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“WORKING CAPITAL MANAGEMENT” AT VIMAL PUMPS PVT.LTD. SUBMITTED TO CHAUDHARY TECHNICAL INSTITUTE IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION
IN GUJARAT TACHNOLOGICAL UNIVERSITY UNDER THE GUIDANCE OF
FACULTY GUIDE PROF. SANJIV CHAUDHRI COMPANY GUIDE BHIKHABHAI PATEL
[BATCH: 2012-13, ENROLLMENT NO: 117080592024] MBA SEMESTER - III CHAUDHARI TECHNICAL INSTITUTE MBA PROGRAMME
This report cover specially finance department. This type of industrial training can put as one step related field & addition in theatrical knowledge with the help of industrial training, the knowledge of student can really increase & they can get a golden chance in future. I have tried my level best to prepare this report. In every field of education important to the student practical training. If possible should be given to the student. This will help the student to bring out & exhibit the qualities, which is no way can. Be exhibited by theoretical training.. It helps us to get a better prospectus and understanding of working condition of the various industries
Gratitude is the noble response of one’s soul to kindness or help generally rendered by another and its acknowledgement is a duty. Therefore it is that I express briefly my debts to these who have made the creation of this project possible. I thank the Lord on whom we believe and depend on my each and every achievement is nothing but a look of the on me. I thankful to Mr.Bhikhabhai Patel account manager, Vimal pumps pvt ltd at Mehsana for allowing me for training purpose of at vimal pumps pvt ltd at and also given me guidance about the subject which I was preparing to project report. Vimal pumps pvt ltd at Mehsana for allowing me for training purpose of at vimal pumps pvt ltd at and also given me guidance about the subject which I was preparing to project report.
Sr.no. • • • 1. 1.1 1.2 1.3 1.4 1.5 2. 2.1 2.2 2.3 3. 3.1 3.2 3.3 4. 4.1 4.2 4.3 4.4
Chapters Preface Acknowledgement Executive summary Introduction History & background General info. of co. Organization structure Financial department Relationship with other department Working capital Introduction Meaning concepts Research analysis Objective of the study Limitation of the study Data & Methodology of the study Data analysis & interpretation Working capital analysis Analysis of liquidity ratio Return on investment Correlation & Regression analysis
LIST OF TABLE
Sr.no. 1 2 3 4 5 6 7
Name of table Working capital Current ratio Liquidity ratio Absolute ratio Inventory to sales ratio Debtors to sales ratio WCTR 4
8 9 10 11 12 13 14 15 16 17
CA to total assets ratio CA to sales ratio Cash to CA ratio Cash turn over ratio Average age of cash Selected liquidity ratios ROI Correlation Coefficients Regression statistics
LIST OF CHARTS
Sr.no. 1 2 3 4 5 6 7 8 9 10 11 12
Chart name Current ratio Liquidity ratio Absolute ratio Inventory to sales ratio Debtors to sales ratio WCTR CA to total assets ratio CA to sales ratio Cash to CA ratio Cash turn over ratio Average age of cash ROI
HISTORY & BACKGROUND
Vimal group has its roots in North Gujarat. One of the most respected groups now, it had its humble beginnings but with a clear vision. And today it has grown to be a conglomerate of 19 group companies. These thriving companies broadly cater to seven categories: Edible Oils, Dairy, Paints & Micron zed Minerals, Ceramics tiles, Electrical, Engineering and Real Estate. The days of the group's inception were challenging. Where private enterprise had to work very ingeniously to overcome bottlenecks of Industrial infrastructure and Investments; Shri C.I.Patel, the founder of the Vimal Group took it upon himself to steer the enterprising ambitions to greater heights in the era of regulated Indian markets of the 70s. The ingenious approach thus evolved was to take a route of mass participation and community benefiting businesses. Consequently, Shri C.I.Patel and those who followed him aligned business opportunities with the 8
objective of community building. This approach remains enshrined in the Group's ethos to this day and will continue to guide the way forward.
The rich rewards thus reaped on solid foundation are evident in the year on year growth. The Vimal Group touched Rs 1500 crore revenues landmark in the year 2008-09. The rapid stride it took in the last decade envisions a wider role of the group in the industrial development of the region.
