A STUDY ON

“WORKING CAPITAL MANAGEMENT OF

SHRIRAM TRANSPORT FINANCE COMPANY LIMITED”

SUBMITTED TO
Dr. APJ Abdul Kalam Technical University,
Lucknow

For the partial fulfillment of

MASTER OF BUSNIESS ADMINISTRATION
(2018-20)

SUBMITTED TO SUBMITTED BY
Dr. Sanghmitra Das Paras Chauhan
Assistant Professor Roll No.1882070038
AKGIM, Ghaziabad MBA 3RD Semester

\
AJAY KUMAR GARG INSTITUTE OF MANAGEMENT
27th K.M Stone, NH—24, Delhi Hapur Bypass Road,
Adhyatmik Nagar, Ghaziabad- 201009

Page 1 of 47
 CERTIFIATE OF COMPLETION

I have a pleasure in certifying that Paras Chauhan is a student of Ajay Kumar Garg Institute
of Management, Ghaziabad of Master of Business Administration (MBA) affiliated to Dr.
Abdul Kalam Technical University, Lucknow.

He has completed his research project on Working Capital Management of Shriram Transport
Finance Company Limited at Gurugram under my guidance and supervision.

I certify that this is his original effort and has not been copied from any other report. This
project has also not been submitted in other university for the purpose of any award or any
degree.

This project fulfills the requirements of the curriculum prescribed by Dr. Abdul Kalam
Technical University, Lucknow.

I recommend this project work for evaluation and consideration for the award of degree of the
student.

Guide: Ashwani Kumar (Manager)

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 DECLARATION BY THE CANDIDATE

I, Paras Chauhan, hereby declare that the research work entitled Working Capital
Management of Shriram Transport Finance company Limited at Gururam submitted in the
partial fulfillment of the requirements of the Degree of Master of Business Administration is
my original work and the project report has not formed the basis of award of any other
degree, diploma, and fellowship. Also it has not been submitted to any other university or
institution for the award of degree or diploma.

Thank you

Paras Chauhan

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 ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me

throughout the course of this MBA project. I am thankful for their aspiring guidance,
invaluably constructive criticism and friendly advice during the project work. I am sincerely
grateful to them for sharing their truthful and illuminating views on a number of issues
related to the project.

I express my warm thanks to Mr. Ashwani Kumar (Branch Manager) and Mr. Amit Kumar
Jha (Branch Team Leader) and staff for their support and guidance at Shriram Transport
finance Company limited at Gurugram Branch.

I would also like to thank my project external guide Mr. Mukul Jha and Mr. Arun Kumar
trainers of company and all the people who provided me with the facilities being required and
conductive conditions for my MBA project.

Thank you,

Paras Chauhan

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 CONTENTS

DESCRIPTION PAGE NO.

Certificate Of Completion 2

Declaration By The Candidate 3

Acknowledgement 4

Executive Summary 6-7

Company Profile 8-20

Introduction 20-34

Research Objective 35

Research Methodology 36

Ratio Analysis & Interpretation 37-46

Conclusion 47

Suggestions 48-49

Bibliography 50

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 EXECUTIVE SUMMARY

Managing a firm’s current assets and liabilities (working capital management) is

highly relevant to the success of the firm. This research

The study examines the working capital management of Shriram Transport Finance Company
Limited. Moreover, the study outlines the main determinants of working capital in the
Shriram Transport Finance Company Limited. The determinants of working capital are
related to the factors associated with Current ratio, Quick ratio. The data to be taken for
analysis consist of accounts of 2015-2018, policies and procedures of the company and
methods used by the company. We are Studying the impact of working capital management
over profitability of Shriram Transport Finance Company Limited. For this purpose we have
used four independent variables namely Current Ratio, Cash Ratio, Net Profit Ratio, and
Asset Turnover Ratio for measuring working capital and two dependent variables ROA,
Return on Equity Ratio for measuring profitability and liquidity. Secondary data of Shriram
Transport Finance Company Limited have been used and (regression and correlation) Trend
analysis has been run through excel and following results are reported. The study of the
relationship between the profitability and working capital, ratios confirm with accepted rule
that larger the turnover increases the profitability of the company.

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 COMPANY PROFILE

ABOUT COMPNY

Shriram Transport Finance Company Limited (STFC) is part of

Shriram Group. The Founder Chairman of the group is MR.
Ramamurthy Thyagarajan who founded the group on 5th April 1974
in Chennai. Mr. R Thyagarajan receiving the Padma Bhushan from
President Pranab Mukherjee in New Delhi on April 5th, 2013 for his noble contribution to
society through financial empowerment.

