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Sherin Menezes (Luss) 1234
Sherin Menezes (Luss) 1234
Working capital refers to a company’s current assets. Current assets are cash
and equivalents, accounts receivable, and inventory. Working capital
management is applying investment and financing decisions to current assets.
Working capital management is a very important component of corporate
finance because it directly affects the liquidity and profitability of the firm
referring to the theory of risk and return, investment with or risk will result to
more return.
Liquidity is a precondition to ensure that firms are able to meet its short-term
obligations and its continued flow can be guaranteed from a profitable venture.
The importance of cash as an indicator of continuing financial health should not
be surprising in view of its crucial role within the business. This requires that
the business must be run both efficiently and profitably. In the process, an asset-
liability mismatch may occur which may increase firm’s profitability in the
short run but at a risk of its insolvency. On the other hand, too much focus on
liquidity will be at the expense of profitability.
CHAPTER 1:
INTRODUCTUON
1.1) THEORITICAL BACKGROUND
Decisions relating to working capital and short term financing are referred tp as
working capital management. These involve managing the relationship between
a firms short term assets and its long term liabilities. The goal of working
capital management is to ensure that the firm is able to continue its operations
and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
In the beginning the funds are obtained from the issue of shares, often
supplemented by long term borrowings. Much of these collected funds are used
in purchasing fixed assets and remaining funds are used for day to day
operations as pay for raw materials, wages overhead expenses. After this
finished goods are ready for sale and by selling the finished goods either
account receivable are created and cash is received. In this process profit is
earned. This account of profit is used for paying taxes, dividend and the balance
is ploughed in the business.
Working capital management deals with the most dynamic fields in finance,
which needs constant interaction between finance and other functional
managers. The finance manager acting alone cannot improve the working
capital situation.
Operating capital:
Circulating capital:
1. Cash-in-Hand
2. Bill Receivable
3. Sundry Debtors
4. Short-term investments
5. Prepaid expenses
6. Outstanding income
Inventories or Stock as
1. Raw materials
2. Work-in-progress
4. Finished Goods
Constituent of Current Liabilities
1. Bills Payable
2. Sundry Creditors
3. Outstanding Expenses
5. Dividend payable
6. Bank Overdraft
For eg: Every firm has to maintain a minimum level of raw materials, work-in-
progress. Finished goods and cash balance. The minimum level of current assets
called permanent or fixed working capital, as this part of capital is permanently
blocked in current assets.
It is the excess amount over the requirement for regular working capital, it may
be provided for contingencies that may arise at unstated periods such as strikes,
rise in prices, depression etc.
Special working capital is that part of working capital, which is required to meet
special contingencies such as extensive marketing campaigns for conducting
research, etc.
Period
OPERATING CYCLE
Working Capital is required because of the time gap between sales and their
actual realization in cash. The time gap is technically termed as Operating Cycle
business.
During this time, certain expenses are to be met with such as payment for few
materials. Cost of storing and protecting raw materials, semi-finished and
finished goods held in inventory and various production expenses.
Hence the firm needs Working capital until such time as goods are produced,
sold and cash is realized. As this type of operating cycle repeats itself the firm
should continuously maintain certain level of working capital and this involves
the management of working capital.
The amount of working capital differs from time to time and from business to
business depending upon the operating cycle in each case. The shorter the
operating cycle the quicker the realisation of sales and hence lesser the amount
of working capital needs.
Debtors Sale
Cash Debtors
Cash Debtors
4. Long-term borrowings
4. Dividends to shareholders
7. A company which has ample working capital can make regular payment
of salaries, wages and day-to-day commitments which raises the morale
of the employees, increases their efficiency, reduces wastage cost and
enhances production and profits.
It cannot buy its requirements in bulk and cannot avail discounts, etc., It
becomes difficult for the firm to exploit favourable market conditions and
undertake profitable projects due to lack of working capital the firm cannot
pay day to day expenses of operations, creates inefficiencies, increases cost,
and reduces the profit of the business.
The rate of return on investment also falls with the shortage of working
capital.
