INTRODUCTION

1. WORKING CAPITAL MANAGEMENT

The success of business, among other things depends upon the manner i n which its
capital is managed in the dynamic business setting, the
composition of working capital mismanaged, in the dynamic business setting, t h e
difference between the current assets and current liabilities. Constantly
changes in relation to the level of activity of the business concern and rates at which
the current assets of current liabilities keep changing in relation to each o t h e r a n d
other things are significant factors also continuous review and
direction of the financial manager. It is the task of the financial maintain an appropriate
level of working capital that is enough current assets to pay off current liabilities
neither excess nor less because excessive working capital leads to interruption in the
smooth functioning of the business concern. T h e r e a r e n u m e r o u s i n s t a n c e s i n t h e
h i s t o r y o f b u s i n e s s w o r l d w h e r e inadequacy of working capital has led to business
failures when a firm finds it difficult to meetings day to day. O p e r a t i n g e x p e n s e s
e s s e n t i a l o u t l a ys m a y h a v e t o b e p o s t p o n e d f o r want of funds, operating plans
will go out of gear & enterprise objectives on i n v e s t m e n t s l u m p s t h e s u p p l i e r s &
c r e d i t o r s o f t h e f i r m m a y h a v e t o w a i t longer to raise their dues & will hesitate to
extend further credit to the firm. T h u s e f f i c i e n t m a n a g e m e n t o f w o r k i n g
c a p i t a l i n a n i m p o r t a n t prerequisite for successful working of a business concern it
reduces the chances of business failure generates a feeling of security and confidence
in the minds o f p e r s o n n e l i n t h e o r g a n i z a t i o n i t a s s u r a n c e s o l v e n c y o f
s t e a d y o f t h e organization.
1.1 NEEDANDIMPORTANCEOFTHESTUDY:
1.Their projects is helpful in knowing the companies position of
f u n d s maintenance and setting the standards for working capital inventory
levels, current ratio level, quick ratio, current amount turnover level & web
t o r n turnover levels.2. This project is helpful to the managements for expanding the
dualism & the project viability & present availability of funds.3 . T h i s p r o j e c t i s a l s o
u s e f u l a s i t c o m p a n i e s t h e p r e s e n t ye a r d a t a w i t h t h e previous year data and
there by it show the trend analysis, i.e. increasing funder decreasing fund.4. The project
is done entirely as a whole entirely. It will give overall view of the organization and
it is useful in further expansion decision to be taken by management.

INTRODUCTION
1. WORKING CAPITAL MANAGEMENT
The success of business, among other things depends upon the manner i n which its
capital is managed in the dynamic business setting, the
composition of working capital mismanaged, in the dynamic business setting, t h e
difference between the current assets and current liabilities. Constantly
changes in relation to the level of activity of the business concern and rates at which
the current assets of current liabilities keep changing in relation to each o t h e r a n d
other things are significant factors also continuous review and
direction of the financial manager. It is the task of the financial maintain an appropriate
level of working capital that is enough current assets to pay off current liabilities
neither excess nor less because excessive working capital leads to interruption in the
smooth functioning of the business concern. T h e r e a r e n u m e r o u s i n s t a n c e s i n t h e
h i s t o r y o f b u s i n e s s w o r l d w h e r e inadequacy of working capital has led to business
failures when a firm finds it difficult to meetings day to day. O p e r a t i n g e x p e n s e s
e s s e n t i a l o u t l a ys m a y h a v e t o b e p o s t p o n e d f o r want of funds, operating plans
will go out of gear & enterprise objectives on i n v e s t m e n t s l u m p s t h e s u p p l i e r s &
c r e d i t o r s o f t h e f i r m m a y h a v e t o w a i t longer to raise their dues & will hesitate to
extend further credit to the firm. T h u s e f f i c i e n t m a n a g e m e n t o f w o r k i n g
c a p i t a l i n a n i m p o r t a n t prerequisite for successful working of a business concern it
reduces the chances of business failure generates a feeling of security and confidence
in the minds o f p e r s o n n e l i n t h e o r g a n i z a t i o n i t a s s u r a n c e s o l v e n c y o f
s t e a d y o f t h e organization.

1.1 NEEDANDIMPORTANCEOFTHESTUDY:
1.Their projects is helpful in knowing the companies position of
f u n d s maintenance and setting the standards for working capital inventory
levels, current ratio level, quick ratio, current amount turnover level & web
t o r n turnover levels.2. This project is helpful to the managements for expanding the
dualism & the project viability & present availability of funds.3 . T h i s p r o j e c t i s a l s o
u s e f u l a s i t c o m p a n i e s t h e p r e s e n t ye a r d a t a w i t h t h e previous year data and
there by it show the trend analysis, i.e. increasing funder decreasing fund.4. The project
is done entirely as a whole entirely. It will give overall view of the organization and
it is useful in further expansion decision to be taken by management.

1.2OBJECTIVEOFTHESTUDY:
1 . T o e x a m i n e t h e e f f e c t i v e n e s s o f w o r k i n g c a p i t a m a n a g e m e n t p o l i c e s with
the help of accounting ratio.2 . T o study liquidity position of the
c o m p a n y b y t a k i n g v a r i o u s measurements.3.To evaluation the financial
performance of the company.4 . T o m a k e s u g g e s t i o n s f o r p o l i c y m a k e r s f o r
e f f e c t i v e m a n a g e m e n t o f working capital.
1.3 METHODOLOGY
Primary Data
DEF: The first handed information/Fresh data collected through
v a r i o u s methods is known as primary data.In respect of primary data which the researchers is
directly collects datathat have not been previously collected.The primary data was gathered
through personal interaction with variousfunctional heads and other technical personnel.
Some information was alsocollected by observation.
Secondary Data :
DEF: The data which have been already collected & comprised for
a n o t h e r purpose.S e c o n d a r y d a t a w a s c o l l e c t e d v a r i o u s r e p o r t s / a n n u a l
r e p o r t s , d o c u m e n t s charts, management information systems, etc in PRAGA. And
also collectedvarious magazines, books, newspapers and internet.The analysis of the
information gathered has been made on the basis of the clarifications sought during
the personal discussions with the concerned p e o p l e a n d p e r c e p t i o n d u r i n g t h e
p e r s o n a l v i s i t s t o t h e i m p o r t a n t a r e a s o services.In marking observations
identifying problems and suggesting certainremedies such emphasis was given on the basis
of opinions gathered during the p e r s o n a l d i s c u s s i o n s a n d w i t h t h e p e r s o n a l
e x p e r i e n c e g a i n e d d u r i n g t h e academic study of M.B.A course.

1.4 SCOPE OF THE STUDY

1.The scope is limited to operations of Praga tools Ltd, Hyderabad.2 . T h e p e r i o d
c o n s i d e r 2 m o n t h s The scope of the study is limited to collecting the financial
data publishedin the annual reports of the company with reference to the objectives statedabove
and an analysis of the data with a view to suggest favorable solutionto various problems
related to financial performance.

1.5LIMITATIONOFTHESTUDY:
1. The following are the various aspects involved in the analysis of the study.2. The study in limited
4 years (2004-2005) to (2005-2006) performance of thecompany.3. The data used in this study
have been taken from published annual reportonly.4. This study in conducted within a
short period. During the limited period thestudy may not be retailed, full fledged and
utilization in all aspects.5. Financial accounting does not take into account the price level changes.