Shriram Transport Finance Company Limited (STFC) established

in 30th June, 1979 as a Non Banking Finance Company (NBFC). The
Chairman Of STFC is Mr. Lakashminarayanan Subramanian. He
is a non-executive Director on Board of STFC. He holds master’s
degree in Science in Chemistry and post graduate diploma from University of Manchester
(U.K.) in Advanced Social & Economic Studies. Mr. Lakshminarayanan is a member of the
Indian Administrative Service (IAS-retired) and as such held several senior positions in the
Ministry of Home Affairs, Ministry of Communications and Information Technology,
Ministry of Information and Broadcasting of the Government of India and in the Department
of Tourism, Culture and Public Relations, Department of Mines, Mineral Resources, Revenue
and Relief and Rehabilitation of the Government of Madhya Pradesh.

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 MR. Umesh Govind Revankar is the Managing Director and CEO
of company. He has been associated with the Shriram Group for the last
28 years and has extensive experience in the financial services industry.

The Head Office of company is situated in Mumbai and Registration Office of company is
situated in Chennai.

Back in 1980s it was very difficult for the small road transport vehicles operators’ to get
financial assistance from institutions or organized sector. They has always consider to be
risky so these operators had to seek help from unorganized blenders. To help these under
serve population, the company decided to serve the segment of small road transport operators
or first time truck owners as they do not have easy access to credit from organized sectors.
Company started lending to truck operators for buying used truck initially and later also the
company encourage them to buying new truck.

With the track record of 40 year STFC leading organized finance providers in Transport
Finance and its employees are Brand Ambassador of the company. Starting from truck
finance company diversified business by providing finance to passenger commercial vehicles,
multi-utility vehicles, three wheelers, tractors, construction equipment.

In 2005, Shriram overseas finance limited 2003 , Shriram city union 1986 , Shriram
investments 1982 , Shriram transport finance company limited 1979 all these company
merged into one company Shriram transport finance company limited which became a
largest vehicles finance company.

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Overview

STFC is a part of the "SHRIRAM" conglomerate which has significant presence in financial
services viz., commercial vehicle financing business, consumer finance, life and general
insurance, stock broking, chit funds and distribution of financial products such as life and
general insurance products and units of mutual funds.

The company was incorporated in the year 1979 and is registered as a Deposit taking NBFC
with Reserve Bank of India under section 45IA of the Reserve Bank of India Act ,1934.

STFC decided to finance the much neglected Small Truck Owner. Shriram understood the
power of 'Aspiration' much before marketing based on 'Aspiration' became fashionable.
Shriram started lending to the Small Truck Owner to buy new trucks. But we found a
mismatch between the Aspiration and Ability. The Truck Operator was honest but the Equity
at his command was not sufficient to support the credit levels required to buy a new truck.

Company did not have the heart to send the Truck Operator back empty handed; so company
decided to fund Pre-owned Trucks. This was the most momentous decision that we made.

What followed was Sheer magic.

From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned Truck to the
New Truck, we have been with him in his journey of Prosperity as he has been our partner in
our road to success and leadership.

For us at Shriram, credit-worthiness of the Small Truck Owner has always been an article of
faith. This faith has guided our journey from our pioneering days in financing Small Truck
Owners to the present day leadership. Today we are not only the leader in Truck Finance; we
are also India's largest Asset Based Non-Banking Finance Company.

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The inability of the economists to capture data relating to the economic activity of the
informal sector has resulted in its neglect at the policy-making levels in the government.

The distribution of Truck Ownership being scattered among a large number of individuals
has resulted in this very important group being missed by the institutional radar. It is
estimated that 80% of trucks in the country are in the hands of individuals.

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BUSINESS

 Company is in the business of giving LOANS.

 It gives loans against Assets or Stocks or Receivables.
 Loans are given by company for Purchase of Assets or Expansion of Business or
Working Capital Require for smooth running of business.
 Loans given is Collected Back as per the terms and conditions agreed upon by the
customer.
 Customers are supported by company during the entire business cycle by providing
funds that are required for smooth running of the business financed by company.
 Loan amount is to be collected back within the agreed number of years and / or
months.

CUSTOMERS

 Customers are mostly ::

 FIRST Time Users (FTU).
 FIRST Time Buyers (FTB).
 Drivers aspiring to become Owners.
 People with No Credit history.
 People Entering Transport Business with Used Vehicles – Not founded by
many other Financiers.

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Journey

The journey has seen to making several innovations while comp stood at the very edge of
Organized Finance. The Banks and Institutions were guided by the Economists' vision; the
Small Truck Owner who always fell on their blind side was given the miss.

