You are on page 1of 20

1

CHAPTER -1
INTRODUCTION
Working capital is the amount of money a business has available to sustain its operations. It's
the capital available to purchase inventory, pay employees, keep the lights on, and finance
other short term expenditures. This makes managing working capital a critical business skill.
If there is no working capital, there is no business.
Many companies fail each year due to poor working capital management practices.
ntrepreneurs often don't account for short term disruptions to cash flow and are forced to
close their operations. Many of these companies have viable business models, and would have
otherwise succeeded had they better managed their working capital.
1. BACKGROUND OF THE SUBJECT MATTER
Working !apital refers to that part of the firm"s capital, which is re#uired for financing short$
term or current assets, such as cash, marketable securities, debtors and inventories. %unds
thus, invested in current assets keep revolving fast and are constantly converted into cash and
this cash flow out again in exchange for other current assets. Working !apital is also known
as revolving or circulaing ca!ial or short$term capital.
• Working capital typically means the firm"s holding of current or short$term assets such
as cash, receivables, inventory and marketable securities.
• These items are also referred to as circulating capital
• !orporate executives devote a considerable amount of attention to the management of
working capital.
NATURE OF "ORK#NG CA$#TA%
Working capital management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exists between
them. The term current refers to those assets which in the ordinary course of business can be,
or will be converted into cash within one year. The ma&or current assets are cash, marketable
securities, accounts receivables and inventory. !urrent liabilities are those liabilities, which
are intended at their inception, to be paid in the ordinary course of business' within a year out
of the current or the earning of the concern .The basic current liabilities are accounts payable,
bills payable, bank overdrafts and outstanding expense. The goal of working management is
to manage the firm"s assets and liabilities in such a way that a satisfactory level of working
capital is maintained. This is because if the firms cannot maintain a satisfactory level of
working capital, it is likely to become insolvent and may even be forced into bankruptcy. The
current assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of safety. ach of the short term sources of financing must be continuously
managed to ensure that they are obtained and used in the way.
2
1.& JUST#F#CAT#ON OF THE STUD'
The present study has been undertaken to achieve the following ob&ectives with regard
to management of working capital in (pollo Tyres)
*. To analy+e and evaluate working capital management of selected unit.
,. To evaluate the inventory, receivable and cash management performance
-. To suggest on the basis of conclusions, innovation in the management of working capital
in Tyre industry in India.
.. To find out the fluctuations arising in working capital due to its nature of demand and supply,
production, government policies thereto.
/. To analy+e the impact of tyre industry on the national economy.
1.( RE)#E" OF %#TERATURE
• 0rinciples (nd 0ractices of Working !apital Management and !ontrol12y
3atish 2. Mathur4
• Working !apital Management 15.6 7ain4
• ssentials of Working !apital12y William 2eenak4
• (dvances of working capital Management12y 8.. 9amamurthy4
• %inancial 0olicy (nd Management12y 2habotosh 2aner&ee4

1.* OBJECT#)ES OF THE STUD'
The primary aim of our study is to examine and assess management of working capital of
(pollo tyres representing the Indian tyre industry.
In this broader framework an attempt will be made to meet out the following specific
ob&ectives of the study)$
*. To study the components of Working !apital Management in Indian tyre Industry
,. To assess at length, prevalent practices of inventory management, cash management and
9eceivables management on the profitability and li#uidity of firms in the Tyre Industry.
-. To analy+e the relative proportion of different sources of finance for working capital of Indian
Tyre Industry.
.. To know the overall operational efficiency and performance of the selected units.