Production policy
Manufacturing process
Seasonal variables
Credit policy
Business cycle
Other factors
By managing the working capital, current liabilities are paid in time. If the firm
makes payment to the creditors for raw materials in time, it can have the
availability of raw materials regularly, which does not cause any obstacles in
production process.
Adequate working capital increases paying capacity of the business but the
excess working capital causes more inventory, increases the possibility of delay
in realization of debts. On the other hand, absence of adequate working capital
leads to decrease in return on investment. The goodwill of the firm is also
adversely affected due to the inability to pay current liabilities in time.
Hence, the management of working capital helps to manage all factors affecting
the working capital in the most profitable manner.
1.2) METHODOLOGY
The source of information that was used to prepare the report are
secondary data as all the financial information of the company is present in the
form of secondary data.
The techniques and tools used to analyse the financial data of the company are
the financial ratios which were very useful to interpret the balance sheet and the
profitless account of the company.
Theoretical concepts
1) Liquidity ratios
Current ratio
Quick ratio
Cash ratio
Liquidity ratio
Liquidity ratio = current assets – stock – prepaid expenses/ current
liability
2) Solvency Ratios
3) Profitability Ratios
Return on equity
4) Activity ratios
The scope of the present study has been limited interns of period of study as
well as sources and nature of data. The period covered by the study extends
over 5years from F.Y 2014/15 to 2018/19. At the time of study, the data could
be available up to 2018/19. The limitations of the study are as follows,
REVIEW OF LITERATURE
The purpose of this chapter is to present a review of literature relating to the
working capital management. The following are the literature review by
different authors and different research scholars.
Pass C.L., Pike R.H: “An overview of working capital management and
corporate financing”(1984).Studied that over the past 40 years major
theoretical developments have occurred in the areas of longer-term investment
and financial decision making. Many of these new concepts and the related
techniques are now being employed successfully in industrial practice. By
contrast, far less attention has been paid to the area of short-term finance, in
particular that of working capital management. Such neglect might be
acceptable were working capital considerations of relatively little importance to
the firm, but effective working capital management has a crucial role to play in
enhancing the profitability and growth of the firm. Indeed, experience shows
that inadequate planning and control of working capital is one of the more
common causes of business failure.
Studied that “cash is king” –so say the money managers who share the
responsibility of running this country’s business. And with banks demanding
more from their prospective borrowers, greater emphasis has been placed on
these accountable for so-called working capital management. Working capital
management refers to the management of current or short-term assets and short-
term liabilities. In essence, the purpose of that function is to make certain that
the company has enough assets to operate its business. Here are things you
should know about working capital management.
Studied that working capital, sometimes called gross working capital, simply
refers to the firm’s total current assets (the short-term ones), cash, marketable
securities, accounts receivable, and inventory. While long-term financial
analysis primarily concerns strategic planning, working capital management
deals with day-to-day operations. By making sure that production lines do not
stop due to lack of raw materials, that inventories do not build up because
production continues unchanged when sales dip, that customers pay on time and
that enough cash is on hand to make payments when they are due. Obviously
without good working capital management, no firm can be efficient and
profitable.
“Describes that Working capital is the cash needed to carry on operations during
the cash conversion cycle, i.e. the days from paying of raw materials to
collecting cash from customers. Raw materials and operating supplies must be
bought and stored to ensure uninterrupted production. Wages, Salaries, utility
charges and other incidentals must be paid for converting the materials into
finished products. Customers must be allowed a credit period that is standard in
the business. Only at the end of this cycle does cash flow in again.
Studied The working capital in a firm generally arises out of four basic factors
like sales volume, technological changes, seasonal, cyclical changes and
policies of the firm. The strength of the firm is dependent on the working capital
as discussed earlier but this working capital is itself dependent on the level of
sales volume of the firm. The firm requires current assets to support and
maintain operational or functional activities.
By current assets we mean the assets which can be converted readily into cash
say within a year such as receivables, inventories and liquid cash. If the level of
sales is stable and towards growth the level of cash, receivables and stock will
also be on the high.
