A

PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT OF
SEAGULL AROTECH

Submitted in partial fulfillment of the requirement for the award

of degree of Masters of Business Administration under
Tilak Maharashtra University, Pune.
Submitted By
SHAILESH PAWAR
PRN : 07408012890
BATCH: 2008-2010

Under the guidance of

Shri. Irfan Ajmeri

AGRAWAL INSTITUTE OF MANAGEMENT

VIKHROLI , MUMBAI

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 ACKNOWLEDGEMENT

I express my sincere thanks to Shri. Irfan Ajmeri, Head of Department of (AIM)

AGRAWAL INSTITUTE OF MANAGEMENT, VIKHROLI, MUMBAI for his
valuable suggestions & help to prepare this project.

I am extremely grateful to Dr. Pawan Agrawal, Director of AGRAWAL

INSTITUTE OF MANAGEMENT, VIKHROLI, MUMBAI for the encouragement
and providing facilities for the study.

Finally, it is my foremost duty to thank all my respondents, who helped me to

complete my field work without which this project would not have been possible.

Place: Mumbai SHAILESH PAWAR

Date:

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Page 3
 GUIDE CERTIFICATE

This is to certify that Mr. SHAILESH PAWAR, student of MASTERS OF

BUSINESS ADMINISTRATION, has undergone his specialization project
under my guidance and prepared the project report titled “WORKING
CAPITAL MANAGEMENT” of “SEAGULL AROTECH.” for the partial
fulfillment of the requirements for the award of degree of MASTERS OF
BUSINESS ADMINISTRATION from TILAK MAHARASHTRA
UNIVERSITY, PUNE in the academic year 2008-2010.

Place: Mumbai Irfan Ajmeri

Date: Internal Guide

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 COLLEGE CERTIFICATE

This is to certify that Mr. SHAILESH PAWAR, student of MASTERS OF

BUSINESS ADMINISTRATION, has undergone his specialization project
under my guidance and prepared the project report titled “WORKING
CAPITAL MANAGEMENT” in the “SEAGULL AROTECH.” for the partial
fulfillment of the requirements for the award of degree of MASTERS OF
BUSINESS ADMINISTRATION from TILAK MAHARASHTRA
UNIVERSITY, PUNE in the academic year 2008-2010.

Irfan Ajmeri Dr. Pawan Agrawal

H.O.D Director

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Page 6
 DECLARATION

I hereby declare that this project report entitled “WORKING CAPITAL

MANAGEMENT” is a record of work carried out by me under the guidance of
Irfan Ajmeri, in partial fulfillment of the requirement for the award to the degree of
Masters of Business Administration.

I also hereby declare that this project report is the result of my own efforts and
has not been submitted at any time to any other university or institute for the
award of any degree or diploma.

Place: Mumbai SHAILESH PAWAR

Date:

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 TABLE OF CONTENTS
CHAPTER NAME TOPICS PAGE NO

1 Rationale of the study

2 Objectives of the study
A) Title of the project
B) Objective of the study
C) Scope of the study
3 Profile of the company
4 Review of Literature
5 Research Methodology
A) Research Design
B) Data collection method
6 Data Analysis & Interpretation
7 Observation & Finding
8 Limitation
9 Recommendation
10 Conclusion
11 Questionnaire
12 Bibliography
13 Annexure

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 1.RATIONALE OF THE STUDY:

What we are about to study - stock, debtors and creditors control - are all part of
working capital management in the same way that a discussion of liquidity was
part of working capital management.

We know that working capital is concerned with the ability of a business to be

able to pay its way. The three ratios we are concerned with now are concerned
with spending and saving money in the right places. Too much stock and we
waste money on buying it and keeping it. Too much money loaned to our debtors
and it's money we can't use for something else, such as buying machinery,
paying our creditors or even investing it. Too much money in the form of creditors
and we might have a problem that no one else will give us credit for anything else
because they think we can't afford it, and, if we suddenly have a cash problem,
we might not be able to pay our creditors.

Working capital management is concerned with the control aspects of the issues
we have just mentioned.

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 2. OBJECTIVES OF THE STUDY

1. Title of the project

Working Capital Management of Seagull Arotech

2. Objective of the Study

• To study the working capital management of the concern so as to
analyze and interpret the inventory position of the SEAGULL
AROTECH.

• To assess the strength and weakness of the concern in various

areas.

• To assess the over all efficiency and performance of the company

3. Scope of the Study

Working capital management is concerned with the problems arise in
attempting to manage the current assets, the current liabilities and the inter
relationship that exist between them. The goal of working capital
management is to manage the firm’s current assets and current liabilities in
such way that the satisfactory level of working capital is mentioned.

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 3. COMPANY PROFILE

History, Background & Overview

SEAGULL AROTECH Established in 2001, is a renowned manufacturer and

exporter of a wide range of aromatic chemicals. We have established a
remarkable reputation or excellence & authority in the industry for high quality
products and valued services.

Located just 50 kms away from the Indian Financial capital city of Mumbai, we
have established an organization that is as respected by customers as it is by
competitors. A trained & skilled team of over 15 professionals manage our
facilities and are dedicated to providing our customers with high quality
products at competitive prices.

Established Excellence

Our strong financial base & collaborative interaction with our cutting-edge
manufacturing facilities allow us to maintain high standards of excellence in
everything we do. From sourcing of raw materials to delivering high quality
products, it permeates and invigorates our business. It is this excellence that
has allowed us to maintain our pioneering approach and be among the top
flavor & fragrance producing companies in India.

Innovation Through Effective Resource Management

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Our strong infrastructure is equipped with the latest cutting edge equipment for
handling the complex reaction processes. We have through the years
achieved a high degree of integration among the various stages of production.
This integration allows us to maintain a sustained and consistently high level
innovation & improvement in the quality of products we offer. Our facilities
empower us with enhanced capabilities to provide customers with customized
solutions suited to their requirements.

Expanding Business

Highest business ethics, adherence to our commitments and flexibility to our

customer's need are few areas which have given us added advantage over
our competitors and played an important role for us from across the world. We
are proud to be a renowned organization whose products are sold on its name
and credentials.

Diversified Interests

At Seagull we have strengthened and refined our expertise through a business

strategy that strives for increased diversification. This industry-wide expertise
has allowed us to gain knowledge that drives and sustains our high standards
of excellence.

Affiliations

We are affiliated with a organization like, such as the prestigious FAFAI.

