free services so provided.
Objective of cash management
There are two objectives of cash management.
1. To meet cash disbursements needs as per the payment schedule.
2. To minimize the amount locked up as cash balance.
3. As a matte of fact both the objectives are mutually contradictory and therefore it is
challenging task for the finance manager to reconcile them and to have the best in this
process. It calls in for maintaining optimum cash balance.

(b) Debtors
Account receivables management is also an important aspect of working capital management.
Accounts receivables represent the extension of credit on an open account by the company to its
customer. These receivables constitute a major portion of the company to its customer. These
receivables one-third pare of current assets in India and near about 11-15% of the total assets.
The problem of receivables management is basically the problem of balancing the profitability
and liquidity. The basic goal of receivables management is to maximize the value of the firm by
achieving a trade off between liquidity and profitability. The level of investment in accounts
receivables is dependent upon two factors general and specific. General factors are external
while factors are internal factors.
1) General factors
These are those, which are common to all firms. They include the type and the nature of
business, anticipated volumes of sales operations, interest rates, industry norms etc.

2) Specific factor

Volumes of credit sales are the most important factor affecting credit. If other things
remain as before, the level of accounts receivables vary directly to the level of credit
sales.

If the term of sales of the company is such that no credit sale is allowed than item will
altogether not appear in the balance sheet.

In seasonal type of business the amount of credit sales is high during the season, so the
amount of receivables is consequently high during the peak seasons.

The credit policy of the company is having a liberal policy than the amount of
receivables will go be large.

Optimum Credit Policy

The term credit policy refers to those decision variables that influence the amount of trade credit
i.e. the investment in receivables are affected to a large extent by the general economic condition,
industry norms, pace of technological changes, competition etc. But the policy decision also has
a great impact on it. The credit policy provides the guidelines for determining whether to extent
credit to customer (and customers as a whole) and how much credit to extent. Therefore it is very
important for the company to design the credit policy very cautiously keeping in mind both the
aspects of liquidity and profitability.
Benefits Of Credit Extenton
The companys credit standards define the minimum criteria for the extension of credit to the
customers. The extension of credit increases the sales of the company. And, if the cost of the
investment does not increase at a greater rate, the increase sales revenue will certainly increases
the profits of the company. As a result, the market value of the companys share would rise.
Hence the benefits of credit extensions are define in terms increased profit of the company.
Cost Of Credit Extension
The second aspect of an optimum credit policy is the considered of costs associated with it. The
cost likely to be incurred in granting credit is bad debt losses production and selling costs ,
administrative expenses, cash discounts and opportunity costs of the funds. A liberal credit policy
an increase these costs while a tight policy reduces their amounts.
Cost Benefits Trade-Off
A sound and successful credit policy will be determined at trade off point between costs and
benefits. The major consideration in costs liquidity and opportunity costs while the benefits are
expressed in increased profits of the sales. Hence, an optimum credit policy will be determined
by the trade-off between liquidity and profitability.
A firm becomes less liquid and more risky as it relaxes its credit policy. But profitability
increases as the credit becomes more and more liberal. Hence, an optimum credit policy should
occur where is trade off between liquidity and profitability as shown in the following figure.

Profitability Curve

Cost &
Benefits

Liquidity Curve

Tight < credit policy..> liberal

(C) Inventory Management

The term inventory management is used to two ways-unit control and value control. Production
and purchases officials use this word in terms of unit control where as in accounting this work is
used in terms of value control as investment in inventory represents in many cases, one of the
largest asset of the business enterprise particularly those engaged in manufacturing, wholesale
trade and retail trade. Sometimes the cost of material used in production surpasses the wages and
production overheads. Hence, the proper management and control of the capital invested in the
inventory should be the prime responsibility of accounting departments because the resources
invested in inventory are not earning a return for the company. Rather, on though other hand,
they are costing the firm money both in terms of capital costs being incurred and loss of
opportunity income that is being forgone.
Need for holding inventories
I. Holding of inventories helps a company is having the following benefits: Avoiding the
losses of sales since the company does not lose its customers on account of non-supply
of goods in time.

II. The variable cost associated with individual orders etc. can be typing, checking,
approving and mailing the orders rather than numerous small ones.
III. Maintenance of large inventories helps the company in reducing the set-up cost
associated with each production run. Moreover, adequate inventories project against
shortage and delay.
2.9 ESTIMATION OF CURRENT ASSETS
1.