McClure B, Working Capital Works” (2007)
KPMG Report:
They observed that liquidity performance is very low as compared to the ideal
norms. It is suggested that the managing working capital effectively the
operating and other required budgets should be prepared by the respective levels
of the management on short-term basis. It is further suggested that these are the
people concerned who can really influence the process of production activity to
such an extent that there should be optimum utilization of the investment in
working capital.
Rao K.V and Rao Chinta(1991) observe the strong and weak points of
conventional techniques of working capital analysis. The result has been
obviously mixed while some of the conventional techniques which could
comprehend the working capital behaviour well; others failed in doing job
properly. The authors have attempted to evaluate the efficiency of working
capital management with the help of conventional techniques i.e., ratio analysis.
The article concludes prodding future scholars to search for a comprehensive
and decisive yardstick in evaluating the working capital efficiency.
The author concludes with the view that most of the businesses failed not for
want of profit but for the lack of cash. The fast growth in production and sales
may cause the business to utilize all of the financial resources seeking growth
and making assets such as inventories, accounts receivable and other assets as
more illiquid.
Profitability and Solvency are two vital aspects of working capital management.
The survival and growth of the company depends upon the ability to meet
profitability and solvency. Here the authors have concentrated on the analysis
of liquidity and solvency position of the major Public Sector Electrical
Industries in Kerala such as Kerala Electrical and Allied Engineering Company
Ltd(KEL) and Transformers and Electrical Kerala Ltd (TELK) for the financial
year.
Gill Amarjit, Biger Nahum and Mathur Neil: “ Examines the relationship
between working capital management and Profitability” (2010)
They found statistically significant relationship between the cash conversion
cycle and profitability, measured through gross operating profits. It also showed
that managers could create profits for their companies by handling correctly the
cash conversion cycle and by keeping accounts receivables at an optimal level.
The study concludes with the observation that profitability can be enhanced if
firms manage their working capital in a more efficient way.
Most of the SME’s have little regard for their working capital position and they
don’t even have standard credit policy. They have very weak financial position,
and rely on credit facility to finance their operations. This credit facility is
available from accounts payable most of the time. In conclusion the authors
recommended that for SME’s to survive within the Nigeria economy they must
design a standard credit policy and ensure good financial report and control
system. Besides, they must give adequate cognizance to the management of
working capital to ensure continuity, growth and solvency.
Hossain, Syed Zabid (1999) throws a light on the various aspects of working
capital position. He has evaluated working capital and its components through
the use of ratio analysis. For each aspect of analysis certain ratios are computed
and then results are compared with the standard ratio or industry average.
Retail is India’s largest industry, accounting for over 10 percent of the country’s
GDP and around 8 percent of the employment. Retail industry in India is the
crossroads. It has emerged as one of the most dynamic and fast paced industries
with several players entering the market. But because of the heavy investments
required, break even is difficult to achieve and many of these players have not
tasted success so far. However the future is promising; the market is growing,
government policies are becoming more favourable and emerging technologies
are facilitating operations.
Retailing in India is gradually inching its way toward becoming the next boom
industry. The whole concept of shopping has altered in terms of format and
consumer buying behaviour, using in a revolution in shopping in India. Modern
retail has entered India as seen in sprawling shopping centres, multi-storeyed
malls and huge complexes offer shopping, entertainment and food all under one
roof. The Indian retailing sector is at an inflexion point where the growth of
organized retailing and growth is the consumption by the Indian population is
population with average age of 22years, nuclear families in urban areas, along
with increasing working-women population and emerging opportunities in the
services sector are going to be the key growth drivers of the organized retail
sector in India.
During the past decade, Private Final Consumption Expenditure has been the
key driver of economic growth in India.
The $350 Billion Consumption spending provides the single biggest business
opportunity in India and is divided into some key categories led by food,
fashion and home product.
Retailing in INDIA is one of the pillars of its economy and accounts for about
22 percent of its GDP. The Indian retail market is estimated to be US$ 600
billion and one of the top five retail markets in the world by economic value.
