CHAPTER I INTRODUCTION

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 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 overdraft, and outstanding expenses. 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. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of the safety. 1.1 DEFINITION OF WORKING CAPITAL

According to Guttmann & Dougall 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) . 1

1.2

NEED OF WORKING CAPITAL MANAGEMENT

The need for working capital gross or current assets cannot be over emphasized. As already observed, the objective of financial decision making is to maximize the shareholders wealth. To achieve this, it is necessary to generate sufficient profits can be earned will naturally depend upon the magnitude of the sales among other things but sales can not convert into cash. There is a need for working capital in the form of current assets to deal with the problem arising out of lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Technically this is referred to operating or cash cycle. If the company has certain amount of cash, it will be required for purchasing the raw material may be available on credit basis. Then the company has to spend some amount for labour and factory overhead to convert the raw material in work in progress, and ultimately finished goods. These finished goods convert in to sales on credit basis in the form of sundry debtors. Sundry debtors are converting into cash after expiry of credit period. Thus some amount of cash is blocked in raw materials, WIP, finished goods, and sundry debtors and day to day cash requirements. However some part of current assets may be financed by the current liabilities also. The amount required to be invested in this current assets is always higher than the funds available from current liabilities. This is the precise reason why the needs for working capital arise. Study of the working capital management is important because unless the working capital is managed effectively, monitored efficiently planed properly and reviewed periodically at regular intervals to remove bottlenecks if any the company can not earn profits and increase its turnover.

1.3 1.3.1

OBJECTIVES OF THE STUDY PRIMARY OBJECTIVE OF THE STUDY

To study the working capital management of Light Roof limited. 1.3.2 SECONDARY OBJECTIVES OF THE STUDY

With this primary objective of the study that is study on working capital management of Light Roof Private Limited, the following further objectives are framed for a depth analysis. 1. To study the optimum level of current assets and current liabilities of Light Roof Private Limited. 2. To study the liquidity position through various working capital related ratios. 3. To study the working capital components such as receivables accounts, cash management, Inventory position 4. To study the way and means of working capital finance of Light Roof Private Limited. 5. To estimate the working capital requirement of Light Roof Private Limited.

1.4

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The study of working capital is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operating cycle etc. Further the study is based on last 5 years Annual Reports of Light Roof Private Limited. And even factors like competitor s analysis, industry analysis were not considered while preparing this project.

1.5

DATA USED FOR THE STUDY

This Project on study on working capital management of Light Roof Private Limited is based on the data collected from the following annual reports. 1. Annual report of Light Roof Private Limited 2005-06 2. Annual report of Light Roof Private Limited 2006-07 3. Annual report of Light Roof Private Limited 2007-08 4. Annual report of Light Roof Private Limited 2008-09 5. Annual report of Light Roof Private Limited 2009-10

1.6

LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project: 1) Limited data: This project has completed with annual reports; it just constitutes one part of data collection i.e. secondary. There were limitations for primary data collection because of confidentiality. 2) Limited period: This project is based on five year annual reports. Conclusions and recommendations are based on such limited data. The trend of last five year may or may not reflect the real working capital position of the company 3) Limited scope: Also it was difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to get as this project is based only on the annual reports of Light Roof Private Limited.

CHAPTER II PROFILES OF THE STUDY

2.1

INDUSTRY PROFILE

Construction Industry is one of the most booming industries in the whole world. This industry is mainly an urban based one which is concerned with preparation as well as construction of real estate properties. The repairing of any existing building or making certain alterations in the same also comes under Construction Industry. This industry can be categorized into three basic categories namely:

Construction involving heavy and civil engineering the construction of large projects such as bridge, road, etc comes under this category.

General construction: The construction works that involve building of real estate ones such as residential or commercial real estate assets, etc.

Construction projects involving specialty trades Construction works that involve building up of specialized items namely, electric related works, works on woods, etc.

It is generally being observed in the all round the globe in the Construction Industry that the contractor individual or organization involved in the construction process specializes in any one of the above mentioned categories. A contractor who is involved in building real estate does not generally go for specialized trade or heavy engineering works. The same is also true for other kind of contractors. Construction Industry is a booming industry and remains so with the continuation of the development process especially in the developing countries. With the process of development, 5

the migration of people takes place from the rural to urban areas. This phenomenon is most significantly observed in the "Asian Tiger" countries, China and India. Thus, the Construction Industry is also on a rise in such countries. Construction Industry Trends all over the world show a rise in its rate of growth. This industry is composed of many components including construction of heavy and civil engineering (highways, bridges, railway tracks, airports, etc.), real estate (both residential as well as commercial) development, and specialized construction products (such as architectural products, electrical connections, decorative items, etc.). All these segments cannot be expected to show similar trends and in fact are showing differential growth pattern all over the world. Facts about Construction Industry Trends

Construction industry contributes a huge chunk to the world GDP amounting to 1/10th of the same.

This industry has immense potential in generating huge amount of employment. It has been found out that construction industry offers employment to around 7% of the total employed work force around the globe.

Construction Industry is the largest sector in respect of consumption of energy. It consumes around 2/5th of the total consumed energy through out the world.

Resource utilization in case of construction industry amounts to half of the total resource used all over the world.

The most significant aspect associated with the construction industry trends is increased use of the latest IT technologies for pacing up the work. Cutting edge technology is being adopted by world's one of the biggest industries for leveraging purposes and is mainly being used in raising 6

the efficiency level of engineering and designing of construction industry. Construction Industry Trends show that the utilization of information technology has helped the industry to save a lot of fund which could be channelized in more fruitful directions. One of the latest technologies used in construction industry is Building Information Model (BIM). This technology helps all the factors of a project to work in a collaborative and concerted manner solely based on the platform of Information Technology. BIM helps the different members of a project to communicate information among themselves which consequently leverages the productivity and at the same time minimizes the error along with cost. 2.2 COMPANY PROFILE