Raw Material Inventory:

The Investment in Raw Material can be computed with the help of the following formula:-

Budgeted

Cost of Raw

Production

Average Inventory

Material(s)

( In units )

per unit

Holding Period
(months/days)

12 months / 52 weeks / 365days

2.

Work-in-progress (W/P) Inventory:

The relevant cost of determine work in process inventory are the proportionate share of cost of
raw material and conversion costs (labors and Manufacturing over Head cost excluding
depreciation) In case, full until of raw material is required in the beginning the unit cost of work
is process would be higher, i.e., cost of full unit + 50% of conversion cost compared to the raw
material requirement. Throughout the production Cycle, working process is normally equivalent
to 50% of total cost of production. Symbolically,
Budgeted
Production
( In units )

Estimated workx

in-progress cost
per unit

Average Time Span

x

of work-in-progress
inventory (months/days)

12 months / 52 weeks / 365days

3.

Finished Goods Inventory:

Working capital required to finance the finished goods inventory is given by factors
summed up as follows:Budgeted

Cost of Goods Produced

Production

( in units )

Finished Goods

per unit (excluding

depreciation)

Holding Period
(months/days)

12 months / 52 weeks / 365days

4.

Debtors:
The working capital tied up in debtor should be estimated in relation to total cost price
(excluding depreciation) symbolically,
Budgeted
Production

Cost of Sales per

x

( In units )

unit excluding

Average Debt
x

depreciation

Collection Period
(months/days)

12 months / 52 weeks / 365days

5.

Cash and Bank Balances:

Apart from Working Capital needs for Financing Inventories and Debtors, Firms also find
it useful to have such minimum cash Balances with them. It is difficult to lay down the exact
procedure of determining such an amount. This would primarily be based on the motives of
holding cash balances of the business firm, attitude of management towards risk, the access to
the borrowing sources in times of need and past experience.
ESTIMATION OF CURRENT LIABILITIES

The Working Capital needs of business firms are lower to the extent that such needs are met
through the Current Liabilities(other than Bank Credit) arising in the ordinary course of business.
The Important Current Liabilities in this context are Trade-Creditors, Wages and Overheads:1.

Trade Creditors:
The Funding of Working Capital from Trade Creditors can be computed with the help of the
following formula:Budgeted Yearly
Production

Raw Material
x

( In units )

Cost

Credit Period
x

per unit

Allowed by creditors
(months/days)

12 months / 52 weeks / 365days

Note:- Proportional adjustment should be made to cash purchases of Raw Materials.

2.

Direct Wages:
The Funding of Working Capital from Direct Wages can be computed with the help of the
following formula:-

Budgeted Yearly
Production
(In units)

Direct Labor
x

Cost
per unit

Average Time-lag in
x

Payment of wages
(months/days)

12 months / 52 weeks / 365dayss

Note:- The average Credit Period for the payment of wages approximates to half-a-month in the
case of monthly wage payment. The first days monthly wages are paid on the 30 th of the month,
extending credit for 29 days, the second days wages are, again, paid on the 30 th day, extending
credit for 28 days, and so on. Average credit period approximates to half-a-month.
3.

Overheads (other than Depreciation and Amortization):

The Funding of Working Capital from Overheads can be computed with the help of the following
formula:-

Budgeted Yearly
Production
( In units )

Overhead
x

Cost

Average Time-lag in
x

per unit

Payment of overheads
(months/days)

12 months / 52 weeks / 365days

Note:- The amount of Overheads may be separately calculated for different types of Overheads.
In the case of Selling Overheads, the relevant item would be sales volume instead of Production
Volume.

FORMAT FOR DETERMINATION OF WORKING CAPITAL:

SL.NO

PARTICULARS

AMOUNT

ESTIMATION OF CURRENT ASSETS

1) Minimum desired cash and Bank balances.

xxx

2) Inventories
Raw material

xxx

Work-in-progress

xxx

Finished stock

xxx

3) Debtors

xxx

Total Current Assets

2.