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 4.REVIEW OF LITERATURE

Introduction: Working Capital Management

Working capital refers to that part of the firm’s capital which is required for
financing short- term or current assets such as cash, marketable securities,
debtors & inventories. Funds, thus, invested in current assts keep revolving fast
and are being constantly converted in to cash and this cash flows out again in
exchange for other current assets. Hence, it is also known as revolving or
circulating capital or short term capital.
The term current assets refers to those assets which in ordinary course of
business can be, or, will be, turned in to cash within one year without undergoing
a diminution in value and without disrupting the operation of the firm. The major
current assets are cash, marketable securities, account receivable and inventory.
Current liabilities ware those liabilities which intended at there inception to be
paid in ordinary course of business, within a year, out of the current assets or
earnings of the concern. The basic current liabilities are account payable, bill
payable, bank over-draft, and outstanding expenses.

Definition:-
According to Guttmann & Dougall-
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“Excess of current assets over current liabilities”.

According to Park & Gladson-

“The excess of current assets of a business (i.e. cash, accounts receivables,
inventories) over current items owned to employees and others (such as salaries
& wages payable, accounts payable, taxes owned to Government)”.
Capital required for a business can be classified under two main
categories via,

1) Fixed Capital 2) Working Capital

Every business needs funds for two purposes for its establishment and to
carry out its day- to-day operations. Long terms funds are required to create
production facilities through purchase of fixed assets such as p&m, land,
building, furniture, etc. Investments in these assets represent that part of firm’s
capital which is blocked on permanent or fixed basisnd is called fixed capital.
Funds are also needed for short-term purposes for the purchase of raw material,
payment of wages and other day – to- day expenses etc.

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CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those assets which can convert in to cash within a
short period normally one accounting year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

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 In a narrow sense, the term working capital refers to the net working.
Net working capital is the excess of current assets over current liability,
or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current assets
exceeds the current liabilities are more than the current assets. Current
liabilities are those liabilities, which are intended to be paid in the
ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation, if it does not amt. to app. of profit.

6. Bills payable.

7. Sundry creditors.

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 CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

o On the basis of concept.

o On the basis of time.

On the basis of concept working capital can be classified as gross

working capital and net working capital. On the basis of time, working
capital may be classified as:

 Permanent or fixed working capital.

 Temporary or variable working capital

Amount of Working
Capital
Temporary capital

Permanent Capital

Time

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PERMANENT OR 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.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which is

required to meet the seasonal demands and some special exigencies. Variable
working capital can further be classified as seasonal working capital and special
working capital. The capital required to meet the seasonal need of the enterprise
is called seasonal working capital. Special working capital is that part of working
capital which is required to meet special exigencies such as launching of
extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense
that is required for short periods and cannot be permanently employed gainfully
in the business.

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IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING
CAPITAL

 Solvency Of The Business:

Adequate working capital helps in maintaining the solvency of the business by

providing uninterrupted of production.

 Goodwill:

Sufficient amount of working capital enables a firm to make prompt payments

and makes and maintain the goodwill.

 Easy loans:

Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.

 Cash Discounts:

Adequate working capital also enables a concern to avail cash discounts on

the purchases and hence reduces cost.

 Regular Supply of Raw Material:

Sufficient working capital ensures regular supply of raw material and

continuous production.

 Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments:

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 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.

 Ability to Face Crises:

A concern can face the situation during the depression.

FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS

1. NATURE OF BUSINESS:

The requirements of working is very limited in public utility undertakings such as

electricity, water supply and railways because they offer cash sale only and
supply services not products, and no funds are tied up in inventories and
receivables. On the other hand the trading and financial firms requires less
investment in fixed assets but have to invest large amt. of working capital along
with fixed investments.

2. SIZE OF THE BUSINESS:

Greater the size of the business, greater is the requirement of working

capital.

3. PRODUCTION POLICY:

If the policy is to keep production steady by accumulating inventories it will

require higher working capital.

4. LENTH OF PRDUCTION CYCLE:

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 The longer the manufacturing time the raw material and other supplies
have to be carried for a longer in the process with progressive increment
of labor and service costs before the final product is obtained. So working
capital is directly proportional to the length of the manufacturing process.

Sources of working capital

The company can choose to finance its current assets by
1. Long term sources
2. Short term sources
3. A combination of them.

Long term sources of permanent working capital include equity and

preference shares, retained earning, debentures and other long term debts from
public deposits and financial institution. The long term working capital needs
should meet through long term means of financing. Financing through long term
means provides stability, reduces risk or payment and increases liquidity of the
business concern. Various types of long term sources of working capital are
summarized as follow:
1. Issue of shares:

It is the primary and most important sources of regular or permanent working

capital. Issuing equity shares as it does not create and burden on the income of
the concern. Nor the concern is obliged to refund capital should preferably raise
permanent working capital.

2. Retained earnings:

Retain earning accumulated profits are a permanent sources of regular working

capital. It is regular and cheapest. It creates not charge on future profits of the
enterprises.

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3. Issue of debentures:

It crates a fixed charge on future earnings of the company. Company is obliged

to pay interest. Management should make wise choice in procuring funds by
issue of debentures.

Short term sources of temporary working capital

Temporary working capital is required to meet the day to day business

expenditures. The variable working capital would finance from short term sources
of funds. And only the period needed. It has the benefits of, low cost and
establishes closer relationships with banker.
Some sources of temporary working capital are given below:

1. Commercial bank:

A commercial bank constitutes significant sources for short term or temporary

working capital. This will be in the form of short term loans, cash credit, and
overdraft and though discounting the bills of exchanges.

2. Public deposits:

Most of the companies in recent years depend on this source to meet their short
term working capital requirements ranging fro six month to three years.

3. Various credits:

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Trade credit, business credit papers and customer credit are other sources of
short term working capital. Credit from suppliers, advances from customers, bills
of exchanges, etc helps to raise temporary working capital

4. Reserves and other funds:

Various funds of the company like depreciation fund. Provision for tax and other
provisions kept with the company can be used as temporary working capital.The
company should meet its working capital needs through both long term and short
term funds. It will be appropriate to meet at least 2/3 of the permanent working
capital equipments form long term sources, whereas the variables working
capital should be financed from short term sources. The working capital financing
mix should be designed in such a way that the overall cost of working capital is
the lowest, and the funds are available on time and for the period they are really
required.

SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following-

1. Existing cash reserves
2. Profits (when you secure it as cash)
3. Payables (credit from suppliers)
4. New equity or loans from shareholder
5. Bank overdrafts line of credit
6. Long term loans

If we have insufficient working capital and try to increase sales, we can easily
over stretch the financial resources of the business. This is called overtrading.
Early warning signs include

1. Pressure on existing cash

2. Exceptional cash generating activities. Offering high discounts for clear
cash payment

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3. Bank overdraft exceeds authorized limit
4. Seeking greater overdrafts or lines of credit
5. Part paying suppliers or there creditor.
6. Management pre occupation with surviving rather than managing.