LIGHT ROOFINGS LIMITED, pioneers of the concept of Asphaltic Roofing Sheets is the proud manufacturer of its wonder product, Literoof. The company enjoys a market share of 75% and has established itself as a No. 1 manufacturer of Asphalt roofing material in Asia. Technological brilliance and commitment to quality provide the winning edge to the company in meeting the rising demand for high-quality, low cost roofing material. M/s. Light Roofings Limited was the first Company to introduce the concept of Asphalted Roofing Sheets in India. The Company was established in 1964, using Mexican technology. The companys current turnover is Rs. 11 crores. Lightproof brand roofing sheets have become so popular that many people refer to these sheets as 'LITEROOF' sheets (our brand name) and not as Asphalted Roofing Sheets. The company was promoted by Mr. M. M. Rafi, who inititated the operations by manufacturing corrugated Asphalted Roofing Sheets called as 'Literoof' brand with Mexican collaboration. The Company has Depos in Delhi, Calcutta, Bombay, Madurai, Trichy, Coimbatore, Nagercoil, Erode, Calicut, Ernakulam, Kottayyam, Vijayawada, Bangalore and has a dealer network

numbering over 850 spread through out India.The product is also being exported to various countries and the export turnover has been growing steadily over the years. The group also has offices at Dubai and Singapore. Literoof is a World-class product developed with advanced technology. Made from bitumen saturated organic fibres, the roofing material comes as a lightweight low cost solution and can be used for all kinds of building and structures. Literoof is available in a wide range as the TUF-10 series to suit specific needs. Because of its high durability, it can also be considered as a competition to other roofing materials like Thatch roof, Asbestos, RMP etc. LITEROOF sheets find applicability in Touring Talkies, Schools, Tea Shops, and Garages etc. They are also presently being used to shelter industries. Literoof is manufactured to strict world-class standards in a state -of-the-art plant with Mexican collaboration. The roofing sheets are made from bitumen saturated organic fibres making it a light - weight solution. The organic materials used for the production ensure that the product does not pose any health hazard. The organic materials are made into fibre mats, that is later wetted and corrugated. These corrugated sheets are then introduced into hot liquified Asphalt and dried. The sheets have been put through stringent Quality assurance tests such as: Accelerated weather and Ultra Violet radiation Strength and impact loading (to check the load bearing capacity) Water and Weather proofing Water absorption Heat deformation Thermal resistance Wind lift (to check for suitability in hurricane and earthquake conditions) 8

Regular up gradation of the infrastructure and implementation of new technologies contribute to the quality of the production. 2.3 PRODUCT PROFILE

The products available are: Name of the variety Single side Colour Painted Sheets Literoof Tuf - 10 Litered Literoof Tuf - 10 lite Grey / Terracotta 122 x 75 122 x 75 Size in cms.

Single side Gulf Red Painted Sheets Literoof Expodel Literoof Expodel Literoof Expodel Literoof Expodel Literoof Expodel 122 x 75 183 x 75 122 x 90 183 x 90 200 x 90

Single side Colour Painted Sheets Literoof Expo 10 Blue/Grey 183 x 90

Literoof Expo 10 Blue/Grey Literoof Expo 10 Gray/Terracotta

122 x 90 183 x 75

Plain Roofing Sheets Literoof Litered Literoof Litered Literoof Expodel Gulf Red Literoof Expodel Gulf Red 122 x 75 122 x 45 122 x 75 122 x 45

The out standing features of LITEROOF products Flexibility Flexibility enables ease of handling and fixing and is the right choice for curved rooftops & irregular surfaces. Durability Literoof has high stress-bearing capacity and resistance to extremes of weather. It is leak proof & termite proof, which enhances its performance. Safety & Hygiene Literoof is very safe to handle and work with and possess no health hazards to humans. Economy Literoof is instrumental in cutting down the total structural cost due to its lightweight and low unit cost. Further it also reduces the incidental costs on fixing and transport. 10

11

CHAPTER III REVIEW OF LITERATURE

3.1 WORKING CAPITAL MANAGEMENT

Working Capital Management is the process of planning and controlling the level and mix of current assets of the firm as well as financing these assets. Specifically, Working Capital Management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivables and inventories the firm will hold at any point of time. Working capital is the capital you require for the working i.e. functioning of your business in the short run. Gross working capital refers to the firms investment in the current assets and includes cash, short term securities, debtors, bills receivables and inventories. It is necessary to concentrate on the fact that the investment in the current assets should be neither excessive nor inadequate. WORKING CAPITAL requirement of a firm keeps changing with the change in the business activity and hence the firm must be in a position to strike a balance between them. The financial manager should know where to source the funds from, in case the need arise and where to invest in case of excess funds. 3.2 THE DANGERS OF EXCESSIVE WORKING CAPITAL 1. It results in unnecessary accumulation of inventories. Thus the chances of inventory mishandling, waste, theft and losses increase 2. It is an indication of defective credit policy and slack collection period. Consequently higher incidences of bad debts occur which adversely affects the profits. 3. It makes the management complacent which degenerates into managerial inefficiency

12

4. Tendencies of accumulating inventories to make speculative profits grow. This may tend to make the dividend policy liberal and difficult to copes with in future when the firm is unable to make speculative profits. 3.3 THE DANGERS OF INADEQUATE WORKING CAPITAL 1. It stagnates growth .It becomes difficult for the firms to undertake profitable projects for non-availability of the WORKING CAPITAL funds. 2. It becomes difficult to implement operating plans and achieve the firms profit targets 3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day commitments. 4. Fixed assets are not efficiently utilized. Thus the rate of return on investment slumps. 5. It renders the firm unable to avail attractive credit opportunities etc. 6. The firm loses its reputation when it is not in position to honor its short-term obligations. As a result the firm faces a tight credit terms. Net working capital refers to the difference between the current assets and the current liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year and include creditors, bills payable, bank overdraft and outstanding expenses. When current assets exceed current liabilities it is called Positive WORKING CAPITAL and when current liabilities exceed current assets it is called Negative WORKING CAPITAL. The Net WORKING CAPITAL being the difference between the current assets and current liabilities is a qualitative concept. It indicates: The liquidity position of the firm 13

Suggests the extent to which the WORKING CAPITAL needs may be financed by permanent sources of funds

It is a normal practice to maintain a current ratio of 2:1. Also, the quality of current assets is to be considered while determining the current ratio. On the other hand a weak liquidity position poses a threat to the solvency of the company and implies that it is unsafe and unsound. The Net WORKING CAPITAL concept also covers the question of judicious mix of long term and shortterm funds for financing the current assets. Permanent and variable working capital: The minimum level of current assets required is referred to as permanent working capital and the extra working capital needed to adapt to changing production and sales activity is called temporary working capital. 3.4 NEED AND IMPORTANCE OF WORKING CAPITAL MANAGEMENT The importance of working capital management stems from the following reasons: 1. Investment in current assets represents a substantial portion of the total investment. 2. Investments in current asset and the level of current liabilities have to be geared quickly to change in sales, which helps to expand volume of business. 3. Gives a company the ability to meet its current liabilities 4. Take advantage of financial opportunities as they arise. A firm needs WORKING CAPITAL because the production, sales and cash flows are not instantaneous. The firm needs cash to purchase raw materials and pay expenses, as there may not be perfect matching between cash inflows and outflows. Cash may also be held up to meet future exigencies. The stocks of raw materials are kept in order to ensure smooth production and to protect against the risk of non-availability of raw materials. Also stock of finished goods has to 14

be maintained to meet the demand of customers on continuous basis and sudden demand of some customers. Businessmen today try to keep minimum possible stock as it leads to blockage of capital. Goods are sold on credit for competitive reasons. Thus, an adequate amount of funds has to be invested in current assets for a smooth and uninterrupted production and sales process. Because of the circulating nature of current assets it is sometimes called circulating capital. 3.5 FACTORS INFLUENCING THE WORKING CAPITAL REQUIREMENT

All firms do not have the same WORKING CAPITAL needs .The following are the factors that affect the WORKING CAPITAL needs: Nature and size of business The WORKING CAPITAL requirement of a firm is closely related to the nature of the business. We can say that trading and financial firms have very less investment in fixed assets but require a large sum of money to be invested in WORKING CAPITAL. On the other hand Retail stores, for example, have to carry large stock of variety of goods little investment in the fixed assets. Also a firm with a large scale of operations will obviously require more WORKING CAPITAL than the smaller firm.