XXX

ESTIMATION OF CURRENT LIABILITIES

1) Creditors

xxx

2) Wages

xxx

3) Overheads

xxx

Total current liabilities

NET WORKING CAPITAL
(Total Current assets Total Current liabilities)

XXX
XXX

Add : Margin for contingency net

Working capital requirement

XX

XXXX

CHAPTER-3
COMPANY PROFILE

CHAPTER-3
3.1 COMPANY PROFILE

The GDX group is a pioneer and leading Security and Detective Services provider in
India capable of providing a total security and investigation services to its varied
clientele like Government, Semi-Government Undertakings, Banks, Industrial
Houses, Multi-National Companies, Private Organizations like Hospitals, Factories,
Academic Institutes, Residences and Foreign Missions.
The company is incorporated under the Companies Act, 1956 with its Head Quarters
at Delhi. Apart from the companys permanent staff, it has the services of experts on
retainer ship as advisors and consultants in Business and Commercial Security,
Industrial Security, Detection, Personnel Management and Finance
To serve and support the requirements of the client all in house resources of are
combined

and

put

together

to

successfully

achieve

the

objectives

of

the

assignment. The reason we stand tall from our competitors is that we are equipped
with high tech equipments and have the flexibility to deliver a high level of
professional services through our qualified work force.
We endeavor to provide the best services by closely monitoring, and supervising each
security personnel deployed by us. Our mobile operations teams carry out site visits

and random inspections on daily basis. We pay to our security personnel the best
wages along with statutory benefits which in turn helps us attract the best manpower
in the sector.
The GDX GROUP CONSISTS OF THE FOLLOWING COMPANIES:
*Guardex Security Services
* Gdx Detectives Pvt Ltd
* Gdx Facility & Management Services Pvt Ltd

3.2 VISION
To be the most trusted name in security services
To be the preferred employer in the industry
To be a catalyst for growth and excellence of the business in India.

3.3 MISSION
Achieving superior and consistent results.
Creating a conducive environment to hone and retain talent.
Providing customer delight.
Institutionalizing system-approach in all aspects of functioning.
Upholding highest standards of ethical values at all times.

3.4 VALUES
Integrity
Commitment
Passion

3.5 SERVICES OF GDX

Security Services
Facility Management Services
Investigation Services

3.6 SWOT ANALYSIS

STRENGTHS

Strong management
Brand name
Customer loyalty
Innovative culture
Latest technology

OPPORTUNITIES

Online booking system

Market expansion
24*7 hrs available
Professionally trained manpower

WEAKNESS

Role conflict among employees

Increasing number of competitors
Less funds for investment

THREATS

Maintain quality services

Increase number of competitor

3.7 ESTEEMED CLIENTS OF GDX GROUP

House Incas
India Digital
IIHMR
Whirlpool

Xebec Design and Facility

PGT Components Ltd
Lake Forest Wines
Jindal group

Lazeez Affairs
Delphi automotive pvt ltd
Masoom Plamade
Thakral Computers

Nanglamal Sugar Complex

Phillips india pvt ltd
Urban Pind
Pragati Fabrication Pvt Ltd

Vega Corporate

W H Brady

3.8 CERTIFICATION AND INDUSTRY AFFILIATION

3.9 GEOGRAPHICAL REACH

Operations in 15 states across the country
Branch Offices :
Ahmedabad, Noida,

Chandigarh, Mumbai,

Gurgaon, Faridabad, Meerut, Jaipur, Kolkata,

Jammu & Kashmir, Chhattisgarh , Haridwar,
Indore, Kolkata,, Greater Noida, Firozabad,
Luck now, Jaipur, Bangalore, Hyderabad,
Chennai.
35 Satellite Offices
24 x 7 control rooms in all branches with
dedicated patrol vans for inspections
Corporate Office in New Delhi

CHAPTER-4
RESEARCH
METHODOLOGY

CHAPTER-4

4.1 INTRODUCTION:
Research methodology is a way to systematically solve the research problem. It May be
understood as a science of studying now research is done systematically. In that various steps,
those are generally adopted by a researcher in studying his problem along with the logic behind
them. The procedures by which researcher go about their work of describing, explaining and
predicting phenomenon are called methodology.

4.2 TYPE OF RESEARCH:

This project A Study on Working Capital Management of GDX GROUP PRIVATE LTD
is considered as an analytical research.
Analytical Research is defined as the research in which, researcher has to use facts or
information already available, and analyze these to make a critical evaluation of the facts,
figures, data or material.