Different Aspects of Working Capital Management

 M anagement of Inventory
Management of Receivables/Debtors
Management of Cash
Management of Payables/Creditors

MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large
majority of companies. On an average, inventories are approximately 60% of
current assets. Because of large size, it requires a considerable amount of fund.
The inventory means and includes the goods and services being sold by the firm
and the raw material or other components being used in the manufacturing of
such goods and services.

Nature of Inventory:
The common type of inventories for most of the business firms may be classified
as raw-material, work-in-progress, finished goods.
Raw
 material:
it is basic inputs that are converted into finished products through the
manufacturing process. Raw materials inventories are those units which
have been purchased and stored for future productions.
Work–in–process:

Work-in-process is semi-manufactured products. They represent products
that need more work before them become finished products for sale.
Finished
 goods:

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 These are completely manufactured products which are ready for sale.
Stocks of raw materials and work-in-process facilitate production, while
stock of finished goods is required for smooth marketing operations. Thus
inventories serve as a link between the production and consumption of
goods.The levels of three kinds of inventories for a firm depend on the
nature of business. A manufacturing firm will have substantially high levels
of all the three kinds of inventories. While retail or wholesale firm will have
a very high level of finished goods inventories and no raw material and
work-in-process inventories.
So operating cycle can be known as following:-

Raw Material

Work in
Progress

Cash Collection
from
Debtors Sales
Finished Goods

Credit Cash Sales

Sales

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Need to hold inventories

Maintaining inventories involves trying up of the company’s funds and incurrence

of storage and holding costs. There are three general motives for holding
inventories:

Transactions Motive: IT emphasizes the need to maintain inventories to

facilitate smooth production and sales operation.

Precautionary Motive: It necessitates holding of inventories to guard

against the risk of unpredictable changes in demand and supply forces and other
factors.

Speculative Motive: It influences the decision to increase or reduce

inventory levels to take advantage of price fluctuations.

Management of Receivables/Debtors

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The Receivables (including the debtors and the bills) constitute a significant
portion of the working capital. The receivables emerge whenever goods are sold
on credit and payments are deferred by customers. A promise is made by the
customer to pay cash within a specified period. The customers from whom
receivable or book debts have to be collected in the future are called trade
debtors and represents the firm’s claim or assets. Thus, receivable is s type of
loan extended by the seller to the buyer to facilitate the purchase process.
Receivable Management may be defined as collection of steps and procedure
required to properly weight the costs and benefits attached with the credit policy.
The Receivable Management consist of matching the cost of increasing sales
(particularly credit sales) with the benefits arising out of increased sales with the
objective of maximizing the return on investment of the firm.

Nature
The term credit policy is used to refer to the combination of three decision
variables:
1. Credit standards: It is the criteria to decide the type of customers to
whom goods could be sold on credit. If a firm has more
slow –paying customers, its investment in accounts
receivable will increase. The firm will also be exposed to
higher risk of default.
2. Credit terms: It specifies duration of credit and terms of payment by
Customer Investment in accounts receivable will be high
if customers are allowed extended time period for
making payments.
3. Collection efforts: It determine the actual collection period. The lower
the collection period, the lower the investment in
accounts receivable and vice versa.

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Management of Cash
Cash management refers to management of cash balance and the bank balance
and also includes the short terms deposits. Cash is the important current asset
for the operations of the business. Cash is the basic input needed to keep the
business running on a continuous basis. It is also the ultimate output expected to
be realized by selling the service or product manufactured by the firm. The term
cash includes coins, currency, and cheque held by the firm and balance in the
bank accounts.

Factors of Cash Management:

Cash management is concerned with the managing of
1. Cash flows into and out of the firm
2. Cash flows within the firm and
3. Cash balance held by the firm at a point of time by financing deficit or investing
surplus cash. Sales generate cash which has to be disbursed out. The surplus
cash has to be invested while deficit has to borrow. Cash management seeks to
accomplish this cycle at a minimum cost and it also seeks to achieve liquidity and
control.

Motives of holding cash

A distinguishing feature of cash as an asset is that it does not earn any
substantial return for the business. Even though firm hold cash for following
motives:
Transaction motive:
Precautionary motive
Speculative motives
Compensatory motive

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Transaction motive: This refers to the holding of cash to meet routine cash
requirement to finance. The transactions, which a
firm carries on in the ordinary course of business.
1.Precautionary motive: This implies the needs to hold cash to meet
unpredictable contingencies such as strike, sharp increase in
raw materials prices. If a firm can borrow at short notice to
pay them unforeseen contingency, it will need to maintain
relatively small balances and vice-versa.

2. Speculative motives: It refers to the desire of the firm to take advantage

of opportunities which present themselves at unexpected
movements and which are typically outside the normal
course of business.
3. Compensatory motive: Bank provides certain services to their company
free
of cost. They therefore, usually require company to keep
minimum cash balance with them to earn interest and
thus compensate them for the free service so provided.

Management of Payables/Creditors
Creditors are a vital part of effective cash management and should be managed
carefully to enhance the cash position. Purchasing initiates cash outflows and an
over-zealous purchasing function can create liquidity problems. Consider the

Following:
Who authorizes purchasing in our company-is it tightly managed or spread
among a number of people?

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Are purchase quantities geared to demand forecasts?
Do we use order quantities which take account of stock-holding and
purchasing costs?
Do we know the cost to the company of carrying stock?
Do we have alternative source of supply?
How many of ours suppliers have a returns policy?
Are we in a position to pass on cost increases quickly through price
increase?

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in

attempting to manage the current assets, current liabilities. The basic goal of
working capital management is to manage the current assets and current
liabilities of a firm in such a way that a satisfactory level of working capital is
maintained, i.e. it is neither adequate nor excessive as both the situations are
bad for any firm. There should be no shortage of funds and also no working
capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm
has a great on its probability, liquidity and structural health of the organization.
So working capital management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to

profitability, liquidity and risk.

2. It is concerned with the decision about the composition and level of

current assets.

3. It is concerned with the decision about the composition and level of

current liabilities.

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WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient management
of working capital in right time. The liquidity position of the firm is totally effected
by the management of working capital. So, a study of changes in the uses and
sources of working capital is necessary to evaluate the efficiency with which the
working capital is employed in a business. This involves the need of working
capital analysis.