The Group's flagship company is also one of the most successfully publicly listed enterprises Vimal Oil & Foods Ltd. It stands apart from the rest.
Vimal Pump Private Ltd
There was a short supply of water for irrigation. Looking at the opportunity for water drawing equipment, the company introduced Submersible Pumps in the market under the brand name of "Vimal Pumps" by forming a Vimal Pumps Pvt.ltd.company.
Based on quality and reliability, Vimal group is to become the most preferred brand in the region. Our vision is to grow rapidly with the help of newer technologies and tapping latent needs of the consumers. It is our firm belief that if we can provide what consumers need, in a way they need, there is hardly a reason why Vimal brand will not soon become one of the most preferred and trusted brands. For this we will keep re-assessing and build upon our strengths and improve upon our weaknesses. As part of the Vimal group, we, the Promoters & the employees should never compromise on the promises of quality and innovation. And the goals are ours to reach.
Continue to provide value added products in an ethical and competitive way to the community. Businesses are to generate profits. The difference with us is how we define profit. We believe that any exchange of goods and services should leave both- the giver and taker- satisfied and pleased. This generates trust. This in turn is, key to the growth and even survival of a company. On the other hand, adapting to changing times – whether it is new technology or consumer needs makes a business profitable. This profitability allows continuity and growth of the business. In short, it is a two way process. For overall development.
The Vimal family of companies shares a set of core values - Harmony, Fraternity & Unity. These set of core values upon which the Vimal group was founded continue to be the guiding force and principals for all business decisions and ventures. The Group and its enterprises have been steadfast and distinctive in their adherence to business ethics and their commitment to the community and society at large.
Our all Group companies adhere to national and international quality standards like ISO and highest valued certifications from the government authorities. And continue to update and upgrade with quality commitments and bureau standards issued by competent authorities. It is committed in action to deliver satisfying Products & Services for the present and future requirements of end users. The emphasis is on prevention rather than detection. It is the group’s policy to manufacture & market goods, which comply with the customers’ needs and the product designers’ specifications. The quality system is so designed that keeps ensuring the maintenance of the product quality standard through the evaluation, Inspection and verification of processes of all stages of manufacture.
This has led to a major thrust in the product exports. The fruits of increase in exports are a result of our policy to ensure that supplies adhere to contractual specifications and satisfy the customer in terms of consistent quality and timely delivery
1.2 GENERAL INFORMATION OF THE VIMAL PUMP PRIVATE LTD
Name of the company: Vimal Pump Private Ltd Address : 7, GIDC Estate, Highway, Mehsana - 384002 : Vimal House, 31, GIDC Estate, Highway, Mehsana - 384002 : Patel Narayanbhai Shivabhai Patel Kantibhai Shivabhai Patel Bhanubhai Shivabhai : About Rs.7 crore : The Mehsana Urban Co-op. Bank, 12
Board of Directors
Turn over Bankers
Kotak Bank, Mehsana Nature of the Industry : Private Daily Employment Raw Material comes From Share Capital : 6 staff members, 17 workers
: Ahmedabad : Authorize Capital: 50000 equity shares of Rs.10of Each Issued subscribe and paid up capital: 15000 equity shares Rs.10 fully paid up.
Product Range: Submersible Pumps & Mono- set 5 H.P. To 100 H.P. Hopewell Size 4, 6, 7,9,10 Inches
: the Company’s major customer in Domestic market following Gujarat Rajasthan Maharashtra
1.3 ORGANISATION STRUCTURE List of Department:
1. Production Department: Dyeing and warping Warping
Sipping Inspection and Packing
2. Finance Department: 14
Accounting Costing Audit.
3. Marketing Department: Domestic Export
4. Personnel Department
5. Purchase & Store Department: Purchase
Research & Development Engineering Production Planning & Control MIS-Management Information System Materials.
1.4 FINANCE DEPARTMENT CHART
FINANCE DEPARTMENT CHART
Chief Executive Officer
Plant Level (DGM)
1.5 RELATIONSHIP WITH OTHER DEPARTMENTS:
1. Relationship with Marketing:
Finance department is related to marketing department in many ways, i.e. in what way marketing department takes the orders from the customer and how many advanced order are taken and how many build are paid against the order in what way bill are adjusted, et. In short the financial matter which are connected to marketing or sales are handled by the financial department which is responsible for balancing the payment and receipt of the cash.
