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ACKNOWLEDGEMENT Success can never be attained without proper guidance.

Nothing concrete can be achieved without an optional combination of inspiration and aspiration. No work can be accomplished without taking the guidance of the important critiques for the ingenious intellectual that helps transforms a product into a quality product. This work is synergic product of many minds. This began as a part of project semester of my MBA program, so I would like to thank University of Pune for providing me an opportunity to undertake project as a subject for practical fulfillment of MBA course. I would like to express gratitude towards director Mr. Rayate and Prof. D.D. Walke, the project guide for valuable guidance. I am thankful to the staff members of Asia Automotive LTD. particularly Mr. Anand for their valuable guidance during various phases of the project. I am also thankful to Mr. H.B. Shirode ( finance & account Manager ), Mr. S.D. Deshpande. I am also indebted to number of professionals, colleagues and other who have directly and indirectly contributed time and talent even through anonymously in accomplishing this task. I am grateful for the inspiration; encouragement and wisdom of many resource people who helped me to bring this report into life. Thus the project has been a learning experience and has helped me to understand practical aspect of subject.

1.1: Object of the project This project is undertaken as a part of the academic curriculum of Master of Business Administration under Pune University for the academic year 2007-08 to have the practical knowledge on the field. Teaching in the classroom is partial unless, it is added with practical experience training. Training is the most important part of learning in any technical as well as professional institute. Exposing the young prospective executives to the actual business/industrial environment not only helps them broaden their mental horizon but also helps them to effectively grasp the various angles of business. That will benefit them at the time of actual acquiring of the executive post. It is an aim that practical training of small duration obviously had made valuable & indispensable for the MBA degree

SELECTION OF THE TOPIC : Working capital is the life blood of the business. Every organization needs working capital for its effective and efficient working .But, the main considering of every organization is the effective management of working capital. As the world is changing, competition and speed has become the part and parcel of the working. Every work done in the organization has invoice processing system covers both the things, that are no wastage of time and resources. With all these consideration in the mind, Asia Automotive Ltd decides to use the working capital in the systematic way.

OBJECTIVE OF THE PROJECT : As per the MBA curriculum at the end of the first year, all students are required to undergo a summer training programme of 60 days. This summer training is an integral part of the MBA course and in successful completion is a pre-requisite for the fulfillment of the graduate degree in management. 1. The main objective of the project is to gain the practical knowledge and to know the organization working culture. 2. To know the working capital performance of the Asia Automotive Ltd. Over the last four year (2003-2006). 3. To examine the financial performance of the Asia Automotive by doing the practical work in the company. 4. To draw the observation and conclusions based on the study and suggest the suitable measures to over come the problems as well as to meet the of the organization . goal

METHODOLOGY OF STUDY : Project means the method of preparing project. In other words project methodology is the way of preparing the project, and presenting the project report, the work should be systematic and done in proper order as good work gives good results. Further the data collected to prepare the project must be relevant. A) PRIMARY DATA : Mr. H. B. Shirode is the finance and account manager of the company after the discussion with him all the figures of balance sheet and primary data was collected. Working capital related information collected from the other members of finance and account department like Mr. K.K. Joshi and Mr. S. D. deshpande Discussion with the IT Department to know the working capital analysis operation in IT department. B) SECONDARY DATA : Secondary data is very important data which is provided by the organization. The needed and essential information is collected from. Annual Report of the Asia Automotive Ltd. 2003-2006. Balance sheet of Asia Automotive Ltd. 2003-2006. Web-site of the company.

The main aim of the project is to study and analyse the working capital of Asia Automotive Ltd. By covering the four years financial data supplied from the companys financial account.

LIMITATIONS:

Even if the project report is prepared by considering the various aspects as possible, there are some areas that are not considered which limit the report and the study to a certain extent. The limits are given below : The time frame considered is very limited. In the time period of two months The data used for analysis is not first hand. The use of secondary data may lead

analysis of the trends of the entire company is comparatively not possible. to the variations in the result if valued in the values in the data get changed ultimately the reliability of secondary data limits the project analysis. The report includes the fundamental analysis but does not includes technical analysis hence study is limited by considering only fundamental factors so conclusion attended may vary if technical factors are considered.

UTILITY OF THE STUDY :

The study of an organization is one of the most important and easiest way to realizes the physical environment of an organization. Through these study we can understand how the financial operation undertake by the company. It also helps to know how the organization faces the financial problems and how they solve their problem by collecting the capital from various sources of funds. It gives the deep information about the company.It gives the through knowledge of the corporate world before doing the professional job in any organization. One can apply the knowledge through the project surveys and to study the problems faced by the company. Through these study we can develop our communication skill, thinking power, awareness about the current affairs of the corporate world. It improves our knowledge and ultimately the confidence level will goes on increase so that we can easily do the job in future in any organization.

PROFILE OF ASIA AUTOMOTIVE LTD.

