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Company Guide :

Under the guidance of

Ajay Singh Parihar


Ms. R.K.Rastogi

Richa Dhawan
Roll No. : 1110672118 MBA ----2011-12


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This is to certify that the Project work done on (WORKING CAPITAL MANAGEMENT) is a bonafied work carried out by Mr./Ms RICHA DHAWAN under my supervision and guidance. The project report is submitted towards the partial fulfillment of 2 Years, Full timed Masters of Business Administration.

This work has not been submitted anywhere else for any other degree/ diploma. The original work was carried during 02.06.2012 To 05.07.12 in COMMERCIAL TOYOTA, JABALPUR.

Date : RICHA DHAWAN RolL No. : 1110672118

Faculty Guide Mr. R.K. Rastogi

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A task undertaken without offering prayers to almighty and talking blessings from the elders is not a good beginning. Likewise the work completed without acknowledging the assistance to those who were always by my sides to make my efforts fruitful in the task left incomplete.

In the beginning, I would like to express my sincere thanks to my Institute teachers for giving me an opportunity to take the practical experience of working life.

I convey my sincere thanks to Mr. R.K. Rastogi, BBD University for providing me the proper guidance for providing me the opportunity to carry out my summer training project effectively and efficiently. I would also like to pay thanks to all my classmates and friends and my family members for co-operating with me and helping me to complete the project.


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Management should be particularly interested in knowing financial strengths of the firm to make their best use and to be able to spot out financial weaknesses of the firm to take suitable corrective actions. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of the balance sheet and the profit and loss account. Financial analysis can be undertaken by management of the firm or by parties outside the firm like owners, creditors, investors and others.

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AUTOMOBILE INDUSTRY Automobiles has become an indispensable part of our life, an extension of human body that provides us faster, cheaper and more convenient mobility every passing day. Behind this betterment go the efforts of those in the industry in the form of improvement through technological research. What actually behind this betterment of the automobiles are the opinions, likes, requirements and dislikes of those who use those vehicles? These wheeled machines affect our lives more than one. The automobile industry is one of the most important industries in the world, affecting not only the economy but also the cultures of the world. It provides jobs for millions of people, generates billions of dollars in the worldwide revenues and provides the basis for a multitude of related service and supporting industries. Automobile revolutionaries in the 20th century, changing forever the way people live, travel and do business. The automobile has enabled people to travel and transport goods faster and opened wider market areas for business and commerce. The auto industry has also reduced the overall cost of transportation by using methods such as mass production, mass

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marketing and globalization of production. Between 1886 and 1898, about 300 automobiles were built, but was no real established industry. A century later auto makers and auto buyers expanding globally, auto making became world largest

manufacturing activity, with nearly 58 million new vehicles built each year worldwide. Before independence in the 1940s, India had no automobile industry to speak of cars were brought in to the country in a knocked down condition from England. They were reassembled to serve the market provided by the British ruling class and some Indian elites. Today the automobile industry is fast maturing. It sells about 8.10 million vehicles, which is nearly 18 times more than the 45000 sales that were realized in 1984. Most of the automobile giant in the world like Peugeot, Mercedes Benz, Ford, Fiat, Daewoo, Toyota, Hyundai, Honda and even Bentley have invested substantially in setting up production facilities in India.

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OPPORTUNITIES FOR THE INDIAN AUTOMOBILE INDUSTRY Global automobile companies are setting up manufacturing facilities in India. Also, many Indian automobile manufacturers have announced their plans to increase the export of vehicles from India. The year 2002-2003 has already seen a significant 65% increase in export volumes during the period April to March. This trend is expected to continue with more global OEMs sourcing vehicles from their Indian plants. Additionally, the introduction of newer technologies such as Electronic Diesel Control Systems to reduce emission levels, safety devices such as Air Bags, Anti-lock Braking Systems, etc, auger well for the company and the automotive sector as a whole. These technologies not only offer increased safety for drivers and passengers, but also result in greater comfort and better drivability. While there exist many opportunities for growth in business there are also quite a few factors. Which act as an impediment? The lack of any significant change in the labor law reforms also continues to be a matter of concern. It is essential that legal reforms be put in place at the earliest to provide more flexibility in manufacturing operations and enable the industry to quickly adjust the work force in line with fluctuating market condition.

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CHALLENGES FOR THE INDIAN AUTOMOBILE INDUSTRY As we move into the new millennium, the Indian Automobile Industry faces some tremendous opportunities and also great challenges. The growth in automobile sales has been impressive for the past ten years since liberalization began. However with liberalization, the customer has been presented with wide range of choices in automobiles to suit every requirement and budget. Competition has meant that manufactures margins have been squeezed severely and they are all under pressure to cut costs to be profitable and competitive. Some of the older manufacturers like premier automobiles (manufacturers of Lambretta scooters) and ideal jawa (manufactures of ambassador and contessa cars) is in trouble due to the declining sales of its cars, as most customers prefer the newer models available in the market. Even the dominant player Maruti has seen its market share decline rapidly due to its models being old and jaded is in addition facing labour problems in its plant. To add to the problem, come April 2001, under the WTO agreement, India will have to permit import of fully built automobiles, which thereto was not permitted. The foreign manufactures such as GM, Ford and Daimler Chrysler will almost certainly import vehicles from their large portfolio of models and
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makes further segmenting the into niches, although how competitive they are in terms of price remains to be seen. The challenge before the industry is to figure out the strategy for the survival and growth. It is clear from the picture painted above that the industry will have to increase volumes in each segment to achieve lower cost of manufacture. One way to achieve this will be to go for exports in a big way. Maruti is already exporting vehicles, as are Mahindra, Telco, Daimler Chrysler and more recently Daewoo. The overseas markets will have to be exploited more aggressively, but this will mean the companies will have to invest more in Research and development of new models with better features. The second opportunity is to become contract manufacturers for overseas company. A number of Japanese and Korean companies have been following this strategy very successfully. Hindustan Motors is said to be considering this option. The third opportunity is to overcome the vulnerability of the automobile market to oil prices by designing vehicles, which can offer lower fuel consumption. Recent reports suggest the government is exploring the possibility of introducing Gasohol, which is a mixture of petrol and alcohol. Gasohol has been very successful in Brazil. Since Alcohol is a byproduct of the sugar industry, this is a very logical step that should
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have been taken many years ago. Even a small percentage reduction in the consumption of petroleum per vehicle can make a big difference to the balance of payments. The industry must focus its R&D efforts in line with the global trends, which is to build vehicles that are considerably more fuel efficient and less polluting. With growing awareness among the public about pollution and the effective campaigns carried out by the NGOs, this will increasingly become an important selling feature. It was surprising to see how the industry kept stalling the introduction of pollution norms for vehicles on tine pretext that they needed more time to get the technology.