3
1.+ RESEARCH METHODO%OG'
(4 $ri,ar- Daa. The primary data are those which are collected a fresh and for the
first time and thus happened to be original in character. 0rimary data includes the information
collected from the officials and existing company through officials.
24 Secon/ar- Daa. The 3econdary data on the other hand are on those which have
already been collected by someone else and which have already been passed through
statistical process.
The secondary data include the information from the company annual reports which
includes financial statements like balance sheet and profit : ;oss (<c and such other
information from text books of financial management, &ournals and maga+ine has
already been collected.
My pro&ect report is based on secondary data which is collected from different books,
&ournals, maga+ines, websites etc. The data so collected is analy+ed by applying various
research tools and techni#ues like 9atio (nalysis, !ash %low (nalysis, %und %low (nalysis,
!ommon 3i+e and Trend (nalysis. I have selected (pollo tyres representing Indian Tyre
Industry,
1.0 %#M#TAT#ON OF THE STUD'
• The lack of information sources for the analysis part.
• The data so collected is from secondary sources only.
• The time constraint is a ma&or barrier for the study.
• ;ack of 0ractical knowledge and laying complete stress on secondary
data may render the pro&ect a little literature oriented.
• The inputs used in the pro&ects are basically based on historical data"s
collected from secondary sources. =ence conclusion derived at may not
be of much help for the future interpretation.
• There may be fractional differences in calculated ratios.
CHAPTER -2
CONCEPTUAL FRAMEWORK
2.1 OVERALL CONCEPTS OF WORKING CAPIAL
There are two concepts of working capital)
*. >ross working capital
,. 5et working capital
The gross working capital is the capital invested in the total current assets of the
enterprises. !urrent assets are those assets which can convert into cash within a short
period normally one accounting year.
GROSS "ORK#NG CA$#TA% 1 CURRENT ASSETS
4
In a narrow sense, the term working capital refers to the net working !apital. 5et
working capital is the excess of current assets over current liability, or, say)
NET "ORK#NG CA$#TA% 1 CURRENT ASSETS 2 CURRENT
%#AB#%#T#ES .
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. 2oth the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for the following
reasons)
*. It enables the enterprise to provide correct amount of working capital at correct time.
,. very management is more interested in total current assets with which it has to operate
then the source from where it is made available.
-. It take into consideration of the fact every increase in the funds of the enterprise would
increase its working capital.
.. This concept is also useful in determining the rate of return on investments in working
capital. The net working capital concept, however, is also important for following reasons)
• It is #ualitative concept, which indicates the firm"s ability to
meet to its operating expenses and short$term liabilities.
• It indicates the margin of protection available to the short term
creditors.
• It is an indicator of the financial soundness of enterprises.
• It suggests the need of financing a part of working capital
re#uirement out of the permanent sources of funds.
2.2 TYPES OF WORKING CAPITAL


5

Operatin C!"#e
?perating !ycle or working capital cycle is very important to determine working capital
re#uirement of any concern. It may be defined as the period that the business enterprise takes
in converting cash back to cash. T3e !roce44 o5 o!eraing c-cle o!erae4 in 3e 5ollo6ing
,anner.
i. 0rocurement of raw materials
ii. !onversion of raw material into work$ in$ progress
iii. !onversion of work$in$progress into finished goods
iv. 3ale of finished goods1 cash and credit4
v. !onversion of receivables into cash.
%or all of the above cases a minimum time gap is necessary between the different activities.
The total time gap between the happening of first activity and the happening of the last
activity is called as @operating cycle"
2.$ Grap%i"a# repre&entati'n '( Operatin C!"#e
3tock Turnover 9atios1Times4

!ost ?f >oods 3old
(verage 3tock
3tock Turnover 9atios1Aays4

(verage 3tock
!ost ?f >oods 3old
9eceivable Turnover 9atios1Times4

5et !redit 3alesB-C/
(verage (ccounts 9eceivable
(verage 9eceivable 0eriod1Aays4

(verage (ccount 9eceivableB-C/
5et !redit 3ales
0ayable Turnover 9atios1Times4

5et !redit 0urchase
(verage (ccounts 0ayable
(verage 0ayables 0eriod1Aays4
(verage (ccount 0ayableB-C/
5et !redit 0urchase
6
!urrent 9atios

!urrent (ssets
!urrent ;iabilities
Working !apital Turnover 9atios

5et 3ales
5et Working !apital
2.) RATIOS ASSOCIATED WIT* WORKING CAPTAL
CHAPTER-3
PRESENTATION AND FINDINGS
The study covers a period of / years 1,DDC$,DDE F ,D*D$,D**4 and the data is collected from
secondary sources. The data so collected is analy+ed by applying various research tools which
include accounting tools like 9atio (nalysis, !ash %low (nalysis, !ommon 3i+e and Trend
(nalysis.