ASIA AUTOMOTIVE LTD. Is today Indias leading manufacturing of resistance welding products and copper alloy castings and forgings. The companys resistance welding material and electrodes, marketed under the RESWELD name, have found Wide acceptance in the automotive industry and in the manufacturing of bicycles, steel furniture, drums and containers, And welded wire mesh. Castings and forgings manufactured by ASIA AUTOMOTIVE are used throughout India for critical applications in the automotive, electrical, railway and defense industries. ORIGINE : Asia AUTOMOTIVE is the product of the entrepreneurial energy that promoted Gabriel India limited, purolator India limited and perfect circle victor limited among others-all dynamic Indian companies that have distinguished themselves in the countrys automotive ancillary industry by virtue of their innovative approach, progressive outlook and capacity for achieving sustained results. Gabriel is Indias best known manufacturer of shock absorbers and engine bearings; perfect circle victor a leading manufacturer of piston rings and gaskets; and purolator, the largest manufacturer of the filters in the country. ASIA AUTOMOTIVEs association with these companies gives the company an additional edge that is unique in the engineering and automotive industry in India. PLANT & FACILITIES ASIA AUTOMOTIVES manufacturing facility, covering a production area of 13,000sq ft, is located in Nashik, about 120 kms from Bombay. Modern and up-to-date, the plant has a support infrastructure of laboratory and testing facilities; tools and die shops ; and non-ferrous metal casting, forging and extruding capabilities. Updating of processes, addition of new equipment and expansion of plant and facilities are carried out on a continuous basis to match the companys development al plans. COLLABORATIONS :

ASIA AUTOMOTIVES technological edge is derived from its collaborators : Originally P.R. Mallory and co., U.S.A., pioneers in resistance welding the world over, and subsequently Johnson matthey metals ltd. Of U.K. Johnson matthey are world leaders in the field of resistance welding, with over 53 years experience in this field. One of the worlds most highly diversified groups, Johnson mattheys product range includes specialized engineering materials. Precious metals such as gold, silver, and platinum, and sophisticated powder metallurgy products. Headquartered in London, Johnson matthey has more than 49 subsidiaries and associate companies in most of the worlds leading industrial countries. The company achieved a sales turnover of 1375 million 1984.

ASIA AUTOMOTIVE LTD ,NASHIK Quality policy

We , employees at Asia Automotive Ltd . are committed to manufacture and supply welding products in copper alloys to meet customers requirements by meeting specifications and delivery expectations at optimum cost. This shall be achieved by Continual improvement in all areas of operation to satisfy customers. Reduction in operating cost with specific measurable objectives. Involvement and participation of all employees. COMMUNICATION AND FEEDBACK : This policy is explained to all employees during various training conducted. This policy is displayed at various places in the company. Quality objectives derived from quality policy are received in every management review meeting

EXECUTIVE SUMMRY 1) COMPANY NAME & ADDRESS Asia Automotive ltd.

C-7 NICE; MIDC Area, Satpur, Nashik-422 007. 2) CHAIRMAN Shri. S.C.Anand 3) BOARD OF DIRECTORS Shri. K.D.Kapoor Shri.E.S. 4) AUDITOR Shri.Sahni Mehra 5) BANKERS IDBI Bank ltd. ICICI B Bank ltd. Central Bank Of India Canara Bank 6) SIZE OF THE COMPANY Small Scale Industry 7) NUMBER OF THE EMPLOYEES The total number of the employees in the company are 40. 8) TOTAL SHIFTS There are two shifts in the company . First Shift Second Shift - 7a.m. to 3.30p.m. - 3.30p.m. to 12p.m.

10) REGISTERED OFFICE ASIA AUTOMOTIVE LTD. 115, Dr.Annie Besant Road, Behind Poonam Chamber, Worli, Mumbi-400 018.

ORGANISATION CHART
MR SUDEEP C ANAND (CHAIRMAN)

BOARD OF DIRECTORS

MR.K.D.KAPOOR

MR.E.S.ASOKAN

MR. SUDEEP C ANAND (EXECUTIVE DIRECTOR)

MR.A.M.BHOSALE (PRODUCTION MANAG)

MR.H.B.SHIRODE (ACC.&FIN.MANAGER)

MR.K.K.JOSHI (ACCOUNT OFFICER)

MR.S.S.DESHPANDE (FINANCE OFFICER)

ANALYSIS OF WORKING CAPITAL

3.1)

INTRODUCTION

The working capital is classified into Gross Working capital and Net working Capital . Gross working capital; usually referred to as Working Capital that represents investment in current assets such as Marketable Securities, inventories & Bills Receivable, etc . current assets are those assets, which are normally Converted into cash within one year. The term Net Working Capital represents the difference between current account & current liabilities . Current Liabilities are those claims of outsiders, which are expected to mature for payment within one year. Current liabilities include creditors, bills payable, bank overdraft, outstanding expenses , etc .The net working can be positive or negative. When current asset exceed Current liabilities, the net working capital becomes positive and when current liabilities exceed Current assets, the net Working capital becomes negative.
NET WORKING CAPITAL = CURRENT ASSET CURRENT LIABILITIES.