With a track record of about 40 years in this business, we are among the leading organized
finance provider for the commercial vehicle industry with a focus to provide various credit
facilities to STOs. We have also added passenger commercial vehicles, multi-utility vehicles,
three wheelers, tractors and construction equipment to our portfolio, making us a diversified,
end to end provider of finance solutions to the domestic road logistics industry. Besides
financing commercial vehicles (both new and pre-owned) we also extend finance for tyres,
engine replacement and working capital.

Company pan-India presence through its widespread network of branches has helped in its
overall growth over the years. As on March 31, 2019 the company had 1,545 branches, 838
rural centers and tie up over 500 private financiers across the country. As on March 31, 2019
our total employee strength was 26,630 including more than 16,280 relationship executives
who are colloquially referred to as company field force.

1545

16280

26630

Company has demonstrated consistent growth in our business and profitability. Assets under
management of company have grown by a compounded annual growth rate (CAGR) of
15.74% from Rs. 59,108 crores in Financial Year 2014 to Rs. 1,04,482 crores in Financial
Year 2019. Total income and profit after tax of company in Financial Year 2019 are Rs.
15,545.70 crores and Rs. 2,563.99 crores respectively.

Today company has approximately 20 to 25% market share in pre-owned and approximately
7 to 8% market share in new truck financing, with more than 20+ lacs customers.

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Vision

STFC was set up with the objective of offering the common man a host of products and
services that would be helpful to him on his path to prosperity. Over the decades, the
company has achieved significant success in reaching this objective, and has created a
tremendous sense of loyalty amongst its customers.

Operational efficiency, integrity and a strong focus on catering to the needs of the common
man by offering him high quality and cost-effective products & services are the values
driving STFC. These core values are deep-rooted within the organization and have been
strongly adhered to over the decades.

STFC prides itself on a perfect understanding of the customer. Each product or service is
tailor-made to perfectly suit customer needs. It is this guiding philosophy of putting people
first that has brought the company closer to the grassroots, and made it the preferred choice
for all the truck financing requirements amongst customers.

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 FINANCIAL PERFORMANCE
AS ON 31/03/2019

AUM (ASSET UNDER MANAGEMENT) 104482.29 CR.

NET PROFIT 2563.99 CR.

NET NPA (NON PROFIT ASSET) 2.55 %

USED VEHICLE MARKET SHARE 20-25 %

DIVIDEND (INTERIM + FINAL) 120%

CRADIT RATING (ICRA) MAA+ (STABLE) HIGH SAFTY

ZONAL OFFICE 12

REGIONAL OFFICE 117

BRANCHES 1545

RURAL BRANCH 838

RSP (REVENUE SHARING PARTY) 500

EMPLOYEES 26630

RELATIONSHIP EXECUTIVE 16280

USED VEHICLE : NEW VEHICLE 88 : 12

CUSTOMER 20.30 LACS

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SHRIRAM CAPITAL LIMITED (SCL)

Shriram Capital Limited (SCL) is the overarching holding company for the Financial
Services and Insurance entities of the Shriram Group, created with the primary objective of
optimizing the synergies across the Group’s entities.

The strategic reorientation of Shriram Capital Limited will help Shriram Group to be a
significant and profitable enterprise in various facets of the Financial Services businesses in
India and overseas.

Ajay Piramal is the Chairman of Board of Directors of Shriram

Capital Ltd. Mr. Ajay Piramal is India’s leading industrialist,
philanthropist and a social entrepreneur. Displaying a visionary
spirit, he has created one of India’s largest, most respected and diversified conglomerates, the
Piramal Group. With business interests across sectors, from healthcare to financial services,
the group is present in more than 100 cities and has manufacturing plants in India, the US, the
UK, Germany and Sri Lanka.

D V Ravi a Commerce Graduate, holding a Post Graduate Diploma in

Management from Institute of Rural Management, Anand, Gujarat has
been a member of the Board of Shriram Capital Limited since 2005.
He is the Managing Director of Shriram Capital Ltd.