Manufacturing cycle It starts with the purchase and use of raw materials and completes with the production of finished goods. Longer the manufacturing cycle larger will be the WORKING CAPITAL requirement; this is seen mostly in the industrial products.

Business fluctuation

15

When there is an upward swing in the economy, sales will increase also the firms investment in inventories and book debts will also increase, thus it will increase the WORKING CAPITAL requirement of the firm and vice-versa. Production policy To maintain an efficient level of production the firms may resort to normal production even during the slack season. This will lead to excess production and hence the funds will be blocked in form of inventories for a long time, hence provisions should be made accordingly. Since the cost and risk of maintaining a constant production is high during the slack season some firms may resort to producing various products to solve their capital problems. If they do not, then they require high WORKING CAPITAL.

Firms Credit Policy If the firm has a liberal credit policy its funds will remain blocked for a long time in form of debtors and vice-versa. Normally industrial goods manufacturing will have a liberal credit policy, whereas dealers of consumer goods will a tight credit policy.

Availability of Credit If the firm gets credit on liberal terms it will require less WORKING CAPITAL since it can always pay its creditors later and vice-versa.

Growth and Expansion Activities It is difficult precisely to determine the relationship between volumes of sales and need for WORKING CAPITAL. The need for WORKING CAPITAL does not follow the growth but

16

precedes it. Hence, if the firm is planning to increase its business activities, it needs to plan its WORKING CAPITAL requirements during the growth period.

Conditions of Supply of Raw Material If the supply of raw material is scarce the firm may need to stock it in advance and hence need more WORKING CAPITAL and vice-versa.

Profit Margin and Profit Appropriation A high net profit margin contributes towards the WORKING CAPITAL pool. Also, tax liability is unavoidable and hence provision for its payment must be made in the WORKING CAPITAL plan, otherwise it may impose a strain on the WORKING CAPITAL.

After having discussed about working capital management in this chapter, in the next chapter methodology of the study will be discussed.

17

CHAPTER IV RESEARCH METHODOLOGY

A research methodology consists of the collection of data and analyzing the data collected with the purpose attain the standards set in objectives in the study. The analysis should be carried out based on the nature of the problem outlined in the project study. In other words, Research Methodology is simply the plan of action for a research which explains in detail how data is to be collected analyzed and intrepreted.Datas becomes information only when a proper methodology is adopted. Thus we can say Methodology is a tool which process the date to a reliable information. The present chapter attempt to highlight the research methodology adopted in this project. This is the research methodology in this study which has been designed in a conceptual structure with through which research is undertaken by the researcher; so the research methodology constitutes data collection, the sampling and the tools used for the purpose of analysis. 4.1 Research design

The choice of the research approach is an important part of the research work, because it determines how the information will be obtained, because the data also determines the output of the report .A research design is the detailed outline of the study to attain the research purpose. The outline of the study is not the end itself but also consists of other multiple decisions on the requirements of the study. This being a case study based on the financial information of the organization the quantitative type of research has been used.

18

4.2 DATA COLLECTION The primary data will not be useful for the researcher and hence only secondary data has been used being a quantitative research and financial in nature in this research work. The secondary sources of information were of high use in this study. Secondary source of data is nothing but the data which has been collected already. In this research work the data was called from annual financial reports of the company. The secondary data had been gathered from the available records of the company. Although secondary data has lots of limitation in itself but also used by the researcher to obtain the desired result. Some of the limitations of secondary data are its historical nature, does not include price level changes and also subject to accounting methods of the organization. But yet the sources of data are the five year financial statements of the organization have been used in the best interest in the study. The secondary data had been gathered from the available records of the company. In fact, all the available facts, figures and data had been gathered. Incidentally, it ought to be noted that the Project Work of this nature is subject to limitations. In the first place the Financial Statements fail to be perfect guides for determining future, profitability, as they are subject to the vagaries of accounting processes and fluctuations in the price line. Notwithstanding, a genuine attempt has been made to evaluate the financial soundness of the company and its credit worthiness. The sources of data are the five year financial statements of the organization from the financial year 2005 06 to 2009-10. 4.3 SAMPLING PROCEDURE To generalize the results of the population through a sample, the sampling process technique has been adopted, to represent the sample so that the findings of the stud may represent the sample. The population in this research study is the financial statements of all the financial years concerned, since the company is incepted, but it is not possible to analyze the entire data. The 19

reason to apply the probability sampling in this method is to ensure that there is chance that every sample represents the entire sample. Based on the sample study the findings of the study will be applied for the entire company to represent the population. 4.4 4.4.1 STATISTICAL TOOLS FOR ANALYSIS Ratio analysis

A firms balance sheet contains many items that, taken by them, have no clear meaning. Financial ratio analysis is a way of appraising their relative importance. The ratio of current assets to current liabilities, for example, gives the analyst an idea of the extent to which the firm can meet its current obligations. 4.4.2 Schedule of changes in working capital

The difference between the working capital for two given reporting periods is called the change in working capital. Changes in working capital simply show the net affect on cash flows of this adding and subtracting from current assets and current liabilities. 4.4.3 Working capital position Gross working capital which is the Sum total of current assets Gross working capital is also known as short-term assets or current assets. Current liabilities that finance working capital are also known as short-term liabilities or working capital and Net working capital which are the Difference between gross working capital and current liabilities. The working capital position statement will clearly show the status of working capital of the company. 4.4.4 Working capital requirement

The working capital requirement is the minimum amount of resources that a company requires to effectively cover the usual costs and expenses necessary to operate the business. Since the capital needs of each company will be a little different, there is no ideal working capital requirement

20

that is universally applicable to all businesses, or even to companies engaged in the same industry. However, new companies can develop an idea of what type of working capital requirement they will need to operate at given levels by researching the cost and expenses associated with other corporations engaged in similar operations. The basic formula for determining working capital involves only two factors. First, it is necessary to define the current liquid assets in the possession of the company. This may be somewhat different from general assets, since the focus is on those resources that can be converted into cash quickly and easily. Liquid assets may be such resources as the outstanding current Accounts Receivable balance, property that is not directly used in the operation of the business, and balances in various operating accounts.