CHAPTER – IIMACHINE TOOLS INDUSTRY – AN OVERVIEW

MACHINE TOOLS INDUSTRY – AN OVERVIEW

India ranks nineteenth in production and sixteenth in consumption
o f machine tools in the world. The Indian machine tool industry averaged morethan
35 percent growth in 2004-05. Imports exceeded production in the year 2 0 0 4 w i t h
us$356 million worth machine tools being imported while
t h e production was only us$225 million. Machine tools from I percent of
Indiesengineering industry and contributes 0.3 Percent of total machinery exports.T h e
Indian machine tool industry currently consists about
4 5 0 manufacturing units of which approximately 33 percent (150 units) Fall
under the organized category. Further ten Major Indian companies constitute
alsom o s t 7 0 p e r c e n t o f t h e t o t a l p r o d u c t i o n . T h e g o v e r n m e n t O w n e d
H i n d u s t a n Machine tools Limited (HMT) alone accounts for Nearly 32% of Machine
toolsM a n u f a c t u r e d i n I n d i a A p p r o x i m a t e l y 7 5 % o f t h e I n d i a n M a c h i n e
tool producers have received the coveted. 150 certification while
t h e l a r g e organized players cater to Indian’s Heavy and Medium industries, the
smallscale sectors meets the demand of ancillary and other unitsWorld wide the total modify
locations are 3,336. First highest modifylocation country is United States in 1333
lowest Modify location countries areB e l a r u s , B o s n i a a n d M e r z e g o v i n a ,
Bulgaria, C r o a t i a , M a l t a , R u s s i a n Federation in only one Modify
Location. 51 modify location are located inI n d i a . M o d e r n M a c h i n e T o o l
i n I n d i a ’ s l e a d i n g I n d u s t r i a l M a g a z i n e o n machine tools and Ancillary
i n d u s t r i e s . P u b l i s h e d i n a f f e c t a t i o n w i t h t h e c o u n t r y’ s a p e x B o d y f o r t h e
m a c h i n e t o o l s i n d u s t r y. I n d i a n m a c h i n e t o o l Manufacture’s association (IMMA)

With a healthy readership base of over 2 lakhs, this Premium quarterlymagazine is

regularly referred to by the key decision makers in the machinetool, cutting and other
manufacturing Industries that include CEOs. Directors,senior managers, as well as
engineers and shop. Floor technical personal apartfrom students. It serves as the
bench mark and with word it this ever growingsector of Indian industry.I n a d d i t i o n
to manufactures, this publication also reaches out toexporters,
dealers, distributors, R&D personnel Educational
i n s t i t u t i o n , consultants, industry associations and trade commissions almost every entry inthe
industry.M o d e r n machine tools provide an intelligent balanced and
c o h e s i v e insight into the machine tools and ancillary industries in India in terms of
thedeath editorial content. It includes the latest trends and technologies highlyuseful
technical articles and case studies. Business strategies views and visiono f i n d u s t r y
leaders and one of the largest ranges of machines tools/cuttingstools. This
a p a r t , t h e r e i s e x h a u s t i v e c o v e r a g e o f t h e c u r r e n t n a t i o n a l a n d international
news, upcoming projects, tenders, events and much more that helpthe readers to effectively
manage their business in a facilitator and guide for this burgeoning industry.Modern
machine tools strives to facilitate effective interaction amongseveral fatuities of the
machine tool, cutting and user industries by enablingthem in reaching out to their
prospects buyers and sellers through better tradecontacts and more business
opportunities.M a c h i n e t o o l i n d u s t r y h a s u n d e r g o n e a r a d i c a l s h i f t i n i t s
p a r a d i g m thinking, the Indian machine tool industry is now recognized as a provider
of low-cost high quality learn manufacturing solutions. The industry resiliently

supports all its users to enhance productivity as

w e l l a s i m p r o v e competitiveness, for the betterment of the final customer.B e i n g a n
integral sector, growth of the machine tool industry has animmense bearing
o n t h e e n t i r e e c o n o m y, e s p e c i a l l y I n d i a ’ s m a n u f a c t u r i n g industry. And is even
more crucial for development of the country’s strategicsegments such as Defense,
railways, space and atomic energy.World over too, industrialized-advanced countries have
created marketinches on the back of a well- developed and supportive machine tool sector.In
India as well, indigenous machine tools have the highest impact onc a p i t a l o u t p u t
r a t i o s . M a c h i n e t o o l c o n s u m p t i o n o f R s . 1 , 0 0 0 C r o r e t r u l y supports the
advancement of the country’s engineering sector, output of whichis estimated to be worth over Rs.
1,50,000 crore.
2.2 Manufacturing range:
The Indian machine tool industry manufactures almost the completerange
o f m e t a l c u t t i n g a n d m e t a l f o r m i n g m a c h i n e t o o l s c o m p l e t e r a n g e o f metal-
cutting and metal-forming machine tools.Customized in nature, the products from the Indian
basket comprise andconventional machine tools as well as computer numerically controlled
(CNC)m a c h i n e s . There are other variants offered by Indian
m a n u f a c t u r e s t o o , including special purpose machines, robotcsrobotics,
h a n d l i n g s ys t e m s a n d TPM friendly machines.E f f o r t s w i t h i n t h e i n d u s t r y, a r e n o w
o n t o b e t t e r t h e f e a t u r e s o f C N C machines, and provide further value additions at
lower costs, to meet specificr e q u i r e m e n t s o f u s e r s . B a s e d o n t h e p e r c e p t i o n o f
the current trends, ande m e r g i n g d e m a n d s , C N C s e g m e n t c o u l d b e t h e
d r i v e r o f g r o w t h f o r t h e machine tool industry in India.

2.3 Current trends :

A slowdown in the Indian economy since mid-1999 had its fallout on p r o s p e c t s o f
Indian machine tool manufactures. The Indian machine tooli n d u s t r y i s
b e s i e g e d b y l a c k o f a d e q u a t e b u s i n e s s o p p o r t u n i t i e s t h a t h a s stemmed
from sluggish demand in the home market of all user industries.Output by domestic metal working
machine tool manufacturers in 2001calendar year declined by 14 pr cent to Rs.5, 137
million marking the fourthyeast of decline, since 1997, for the Indian machine tool industry.
Much of thisfall was due to subdued investment by all the major users segments of machinet o o l s ,
e x c e p t t h e D e f e n s e i n d u s t r y, p r i m a r i l y b e c a u s e o f a h i g h e r c a p i t a l expenditure
outlay.W h i l e d e c r e a s e i n d o m e s t i c p r o d u c t i o n w a s d o r m a n t i n
case o f conventional metalworking machine tools computer numerically
conventionalmetalworking machine tools, computer numerically controlled (CNC)
machinet o o l manufacturers too suffered, although m a r g i n a l l y. Lathes,
machiningcenters, special purpose machines, and grinding machines were
among t h e machine tools that sustained much of the order inflow during 2001.even
thought h e s e segments registered decline, in comparison
w i t h t h e p r e v i o u s corresponding year.
2.4 Export Performance:
In view of an imminent slowdown in the Indian economy, most Indianmachine tool
manufactures focused on potential overseas markets for businessopportunities. Sustenance on
Indian market alone did not look feasible enough.Further, there has off late been a
perceptible change in the image of them a d e i n I n d i a b r a n d i n o v e r s e a s m a r k e t s
p a r t i c u l a r l y t r u e f o r I n d i a n - b u i l t machine tools. Enhanced features, competitive
pricing, and marketing focushas increased demand for Indian –made machine tools in
overseas markets, particularly in Europe, United states, and East-Asian regions.

And this is what Indian machine tool manufactures are hoping

t o leverage so as to post an optimistic export turnover in the next few years.Indian-made
machine tools are currently exported to over 50 countries:major ones being United
states, Italy, Brazil. Germany and the middle East.L a t h e s a n d a u t o m a t s , p r e s s e s ,
electro-discharge machines, and machiningc e n t e r s f o r m e d t h e b u l k o f
e x p o r t o r d e r s f o r I n d i a n m a n u f a c t u r e s . T h e s e machines from the Indian
basket are generally favored in overseas markets primarily due to their
c o s t - c o m p e t i t i v e n e s s , a s c o m p a r e d t o t h a t a v a i l a b l e elsewhere compared to those
available elsewhere.This vision of the Indian machine tool industry is now to step out
andestablish a relative presence in, other potential markets. World-over,
marketl e a d e r s h a v e b e e n t h o s e w h o h a v e l o o k e d t o i n c r e a s e t h e i r m a r k e t
p r e s e n c e beyond their national frontiers.
2.5 Industry Structure
Machine tool industry in India comprises about 450 manufactures with150 units in
the organized sector. Almost 70 percent of production in India iscontributed by ten major
companies of this industry. And over three-quarters of t o t a l m a c h i n e t o o l p r o d u c t i o n
i n t h e c o u n t r y c o m e s o u t o f I S O c e r t i f i e d companies. Many machine tool
manufacturers have also obtained CE markingc e r t i f i c a t i o n , i n k e e p i n g w i t h
requirements of the European markets. Theindustry has an installed
c a p a c i t y o f o v e r R s . 1 0 , 0 0 0 m i l l i o n a n d e m p l o ys a workforce totaling 65,000 skilled
and unskilled personnel.Machine tool industry in India is scatted all over the country. The hub
of manufacturing activities, however, is concentrated in places like Mumbai andPune
in Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad,B a o a d a ,
J a m n a g a r , R a j k o t a n d S u r e n d r a n a g a r i n G u j a r a t , C o m b a t o r e a n d Chennai
(Madras) in Tamilandu: some parts in East India; and Bangalore inKarnataka.