India is one of the fastest growing retail markets in the world, with 1.2 billion
people.
Until 2014, Indian central government denied foreign direct investment (FDI) in
multi-brand retailing, forbidding foreign groups from any ownership in
supermarkets, convenience stores or any retail outlets. Even single-brand retail
was limited to 51% ownership and a bureaucratic process.
In November 2014, India’s central government announced retail reforms for
both multi-brand stores and single-brand stores. These market reforms paved
the way for retail innovation and competition with multi-brand retailers such as
Walmart, Carrefour and Tesco, as well as single brand majors such as IKEA,
Nike and Apple. The announcement sparked intense activism, both in
opposition and in support of the reforms. In December 2014, under pressure
from the opposition, Indian government placed the retail reforms on hold till it
reaches a consensus.
In June 2016, IKEA announced it had applied for permission to invest $1.9
billion in India and set up 25 retail stores. An analyst from Fitch Group stated
that the 30% requirement was likely to significantly delay if not prevent most
single brand majors from Europe, USA and Japan from opening stores and
creating associated jobs in India.
On 14th September 2016, the government of India announced the opening of the
FDI in multi-brand retail, subject to approvals by individual states. This
decision was welcomed by an economists and the markets, but caused protests
and an upheaval in India’s central governments political coalition structure. On
20th September 2016, the government of India formally notified the FDI reforms
for single and multi brand retail, thereby making it effective under Indian law.
On 7th December 2016, the Federal government of India allowed 51% FDI in
multi-brand retail in India. The government managed to get the approval of
multi-brand retail in the parliament despite heavy uproar from the opposition
(the NDA and leftist parties). Some states will allow foreign supermarkets like
Walmart, Tesco and Carrefour to open while other states will not.
The Indian retail industry is generally divided into organized and un-organized
retailing.
Brands Stores
Future Group, led by its founder and Group CEO, Mr. Kishore Biyani, is one of
India’s leading business houses with multiple businesses spanning across the
consumption space. While retail forms the core business activity of Future
Group, group subsidiaries are present in consumer finance, capital, insurance,
leisure and entertainment, brand development, retail real estate development,
retail media and logistics.
Led by its flagship enterprise, Pantaloon Retail, the group operates over 12
million square feet of retail space in 71 cities and towns and 65 rural locations
across India. Headquartered in Mumbai (Bombay), Pantaloon Retail employs
around 35000 people and is listed on the Indian stock exchanges. The company
follows a multi-format retail strategy that captures almost the entire
consumption basket of Indian customers. In the lifestyle segment, the group
operates Pantaloons, a fashion retail chain and central, a chain of scamless
malls. In the value segment, its marquee brand, Big Bazaars with the choice and
convenience of modern retail.
In 2008, Big Bazaar opened its 100th store, making the fastest ever organic
expansion of a hypermarket. The first set of Big Bazaar stores opened in 2001
in Kolkata, Hyderabad and Bangalore.
The group’s speciality retail formats include, books and music chain, Depot,
sportswear retailer, Planet Sports, electronics retailer, Ezone, home
improvement chain, Home town and rural retail chain, Aadhar, among others. It
also operates popular shopping portal, futurebazaar.com.
Other group companies include, Future Generali, the group’s insurance venture
in partnership with Italy’s Generali Group, Future Brands, a brand development
and IPR company, Future Logistics, providing logistics and distribution
solutions to group companies and business partners and Future Media, a retail
media initiative. The group’s presence in Leisure & Entertainment segment is
led through, Mumbai-based listed company Galaxy Entertainment Limited.
Galaxy leading leisure chains, Sports Bar and Bowling Co. and family
entertainment centres, F123. Through its partner company, Blue Foods the
group operates around 100 restaurants and food courts through brands like
Bombay Blues, Spaghetti Kitchen, Noodle Bar, The Spoon, Copper Chimney
and Gelato.
Future Group has grown and continues to grow on a simple belief to participate
in every consumption opportunity of the Indian consumer. Today, the group has
complementary businesses across three sectors- retail, allied services and
Finance- which are provided with strategic support and scaled synergies from
the corporate team operating in a federated structure of opportunities and
excellence.