4.3 SOURCE OF RESEARCH DATA:

There are mainly two through which the data required for the research is collected.
Primary data: the primary data is that data which is collected fresh or first hand, and for first
time which is original in nature. In this study the primary data has been collected from personal
interaction with finance manager i.e., ms. Niharika Sharma and other staff members.
Secondary data: The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, annual reports of the company etc.
It will save the time, money and efforts to collect the data.

The major source of data for this project was collected through annual reports, profit and loss
account of 5 year period from 2006-2010 & some more information collected from internet and
text sources.

4.4 SAMPLING DESIGN

Sampling unit : Financial Statements.
Sampling Size : Last four years financial statements.
Tool Used for calculations: - MS-Excel.

4.5 TOOLS USED FOR ANALYSIS OF DATA

The data were analyzed using the following financial tools. They are
Ratio analysis.

Statement of changes in working capital.

4.6 LIMITATIONS OF THE STUDY

The study duration is short.
The analysis is limited to just four years of data study (from year 2011 to year 2014) for
financial analysis.
Limited interaction with the concerned heads due to their busy schedule.

CHAPTER-5
DATA ANALYSIS

CHAPTER-5
DATA ANALYSIS
5.1 WORKING CAPITAL POSITION ANALYSIS IN GDX GROUP PVT
LIMITED

Net working Capital ( Current Assets Current Liabilities)

(Rs.in lacks)

YEAR

31.03.11

31.03.12

31.03.13

CURRENT ASSETS

Inventories

180.26

291.13

653.95

Sundry Debtors

114.33

390.84

219.79

Cash And Bank

10.81

34.30

28.22

6.67

28.08

21.99

21.44

78.74

83.92

Other Current Assets

Loans & Advances
TOTAL CURRENT ASSESTS
LESS:CURRENT LIABILITIES

333.51

823.09

1008.67

AND PROVISIONS
Short term borrowing
Sundry creditors
Advanced received

94.54
159.49
25.30

Provisions

21.56

Installments of term loan

14.66

Other current liabilities

16.82

TOTAL CURRENT LIABILITIES

NET WORKING CAPITAL

332.37
1.14

336.70
256.33

315.76
305.99

18.16

59.88

59.05

64.05

21.11

72.00

29.36

70.34

720.71

888.02

102.38

120.65

GRAPH-1

AMOUNT(IN LACKS)

140
120.65
120
102.38
100
80
60
40
20 1.141 1
33
22
0
2011
2012
2009
YEAR

INTERPRETATION
If we analysis the three years working capital position of the company, we find out that company
has sufficient working capital to meets its short term liability, it is good indicator for the

company but in 2012, working capital is increased by 101.24 lacs which shows that a sufficient
amount has been blocked in working capital which could be used for some other more beneficial
purpose.

5.2 INVENTORY ANALYSIS

Inventory means stock of three things :1. Raw materials
2. Semi finished goods.
3. Finished goods.
POSITION OF INVENTORY IN GDX PVT LTD.
YEAR
Stores, Spare Parts etc.
Stock In tradeFinished Goods
37.04
Raw Materials
78.74
Material under process
54.38

31.03.11
10.10

(Rs. in lacks)
31.03.12
.87

31.03.13
25.57

26.93

41.76

184.53

340.08

78.80

246.54

291.13

653.95

180.26

800
600
AMOUNT
(IN LACKS)

400
200
0
2011

2012

GRAPH-2

YEAR

2013

INTERPRETATION:
By analyzing the 3 years data, We are looking increasing pattern in inventories. We can see that
inventories are increased from 180.26 lacs to 291 lacs in the year 2012 and in the year 2012 it is
increased from 291 lacs to 653 lacs. By seeing this pattern we can say that the company is
managing the inventory according to the sale. Company have a great demand for the pump in the
year 2012 that is biggest reason for increase in inventories.

5.3 SUNDRY DEBTORS ANALYSIS

Debtors or an account receivable is an important component of working capital and fall under
current assets. Debtors will arise only when credit sales are made.
(Rs.in lacks)

YEAR

31.03.11

31.03.12

31.03.13

Sundry Debtors
Total

114.33
114.33

390.84
390.84

219.79
219.79

GRAPH-3

400
350
300
250
AMOUNT
200
( IN LACKS) 150
100
50
0
2011

2012

2013

YEAR

INTERPRETATION
In the table and figure we see that there is rise in the debtors in the year 2012 and decrease in the
year 2013. A simple logic is that debtors increase only when sales increase and decrease if sales
decrease. In the year 2012, sales is increased by 72.30% and decreased by 19.24% in the year
2013.
We can say that it is a good sign as well as negative also. Company policy of debtors is very
good but a risk of bad debts is always present in high debtors. when sales is increasing with a
great speed the profit also increases. If company decreases the Debtors they can use the money in
many investment plans.