3.2) DEFINATION, MEANING Working capital is defined as Difference between assets and liabilities.

It measures how many liquid assets are available for a business To use for growth opportunities . A lack of working capital can really hold a business back from reaching their full potential . There are many different ways to obtain capital for your business . Working capital includes micro loans put out by the small businesses administration (SBA),credit card receipt advances ,account receivable factoring , business credit cards ,cell and leaseback , and a standard business bank loan . it is important that you are always conscious about building your business credit scores as you obtain more capital . It is important to separate your personal credit from your business credit . you can do this by obtaining financing that reports to the small business financial exchange . It is the part of capital which is required for the daily working of the business . working capital is also called as circulating capital .Circulating capital means current assets of a company that changed in the ordinary course of business from one into another as for the example from cash to inventories to receivables , and receivables into cash . Working capital can easily be converted into hard has when Ever required ; it changes with the volume output of business .working capital is essential for maintaining the financial position of the organization . A positive changes in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities , for example Has paid of some short-term creditors .

3.3 ) CONCEPTS OF WORKING CAPITAL


1) GROSS WORKING CAPITAL :

It refers to the firms investments in current assets i.e. mainly Stock , cash .

2)

NET WORKING CAPITAL : It is the difference between current liabilities . if the current assets exceeds the current liabilities , it is a positive one . NEGATIVE WOKING CAPITAL : This situation occurs when the current liabilities exceed the current assets. It is an indication of crisis to the firm. FIXED WORKING CAPITAL : Every firm is required to maintain a minimum balance of Cash, inventory, etc . in order to meet the business need, requirements even in the slack season . This part of the current assets is called as permanent working capital .It will be a sound policy, if this is financial by long - term source of finance.

3)

4)

VARIABLE WORKING CAPITAL

Amount of Working capital

Fixed working capital Period

5)

VARIABLE WORKING CAPITAL : Net working capital minus fixed working capital will be the variable working capital . It is also called as fluctuating working capital .It varies with seasonal requirements and scale of operation in a business.

3.4) NATURE OF WORKING CAPITAL The nature of working capital is described with the help Of Nature of operating cycle of the firm .The process of cash or operation cycle starts when a firm uses cash to purchase the

raw material and pay for other manufacturing cost to produce goods .These goods are carried as inventory for some time till they are sold . When good are sold , either cash is received or accounts receivable are created. Accounts receivables are collected from debtors, this brig cash into the firms. Thus the cash cycle is complete and a new process of a cash cycle starts over again. These processes are described as circulating nature of current assets .The speed of the circulation of working capital or the turnover of current asset is an indicators of the degree of efficiency of the management. The faster the turnover, the higher the degree of efficiency. The goal of working capita management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained. This is so because a firm can not maintain a satisfactory level of working capital, it is like to become insolvent and even be forced into bankruptcy. The current asset should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. The interaction between current asset and current liabilities is therefore the main theme of the theory of working capital management.

NEED AND DETERMINANT OF WORKING CAPITAL

The need of working capital required for running day - to- day Business activity which cannot be over emphasized . Working Capital is needed till a firm gets cash on sale of finished product. It Depends on two factors 1. Manufacturing cycle-its the time required for converting the raw material into finished product. 2. Credit policy - it is credit period give to customers and credit Period allowed by creditors. Thus, the sum total of this times is called a operating cycle, and it consist of following six steps : Conversion of cash into raw material Conversion of raw material into work-in-progress Conversion work-in-progress into finish products Time for sale of finished goods-cash sales and credit sales credit Period allowed by creditors for credit purchase of raw material and inventory.

CHART FOR WORKING CAPITAL CYCLE

Debtors & Bills Receivable

Sales

Cash

Finished products

Raw materi

Work in progress

In case of trading concern, the operating cycle will be : Cash Stock Debtors Cash In case of financial concern the operating cycle will be : Cash Debtors Cash only

3.6) ADVANTAGES OF WORKING CAPITAL :

Adequate working capital enables a firm to avail cash discount facilities offered to it by the supplier as the amount of cash discount reduces the cost of purchase. Adequate working capital enables a firm to make prompt payment , which creates and maintain good will. It facilitates to meet situation of crisis and emergencies and enables business to withstand periods of depression smoothly. Adequate working capital helps in increasing profits as purchasing requirements in bulks when prices are lower and holding its inventories for higher . Sufficient amount of working capital helps in research programmers, innovations and technical development . Adequate working capital enable a concern to pay regular dividends to its investors , which gains confidence in minds of investors , and this situation rates a favorable market to raise additional funds in the future . Adequate working capital creates an environment of security, confidence, high morale, etc. and creates over all efficiency in business.

3.7) PROBLEMS FACED BY INADEQUATE WORKING CAPITAL :

In case of adequate working capital, firm may not be able to take advantage of cash discount.

It make not be able to take advantage of profitable business opportunities . It may fail to dividend because of non-availability of funds .