Bangalore is considered as the hub for the Indian machine tool industry.The city, for instance,
house HMT machines Tools limited, a company thatmanufactures nearly 32 percent of the
total machine tool industry’s output.
2.6 User Industries Services
The industry’s prospects mainly depend on growth of
e n g i n e e r i n g industries. The user sectors of machine tools are the automotive,
automobileand ancillaries, Railways, Defense, Agriculture, steel, Fertilizers,
Electrical,E l e c t r o n i c s , T e l e c o m m u n i c a t i o n , t e x t i l e m a c h i n e r y, b a l l & r o l l e r
b e a r i n g s , industrial values, power-driven pumps, multi-product engineering
companies,e a r t h m o v i n g m a c h i n e r y, c o m p r e s s o r s a n d c o n s u m e r d u r a b l e l i k e
washingm a c h i n e s , refrigerators, television sets, watches, dish-
w a s h e r s , v a c u u m cleaners, air conditioners, etc.

ORGANISATION PROFILE
3.1 INTRODUCTION
Praga is once of the leading machine tool manufacturing units in Indiaestablished in the
year 1943, Praga’s production are well known in the field of machine tools the company in
organized in four divisions via the machine toolsf o r g e f o u n d r y a n d C N C d i v i s i o n w h i c h
p u l s a t e d w i t h t h e a c t i v i t i e s o f 6 9 7 employees turning out a wide range of
production the four divisions equippedwith the modern facilities for design
development of manufacture of machinet o o l s , are manned by qualified
p e r s o n n e l w i t h p r o v e n r e c o r d o f t e c h n i c a l knowledge and exquisite craft smashup
acquitted over a period of year.Praga is proud of its diverse of machine tools the cutler&
tools vendersmilling machines copy lathes thread rolling machines & Praga CNC
machineswhich keep pace with the ever changing technology in addition the
companya l s o manufactures a wide of industrial forgings for railway
a u t o m o t i v e & ordnance applications.Praga’s wriest investment has been in its excellent
collaboration withw o r l d f a m o u s n a m e s l i k e J o n e s & s h i p m a n o f U K f o r
s u r f a c e g r i n d i n g a n d cutter of tool vendors gamin of France for milling machines
scoffers of gracefor thread rolling machines George finisher of Switzerland for
coping lather Mitsubishi Heavy industries of Japan for machining centers of Kayo
spiky of Japan for CNC lather the collaboration have culminated in Praga
producingmachine tools of the highest quality conforming to international standards
byvirtue of their dependability prevision engineering & proven.

PROFILE OF PRAGA
The Praga Tools is one of the oldest, machine Tools industries in Indiaa n d has
entire its golden jubilee year in 1993-94. The company
h a s incorporated has the joint stock company is 1943 has a private company
withobjective of manufacturing, instruments with the Technical assistance of a
fewCzechoslovakia Engineers. The company was incorporated in Many 1943 as
a public limited company in private sector. The name PRAGA symbolizes
thetechnical co-operation extended in the initial phase by some
Czechoslovakiane n g i n e e r s w h o s u g g e s t e d t h e n a m i n g o f t h e c o m p a n y a s
PRAGA after t h e i r capital city PRAGUE (PRAGA).I n March 1995, the
Government of India acquired the controllingi n t e r e s t in the
c o m p a n y b y a c q u i r i n g m a j o r i t y s h a r e s a n d p l a c e d t h e administrative
control under the ministry of commerce and industry from May1 9 9 5 to December
1963. The managing agents M/S united i n d u s t r i a l corporation
limited initially managed the company. Administrative control of the company has
been transferred from the defense minister to the departmento f p u b l i c e n t e r p r i s e
under ministry of industry on the 25
th
o f A p r i l 1 9 8 6 . Presently the company enjoys the status of being a subsidiary of
HMT LTD.Bangalore when a paid up capital of the company was transferred in its
namefrom the government.The company has four manufacturing nits located with in the twin
citiesof Hyderabad at Kavadiguda at Secunderabad it manufactures a wide range
of machine Tools, accessories and defiance items. A unit of forge and foundrydivisions
is located at Kukatpally Hyderabad where manufactures castings andforgings are.
A CNC project was established with advance technology like numericalcontrol machines like
automobiles CNC lathes, VNC mailing machines etc aremanufactures with the qualified
personnel’s in the fields of engineering of technology.The company has manpower of 2000
employees turning out wide rangeof products.The company has organized into four divisions viz.,
the machine Toolsdivision (MT-I), machine Tools II (MT-II), forge and foundry division, and
theCNC division.P e r f o r m a n c e Praga machine tools ate penetrating large
segments of foreign markets including UK CIC Canada, Bulgaria,
I n d o n e s i a , G e r m a n y , Japan.P R A G A i s e v e n m o t e p r o u d o f t h e f a c t t h a t i t h a s
c o n t r i b u t e d t o t h e development of thee machine tools industry in the development of the
machinet o o l s i n d u s t r y i n t h e c o u n t r y a n d t h e c r e a t i o n o f a v a s t
b a n d o f s k i l l e d technicians thus Praga to day in name of techno, within
t h e m a c h i n e t o o l industry.

3.2 CORPORATE VISION OF PRAGA TOOL

VISIONSTATEMENT:
Praga tools to be the provider of choice for total machine tools solutionto customers and a
significant provider of service in Indian industry of overseestoo the strong market position in to be
sustained by the provision of integrated products and services and the aggressive marketing of
machine tool knowledgeexpensive and support services.
COMPANYSTATRATEGY:
1.To maintain good customer relation2.Providing after seller
s e r v i c e 3 . I n c r e a s i n g t h e b o o k o r d e r p o s i t i o n 4.To maintain good quality and
loyalty of the customers on their products5.Maintain better research and development
activities6.Relation to company and other customer services through conductingthe
product exhibition within the company preview
QUALITYVALUE:
•
Commitment of the management of the quality at all stager.
•
To create quality culture among all employees to maintain qualityleadership in all products.
•
To maintain quality leadership in all products and services.
•
Total customer satisfaction through quality goods and services.
•
sTotal quality through performance leadership.

3.3 MANUFACTURING FACILITIES

The company has two manufacturing units the order manufacturing uniti s l o c a t e d a t
Kavadiguda in Secunderabad, the heart of the city these unith o u s e s t h e
machine toils division and the corporate head office
a n d accompanies and area of slightly over 1 acres the company.Has its second manufacturing
has is at balanagar in Hyderabad, about 5 to 6kilometers from Hyderabad, airport the
CNC division forge shop of foundryd i v i s i o n a r e l o c a t e d i n t h e b a l a n a g a r
u n i t t h e t o t a l a n d a v a i l a b l e w i t h t h e currently utilized by the CNC division forge
shop and foundry division leavinga surplus of nearly 100 acres.
3.4 PRODUCT RANGE:
The company has three manufacturing division viz., can pavilion forgeshop and foundry division.
MACHINE TOOLS DIVISION:
The major products manufactured by the company in its machine tolldivision are cutler of fool
grinders, milling machines, thread rotting machine,lather chuckn etc. There products were
developed with the technical assistanceof the world-renowned machine tool manufacture by
entering intocollaboration agreements with M/s. Escofier, SA, France, M/s. F. Pratt and Co.and
U.K. There machines enjoy good reputation in the market.
FORCE DIVISION:
Railway DuplicationAuto dialer pantsTractors links

Other carting
BOUNDARY DIVISION:Carting for companies machine tools
:T h e sophisticated machines like CNC machining center
s i d e w a y , grinding machines, universal grinding machines, jigs boring
m a c h i n e w i t h coordinated system been added at a cost of Rs. 1,107.05 lacks.
PRAGASVALUES:
Underlying our minion in a set of core corporate valued which deliver
praga priorities. This set of values creates an overall framework for determining
our derived future and developing plans to achieve it.W e t a k e a d v a n t a g e o f e x i s t i n g
s y n e r g i e s a n d f o r e s e e i n g h i g h e r l e v e l o f competitiveness. Safety in the priority
value for all aspects of our business.

SWOT Analysis:STRENGTHS:
•
Proven products and brand image.
•
High brand loyalty of customer.
•
High market shares in few of the products categories.
•
Skilled work force.
•
ISO 9001 accredited company.
WEEKNESSES:
•
Limited product gage.
•
Low volume production.
•
Out dead technology.
•
Inadequacy of working capital.
•
Aberrance of MIS.
•
Board needs to be board bared and must include.
•
Financial expensive.
•
Obralete machinery.
•
High man power cost.
•
Poor marketing plants.
OPPORTUNITIES:
•
Prospects of improved in auto and automotive sector.
•
Export potential for exports of ma

Opportunity to from joint venture update technology. And use technicalmanicuring experience for
globalization through venture partnership.Diversification into related areas where ever synergy
exists.
Threats:
•
Dwindling market for some of the products server.
•
Competition from imports of latest technology machines.
•
A threat from second hand machine imparts.
•
Shrinking resources of traditional customers, defense and railways.The above analysis indicates
ample scope and prospects for the companysubject to corrective steps being taken early.