2. Relationship with Production Department:
For production how much money is required by manager of the finance department to meet the demand of domestic and international market by production department? The production manager has to understand the profit and appraisal return on assets. He must be able to develop and manage capital expenditure budgets and understand the costing system. When the demand forecasts are prepared and finalized, it is necessary to examine the various constraints upon organization to ensure that the forecasts are within constraints.
3. Relationship with Personnel Department:
Personnel department known as” human resources development “ i.e. it may concerned with the employee of the company and their way i.e. salary, compensation, leave, payment etc. when personnel department makes a salary, it is checked by the finance department and payment of compensation leave, wages etc.is also paid by finance department.
CHAPTER-2 WORKING CAPITAL
Working capital management is a significant fact of financial management due to the fact that it plays a pivotal role in keeping the wheels of business enterprise running. Working capital management is concern with short term financial decisions have been relatively neglected in the literature of finance. Shortage of fund for working capital has caused many businesses to fail and in many cases, has recorded their growth, Lack of efficient and effective utilization of working capital lead to earn low rate return on capital employee or even compels to sustain losses. Working capital to a company is like the blood of human body. It is the most vital ingredient of a business. Working capital management if carried out effectively, efficiently, will assure the health of the organization.
2.2 Meaning of working capital management
Working capital management is the administration of the firm’s current assets and the financial needed to support the current assets. Current assets are those assts, which will be converted into cash within the current accounting period or within next year as a result of the ordinary operation of the business. They are cash or converted cash resources. These included Cash and Bank Balance, Receivable, Inventory, Prepaid expenses, Short Term advances, Temporary Investment. He vatu represented by these assets circulated among several items. Cash is used to by raw material, to pay wages and to meet other manufacturing expenses. Finished goods are produced further held as inventories and when inventories are sod account receivable are created. Then the collection of account receivables brings cash into the firm and the cycle starts again
Circulation of current asset
Current liabilities are the debts of the firm that have to be paid during the current accounting period or within a year. This includes creditors for good purchase, outstanding expenses, short term borrowing, advances receivable against sales, taxes and dividends payable, and other liabilities maturing within a year. Working Capital is also known as circulation capital, fluctuating capital and revolving capital.
Gross Working Capital It refers the firm’s investment in current assets. Current assets are the assets which can be converted into cash within an accounting year and included cash, short-term securities, debtors,(account receivable or book debts)bills receivable and stock (inventory). Net working Capital It refers to excess of the current assets over current liabilities. Net Working can be positive or negative. A negative working capital will arise in case when current liabilities are more than current assets and positive working capital will occur when current assets are more than current liabilities. Current credit soundness is indicated by positive Net Working Capital position, which is of major concern to investors and bankers. It is measured by the current ratio obtained by dividing the rupee value of current assets by rupee value of current liabilities. Larger the ratio the more solvent the firm,i.e in the event of bankruptcy, falling prices of inflated the values, the book value of current assets could shrink considerably and the firms creditors would still be assure of payments.
However from management’s point of view a high ratio may indicate poor planning since excessive amounts are tied up on productive current assets, which tend to produce a lower income. The above concepts are called Balance Sheet Approach of Working Capital.
Need for working capital
The need for working capital to run day-to-day business activities cannot be overemphasized. It is difficult to find any organization, which does not require any amount of Working Capital. Indeed, firms differ in their requirements of the working capital we know that should be enhance the wealth of its shareholders. In its endeavor to do so a firm should earn a sufficient return from its operation. Earning as steady amount of profit requires successful sales activity and coordination among all the department of the firm. The firm is required to invest enough amounts of funds in current assets. For generating sales current assets are needed because sales do not convert into cash immediately.