Short-term liabilities can not be paid because of inadequate working capital, which leads to borrow funds at exorbitant rates of intrest. Fixed assets can not effectively and efficiently be utilized on account of lack of sufficient working capital. It low liquidity position may lead to liquidation of firm thus it may lose its reputation therefore a firm may not be able to get credit facilities.

DETERMINANTS OF WORKING CAPITAL: 1. Nature of Business:

The nature of a business concern has got a bearing on its working capital requirements. In certain types of enterprises public utilities and railways current capital requirement when compared to fixed capital the requirement of working capital is small while in manufacturing concerns, a larger amount working capital is needed. 2. Manufacturing Cycle : The quantum of working capital needed is influenced by the length of the manufacturing cycle. Manufacturing process always involves a time lag between the time when the raw materials are fed into the production line and finished products are finally turned out by it. The length of the period of manufacture in turn depends on the nature of the product as well as production, technology used by a concern. 3. Economies of scale : The need for working capital is significantly determined by the economies of the scale of operation of a business enterprise. In very small companies a large amount of working capital is needed due to high overhead charges, high buying and selling costs and less efficient technical equipments.

4)

Business Fluctuations :

The need for the working capital increases during the periods of inflation and depression and declines during other periods of

trade cycled. During the boom period, the manufactures would like to produce more of finished products for sale in a buoyant market. This necessitates them maintaining huge stocks of raw material, which in turn demand a larger amount of working capital. 5) Rapidity of Turnover : There is a high degree of inverse co-relation between the quantum of working capital and the velocity with which the sale are affected. When a company has to carry on a large slow moving stock, it needs a larger working capital as against another whose turnover is rapid. 6) Terms of Purchase and sale : As a result of extension of liberal credit by certain companies, a large amount of working capital gets locked up in sundry debtors and bills receivable. When the credit terms extended by a company to its customers are for longer periods than what is extended to it by its suppliers, a larger working capital is needed and vice-versa. 7) Fluctuation in supply : Certain companies have to procure and maintain huge stocks of raw materials due to their irregular supply throughout the year. This is applicable especially to manufacturing concerns requiring an unusual type of raw material which can be procured form limited sources separated by long geographical distances.

8) Current assets :

If company follows conservative assets policy, it will operate with a high level of current assets relative to its sales volume. It has to

carry large stocks of material, inventories and finished goods, offer liberal terms of credit to customers and carry a large amount of cash to meet its current expenditure , all of which in turn demand a larger working capital.

3.4)

ADVANTAGES OF WORKING CAPITAL

Adequate working capital enables a firm to avail cash discount facilities offered to it by the supplier as the amount of cash discount reduces the cost of purchase. Adequate working capital enables a firm to make prompt payment , which creates and maintain good will. It facilitates to meet situation of crisis and emergencies and enables business to withstand periods of depression smoothly. Adequate working capital helps in increasing profits as purchasing requirements in bulks when prices are lower and holding its inventories for higher . Sufficient amount of working capital helps in research programmers, innovations and technical development . Adequate working capital enable a concern to pay regular dividends to its investors , which gains confidence in minds of investors , and this situation rates a favorable market to raise additional funds in the future . Adequate working capital creates an environment of security, confidence, high morale, etc. and creates over all efficiency in business.

3.7)

ESTIMATES OF WORKING CAPITAL:

The most ticklish problem that is faced by business man is the determination of the amount of working capital required

at a particular level business operation. A working capital forecast is prepared for this purpose involving some calculations after taking into consideration all the aspects of business activity. The following items are usually include in the calculation of working capital requirements. 1) 2) 3) 4) Total costs incurred on materials, wages and overheads as from cost records Time lag during which raw material are remained in stock before they are issue for productive purposes. Duration of the production cycle-longer the duration of the cycle, larger will be the working capital required. Length of the scale cycle indicating the duration of time during which business concerns having seasonal sales of goods, stocks have to be maintained throughout the rest of the year and the working capital requirement will be very high. Time allowed to debtors. If longer periods of credit allowed to the customers by a company without the same being extended to it by its suppliers, a larger working capital will be needed. The period of credit extended by creditors. When a longer period of credit is extended to its customers, working capital requirements will be considerably reduced. Time lag involved in the payment of wages and the overheads.

5) 6)
7)

3.8) PROBLEMS FACED BY INADEQUATE WORKING CAPITAL :

In case of adequate working capital, firm may not be able to take advantage of cash discount. It make not be able to take advantage of profitable business opportunities . It may fail to dividend because of non-availability of funds .

Short-term liabilities can not be paid because of inadequate working capital, which leads to borrow funds at exorbitant rates of interest. Fixed assets can not effectively and efficiently be utilized on account of lack of sufficient working capital. It low liquidity position may lead to liquidation of firm thus it may lose its reputation therefore a firm may not be able to get credit facilities.