4.1 NATURE OF WORKING CAPITAL

Working capital management in concerned with the problem that arisesi n a t t e m p t i n g
t o m a n a g e t h e c u r r e n t a s s e t s c u r r e n t l i a b i l i t i e s a n d t h e i n t e r relationship the
exist between them the term current assets refers to those assetswhich in ordinary course of
business can be or will be turned into cash withinone year without undergoing
diminution in value and without undergoing invalue and without disrupting the operations
of the firm.T h e m a j o r c u r r e n t a s s e t s a r e c a s h m a r k e t a b l e s e c u r i t i e s
a c c o u n t s receivable and inventory, current liabilities those liabilities, which are intendedat
their inception to be paid in the ordinary course of business with in a year c u r r e n t
liabilities are amount payable, bills payable bank overdraft
a n d outstanding expenses.

4.2 DEFINITION OF WORKING CAPTIAL:

According to MY Khan and P.K Jain “Working capital refers to managethe firm current assets
and current liabilities in such a way that a satisfactorylevel of working capital is
maintained.A c c o r d i n g t o t h e S h u b i n “ w o r k i n g c a p i t a l i s a n a m o u n t o f
fun i s necessary to cover the cost of operating the enterprise”.W o r k i n g capital
m a n a g e m e n t i s c o n c e r n e d w i t h t h e p r o b l e m s i s t h a t arise in attempting to
manage the current assets and the current liabilities andtheir inter relationship they arise
between them.Current assets refer to those assets which to ordinary course of businessc a n b e
or will be turned into cash within one year without undergoing
a diminution in value and without disrupting the operations of the firm.T h e m a j o r c u r r e n t
a s s e t s a r e c a s h m a r k e t a b l e s e c u r i t i e s a c c o u n t s receivable and their
inception to be paid in the ordinary course of businessw i t h i n a y e a r o u t
of Current Assets or earnings of the concern. The basicCurrent
Liabilities are Bill payables, Bank Overdrafts and
O u t s t a n d i n g expenses.T h e g o a l o f w o r k i n g c a p i t a l m a n a g e m e n t s i s t o
m a n a g e t h e f i r m s Current Assets. And Current Liabilities in such a way that a satisfactory
level of working capital is maintained.
T h u s t h e c u r r e n t a s s e t s s h o u l d b e l a r g e e n o u g h t o c o v e r i t s c u r r e n t Liabilities
in order to ensure a reasonable margin of safety. Each of the currentassts must be efficiently
in order to maintain the liquidity of the short term bemanaged efficiently in order to
maintain the liquidity of the short term sourcesof financing must be continuously managed
to ensure that they are obtainedand used in a best possible way.Therefore interaction between
current assets and current liabilities in themain theme of working capital Management.The
current assets should be large enough to cover is current liabilitiesi n o r d e r t o e n s u r e
a r e a s o n a b l e m a r g i n o f s a f e t y. T h e i n t e r a c t i o n b e t w e e n current assets and current
liabilities in therefore the main theme of the threat of working capital management.The two
concepts of working capital are:
4.3 Methodological Framework
The data for the period 2001-2005 used in this study have been takenfrom primary
and secondary sources. The necessary primary data have beencollected from
corporate office of the organization; secondary data have beencollected from the
financial statements published in the report of the PRAGATOOLS LTD.Data was
analyzed through various established techniques of workingcapital and personal
observation. Editing the data, clarification and tabulationo f t h e f i n a n c i a l d a t a
c o l l e c t i o n f r o m t h e a b o v e m e n t i o n e d s o u r c e h a v e b e e n done as per the requirements
of the study. Data has been analyzed using variouscomparative statements and working capital
ratios.The data is analyzed in the chapter-4 ‘Analysis of Working CapitalPRAGA TOOLS LTD’
under the following head.

1.Trends in Net Working Capital2 . W o r k i n g C a p i t a l R a t i o s a ) C u r r e n t

R a t i o s b)Quick or Acid test R a t i o c)Current Assert Turnover
R a t i o d)Current Asserts to Total Asserts Turnover Ratioe ) W o r k i n g Capital
Turnover Ratio3 . C a s h M a n a g e m e n t a)Percentage of Cash to Current
Asserts4 . R e c e i v a b l e s Managementa)Debtors Turnover
R a t i o b)Debtors Collection Period5 . I n v e n t o r y M a n a g e m e n t a)Inventory
to Total Current Asserts b)Inventory Turnover Ratioc)Inventory Holding
P e r i o d i n D a ys
4.4 NEED FOR WORKING CAPITAL:
Working capital is the amount of funds necessary to cover the cost of operating the enterprise.
Working capital in a going concern is revolvingf u n d s ; i t c o n s i s t s o f c a s h r e c e i p t s
f r o m s a l e s w h i c h a r e u s e d t o c o v e r t h e cost of current operations.T h e n e e d o f
w o r k i n g c a p i t a l a r i s e s b e c a u s e o f t i m e g a p s i n manufacturing
and marketing cycle of business operations. This time gap isdue to time gaps between Cash and
purchase of Raw-Materials.a ) P u r c h a s e and production b)Production and
s a l e s c)Sales and Realization of cash.During these intervals, the company
should have ready working or operating funds to keep their business going.
Thus every business concern

should have sufficient liquidity funds as its disposal to buy Raw-

M a t e r i a l s , stores etc to pay wages to personnel and to meet incidental expenses with
theinstalled plant equipment, tools and other fixed assets, the concerned would bea b l e to
produce finished goods by spending cash or Raw
M a t e r i a l s , intermediate goods Labor remuneration etc. The goods so produced
will swellinto inventories or stock soon, the stock will take the form of debtors or
BillReceivable on maturity.There is therefore, a need for working capital, because the
productionS a l e s and cash p a ym e n t and realization of cash are not
i n s t a n t a n e o u s , t h e company needs cash to purchase Raw material and to meet
expenses as theremay not be helps to meet future agencies.T h e stocks or Raw
materials are kept in order to assure s m o o t h production and
p r o t e c t a g a i n s t t h e r i s k o f N o n a v a i l a b i l i t y o f r a w m a t e r i a l . Similarly, stocks
of finished goods have to be carried to meet the demands of t h e c u s t o m e r s o n
continuous basis and sudden demand. Thus, an adequatea m o u n t of
funds has to be invested in current assets for smooth
a n d uninterrupted. Production and sales process, which is refers to as
o p e r a t i n g c yc l e o r c a s h c yc l e . T h e o p e r a t i n g c yc l e d e t e r m i n e s t h e n e e d f o r
w o r k i n g capital.The operating cycle represents the period during which investment
of o n e u n i t o f r e m a i n b l o c k e d t i l l r e c o v e r y o u t o f r e v e n u e , i n o t h e r w o r d s ,
t h e operating cycle refers to the time necessary to complete.a ) C o n v e r s i o n o f c a s h i n t o
R a w M a t e r i a l . b)Conversion of Raw Material into finished goods.c)Conversion of
finished goods into cash sales or credit sales.d)Conversion to credit sales or
receivable into cash.Thus, it is said Management must know the length of time
required to convertcash into resource used by the firm, the resource into the resource used the
firm