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Toyota Motor Private Limited

Company Name President Representative Director Company Address and

Toyota Motor Corporation

Akio Toyoda

1 Toyota-Cho, Toyota City, Aichi Prefecture Head Office 471-8571, Phone: (0565) 28-2121 1-4-18 Koraku, Bunkyo-ku, Tokyo 112-8701, Tokyo Head Office Japan Phone: (03) 3817-7111 4-7-1 Meieki, Nakamura-ku, Nagoya City, Nagoya Office Aichi Prefecture 450-8711, Japan Japan

Phone: (052) 552-2111 Date founded Capital August 28, 1937 397.05 billion yen (as of March 31, 2012)
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Shareholder Composition From April 1 to March 31 of the following

Fiscal Year year Main Business Activities Business Sites Number of employees 325,905 (as of March 31, 2012) (consolidated) Number of employees 69,148 (as of March 31, 2012) (non-consolidated) Promoters Background: Toyota Motor Corporation TMC was founded on 28 august 1937. Presently it is the single largest producer of motor vehicles in Japan with a market share of 43% in Japan and 11% across the world. TMC has its manufacturing bases at 46-location spread over 26 countries. Toyota groups profit of more than 2 trillion this financial year has been the largest among all the automobile manufacturer in the world more than General Motor and Ford put together. Toyota is also a pioneer in introducing environment friendly vehicles. Company vision:13 | P a g e

Motor Vehicle Production and Sales Information on Business Sites

To help Indian economy and society by providing best quality, high value eco friendly car at an affordable price whose functions are harmonized with human sensitivity and society Mission:1. Design, manufacture and market automobile in India and overseas market and to maintain a high quality to meet global Toyota quality and always delight the customer by exceeding the quality level and to offer superior value and excellent after sales service 2. Maintain flexible organization, working schedule and staffing plan, which enables the company to respond to fluctuation of production volume and increase the production 3. Contribute to the improvement, health, and safety of all TM members. 4. To have a work culture which is conducive to work and improves TM members self worth and sense of belonging. 5. Provide the highest value addition to customer, team member community, and investor.

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MILESTONES OF TM: Singing of joint venture agreement Incorporation Commercial production on Launch of Qualis Launch of Camry Launch of corolla Finance Division: The finance division is broadly classified to four major Department. Finance Accounting Costing and budgeting Taxation : 4th August, 1997 : 6th October, 1997 :29thNovember 1999 : 11 January 2000 : 19 October 2002 : 3rd February 2003

Finance department: Treasury function is handled by the finance division. Its looks after the day-to-day fund requirement to ensure that fund is provided at the right time to the right people for the right purpose. It handles Cash deposits and disposal Cash, salary management
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International currency management Trust account managing ( to handle provident fund, gratuity fund)

Accounting department: The accounting department is responsible to account all supplier bills/ claims on the company, keep record of all financial transaction like purchases of material, sale of CBU/spares purchase of assets etc. it handles Insurance Sales of CBU and spares accounts Internal and external audit

Budgeting and costing department: The budgeting and costing department interacts with all division and establishes yearly budget, set the financial plan for all valuechain functions. In TM target budgeting is practiced. Target budgeting is a process where the management determine the target that each division must obtain and calculates estimated

operating income based on existing revenue and cost structures. Costing department handles Cost planning
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Budgeting Budget control

Taxation: This department maintains the necessary records to meet the statutory requirements of law. All taxes payment including excise duty is handled by this department. Taxation department oversees Excise duty Sales tax Conformation to rules

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INTRODUCTION OF WORKING CAPITAL Working Capital:The life blood of business, as is evident, signified funds required for day-to-day operations of the firm. The management of working capital assumes great importance because shortage of working capital funds is perhaps the biggest possible cause of failure of many business units in recent times. There it is of great importance on the part of management to pay particular attention to the planning and control for working capital. An attempt has been made to make critical study of the various dimensions of the working capital management of NGL. Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient money flow to satisfy both maturing short-term debt and upcoming operational expenses.

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Every business needs investment to procure fixed assets, which remain in use for a longer period. Money invested in these assets is called Long term Funds or Fixed Capital. Business also needs funds for short-term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called Short-term Funds or Working Capital. The Working Capital can be categorized, as funds needed for carrying out day-to-day operations of the business smoothly. The management of the working capital is equally important as the management of long-term financial investment. Every running business needs working capital. Even a business which is fully equipped with all types of fixed assets required is bound to collapse without o adequate supply of raw materials for processing; o cash to pay for wages, power and other costs; o creating a stock of finished goods to feed the market demand regularly; and, o The ability to grant credit to its customers.

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All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Working capital cycle involves conversions and rotation of various constituents Components of the working capital. Initially cash is converted into raw materials. Subsequently, with the usage of fixed assets resulting in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus cash assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result, they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital.

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While managing the working capital, two characteristics of current assets should be kept in mind viz. (i) short life span, and (ii) swift transformation into other form of current asset. Each constituent of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period. The life span of current assets depends upon the time required in the activities of procurement; production, sales and collection and degree of synchronization among them. A very short life span of current assets results into swift transformation into other form of current assets for a running business. These characteristics have certain implications: Decision regarding management of the working capital has to be taken frequently and on a repeat basis. The various components of the working capital are closely related and mismanagement of any one component adversely affects the other components too. The difference between the present value and the book value of profit is not significant. The working capital has the following components, which are in several forms of current assets:
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o Stock of Cash o Stock of Raw Material o Stock of Finished Goods o Value of Debtors o Miscellaneous current assets like short term investment loans & Advances A number of definitions have been formulated: perhaps the most widely acceptable would be; WORKING CAPITAL represents the excess of CURRENT ASSETS over CURRENT LIABILITIES The same may be designated in the following equation:

WORKING CAPITAL= CURRENT ASSETS CURRENT LIABILITIES: Funds thus invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Thus it is known as revolving or circulating capital or short term capital. These are two concepts of working capital:23 | P a g e

a. Gross Working Capital. b. Net Working Capital. Gross working capital is the total of all current assets. Net working capital is the difference between current assets and current liabilities. Though the later concept of working capital is commonly used it is an accounting concept with little sense to say that a firm manages its net working capital. What a firm really does is to take decisions with respect to various current assets and current liabilities.