The analysis of working capital can be conducted through a number of devices,

such as:

1. Ratio analysis

2. Fund flow analysis.

3. Budgeting.

METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but SEAGULL
AROTECH. used the following techniques:-
 Comparative size statements
 Trend analysis
 Cash flow statement

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  Ratio analysis
A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:-

When two or more than two years figures are compared to each other than we
called comparative size statements in order to estimate the future progress of the
business, it is necessary to look the past performance of the company. These
statements show the absolute figures and also show the change from one year to
another.

TREND ANALYSIS:-
To analyze many years financial statements SEAGULL AROTECH. uses this
method. This indicates the direction on movement over the long time and help in
the financial statements.

Procedure for calculating trends:-

1. Previous year is taken as a base year.
2. Figures of the base year are taken 100.
3. Trend % are calculated in relation to base year.

CASH FLOW STATEMENT:-

Cash flow statements are the statements of changes in the financial position
prepared on the basis of funds defined in cash or cash equivalents. In short cash
flow statement summaries the cash inflows and outflows of the firm during a
particular period of time.

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Benefits for the SEAGULL AROTECH.:-
 To prepare the cash budget.
 To compare the cash budgets .
 To show the position of the cash and cash equivalents.

RATIO ANALYSIS:-
Ratio analysis is the process of the determining and presenting the relationship
of the items and group of items in the statements.

Benefits of ratio analysis to SEAGULL AROTECH.:-

1. Helpful in analysis of financial statements.
2. Helpful in comparative study.
3. Helpful in locating the weak spots of the SEAGULL AROTECH.
4. Helpful in forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal standards.
7. Effective control.
8. Study of financial soundness.

Types of ratio:-

 Liquidity ratio: They indicate the firms’ ability to meet its current

obligation out of current resources.

• Current ratio:- Current assets / Current liabilities

• Quick ratio:- Liquid assets / Current liabilities

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Liquid assets =Current assets – Stock -Prepaid expenses

 Leverage or Capital structure ratio: This ratio discloses the firms

ability to meet the interest costs regularly and long term solvency of the
firm.
• Debt equity ratio:- Long term loans / Shareholders funds or
net Worth
• Debt to total fund ratio:- Long terms loans/ share holder funds
+long term loan
• Proprietary ratio:- Shareholders fund/ shareholders fund+long
term loan

 Activity ratio or Turnover ratio:- They indicate the rapidity with which
the resources available to the concern are being used to produce
sales.

• Stock turnover ratio:- Cost of good sold/Average stock

(Cost of good sold= Net sales/ Gross profit,
Average stock=Opening stock+closing stock/2)
• Debtors turnover ratio:- Net credit sales/ Average debtors
+Average B/R
• Average collection period:- Debtors+B/R /Credit sales per

(Credit sales per day=Net credit sales of the year/365)

• Creditors Turnover Ratio:- Net credit purchases/ Average
Creditors + Average B/P
• Average Payment Period: - Creditors + B/P/ Credit purchase
per day.

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 • Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed
Assets
(Net Fixed Assets = Fixed Assets – depreciation)
• Working Capital Turnover Ratio:- Cost of goods sold/
Working Capital
(Working capital= current assets – current liability)

 Profitability Ratios or Income ratios:- The main objective of every

business concern is to earn profits. A business must be able to earn
adequate profit in relation to the risk and capital invested in it.

• Gross profit ratio:- Gross profit / Net Sales * 100

(Net sales= Sales – Sales return)
• Net profit Ratio:- Net profit / Net sales * 100
(Operating Net Profit= operating net profit/ Net Sales *100 or
operating Net profit= gross profit – operating expenses)
• Operating Ratio :- Cost of goods sold + Operating
expenses/Net Sales * 100
(Cost of goods sold = Net Sales – Gross profit, Operating
expenses = office & administration expenses + Selling &
distribution expenses + discount + bad debts + interest on short
term loans)

• Earning per share(E.P.S.) :- Net Profit – dividend on

preference share / No. of equity shares
• Dividend per share (D.P.S.):- Dividend paid to equity share
Holders / No. of equity shares *100.
• Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100

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 5 . RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It

may be understood as a science of study how research is done systematically.
This research on working capital may be referred to as exploratory research in
which problems and findings are generated from the calculations. When some
deduction is made from data then a problem is located regarding the same and
reasons for the same are also searched for. In the end suggestions and
recommendations are made to make research meaningful and worthy to
improvise on the same.

Page 36
ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to logical and

consistent accounting procedure to convey an under-standing of some financial
aspects of a business firm. It may show position at a moment in time, as in the
case of balance sheet or may reveal a series of activities over a given period of
time, as in the case of an income statement. Thus, the term ‘financial statements’
generally refers to the two statements

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB) states

The following objectives of financial statements: -

1. To provide reliable financial information about economic resources and

obligation of a business firm.

2. To provide other needed information about charges in such economic

resources and obligation.

3. To provide reliable information about change in net resources (recourses less

obligations) missing out of business activities.

4. To provide financial information that assets in estimating the learning potential

of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do
not present a final picture a final picture of a concern. The utility of these

Page 37
statements is dependent upon a number of factors. The analysis and
interpretation of these statements must be done carefully otherwise misleading
conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the concern. The data
given in these statements is only approximate. The actual value can only be
determined when the business is sold or liquidated.

2. Financial statements have been prepared for different accounting periods,

generally one year, during the life of a concern. The costs and incomes are
apportioned to different periods with a view to determine profits etc. The
allocation of expenses and income depends upon the personal judgment of the
accountant. The existence of contingent assets and liabilities also make the
statements imprecise. So financial statement are at the most interim reports
rather than the final picture of the firm.

3. The financial statements are expressed in monetary value, so they appear to

give final and accurate position. The value of fixed assets in the balance sheet
neither represent the value for which fixed assets can be sold nor the amount
which will be required to replace these assets. The balance sheet is prepared on
the presumption of a going concern. The concern is expected to continue in
future. So fixed assets are shown at cost less accumulated deprecation.
Moreover, there are certain assets in the balance sheet which will realize nothing
at the time of liquidation but they are shown in the balance sheets.

4. The financial statements are prepared on the basis of historical costs Or

original costs. The value of assets decreases with the passage of time current
price changes are not taken into account. The statement are not prepared with
the keeping in view the economic conditions. the balance sheet loses the
significance of being an index of current economics realities. Similarly, the

Page 38
profitability shown by the income statements may be represent the earning
capacity of the concern.