C'+p'nent ,i&e ana#!&i& '( W'r-in Capita#

The following are the ma&or observation and findings of the study with respect to each
component of the working capital of the (pollo Tyres)

(.1 O!eraing C-cle 7in /a-48
$erio/
Average age o5
#nvenor-
Average Collecion $erio/ O!eraing
C-cle
,DDC$DE .C./E */.-G 01.90
,DDE$DH ./.HG *H.,G 0*.1:
,DDH$DG .G.,, ,D.*C 09.(:
,DDG$*D .-..* *G.D, 0&.*(
,D*D$** .D.C- */.-C ++.99

The time that elapsed to convert raw material into cash is known as O!eraing C-cle.
O!eraing C-cle1Average Age o5 #nvenor-; Average Age o5 Collecion.
Auring the Iear ,DDH$DG, the operating cycle period increased by a great extend to
CG.-H days from the previous year"s figures of C..*H days. 2ut now the operating
cycle period has decreased in the last two years which is a good sign for the company.
This means that the time elapsed to convert raw materials into cash becoming lesser.
2oth the average age of Inventory and the (verage (ge !ollection period should be
reduced to improve the ?perating !ycle 0eriod.
7

A)ERAGE AGE OF #N)ENTOR'


A)ERAGE AGE OF RECE#)AB%ES
(.& CASH CON)ERS#ON C'C%E
$erio/ Average age
o5 #nvenor-
Average
Receiva<le4
$erio/
Average
$a-a<le4
$erio/
Ca43
Conver4ion
C-cle
,DDC$DE .C./E */.-G .,.G, 19.=*
,DDE$DH ./.HG *H.,G -E.E, &0.*0
,DDH$DG .G.,, ,D.*C .,.*, &>.&0
,DDG$*D .-..* *G.D, .C.DH 10.(+
,D*D$** .D.C- */.-C .-./H 1&.*=
!ash !onversion !ycle is the time length between the payment for suppliers of the
raw materials and collection of cash for sales.
Ca43 Conver4ion C-cle1 Average Age o5 #nvenor-; Average Receiva<le4 $erio/?
Average $a-a<le4 $erio/.
(s the operating !ycle increased by a great extend to CG.-H days from the previous
year"s figure of C..*H days during the year ,DDH$DG, likewise the cash conversion cycle
increased from *C.-/ days to ,E.,C days during that year. 2ut now the operating cycle period
as well as the cash conversion cycle has shown a decreasing trend in the last two years which
is a good sign for the company.
2oth the average age of inventory and the average collection period should be reduced
to improve the cash conversion cycle period. (verage !ollection period should be minimi+ed
by implementing attractive credit policy that allows prompt payment by the debtors.
(lso the (ccount 0ayable 0eriod should be maximi+ed by utili+ing the credit period
allowed by creditors to the maximum extend.
(.( STATEMENT OF "ORK#NG CA$#TA%
$ART#CU%ARS &==0?&==> &==>?=: &==:?=9 &==9?1= &=1=?11
8
Curren A44e4
Inventories
3undry Aebtors
!ash (nd 2ank
?ther !urrent (ssets
;oans (nd (dvances
Toal7A8

,C,.CC
*,D..*
*DC.-/
D.D/
*/E.HG
C.E.-C

--D.*,
*/C./,
**D..-
D.D,
*.C..C
E.-.//

.*G..,
*E/.*.
,-*.-C
D.,*
*H..-G
*D*D./-

./*.G/
,D-.DC
*E,.DD
*-.G*.
*G-.E*
*D-..C-

/*-.,G
*//.*-
,C/.H/
*,.H.
*EH.CH
**,/.HD
Curren %ia<iliie4
!urrent ;iabilities
0rovisions
Toal7B8
"ORK#NG CA$#TA%7A?B8

-*D./G
,H.-,
--H.G*
(=:.*+

-HD.*.
,H.H-
.DH.GE
((*.+:

-HH.C-
/,.D/
..D.CE
+09.:0

/.,.,D
//.-H
/GE./H
*(>.=+

/C/.H-
G-.DG
C/H.G*
*00.:9



This graph mainly shows an increasing trend in the amount of working capital, expect for the
year ,DDG$*D when it fell sharply by *-,.H* crores.
(.* RAT#O ANA%'S#S
RAT#OS &==0?=> &==>?=: &==:?=9 &==9?1= &=1=?11
CURRENT
RAT#O
*.G* *.HC *.CH *./G *.C*
@U#CK RAT#O *.,/ *.*G *.D- D.G- D.HC
A)ERAGE
CO%%ECT#ON
$ER#OD
.E..E .C.*G .-.E- -H.D/ -C.*E
#N)ENTOR'
HO%D#NG
$ER#OD
.*.HG .D.CG -G.EE -G.*. .C.D/
"C TURNO)ER
RAT#O
C./. H.E/ H.D- G.HG G.ED

9



Curren Raio
CURRENT RAT#OS
'EAR
CURRENT
ASSETS
CURRENT
%#AB#%#T#ES
RAT#O
&==0?=> C.E.-C --H.G* *.G*
&==>?=: E.-.// .DH.GE *.H,
&==:?=9 *D*D./* ..D.CE ,.,G
&==9?1= *D-..C- /GE./H *.E-
&=1=?11 **,/.HD C/H.G* *.E*
This ratio measures the solvency of the company in the short term. !urrent (ssets are those
assets which can be converted into cash within one year. !urrent ;iabilities and 0rovisions are
those liability which are payable within one year.
!urrent (ssets J;oans and (dvances
!urrent 9atio K
!urrent ;iabilities and 0rovisions
( current ratio ,)* indicates a highly solvent position. ( current ratio of *.--)* is
considered by banks as the minimum acceptable level for providing working capital finance.
The constituents of the current assets are as important as the current assets themselves for the
evaluation of a company"s solvency position. ( very high current ratio will have adverse
impact on the profitability of the organi+ation. ( high !urrent ratio may be due to the piling
up of inventory, inefficiency in the collection of debtors, high balances in the cash and bank
accounts without proper investment etc.


#ner!reaion4
The current ratio in the year ,DDH$DG is more than ,)* which may not be favorable due
to various reasons like *4 there may be slow moving stocks or ,4 cash lying idle because of
insufficient investment. ven though the company is now maintaining a healthy current ratio
average it is showing a decreasing trend except for the ,DDH$DG. This indicates that there has
been deterioration in the li#uidity position of the firm.
@U#CK RAT#O
@U#CK RAT#OS
'EAR
CURRENT
ASSETS
CURRENT
%#AB#%#T#ES
RAT#O
&==0?=> -H..ED --H.G* *.*.
&==>?=: .*-..- .DH.GE *.D*
10
&==:?=9 /G*.*D ..D.CE *.-.
&==9?1= /H,.CH /GE./H D.GH
&=1=?11 C*,./* C/H.G* D.G-
This ratio is used as the measure of the company"s ability to meet its current obligation since
bank overdraft is secured by the inventories, the other current assets must be sufficient to
meet other current liabilities.
!urrent (ssets J ;oans and (dvances$ Inventories
Luick 9atio KM
!urrent ;iabilities and 0rovisions$2ank ?verdraft

( #uick 9atio of *)* indicates a highly solvent position. This ratio serves as
supplement to the current ratio in analy+ing li#uidity.
#ner!reaion4
The #uick ratio in the year ,DDH$DG is *.-.)* which is very higher than the standard #uick
ratio which is *)*. ven though the company is now maintaining a healthy #uick ratio
average, it is showing a decreasing trend except for the year ,DDH$DG. The company must take
necessary step to step up the ratio to *)* which indicates a highly solvent ratio. The #uick
ratio of the company in the last year ,D*D$** is D.G-)*' this indicates that the concern may be
able to meet its short term obligations