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Inventories Raw materials and components, Work in progress, Finished goods, other.

Trade Debtors. Loans and Advances. Investments. Cash and Bank balance.

Current Liabilities

Sundry Creditors. Trade Advances. Borrowings. Provisions. The working capital needs of a business are influenced by

numerous factors. The important ones are discussed in brief as given below:

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Nature of Enterprise The nature and the working capital requirements of an enterprise are interlinked. While a manufacturing industry has a long cycle of operation of the working capital, the same would be short in an enterprise involved in providing services. The amount required also varies as per the nature; an enterprise involved in production would require more working capital than a service sector enterprise. Manufacturing/Production Policy Each enterprise in the manufacturing sector has its own production policy, some follow the policy of uniform production even if the demand varies from time to time, and others may follow the principle of 'demand-based production' in which production is based on the demand during that particular phase of time. Accordingly, the working capital requirements vary for both of them.

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Working Capital Cycle In manufacturing concern, working capital cycle starts with the purchase of raw materials and ends with realization of cash from the sale of finished goods. The cycle involves the purchase of raw materials and ends with the realization of cash from the sale of finished products. The cycle involves purchase of raw materials and stores, its conversion in to stock of finished goods through work in progress with progressive increment of labor and service cost, conversion of finished stick in to sales and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of raw materials and so on. Operations The requirement of working capital fluctuates for seasonal business. The working capital needs of such businesses may increase considerably during the busy season and decrease during the slack season. Ice creams and cold drinks have a great demand during summers, while in winters the sales are negligible.

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Market Condition If there is high competition in the chosen product category, then one shall need to offer sops like credit, immediate delivery of goods etc. for which the working capital requirement will be high. Otherwise, if there is no competition or less competition in the market then the working capital requirements will be low. Credit Policy The credit policy is concerned in its dealings with debtors and creditors influence considerably the requirements of the working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires lesser amount of working capital. On the other hand a concern buying its requirements for cash and allowing credit to its customers, shall need larger amount of funds are bound to be tied up in debtors or bills receivables. Business Cycle Business Cycle refers to alternate expansion and contraction in general business activities. In a period of born i.e. when the business is prosperous there is a need for larger amount of

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working capital due to increase in sales, rise in prices, optimistic expansion of business etc. On the country at he time of depression i.e. when there is a down swing of the cycle, business contracts, sales decline, difficulties are faced in collections from debtors and firms may have a large amount of working capital lying ideal Availability of Raw Material If raw material is readily available then one need not maintain a large stock of the same, thereby reducing the working capital investment in raw material stock. On the other hand, if raw material is not readily available then a large inventory/stock needs to be maintained, thereby calling for substantial investment in the same. Growth and Expansion Growth and expansion in the volume of business results in enhancement of the working capital requirement. As business grows and expands, it needs a larger amount of working capital. Normally, the need for increased working capital funds precedes growth in business activities.

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Earning Capacity and Dividend policy Some firms have more earning capacity than others due to the quality of their products, monopoly conditions etc. Such firms with high earning capacity may generate cash profits from operations and contribute to their capital. The dividend policy of a concern also influences the requirements of the working capital. A firm that maintains steady high rate of cash dividend irrespective of its generation of profits needs more capital than the firm retains larger part of its profits and does not pay high rate of cash dividend. Price Level Changes Generally, rising price level requires a higher investment in the working capital. With increasing prices, the same level of current assets needs enhanced investment. Manufacturing Cycle The manufacturing cycle starts with the purchase of raw material and is completed with the production of finished goods. If the manufacturing cycle involves a longer period, the need for
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working capital would be more. At times, business needs to estimate the requirement of working capital in advance for proper control and management. The factors discussed above influence the quantum of working capital in the business. The assessment of working capital requirement is made keeping these factors in view. Each constituent of working capital retains its form for a certain period and that holding period is determined by the factors discussed above. So for correct assessment of the working capital requirement, the duration at various stages of the working capital cycle is estimated. Thereafter, proper value is assigned to the respective current assets, depending on its level of completion. Other Factors Certain other factors such as operating efficiency,

management ability, irregularities a supply, import policy, asset structure, importance of labor, banking facilities etc. also influences the requirement of working capital. Component of Working Capital Basis of Valuation Stock of raw material Purchase cost of raw materials Stock of work in process At cost or market value, whichever is lower
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Stock of finished goods Cost of production Debtors Cost of sales or sales value Cash Working expenses Each constituent of the working capital is valued on the basis of valuation Enumerated above for the holding period estimated. The total of all such valuation becomes the total estimated working capital requirement. The assessment of the working capital should be accurate even in the case of small and micro enterprises where business operation is not very large. We know that working capital has a very close relationship with day-to-day operations of a business. Negligence in proper assessment of the working capital, therefore, can affect the day-to-day operations severely. It may lead to cash crisis and ultimately to liquidation. An inaccurate assessment of the working capital may cause either under-assessment or overassessment of the working capital and both of them are dangerous.

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WORKING CAPITAL MANAGEMENT Working Capital Management refers to management of current assets and current liabilities. The major thrust of course is on the management of current assets .This is understandable because current liabilities arise in the context of current assets. Working Capital Management is a significant fact of financial management. Its importance stems from two reasons: Investment in current assets represents a substantial portion of total investment. Investment in current assets and the level of current liabilities have to be geared quickly to change in sales. To be sure, fixed asset investment and long term financing are responsive to variation in sales. However, this relationship is not as close and direct as it is in the case of working capital components. The importance of working capital management is effected in the fact that financial manages spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling the movement of cash, administering the accounts receivable, and
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monitoring the inventories consume a great deal of time of financial managers. The problem of working capital management is one of the best utilization of a scarce resource. Thus the job of efficient working capital management is a formidable one, since it depends upon several variables such as character of the business, the lengths of the merchandising cycle, rapidity of turnover, scale of operations, volume and terms of purchase & sales and seasonal and other variations.