5. There are certain factors which have a bearing on the financial position and
operating result of the business but they do not become a part of these
statements because they cannot be measured in monetary terms. The basic
limitation of the traditional financial statements comprising the balance sheet,
profit & loss A/c is that they do not give all the information regarding the financial
operation of the firm. Nevertheless, they provide some extremely useful
information to the extent the balance sheet mirrors the financial position on a
particular data in lines of the structure of assets, liabilities etc. and the profit &
loss A/c shows the result of operation during a certain period in terms revenue
obtained and cost incurred during the year. Thus, the financial position and
operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm from
the available accounting data and financial statements.

CALCULATIONS OF RATIOS

Ratios are relationship expressed in mathematical terms between figures, which

are connected with each other in some manner.

CLASSIFICATION OF RATIOS

Ratios can be classified in to different categories depending upon the basis of

classification

The traditional classification has been on the basis of the financial statement to
which the determination of ratios belongs.

Page 39
 These are:-

 Profit & Loss account ratios

 Balance Sheet ratios

 Composite ratios

A) RESEARCH DESIGN

For the proper analysis of data simple statistical techniques such as percentage
were use. It helped in making more accurate generalization from the data
available.

B) Data Collection Method

SOURCES OF DATA

DATA COLLECTION
Data is collected in two ways.
Primary data
Secondary data

The primary data refers to the data which is collected directly. It is collected by
observations, interviews, questionnaires etc. it is generally more accurate. It is

Page 40
costly in the terms of time. One needs to be very careful while collecting this form
of data. Here primary data is collected from the employees of SEAGULL
AROTECH. The data related to financial statements and processes is collected
from finance department. Some production data is collected from various
departments.

Secondary data refers to the data which is already collected by somebody. It is

generally collected from websites, magazines, journals etc. here data is collected
from annual report of company for financial analysis. Some data was provided by
company itself. And rest of the required data is collected from books like
Prasanna Chandra, I.M.Pandey of financial management. Some of the data is
also collected from websites. This type of analysis helps the management of the
company to plan its future policies according to the external environment. Any
sound research must have an proper design to achieve the required result, this
study is constructed on the basis of descriptive design.

The methodology, I have adopted for my study is the various tools, which
basically analyze critically financial position of to the organization:

I. COMMON-SIZE P/L A/C

COMMON-SIZE BALANCE SHEET
COMPARTIVE P/L A/C
COMPARTIVE BALANCE SHEET
RATIO ANALYSIS

The above parameters are used for critical analysis of financial position. With the
evaluation of each component, the financial position from different angles is tried
to be presented in well and systematic manner. By critical analysis with the help

Page 41
of different tools, it becomes clear how the financial manager handles the finance
matters in profitable manner in the critical challenging atmosphere, the
recommendation are made which would suggest the organization in formulation
of a healthy and strong position financially with proper management system.

I sincerely hope, through the evaluation of various percentage, ratios and

comparative analysis, the organization would be able to conquer its in

efficiencies and makes the desired changes.

Secondary data were collected to meet the objective. The data is collected for
the annual reports of the company. Data has been taken as per the
requirements of the study of the RATIO ANALYSIS. Secondary data is used for
it.

TOOLS OF ANALYSIS
It is essential to use a systematic research methodology for the assessment of a
project because without the use of a research methodology analysis of any
company or organization will not be possible.
In the present analysis mostly secondary data have been used. Its is worth a
while to mention that I have used the following types of data:

 Balance sheet
 Profit & Loss A/c
 Schedules

Page 42
 6. DATA ANALYSIS & INTERPRETATION
CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Current Assets 7019.27 8161.11 8127.08
Current Liabilities 4432.30 4705.01 8048.24
Current Ratio 1.58 1.73 1.01

Page 43
 Current Ratio

1.5

1 Current Ratio

0.5

0
1 2 3

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If we see the
current ratio of the company for last three years it has decreased from
2008 to 2010. The current ratio of company is near the ideal ratio. This
depicts that company’s liquidity position is more sound in previous years.
Its current assets are more than its current liabilities.

QUICK RATIO

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Quick Assets 2968.75 3561.39 3578.01
Current Liabilities 4432.30 4705.01 8048.24
Quick Ratio 0.67 0.76 0.44

Page 44
 Quick Ratio

0.8

0.6

0.4 Quick Ratio

0.2

0
1 2 3

Interpretation:

A quick ratio is an indication that the firm is liquid and has the ability
to meet its current liabilities in time. The ideal quick ratio is 1:1.
Company’s quick ratio is less than ideal ratio. This shows company has
slightly strong liquidity position in previous years.

ABSOLUTE LIQUID RATIO

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Absolute Liquid Assets 570.25 1032.39 1126.28

Page 45
Current Liabilities 4432.30 4705.01 8048.24
Absolute Liquid Ratio 0.13 0.22 0.14

Absolute Liquid Ratio

0.25

0.2

0.15
Absolute Liquid Ratio
0.1

0.05

0
1 2 3

Interpretation:

These ratio shows that company carries a small amount of cash. But there is
nothing to be worried about the lack of cash because company has reserve,
borrowing power & long term investment. In India, firms have credit limits
sanctioned from banks and can easily draw cash.

INVENTORY TURNOVER OR STOCK TURNOVER RATIO:

INVENTORY TURNOVER RATIO = SALES

AVERAGE INVENTORY

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Sales 13947.53 15388.11 18153.19

Page 46
Average Stock 3702.28 43254.12 4574.40
Inventory Turnover Ratio 3.77 times 3.56 times 3.97 times

Inventory Turnover Ratio

4
3.9
3.8
3.7
Inventory Turnover Ratio
3.6
3.5
3.4
3.3
1 2 3

Interpretation: This ratio shows how rapidly the inventory is turning into
receivable through sales. In 2008 the company has 3.56 inventory turnover ratio
and it increased to 3.97 times in 2010. This shows that the company’s inventory
management technique is more efficient as compare to last years.

INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

Year 2008(1) 2009(2) 2010(3)

Days 365 365 365
Inventory Turnover Ratio 3.77 3.56 3.97
Inventory Conversion Period 97 days 103 days 92 days

Page 47
 Inventory Conversion Period

105

100

95 Inventory Conversion
Period

90

85
1 2 3

Interpretation: Inventory conversion period shows that how many days

inventories takes to convert from raw material to finished goods. In the company
inventory conversion period is decreasing. This shows the efficiency of
management to convert the inventory into cash.