WORING CAPITAL ANALYSIS WITH RATIO

INTRODUCTION

The financial statement of a business firm includes : 1) Trading account. 2) Profit and loss account. 3) Balance sheet. The financial statement provides a summarized view of the Financial position and operations of the firm therefore much can be learnt about a firm from a careful examination of its financial statement as invaluable document / performance reports. The analysis of financial statement is thus an important aid to financial analysis. This is necessary to find out the realistic picture of the business. This is also necessary to analyze the business from various angles like liquidity, profitability , solvency , etc. MEANING : Ratio analysis is widely used tool of financial analysis. It is defined as the strength systematic use of ratio to interpret the financial statement so that the strength and weakness of a firm and current financial position can be determined. The ratios reveals the relationship in more meaning full way so as to enable us to draw conclusions from them .They enable analyst to draw convulsions regarding financial operations.

4.2) CALCULATION OF RATIOS


A)

LIQUIDITY RATIO : 1) Net working capital :

Net working capital is the difference between current assets and current liabilities. It shows the liquidity of the firm, greater the amount of NWC, greater is the liquidity of the firm. The net working capital can be positive or negative. If current assets exceed current liabilities, the difference is positive net working capital and when current liabilities exceed current assets, the difference is negative working capital. Inadequate working capital is the sign of financial problem for a firm. Net Working Capital = Current Assets Current liabilities
Year 2002-2003 2003-2004 2004-2005 2005-2006 Current Assets 53,17,876 76,24,110 80,72,375 84,30,112 Current Liabilities 69,42,745 87,94,808 82,16,245 76,36,441 Net working capital -16,24,869 -11,70,698 -1,43,870 7,93,671

Chart Showing Changing Net Working Capital Of Year


2002 - 2006
1000000 500000 0 -500000 -1000000 -1500000 -2000000

2002-03

2003-04

2004-05

2005-06

Net Working Capital

COMMENS :

The net working capital of the firm indicate improvement in each year. In 2003 year the net working Capital was negative but, in each year goes on decreasing and in 2006 year the net working capital is positive. It shows that the Asia Automotive has a sufficient net working capital to meet the claims of creditors and day to day needs of business.

2) CURRENT RATIO :

The current ratio is the ratio of total current assets to current liabilities. The current ratio indicates the firms ability to pay its current liabilities . By using this ratio the extent of the soundness of current financial position of an undertaking and the degree of safety provided to the creditors. Grater the current ratio the larger amount of rupee available to the firm per rupee of current liabilities. Current Ratio = Current Assets Current Liabilities
CA / CL 53,17,876 / 69,42,745 76,24,110 / 87,94,808 80,72,375 / 82,16,245 84,30,112 / 76,36,441 Current Ratio 0.77 0.87 0.98 1.10

Year 2002-2003 2003-2004 2004-2005 2005-2006

1.2

0.8

0.6

0.4

0.2

0 2002-03 2003-04 2004-05 2005-06

Current Ratio
COMMENTS :

The current ratio of a firm measures its short-term solvency, its ability to meet short term obligations. The higher the current ratio that is more than 2:1 indicates the sound solvency position, the more is the firms ability to meet current obligation and the greater is the safety of funds of short term creditors and lower ratio that is less than 2:1 indicates inadequate working capital. Asia Automotive indicates its improved current ratio. In each year the current ratio of the firm goes on increase .It shows that in the future company can achieve more than 2:1 current ratio. There fore it is able to the company to meet its obligation and for the creditors the firm is less risky.

3)

Quick Ratio :

Quick ratio also called as Acid test ratio. The quick ratio is a fairly stringent measures of liquidity. It is based on those current assets which are highly liquid inventories are excluded from the numerator of this ratio because inventories are deemed to be the least liquid component of current assets. Quick ratio can be calculate by dividing the quick assets by current liabilities. Quick ratio is a liquidity ratio or 1:1 ratio this ratio indicates liquid financial position of an enterprise. Quick Ratio = Quick Assets Current Liabilities

Year 2002-2003 2003-2004 2004-2005 2005-2006

QA/CL 46,62,662 / 69,42,745 59,50,490 / 87,94,808 66,36,583 / 82,16,245 76,94,077 / 76,36,441

Quick Ratio

0.67 0.68 0.80 1.00

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2002-03 2003-04 2004-05 2005-06

Quick Ratio

COMMENTS :

Acid Test or Quick ratio indicates the firm ability to convert its current assets quickly into cash in order to meet its current liabilities. If the ratio is higher that is more than 1:1 ratio it shows the good position of the company and the lower ratio indicates financial difficulty of the company. Above graph indicate that the quick ratio is not equal or more than 1:1 ratio. But in each year the quick ratio of the company shows some improvement. So that we can conclude that very soon company has a sound financial position.