Future Group consists of 4 listed entities led by its flagship company future
retail limited(India) and also has privately held businesses. The group believes
in seeding, mentoring and growing various consumption led businesses and
once they reach significant scale, it creates public shareholding to ensure wealth
creation and value unlocking for the general public.
We aim at providing fairness, clarity and transparency in all our dealings and
increasing the value of all stakeholders of the company.
They share the vision and belief that our customers and stakeholders shall
be served only by creating and executing future scenarios in the
consumption space leading to economic development.
They will be the trendsetters in evolving delivery formats, creating retail
reality, making consumption affordable for all customer segments – for
classes and masses.
They shall infuse Indian brands with confidence and renewed ambition
They shall be efficient and, cost-conscious and committed to quality in
whatever they do.
They shall ensure that our positive attitude, sincerity, humility and united
determination shall be the driving force to make successful.
The Company would continue to pursue its aggressive growth to strengthen its
position as a leading player in the consumption space in India, with an aim to
capture increasing share of the consumer’s wallet. The Company would
continue with its expansion plans and would continue to increase it presence on
a pan-India basis by opening more retail outlets in tier 3 cities and by further
strengthening its position in key metro cities.
The Company has planned to increase its operating retail space from around 20
million square feet currently to around 25 million square feet by FY19-20. The
various subsidiary companies of the company, which have been created to cater
to various consumption categories, are currently in initial set-up phase. Most of
them will come into their own, pursuing aggressive growth plans to achieve
scale and garner increasing market share. The company will also be able to
unlock value out of these businesses by listing these subsidiary companies, and
partnering with strategic partners in them, at an appropriate time.
The company, operating in the consumption space, has added IT services and
education to its portfolio of businesses, apart from the exciting consumer
finance, insurance, media, logistics, and brand businesses. All these businesses
will help in capitalizing on the synergies with the retail business to further
enhance shareholder’s wealth.
The move will be aimed at growing revenues from smaller format stores by
more than ten times to Rs.60k crore, from existing levels of Rs.5k crore.
India’s largest retailer FUTURE GROUP plans to open about 10,000 small
stores as part of strategy of growing revenues from smaller format stores more
than ten times, to Rs.60,000 crore, from about 5,000 crore at present, its founder
Kishore Biyani said, without specifying a time-frame.
Biyani told ET that his company plans to dot the country with small format
‘Easyday’ branded stores in the range of 2,500 sq ft., and the membership-based
format plans to enrol about 20 million members.
The 10,000 store target is 10times the number of smaller outlets that Future
Group runs. It has 1,700 stores, which include a combination of small and large
outlets. The group has an annual turnover of about Rs.30,000 crore.
The retailer is also piloting in three of its ‘Nilgiris’ outlets, a facility where
consumers can scan the barcode of products using a mobile application and the
goods will be delivered to their homes.
Last year, Future Group had converted the network of stores it has purchased
from Bharti Retail and through some other acquisitions and folded them under
membership-based Easyday Club, where member pay an annual fee of Rs.999
and get about 10% discount on purchase.
Now, Future Group will expand that membership card to discounts at its other
stores including, Central, Big Bazaar, eZone and other formats.
Future Retail plans to add Big Bazaar stores in FY19. Future Retail is currently
opening 2 stores a day and plans to open almost 100 small format stores in the
current year.
Kishore Biyani led Future Retail plans to increase the penetration of small
format stores as reported by leading media agencies. In an exclusive interaction
with leading media agencies said CP Toshniwal, Executive Director, Future
lifestyle fashions and Chief Financial Officer of the company informed that the
company is planning to open 20 Big Bazaar stores which are their flagship
stores having the highest penetration across the country.
Kishore Biyani said “We plan to have 200 exclusive FBB outlets in the next
2years FY2020-21. We will invest about Rs.350 crore to open these stores. We
aim to double our turnover in the next 2years. FBB, however, does not disclose
its financial numbers.