Objective of working capital management
Underline the need for investing current assets and elaborate the concepts of Highlight the necessity of managing current assets and current liabilities. Explain the principle of current assets investment and financing. Focus on the proper mix of short term ad long term financing for current
operating cycle. assets. 24
Importance of working capital
The level of current assets changed constantly and regularly depending
upon the level of actual and forecasted sales. This required that the decision to bring the levels of current assets to the desired levels of current assets should be made at the earliest opportunity and frequently as required. pattern. Inefficient working capital management may result in loss of sales and The increase in sales level required increases in working capital and thus the consequently decline in the profit of the firm. financial manager must be able to respond quickly in providing and arranging additional working capital. There is an obvious relationship between the sales growth and the level of current assets. The target sales level can be achieved only if supported by adequate working capital. Current assets usually represent a substantial portion of total assets of a firm, resulting in the investment of larger fund in current assets. The changing levels of current assets may also required of the financing
CHAPTER-3 RESEARCH ANALYSIS
3.1 Objective of the studies
To assess the significant of working capital by selecting few important parameters such as, working capital ratio, current assets to total assets, total assets to sales ratio, age of inventory, debtors to sales and age of debtors etc. To make analysis of the element or component of working capital to identify the item responsible for changes in working capital To study liquidity position of the company by taking four measures at time namely, inventory to current assets, debtors to current assets, cash and bank to current assets and loan and other assets to current assets.
3.2 Limitation of the study
The study is limited for the period performance of the company The data used in this study have been taking from published annual reports For making my study clear cut, researcher used ratio techniques of financial
and auditor’s report only. management.
3.3 Data & methodology of the study
The data used for the study of working capital management of the VIMAL PUMPS, is secondary sources. For assessing the performance of working capital management position of the company in this study ratio analysis have been used.
CHAPTER-4 DATA ANALYSIS & INTERPRETATION
4.1 Working capital
The working capital is calculated as follows Working capital = current assets – current liabilities 20072008 A. Current assets i. Inventory ii. iii. iv. v. Loans & Advances Sundry debtors Cash in hand Bank Accounts 5122643. 08 6679809. 00 1141118. 43 25726.94 530386.4 2 Less: B. Current liabilities i. Duties & Taxes ii. iii. Provision Sundry 35290.00 512123.0 0 2326475. 50 4625795. 37 20082009 20092010 20102011 2011-2012
4798382.5 5701292.0 7048893.8 10583267. 1 7 9 70 5529741.0 9103150.0 9837973.0 10486612. 0 0 0 00 39826722. 5668223.0 1801396.0 5107650.0 00 0 0 1002635.1 1010874.9 36940.37 0 66577.37
5 7 3322789.2 268167.33 2463142.8 6 3 380790.17 -
175820.70 104125.00 -
156452.08 162704.16 1118115.4 782503.00 638205.00 708810.00 0 5099684.2 4422284.7 4208022.7 7074779.5 5 5 5 0 48086649. 16442794. 16498570. 18242431. 57 62 42 56
Creditors Net Working Capital
Positive working capital means that the company is able to pay off its short-term liabilities but the working capital is decrease every year. In the year 2008-09 the working capital of the company is higher to compare other year’s working capital. In the year 2009-10 the working capital is decrease by 65.81% in compare to 2008-09. In the year 20011-12 the WC is increase by 10.57% compare to 2010-11.
4.2 Analysis of liquidity ratio:31
Current ratio = current assets / current liabilities Current ratios of the firm measure its short term solvency, which indicates the rupees of current assets available for each rupee of current liabilities. The current ratio represents a margin of safety for creditors. Table: (Table: 2) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 CA
13499684 18580270 21751707 21188346 25863317
2803309 6393620 5308913 4689776 7620885
CR 4.81 2.91 4.10 4.52 3.39
CR 6 5 4 ratio 3 2 1 0 2007-08 2008-09 2009-10 2010-11 2011-12 years 2.91 4.81 4.1 4.52 3.39 CR
Interpretation By looking the current ratio is last 5 year. In the year 2009-10, the ratio is 4.1 times than the in the year 2010-11, it will increase and reached at 4.52 due to decrease in current liabilities than the current assets While in the year 2010-11 and 2011-12 the ratio is decrease and reached 4.52 and 3.39 times which is due to decrease in current assets is less than the current liabilities with overall average of 4 times during the study period the average show that liquidity position of the company is satisfied and company has more liquidity facilities available to creditors.