21

CHAPTER V DATA ANALYSIS AND INTERPRETATION

WORKING CAPITAL POSITION TABLE NO 1 WORKING CAPITAL POSITION OF LITE ROOF PRIVATE LIMITED
(In lakhs) 2009-2010 1,324.97 418.36 406.22 500.39

Particular 1.Current assets (A). Inventories i. Raw ii. iii. material Stock in progress Finished

2005 2006 1,240.04 420.20 339.80 480.04

2006-2007 1,278.74 421.30 378.14 479.40

2007 2008 1,402.45 456.15 443.15 503.15

2008 - 2009 1,479.58 419.36 475.10 585.12

goods (B). Account receivable (C). Short term investment (D). Loans and advances (E). Cash&Bank balance TOTAL

424.78 198

367.85 200

470.85 200

489.27 100

522.83 100

1,000.41 913.16 3,776.39

1,029.16 942.63 3,818.38

999.10 806.48 3,878.88

903.91 698.05 3,670.81

798.84 355.03 3,101.67

(In lakhs) 22

Particular 1).Sundry creditors 2).Short term bank loans 3).Other C.L TOTAL

2005 2006 2,513.55 18.34 1,091.40 3,604.95

2006-2007 2,582.72 11.92 1,205.56 3,788.28

2007 2008 2,669.14 6.15 1,311.11 3,980.25

2008 - 2009 2,730.64 0.00 1,123.46 3,854.10

2009-2010 3,077.97 0.00 1,158.87 4,236.84

Particular (A).C.A (B).C.L (C).Net W.C (A-B)

2005 2006 3,776.39 3,604.95 171.44

2006-2007 3,818.38 3,788.28 30.10

2007 2008 3,878.88 3,980.25 -101.37

2008 - 2009 3,670.81 3,854.10 -183.29

(In lakhs) 2009-2010 3,101.67 4,236.84 -1,135.17

INTERPRETATION From the above table it is clear that working capital has been coming down from 2005 to 2010 although in 2006 it is positive and also showed a positive trend in 2007, but after it has been considerably coming down. The major reason for the reducing working capital is because of consistent decline in the current assets, which is come down by 20% in the last five financial years, majorly because of the reduced cash balance, which has been reduced by 61%, At the same time current liability has shown considerable increase in every year continuously and the overall increase is 18%, and this reflected in the drop of net working capital by drifting towards the negative amount in the same period. 23

CHART NO 1

WORKING CAPITAL POSITION OF LITE ROOF PRIVATE LIMITED

400

200

171.44 30.1

0 2005-2006 -200 2006-2007 2007- 2008 -101.37 -183.29 20082009 2009-2010

-400

-600

-800

-1000

-1200

-1135.17

-1400

24

WORKING CAPITAL MANAGEMENT THROUGH RATIO ANALYSIS. Current assets -------------------------Current liabilities (In lakhs) Current liabilities 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84

Current ratio =

Year 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

Current assets 3,776.39 3,818.38 3,878.88 3,670.81 3,101.67 TABLE NO. 2

CURRENT RATIO

Particular Current Ratio

2005 2006 1.04

2006-2007 1.01

2007 2008 0.97

2008 - 2009 0.95

2009-2010 0.73

INTERPRETATION The ratio of current assets to current liabilities is called current ratio. In order to measure the short-term liquidity or solvency of a concern, comparison of current assets and current liabilities is inevitable. Current ratio indicates the ability of a concern to meet its current obligation as and when they are due for payment. The current ratio is consistently below the industrial standards of 2: 1, indicating the performance of current assets has to be improved; this is continuously decreasing every year right from 1.04 in 2005-06 to 0.73 in 2009-10.

25

CHART NO. 2

CURRENT RATIO

1.2

1.04 1.01 1 0.97 0.95

0.8 0.73

0.6

0.4

0.2

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

26

QUICK RATIO

Quick Ratio

Current assets stock --------------------------------------Current liabilities (In lakhs) Current Liabilities 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84

Years 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

Quick Assets 2535.99 2539.64 2476.43 2191.23 1776.7

TABLE NO. 3

QUICK RATIO

Particular Quick Ratio

2005 2006 0.70

2006-2007 0.67

2007 2008 0.62

2008 - 2009 0.56

2009-2010 0.41

INTERPRETATION This ratio is also called Quick or Acid test ratio. It is calculated by comparing the quick assets with current liabilities. The industry standards of 1 : 1 , but this also performing badly in the latest financial year recording 0.41 where a continuous dip is seen from the year 2005-06 where it was 0.70 , the highest recorded quick ratio in the last five years . This is attributed to inefficient handling of current assets. The current assets are not maintained properly , which results in higher current liabilities and has caused an dip in the quick ratio which has to come up to 1:1 in the years to come.

27

TABLE NO. 3
0.8

QUICK RATIO

0.7

0.7 0.67 0.62

0.6 0.56

0.5

0.41 0.4

0.3

0.2

0.1

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

28

CASH POSITION RATIO: Cash and Bank Balance + Marketable Securities Cash position ratio = ---------------------------------------------------------------Current Liabilities

(In lakhs) Year 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 Absolute liquid assets 913.16 942.63 806.48 698.05 355.03 TABLE NO 4 Particular Cash position ratio Current liabilities 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84

CASH POSITION RATIO

2005 2006 0.25

2006-2007 0.24

2007 2008 0.20

2008 - 2009 0.18

2009-2010 0.08

INTERPRETATION This ratio is also called Absolute Liquidity Ratio or super quick ratio. This ratio measures liquidity in terms of cash and near cash items like the short term investments and marketable securities also known as tradable securities and short-term current liabilities which includes bank overdraft. The cash position ratio has declined from 0.25 to 0.08 in the year 2005-2006 and standing well below the standards of 0.30.This shows cash maintenance is highly inefficient in the company. The consistent decline in cash balance and consistent increase in current liabilities is the reason behind this. CHART NO 4 CASH POSITION RATIO 29

0.3

0.25

0.25 0.24

0.2

0.2 0.18

0.15

0.1 0.08

0.05

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

30

NET WORKING CAPITAL RATIO:

Net Working Capital Ratio =

Net Working capital ------------------------------------------------------Net Assets (Net W.C + Fixed assets) (In lakhs)

Year 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO. 5

Net Working capital 171.44 30.10 - 101.37 -183.29 -1,135.17

Net assets 3127.43 3717.17 3843.03 3563.83 2362.56

NET WORKING CAPITAL RATIO

Particular Net W.C Ratio

2005 2006 0.05

2006-2007 0.01

2007 2008 -0.02

2008 - 2009 -0.05

2009-2010 -0.48

INTERPRETATION The mix of the assets shows the efficiency of the usage of the assets proportionately. The mix of fixed assets and current assets is not at all healthy, not complying with the industry standards of 0. 30. In the last three financial years, it is negative, the mix was badly in shape standing at .05, exhibiting 5 95 mix which is not healthy for the company but has turned out even more worse in 2006 2007 indicating the fact that there is inefficient handling of the current assets and fixed assets from the year 2006 07 to the latest financial year because this ratio has turned out be in negative in the last 3 financial years. 31