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CONSEQUENCES OF UNDER ASSESSMENT OF WORKING CAPITAL o Growth may be stunted. It may become difficult for the enterprise to undertake profitable projects due to nonavailability of working capital. o Implementation of operating plans may become difficult and consequently the profit goals may not be achieved. o Cash crisis may emerge due to paucity of working funds. o Optimum capacity utilization of fixed assets may not be achieved due to non availability of the working capital. o The business may fail to honour its commitment in time, thereby adversely affecting its credibility. This situation may lead to business closure. o The business may be compelled to buy raw materials on credit and sell finished goods on cash. In the process it may end up with increasing cost of purchases and reducing selling prices by offering discounts. Both these situations would affect profitability adversely. o Non-availability of stocks due to non-availability of funds may result in production stoppage.

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o While underassessment of working capital has disastrous implications on business, over assessment of working capital also has its own dangers. CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL o Excess of working capital may result in unnecessary accumulation of inventories. o It may lead to offer too liberal credit terms to buyers and very poor recovery system and cash management. o It may make management complacent leading to its inefficiency. o Over-investment in working capital makes capital less productive and may reduce return on investment. Working capital is very essential for success of a business and, therefore, needs efficient management and control. Each of the components of the working capital needs proper management to optimize profit. The working capital in certain enterprise may be classified into the following kinds.

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Initial working capital. The capital, which is required at the time of the

commencement of business, is called initial working capital. These are the promotion expenses incurred at the earliest stage of formation of the enterprise which include the incorporation fees. Attorney's fees, office expenses and other expenses. 2. Regular working capital. This type of working capital remains always in the enterprise for the successful operation. It supplies the funds necessary to meet the current working expenses i.e. for purchasing raw material and supplies, payment of wages, salaries and other sundry expenses. 3. Fluctuating working capital. This capital is needed to meet the seasonal requirements of the business. It is used to raise the volume of production by improvement or extension of machinery. It may be secured from any financial institution which can, of course, be met with short term capital. It is also called variable working capital.

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Reserve margin working capital. It represents the amount utilized at the time of contingencies.

These unpleasant events may occur at any time in the running life of the business such as inflation, depression, slump, flood, fire, earthquakes, strike, lay off and unavoidable competition etc. In this case greater amount of capital is required for maintenance of the business.

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FINANCING WORKING CAPITAL Now let us understand the means to finance the working capital. Working capital or current assets are those assets, which unlike fixed assets change their forms rapidly. Due to this nature, they need to be financed through short-term funds. Short-term funds are also called current liabilities. The following are the major sources of raising short-term funds: i. Suppliers Credit At times, business gets raw material on credit from the suppliers. The cost of raw material is paid after some time, i.e. upon completion of the credit period. Thus, without having an outflow of cash the business is in a position to use raw material and continue the activities. The credit given by the suppliers of raw materials is for a short period and is considered current liabilities. These funds should be used for creating current assets like stock of raw material, work in process, finished goods, etc. ii. Bank Loan for Working Capital This is a major source for raising short-term funds. Banks extend loans to businesses to help them create necessary current

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assets so as to achieve the Required business level. The loans are available for creating the following current Assets: Stock of Raw Materials Stock of Work in Process Stock of Finished Goods Debtors Banks give short-term loans against these assets, keeping some security margin. The advances given by banks against current assets are short-term in nature and banks have the right to ask for immediate repayment if they consider doing so. Thus bank loans for creation of current assets are also current liabilities.


Promoters Fund It is advisable to finance a portion of current assets from the

promoters funds. They are long-term funds and, therefore do not require immediate repayment. These funds increase the liquidity of the business.
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MANAGEMENT OF INVENTORY Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 % of current assets in public limited companies in India. Because of the large size of inventories maintained by firms maintained by firms, a considerable amount of funds is required to be committed to them. It is, therefore very necessary to manage inventories efficiently and effectively in order to avoid unnecessary investments. A firm neglecting a firm the management of inventories will be jeopardizing its long run profitability and may fail ultimately. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required and also to minimize investment in inventories at considerable degrees, without any adverse effect on production and sales, by using simple inventory planning and control techniques. Needs to hold inventories:There are three general motives for holding inventories:-

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Transaction motive emphasizes the need to maintain inventories operation. Precautionary motive necessities holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Speculative motive influences the decision to increases or reduce inventory levels to take advantage of price to facilitate smooth production and sales

fluctuations and also for saving in re-ordering costs and quantity discounts etc. MANAGEMENT OF CASH Cash is the important current asset for the operation of the business. Cash is the basic input needed to keep the business running in the continuous basis, it is also the ultimate output expected to be realized by selling or product manufactured by the firm. The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the firms manufacturing operations while excessive cash will simply remain ideal without contributing

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anything towards the firms profitability. Thus a major function of the financial manager is to maintain a sound cash position. Cash is the money, which a firm can disburse immediately without any restriction. The term cash includes coins, currency and cheques held by the firm and balances in its bank account. Sometimes near cash items such as marketing securities or bank term deposits are also included in cash. Generally when a firm has excess cash, it invests it is marketable securities. This kind of investment contributes some profit to the firm. Need to hold cash The firms need to hold cash may be attributed to the following three motives:The Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends, etc.