Liquidity ratio or quick Ratio = current assets – Inventory /current liabilities Quick ratio known as the acid test ratio or liquidity ratio test to liquidity than the current ratio. The term liquidity refers to the ability of firm to pay its short term obligation as and when they become due. The two determination of current ratio as a measure of liquidity are current assets and current liabilities. Current assets included inventories and prepaid expenses, which are not easily convertible into cash within a short period. Quick ratio is defined as the relationship between quick/current assets and current liabilities. An asset is liquid if it can be converted into cash within short period without loss of value. In that case cash in hand and cash in bank are most liquid ratio, ideal ratio is 1:1
TABLE: (Table: 3) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 CAINVENTORY
8377041 12781887 16050415 14139452 15280049 2803309 6393620 5308913 4689776 7620885
LIQUIDITY RATIO 2.99 2.16 3.02 3.01 2.00
(Chart: 2) 34
LIQUIDITY RATIO 3.5 3 2.5 RATIO 2 1.5 1 0.5 0 20 0708 20 0809 20 0910 YEARS 20 1011 20 1112 LIQUIDITY RATIO
Interpretation: The acid test ratio of the company during the period of the study in year 2009-10 and 2010-11 there are might difference between the acid test ratio is 3.02 times& 3.01times. It is decrease in the year 2011-12 at 2.00 times. The average of the ratio is 2.636 time
. Absolute liquid ratio:
Absolute liquid ratio = 35
(Cash + Bank + Market security) / Current liabilities
Although receivable, debtors, and bill receivable are generally more liquid than inventories yet may be doubts regarding their realization into cash immediately or in time. Hence, some authorities are of opinion that the absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivable from the current assets and find out absolute liquid ratio. The acceptable norms of this ratio is 0.5:1 or 1:2
TABLE: (Table: 4) YEARS CASH + BANK+ CL MKT SCURITY 2007-08 2008-09 2009-10 2010-11 2011-12
7235922 9855165 10382192 12338056 10172399 2803309 6393620 5308913 4689776 7620885
ABSOLUTE LIQUIDE RATIO 2.58 1.54 1.96 2.63 1.33
Chart: (Chart: 3)
ABSOLUTE LIQUIDE RATIO
3 2.5 RATIO 2 1.5 1 0.5 0
22 07 20 08 08 20 09 09 20 10 10 20 11 11 -1 2
ABSOLUTE LIQUIDE RATIO
Interpretation The trend of the absolute liquid ratio of the company during the period of study is very differences. In the year 2009-10 ratio is 1.96 times and 2010-11 it is 2.63 times and 2011-12 it is decrease at the 1.33 times. So, company maintains the level of cash and bank balance and more utilization of cash resources.
Inventory to sales
Inventory to sales = inventory / sales Inventory to sales ratio establishes relationship between the sales with average stock. This ratio measures the velocity of conversion stock in to sales. Usually, a high inventory sales indicates efficient management of inventory because more frequently the stock are sold, the lesser amount of money is required to finance the inventory. A low inventory to sales ratio indicates an inefficient management of inventory, over investment in inventories, sluggish business, and poor quality of good and lower profit as compared to total investment. A high inventory turnover may be the result of a very low level of inventory which results in shortage of goods in relation to demand and position of stock or the turnover may be high due to conservation methods of valuing inventories at lower value or the policy of the being to buy frequently in small lot.
TABLE: (Table: 5) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 INVENTORY
5122643 4798383 5701292 7048894 10583268
4519702 13032208 63529462 3553386 12200852
INVENTORY TO SALES 2.58 1.54 1.96 2.63 1.33
Chart: (Chart: 4)
INVENTORY TO SALES RATIO 2.5 2 RATIO 1.5 1 0.5 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 YEARS INVENTORY TO SALES RATIO
Interpretation Inventory to sales ratio fluctuated during the study period. In the year 2009-10 ratio is 0.09 times and 2010-11 ratios is 1.98 times and 2011-12 ratio is 0.87 times. It is clear that portion of inventory is decreases of liquidity are current assets and current liabilities. Current assets included inventory and prepaid expenses which are not easily convertible into cash within a short period.