the resource into final product. The final product into receivable bank into cash.This is the
operating cycle of an enterprise.Thus, it is said Management must know the length of time required
toc o n v e r t c a s h i n t o r e s o u r c e u s e d b y t h e f i r m , t h e r e s o u r c e i n t o t h e f i r m
t h e resource into final product. The final product into receivable bank into cash.This
is the operating cycle of an enterprise.The pattern of operating cycle depends upon the nature of
the enterprise.The financial institution may have a shorter cycle while trading concern
hasa n d e x t e n d e d o n e . T h e u s u a l o p e r a t i n g c yc l e o f m a n u f a c t u r i n g c o n c e r n
i s s h o w n . I n r e a l b u s i n e s s s i t u a t i o n , t h e o p e r a t i n g o r c a s h f l o w c yc l e i n n o t
assimple and smooth going as the depicted above. A going concern by
n a t u r e undergoes the process of liquidity the besides, a circular flow among
workingcapital itself, all process of liquidity valued added to the product of the firm.T h e r e f o r e ,
we can say that, working capital in needed not only for f i n a n c i n g c u r r e n t
a s s e t s b u t a l s o t o m e e t v a r i o u s o t h e r r e q u i r e m e n t s l i k e p a ym e n t o f
d i v i d e n d s , i n t e r e s t e t c . T h e r e f o r e , i t i s r e c o v e r y f o r a p r o d u c t financial
manager to provide correct amount of working capital at the time to provide for
operating reach.
5.5 SCOPE OF WORKING CAPITAL MANAGEMENT
Since a firm has to maintain a sound working position and there should b e o p t i m u m
i n v e s t m e n t i n w o r k i n g c a p i t a l , e f f e c t i v e m a n a g e m e n t i n v o l v e s manages of
current assets and current liability. Current asserts managementinvolves management of
current assets like Cash.Marketable Securities, Account Receivable, inventories etc. effective
ino r d e r to maintain liquidity of the firm. The process of
current a s s e r t s management can be as follow management of cash and Marketable
Securities.a)Management of cash and Marketable Securities.
b)Management of Cash.Current liability management is concerned
w i t h t h e m a n a g e m e n t o f curr3ent liabilities like, trade Credit or Account
P a ya b l e , A c c r u a l s e t c . w h i c h r e p r e s e n t s s h o r t t e r m f i n a n c i a l s o u r c e
a n d m u s t b e c a u t i o u s l y management to ensure that they are obtained and
u s e d i n t h e b e s t w a y possible.
4.6 OBJECTIVES OF WORKING CAPITAL
The main if working capital management in to attain trade off
between p r o f i t a b i l i t y a n d r i s k . H e r e r i s k r e f e r s t o t h e p r o f i t a b i l i t y
t h a t a f i r m w i l l become technically involvement that is unable to pay obligation promptly.
Risk is commonly measured by using either the amount of net working capital of thecurrent ratio.
Thus more the net working capital the more liquidity is associatedwith increasing levels of risks.To
have higher profit the firm may have to sacrifice solvency that is takethe risk of technical
insolvency and maintain relatively low level of currentassets. When the firm does so,
its profitability would improve but greater risk of technical insolvency.Thus, if a firm
wants to increase profitability it must also increases itsrisk and if it want to decrease risk,
it must decrease profitability. Thus, workingcapital management involves trade off between risk
and profitability.

4.7 COMPONENTS OF WORKING CAPITAL

The main components of working capital are currents assets & currentsliabilities.
A. CURRENT ASSETS:
Current assets comprised items that would get converted in to cash ins h o r t t e r m ,
within a ye a r , through the business operations current
a s s e r t s include.Inventories including stock of raw material, work in progress,
finishedgoods & factory supplies. Packing, shipment material, office supplies etcLoan &
advances, other balances; include sundry debtors, bills receivables andothers including loans and
advances, prepaid expenses etc.Marketable securities including government securities
and semi governmentsecurities, cash and bank balances.
B. CURRENT LIABILITIES:
Current liabilities are those which are expected to fall due of mature for payment in short
period of one year and they represent short term source of funds. They include:
C. SHORT TERM BORROWINGS:

Include bank borrowings other than those against own debentures ando t h e r
mortgages, trade creditors and other labializes sundry
c r e d i t o r s , outstanding expenses and advances received etc.Provision for taxation, dividends
and other current provisions.
4.8 GROSS WORKING CAPITAL:
Gross working capital in represented by the sum total of all currentassets
o f t h e e n t e r p r i c e a d e q u a t e f u n d s h a v e t o b e p r o v i d e d t o t h e f i n i s h e d goods
stage and then to receivables and up to realization of cash.

Table-1STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN31-03-

2001 & 31-03-2002

Rs. in Lakhs

S.No.Particulars31-03-200131-03-2002IncreaseDecrease

(a)CurrentAssetsInventories 1,44,120.001,19,395.0024,725.00Sundry
debtors71,970.0061,278.0010,692.00Cash & Bank balance1,213.001,252.0039.00Loan &
Advance31,317.0022,180.009,137.00Total
(a)2,48,620.002,04,105.00(b)CurrentLiabilitiesCurrent Liabilities
3,41,037.003,70,306.0029,269.00Provisions82,424.0083,160.00736.00Total
(b)4,23,461.004,53,466.00WorkingCapital(a-b)-1,74,8,741.00-2,49,361.00 Net increasein
W.C74,520.0074,520.00Total of N.W.C-7,74,841.00-1,74,841.0074,559.0074,559.00

ANALYSIS:
Above table explaining that working capital shows the continuous increase inthe net working
capital through in the year 31-03-2000 to the year of comparing the balance sheet is the year 31-
03-2001 to 31-03-2002. So, this is due to the sale of inventory and reducing the debtors and
increasing the current liabilities and provisions. Rs. in Lakhs

S.No.Particulars31-03-200231-03-2003IncreaseDecrease

(a)Current AssetsInventories 1,19,395.0072,230.0047,165.00Sundry

debtors611,278.0028,478.0032,800.00Cash & Bank balance1,252.007,041.005,789.00Loan &
Advance22,180.0013,205.008,975.00Total
(a)2,04,105.001,20,954.00(b)CurrentLiabilitiesCurrent Liabilities
3,70,306.003,10,123.0060,183.00Provisions83,120.0071,062.0012,099.00Total
(b)4,53,466.0003,81,185.00WorkingCapital(a-b)-2,49,361.00-2,60,231.00 Net decreasedin
W.C10,870.00Total of N.W.C-2,49,361.00-2,49,361.0088,940.0088,940.00

ANALYSIS:

Above table discloses that working capital shows the continuous increase inthe net working capital
through in the year 31-03-2002 to the year of comparing the balance sheet is the year 31

st

March. So, this is due to the sale of inventory andreducing the debtors and decreasing the current
liabilities and provisions.

Table-2STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN31-03-

2003 & 31-03-2004.

Rs. in Lakhs

S.No.Particulars31-03-200331-03-2004IncreaseDecrease
(a)Current AssetsInventories 72,230.0050,765.0021,465.00Sundry
debtors28,478.0034,042.005,564.00Other currentAssets---4,932.004,932.00Cash &
Bank balance7,041.001,56,398.001,49,357.00Loan &
Advance13,205.0011,368.001,837.00Total
(a)1,02,954.002,57,505.00(b)CurrentLiabilitiesCurrent Liabilities
3,10,123.003,77,829.0067,706.00Provisions71,062.0071,793.00671.00Total
(b)3,81,185.004,49,562.00WorkingCapital(a-b)-2,60,231.00-1,92,057.00 Net decreasedin
W.C68,174.0068,174.00Total of N.W.C1,59,853.001,59,853.00

ANALYSIS:

The above table discloses in this working capital as that was the Net decreasein working capital in
this year 31-03-2003 to 31-03-2004 is Rs.68,174.00 due tomajor reasons of adjusting current assets
as increase and the current liabilitiesdecrease but the provision decreased.

Table-3STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN31-03-

2004 & 31-03-2005.

Rs. in Lakhs

S.No.Particulars31-03-200431-03-2005IncreaseDecrease

(a)Current AssetsInventories 50,765.0043,429.007,336.00Other

currentAssets4,932.005,313.00381.00Sundry debtors34,042.0036,681.002,639.00Cash &
Bank balance1,56,398.0051,469.001,04,929.00Loan & Advance11,368.0010,466.00902.00Total
(a)2,57,505.001,47,358.00(b)CurrentLiabilitiesCurrent Liabilities
3,77,829.003,90,548.0012,719.00Provisions71,733.0057,232.0014,501.00Total
(b)4,49,562.004,47,780.00WorkingCapital(a-b)-1,92,057.00-3,00,422.00 Net decreasedin
W.C1,08,365.001,08,365.00Total of N.W.C-1,92,057.00-1,92,057.001,25,886.001,25,886.00

ANALYSIS:
In this above table of working capital discloses that as the net increase inworking capital in this
31-03-2004 to 31-03-2005 is Rs.1,08,365.00 due to major reasons of adjusting current assets as
increase and the current liabilities decreases butthe provision decreased.

THE STATEMENT SHOWING CHANGES IN WORKING CAPITALBETWEEN 31-3-2005

TO 31-3-2006

S.NoParticulars31-03-200531-03-2006IncreaseDecreased(a) Current Assets

Inventories43,429.0040,255.00 --------3,174.00 SundryDebtors5,313.005,837.00524.00-------

- Cash & bankbalances36,681.0037,282601.00------- Loans
&advances51,469.001,34,653.0083,184.00-------

Total (a)

1,47,358.002,34,274.00

(b) CurrentLiabilities

Currentliabilities3,90,548.002,71,304.001,19,244.00------- Provisions57,232.0069,406.00
12,174.00

Total

4,47,780.003,40,710.00Working capital

(a-b)

-3,00,422.00-1,06,436.00Net decrease in W.C 1,93,986.00 1,93,986.00Total of N.W.C

1,06,436.00 1,06,436.00 2,09,334.002,09,334.00

ANALYSIS :-

Lastly in this year the statement of working capital shows the continueddecreased in the net
working capital through in the year 31

st

March 2005 to the year of comparing the balance sheet is the year 31
st

March 2006. So, this is due to funds flowstatement.