B) 1)

TURNOVER RATIO : Inventory Turnover Ratio :

The inventory turnover ratio or stock turnover ratio measures how fast the inventories is moving through the firm and generating sales. This ratio can be calculated as cost of good sold by average inventory. The inventory turnover reflects the efficiency of inventory management. The higher the ratio, the more efficient the management of inventories and vice versa. A high inventory turnover may be caused by a low level of inventory which may result in frequent stock outs and loss of sales and customer goodwill. This ratio measures the number of times stock is replaced during the year. Cost of goods sold Inventory Turnover Ratio = Average inventory

Year 2002-2003 2003-2004 2004-2005 2005-2006

COGS / AVG INV 49,11,297 / 5,90,143 69,86,362 / 11,64,417 88,80,174 / 15,54,706 90,18,205 / 10,85,914

Inventory Turnover Ratio 8.32 5.99 5.71 8.30

9 8 7 6 5 4 3 2 1 0 2002-03 2003-04 2004-05 2005-06

InventoryTurnover ratio

COMMENTS :

The inventory turnover ratio measures how quickly inventory is sold. It is test of efficient inventory management. A high inventory turnover ratio is better than a low ratio. Asia Automotive companys inventory turnover ratio was good in the year 2003 but in the year 2004-05 was less. Again in 2006 the ratio shows improvement .The company has to maintain the ratio in decreasing order.

2) Debtors Turnover Ratio : This is ratio shows how many times sundry debtors (account receivable) turnover during the year. It is calculated as net credit sales by average debtors . if the figure for net credit sales is not available, one may have to make do with the net sales figure. The higher the debtors turnover the grater the efficiency of credit management. This ratio indicates how quickly the receivable or debtors are converted into cash. Net Credit Sales Debtors Turnover Ratio = Average Debtors Average Debtors = opening Debtors + Closing Debtors / 2

Year 200 2-2003 200 3-2004 200 4-2005 200 5-2006

NCS / Avg. Debtors

Debtors Turnover Ratio 4.62 4.75 4.70 3.94

141,47,123 / 3063641 180,68,771 / 3798407 221,50,623 / 4707596 219,59,644 / 5571166

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2002-03 2003-04 2004-05 2005-06

Debtors Turnover Ratio


COMMENTS :

Debtors turnover ratio measures how rapidly debts are collected. Higher ratio is indicative of shorter time lag between credit sales and cash collection. A low ratio shows that debts are not collected rapidly. Asia Automotive company has a satisfactory debtors turnover ratio. which indicates that there is the shorter time lag between credit sales and cash collection. Only in the year 2006 the ratio is low which indicate that the company has given the more period to the debtors of the company.

3) Debt Collection Period : The higher the ratio, lower is the collection period. While lower ratio indicates high collection period. The actual collection period can be compared with stated credit terms of the company. If it is longer than those terms, then this indicates some inefficiency in the procedure for collection debt. The debt collection period which is shorter than the credit period allowed by the firm needs to be interpreted carefully. it may mean efficiency of credit management or excessive conservatism in credit granting that may result in the loss of some desirable sales. Debt Collection Period = 365 days / debtors turn over ratio

Year 2002-03 2003-04 2004-05 2005-06

365 / DTR 365 / 4.62 365 / 4.75 365 / 4.70 365 / 3.94

Debt. Collection period 79 77 78 92

100 90 80 70 60 50 40 30 20 10 0

2002-03

2003-04

2004-05

2005-06

Debt collection period

COMMENTS :

The average collection period, which is shorter than the credit period allowed by the firm, needs to be analyzed carefully. Asia Automotive indicates more debt collection period it is necessary to decrease its collection period.

4)

Working Capital Turnover Ratio :

This ratio is also called as Investment Turnover Ratio. Working Capital Turnover Ratio computed by dividing sales by Net Working Capital or by dividing cost of good sold by working capital. The indication given by this ratio is the number of times working capital is turned around in particular period. This ratio helps to measures the efficiency of the utilization of net working capital. If any increases in sale is contemplated working capital should be adequate. Sales Working Capital Turnover Ratio = Working Capital

Year 2002-03 2003-04 2004-05 2005-06

Sales / working capital 141,47,123 / -16,24,869 180,68,771 / -11,70,698 212,50,623 / -1,43,870 219,59,644 / 7,93,671

Working Capital Turnover Ratio -8.71 -15.43 -147.71 27.67

40 20 0 -20 -40 -60 -80 -100 -120 -140 -160 2002-03 2003-04 2004-05 2005-06

Working Capital Turnover Ratio

COMMENTS :

The higher ratio the better is the utilization of the working capital as well as lower the investment in working capital. Asia Automotive working capital turnover ratio shows the improvement in each year. Initially in the 2003 year the ratio was negative, but in 2004 and 2005 it goes on increasing and finally in the 2006 year there is the positive ratio these is the good indication of the ratio .The firm should give the proper attention towards the utilization of working capital.