Out of these planned about 140 new exclusive stores, 40 will be opened in the
current fiscal year.
FBB has also partnered with global fibre brand LYCRA to offer products at its
stores in India.
The presence of all the major players of the retailing industry is found in
Singapore. Singapore has 2 hypermarkets, one run by Carrefour and the other
by Giant Hypermarket, part of dairy farm International. According to the
government, there are slightly more than 11,000 market stalls operating in 150
markets located all across Singapore Island.
The markets further spread to China, Thailand, and Malaysia thanks to the
major support that the local governments provided in creating the necessary
regulatory framework in establishing their presence. Singapore, Malaysia and
Thailand not only fuelled the retail industry within the country, but also
attracted hordes of tourists to experience the shopping” experiences” that they
created in these Islands. The markets are now saturated with no additional space
for a new entrant and are expected to consolidate within the next few years.
Apart from Singapore, which is a more recent development, Japan enjoys an
active spot on the retailers’ map.
The retail industry is as huge as US$ 1088 Billion in the non-segment and US$
493.2 Billion in the retailing sector. Several retailers, however, have made
recent improvement in their warehousing and distribution technologies to make
their presence felt in the Japanese market. Convenience stores, which are small
and suitable in a country where land is expensive, continue to do well, in fact
has been one of the few sectors that have experienced growth over the last
several years.
In mainland China, the retail markets have mushroomed over the years of
intense economic development to a very considerable size. The total volume of
retail sales for consumer goods increased by 10.6% in China over the last
couple of years.
A decade age, the top five retail enterprises in China were all traditional
merchandise, but now the five are mainly supermarkets and China stores. The
world is enamoured with China’s potential and opportunities. But in medium-
sized and small cities and rural areas, traditional retailing methods, such as
department stores and local retailing networks, will be sufficient, as
consumption is lower.
However, the rapid growth of the economy, particularly during the decade
before the financial crisis began, has led to dramatic changes in the structure
of the retailing sector. Modern supermarkets, superstores, hypermarkets and
convenience stores developed at breakneck pack to service the growing middle
class with their demand for more sophisticated stores and a greater variety of
products many of which were imported.
Retail is the sale of goods and services from individuals or businesses to the
end-user. Retailers are the part of an integrated system called the supply
chain. A retailer purchases goods or products in large quantities from
manufacturers directly or through a wholesale, and ten sells smaller quantities
to the consumer for a profit.
Shopping generally refers to the act of buying products. Sometimes this is done
to obtain necessities such as clothing; sometimes it is done as a recreational
activity. Recreational shopping often involves window shopping (just looking,
not buying) and browsing and does not always result in a purchase.
Retail goods are traditionally divided into durable goods, such as furniture and
large appliances, which are expected to last 5years, and which include clothing,
and other categories far too numerous to mention but which eventually form
the bulk of the stuff you see on make shift table at garage sales.
Retail industry, being the fifth largest in the world, is one of the sunrise sectors
with huge growth potential and for 14-15% of the country’s GDP. Comprising
of organized and unorganized sectors, India retail industry is one of the fastest
growing industries in India, especially over the last few years. According to the
Global Retail Development Index 2012, India ranks fifth among the top 30
emerging market for retail.
India has been rather slow in joining the Organized Retail Revolution that was
rapidly transforming the economies in the other Asian Tigers. This was largely
due to the excellent retailing system that was established by the Kirana (mom
and pop) stores that continue to meet with all the requirements of retail
requirements without the convenience of the shopping as provided by the
retail chains and also due to the highly fragmented supply chain that is clocked
with several intermediaries (from farm-processor-distributor-retailer) resulting
in huge value loss and high costs.
Semi-organized retailers like kirana (mom and pop stores), grocers and
provision stores are characterized by the more systematic buying- from the
mandis or the farmers an selling from fixed structures. Economies of scale are
not yet realized in this format, but the front end is already visibly changing
with the times.