5.4 CASH AND BANK BALANCE ANALYSIS

Cash is called the most liquid asset an vital current assets, it is an important component of
working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while in a broader
sense it includes near cash assets such as marketable securities and time deposits with bank.
Position of Cash and Bank Balance
YEAR
Cash Balance in hand

31.03.11
1.45

31.03.12

31.03.13

27.30

2.90

Bank BalanceWith Scheduled Banks

9.36

7.00

26.12

10.81

34.30

29.02

GRAPH-4
40
30
AMOUNT ( IN LACKS ) 20
10
0
2011

2012

2013

YEAR

INTERP
RETATION
If we analyze the above table and chart we find that it follows a uneven pattern. In the year 2011
it had maintained a low amount of cash and bank balance. But in the year 2012, cash and the
bank balances has increased from 10.81 lacs to 34.30 lacs which is not a good sign for the
company because it shows that company is not using its cash for beneficial activities. Although,
in the year 2013, cash has reduced from 34.30 lacs to 29.02 lacs but this is very good sign for
company because they are not holding the cash in hand but using the cash for better projects, but
still it is not conducive. From the other point of view, company will not face the problem of
liquidity as company is maintaining the cash balance

5.5 LOANS AND ADVANCES ANALYSIS

Loans and Advances here refers to any to amount given to different parties, company, employees
for a specific period of time and in return they will be liable to make timely repayment of that
amount in addition to interest on that loan.
Position of Other Loans & Advances
YEAR

31.03.11

31.03.12

31.03.13

Advances to suppliers

10.91

39.69

44.62

Advances

10.53

39.05

39.30

Deposits

AMOUNT ( IN LACKS )

6.67

28.08

21.99

28.11

106.82

105.91

GRAPH-5

120
100
80
60
40
20
0
2011

2012

2013

YEAR

INTERPRETATION:If we analyze the table and the chart we can see that it follows an increasing trend which is a
good sign for the company. We can see that from the year 2011 to 2012 it increased more than
triple. We can see that the increase of 28.11% and 106.82% in 11-12 and 12-13 respectively from
previous year. The increasing pattern shows that company is giving advances for the expansion
of plants and machinery which is good sign for better production of pumps and other goods.
Although companys cash is blocked but this is good that company is doing modernization of
plants In time to compete with other competitors in market.

5.6 CURRENT LIABILITIES ANALYSIS

Current liabilities are any liabilities that are incurred by the firm on a short term basis.

Position of Other Current Liabilities

YEAR

31.03.11

Sundry Creditors

159.49

256.33

305.99

94.54

336.70

315.76

Bank Loan

31.03.12

31.03.13

Advance Received

25.30

18.16

59.88

Provisions for taxes

21.56

59.05

64.05

Other Liabilities

16.82

29.36

70.34

332.37

720.71

888.02

Total

GRAPH-6
INTE
1000
800
AMOUNT ( IN600
LACKS ) 400
200
0

2011

2012

2013

YEAR

RPRETATION
If we analyze the above table then we can see that it follow an uneven trend. The important
component of current liabilities is sundry creditors and other liabilities. In 2011 it was only
332.37 but it was increase in both the years i.e. 720.71 and 888.02 respectively. This is liability
for company so this should be less.. High current liabilities indicate that company is using credit
facilities by creditors.

5.7 SUNDRY CREDITORS ANALYSIS

Creditors or an account payable is an important component of working capital and fall under
current liability. Creditors will arise only when credit purchases are made.

Position of Sundry Creditors

(Rs.in lacks)
YEAR

31.03.11

31.03.12

31.03.13

Sundry Creditors

159.49

256.33

305.99

Total

159.49

256.33

305.99

GRAPH-7
350
300
250
200
AMOUNT ( IN LACKS) 150
100
50
0
2011

2012

2013

YEAR

INTERPRETATION
In the table and figure we see that there is continuous rise in the creditors in the company in the
successive years. A simple logic is that creditors increase only when purchases increase and if
purchase increases on credit it is not good sign for growth. This is liability for company so this
should be less. when company have minimum liabilities it creates a better goodwill in market.
High current liabilities indicate that company is using credit facilities by creditors.