DEBTORS TURNO)ER RAT#O
DEBTORS TURNO)ER RAT#OS
'EAR SA%ES
A)G
RECE#)AB%E
RAT#O
&==0?=> ,-*..-* H*.DE ,H.//
&==>?=: ,C/C.H* *-H..C *G.*G
&==:?=9 -DD,.*, *C/.H- *H.*D
&==9?1= -EE..-. *HG.*D *G.GC
&=1=?11 .,.C.GH *EG.DG ,-.E*
Aebtors Turnover which measures whether the amount or resources tied up in debtors is
reasonable and whether the company has been efficient in converting debtors into cash... The
higher is the ratio, better is the position.
3ales
Aebtors Turnover 9atio K
(verage 9eceivables
Aebtor"s velocity indicates the number of times the debtors are turned over during a year.
>enerally the higher the value of debtor"s turnover the more efficient is the management of
11
debtors<sales or more li#uid are the debtors. 3imilarly, low debtors turnover implies inefficient
management of debtors or sales and less li#uid debtors. 2ut a precaution is needed while
interpreting a very high debtors turnover ratio because a very high ratio may imply a firms
inability due to lack of resources to sell on credit there by loosing sales (nd 0rofits.
#NTER$RETAT#ONS
ven though the company could not repeat the debtor"s turnover ratio of the year ,DDC$DE
which is ,H.// times, it is showing an increasing trend in the debtor"s turnover ratio from the
year ,DDH$DG to ,D*D$**, which is *H.*D, *G.GC, and ,-.E* respectively. This indicates that
management of debtors is becoming more and more efficient<li#uid are the debtors.
A)ERAGE CO%%ECT#ON $ER#OD
Average Collecion $erio/
'EAR DA'S
DEBTORS
TURNO)ER
RAT#O
DA'S
&==0?=> -C/ ,H.// *,.EH
&==>?=: -C/ *G.*G *G.D,
&==:?=9 -C/ *H.*D ,D.*E
&==9?1= -C/ *G.GC *H.,G
&=1=?11 -C/ *EG.DG */.-G
(verage !ollection 0eriod measures how long it will take to collect amounts from the debtors.
5o. ?f Working Aays
(verage !ollection 0eriod K
Aebtors Turnover 9atio
The actual collection period can be compared with the stated credit terms of the company. If
it is longer than those terms, then this indicates inefficiency in collecting debts.
The average !ollection period ratio represents the average no. of days for which a firm has to
wait before its receivables are converted into cash. It measures the #uality of debtors.
>enerally, the shorter the average collection period the better is the #uality of debtors as a
short collection period implies #uick payment by debtors. 3imilarly a high collection period
implies an inefficient collection performance which in adversely affect the li#uidity or short
term paying capacity of a firm out of its current liabilities. Moreover, longer the average
collection period the larger are chances of bad debt.
#NTER$RETAT#ONS
ven though the company could not repeat the average collection period of the year ,DDC$DE
which is *,.EH days, It is showing a decreasing trend in the average collection period from the
year ,DDH$DG to ,D*D$**, which is ,D.*E, *H.,G, */.-G days respectively. This indicates that
the credit policies of the company is good or prompt payment from the side of debtors.
12
#nvenor- Turnover Raio
'EAR SA%ES
A)ERAGE
#N)ENTOR'
T#MES
&==0?=> ,-*..-. ,-G./E G.CC
&==>?=: ,C/C.H* ,GC.-G H.GC
&==:?=9 -DD,.*, -E..EE H.D*
&==9?1= -EE..-. .-/.CH H.CC
&=1=?11 .,.C.GH .H,.C- H.HD