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MANAGEMENT OF RECEIVABLES A sound managerial control requires proper management of liquid assets and inventory. These assets are a part of working capital of the business. An efficient use of financial resources is necessary to avoid financial distress. Receivables result from credit sales. A concern is required to allow credit sales in order to expand its sales volume. It is not always possible to sell goods on cash basis only. Sometimes other concern in that line might have established a practice of selling goods on credit basis. Under these circumstances, it is not possible to avoid credit sales without adversely affecting sales. The increase in sales is also essential to increases profitability. After a certain level of sales the increase in sales will not proportionately increase production costs. The increase in sales will bring in more profits. Thus, receivables constitute a significant portion of current assets of a firm. But for investment in receivables, a firm has to insure certain costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a proper control and management of receivables.
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Needs to hold cash: Receivables management is the process of making decisions relating to investment in trade debtors. Certain investments in receivables are necessary to increase the sales and the profits of a firm. But at the same time investment in this asset involves cost consideration also. Further, there is always a risk of bad debts too. Thus, the objective of receivable management is to take a sound decision as regards investments in debtors. In the words of Bolton, S.E., the need of receivables management is to promote sales and profits until that point is reached where the return of investment in further funding of receivables is less than the cost of funds raised to finance that additional credit. IMPORTANT TERMS Working Capital Cycle Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory,

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generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands , the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

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Each component of working capital (namely inventory, receivables and payables) has two dimensions ........TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.
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If you.......


Collect receivables (debtors) You release cash from the faster cycle

Collect receivables (debtors) Your receivables soak up slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower You consume more cash You free up cash cash You increase your cash resources

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment loans, equity, leasing etc. Similarly, if you pay dividends or
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increase drawings, these are cash outflows and, like water flowing downs a plug hole, they remove liquidity from the business. SOURCES OF ADDITIONAL WORKING CAPITAL Sources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-stretch the financial resources of the business.

This is called overtrading. Early warning signs include: Pressure on existing cash

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Exceptional cash generating activities e.g. offering high discounts for early cash payment

o o o o o

Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing Frequent short-term emergency requests to the bank (to help

pay wages, pending receipt of a cheque).

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HANDLING RECEIVABLES (DEBTORS) Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed. Slow payment has a crippling effect on business; in particular on small businesses who can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors: Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. Establish clear credit practices as a matter of company policy. Make sure that these practices are clearly understood by staff, suppliers and customers. Be professional when accepting new accounts, especially larger ones. and

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Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. Establish credit limits for each customer... and stick to them. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. Keep very close to your larger customers. Invoice promptly and clearly. Consider charging penalties on overdue accounts. Consider accepting credit /debit cards as a payment option. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old. Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects:

Weak credit judgement Poor collection procedures Lax enforcement of credit terms Slow issue of invoices or statements Errors in invoices or statements Customer dissatisfaction.
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Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For example......... longer credit terms taken with approval, particularly for smaller orders

use of post-dated checks by debtors who normally settle within agreed terms

evidence of customers switching to additional suppliers for the same goods

o o

new customers who are reluctant to give credit references Receiving part payments from debtors. The act of collecting money is one which most people dislike

for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demand their attention now. There is nothing more important than getting paid for your product or service. A customer who does not pay is not a customer.

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MANAGING PAYABLES (CREDITORS) Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following: Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people?
o o

Are purchase quantities geared to demand forecasts? Do you use order quantities which take account of stockholding and purchasing costs?

o o

Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.

o o

How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers?

If a supplier of goods or services lets you down can you charge back the cost of the delay?
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Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis? There is an old adage in business that if you can buy well

then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill-feeling and can signal that your company is inefficient (or in trouble!). Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company

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KEY WORKING CAPITAL RATIOS The following, easily calculated, ratios are important measures of working capital utilization. Ratio Stock Turnover (in days) Formulae Average Stock * 365/ Cost of Goods Sold Result =x days Interpretation On average, you turn over the value of your entire stock every x days. You may need to break this down into

product groups for effective stock management.

Obsolete stock, slow moving lines will extend overall stock turnover production, days. fewer Faster product

lines, just in time ordering will reduce average days. Receivables Ratio (in days) Debtors * 365/ Sales =x days It takes you on average x days to collect monies due to you. If youre official credit terms are 45 day and it takes

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One or more large or slow debts can drag days. out the

average debtor

Effective will


minimize the days. Payables Ratio (in days) Creditors * 365/ Cost of Sales (or Purchases) =x days On average, you pay your suppliers every x days. If you negotiate better credit terms this will increase. If you pay earlier, say, to get a discount this will decline. If you simply defer paying your suppliers (without agreement) this will also increase - but your reputation, the quality of

service and any flexibility provided by your suppliers may suffer. Current Ratio Total Current =x times Current Assets are assets that you can readily turn in to

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Assets/ Total Current Liabilities

cash or will do so within 12 months in the course of business. Current Liabilities are amount you are due to pay within the coming 12 months. For example, 1.5 times means that you should be able to lay your hands on $1.50 for every $1.00 you owe. Less than 1 times e.g. 0.75 means that you could have liquidity problems and be under pressure to

generate sufficient cash to meet oncoming demands. Quick Ratio (Total Current Assets Inventory)/ Total Current =x times Similar to the Current Ratio but takes account of the fact that it may take time to convert inventory into cash.

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Liabilities Working Capital Ratio (Inventory + Receivables - Payables)/ Sales As % Sales A high percentage means that working capital needs are high relative to your sales.

Other working capital measures include the following:

Bad debts expressed as a percentage of sales. Cost of bank loans, lines of credit, invoice discounting etc.

Debtor concentration - degree of dependency on a limited number of customers.

Once ratios have been established for your business, it is important to track them over time and to compare them with ratios for other comparable businesses or industry sectors. When planning the development of a business, it is critical that the impact of working capital be fully assessed when making cash flow forecasts.

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HYPOTHESIS A hypothesis is a tentative statement that proposes a possible explanation to some phenomenon or event. A useful hypothesis is a testable statement which may include a prediction. A hypotheses should not be confused with a theory. Theories are general explanations based on a large amount of data. For example, the theory of evolution applies to all living things and is based on wide range of observations. When Are Hypotheses Used? The key word is testable. That is, you will perform a test of how two variables might be related. This is when you are doing a real experiment. You are testing variables. Usually, a hypothesis is based on some previous observation such as noticing that in November many trees undergo color changes in their leaves and the average daily temperatures are dropping. Are these two events connected. New Plant and Machinery will improve the production of NGL Export market may improve the market share of the company.
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Research Methodology is a way to systematically solve the research problem. It may be understood as Science of studying how research is done, Scientifically in it we study the various steps that generally adopted by a reseacher in studying his reseach problem along with the logic behind them. Accuracy of the study depends on the systematic application of the method. The researcher has to decide the method to be used that helps him to get a desired direction in a systematic way. Definitions According to Clifford Woody Research comprises defining and redefining problems, formulating or hypothesis or suggested solutions collecting: organizing and evaluating data making deductions and reaching conclusions to determine whether they fit the formulating hypothesis. Thus, Research Methodology is a strategy that guides a researcher in providing answers to research questions and for this research survey is being done. Research in common parlance refers to a search for knowledge. In fact research is an act of scientific investigation. Sampling SizeBalance sheet of last 5 years of Commercial Toyota, Jabalpur
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OBJECTIVE OF THE STUDY The following are the main objective which has been undertaken in the present study: 1. To determine the amount of working capital requirement and to calculate various ratios relating to working capital. 2. To make an item wise study of the components of the working capital. 3. To suggest the steps to be taken to increase the efficiency in management of working capital.