5)

Current Asset Turnover Ratio : The asset turnover ratio however measures the efficiency of the firm in managing and utilizing its assets. This ratio is computed by dividing the sales by current assets. The grater the turnover ratio, the more efficient is the management and utilization of assets and lower the turnover ratio, shows under utilization of assets. An analysis of this ratio over a period of time reflects working capital management of a firm.
Sales

Current Asset Turnover Ratio =

Current Assets

Year 2002-03 2003-04 2004-05 2005-06

Sales / Current Assets 141,47,123 / 53,17,876 180,68,771 / 76,24,110 221,50,623 / 80,72,375 2,19,59,644 / 84,30,112

Current Asset Turnover Ratio 2.66 2.36 2.75 2.60

2.8 2.7 2.6 2.5 2.4 2.3 2.2 2.1

2002-03

2003-04

2004-05

2005-06

Current Assets Turnover Ratio

COMMENTS :

Current asset turnover ratio indicates the firms efficiency in utilization of its assets . The greater the ratio which indicates there is the efficient management and maximum utilization of the assets. If the ratio is lower it indicates under utilization of the assets. Asia Automotive current asset turnover ratio is not constantly goes on increasing, the ratio is fluctuate in all four year. There fore Asia Automotive has to increase its current asset turnover ratio, which is seen to be decreasing. The firm should carefully utilize its assets in order to increase the efficiency of the firm.

6) Creditors Turnover Ratio : This ratio is computed as net credit purchase divide by average creditors .The creditor turnover ratio indicates the actual payment behavior of the customer - organization. If the creditors turnover ratio of a customer is larger than the receivable turnover ratio then it is beneficial for the organization. If the ratio is registering a falling trend, it is likely that there has been a slow down in the collection of accounts receivable of the customer which will be reflected by a falling receivable turnover ratio. Net Credit Purchase Creditors Turnover Ratio = Average Creditors

Year 2002-03 2003-04 2004-05 2005-06

Net Credit Purchase / Avg. 1,22,062 / 48,39,357 1,77,448 / 56,83,848 2,31,237 / 64,41,311 1,77,478 / 60,44,033

Creditors

Ratio 0.03 0.03 0.04 0.02

0.04 0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2002-03 2003-04 2004-05 2005-06

Creditors Turnover Ratio COMMENTS :

The high creditors turnover ratio indicates that account are to be settled rapidly, and the low ratio reflects liberal credit terms granted by suppliers. The credit turnover ratio is an important tool of analysis a firm can reduce its requirement of current assets by relying on suppliers credit. The company has a low ratio which indicates the liberal credit terms of the company are granted by the supplier. Only in the year 2004 the ratio was high which indicate that the account of the Asia Automotive is settled rapidly.

PROFITABILITY RATIO : A) NET PROFIT RATIO : This ratio indicates the earning left for shareholder as a percentage of sale of net sale. It measures the overall efficiency of production, administration, selling, financing pricing, and tax management. Jointly considered, the gross and bet profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable the analyst to identify the sources of business efficiency. Net profit ratio is computed by dividing net profit ratio by sales. Net profit Net Profit Ratio = Sales Year 2002-03 2003-04 2004-05 2005-06 Net profit / Sales 4,84,624 / 141,47,123 5,28,926 / 180,68,771 8,85,466 / 221,50,623 8,01,956 / 219,59,644 Net Profit Ratio 3.4 % 2.9 % 3.9 % 3.6%

4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2002-03 2003-04 2004-05 2005-06

Net Profit Ratio

COMMENTS :

The net profit ratio is a measures of overall profitability and is very useful to the proprietor and investors in judging the prospects of return on their investments. The above graph indicate that the net profit ratio of the company is high this is the good sign which mean that the company has high return on their investments and the company is in good position.

B) Gross Profit Ratio : Gross profit ratio is defined as the difference between net sales and cost of good sold. This ratio shows the margin left after the meeting manufacturing costs. It measures the efficiency of production as well as pricing. To analyze the factors underlying the variation in gross profit margin the proportion of various element of cost to sales is studied. The gross profit ratio is computed by dividing gross profit by sales Gross profit Gross Profit Ratio = Sales

Year 2002-03 2003-04 2004-05 2005-06

Gross Profit / Sales 9235826 / 14147123 11082409 / 18068771 13270449 / 22150623 12941439 / 21959644

Ratio 65 % 61 % 60 % 59 %

65% 64% 63% 62% 61% 60% 59% 58% 57% 56% 2002-03 2003-04 2004-05 2005-06

Gross Profit Ratio COMMENTS :

Higher ratio indicates higher profitability and lower ratio indicates lower profitability and unfavorable mark up policy. The above graph indicate that the gross profit ratio of the firm goes on decreasing . The low ratio is not the good indication. The firm must give attention to increase its gross profit and its profitability.

CHANGES IN WORKING CAPITAL

FOR YEAR 2003-2004 Particulars Year 2003 Year 2004 Increase in working capital Decrease in working capital

Current Assets
A. Inventory : Raw material Work-in-progress Stores & Spares Finished goods Sundry Debtors : Outstanding for a 6 Months Other Debts Cash and Bank bal. Cash on hand Balance with schedule Bank . B. Loans and Advances : Sundry Deposits Balance with Excise authorities . Current Liabilities : Sundry Creditors Other liabilities Total 48,12,592 21,30,153 --65,55,104 22,39,704 --22,73,790 18,75,387 17,42,512 1,09,551 1,85,328 1,03,994 1,50,047 2,15,845 4,52,116 6,23,463 1,50,075 4,47,966 2,66,788 51,94,469 28 2,32,121