( considerable amount of !ompany"s capital may be tied up in the financing of raw materials,
work$in$progress and finished goods. It is important to ensure that the level of stocks is kept
as low as possible, consistent with the need to fulfill customer orders in time.
3ales
Inventory Turnover 9atio K
(verage Inventory
(verage InventoryK1?pening 3tockJ closing 3tock4<,
The inventory turnover ratio measures how many times a company"s inventory has been sold
during the year. If the inventory turnover ratio has decreased from past it means that either
inventory is growing or sales are dropping.
In (ddition to that, if a firm has a turnover that is slower than for its industry, then there may
be obsolete goods on hand, or inventory stocks may be high. ;ow inventory turnover has
impact on the li#uidity of the business.
#NTER$RETAT#ONS
The company is maintaining a consistent inventory turnover ratio in almost all the years under
study. This indicates efficient management of inventory because more fre#uently the stocks
are sold and the lesser amount of money is re#uired to finance the inventory.
#N)ENTOR' HO%D#NG RAT#O
'EAR DA'S A)ERAGE #N)ENTOR' DA'S
&==0?=> -C/ G.CC (>.>:
&==>?=: -C/ H.GC *=.>*
&==:?=9 -C/ H.D* *+.+>
&==9?1= -C/ H.CC *&.1+
&=1=?11 -C/ H.HD *1.*:
13
It is the average time taken for clearing the stocks. This period is calculated by dividing the
number of days by inventory turnover)
Aays in Iear
Inventory =olding 9atio K
Inventory Turnover 9atio
#NTER$RETAT#ONS
The company is maintaining a consistent inventory holding ratio in almost all the years under
study, which is averaging around .,./ days. This indicates efficient management of inventory
because more fre#uently stocks are disposed off or sold.
"ORK#NG CA$#TA% TURNO)ER RAT#O
'EAR SA%ES NET "C T#MES
&==0?=> ,-*..-* -DH../ E./D
&==>?=: ,C/C.H* --../H E.G.
&==:?=9 -DD,.*, /CG.H/ /.,E
&==9?1= -EE..-. .-E.D/ H.C.
&=1=?11 .,.C.GH .CC.HG G.*D
Working !apital Turnover ratio indicates the velocity of the utili+ation of the net
working capital. This ratio indicates the number of times the working capital is turned over in
the course of a year. This ratio measures the efficiency with which the working capital is
being used in the firm. ( higher ratio indicates efficient utili+ation of working capital. (nd a
low ratio indicates otherwise. 2ut a very high working capital turnover ratio is not a good
situation for any firm and hence care must be taken while interpreting the ratio. This ratio can
at best be used by making of comparative and trend analysis for different firms in the same
industry and for various periods. This ratio can be calculated as follows)
3ales
Working !apital Turnover 9atio K
5et Working !apital

#NTER$RETAT#ONS
The graph shows an increasing trend in the working capital turnover ratio except for the year
,DDH$DG where it recorded the lowest of /.,E. It indicates the efficient utilisation of working
capital by the firm.
CRED#TORS TURNO)ER RAT#O
14
'EAR
CRED#T
$URCHASE
A)ERAGEACCOUNTS
$A'AB%E
RAT#O
&==0?=> **G-.*C ,/E ..C.
&==>?=: *.,/.-E -*..C* ../-
&==:?=9 *H...*C -,D.E- /.E/
&==9?1= ,,/H.D- -/H.*, C.*-
&=1=?11 ,-H..GC ....EG /.-C
!reditor"s turnover ratio indicates the number of times the accounts payable rotate in a year. It
signifies the credit period en&oyed by the firm in paying its creditors. (ccounts 0ayable
includes trade creditors and bills payable. This ratio shows the relationship between net credit
purchase for the whole year and accounts payable.
5et !redit 0urchase
!reditors Turnover 9atio K
(verage Trade !reditors
#NTER$RETAT#ONS
The creditor"s ratio indicates the promptness in making payment of credit purchases. The ratio
signifies that the creditors are being paid promptly, thus enhancing the credit worthiness of the
company.
The !reditors turnover ratio of the company shows that company utili+es the credit period
given by the suppliers to the maximum extend.
SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON
It is prepared in order to measure the increase<decrease in the working capital over a period of
time. It is necessary to prepare this schedule. This schedule is prepared with the help of only
current assets and current liabilities.
SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON 7=+?=0 o =0?=>8
$aricular4 &==+?=0 &==0?=> #ncrea4e7;8 Decrea4e7?8
Curren A44e4
Inventories ,*C..H ,C,.CC .C.*H $$
Aebtors E..-E *,D..* .C.D. $$
!ash : bank 2alance GE.C* *DC.-/ H.E.
?ther !urrent (ssets D.E/ D.D/ $$ D.ED
;oans : (dvances **E.EC */E.HG .D.*-
Toal +=0.9> 0*>.(0

Curren %ia<iliie4
!urrent ;iabilities ,,*... -*D./G $$ HG.*/
0rovisions ,D.EH ,H.-, E./.
15
Total &*&.&& ((:.91

"orAing Ca!ial &0*.>+ (=:.*+ 1*1.=9 9>.(9
#ncrea4eB Decrea4e *(.>= *(.>=
(=:.*+ (=:.*+ 1*1.=9 1*1.=9