. Debtors to sales ratio
Debtors to sales ratio = debtors / sales Debtors sales ratio indicate the velocity of debt collection of firm .in simple words, it indicates the number of times debtors are turned over during a year. Generally, the value of the more efficient is the management of debtors/sales or more liquid are the debtors. Similarly, low debtors turnover implies inefficient management of debtors/sales and less liquid debtors. But a precaution is needed while interpreting a very high ratio may imply a fir’s inability due to lack of resources to sales on credit thereby losing sales and profits. There is no thumb, which may be used as norms to interpret the ratio, as it may be different from firm to firm, depending upon the nature of business. TABLE: (Table: 6) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 DEBTORS 1141118 3926722 5668223 1801396 5107650 SALES
4519702 13032208 63529462 3553386 12200852
DEBTORS TO SALES RATIO 0.25 0.30 0.089 0.51 0.42
Chart: (Chatr: 5)
DEBTORS TO SALES RATIO 0.6 0.5 0.4 TIMES 0.3 0.2 0.1 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 YEARS DEBTORS TO SALES RATIO
Interpretation Debtors turnover ratio was in the year 2009-10, it is 0.09 times it is increase in the next year 2010-2011, it 0.51 times.
Working capital turnover ratio: 41
Working capital turnover ratio = sales / net working capital
Working capital of a concern is directly related to sales. The current assets like debtors, bills payable, cash, and stock changed with increase or decrease in sales.
The working capital = current assets – current liabilities The ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio efficient utilization of working capital and low ratio indicates otherwise. But a very high working capital turnover ratio is not a good situation for any firm TABLE: (Table: 7) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 SALES
4519702 13032208 63529462 3553386 12200852
4625795 48086650 16442795 16498570 18242432
WC RATIO 0.98 0.27 0.36 0.22 0.67
Chart: (Chart: 6) 42
WC Turn. RATIO 1.2 1 0.8 times 0.6 0.4 0.2 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 years WC Turn. RATIO
Interpretation It shows the in invested working capital is fluctuating. In company last 3 yrs position of the working capital is increase but the sales is decrease to compare in the year 2007-08
. Current assets to total assets ratio:
Current assets to total ratio = current assets / total assets This ratio expresses the relationships between the amounts of current assets and the amounts of investment in total assets. It helps to assess the importance of current assts of a concern.
TABLE: (Table :8) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 CA
13499684 18580270 21751707 21188346 25863317
19319579 25687246 31443038 30493067 35168037
CA to TA 0.70 0.72 0.69 0.69 0.74
Chart: (Chart: 7)
CA TO TA RATIO
0.74 0.73 0.72 0.71 0.7 0.69 0.68 0.67 0.66 20 0708 20 0809 20 0910 YEARS 20 1011 20 1112
CA TO TA RATIO
Interpretation: Current assets to total assets in the year 2009-10 and 2010-11 it is same, it is 0.69 times and in the year 2011-12 it is 0.74 times. It shows that the part of current assets increase in the total assets.
Current Assets to sales ratio
Current assets to sales ratio = current assets / sales 45
This ratio indicates the efficiency with which working capital turns into sales. A lower ratio implies by and large a more efficient us of funds. Thus, a high turnover indicates reduced lock up of fund in working capital. An analysis of current assets to sales ratio over a period of times shows the overall efficiency of working capital management of a firm.
TABLE: (Table: 9) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 CA
13499684 18580270 21751707 21188347 25863317
4519702 13032208 63529462 3553386 12200852
CA to SALES 2.99 0.14 0.34 5.96 2.12
Chart: (Chart: 8)
CA to SALES 7 6 5 times 4 3 2 1 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 years CA to SALES
Interpretation: CA to sales ratio show when the ratio is higher that time company have less sales and vise-a-versa. The CA to sales ratio is lower at 0.14times in the year 2008-09 and higher in the year 2010-11 at 5.96 times
Cash to current assets ratio = cash / current assets
one of the major objective of cash management from the point of view increasing return on investment is it economies on cash holding without impairing the overall liquidity requirement of the concern. This is only possible if tight control is exercised over cash flows. The cash to current assets ratio indicates the extent to which current assets are represented by cash and bank balance. Thus the lower this ratio the grater is the profitability of concern.