These store have presented Indian companies with the challenge of servicing
them, giving rise to distribution and cash flow cycles as never seen elsewhere
in Asia. The model is very antithesis of modern retail in terms of the
buyer(retailer)-seller(FMCG)equations. It is not unknown for MNC leaders to
the link the supply of one line of products to another slower moving line of
products. These retailers are not organized in the manner that they could that
they could challenge the power of the sellers, most protests have been in the
form of boycotts, which really haven’t hit any company permanently.
India is world’s second largest grower of fruits and vegetables after Brazil and
China respectively while the agriculture sector has witnessed technological
advancements, the processing sector is still in its infancy. Even with less than
4% procession of fruits and vegetables, the processing industry sector in India is
one of the largest in terms of production, consumption with India, export and
growth prospects.
The government had accorded it a high priority, with a number of reliefs and
incentives, to encourage commercialization and value addition to agricultural
produce; for minimizing pre/post-harvest wastage, generation employment
and export growth.
India has also seen a flurry of chain majors like McDonalds, Pizza hut and
Kentucky Fried Chicken finding their place among the India consumers. The
trend still follows for chains in India to spread to almost all cities and towns.
These advancements have revolutionized the integration of the Indian Industry
and has played a vital role in solving, to a large extent, major supply chain
issues that prevailed. The trend is that these successful institutional
intervention models be replicated and spread in all segments of the industry
far and wide through the country that benefit all the incumbents of the chain
evolve. This is finally helps the retailer as his supply chain becomes much
learner and vertically integrated. He is in a position to offer a wide variety and
highest degree of convenience to his customer.
Retailing one of the largest sectors in the global economy, is going through a
transition phase in India. For a long time, the corner grocery store was the only
choice available to the consumer, especially in the urban areas. This is slowly
giving way to international formats of retailing, The traditional and grocery
segment has seen the emergence of supermarkets/grocery chains,
convenience stores and fast-chains.
In order to appeal to all classes of the society, retail stores would have to
identify with different lifestyles, Ina sense, this trend is already visible with the
emergence of stores with an essentially ‘value of money’ image. The
attractiveness of the other stores actually appeals to the existing affluent class
as well revolution is emerging along the lines of the economic evolution of
society.
It was only in the year 2000 that the economists put a figure to it. Rs.4,00,000/-
crore(1crore=10million) which is expected to develop to around Rs.8,00,000/-
crore by the year 2005 – an annual increase of 20%.
If a close look is taken at the nature of the Indian retail markets, it can be seen
that there is so much potential to extract from individual regions, which
players are in no tearing hurry to spread out. Based on recent study by a
renowned government institutional in India, in the 6 major meters, Delhi as the
highest per capita consumption of and grocery, among super markets. Chennai
“the Mekka of retailing”, comes at fourth place. This shows the high potential
the sector presents. Chennai as sum five supermarket chains, and each of them
is doing well fore themselves.
4.1) Board of Directors (Future Group Limited)
Shailesh Haribhakti
S Doreswamy
Anil D Biyani
Sunil Biyani
Vijay Biyani
Mr. Ravindra Dhariwal
ANALYSIS AND INTERPRETATION
3.11) LIQUIDITY RATIOS:
Liquidity ratios are the ratios that measures the ability of a company to meet its
short term debt obligations. These ratios measure the ability of a company to
pay off its short-term liabilities when they fall due. The liability ratios are a
result of dividing cash and other liquid assets by the short term borrowings and
current liabilities. They show the number of time the short term debt obligations
are covered by the cash and liquid assets. If the value is greater than 1, it means
the short term obligations are fully covered. Generally, the higher the margin of
safety that the company possesses to meet is current liabilities. Liquidity ratios
greater than 1 indicate that the company is in good financial health and it is less
likely fall into financial difficulties. Most common example of liquidity ratios,
acid test ratio (also known as quick ratio), cash ratio and working capital ratio.
The difference between current assets and current liabilities excluding short
term bank borrowing is called net working capital (NWC). Net working capital
is sometimes used as measure of a firm’s liquidity.
Significance: A company having a greater net working capital ratio has a better
and greater ability to pay off its short term debts as a organization has enough
funds and also that this would lead the business without any problems of
liability when it is very important of the organization.