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LIMITATIONS There may be limitations to this study because the study duration (summer placement) is very short and its not possible to observe every aspect of working capital management practices. Steps of Research process The seven major steps

Determine or define the problem or opportunity that is faced

Specify what information is needed

Identify the sources of the information.

Decide on the techniques for accruing the information

Gather and process the information

Analyze and interpret the meaning.

Present the findings to the decision makers.

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BALANCE SHEET (Rs. in millions) PARTICULARS Liabilities Mar'10 12 Months Share Capital Reserves Surplus Net Worth Secured Loans Unsecured Loans TOTAL LIABILITIES ASSETS Gross Block (-) Depreciation Net Block Capital Work in Progress. Investments. 7,176.60 3,173.30 5,180.70 3,409.20 2,051.20 5,024.70 387.60 4,070.80 861.30 3,296.50 2,659.70 1,695.20 736.30 238.90 92.00 Acc. 10,406.70 5,382.00 8,720.60 4,649.80 7,285.30 6,146.80 4,954.60 3,988.80 3,487.10 3,259.40 11,835.10 26.50 794.90 9,344.90 0.10 698.80 8,415.40 6,853.90 5,452.60 0.10 900.10 63.50 567.30 71.70 0.00 144.50 & 11,690.60 Mar'09 12 Months 144.50 9,200.40 Mar'08 12 Months 144.50 Mar'07 12 Months 144.50 Mar'06 12 Months 144.50

8,270.90 6,709.40 5,308.10

12,656.50 10,043.80 9,315.60 7,484.70 5,524.30

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Inventories Sundry Debtors Cash And Bank Loans Advances Total Assets Current Liabilities Provisions Total Liabilities NET CURRENT Current Current And

1,208.80 809.90 98.20 1,739.10

902.30 918.90 1,939.00 1,809.80

1,038.00 655.50 324.00

713.20 747.40

881.20 654.80

1,422.80 1,401.60 933.10

1,173.00 1,072.60



3,190.50 3,956.00 3,870.70

3,160.00 628.40 3,788.40

3,250.90 380.70 3,631.60

2,718.90 2,288.60 1,704.80 369.50 490.50 480.00

3,088.40 2,779.10 2,184.80




1,176.90 1,685.90

ASSETS Misc. Expenses TOTAL 0.00 0.00 0.00 0.00 0.00

ASSETS 12,656.50 10,043.80 9,315.60 7,484.70 5,524.30


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PROFIT & LOSS ACCOUNT (Rs. in millions) Mar'11 12 Months INCOME: Sales Turnover Excise Duty NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative 404.60 389.20
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Mar'10 12 Months

Mar'09 12 Months

Mar'08 12 Months

Mar'07 12 Months

32,174.10 23,381.50 21,200.40 17,358.40 14,898.80 2,856.40 2,652.10 3,133.60 2,552.00 2,700.90

29,317.70 20,729.40 18,066.80 14,806.40 12,197.90 0.00 0.00 0.00 0.00 0.00

29,935.40 21,277.00 18,522.90 15,167.50 12,466.00






22,435.40 16,339.80 13,622.00 11,063.70 9,223.70














Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit 3,737.90 EBITDA Depreciation 4,355.60 825.00 1,903.70 2,451.30 706.50 0.00 1,744.80 51.00 1,693.80 457.10 1,236.70 2,551.30 3,007.40 568.20 0.00 2,439.20 59.60 2,379.60 763.30 1,616.30 2,204.40 2,565.50 271.40 0.00 2,294.10 37.60 2,256.50 705.30 1,551.20 1,866.00 2,134.10 285.40 0.00 1,848.70 20.40 1,828.30 560.90 1,267.40 25,579.80 18,825.70 15,515.50 12,602.00 10,331.90 0.00 0.00 0.00 0.00 0.00 0.00 -22.30 -19.80 -14.30 -6.70

Other Write-offs 0.00 EBIT Interest EBT Taxes Profit 3,530.60 33.50 3,497.10 1,094.90 and 2,402.20

Loss for the Year Non Recurring 44.30 Items Other Non 51.10 37.90 76.60 33.40 5.40 -55.90 37.90 -23.00 -83.70

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Cash Adjustments Other Adjustments REPORTED PAT KEY ITEMS Preference Dividend Equity Dividend 173.30 Equity Dividend 119.93 (%) Shares in Issue 2,889.10 (Lakhs) EPS Annualised (Rs) RATIOS Mar'10 Mar'0 Mar'0 9 8 Mar'0 7 Mar'0 6 - 86.45 42.18 59.91 54.07 41.16 2,889.10 2,889.10 2,889.10 2,889.10 101.10 69.96 144.50 100.00 130.00 89.96 101.10 69.96 0.00 0.00 0.00 0.00 0.00 2,497.60 1,218.70 1,730.80 1,562.00 1,189.10 0.00 0.00 0.00 0.40 0.00

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Per share ratios Adjusted EPS (Rs) Adjusted EPS (Rs) Reported EPS (Rs) Reported cash EPS (Rs) Dividend per share Operating profit per share (Rs) 83.15 83.15 86.45 115.00 6.00 129.38 42.81 42.81 42.18 66.64 3.50 65.89 323.4 5 323.4 5 55.94 55.94 59.91 79.57 5.00 88.31 291.2 8 291.2 8 625.3 4 286.2 8 53.69 63.09 54.07 63.46 4.50 76.30 237.2 3 237.2 3 512.4 9 231.8 9 43.87 53.75 41.16 51.04 3.50 64.59 188.7 3 188.7 3 422.2 0 183.1 8

Book value (excl rev res) per 409.65 share (Rs) Book value (incl rev res) per share 409.65 (Rs.)