Page 15 of 47
Page 16 of 47
SHRIRAM AUTOMALL INDIA LIMITED

Shriram Automall India Limited (SAMIL) is an associate company of Shriram Transport

Finance Company Limited. India’s first-ever service provider to offer a well-organized and
transparent platform for the exchange of pre-owned commercial vehicles, passenger vehicles,
construction & industrial equipment, tractors & agricultural equipment, three wheelers and
two wheelers. SAMIL is a part of Shriram Transport Finance Company Ltd (stfc.in), India’s
largest Small Business Finance Company (SBFC) and MXC Solutions India Pvt. Ltd which
runs both CarTrade.com and CarWale.com, India's leading online auto marketplace. Every
month, SAMIL conducts over 1000 events through its well-structured physical and online
platforms making it India’s Largest Offline and Online Vehicles Transaction Platform. The
company provides online vehicle transaction services through CarTradeExchange.com and
vehicle inspection facility through its 100% subsidiary Adroit Inspection Services Pvt. Ltd.
SAMIL has been confronted with over 20 nationally recognized awards and in a brief span of
seven years SAMIL has acquired over 7,00,000+ customers by conducting over 45,000+
bidding events at 150+ bidding locations.

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INTRODUCTION

WORKING CAPITAL MANAGEMENT

 Working capital is a financial metric which represents operating liquidity available

to a business, organisation or other entity, including governmental entities. Along
with fixed assets such as plant and equipment, working capital is considered a part of
operating capital. Gross working capital is equal to current assets. If current assets are
less than current liabilities, an entity has a working capital deficiency, also called
a working capital deficit. The capital of a business which is used in its day-to-day
trading operations, calculated as the current assets minus the current liabilities.

 A company can be endowed with assets and profitability but may fall short
of liquidity if its assets cannot be readily converted into cash. Positive working
capital is required to ensure that a firm is able to continue its operations and that it
has sufficient funds to satisfy both maturing short-term debt and upcoming
operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.

Calculation

Working capital is the difference between current assets and current liabilities. It is
not to be confused with trade working capital (the latter excluding cash).The basic
calculation of working capital is based on the entity’s gross current assets.

Working Capital = Current Assets - Current Liabilities

Working capital is defined as the excess of current assets over current liabilities and
provisions. In other words it is the Net Current Assets or Net Working Capital.

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IMPORTANCE OF WORKING CAPITAL

Working capital may be regarded as the lifeblood of the business. Without insufficient
working capital, any business organization cannot run smoothly or successfully.
In the business the Working capital is comparable to the blood of the human body.
Therefore the study of working capital is of major importance to the internal and
external analysis because of its close relationship with the current day to day
operations of a business. The inadequacy or mismanagement of working capital is the
leading cause of business failures.

To meet the current requirements of a business enterprise such as the purchases of

services, raw materials etc. working capital is essential. It is also pointed out that
working capital is nothing but one segment of the capital structure of a business.
In short, the cash and credit in the business, is comparable to the blood in the human
body like finance s life and strength i.e. profit of solvency to the business enterprise.
Financial management is called upon to maintain always the right cash balance so that
flow of fund is maintained at a desirable speed not allowing slow down. Thus
enterprise can have a balance between liquidity and profitability. Therefore the
management of working capital is essential in each and every activity.

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CONCEPT OF WORKING CAPITAL
1. Gross Working Capital:
The concept of gross working capital refers to the total value of current assets. In other
words, gross working capital is the total amount available for financing of current assets.
However, it does not reveal the true financial position of an enterprise. How a borrowing will
increase current assets and, thus, will increase gross working capital but, at the same time, it
will increase current liabilities also.

As a result, the net working capital will remain the same. This concept is usually supported
by the business community as it raises their assets (current) and is in their advantage to
borrow the funds from external sources such as banks and the financial institutions. In this
sense, the working capital is a financial concept.

As per this concept:

Gross Working Capital = Total Current Assets

2. Net Working Capital:

The net working capital is an accounting concept which represents the excess of current
assets over current liabilities. Current assets consist of items such as cash, bank balance,
stock, debtors, bills receivables, etc. and current liabilities include items such as bills
payables, creditors, etc. Excess of current assets over current liabilities, thus, indicates the
liquid position of an enterprise.

The ratio of 2:1 between current assets and current liabilities is considered as optimum or
sound. What this ratio implies is that the firm/ enterprise have sufficient liquidity to meet
operating expenses and current liabilities. It is important to mention that net working capital
will not increase with every increase in gross working capital. Importantly, net working
capital will increase only when there is increase in current assets without corresponding
increase in current liabilities.

Thus, in the form of a simple formula:

Net Working Capital = Current Assets - Current Liabilities

After subtracting current liabilities from current assets what is left over is net working capital.

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An excessive investment impairs firm’s profitability, as idle investment earns nothing.
Inadequate working capital can threaten solvency of the firm because of its inability
to meet its current obligations. Therefore there should be adequate investment in
current assets.

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OBJECTIVE OF WORKING CAPITAL MANAGEMENT

Two fold objective of working capital management

 Maintenance of working capital

 Availability of ample funds at the times of need.