FUND,S FLOW STATEMENT AS ON 31

ST

MARCH, 2001.SOURCESAMOUNTAPPLICATIONSAMOUNT

Increased in securedLoans2,39,919.00Purchased of FixedAssets108.00Increased in Un-

securedLoans14,062.00 Net increased in workingcapital85,948.00Funds Lost in
operation1,67,925.00

Total2,53,981.00Total2,53,981.00

ANALYSIS:

During this year 2000-2001 the funds flow statement the losses of thePRAGA TOOLS LIMITED
is still continuing. The company has mobilized hisfunds increased figures of the secured and
unsecured loans. The company hasadjusting their losses through these areas and in this year the
purchasing power of the company is also decreased.

FUND’S FLOW STATEMENT AS ON 31

ST

MARCH, 2002.SOURCESAMOUNTAPPLICATIONSAMOUNT
Increased in securedLoans2,64,416.00Purchased of FixedAssets33.00Increased in Un-
securedLoans8,237.00 Net increased in workingcapital85,948.00Work in Progress746.00Funds
Lost in operation1,87,418.00

Total2,73,399.00Total2,73,399.00

ANALYSIS:

In this last year of comparing there is the funds flow statement is stillincluding the losses from the
operation. The company has procured hugeamount from borrowing loans in the from of secured
and unsecured loans. Thecompany has Wright off their losses in operations which is the major
thread of the company that’s need to be ratified by the management of the PRAGATOOLS
Limited.

FUND’S FLOW STATEMENT AS ON 31

ST

MARCH, 2003.SOURCESAMOUNTAPPLICATIONSAMOUNT

Increased in securedLoans4,07,033.00Purchased of FixedAssets652.00Increased in Un-

securedLoans13,764.00 Net increased inworking capital10,870.00Funds Lost in
operation4,09,284.00

Total4,20,779.00Total4,20,779.00

ANALYSIS:

During this year 2002-2003 the funds flow statement the losses of thePRAGA TOOLS LIMITED
is still continuing. The company has mobilized hisfunds increased figures of the secured and un-
secured loans. The company hasadjusting their losses through these areas and in this year the
purchasing power of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31

ST

MARCH, 2004.SOURCESAMOUNTAPPLICATIONSAMOUNT

Increased in un-securedLoans13,747.00Decreased insecured loans1,05,789.00Sales of fixed

assets9,211.00 Net decreased in workingcapital68,174.00Funds lost in
operations14,657.0010,870.00

Total1,05,789.00Total1,05,789.00

ANALYSIS:

During this year 2003-2004 the funds flow statement the losses of thePRAGA TOOLS LIMITED
is still continuing. The company has mobilized hisfunds from increased figures of the secured and
un-secured loans. Thecompany has adjusting their losses through these areas and in this year
the purchasing power of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31

ST

MARCH, 2005.SOURCESAMOUNTAPPLICATIONSAMOUNT

Increased in Share Capitalfunds.1,700.00 Net increased inworking capital1,08,365.00Increased

secured loans2,12,657.00Funds lost inoperations1,35,004.00Increased un-
securedloans13,746.00Sales of fixed assets15,266.00

Total2,43,369.00Total2,43,369.00

ANALYSIS:
During this year of comparing there is the funds flow statement is stillincluding in losses from the
operations. The company has procured hugeamount from borrowing loans in the form of secured
and unsecured loans. Thecompany has Wright off their losses in operations in operations which is
themajor thread of the company that’s need tobe ratified by the management of thePRAGA
TOOLS Limited.

Funds Flow statement as on 31

st

March 2006
SOURCESAMOUNTAPPLICATIONS AMOUNT

Sales of fixed assets2,043.00Decreased Securityloans18,45,247.00Net decreased

workingcapital1,93,986.00Decreased unsecurityloans24,806.00Funds lost
inoperations16,74,024.00Total 18,70,053.00Total 18,70,053.00

ANALYSIS:-

In this year 2005-2006 the funds flow statement the losses of the PRAGATOOLS LIMITED is
still continuing. The company has mobilized his funds increasedfigures of the secured and
unsecured loans. The company has adjusting their lossesthrough these areas and in this year the
purchasing power of the company is alsodecreased.

Funds Flow statement as on 31

st

March 2006

SOURCESAMOUNTAPPLICATIONS AMOUNT
Sales of fixed assets2,043.00Decreased Securityloans18,45,247.00Net decreased
workingcapital1,93,986.00Decreased unsecurityloans24,806.00Funds lost
inoperations16,74,024.00Total 18,70,053.00Total 18,70,053.00

ANALYSIS:-

In this year 2005-2006 the funds flow statement the losses of the PRAGATOOLS LIMITED is
still continuing. The company has mobilized his funds increasedfigures of the secured and
unsecured loans. The company has adjusting their lossesthrough these areas and in this year the
purchasing power of the company is alsodecreased.

CHART – 1TRENDS IN NET WORKING CAPITAL

0204060801001202002-03 2003-04 2004-05 2005-06Series1

INTERPRETATION:-

Net working capital had shown an increasing trend since, 2002, which in takenas a base year from
100% to 98.40% in 2006. Which appears to be a normal trend. Acareful analysis into the
components of the working capital would reveal the changesin NWC the current assets decreased
in the next years that is 2003-04 and at the nextconsecutive assets increased in the next consecutive
year to a good extent, but there isa decreasing trend in the year 2005-06 as the current liabilities
are covered their in aincrease in the next two year, 2003-04 & 2004-05 but there is gradual decrease
in theyear 2005-06 which is good sign to the company.This is calculated on the basis of the
prevision year i.e. the net working capitalshown a decreasing trend compare to the year 2002-03
then the net working capitalincreaser gradually from 2003-04 & 2005-06.

TYPES OF RATIOS
Several ratios calculated from the accounting data, can begrouped into various classes according
to financial activity or function to beevaluated the parties interested in financial analysis are short
and long termcreditors owners and managements short term creditors main interested is inthe
liquidity position or short term solvency of the form long term creditorson the other hand. Are
more interested in the long-term solvency and profitability of the form. Similarly owners are more
interested on the form profitability and conditions. Management is interested in evaluating
everyaspect of the forms performance. They have protect interested of all the parties.The ratios are
classified into three types.(a).Liquidity Ratios(b).Leverage Ratios(c).Profitability Ratios

LIQUIDITY RATIOS:-

Liquidity Ratios measure the ability of the firm to meet its currentobligations. The analysis of
liquidity needs the preparation of cash budgetand cash fund flow statement but liquidity ratios by
establishing relationship between cash and other current asset of current obligation, provide a
quick measures of liquidity. A firm should ensure that it does not suffer form.

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:-

Liquidity ratio measures the short-term solvency of the firm. Thefollowing are the important
liquidity ratios.

4.2 WORKING CAPITAL RATIOS:-Current AssetsCurrent Ratio = ----------------------Current

Liabilities

The current Ratio is calculated by dividing current assets by current liability.The current ratio is a
measure of the firm’s short term solvency a current ratio of 2 or more in considered satisfactory.

TABLE – 2CURRENT RATIO

(In Lakhs)

YearCurrent AssetsCurrent LiabilitiesCurrent Ratios

2002-0317846.144652.244.102003-0415800.005117.813.092004-
0520272.0011485.001.762005-061377.115130.732.69

CHART – 2CURRENT RATIO

Current Ratios

0.001.002.003.004.005.00
2002-03 2003-04 2004-05 2005-06

Year

R a t i o s

INTERPRETATION:-

Generally 2:1 in considered ideal for a concern from the ratios we can observethat the ratios are
above the standard in the year 2002-03 & 2003-04 but in the year 2004-05 the firm in not able to
maintain a standard level of liquidity so the currentassets ratio has been directed below standard
level that is by 1.76 but in the year 2005-06 the company is able to regain its standard level and
can obtain its currentassets ratio by 2.69 compared to its current liabilities.

Quick AssetsQuick or Acid Test Ratio = ------------------------Current Liabilities

The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratiomeasures the
firms liability to meet short term liabilities from its liquid assets that iscurrent assets inventories.