Net operating income per share 1,014.7 717.5 (Rs) Free reserves per share (Rs) 7 403.82 0 318.4 5 Profitability ratios Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) 12.74 9.93 8.34 10.78 20.29 9.18 5.77 5.72 9.13 13.23

14.12 10.97 9.34 11.79 19.20

14.88 13.05 10.29 12.01 22.63

15.29 12.95 9.53 12.45 23.24

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Reported return on net worth (%) Return on long term funds (%) Leverage ratios Long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio Liquidity ratios Current ratio Current ratio (inc. st loans) Quick ratio Inventory turnover ratio Payout ratios Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio Coverage ratios Adjusted cash flow time total debt Financial charges coverage ratio

21.10 28.80

13.04 17.48

20.56 27.35

22.78 30.74

21.80 33.47

0.03 0.06 93.51 2.82

0.06 0.07 93.04 2.38

0.05 0.10 90.33 2.48

0.08 0.09 91.57 2.41

0.01 0.01 98.70 2.46

1.02 0.91 0.67 30.47

1.53 1.51 1.26 30.46

1.03 0.91 0.66 22.93

1.42 1.40 1.13 28.76

1.77 1.77 1.31 18.78

8.09 6.08 91.59 93.74

9.70 6.14 90.44 93.92

9.78 7.36 89.53 92.25

9.72 8.28 90.21 91.67

9.69 7.81 90.91 92.58

0.25 130.02

0.35 48.06

0.41 50.46

0.34 68.23

0.04 104.6 1

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Fin. charges cov.ratio (post tax) Component ratios Material earnings) Selling cost Component Exports as percent of total sales Import comp. in raw cost component






(% 77.21





3.12 15.49

3.56 7.24 11.70

3.10 4.10 10.84

3.37 3.90 12.62

2.91 4.78 18.75

mat. 12.89

consumed Long term assets / total Assets 0.76 0.59 0.74 0.61 0.49 -

Bonus component in equity capital (%)

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MARKET SHARE OF THE COMPANY FROM PAST 5 YEARS 2003Particulars 2004 Domestic 32% market Export 38% market 39% 40% 41% 43% 29% 27% 26% 25% 2005 2006 2007 2008 2004200520062007-

INTERPRETATION:The table above shows the Market share of the company in domestic market as well as export market. On comparing as you can see the market share of the company in domestic is not faired well as the percentage of market share is falling from 32% in 2003 to 25% in 2008.Where as you can see that the market share of the company of export market is gradually increasing from 38% in 2003 to 43% in 2007.

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Mar ' 10 32,174.1 Sales Operating profit Interest Gross profit EPS (Rs) 86.45 33.50 2,402.20 0 3,737.90

Mar ' 09 23,381.5 0 1,903.70

Mar ' 08 21,200.4 0 2,551.30

Mar ' 07 17,358.4 0 2,204.40

Mar ' 06 14,898.8 0 1,866.00

51.00 1,236.70

59.60 1,616.30

37.60 1,551.20

20.40 1,267.40





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EARNING PER SHARE-Rs. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per

share serves as an indicator of a company's profitability.

Calculated as:

When calculating, it is more accurate to use a weighted average number of shares outstanding over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period. Diluted EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number.

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100 90 80 70 60 50 40 30 20 10 0 86.45

59.91 42.18

54.07 41.16






DATA ANALYSIS AND INTERPRETATION IMPORTANT RATIOS OF NGL TOTAL 3,856.00 5,570.00 3,190.50 3,956.00 3,870.70 ASSETS TOTAL 3,788.40 3,631.60 3,088.40 2,779.10 2,184.80 LIABILITIES (ASSETSLIABILITIES) 67.60 WORKING CAPITAL 1938.40 102.10 1176.90 1685.90

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Definition: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio represents the number of times the working capital is turned over in the course of year and is calculated as follows: Formula of Working Capital Turnover Ratio: Following formula is used to calculate working capital turnover ratio Working Capital Turnover Ratio = Cost of Sales / Net Working Capital The two components of the ratio are cost of sales and the net working capital. If the information about cost of sales is not available the figure of sales may be taken as the numerator. Net working capital is found by deduction from the total of the current assets the total of the current liabilities.

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2500 1938.4 1685.9 1500 1176.9 1000


500 67.6 0 1 2 3 4 5 102.1

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CURRENT RATIO Current ratio may be defined as the relationship between current assets and current liabilities. This ratio is also known as "working capital ratio". It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities. Following formula is used to calculate current ratio: [Current Ratio = Current Assets / Current Liabilities] Or [Current Assets : Current Liabilities] Components: The two basic components of this ratio are current assets and current liabilities. Current assets include cash and those assets which can be easily converted into cash within a short period of time, generally, one year, such as marketable securities or readily realizable investments, bills receivables, sundry debtors, (excluding bad debts or provisions), inventories, work in progress, etc. Prepaid expenses should also be included in current assets
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because they represent payments made in advance which will not have to be paid in near future. Current liabilities are those obligations which are payable within a short period of tie generally one year and include outstanding expenses, bills payable, sundry creditors, bank overdraft, accrued expenses, short term advances, income tax payable, dividend payable, etc. However, some times a

controversy arises that whether overdraft should be regarded as current liability or not. Often an arrangement with a bank may be regarded as permanent and therefore, it may be treated as long term liability. At the same time the fact remains that the overdraft facility may be cancelled at any time. Accordingly, because of this reason and the need for conversion in interpreting a situation, it seems advisable to include overdrafts in current liabilities. March2009 Current 1.02 Ratio 1.53 1.03 1.42 1.77 March2008 March2007 March2006 March2005

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Current ratio
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 1.02 1.03 1.53 1.42 1.77

Interpretation During the year March 2005 it is 2.64 which increased to 2.94 in the year March 2009 it is showing an increase in sales this can be confirmed from the increase in Sundry Debtors and inventory.