DEBTORS TURNOVER RATIO:

DEBTORS TURNOVER RATIO = SALES (CREDIT)

AVERAGE DEBTORS

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Page 48
 Sales 13947.53 15388.11 18153.19
Average Debtors 686.81 702.8 763.74
Debtor Turnover Ratio 20.31 times 21.90 times 23.77 times

Interpretation:

This ratio indicates the speed with which debtors are being
converted or turnover into sales.The higher the values of debtors
turnover, the more efficient is the management of credit.The debtor
turnover ratio is increasing year to year. It indicates efficiency of
marketing and credit policy of the firm.

AVERAGE COLLECTION PERIOD:

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

Year 2008(1) 2009(2) 2010(3)

Days 365 365 365
Debtor Turnover Ratio 20.31 21.90 23.77
Average Collection Period 18 17 15

Page 49
 Average Collection Period

18

17

16
Average Collection Period
15

14

13
1 2 3

Interpretation:

The average collection period measures the quality of debtors and it

helps in analyzing the efficiency of collection efforts. It also helps to
analysis the credit policy adopted by company. In the firm average
collection period is decreasing year to year. It indicates managerial
efficiency in credit collection.

WORKING CAPITAL TURNOVER RATIO:

Working Capital Turnover Ratio = ___Cost of Sales____

Net Working Capital

Working Capital Turnover = _______Sales

Networking Capital

(Rupees in 000’s)

Year 2008(1) 2009(2) 2010(3)

Sales 13947.53 15388.11 18153.19
Networking Capital 2586.97 3456.1 78.84
Working Capital Turnover 5.39 4.45 230.25

Page 50
 Working Capital Turnover

250

200

150
Working Capital Turnover
100

50

0
1 2 3

Interpretation:

This ratio indicates low much net working capital requires for
sales. Thus this ratio is helpful to forecast the working capital
requirement on the basis of sale.Working capital turnover is high in 2010
because of decrease in working capital due to increase in provisions.

INVENTORIES

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Inventories 4050.52 4599.72 4549.07

Page 51
 Inventories

4600

4400

4200
Inventories
4000

3800

3600
1 2 3

Interpretation:

Inventories is a major part of current assets. If any company wants to manage its
working capital efficiency, it has to manage its inventories efficiently. The graph
shows that inventory in 2008 is 57% in 2009 is 56% and in 2010 is 55% of their
current assets. The company should try to reduce the inventory upto 10% or 20%
of current assets.

CASH BANK BALANCE:

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Cash Bank Balance 570.25 1032.39 1126.28

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 Cash Bank Balance

1200
1000
800
600 Cash Bank Balance
400
200
0
1 2 3

Interpretation:

Cash is basic input or component of working capital. Cash is

needed to keep the business running on a continuous basis. So the
organization should have sufficient cash to meet various requirements.
The above graph is indicate that in 2008 the cash is 570.25 but in 2009 it
has increase to 1032.39. In 2010, it is increased upto 1126.28. So in
2010, the company has no problem for meeting its requirement as
compare to previous years.

DEBTORS:

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Page 53
Debtors 736.93 668.67 858.80

Debtors

1000

800

600
Debtors
400

200

0
1 2 3

Interpretation:

Debtors constitute a substantial portion of total current assets. In

India it constitute one third of current assets. The above graph is depict
that there is increase in debtors. It represents an extension of credit to
customers. The reason for increasing credit is competition and company
liberal credit policy.

CURRENT ASSETS :

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Current Assets 7019.27 8161.11 8127.08

Page 54
 Current Assets

8500

8000

7500
Current Assets
7000

6500

6000
1 2 3

Interpretation:

This graph shows that there is increase in current assets in 2009.

This increase is arise because there is approx. 50% increase in
inventories. Increase in current assets shows the liquidity soundness of
company.

CURRENT LIABILITY:

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Current Liability 4432.30 4705.01 8048.24

Page 55
 Current Liability

10000

8000

6000
Current Liability
4000

2000

0
1 2 3

Interpretation:

Current liabilities shows company short term debts pay to outsiders. In

2010 the current liabilities of the company increased. But still increase in
current assets is more than its current liabilities.

NET WOKRING CAPITAL:

(Rs. in 000’s)

Year 2008(1) 2009(2) 2010(3)

Net Working Capital 2586.97 3456.1 78.84

Page 56
 Net Working Capital

3500
3000
2500
2000
Net Working Capital
1500
1000
500
0
1 2 3

Interpretation:

Working capital is required to finance day to day operations of a firm.

There should be an optimum level of working capital. It should not be too
less or not too excess. In the company there is increase in working
capital. The increase in working capital arises because the company has
expanded its business.

7. OBSERVATIONS
&
FINDINGS

 As we know that ideal current ratio for any firm is 2:1. If we see the current
ratio of the company for last three years it has increased from 2008 to

Page 57
 2010.. This depicts that company’s liquidity position is sound. Its current
assets are more than its current liabilities.
 A quick ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time. The ideal quick ratio is 1:1. Company’s
quick ratio is more than ideal ratio. This shows company has no liquidity
problem.
 Inventory conversion period shows that how many days inventories takes
to convert from raw material to finished goods. In the company inventory
conversion period is decreasing. This shows the efficiency of management
to convert the inventory into cash.

 This graph shows that there is 64% increase in current assets in 2010.
This increase is arise because there is approx. 50% increase in
inventories. Increase in current assets shows the liquidity soundness of
company.

 Current liabilities shows company short term debts pay to outsiders. In

2010 the current liabilities of the company increased. But still increase in
current assets are more than its current liabilities.

 Working capital is required to finance day to day operations of a firm.

There should be an optimum level of working capital. It should not be too
less or not too excess. In the company there is increase in working capital.
The increase in working capital arises because the company has
expanded its business.

8. LIMITATIONS OF THE STUDY

Page 58
  Non monetary aspects are not considered making the results unreliable.
 Different accounting procedures may make results misleading.
 In spite of precautions taken there are certain procedural and technical
limitations.
 Accounting concepts and conventions cause serious limitation to financial
analysis.
 Lack of sufficient time to exhaust the detail study of the above topic
became a hindering factor in my research.

9. SUGGESTIONS

After interpretation and analysis, I am giving certain suggestions to the company

which I hope may be helpful for the company.

 The company should utilize its stock more efficiently.

 The company should pay attention towards the proper and efficient
utilization of working capital.

 The company can reduce the time for purchase order. The buffer should
be maintained incase of emergency. Insurance should be covered
especially fire in case of transit journey also.