CHART NO. 5

NET WORKING CAPITAL RATIO

0.5

0.05 0 2005-2006

0.01 2006-2007 2007- 2008 20082009 -0.05 2009-2010

-0.5

-0.48

-1

-1.5

-2

-2

-2.5

32

INVENTORY OR STOCK TURNOVER RATIO: Net Sales -----------------------------Average stock

Inventory turnover ratio = Where

Opening stock + closing stock Average stock = ----------------------------------------2 (In lakhs) Particular 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO 6 Particular Inventory turnover ratio Net sales 10,633.70 9,952.18 10,108.37 9,931.51 11,080.31 Average stock 480.04 479.72 491.28 544.13 542.75

INVENTORY TURNOVER RATIO

2005 2006 22.15

2006-2007 20.77

2007 2008 20.58

2008 - 2009 18.25

2009-2010 20.44

INTERPRETATION This ratio is also called stock velocity ratio. It is calculated to ascertain the efficiency of inventory management in terms of capital investment. It shows the relationship between the cost of goods sold and the amount of average inventory. Stock turnover ratio is obtained by dividing the cost of sales by average stock. This ratio is always on an decrease trend throughout the last 4 financial year increase by one time it is increase in 2009-10, clearly showing the fact that the company has excellent sales record in the last five financial years and thereby exhibits a healthy stock turnover ratio. 33

CHART NO 6
25

INVENTORY TURNOVER RATIO

22.15 20.77 20 18.25 20.58 20.44

15

10

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

34

STOCK TURNOVER PERIOD: 365 -----------------------------Stock turnover ratio

Stock turnover period =

TABLE NO 7 YEAR 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

STOCK TURNOVER PERIOD INVENTORY TURNOVER PERIOD (IN DAYS) 17 18 18 20 18

INTERPRETATION Stock turnover ratio or inventory turnover ratio can be related to time. The ratio can be expressed in terms of days or months or years. This ratio substantiates the fact that the company has an excellent stock rotation which has been consistently recorded improvement by recording 20 days in the financial year 2008 09 while in the financial year 2009 10 it came back to 18 days again, indicating the excellence in the performance of the sales division of the organization. The sales performance is improving every year, because of the rising demand of the companys products.

35

CHART NO 7

STOCK TURNOVER PERIOD

20.5

20

20

19.5

19

18.5

18

18

18

18

17.5

17

17

16.5

16

15.5 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

36

DEBTORS TURNOVER RATIO: Net Sales Debtors turnover ratio = ---------------------------Average receivables Average Receivables Particulars 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO 8 Particular Debtors turnover ratio = Opening receivables + Closing receivables ------------------------------------------------------2 (In lakhs) Net Sales 10,633.70 9,952.18 10,108.37 9,931.51 11,080.31 Average Receivables 424.78 396.31 419.35 480.06 506.05

DEBTORS TURNOVER RATIO

2005 2006 25.22

2006-2007 25.13

2007 2008 24.10

2008 - 2009 20.68

2009-2010 21.89

INTERPRETATION Debtors turnover ratio is also called as receivables turnover ratio or debtors velocity. The customers who purchase on credit are called trade debtors or book debts. Debtors and bills receivables together are called Accounts receivables. Debtors turnover ratio measures the number of times the receivables are rotated in a year in terms of sales. The ratio is helpful in determining the operational efficiency of a business concern and the effectiveness of its credit policy. This ratio had been decreasing over the years showing only marginally showing the consistent receivables management policy although has recorded an impressive performance in the first financial year standing at 25.22 times , although this decreased over the years , the company has been able to recover it and has recorded 21.89 in 2009-10. 37

CHART NO 8
30

DEBTORS TURNOVER RATIO

25.22 25

25.13 24.1

21.89 20.68 20

15

10

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

38

AVERAGE COLLECTION PERIOD: Average Collection Period = 365 --------------------------------Debtors turnover ratio AVERAGE COLLECTION PERIOD DEBTORS TURNOVER PERIOD ( IN DAYS) 15 15 15 18 17

TABLE NO 9

YEAR 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 Interpretation

It is to be noted that the first approach to the computation of the debtors turnover is superior. In case of the second approach the effect is that debtors turnover ratio is inflated. Another approach for measuring the liquidity of firms debtors is the average collection period. It is important to maintain a reasonable quantitative relationship between receivables and sales. This ratio also indicates the efficiency of credit collection and efficiency of credit policy. This ratio is inter related to and depends on the debtors turnover ratio. In this industry 30 45 day period of collection is the standard, and the company is able to excel in performance in every financial year recording 15 days respectively for 2005 -2006, 2006- 2007 and 2007 2008, while this was around 18 days in the financial year 2008-2009 but again the company had a turnaround in the year 2009-10.

39

TABLE NO 9
18.5

AVERAGE COLLECTION PERIOD

18

18

17.5

17

17

16.5

16

15.5

15

15

15

15

14.5

14

13.5 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

40

CREDITORS TURNOVER RATIO: Creditors turnover ratio = Net credit purchase -------------------------------------Average account payable 365 ----------------------------------Creditors turnover ratio (In lakhs) Particular 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO 10 Particulars C. T. R 2005 2006 2.14 Credit purchase 5398.23 4533.42 4652.62 4598.97 5168.67 Average payables 2513.55 2548.14 2625.93 2699.89 2904.30

Average payment period =

CREDITORS TURNOVER RATIO 2007 2008 1.77 2008 - 2009 1.70 2009-2010 1.77

2006-2007 1.77

INTERPRETATION This ratio is also known as accounts payables or creditors velocity. Longer the period of payables outstanding lesser is the problem of working capital of the firm. But if the firm does not pay off its creditors with in time, it will adversely affect goodwill of the business. From the above table is an inferred that this ratio is almost same throughout the five financial years moving around 1.77. Only in 2005-06 it was 2.14 and in 2008-09, it was 1.70, recording an decrease indicating late settlement of funds for the suppliers.

41

TABLE NO 10

CREDITORS TURNOVER RATIO

2.5

2.14

1.77

1.77 1.7

1.77

1.5

0.5

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

42

AVERAGE PAYMENT PERIOD 365 ---------------------------------Creditors turnover ratio

Average payment period

TABLE NO 11

AVERAGE PAYMENT PERIOD

CREDITORS TURNOVER PERIOD ( IN DAYS ) 170 206 206 215 206

YEAR 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

INTERPRETATION Another approach for measuring the liquidity of firms creditors is the average payment period. This ratio also indicates the efficiency of payment and efficiency of payment policy. As per the industry standards the company was standing at much below the par in all the financial years 2005 2006 at 170 days, although the company has improved in the payment schedule too which is indicated by recording 206 days in the year 2009-10 , because in the previous year it was 215 days . Late settlement of cash indicates an increase the operating cycle of the cash which is not a good sign of a healthy payment policy which will reflect in higher quick ratio.