TABLE – 3QUICK RATIO

YearQuick AssetsCurrent LiabilitiesQuick Ratios

2002-0310141.004352.002.332003-048697.005118.001.642004-0515335.0011486.001.342005-
069722.005130.001.89

CHART-3QUICK RATIO

Quick Ratio

00.511.522.52002-03 2003-04 2004-05 2005-06

Year

R a t i o

Series1

INTERPRETATION:

Quick ratio is ascertained by comparing the liquid assets this ratio shows theimmediately available
assets which can be easily converted in to cash to meet theshort term solvency of the company the
normal value which shows the nonavailability of assets for immediate conversion into liquid cash
in the later year thefigures were a little.
ABSOLUTE LIQUIDITY RATIO:-

It is the ratio of absolute liquidity assets to quick liabilities. However, for calculation purpose it is
taken as ratio of absolute assets includes cash in hand at bank and short term or temporary
inventory investments.

Absolute Liquidity AssetsAbsolute Liquidity Ratio=--------------------------------Current Liabilities

Absolute Liquidity Assets = Cash in hand + Cash at bank + Short term investmentsThe ideal
Absolute Liquidity Ratio is taken as 1:2 or 0.5

S.NoYear Absolute LiquidAssetsCurrentLiabilitiesCurrentRatio

12001-200223,432,000.00453,466,000.000.05:122002-
200320,246,000.00381,185,000.000.05:132003-
2004167,776,000.00449,562,000.000.37:142004-
200561,935,000.00447,780,000.001.14:152005-2006150,900,000.00340,710,000.000.44:1

ANALYSIS:-

The above tables shows the Absolute Liquidity Ratio during the study periodthe ratio was 0.08:1
in 2002 and gradually decreases to 0.05 in 2003, which in 2003,which to too below from the
standard 0.05:1 so the company, should try to improveand also maintain this ratio
LEVERAGE OR CAPITAL STRUCTURES RATIOS:-

Leverage ratios indicate, the relative interest of owner and creditors in a business. The significant
Leverage ratios are

1.DEBIT EQUITY RATIO:-

The ratio examines the relationship between funds and owner’s funds of afirm. In other words it
measures the relative claims of creditors and shareholdersagainst the assets of a business. Debit,
usually refers to the long-term liabilities.Equity and performance share capitals and reserves.

Long Term LiabilitiesDebit Equity Ratio=------------------------------------------Share Holders Funds

S.NoYear Long TermLiabilitiesShare HoldersfundsDebit equityratio

12001-20021,978,031,000.00361,731,000.005.4722002-
20032,398,602,000.00361,731,000.006.6332003-
20042,306,560,000.00361,731,000.006.3842004-
20052,532,963,000.00363,431,000.006.9752005-2006662,910,000.001,237,367,000.000.54

ANALYSIS:-

A high debt equity ratio means a high claim of outsider on the assets of business and very highly
debt financed from will be under great pressure to pay theinterest charges and it is unfavorable to
the firm. A firm with a debt equity ratio of two or less exposes its creditors to relatively less risk a
firm a high debt equity ratioexposes its creditors to grater risk so this firm should minimize this
ratio.
Net SalesWORKING CAPITAL TURNOVER RATIO=-----------------------Working Capital

This ratio in computed by dividing net sales by working capital this ratio helpsto measure the
efficiency of the utilization of net working capital is needed if anyincrease in sales is contemplated
working capital should be a adequate and thus thisratio helps management to maintain the adequate
level of working.

CHART-4WORKING CAPITAL TURNOVER RATIO

YearNet SalesWorking CapitalWorking Capital Turnover Ratio

2002-0315192.0213493.91.12003-0416283.0410682.821.492004-0523993.078786.152.562005-
0624610.988646.382.85

CHART -5INTERPRETATION:

This ratio maker a comparison between net sales and net working capital inorder to find the
working capital turnover ratio the working capital turnover ratio for the year 2002-03 in 1.10 hence
there is increase in working capital turnover ratio for the next 3 year has increased in a gradual
way in the last year the net sales has beenincreased and the working capital in being similarly that
of previous year hence theworking that of previous year hence the working that capital turnover
ratio is at 2.82in the year 2005-06.

4.4 RECEIVABLES MANAGEMENT1. DEBTORS TURNOVER RATIO:

Debtor constitute an important constitute of current assets & their fore thequality of debtor to great
extent determines a firm liquidity of a firm use two ratio.They are debtors turnover ratio & debt
collection period ratio. This ratio indication thespeed with which debtors receivable are being
collected there it is indicative of theefficiency of trade credit management. The higher the turnover
ratio the better thetrade credit management & the better the liquidity of debtors.

TABLE-5DEBTORS TURNOVER RATIO

(In Lakhs)

YearTotal SalesAccount ReceivablesDebtors Turnover Ratio

2002-0315191.023803.543.992003-0416283.044513.343.662004-
0524948.1810325.482.422005-0625884.265143.555.03

CHART-5DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

01234562002-03 2003-04 2004-05 2005-06

Year

R a t i o

DebtorsTurnover

INTERPRETATION:

From the date of interpretation it in observed that both the rates & accountrevisable are going up,
we see that in the year 2002-2003 the division was in a verygood portion regarding the collection
but in the year 2004-2005 due to increase in theamount of average payables the ratio has come
down drastically.In the year 2005-06 the decrease in the previous year has been reduced by
theincreased in the ratio of current year 2005-06.
2.DEBITORS COLLECTION PERIOD:

Their ratio indication the extent to which the debts have been collected in timeit gives the average
debt collection period the ratio is very helpful to the lenders because it explain them whether
borrowers are collating money in a reasonable timean increase in the period reflects grater
blockage of funds in debtors a very longcollection period would imply either power credit selection
or and inadequatecollection effort.

TABLE-6DEBTORS COLLECTION PERIOD(In Lakhs)

YearNo of DaysDebtors Turnover RatioDebtors CollectionPeriod in Days

2002-033643.99912003-043653.661002004-053652.421512005-063655.0373

CHART-6DEBTORS COLLECTION PERIOD

INTERPRETATION
During the year 2005-2006 average collection period is very low which indicates the better quality
of debtors as the quick payments by them with in a shot periodDuring the year 2004-2005 average
collection period is very high as 151 days whichindicate ting the inefficient performance of the
debtor as by laet payments.

2. INVENTORY TURNOVER RATIO

This ratio indicates whether inventory has been efficiently used or not. Thisratio checks whether
only the required minimum has been looked up in inventory.

Cost of good SoldI.T.R = -----------------------Average Inventory

Cost of goods of Sold = Opening Stock + Purchase + Direct expenses - Closing

Opening Stock + Closing Stock Average stock = -----------------------------------------2TABLE-

7INVENTORY TURNOVER RATIO(In Lakhs)

YearCost of Goods soldAvg. InventoryInventory Turnover Ratio

2002-0310711.197704.711.392003-0411850.377554.41.572004-0518665.56170.483.022005-
0616358.924495.963.46
CHART-7INVENTORY TURNOVER RATIO

Inventory Turnover Ratio

00.511.522.533.54

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

Year

R a t i o

InventoryTurnover Ratio

INTERPRETATION:-

From the above figure given in the table we can interpret that the inventoryto the cost of goods
sold for the year 2002-03 in 1-39 their ratio has been increasingcontinuously in an exponential
manner in all the year which in a good sign to thecompany. This shows the effective utilization of
the inventory by the company.In the year 2002-03 the percentage of inventory in current assets
42.17% which is not beneficial sign to the company. In the next year has increased by nearly 3%
more thanthe previous year at that time the company retained not to block the current assetswith
inventory, in the year 2004-05 it has decreased drastically to 24%. In thefollowing year this has
increased by 5% but this is not sufficient on the increase in therecent past was much more than
that.
3. INVENTORY HOLDING PERIOD (IN DAYS):Days in YearInventory Holding Period (in
days)=----------------------------------Inventory Turnover Ratio

The ratio represents the length of time required for conversion of investments in inventoried for
conversion of investments in invests airier to cash of afirm as a result, the firm will be able to
forecast its working capital requirements.Lower ratio suggested better inventory management their
ratio is calculated bydividing the number of days of year by inventory turnover ratio.

TABLE-8INVENTORY HOLDING PERIOD (IN DAYS)

(In Lakhs)

YearNo. of DaysInventory Turnover RatioCollection Period

2002-033651.93189 Days2003-043651.39263 Days2004-053652.27161 Days2005-

063653.29111 Days

CHART-8INVENTORY HOLDING PERIOD

Collection Period in Days0501001502002503002002-03 2003-04 2004-05 2005-06

Year

D a y s

CollectionPeriod inDays
INTERPRETATION:

In general the inventory ratio of any company should be as low as foible.The reason being the
occurrence of the blockage of money due to holding of theinventory. The figure shows in the year
2004-05 and 2005-06 also would have beenfor the company if they were similar to the velour in
the year 2002-03 & 2003-04.