93,089 31,66,633 26,163 10,25,909

1,48,857 41,88,234 28,593 12,15,836

55,768 10,21,601 2,430 1,89,927

3,15,299 35,569

3,56,725 12,245

41,426 23,324

Net increases in working capital = 22,73,790 18,75,387 = 3,98,403

CHANGES IN WORKING CAPITAL

FOR YEAR 2004-2005 Particulars Year 2004 Year 2005 Increase in Working capital Decrease in Working capital

Current Assets A. Inventory : Raw material Work-in-progress Stores & Spares Finished goods Sundry Debtors : Outstanding for a 6 Months Other Debts Cash and Bank bal. Cash on hand Balance with Schedule Bank B. Loans and Advances Sundry Deposits Balance with Excise authorities . Current Liabilities : Sundry Creditors Other liabilities Total 65,55,104 22,39,704 --63,27,517 18,88,728 --2,27,587 3,50,976 19,74,493 9,47,665 4,52,116 6,23,463 1,50,075 4,47,966 1,48,857 41,88,234 28,593 12,15,836 4,12,849 1,05,298 1,82,122 7,35,523 50,78,101 20,916 9,82,137 8,89,867 7,677 2,33,699 39,267 5,18,165 32,047 2,87,557 1,48,857

3,56,725 12,245

3,87,788 1,67,641

31,063 1,55, 396

NET INCREASE IN WORKING CAPITAL = 19,74,493 - 9,47,665 = 10,26,828

CHANGES IN WORKING CAPITAL

FOR YEAR 2004-2005 Particulars Year 2004 Year 2005 Increase in Working capital Decrease in Working capital

Current Assets A. Inventory : Raw material Work-in-progress Stores & Spares Finished goods Sundry Debtors : Outstanding for a 6 Months Other Debts Cash and Bank bal. Cash on hand Balance with Schedule Bank B. Loans and Advances Sundry Deposits Balance with Excise authorities . Current Liabilities : Sundry Creditors Other liabilities Total 65,55,104 22,39,704 --63,27,517 18,88,728 --2,27,587 3,50,976 19,74,493 9,47,665 4,52,116 6,23,463 1,50,075 4,47,966 1,48,857 41,88,234 28,593 12,15,836 4,12,849 1,05,298 1,82,122 7,35,523 50,78,101 20,916 9,82,137 8,89,867 7,677 2,33,699 39,267 5,18,165 32,047 2,87,557 1,48,857

3,56,725 12,245

3,87,788 1,67,641

31,063 1,55, 396

NET INCREASE IN WORKING CAPITAL = 19,74,493 - 9,47,665 = 10,26,828

CHANGES IN WORKING CAPITAL FOR YEAR 2005-2006 Particulars Year 2005 Year 2006 Increase in Working capital Decrease in Working capital

Current Assets A. Inventory : Raw material Work-in-progress Stores & Spares Finished goods Sundry Debtors : Outstanding for a 6 Months Other Debts Cash and Bank bal. Cash on hand Balance with Schedule Bank B. Loans and Advances Sundry Deposits Balance with Excise authorities . Current Liabilities : Sundry Creditors Other liabilities Total ----20,75,746 11,38,205 = 9,37,541 11,38,205 63,27,517 18,88,728 57,60,549 18,75,892 5,66,968 12,836 4,12,849 1,05,298 1,82,122 7,35,523 50,78,101 20,916 9,82,137 1,66,628 1,89,109 1,08,773 2,71,525 1,64,210 59,00,021 34,061 7,81,033 2,46,221 83,811 73,349 4,63,998 1,64,210 8,21,920 13,145 2,01,104

3,87,788 1,67,641

8,00,644 14,108

4,12,856 1,53,533

NET CHANGING IN WORKING CAPITAL = 20,75,746

1200000 1000000 800000 600000 400000 200000 0 2003-04 2004-05 2005-06

Changes In Working Capital

COMMENT : From the above graph it can be seen that the working capital is Decreased in the year 2006 as compared to the previous year. This indicate that the company has not a sufficient capital. There fore the company have to increase it working capital in the next year.

RECOMMENDATION & SUGGESTION Following are the recommendation and suggestions The ratio like current ratio working capital turnover ratio should be improved through the efficient working and effective policies so as to facilitate the lower investment in working capital. Creditors should be paid in proper time period and debtors collection period should be reduced. The proper follow up procedure for making the collection from debtors should under take by the company.

CONCLUSIONS

As this project was conducted to analyze the working capital of Asia Automotive Ltd. For last four year. During these project working and project report I comes to some conclusions that are as follows. 1. working capital shows some improvement each year from 2003-2006. It shows better utilization of the working capital . The current ratio of the company was increased in each year it shows that the company is in good position but, the increases in current ratio may not be favorable for the company position. It means that excessive investment in current assets is made. The acid test ratio of the company is also increasing in each year it shows that the company the is in good position. Means the company has the ability to convert current assets quickly into the cash to meet its current liabilities. Statement showing changes in working capital decreases in year 2003-2004 and further it increased in year 2004-2005 and again goes on decreasing in year 2005-2006

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