USES OF WORKING CAPITAL

The typical use of working capital area follows:

 Adjusted net loss from operations.

 Purchase of non-current assets.

 Repayment of long-term debt (debentures or bonds) and short-term debt (bank

borrowing).

 Redemption of redeemable preference shares 5- Payment of cash dividend.

 Payment of cash dividend.

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ADVANTAGES OF ADEQUATE WORKING CAPITAL

 Increase in debt capacity and goodwill.

 Increase in production efficiency.

 Exploitation of favorable opportunities.

 Meeting contingencies and adverse changes.

 Available cash discount.

 Solvency and efficiency of fixed assets.

 Attractive Dividend to Shareholders.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

 Loss of goodwill and creditworthiness

 Firm can’t make use of favorable opportunities
 Adverse effects of credit opportunities
 Operational inefficiencies
 Effects on financial capacity
 Non-achievements of Profit Target

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DANGERS OF REDUNDANT WORKING CAPITAL
 Low rate of return on capital

 Decline in Capital and Efficiency

 Loss of Goodwill and Confidence

 Evils of Over Capitalization

 Destruction of Turnover Ratio

Company must have adequate working capital pursuant to its requirements. It should
neither be excessive nor inadequate. Both situations are dangerous. While inadequate
working capital adversely affects the business operations and profitability, excessive
working capital remains idle and earns no profits for the company. So company must
assure its working capital is adequate for its operations.

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SOURCES OF WORKING CAPITAL

 Issue of shares

 Retained earnings

 Issue of debentures

 Long term debts

 Other assets

SOURCES OF ADDITIONAL WORKING CAPITAL

 Existing cash reserve

 Profit (when you secure it as cash)
 Payables
 New equity or loans from shareholders
 Bank overdrafts or lines of credit

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VARIOUS TOOLS TO MEASURE & ANALYSIS WORKING CAPITAL OF A FIRM
 Fund Flow Analysis: This technique helps to adequate the various in working capital
contents between two balance sheet dates. Fund flow analysis show how much funds
have been obtained from different sources to finance working capital and how they
have been utilized. Due to need as well as organization use to it makes sound financial
decisions.
 Working Capital Flows: Information regarding the financing and investment
activities of an enterprise and the changes in the financial position for the period of
time is essential for financial statement used by owners as well as creditors for
making business decisions.

FINANCING OF CURRENT ASSETS

Whenever the need for working capital funds arises, agreement should be made quickly. If
surplus funds are available they should be invested in short term securities.
Net working capital (NWC) - defined by 2ways,

Difference between current assets and current liabilities

Net working capital is that portion of current assets which is financed with long term
funds.

Net Working Capital = Current Assets – Current Liabilities

If the working capital is efficiently managed then liquidity and profitability both will
improve. They are not components of working capital but outcome of working capital.
Working capital is basically related with the question of profitability versus liquidity &
related aspects of risk.

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PLANNING OF WORKING CAPITAL

Working capital is required to run day to day business operations. Firms differ in their
requirement of working capital (WC). Firms aim is to maximize the wealth of shareholders
and to earn sufficient return from its operations.
WCM is a significant facet of financial management. Its importance stems from two reasons:
Investment in current asset represents a substantial portion of total investment.
Investment in current assets and level of current liability has to be geared quickly to change
in sales.
Business undertaking required funds for two purposes:

 To create productive capacity through purchase of fixed assets.

 To finance current assets required for running of the business.

The importance of WCM is reflected in the fact that financial managers

Spend a great deal of time in managing current assets and current liabilities.

The extent to which profit can be earned is dependent upon the magnitude of sales. Sales are
necessary for earning profits. However, sales do not convert into cash instantly; there is
invariably a time lag between sale of goods and the receipt of cash. WC management affect
the profitability and liquidity of the firm which are inversely proportional to each other,
hence proper balance should be maintained between two.

To convert the sale of goods into cash, there is need for WC in the form of current asset to
deal with the problem arising out of immediate realization of cash against good sold.
Sufficient WC is necessary to sustain sales activity. This is referred to as the operating or
cash cycle.

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WORKING CAPITAL CYCLE

A firm requires many years to recover initial investment in fixed assets. On contrary the
investment in current asset is turned over many times a year.
Investment in such current assets is realized during the operating cycle of the firm.

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 dues 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.

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 increase drawings, these are cash outflows and,
like water flowing downs a plughole, they remove liquidity from the business.