43

TABLE NO 11
250

AVERAGE PAYMENT PERIOD

215 206 200 206 206

170

150

100

50

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

44

CURRENT ASSETS TO TOTAL ASSETS RATIO: Current assets Current assets to total assets ratio = ---------------------Total assets (In lakhs) Particulars 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO 12 Current assets 3,776.39 3,818.38 3,878.88 3,670.81 3,101.67 Total assets 6731.78 7505.45 7823.28 7417.93 6599.40

CURRENT ASSETS TO TOTAL ASSETS RATIO

Particulars C. A. T.A. R

2005 2006 0.56

2006-2007 0.50

2007 2008 0.49

2008 - 2009 0.49

2009-2010 0.47

INTERPRETATION The companys current to the total assets ratio is very consistent , it is always around 0.50 in the last 4 financial years , although it was very high in the year 2005-2006 at 0.56 which represents 56% of the total assets are current assets but it has come down to 0.47 in the year 2009-10 .

45

TABLE NO 12

CURRENT ASSETS TO TOTAL ASSETS RATIO

0.58

0.56

0.56

0.54

0.52

0.5

0.5 0.49 0.49

0.48 0.47

0.46

0.44

0.42 2005-2006 2006-2007 2007- 2008 46 20082009 2009-2010

CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO: Current liabilities Current liabilities to total liabilities ratio = ---------------------Total liabilities (In lakhs) Particulars 2005-2006 2006-2007 2007- 2008 20082009 2009-2010 TABLE NO 13 Current liabilities 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84 Total liabilities 6732.38 7505.45 7823.28 7417.93 6599.40

CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO

Particulars C. A. T. L.R

2005 2006 0.53

2006-2007 0.50

2007 2008 0.50

2008 - 2009 0.52

2009-2010 0.64

INTERPRETATION The companys current to the total liabilities ratio is very inconsistent, fluctuating from 0.53 in the financial year 2005-06 to 0.64 in the financial year 2009-10, while in between three financial years it was very consistent around 0.50.

47

TABLE NO 13
0.7

CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO

0.64

0.6

0.53 0.5 0.5 0.5

0.52

0.4

0.3

0.2

0.1

0 2005-2006 2006-2007 2007- 2008 20082009 2009-2010

48

SCHEDULE OF CHANGES IN WORKING CAPITAL TABLE NO 14 CHANGES IN WORKING CAPITAL (2005-2006 AND 2006-2007) 2005 2006 1,240.04 424.78 1,198.41 913.16 3,776.39 2,513.55 18.34 1,091.40 3,604.95 171.44 2006-2007 1,278.74 367.85 1,229.16 942.63 3,818.38 2,582.72 11.92 1,205.56 3,788.28 30.10 141.34

Particulars CURRENT ASSET Inventories Accounts receivable Loans and Advances Cash Balance Total current assets CURRENT LIABILITY Sundry creditors Short term bank Loans provisions Total current liabilities CA CL Decrease in Working Capital INTERPRETATION:

The decrease in working capital 141.34 in 2005 06 to 2006-07 was mainly due to reason of decreased debtors collection, where the stock was rotated fast and cash was used to make immediate payments.

49

TABLE NO 15

CHANGES IN WORKING CAPITAL (2006-2007 AND 2007-2008) Particulars 2006 2007 1,278.74 367.85 1,229.16 942.63 3,818.38 2,582.72 11.92 1,205.56 3,788.28 30.10 2007-2008 1,402.45 470.85 1,199.10 806.48 3,878.88 2,669.14 6.15 1,311.11 3,980.25 -101.37 131.47

CURRENT ASSET Inventories Accounts receivable Loans and Advances Cash Balance Total current assets CURRENT LIABILITY Sundry creditors Short term bank Loans Provisions Total current liabilities CA CL Decrease in Working Capital INTERPRETATION:

The decrease in working capital 131.47 in 2006 07 to 2007-08 was mainly due to reason of decreased cash balance, where the creditors and provisions are heavy and increased payments.

50

TABLE NO 16

CHANGES IN WORKING CAPITAL (2007-2008 AND 2007-2008) 2007 2008 1,402.45 470.85 1,199.10 806.48 3,878.88 2,669.14 6.15 1,311.11 3,980.25 -101.37 2008-2009 1,479.58 489.27 1,003.91 698.05 3,670.81 2,730.64 1,123.46 3,854.10 -183.29 81.92

Particulars CURRENT ASSET Inventories Accounts receivable Loans and Advances Cash Balance Total current assets CURRENT LIABILITY Sundry creditors Short term bank Loans Provisions Total current liabilities CA CL Decrease in Working Capital INTERPRETATION:

The decrease in working capital 81.92 in 2006 07 to 2007-08 was mainly due to reason of decreased cash balance and loan and provisions account, where the creditors have increased in the last two years .

TABLE NO 17

CHANGES IN WORKING CAPITAL (2008-2009 AND 2009-2010) 2008 2009 1,479.58 489.27 1,003.91 698.05 3,670.81 51 2009-2010 1,324.97 522.83 898.84 355.03 3,101.67

Particulars CURRENT ASSET Inventories Accounts receivable Loans and Advances Cash Balance Total current assets

CURRENT LIABILITY Sundry creditors Short term bank Loans Provisions Total current liabilities CA CL Decrease in Working Capital INTERPRETATION: The decrease in working capital 951.88 in 2008 09 to 2009-2010 was mainly due to reason of decreased cash balance and inventory account, where the creditors and provisions have both increased in the last two years. 2,730.64 1,123.46 3,854.10 -183.29 3,077.97 1,158.87 4,236.84 -1,135.17 951.88

52

CHART NO 14

SCHEDULE OF CHANGES IN WORKING CAPITAL

0 2006-2007 2007- 2008 20082009 2009-2010

-100 -141.34 -200 -131.47

-81.92

-300

-400

-500

-600

-700

-800

-900

-951.88 -1000

53

ESTIMATION OF WORKING CAPITAL REQUIREMENT (2010-2011) ELEMENTS Purchase of materials Wages Admin.o/h Rent Salaries Office expense Factory o/h (Includes depreciation 20%) Sales Cash Credit AVERAGE PERIOD OF CREDIT 6 weeks 1.5 weeks 2 months 1 month 2 weeks 2 months ESTIMATE FOR COMING YEAR (in lacs) 2,60,000 1,95,000 48,000 36,000 45,500 60,000 14,000 7 weeks Raw materials are in stock for 4 weeks FG are in stock for 1 month Process time 15 days Factory overheads and wages accrue evenly FG are valued at cost of production Minimum cash balance required is 40,000 6,50,000

Assumptions: 1) Production and sales are evenly distributed throughout the year 2) Raw materials are issued to production right in the beginning, whereas wages and overheads are incurred evenly. 3) 15 days is taken as 2 weeks AND 1year = 52 weeks

54

TABLE NO 18

CALCULATION OF WORKING CAPITAL REQUIREMENT CURRENT ASSETS RS. 20,000 39,616 10,000 3,750 1,154 RS.