The statement shows that there is a net increase in working capital in the year ,DDC$DE of 9s.
.-.ED crores.
SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON 7=0?=> o =>?=:8
$aricular4 &==0?=> &==>?=: #ncrea4e7;8 Decrea4e7?8
Curren A44e4
Inventories ,C,.CC --D.*, CE..C $$
Aebtors *,D..* */C./, -C.** $$
!ash : bank 2alance *DC.-/ **D..- ..DH
?ther !urrent (ssets D.D/ D.D, $$ D.D-
;oans : (dvances */E.HG *.C..C **..-
Total 0*>.(0 >*(.++

Curren %ia<iliie4
!urrent ;iabilities -*D./G -HD.*. $$ CG.//
0rovisions ,H.-, ,H.H- D./*
Total ((:.91 *=:.9>

"orAing Ca!ial (=:.*+ ((*.+: 1=>.0+ :1.+&
#ncrea4eB Decrea4e &0.1( &0.1(
((*.+: ((*.+: 1=>.0+ 1=>.0+

The statement shows that there is a net increase in working capital in the year ,DDE$DH of
9s.,C.*- crores.













SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON 7=>?=: o =:?=98
16
$aricular4 &==>?=: &==:?=9 #ncrea4e7;8 Decrea4e7?8
Curren A44e4
Inventories --D.*, .*G.., HG.-D $$
Aebtors */C./, *E/.*. -C.** $$
!ash : bank 2alance **D..- ,-*.-C *,D.G- $$
?ther !urrent (ssets D.D, D.,* D.*G $$
;oans : (dvances *.C..C *H..-G -E.G- $$
Total >*(.++ 1=1=.+( ?? ??

Curren %ia<iliie4
!urrent ;iabilities -HD.*. -HD.*. $$ CG.//
0rovisions ,H.H- ,H.H- D./*
Total *=:.9> **=.0>

"orAing Ca!ial ((*.+: +09.:0 &00.9: (1.>=
#ncrea4eB Decrea4e &(+.&: &(+.&:
+09.:0 +09.:0 &00.9: &00.9:

The statement shows that there is a net increase in working capital in the year ,DDH$DG of
9s.,-/.,H crores.














SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON 7=:?=9 o =9?1=8
$aricular4 &==:?=9 &==9?1= #ncrea4e7;8 Decrea4e7?8
Curren A44e4
Inventories .*G.., ./*.G/ -,./- $$
Aebtors *E/.*. ,D-.DC ,E.G* $$
!ash : bank 2alance ,-*.-C *E,.DD $$ /G.-C
?ther !urrent (ssets D.,* *-.G*. *-.ED $$
;oans : (dvances *H..-G *G-.E* G.-, $$
17
Total 1=1=.+( 1=(*.0( ?? ??

Curren %ia<iliie4
!urrent ;iabilities -HD.*. /.,.,D $$ */-./H
0rovisions /,.D/ //.-H -.--
Total **=.0> +9>.+:

"orAing Ca!ial +09.:0 *(>.=+ :(.*0 &10.&0
#ncrea4eB Decrea4e 1(&.:= 1(&.:= ??
+09.:0 +09.:0 &10.&0 &10.&0

The statement shows that there is a net decrease in working capital in the year ,DDG$*D of
9s.*-,.HD crores. This year showed a rare case of net decrease in the working capital.












SCHEDU%E OF CHANGES #N "ORK#NG CA$#TA% $OS#T#ON 7=9?1= o 1=?118
$aricular4 &==9?1= &=1=?11 #ncrea4e7;8 Decrea4e7?8
Curren A44e4
Inventories ./*.G/ /*-.,G C*.-. $$
Aebtors ,D-.DC *//.*- $$ .E.G,
!ash : bank 2alance *E,.DD ,C/.H/ G-.H/ $$
?ther !urrent (ssets *-.G*. *,.H. $$ *.DH
;oans : (dvances *G-.E* *EH.CH $$ */.D-
Total 1=(*.0( 11&+.:=

Curren %ia<iliie4
!urrent ;iabilities /.,.,D /C/.H- ,-.C,
0rovisions //.-H G-.DG -E.E*
Total /GE./H C/H.G*

"orAing Ca!ial *(>.=+ *00.:9 1++.19 1&+.(0
#ncrea4eB Decrea4e &9.:* ?? ?? &9.:*
*00.:9 *00.:9 1++.19 1++.19
18

The statement shows that there is a net increase in working capital in the year ,D*D$** of
9s.,G.H. crores.