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OPERATING CYCLE

The working capital cycle refers to the length of time between the firms paying the cash for
materials, etc., entering into production process/stock & the inflow of cash from debtors
(sales), suppose a company has certain amount of cash it will need raw materials. Some raw
materials will be available on credit but, cash will be paid out for the other part immediately.
Then it has to pay labor costs & incurs factory overheads. These three combined together will
constitute work in progress. After the production cycle is complete, work in progress will get
converted into sundry debtors.
Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be
again used for financing raw material, work in progress etc. thus there is complete cycle from
cash to cash wherein cash gets converted into raw material, work in progress, finished goods
and finally into cash again. Short term funds are required to meet the requirements of funds
during this time period. This time period is dependent upon the length of time within which
the original cash gets converted into cash again. The cycle is also known as operating cycle
or cash cycle.

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RESEARCH OBJECTIVE

1. Evaluating performance of company relating to financial statement analysis.

2. To measure the liquidity position of company through liquidity ratio.
3. To measure the profitability position of company through profitability ratio.
4. To measure the turnover position of company through asset turnover ratio.

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RESEARCH METHODOLOGY

Research Design Analytical Research Design

Data Used Secondary Data

Sample Size 4 years financial statements use in

this report

Data collection instrument Annual Report and Website

Statistical tools Statistical tools like percentage,

average, ratio, diagram, tables etc.

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 DATA ANALYSIS AND INTERPRETATION

LIQUIDITY ANALYSIS

 Current Ratio (Working Capital Ratio)

Current Assets
Current Liabilities

The current ratio is a liquidity and efficiency ratio that measures a firm’s ability to pay off its
short-term liabilities with its current assets. The current ratio is an important measure of
liquidity because short-term liabilities are due within the next year.
The current ratio helps investors and creditors understand the liquidity of a company and how
easily that company will be able to pay off its current liabilities.

Table - 1

ASSESSMENT YEAR CURRENT CURRENT RATIO

ASSETS LIABILITIES (IN TIMES)
31ST MARCH 2015 2693970.18 1596057.59 1.68 Times

31ST MARCH 2016 2327830.08 2353329.04 0.98 Times

31ST MARCH 2017 2508308.93 2420309.94 1.03 Times

31ST MARCH 2018 2828690.75 2844443.22 0.99 Times

Page 32 of 47
 Figure - 1

2
1.68

1.5

0.98 1.03
1 0.99

0.5

0
2014-15
2015-16
2016-17
2017-18

INTERPRETATION

A higher current ratio is always more favorable than a lower current ratio because it shows
the company can more easily make current debt payments.

Above graph interpret that the current ratio in all above years is approx ‘1’ it means the ratio
is good but not enough and the cash flow of company is suffering.

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 Cash Ratio

Cash + Cash Equivalents

Current Liabilities

The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm’s ability to pay
off its current liabilities with only cash and cash equivalents. The cash ratio is much more
restrictive than the current ratio or quick ratio because no other current assets can be used to
pay off current debt only cash.

A ratio of ‘1’ means that the company has the same amount of cash and equivalents as it has
current debt. In other words, in order to pay off its current debt, the company would have to
use all of its cash and equivalents. A ratio above ‘1’ means that all the current liabilities can
be paid with cash and equivalents. A ratio below ‘1’ means that the company needs more
than just its cash reserves to pay off its current debt.

Table - 2

ASSESSMENT YEAR CASH + CASH CURRENT RATIO

EQUIVALENTS LIABILITIES (IN TIMES)
31ST MARCH 2015 348832.76 1596057.59 0.218 Times

31ST MARCH 2016 80379.57 2353329.04 0.034 Times

31ST MARCH 2017 114163.08 2420309.94 0.047 Times

31ST MARCH 2018 110380.23 2844443.22 0.038 Times

Figure - 2

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 Cash Ratio
0.25 0.218
0.2
0.15
0.1
0.05 0.034 0.047
0.038
0
2014-15
2015-16
2016-17
2017-18

INTERPRETAION

As with most liquidity ratios, a higher cash coverage ratio means that the company is more
liquid and can more easily fund its debt. Creditors are particularly interested in this ratio
because they want to make sure their loans will be repaid.

But above chart interpret that the cash ratio of company is below ‘1’ from 2015 to 2018 it
means the ability to pay off company’s current liabilities with only cash and cash equivalents
is very low or poor.

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PROFITABILITY ANALYSIS

 Net Profit Ratio

Net Profit * 100

Revenue

The net profit percentage is the ratio of after-tax profits to revenue. As such, it is
one of the best measures of the overall results of a firm, especially when combined
with an evaluation of how well it is using its working capital. The measure is
commonly reported on a trend line, to judge performance over time. It is also used
to compare the results of a business with its competitors.