5.8 BANK LOANS AND ADVANCES ANALYSIS

YEAR
Bank Loan
Advances from the customers

31.03.11
94.54
25.30

(Rs.in lacks)
31.03.12
336.70
18.16

31.03.13
315.76
59.88

Total

122.84

354.86

375.64

GRAPH-8

AMOUNT ( IN LACKS )

400
350
300
250
200
150
100
50
0
2011

2012

2013

YEAR

INTERPRETATION
If we analyze the table and the chart we can see that it follows an increasing trend which is not a
good sign for the company. We can see that from the year 2011 to 2012 it increased more than
double. The increasing pattern shows that company is taking loan for the expansion of plants and
machinery which is not a good sign because company depends on the external source. On the
other hand, company has reduced the bank loan in 2013 and increase in advances received from
the customer, this is good sign for company.

5.9 PROVISIONS ANALYSIS

Position of Other Provisions

YEAR
Provision for Taxes
Total

31.03.07
21.56
21.56

31.03.08
59.05
59.05

(Rs.in lacks)
31.03.09
64.05
64.05

---------------

----------------

------------

GRAPH-9
70
60
50
40
AMOUNT ( IN LACKS )

30
20
10
0
2011

2012

2013

YEAR

INTERPRETATION
From the above table we can see that provision shows an increasing trend and the huge amount is
being kept in these provisions. Though the profits of the company are increased income tax is
also increased which is good that company is creating goodwill in market by paying income tax
in time. Although company is paying more income tax but also they are earning more. Other
provisions are also for the benefit of employees and public. This is good sign for Company
growth.

2. RATIO ANALYSIS
A) Working Capital Ratio
FORMULA
INVENTORY + RECIVEABLE - PAYABLE

WORKING CAPITAL RATIO= ------------------------------------------------------------(AS % OF SALES)

SALES

YEAR
WORKING CAPITAL RATIO

31.03.11
18

31.03.12
32

31.03.13
53

GRAPH-10
60
50
40
AS %

30
20
10
0
2011

2012

2013

YEAR

INTERPRETATION
This ratio indicates whether the investments in current assets or net current assets have been
properly utilized. In order words it shows the relationship between sales and working capital.
Higher the ratio lower is the investment in working capital and higher is the profitability. But too
high ratio indicates over trading. This ratio is an important indicator about the working capital
position. Now if we analyze the three years data, we find that it follows an increasing trend
which means that its investment in working capital is lower and the company is utilizing more of
its profit. But we find that ratio is increasing at a very fast rate which is not a good sign for the
company and the company is required to look into these matters closely.

(B) Current Ratio

FORMULA
TOTAL CURRENT ASSETS
CURRENT RATIO= -------------------------------------------TOTAL CURRENT LIABILITIES

YEAR
CURRENT RATIO

31.03.11

31.03.12

31.03.13

1.00

1.14

1.14

GRAPH-11
1.2
1.15
1.1
1.05
1
0.95
0.9
2011

2012

2013

YAER

INTERPRETATION
This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1
but in most of companies standard is taken according to Tandon Committee which is taken as
1.33:1.Now if we analyze the three years data it can be predicted that it holds a stable position all
through out period but it is seen that it holds a low position than the standard one and the
company is required to improve its position.

(C) QUICK RATIO

FORMULA
TOTAL CURRENT ASSETS - INVENTORIES
QUICK RATIO= ----------------------------------------------------------------TOTAL CURRENT LIABILITIES

YEAR
QUICK RATIO

31.03.11
0.46

31.03.12
0.74

31.03.13
0.40

GRAPH-12
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011

2012

2013

YEAR

INTERPRETATION
It is the ratio between quick liquid assets and quick liabilities. The normal value for such ratio is
taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It
indicates the relationship between strictly liquid assets whose realizable value is almost certain
on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current
assets minus stock. By analyzing the three years data it can be said that its position was weak in
the year 2011 but it improved significantly in the next year and again it is declined during the
2013. It is to be said that it does not meet with the standard but in the year 2012 it was very close
to the standard and it can be said that its liquidity position is not good & stable.