7. AVERAGE COLLECTION PERIOD:-

The ratio is another device to measure the quality of debtors. It shows thenature of the firm credit
policy to the shorter period. The better the quality of debtorssince the short term collecting period
implies prompt payment by debtors andexcessively long period implies a too long and liberal and
inefficient credit andcollection performance where as too low period indicates a very strict credit
andcollection period.

Months in a YearAverage Collection Period=----------------------Debtors TurnoverS.No.YearNo.

of Months in ayearDebtorsTurnover RatioAverage Collectionperiod

1.2001-200212.001.269.522.2002-200312.000.8114.813.2003-200412.002.314.764.2004-
200512.002.524.765.2005-200612.003.173.79

ANALYSIS:-
The table shows that the average collection period of the company theaverage collection period
was 9.52 month in 2002, which is decreased to 4.76 in themonth of 2005 it shows the company is
unable to collect the money in proper time or company is extending more credit period to the
customer. The company should try toreduce this credit period.

FINDINGS
1.The company is not having sufficient working capital2 . I n v e n t o r i e s are
d e c r e a s e d b y y e a r b y y e a r 3.Loans & advances are decreases by year by
year 4.current liabilities are more than current assets.5 . T h e w o r k i n g c a p i t a l i s
n e g a t i v e w o r k i n g c a p i t a l 6 . C u r r e n t l i a b i l i t i e s a r e d e c r e a s e d b y e v e r ye a r b u t
i n 2 0 0 3 - 0 4 t o 1 4 . 1 2 % and again in 2004-2005 decreased from 14-42% to 13.39%7 . l o n g –
t e r m l i a b i l i t i e s a r e i n c r e a s e d b y e v e r y y e a r b u t i n 2 0 0 3 . 0 4 ye a r l o n g t e r m
l i a b i l i t i e s a r e d e c r e a s e d f r o m 7 6 . 3 5 6 t o 7 3 . 9 8 9 a n d a g a i n increased from 74.98%
to 7-8-76%
8.The Quick Ratio > 1 which shows the sound short-term solvency.9 . T h e
suggested current ratio is 2:1. But it is not fixed as it various
f r o m ; industry. Here in this case the current ration is more than 1 and it is enough
tomeet the current liability.10.When comparing Working capital is compared with net
sales it is in increasingtrend indicating the effective utilization of the net working
capital.1 1 . T h e d e b t o r ’ s t u r n o v e r r a t i o n i s h i g h a n d i t s h o w s t h e b e t t e r
t r a d e c r e d i t management.1 2 . D e b t o r ’ s c o l l e c t i o n p e r i o d i s v e r y l e s s w h i c h
s h o w s t h e b e t t e r t r a d e c r e d i t management.1 3 . D e b t o r ’ s c o l l e c t i o n i s v e r y l e s s
i t s h o w s t h e b e t t e r c o l l e c t i o n o f f u n d s f r o m debtors.14.Inventory holding period
is less; it shows the better management of inventory.
15.Through the preparation of funds flows statement analysis it is clearedt h a t t h e
C o m p a n y i s l o s i n g i t s f u n d s t h r o u g h i t s o p e r a t i n g . B u t t h e positive
Elements is the losses through its operations and its decreasingyear by year. That is when
the losses where in the year 2000-01.1 6 . I t i s u n d e r s t a n d t h a t f r o m t h e ye a r 2 0 0 0 - 0 1
t o t h e ye a r 2 0 0 4 - 0 5 t h e r e was decreased in working capital position in the major
circumstancesthis cleared that company is trying to procure the funds all the times
inorder to compensate on wipe on the losses.

17.It is to be observed that the company’s new worth is

d e c r e a s e s considerably. Through this increase in procurement of secured loans.18.The
decrease in figures of sources and applications from the year 20001-01 to the year 20002-03
makes at clear that the company is no activityincreasing or standardizing of its operations.

CONCLUSION
The company is performing exceptionally well due to the up wising inthe global market
followed by the domestic market. It is an up coming one withg o o d a n d i n n o v a t i v e i d e a s
a n d b e l i e v e d i n i m p r o v i n g a l l t h e a r e a s o f i t s operations. The company
has a good liquidity position and does not delay itsc o m m i t m e n t i n c a s e o f b o t h
i t s c r e d i t o r s a n d d e b t o r s . T h e c o m p a n y b e i n g mostly dependent on the working
capital facilities, it is maintaining very goodr e l a t i o n s h i p w i t h t h e i r b a n k s a n d
t h e i r w o r k i n g c a p i t a l m a n a g e m e n t i s w e l l balanced.

SUGGESTIONS:-
1 . T h e m a n p o w e r n e e d s t o b e a s s e s s e d i n r e l a t i o n t o p r o d u c t i o n a n d s a l e s . The
excess of employees should be removed through various measuresl i k e VRS,
retirement’s and destructing the requirement of
n e w employees.2 . T h e r e a r e v a r i o u s g l o b a l c h a l l e n g e s t h a t a r e f a c e d b y e v e r y
company nthe present competitive environment and PRAGA TOOLS is not
a n y exemption. To face the present global challenges the human
resourcesd e p a r t m e n t s h o u l d b e d e v e l o p t o i m p r o v e v a r i o u s s k i l l s a m o n g
t h e e m p l o ye e s specially the motivational skills and having the
r e g u l a r training for the employees about various developments in the market.3 . T h e
m a r k e t i n g d e p a r t m e n t s h o u l d b e r e s t r u c t u r e d o n p r o f i t c e n t e r a n d product line
basis. The new marketing strategy should also make effortsto regain the agents in Germany and
UK. They should also make effortsto regain the defiance and railways and find new markets for
expansion.4 . T h e r e a r e v a r i o u s d e v e l o p m e n t t a k i n g i n t h e i n d u s t r y t o c h a n g e
it thec o m p a n y should develop a full fledged research and
d e v e l o p m e n t department for bringing technological change and
i m p r o v e m e n t i n design and process.5 . T h e p o l i c y o f d e v e l o p m e n t n e w m a r k e t
w i t h t h e a c c r e d i t a t i o n o f I S O 9001 and C.E. making for certain products should
be continuous as itwill help in development the confidence of foreign buyers.6 . T h e
sundry debtors should be efficiently managed so
that t h e outstanding are to be cleared at short intervals. The company
s h o u l d appoint on different areas on a success fees basis to collect the debtors.

7.The cost of holding inventory is too high so the inventory holding periodi s t o b e
r e d u c e d a n d t o b u i l d u p i n v e n t o r y i n a n t i c i p a t i o n o f e x p o r t orders from Russia
and Germany.8 . T h e c o m p a n y h a s t o m a k e n e w j o i n t v e n t u r e w i t h o t h e r
c o m p a n i e s i n order to reduce the losses.9 . T h e c u r r e n t a s s e t s s h o u l d b e m a n a g e d
m o r e e f f e c t i v e l y s o a s t o a v o i d unnecessary blocking of capital that could be used for
other purposes.10.The Working Capital requirement is to be assessed based on the
normscirculated by RBI for the machine tools industry.11.The inventory turnover ratio has
decreased considerably from the year 2 0 0 1 - 0 2 t o 2 0 0 4 - 0 5 . T h i s w a s d u e t o t h e
h u g e a v e r a g e s t o c k h o l d i n g even when there was a decrease in sales figure this clears that
inventoryshould be managed appropriately moreover it was improved in the year 2003-
04.12.The company has maintained proper records showing full
particulars,quantitative details and solutions of fixed assets are indicated for
major items in the register, the managements during the year has conducted arandom
verification in respect of fixed assets, which in our opinion isreasonable, having
regard to the size of the company and the nature of tits assets.13.The management has
physically verified the stock of finished goods andwork in progress at the end of the year.14.In
respect of service activities there is a reasonable system for recordingreceipts issues and
consumption of materials and stores and collection of materials consumed to the relative jobs,
commensurate with the size andnature of its business.

BIBILOGRAPHY
BOOKSFinancial management Khan and Jain, Tata Mcgrw HillF i n a n c i a l
m a n a g e m e n t P r a s a n n a
C h a n d r a , T a t a M c g r w
H i l l M a n a g e m e n t
a c c o u n t i n g R . K . S h a r m a a n d
K . G u p t a Financial Management and polices V.K. Bhalla, ANMOL
PublicationPvt., Ltd.,Financial Management K. Rajeswari, Sultan chand & sonsCatalogues &
Boucher PRAGA Tools Ltd.,Web siteswww. Pragatools.orgwww.machinetoolsindustry.com