Page 59
 10. CONCLUSION

In the present study I have analyzed the working management of SEAGULL

AROTECH.
I found that inventory is increasing which shows that company has sufficient
stocks to meet up out production of the company.
Inventory Turnover Ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover indicates efficient management of inventory
because more frequently the stocks are sold, the lesser amount of money is
required to finance the inventory. The Inventory Turnover Ratio is decreasing
which is not a good sign for the company.
The business firm has adequate internal control procedure commensurate with
the size of the firm and nature of its business for the purchase of stores,
machinery, equipment and other assets and with regards to sale of goods. From
the comparative study of inventory turnover it is clear that stock velocity indicates
inefficient management of inventory during the year 2009.
So the company’s performance outlook continues to be positive and optimistic.
The company remains confident of delivering of strong operating and financial
performance. Efficient stock velocity indicates efficient management of inventory
of the firm and no slow movement of the stock due to damaged goods.

11. QUESTIONNAIRE

__________________________

Page 60
(Company)
__________________________
(Date)
______________________________ ___________________________
(Prepared by / Date) (Reviewed by / Date)

Instructions

The information required to complete this questionnaire comes from the following
sources:

• Company responses to my inquiries.

• My knowledge of general and industry economic conditions.
• My knowledge of the company.

This questionnaire is divided into two major sections: “external” and “internal”
factors. It is designed so that every “Yes” answer adversely affects risk exposure.

For every “Yes” answer, the item should be referenced to the appropriate
documentation. The documentation should state my assessment of the effect of
the condition on the risk of material errors or fraud.

EXTERNAL FACTORS

General Economic and Financial Conditions

[1]. Are there trade or other barriers to the company’s international business? [Y]
[N] [Ref]

[2]. Have the company’s domestic markets suffered from high unemployment?
[Y] [N] [Ref]

[3]. Have the company’s domestic markets suffered from high inflation? [Y] [N]
[Ref]

[4]. Are interest rates high in relation to the company’s capital needs? [Y] [N]
[Ref]

Industry Economic and Financial Conditions

Page 61
[1]. Are the products of this industry subject to rapid obsolescence? [Y] [N] [Ref]

[2]. Is the industry highly competitive? [Y] [N] [Ref]

[3]. Have there been an unusual number of bankruptcies in this industry? [Y] [N]
[Ref]

[4]. Does the estimated income for the year deviate significantly from the
industry? [Y] [N] [Ref]

Uses and Users of Financial Statements

[1]. Will the financial statements be filed with the Securities and Exchange
Commission? [Y] [N] [Ref]

[2]. Will the financial statements be submitted to the company’s bank? [Y] [N]
[Ref]

[3]. Will the financial statements be submitted to credit agencies? [Y] [N] [Ref]

[4]. Will the financial statements be submitted to stockholders? [Y] [N] [Ref]

[5]. Will the financial statements be used in connection with negotiations for:

• A loan? [Y] [N] [Ref]

• Performance bond? [Y] [N] [Ref]
• Private sale of stock? [Y] [N] [Ref]

INTERNAL FACTORS

Management’s Integrity

[1]. Are there any indications that management may lack integrity? [Y] [N] [Ref]

[2]. Does management desire low earnings to reduce income taxes? [Y] [N] [Ref]

[3]. Is management dominated by one or a few individuals? [Y] [N] [Ref]

[4]. Has there been considerable turnover in senior management positions? [Y]
[N] [Ref]

Page 62
Entity Organization

[1]. Does the entity lack an audit committee? [Y] [N] [Ref]

[2]. Does the entity fail to document its accounting system? [Y] [N] [Ref]

[3]. Does the entity fail to document job requirements? [Y] [N] [Ref]

[4]. Does management lack an understanding of accounting and administrative

controls? [Y] [N] [Ref]

Financial Condition of Entity

[1]. Does the entity have insufficient working capital? [Y] [N] [Ref]

[2]. Does the entity have sufficient lines of credit? [Y] [N] [Ref]

[3]. Does the entity depend on relatively few customers? [Y] [N] [Ref]

[4]. Does the entity depend on relatively few suppliers? [Y] [N] [Ref]

[5]. Has the entity recently experienced a significant period of losses? [Y] [N]
[Ref]

[6]. Does the entity have excess productive capacity? [Y] [N] [Ref]

[7]. Does the entity have high fixed costs? [Y] [N] [Ref]

[8]. Does the entity have a significantly long operating cycle? [Y] [N] [Ref]

[9]. Does the entity have significant contingent liabilities? [Y] [N] [Ref]

[10]. Do major valuation problems exist, such as:

• Allowance for doubtful accounts? [Y] [N] [Ref]

• Inventories? [Y] [N] [Ref]
• Investments? [Y] [N] [Ref]
• Long-term construction contracts? [Y] [N] [Ref]

Page 63
Sr. Question Remarks
No.
(1) Policies and Procedures
1 Does your organization have an up-to-date
accounting policies and procedures manual?
2 Are all bank and investment accounts in the
name of the organization?
(2) Cash Receipts
3 Are all cheques received made payable to the
name of the organization?
4 Is the listing of receipts sent directly to those
responsible for the general ledger,
receivables, and bank reconcil iations?
5 ls the list of receipts compared to the
duplicate bank deposit slip?
6 Are cheques restrictively endorsed “for
deposit only” immediately upon receipt?
7 Are cash receipts kept in secure storage until
deposited?
8 Are cash receipts recorded and reconciled to
the general ledger monthly?
9 Are deposits made daily?
10 Are cash receipts deposited intact with no
expenditures made from collections?
11 Are the bank statements received and opened
by someone independent of the accounting
function?
12 Are bank reconciliations prepared by
someone independent of the cash receiving,
processing and recording activities?
13 Does someone other than the preparer review
and approve the bank reconciliations?
14 Does someone review cancelled cheques?
15 Is the cash receipts journal posted by
someone independent of the receiving and
cash processing activities?
16 Are discrepancies reported to the Executive
Director?
(3) Petty Cash
17 Are petty cash funds kept in secure storage?
18 Are petty cash funds maintained on an
imprest basis?
19 Are these individuals independent of
employees who handle cash receipts and
accounting records?