(D) CURRENT ASSETS TO FIXED ASSETS RATIO

FORMULA
CURRENT ASSETS
CA TO FA RATIO =

----------------------------FIXED ASSETS

YEAR
CATO FA RATIO

31.03.11
1.65

31.03.12
2.93

31.03.13
3.21

GRAPH-13
3.5
3
2.5
2
DAYS 1.5
1
0.5
0
2011

2012

2013

YEAR

INTERPRETATION
Assuming a constant level of fixed assets, a higher CA/FA ratio indicates a conservative current
assets policy and a lower CA/FA ratio means an aggressive current assets policy assuming other
factors to be constant. A conservative policy i.e. higher CA/FA ratio implies greater liquidity and
lower risk; while an aggressive policy i.e. lower CA/FA ratio indicates higher risk and poor
liquidity. Now if we analyze the three year data we find the CA TO FA Ratio in increasing
pattern, so we can say that company is following the conservative policy to finance its short term
capital requirement.

(E) INVENTORY TURNOVER RATIO

FORMULA
AVERAGE STOCK
STOCK TURN OVER RATIO ( IN DAYS )= --------------------------------------- * 365
COST OF GOODS SOLD

YEAR
INVENTORY TURNOVER RATIO

31.03.11
104

31.03.12
79

31.03.13
227

GRAPH-14
250
200
150
DAYS 100
50
0
2011

2012

2013

YEAR

INTERPRETATION
This ratio tells the story by which stock is converted into sales. A high stock turnover ratio
reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned
over or sold during the year. If a firm maintains a minimum stock level in order to maximize
sales by quick rotation of inventory and the holding cost of inventory will be minimum. A low
stock turn over ratio reveals undesirable accumulation of obsolete stock.
By analyzing the three year data it seen that it follows an uneven trend. We see that it is reduced
to 79 from the 104 days in 2012 and in 2013 it is increased by 148 days, Which is not a good
indicator for the company. Company should have to reduce the inventory conversion period in
order to reduce the cost.

(F) RECEIVABLE RATIO

FORMULA
DEBTORS
RECEIVABLE RATIO = ---------------- * 365
SALES

YEAR
RECEIVABLE RATIO (IN DAYS)

31.03.11
54

31.03.12
70

31.03.13
104

GRAPH-15
120
100
80
DAYS

60
40
20
0
2011

2012

2013

YEAR

INTERPRETATION
Generally a low debtors turnover ratio implies that it considered congenial for the business as it
implies better cash flow. The ratio indicates the time at which the debts are collected on an
average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter
collection period which indicates prompt payment made by the customer. Now if we analyze the
three year data we can say that it holds a good position while receiving its money from its
debtors. The ratios are in an decreasing trend, which implies that recovery position is not good
company and Company have to reduce the receivable period.

(G) PAYABLE RATIO

FORMULA
CREDITORS
PAYABLE RATIO= ----------------------------- * 365
COST OF SALES

YEAR
PAYABLE RATIO (IN DAYS)

31.03.11
92

31.03.12
69

31.03.13
135

GRAPH-16
160
140
120
100
80
DAYS
60
40
20
0
2011

2012

2013

YEAR

INTERPRETATION
Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers
throughout the year. Generally a low creditors turnover ratio implies favorable since the firm
enjoys lengthy credit period. Now if we analyze the three years data we find that in the year 2012
the ratio was very high which means that its position of creditors that year was not good, but in
the 2013 it is seen that it has followed a decreasing trend which is very good sign for the
company. So we can say it enjoys a very good credit facility from the suppliers.

3. OPERATING CYCLE
Formula = Inventory Conversion Period + Receivable Conversion Period

Calculation of Operating Cycle:Particulars

2011-12

Deferral
Period

( All Figures in Days)

2012-13

2013-14

ICP

104

79

227

RCP

54

70

104

149

431

Gross
Cycle

Operating 158

DP

92

69

135

Net OP

66

80

296

GRAPH-17
350
300
250
200
Days

150
100
50
0
2011-12

2012-13

2013-14

YEAR

INTERPRETATION
When a company has lower d/e ratio, it means that company is utilizing its own funds and
reserves rather than taking loans from outsiders. Company have a uneven trend in d/e ratio. In
the year 2011 it was 1.02 but in the year 2012 it is declined to .55 so we can say that now
company is using more its fund as compare to previous year, but still the ratio is high. Company
have to reduce the ratio.