TABLE: (Table: 10) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 CASH
25726.94 1002635 1010875 36940.37 66577.37
13499683 18580270 21751707 21188346 25863317
CASH to CA 0.002 0.054 0.0464 0.0017 0.0026
Chart: (Chart: 9)
CASH to CA RATIO 0.06 0.05 0.04 TIMES 0.03 0.02 0.01 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 YEARS CASH to CA RATIO
Interpretation A high cash turnover ratio shows the lower balance in hand and the low ratio shows the ideal cash balance
Cash turn over ratio
Cash turnover ratio = total current liabilities / cash
TABLE: (Table: 11) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 Chart: (Chart: 10)
CASH Turn.RATIO 140 120 100 TIMES 80 60 40 20 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 YEARS CASH Turn.RATIO
2803309 6393620 5308913 4689776 7620885
CASH 25727 1002635 1010875 36940 66577
CASH RATIO 10.90 6.38 5.25 126.96 114.47
Interpretation The higher ratio indicates the lower cash in the company. In the year 2009-10 the ratio is 5.25 and then it goes up in the year 2010-11 and it again down in the year 2011-12. 50
Average age of cash = 360 / cash turnover ratio
It includes the period for which the cash remain unused. So, the firm should try minimizing this period to achieve optimum utilization of cash. 51
TABLE: (Table: 12) YEARS DAYS 2007-08 2008-09 2009-10 2010-11 2011-12 360 360 360 360 360 CASH turn. RATIO 11 6 5 127 114 Avg.AGE CASH 33 56 67 3 3 OF
Chart: (Chart : 11)
AVG AGE OF CASH 80 70 60 DAYS 50 40 30 20 10 0 2007- 2008- 2009- 2010- 201108 09 10 11 12 YEARS AVG AGE OF CASH
In the year the age of cash is constantly higher up to year 2009-10.then it is decline because of the increase in the cash turn over ratio which is equal 3 days for the year 2010-11 and 2011-12 it is show the optimum utilization of the cash
12. Selected liquidity ratio
(Table: 13) Years CR 200708 200809 200910 201011 201112 Mean 4.81 2.91 4.10 4.52 3.39 3.95
LR 2.99 2.16 3.02 3.01 2.00 2.64
Ab.liq 2.58 1.54 1.96 2.63 1.33 2.01
Inv.to sales 1.13 0.37 0.089 1.98 0.87 0.89
Debt. to sales 0.25 0.30 0.089 0.51 0.42 0.31
W.C turn over 0.98 0.27 0.36 0.22 0.67 0.5
C.A to C.A to T.A Sales 0.70 0.72 0.69 0.67 0.74 0.70 2.99 0.14 0.34 5.96 2.12 2.31
4.3 Return on investment
ROI is the most common profitability ratio. There are several ways to determine the ROI but the most frequently used method is: Return on investment = Net Profit / Total invt. In total Assets
ROI deals with the money you invest in the co. and the return you realize on that money based on the net profit of the business. Profit, on other hands, measures the performance of the business. If an invt. Does not have the positive ROI, or if other opportunities with a higher ROI, the invt should be not be undertaken.
Table: (Table: 14) YEARS 2007-08 2008-09 2009-10 2010-11 2011-12 NET PROFIT 872789 2739622 7602416 -866451 1101099 TOTAL INVT. IN TA 19319579 25687246 31443038 30493067 35168037 ROI 4.52 10.67 24.18 -2.84 3.13
Chart: (Chart: 12)
ROI 30 25 20 15 ROI 10 5 0 -5 2007-08 2008-09 2009-10 2010-11 2011-12
In the study period the ROI of the co. is increase with increase in the net profit from the years 2007-08 to 2009-10.ROI is higher position in the year 2009-10 at the 24.18%.Then it is decline in the yr. 2010-11due to the loss. In the next yr. the ROI also increase at the 3.13%
4.4 Analysis of the Multiple Correlation and Regression
Pearson Corr elati on Sig. (2-tailed) N Pearson Corr elati on Sig. (2-tailed) N Pearson Corr elati on Sig. (2-tailed) N
.735 5 -.178
.775 5 1
Hence, correlation coefficient between the current ratio and Return on investment are the no correlated there is no affected with each other.