CHAPTER-4
KE' OBSER)AT#ONS AND F#ND#NGS
F#ND#NGS
*. In the last two years the operating !ycle 0eriod as well as !ash !onversion
!ycle has shown a decreasing trend, which is a good sign for the company. It
indicates that the time taken for the conversion of cash is becoming less and
less.
,. The #uick ratio in the year ,DDG$*D was much higher than the standard #uick
ratio of *)*. The #uick ratio of the company in ,D*D$** is D.G-)*' this indicates
that the concern may be able to meet its short term obligations.
-. It is found that the cash and bank balance of the company are fluctuating
highly over the period of study. The company should improve its cash
management to avoid these fluctuations.
.. The company could not repeat the Aebtors turnover ratio of the year ,DDC$
,DDE which is ,H.// times. 2ut it is showing an increasing trend during the last
three years. This indicates that management of debtors is becoming more and
more efficient < more li#uid are the debtors.
/. The company"s the average collection period is much lower when compared to
the industrial average, which is below /DN of the industrial average. This
indicates that the credit policies of the company is good or prompt payment
from the side of debtors.
C. The company is maintaining a consistent inventory turnover ratio, inventory
holding ratio and inventory ratio in almost all the years under study. This
indicates efficient management of inventory because more fre#uently the
stocks are sold and the lesser amount of money is re#uired to finance the
inventory.
19
E. The working capital turnover ratio shows an increasing trend in the last two
years. It also meets the industrial average. The overall trend indicates the
efficient utili+ation of the working capital by the firm.
H. The statement shows that there is a net increase in working capital in almost all
years except ,DDG$*D, where it recorded a net decrease. This year showed a
rare case of net decrease in working capital
G. %rom the overall analysis of working capital for the last five years, it is found
that, even though the company has failed to attain the standard ratios in some
years, it is managing its working capital effectively.

SUGGEST#ONS
1. The (verage (ge of Inventory of the company should be reduced to improve
the !ash !onversion !ycle period. (verage (ge Inventory can be minimi+ed
by using various inventory management techni#ues like @7ust In Time",(2!
(nalysis" etc.
2. The (ccounts 0ayable 0eriod can be maximi+ed by utili+ing the credit period
allowed by creditors to the maximum extend.
3. The company must take necessary steps to step up the #uick ratio to *)* which
indicates high solvent ratios.
4. The company should give more emphasis on the cash management as the
absolute li#uidity ratios of almost all years are below standards. !ash budgets
are very useful for cash management.
5. ( standard should be set for inventory holding period, debtor credit period and
creditor payment period.
6. 6eep stock levels as low as possible, consistent with not running out of stock
and not ordering stock in uneconomically small #uantities.
7. O7ust in TimeP stock management is good, as long as it is O7ust in TimeP and
never fails to deliver on time. It saves insurance !ost, warehousing !ost etc.
8. (ssess all significant new customers for their ability to pay. Take references,
examine accounts. Try not to take on new customers who would be poor
payers. 9e assess all significant customers periodically.
9. 3top supplying existing customers who are poor payers, the company may lose
sales, but after all it is the #uality of business rather than #uantity of business
that matters.
10. !onsider offering discounts for prompt settlement of invoices, but only if the
discounts are lower than the costs of borrowing the money owed from other
sources
"orAing ca!ial ,anage,en i4 an i,!oran -ar/4icA o ,ea4ure a co,!an-C4
o!eraional an/ 5inancial e55icienc-. T3i4 a4!ec ,u4 5or, !ar o5 3e co,!an-C4
4raegic an/ o!eraional 3inAing. E55or4 43oul/ con4anl- <e ,a/e o i,!rove 3e
20
6orAing ca!ial !o4iion. T3i4 6ill -iel/ greaer e55icienc- an/ i,!rove cu4o,er
4ai45acion.