Page 64
Sr. Question Remarks
No.
20 Is a voucher used for all petty cash
disbursements?
21 Is the voucher pre-numbered?
(4) Travel
22 Are travellers required to provide original
receipts for all travel-related expenses?
23 Are travel expense reports reviewed in detail
prior to being approved for reimbursement?
24 Are unauthorized personal expenses
excluded from travel expense reports?
(5) Cash Disbursements/Purchases
25 Are the authorization, processing, cheque
signing, recording and bank reconciliation
functions clearly segregated?
26 Has the organizations disbursement approval
policy been communicated to all appropriate
staff~
27 Are alt expenditures approved in advance by
an appropriately authorized person?
28 Are all disbursements made by pre-numbered
cheques?
29 Are all cheques used in sequence?
30 Are cheques required to be countersigned?
31 Is the number of authorized signatures limited
to a minimum practical number?
32 Are purchases that are not for organization
use prohibited?
33 Are all purchases and requisitions of goods
and services reconciled to the monthly
general ledger?
34 Are all cheques (including voided cheques)
accounted for?
35 Are blank cheque stocks stored securely?
36 Is there a written prohibition against drawing
cheques payable to cash?
37 Is a cash disbursement voucher prepared for
each invoice or cheque request that details
the date of cheque, cheque number, payee,
amount of cheque, description of expense
account to be charged, authorization
signature, and accompanying receipts?

Page 65
Sr. Question Remarks
No.
38 Does the cheque signer review the cash
disbursement voucher for the proper
approved authorization and supporting
documentation of expenses?
39 Are there adequate controls for non-cheque
disbursements such as debit memos and wire
transfers (e.g. passwords, bank callback
verifications, etc.)?
(6) Investments
40 Is there a written investment policy?
41 Has the policy been approved or reaffirmed
by the governing board within the last year?
42 Does a responsible official or investment
committee determine that investments are of
the type permitted by funding sources,
donors, and/or organizational policy?
(7) Payroll
43 Are all staff time records reviewed and
authorized by an appropriate senior official?
44 Are copies of timekeeping records retained on
file?
45 Is documentation of this approval maintained
in each employee’s personnel file?
(8) Information System Security
46 Is the need for password security reinforced
to organization staff?
47 Is the use of software not licensed to the
organization prohibited on organization
computers?
48 Is sensitive information protected by
password?
(9) Other Indicators
49 Is the work of all staff members double-
checked on a random, unannounced basis?
50 Is employee performance reviewed and
documented on a regular basis?
51 Are missing numbers in sequences of
numerically controlled documents identified
and investigated immediately?
(10) Fixed Assets/Property Management:
52 Are detailed property and equipment records
maintained for all purchased, donated, self-
constructed or teased assets?

Page 66
 Sr. Question Remarks
No.
53 Does the management conduct a physical
inventory on an annual basis?
54 Are exceptions documented, investigated and
adjusted in the inventory records?
55 Is there a fixed asset custodian(s) responsible
for all fixed assets?
56 Does the management maintain a file for
insurance documents?
57 Are insurance documents periodically
reviewed for adequacy?
58 Do physical safeguards over assets exist?
59 Are the fixed asset records filed and
maintained in accordance with the records
management policies and procedures?

12. BIBLIOGRAPHY

Books:

Sharma R.K & Gupta shashi K; “Management accounting principles and

practice.” Eight edition, kalyani publisher’s New Delhi.

Bhalla V.K “financial management and policy”, first edition, annual publication,
New Delhi.

Maheshwari S.N ; “Management accounting and financial control”, thirteen

edition, sultan chand & sons, New Delhi.

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Kothari C.R;”Research methodology methods & techniques”, second edition,
vishwa prakashan Delhi(1990).

Gupta Sunita, management of working capital, first edition , New century

publications, New Delhi(2003).

Chandra Prasana Financial Management, TMH, 4th edition, 1997, New Delhi.

I.M.Pandey, “Financial Management” Vikas Publications.

PORTALS:

• www.wikipedia.com

13. ANNEXURE

Balance sheet as on 31st March 2010 (Rs. in 000’s)

Particulars 2009 - 10 2008 – 09

SOURCES OF FUNDS :
1) SHAREHOLDERS' FUNDS
(a) Capital 381.82 377.44
(b) Reserves and Surplus 13682.56 13357.64
14064.38 13735.08
2) LOAN FUNDS
(a) Secured Loans - 11.63
(b) Unsecured Loans 107.71 165.92
107.71 177.55

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 3) DEFFERED TAX LIABILITY 785.01 867.19
TOTAL 14957.10 14779.82
APPLICATION OF FUNDS :
1) FIXED ASSETS
(a) Gross Block 11967.86 10558.65
(b) Less: Depreciation 3825.46 3286.74
(c) Net Block 8142.40 7271.91
(d) Capital Work in Progress 1008.99 1214.06
9151.39 8485.97
2) INVESTMENTS 5726.87 2837.75

3) CURRENT ASSETS, LOANS AND ADVANCES

(a) Inventories 4549.07 4599.72
(b) Sundry Debtors 858.80 668.67
(c) Cash and Bank Balances 1126.28 1031.01
(d) Other Current Assets 288.39 215.35
(e) Loans and Advances 1304.54 1644.98
8127.08 8159.73
LESS : CURRENT LIABILITIES AND PROVISIONS
(a) Liabilities 3498.30 2974.12
(b) Provisions 4549.94 1729.51
8048.24 4703.63
NET CURRENT ASSETS 78.84 3456.10
TOTAL 14957.10 14779.82

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Profit and Loss Account for the period ended on 31st March 2010 (Rs. in 000’s)

Particulars 2009 – 10 2008 – 09

IA. GROSS INCOME 26862.96 23678.46

IB. NET INCOME

Gross Sales 26,259.60 23,143.53
Less: ExciseDuties and Taxes on Sales of Services 8,106.41 7,531.61
Net Sales 18,153.19 15,611.92
Other Income 603.38 534.93

TOTAL 18,756.57 16,146.85

II.EXPENDITURE
Raw Material etc. 6,971.40 5,957.87
Manufacturing, Selling etc Expenses 5,161.15 4,813.83
Depreciation 608.71 549.41

TOTAL 12,741.26 11,321.11

III. PROFIT
Profit Before Taxation 6,015.31 4,825.74
Provision For Taxation 1,954.31 1,562.15
Profit After Taxation 4,061.00 3,263.59
Profit Brought Forward 858.14 724.45
Available For Appropriations 4,919.14 3,988.04

VI. APPROPRIATIONS
General Reserve 406.10 1,500.00
Proposed Dividend
- Ordinary Dividend 1,718.18 1,396.53
- Special Centenary dividend 2,100.00 -
Income tax on Proposed Dividend
- Current Year 634.15 237.34
- Earlier year's provision no longer required (0.60) (3.97)
Profit Carried forward 61.31 858.14
4,919.14 3,988.04
Earnings Per Share ( Face Value Re. 1.00 per each )
Basic Rs. 10.73 Rs. 8.66
Diluted Rs. 10.62 Rs. 8.64

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