(A) Stock Raw Material (2,60,000/52 *4) Finished Goods (515,000/52*4) (B) WIP Raw Material (2,60,000/52*2) Wages (1,95,000/52*2*0.5) Overheads (60,000/52 *2*0.5) (C) Debtors (6,50,000/52*7) (D) Cash TOTAL C.A. (-)CURRENT LIABILITIES (A) Creditors Raw materials(2,60,000/52*6) (B)Wages(1,95,000/52*1.5) (C) Administration overheads Rent (48,000/52*8) Salary (36,000/52*4) Office expense (45,500/52*2) (D) Factory overheads ( 60,00/52*8) TOTAL C.L. WC reqd.(CA-CL)

59,616

14904 87,500 40,000 2,02,020

30,000 5,625

7,385 2,769 1,780 11,904 9,235 56,570 1,45,260

The estimated working capital requirement for the year 2010-2011 shows Rs 1452.60 lakhs.

CHAPTER VI

55

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSIONS OF THE STUDY

Based on the analysis in the previous chapter, following findings have been arrived.

6.1

FINDINGS OF THE STUDY 1. The inventory has been increased by 3% in 2006-07, 10% in 2007-08, 5% in 2008-09 and decreased by 10% in 2009-10. 2. The receivable of the organsiation has been decreased by 13% in 2006-07, an then increased by 28% in 2007-08, 4% in 2008-09 and by 7% in 2009-10. 3. The cash balance has been increased by 3% in 2006-07, and decreased by 14% in 200708, 15% in 2008-09 and decreased by 49% in 2009-10. 4. The payables have increased by 3% in 2006-07, by 3% in 2007-08, 2% in 2008-09 and by 10% in 2009-10. 5. The current assets have increased by 1% in 2006-07, by 2% in 2007-08, decreased by 3% in 2008-09 and further decreased by 15% in 2009-10. 6. The working capital has decreased by 24% in 2006-07, by 436% in 2007-08, 81% in 2008-09 and by 520% in 2009-10. 7. The current ratio is 1.04 in 2005-06, 1.01 in 2006-07, 0.97 in 2007-08, 0.95 in 2008-09 and 0.73 in 2009-10.

56

8. The quick ratio is 0.70 in 2005-06, 0.67 in 2006-07, 0.62 in 2007-08, 0.56 in 2008-09 and 0.41 in 2009-10. 9. The cash position ratio is 0.25 in 2005-06, 0.24 in 2006-07, 0.20 in 2007-08, 0.18 in 2008-09 and 0.08 in 2009-10. 10. The inventory turnover ratio is 22.15 in 2005-06, 20.77 in 2006-07, 20.58 in 2007-08, 18.25 in 2008-09 and 20.44 in 2009-10. 11. The inventory turnover period is 17 days in 2005-06, 18 days in 2006-07, 18 days in 2007-08, 20 days in 2008-09 and 18 days in 2009-10. 12. The debtors turnover ratio is 25.22 in 2005-06, 25.13 in 2006-07, 24.10 in 2007-08, 20.68 in 2008-09 and 21.89 in 2009-10. 13. The debtor turnover period is 15 days in 2005-06, 15 days in 2006-07, 15 days in 200708, 18 days in 2008-09 and 17 days in 2009-10. 14. The creditors turnover ratio is 2.14 in 2005-06, 1.77 in 2006-07, 1.77 in 2007-08, 1.70 in 2008-09 and 1.77 in 2009-10. 15. The creditor turnover period is 170 days in 2005-06, 206 days in 2006-07, 206 days in 2007-08, 215 days in 2008-09 and 206 days in 2009-10. 16. The current assets to total assets ratio is 0.56 in 2005-06, 0.50 in 2006-07, 0.49 in 200708, 0.49 in 2008-09 and 0.47 in 2009-10. 17. The current liabilities to total liabilities ratio is 0.53 in 2005-06, 0.50 in 2006-07, 0.50 in 2007-08, 0.52 in 2008-09 and 0.64 in 2009-10. 57

18. The decrease in working capital 141.34 in 2005 06 to 2006-07 was mainly due to reason of decreased debtors collection, where the stock was rotated fast and cash was used to make immediate payments. 19. The decrease in working capital 131.47 in 2006 07 to 2007-08 was mainly due to reason of decreased cash balance, where the creditors and provisions are heavy and increased payments.
20.The decrease in working capital 81.92 in 2006 07 to 2007-08 was mainly due to reason of decreased cash balance and loan and provisions account, where the creditors have increased in the last two years.

21. The decrease in working capital 951.88 in 2008 09 to 2009-2010 was mainly due to reason of decreased cash balance and inventory account, where the creditors and provisions have both increased in the last two years. 22. The estimated working capital requirement for the year 2010-2011 shows Rs 1452.60 lakhs.

58

6.2

SUGGESTIONS OF THE STUDY

Following suggestions are made to the management to meet the working capital requirements for the following year.

1. The cash position ratio is too low indicating a very less amount of cash is maintained. The organization should take efforts to increase the cash balance, this can be done by liquidating the loans and advances of the organsiation. 2. The company has no short term investments. The organsiation should plan to invest in tradable securities, marketable securities as a short term investments which offers high amount of liquidity. 3. The current ratio is too low; the organsiation should work towards doubling it. The current assets should be increased by the organsiation or the organsiation should actively work towards reducing current liability. This can be done by settling creditors quickly, as creditors turnover period is very high. 59

4. Since the net working capital has comedown largely during the last five financial year company should take efforts in increasing Current asset by all means. This could be done through investing in short term investment and by increasing its collection period days.

6.3

CONCLUSIONS TO THE STUDY

Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. Financial management focuses on finance manager performing various tasks as Budgeting, Financial Forecasting, Cash Management, Credit Administration, Investment Analysis, Funds Management, etc. which help in the process of decision making. Financial management includes management of assets and liabilities in the long run and the short run. Working Capital Management is the process of planning and controlling the level and mix of current assets of the firm as well as financing these assets. Specifically, Working Capital Management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivables and inventories the firm will hold at any point of time. In this organsiation while analyzing it is found that there is poor cash management. Cash balance is maintained for transaction purposes and an additional amount may be maintained as a buffer

or safety stock. It involves a trade off between the costs and the risk. If a firm maintains a small cash balance, it has to sell its marketable securities and probably buy them later more often, than if it holds a large cash balance. The excess amount of cash held by the firm to meet its variable cash requirements and future contingencies should be temporarily invested in marketable

60

securities for earning returns. If the organsiation does this it can have a better cash position ratio and the current ratio will go up . The firms are required to maintain enough inventories for smooth production and selling process, also at the same time they need to keep the investment in them minimum. The investment in the inventories should be justified at the optimum level. Since it was a matter relating to finance, not everybody revealed all the aspects of working capital management. However an effort was put in to get the maximum out of them.