Net profit is not an indicator of cash flows, since net profit incorporates a number
of non-cash expenses, such as accrued expenses, amortization, and depreciation.

Table - 3

ASSESSMENT YEAR NET PROFIT REVENUE RATIO

(IN %)
31ST MARCH 2015 60457.83 863694.73 6.99 %

31ST MARCH 2016 117819.76 1024155.81 11.5 %

31ST MARCH 2017 125734.25 1082875.14 11.6 %

31ST MARCH 2018 156802.25 1220165.70 12.8 %

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 Figure – 3

Net Profit Ratio

2017-18 12.8

2016-17 11.6
2015-16
11.5
2014-15 6.99

0
5
10
15

INTERPRETAION
The net profit is also most useful if compared to the company’s history and peers. The
historical analysis helps us understand if the company’s profitability is improving or
declining. A declining margin might imply higher competition, reduced bargaining power, or
inefficient cost base of a company.

As per above graph interpret that the net profit ratio is continuously improving it means the
growth of company is increasing continuously. It implies lower competition, sufficient cost
base of company.

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 Return On Equity Ratio

Profit After Tax * 100

Shareholders’ fund

The return on equity ratio or ROE is a profitability ratio that measures the ability of a firm to
generate profits from its shareholders investments in the company. ROE is also indicator of
how effective management is at using equity financing to fund operations and grow the
company.

Table - 4

ASSESSMENT YEAR PROFIT AFTER SHAREHOLDERS’ RATIO

TAX FUND (IN %)

31ST MARCH 2015 123780.98 923796.50 13.34 %

31ST MARCH 2016 117819.76 1015411.45 11.60 %

31ST MARCH 2017 125734.25 1130222.87 11.12 %

31ST MARCH 2018 156802.25 1257231.63 12.47 %

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 Figure – 4

ROE

2017-18 12.47

2016-17 11.12

2015-16 11.6

2014-15
13.34
10
11
12
13
14

INTERPRETATION

ROE is a profitability ratio from the investor’s point of view not the company. Investors want
to see a high return on equity ratio because this indicates that the company is using its
investors’ funds effectively. Higher ratios are almost always better than lower ratios. This
helps track a company’s progress and ability to maintain a positive earnings trend.

Above bar graph interpret that return on equity decline from 2016 but it rise in 2018 and it
shows company recover the return on equity which is good for shareholders. And the return is
good enough to staying shareholders in company.

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TURNOVER ANALYSIS

 ASSET TURNOVER RATIO

Revenue
Average Total Assets

Total assets turnover ratio is an efficiency ratio that measures a company’s ability to generate
revenue from its assets by comparing revenue with average total assets. This ratio shows how
efficiently a company can use its assets to generate revenue.

Table - 5

ASSESSMENT YEAR AVERAGE TOTAL REVENUE RATIO

ASSETS (RS. IN LACS) (IN TIMES)
(RS. IN LACS)
31ST MARCH 2015 5428130.78 863694.63 15.91

31ST MARCH 2016 6364522.69 1,024,155.81 16.09

31ST MARCH 2017 7118680.395 1082875.14 15.21

31ST MARCH 2018 8143791.315 1220165.70 14.98

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 Figure-5

RATIO
16.2
16.09
16
15.91
15.8
15.6
15.4
15.2 15.21
15 14.98
14.8
14.6
14.4
2014-15 2015-16 2016-17 2017-18

INTERPRETATION

Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios
mean that the company isn’t using its assets efficiently and most likely have management.

From above line interpret that the ratio of asset rise and then decline but it is in good
condition. It means the management of company is using its assets efficiently.

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CONCLUSION

The working capital ratio shows that it is almost ‘1’ but not in good condition it
means the liquidity of company is poor and the cash flow of company is also
suffering.

The cash ratio of company is below ‘1’ which is not in favor of company and the
ability to pay off company’s current liabilities with only cash and cash equivalents is
very low or poor.

The net profit ratio of company is improving every year and the growth of company is
increasing continuously. It means the profitability of company is increasing year by
year.

The return on equity of shareholders is high which helps to company to attract

investment and stay existing shareholders in company.

The asset turnover ratio is good enough to generate revenue from company’s assets
efficiently.

From these above points it is concluded that the liquidity position of company is not in good
condition or in poor condition. The profitability of company is increasing year by year it is in
favor of shareholders, employees, investors and company itself. The turnover of company is
showing that the management of company is doing well in their work and uses its assets
efficiently. Company is doing well but there is need to improve in some area of company.