And then correlation coefficient between the working capital turnover ratio and return on investment is-0.178. This indicates that WCTR and ROI are negatively correlated to the extent of. -0.178 Then interpret that an decrease in working capital turnover ratio will result in an decrease in Profit.
Analysis of Multiple correlations and Multiple Regression of the company for the period of 2008-09 to 2011-12
(table :16) Model Unstandardized Coefficients B 1 (Constan 18.371 t) Cr Wctr -2.175 -3.716 9.659 23.759 -.167 -.116 -.225 -.156 .843 .890 -43.733 -105.945 39.384 98.512 Std. Error 36.000 Standardized Coefficients Beta t .510 Sig. .661 95.0% Confidence Interval for B Lower Bound -136.526 Upper Bound 173.268
a. Dependent Variable: roi
Variables Regression Coefficient Standard Error Calculated value of ‘t’ Significant ‘t’
B0 18.317 36.00 0.510 0.661
B1 -2.175 9.659 -0.225 0.843
B2 -3.715 23.759 -0.156 0890
The combined impact of the selected measures relating to working capital management on the profitability of the Vimal pumps. In the regression equation ROI is taken as the dependent variable and the CR and the WCTR is taken as the independent variable. The multiple regression equation which has been taken is Y = b0 + b1 x1 + b2 x2 Where, Y = dependent variable 59
b 0 = constant variable b 1 = coefficient B1 b 2 = coefficient B2 From the table :16 the regression coefficients are b0 = 18.371, b1 = -2.175, b2 = -3.716 So, multiple regression equation can expressed as Y = b0 +b1 x1 + b2 x2 Y = 18.371 – 2.175 x2 – 3.176 x2 ROI = 18.371 – 2.175 CR – 3.176 WCTR On the basis of the regression model developed, the predicted CR is 4:1 and WCTR is 0.5 times. Y = 18.371 – 2.175 CR – 3.176 WCTR Y = 18.371 – 2.175 (4) – 3.176 (0.5) Y = 8.083 There fore, the CR is 4:1 and the WCTR is 0.5 times, the ROI is predicted to be is 8.083
• • •
The study of the working capital and its impact on the profitability. The working capital of the company is decrease with decrease in the profit. Company current ratio is above the normal level 4:1 it interpreted the idleness of the fund. In that case cash in hand and cash in bank are most liquid ratio, ideal ratio is 1:1 researcher find the higher liquid ratio which indicates the better shortterm financial position.
ROI is higher position in the year 2009-10 at the 24.18%.Then it is decline
in the yr. 2010-11due to the loss. In the next yr. the ROI also increase at the 3.13%. • Correlation coefficient between the working capital turnover ratio and return on investment is-0.178. This indicates that WCTR and ROI are negatively correlated to the extent of. -0.178.
The working capital of the company is fluctuated .So,Vimal pumps want to
incoming year working capital is increase
The current ratio is the above normal level, company will use the funds in
other investment and decrease the idleness of the funds
Company will maintain the liquidity of the firm for the better short term
financial position of the company
• • • The researcher concludes the different ratio and the working capital ratio and also the impact of the profitability on working capital management. The debtors turn over ratio is very fluctuate during the study period The level of the current assets in the total assets is high.
• • • • • • • • Vivek U.Pimplapure and Pushparaj P. Kulkarni ‘working capital management: impact of the profitability’ SCMS Journal of Indian Management, October,2011 Vimal pumps pvt.ltd,2011-12 Annual Report.Mehsana: Vimal pumps pvt.ltd,2011-12 Pandy, I M. ‘Working capital Management’, Vikash publication house pvt. Ltd., New Delhi, 8th edition Chandra, Prasanna. . ‘Working capital Management’, Tata McGraw Hill publication ltd, New Delhi, 7th edition,2007 V. Rajasekaran and R. Lalitha, Financial Accounting, Published by Dorling Kindersley (India) Pvt.ltd, Licensees of Pearson Education in South Asia. Bajpai, Naval. ‘Business Research Methods’, Published by Dorling Kindersley (India) Pvt.ltd, Licensees of Pearson Education in South Asia. Company information is available at http://www.vimalgroup.com/ ROI information is available at http:// www.investopedia.com/terms/r/returnoninvestment.asp/
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