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QUICK RATIO Liquid ratio is also termed as "Liquidity Ratio", "Acid Test Ratio" or "Quick Ratio". It is the ratio of liquid assets to current liabilities. The true liquidity refers to the ability of a firm to pay its short term obligations as and when they become due. Components: The two components of liquid ratio (acid test ratio or quick ratio) are liquid assets and liquid liabilities. Liquid assets normally include cash, bank, sundry debtors, bills receivable and

marketable securities or temporary investments. In other words they are current assets minus inventories (stock) and prepaid expenses. Inventories cannot be termed as liquid assets because it cannot be converted into cash immediately without a loss of value. In the same manner, prepaid expenses are also excluded from the list of liquid assets because they are not expected to be converted into cash. Similarly, Liquid liabilities means current liabilities i.e., sundry creditors, bills payable, outstanding

expenses, short term advances, income tax payable, dividends payable, and bank overdraft (only if payable on demand). Some time bank overdraft is not included in current liabilities, on the
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argument that bank overdraft is generally permanent way of financing and is not subject to be called on demand. In such cases overdraft will be excluded from current liabilities. Formula of Liquidity Ratio Liquid Ratio = Liquid Assets / Current Liabilities

Quick ratio
1.4 1.2 1 0.8 0.6 0.4 0.2 0 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 0.67 0.66 1.26 1.13 1.31

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INVENTORY TURNOVER RATIO Stock turn over ratio and inventory turn over ratio are the same. This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times. Stock turn over ratio / Inventory turn over ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not. Components of the Ratio: Average inventory and cost of goods sold are the two elements of this ratio. Average inventory is calculated by adding the stock in the beginning and at the end of the period and dividing it by two. In case of monthly balances of stock, all the monthly balances are added and the total is divided by the number of months for which the average is calculated.

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FORMULA OF INVENTORY TURNOVER RATIO: The ratio is calculated by dividing the cost of goods sold by the amount of average stock at cost. Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost Generally, the cost of goods sold may not be known from the published financial statements. In such circumstances, the inventory turnover ratio may be calculated by dividing net sales by average inventory at cost. If average inventory at cost is not known then inventory at selling price may be taken as the denominator and where the opening inventory is also not known the closing inventory figure may be taken as the average inventory.

Inventory turnover ratio

35 30 25 20 15 10 5 0 Mar-10 Mar-09 Mar-08 Mar-07 Mar-06 22.93 18.78 30.47 30.46 28.76

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ACCOUNTS RECEIVABLES RATIO A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. The volume of sales can be increased by following a liberal credit policy. The effect of a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors (or receivables). Trade debtors are expected to be converted into cash within a short period of time and are included in current assets. Hence, the liquidity position of concern to pay its short term obligations in time depends upon the quality of its trade debtors. Definition: Debtors turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Formula of Debtors Turnover Ratio: Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

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The two basic components of accounts receivable turnover ratio are net credit annual sales and average trade debtors. The trade debtors for the purpose of this ratio include the amount of Trade Debtors & Bills Receivables. The average receivables are found by adding the opening receivables and closing balance of receivables and dividing the total by two. It should be noted that provision for bad and doubtful debts should not be deducted since this may give an impression that some amount of receivables has been collected. But when the information about opening and closing balances of trade debtors and credit sales is not available, then the debtors turnover ratio can be calculated by dividing the total sales by the balance of debtors (inclusive of bills receivables) given. and formula can be written as follows. Debtors Turnover Ratio = Total Sales / Debtors

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Debtor Turnover Ratio

8 7 6 5 4 3 2 1 0 March 09 March 08 March 07 March 06 March 05 6.44 6.6 6.12 7.23 7.61

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FINDINGS & SUGGESTION Operations The gross turnover of the company increased to Rs. 73.40 crores from Rs. 62.52 crores in the previous year. During the year, revenue from exports increased to Rs. 2.75 crores as compared to Rs. 1.40 crores in the previous year. The Profit before tax improved to Rs. 9.92 crores as compared to Rs. 6.82crores in the previous year. Net profit after tax was Rs.5.86 crores as against Rs. 4.34 crores in the previous year. The improvement in profitability was primarily as a result of higher production and savings in fuel cost. Final Redemption of 9% Cumulative Preference Shares . Pursuant to the Scheme of Arrangement approved by the Honble High Court of Calcutta, the company paid the third and final instalment in respect of the final redemption of 9% Cumulative Redeemable Preference The Directors are pleased to recommend, for approval of the Members a Dividend of 25% i.e. Rs.2.50 per share on
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4,033,058 Equity Shares of Rs.10/- each of the Company for the financial year 2008-09. The dividend on equity shares, if approved at the ensuing Annual General Meeting, will be paid to Members whose names appear in the Register of Members as on 8th September, 2009 and to Members whose names appear on that date as Beneficial Owners as furnished by National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

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CONCLUSION In todays dynamic market place, it is not enough to excel in your current environment you must also envision the future. You must develop winning strategies and more importantly, sustain them. Success depends upon your ability to welcome change and ensure that learning, design and execution become natural rhythms in your organization. Organization needs to assimilate new technology and learn to manage ambiguity and diversity. The need of all stakeholdersemployees, customers, suppliers garments the community and the environment need to be taken into account to sustain in this scenario. Thus, consumer behavior/buying behavior programmer provides the solution to these problems. Consumer behavior/buying behavior programmers strengthen the leadership and communication capacity of the individuals and the organizations. They challenge the executives to think and manage more effectively in a changing business world. They offer analytical insights and skills and provide a thorough knowledge base so that todays manager can emerge as leaders of tomorrow.

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It can thus conclude that in todays competitive world the challenges posed by the ever changing global business scenario can be met very effectively through buying behavior. Thus, it is essential to have such programmers, which not only cater to the organizational needs but also help in reconciling them with individual personal needs.

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Financial Management

Prasanna Chandra

I.M. Pandey Financial Management E Book : Dressler, Soeren

Chelsom, Lawrence Corporate Accounting Cost Accounting Income Tax : : : Saklecha S.M. Shukla Saklecha

WEBLIOGRAPHY Company Balance / Profit & Loss Account / Auditors Report etc. WWW.QUICKMBA.COM
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