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SUGGESTIONS

Company should focus to increase accounts receivables and the faster company
receive money for revenue, the better its current ratio will look and company will
have enough cash. Pay off some of company’s liabilities as quickly as possible,
especially the minor ones that do not have high money values.

Every business has unproductive assets. It is just lying there, wasting resources and
not earning anything. It is time to get rid of them. Try and get a good price for it.
After the sale, your cash balances would go up, you do not have to account for
depreciation, and the ratios would subsequently improve.

Examine how much you are spending on rent, labor and professional fees and so on.
Cut back on unnecessary expenses and short-term expenses automatically go down.
The cash are able to retain in the business also increases. Soon, Current and Quick
ratios start looking mighty impressive.

Keep a watchful eye on those liquidity ratios. They are the lifeblood of the business.
Since they concern the short term, they are harder to solve and require urgent
measures to fix when they are in trouble. Businesses have gone broke for lack of
liquidity. Do not get into such a situation. Always make sure that company have a
healthy bank balance or at the very least, possess assets that can be converted to cash
quickly.

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The company should focus on its liquidity position to make improve in it to make
good position in mind of shareholders and investors.

The financial performance of company is good in profitability but poor in liquidity so

company has to improve its liquidity position.

Page 44 of 47
BIBLIOGRAPHY

 Book

Dr. S. N. Maheshwari, Accounting For Management

 Websites

www.stfc.in

www.wikipedia.com

www.investopedia.com

The management of working capital is defined as the “management of current assets

and current liabilities, and financing these current assets.” Working capital

management is important for creating value for shareholders. Management of working

capital management was found to have a significant impact on both profitability and

liquidity in studies in different countries. Long developed a model of trade credit in

which asymmetric information leads good firms to extend trade credit so that buyers

can verify product quality before payment. Their sample contained all industrial (SIC

2000 through 3999) firms with data available from COMPUSTAT for the three-year

period ending in 1987 and used regression analysis. They defined trade credit policy

as the average time receivables are outstanding and measured this variable by

computing each firm's days of sales outstanding (DSO), as accounts receivable per

dollar of daily sales. To reduce variability, they averaged DSO and all other measures

over a three- year period. They found evidence consistent with the model. The

findings suggest that producers may increase the implicit cost of extending trade

credit by financing their receivables through payables and short-term borrowing. Shin

and Soenen researched the relationship between working capital management and

value creation for shareholders. The standard measure for working capital

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management is the cash conversion cycle (CCC). Cash conversion period reflects the

time span between disbursement and collection of cash. It is measured by estimating

the inventory conversion period and the receivable conversion period, less the

payables conversion period. In their study, Shin and Soenen used net-trade cycle

(NTC) as a measure of working capital management. NTC is basically equal to the

cash conversion cycle (CCC) where all three components are expressed as a

percentage of sales. NTC may be a proxy for additional working capital needs as a

function of the projected sales growth. They examined this relationship by using

correlation and regression analysis, by industry, and working capital intensity. Using a

COMPUSTAT sample of 58,985 firm years covering the period 1975-1994, they

found a strong negative relationship between the length of the firm's net-trade cycle

and its profitability. Based on the findings, they suggest that one possible way to

create shareholder value is to reduce firm’s NTC. To test the relationship between

working capital management and corporate profitability, Deloof used a sample of

1,009 large Belgian non-financial firms for a period of 1992-1996. By using

correlation and regression tests, he found significant negative relationship between

gross operating income and the number of days accounts receivable, inventories, and

accounts payable of Belgian firms. Based on the study results,he suggests that

managers can increase corporate profitability by reducing the number of day’s

accounts receivable and inventories. Ghosh and Maji attempted to examine the

efficiency of working capital management of Indian cement companies during 1992 -

93 to 2001 - 2002. They calculated three index values - performance index, utilization

index, and overall efficiency index to measure the efficiency of working capital

management, instead of using some common working capital management ratios. By

using regression analysis and industry norms as a target efficiency level of individual

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firms, Ghosh and Maji tested the speed of achieving that target level of efficiency by

individual firms during the period of study and found that some of the sample firms

successfully improved efficiency during these years. Eljelly empirically examined the

relationship between profitability and liquidity, as measured by current ratio and cash

gap (cash conversion cycle) on a sample of 929 joint stock companies in Saudi

Arabia. Using correlation and regression analysis, Eljelly [9] found significant

negative relationship between the firm's profitability and its liquidity level, as

measured by current ratio. This relationship is more pronounced for firms with high

current ratios and long cash conversion cycles.

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