61

FINANCIAL STATEMENTS (LITE ROOF LIMITED)

BALANCESHEET (2005 06)
PARTICULARS AMOUNT ( in lakhs Rupees)

Sources Of Funds Total Share Capital Equity Share Capital Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Funds Available 220.12 220.12 0.00 2,822.90 0.67 3,043.69 43.04 40.70 83.74

3,127.43

Application Of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress 62 1,935.88 726.34 1,209.54 110.52

Total Fixed Assets Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances Short term bank loans Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Funds Applied

1320.06 1,635.93 1,240.04 424.78 913.16 2,577.98 1,198.41 3,776.39 18.34 2,513.55 1,091.40 3,604.95 171.44 0.00

3,127.43

BALANCESHEET (2006 07)

PARTICULARS AMOUNT ( in lakhs Rupees)

Sources Of Funds Total Share Capital Equity Share Capital 63 220.12 220.12

Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Funds Available

0.00 3,438.08 0.67 3,658.87 19.62 38.68 58.30

3,717.17

Application Of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Total Fixed Assets Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances 1,994.36 778.90 1,215.46 106.87 1322.33 2,364.74 1,278.74 367.85 942.63 2,589.22 1,229.16 3,818.38

64

Short term bank loans Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Funds Applied

11.92 2,582.72 1,205.56 3,788.28 30.10 0.00

3,717.17

65

BALANCESHEET (2007 08)

PARTICULARS AMOUNT ( in lakhs Rupees)

Sources Of Funds Total Share Capital Equity Share Capital Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Funds Available 220.12 220.12 0.00 1,917.93 0.67 2,138.72 1,603.70 100.61 1,704.31

3,843.03

Application Of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Total Fixed Assets 2,141.72 846.09 1,295.63 73.84 1369.47

66

Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances Short term bank loans Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Funds Applied

2,574.93 1,402.45 470.85 806.48 2,679.78 1,199.10 3,878.88 6.15 2,669.14 1,311.11 3,980.25 -101.37 0.00

3,843.03

67

BALANCESHEET (2008 09)

PARTICULARS AMOUNT ( in lakhs Rupees)

Sources Of Funds Total Share Capital Equity Share Capital Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Funds Available 220.12 220.12 0.00 1,871.92 0.67 2,092.71 1,453.06 18.06 1,471.12

3,563.83

Application Of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Total Fixed Assets 2,314.22 891.08 1,423.14 94.42 1517.56

68

Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances Short term bank loans Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Funds Applied

2,229.56 1,479.58 489.27 698.05 2,666.90 1,003.91 3,670.81 0.00 2,730.64 1,123.46 3,854.10 -183.29 0.00

3,563.83

69

BALANCESHEET (2009 10)

PARTICULARS AMOUNT ( in lakhs Rupees)

Sources Of Funds Total Share Capital Equity Share Capital Preference Share Capital Reserves Revaluation Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Funds Available 220.12 220.12 0.00 2,084.83 0.67 2,305.62 24.50 32.44 56.94

2,362.56

Application Of Funds Gross Block Less: Accumulated Depreciation Net Block Capital Work in Progress Total Fixed Assets 2,375.11 989.61 1,385.50 98.03 1483.53

70

Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Total CA, Loans & Advances Short term bank loans Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Funds Applied

2,014.20 1,324.97 522.83 355.03 2,202.83 898.84 3,101.67 0.00 3,077.97 1,158.87 4,236.84 -1,135.17 0.00

2,362.56

INCOME STATEMENT (2005 06) PARTICULARS

Income Sales Turnover Excise Duty 71 11,755.04 1,121.34

AMOUNT ( in lakhs rupees)

Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord. Items) Tax

10,633.70 522.52 -4.63 11,151.59

5,398.23 152.77 585.55 895.40 1,646.75 276.76 8,955.46 1,673.61 2,196.13 7.74 2188.39 144.66 2043.73 -1.01 2044.74 402.42

Net Profit

1,641.31
72

Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lacs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

3,557.23 0.00 1,100.62 57.69

22,012.00 7.19 500.00 13.82

INCOME STATEMENT (2006 07) PARTICULARS

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost 73 4,533.42 166.41 10,928.36 976.18 9,952.18 475.69 3.84 10,431.71

AMOUNT ( in lakhs rupees)

Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord. Items) Tax

591.85 927.05 1,553.47 280.69 8,052.89 1,903.13 2,378.82 9.18 2369.64 134.10 2235.54 56.13 2179.41 465.80

Net Profit
Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lacs) Earning Per Share (Rs)

1,769.74
3,519.47 0.00 1,210.69 0.00

22,012.00 8.04

74

Equity Dividend (%) Book Value (Rs)

550.00 16.62

INCOME STATEMENT (2007 08) PARTICULARS

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT 75 4,652.62 167.84 570.85 995.58 1,558.92 397.91 8,343.72 1,884.85 2,403.94 11,082.10 973.73 10,108.37 519.09 120.20 10,747.66

AMOUNT ( in lakhs rupees)

Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord. Items) Tax

66.76 2337.18 124.78 2212.40 0.00 2212.4 440.61

Net Profit
Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lacs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

1,771.79
3,691.10 0.00 1,599.20 374.14

22,012.00 6.35 550.00 9.71

INCOME STATEMENT (2008 09) PARTICULARS

Income Sales Turnover 76 10,871.12

AMOUNT ( in lakhs rupees)

Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord. Items) Tax

939.61 9,931.51 440.24 -76.69 10,295.06

4,598.97 164.77 568.32 1,031.04 1,721.78 455.92 8,540.80 1,314.02 1,754.26 129.98 1624.28 120.90 1503.38 0.00 1503.38 306.04

77

Net Profit
Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lacs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

1,197.34
3,941.83 0.00 1,100.62 145.53

22,012.00 4.78 500.00 9.50

INCOME STATEMENT (2009 10) PARTICULARS

Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials 78 5,168.67 11,962.54 882.23 11,080.31 389.77 -80.87 11,389.21

AMOUNT ( in lakhs rupees)

Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Profit Before Tax Extra-ordinary items PBT (Post Extra-ord. Items) Tax

168.74 585.51 1,211.53 2,013.81 439.24 9,587.50 1,411.94 1,801.71 19.20 1782.51 124.45 1658.06 0.00 1658.06 249.96

Net Profit
Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Shares in issue (lacs)

1,408.10
4,418.83 0.00 1,100.62 159.62

22,012.00

79

Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)

5.67 500.00 10.47

BIBLIOGRAPHY

Books

1. 2.

I M Pandey, Financial Management , Vikas publications, 2005 Khan and Jain, Financial management, Tata McGraw Hill Publications, 2001

JOURNALS Working capital management: Coordinating Investment and Financing Policies - Journal of Finance, June (1993) M.B.Fordy.

WEBSITE www.literoofings.com

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