5 years data 2018 2017 2016 2015 2014
6,000.00
5,000.00
4,000.00
Total current assets
3,000.00 Current Liabilities
0.00
2018 2017 2016 2015 2014
-1,000.00
Interpretation: During past the company has its current liabilities is more than
the current assets but during recent years it has developed significantly and has
also shown improvement in the net working capital ratio as it has come from
being negative to a lot better hold
5000
4000
5 years data:
1000
0
1 2 3 4 5
Interpretation: The current ratio of the firm was below par in the year 2014
which shows that they did not even have current assets equal to that of current
liabilities. In the year 2017 it almost reached to par as the ratio 1.26 and has
again increased to 1.27 in the year 2018.
3.11.3) Quick Ratio: This ratio establishes the relationship between quick or
liquid assets and current liabilities. An assets is liquid it can be converted into
cash immediately without loss of value. E.g. Cash, Debtors, Bills receivable and
marketable securities. Inventories are considered to be less liquids it requires
time for realising into cash, their value also has tendency to fluctuate.
6000
5000
Series1
4000
3000 Series2
2000 Series3
1000 Series4
0
Series5
Interpretation: The general quick ratio is 1:1 but the firm never reached the par
ratio but there is a substantial improvement in the ratio when compared to 2015.
3.11.4) Cash Ratio: It shows the relationship between absolute liquid or super
quick current assets and liabilities. Absolute liquid assets include cash, bank
balances and marketable securities. Absolute liquid assets, a financial analyst
may examine cash ratio and its equivalent of cash; therefore, they may be
includes in the computation of cash ratio.
4500
4000
3500
3000
5 years data
2500
Cash and Bank Balance
2000
Current liabilities
1500
Cash ratio
1000
500
0
1 2 3 4 5
Interpretation: The cash balance of the company in the year 2014 was 0.06 and
has improved continuously and has also a great reserve of cash right now as we
can see the cash ratio being 0.05 in the year 2018 which is a greatest
improvement.
3.11.5) Liquidity Ratio: This is the ratio is calculated to know the actual liquid
holding of the firm because the current liability is actually compared with the
current assets after the stock and the prepaid expenses are removed because
stock becomes the holding part of the firm and the prepaid expenses are already
paid off so it is not held liquid with the company to pay off the liabilities.
Interpretation: Liquidity ratio in the year 2014 was -0.17 and has shown
sufficient improvement in the year 2016. In the mid years there are so many
fluctuations in the ratio which has been changing in all the years but the ratios
has been improved and decreased in the year 2018.
Significance: A time interest earned ratio of 2-3 or more indicates that interest
expense should reasonably be covered. If the times interest earned ratio is less
than two it will be difficult to find a bank to loan money to the business.
2500
2000
1500
5 years data
PBDIT
1000
Interest
Interest coverage ratio
500
0
1 2 3 4 5
-500
Interpretation: The company has a very healthy interest coverage ratio, even
though it has been decreasing it is very healthy as a good ratio is only 2 or 3
times but the company is maintaining the ratio in double delights.
Significance: The purpose of debt equity ratio is to derive an idea of the amount
of capital supplied to the concern by the proprietors. This ratio is very useful to
assets the soundness of long term financial position of the firm. It also indicates
the firm. It also indicates the extent to which the firm depends upon outsiders.
For instance, a low debt equity ratio implies the use of more equity than debt.
4000
3000
5 years data:
Total liabilities
2000
Net worth
Debt equity ratio
1000
0
1 2 3 4 5
-1000
Interpretation: The debt equity ratio of the company has always been below par
the company has slightly improved after the ratio has regularly kept decreasing
as we see a increase in the year 2016. But there need to be improvement so as to
clear off the debts without any issues and gain the par value.
3.12.3) Debt to Assets Ratio: The debt to total assets ratio calculates the
present of assets provided by creditors. It is calculated by dividing total debt by
total.
creditors to maintain or make change in assets of the company. It means that the
percentage represents the share of creditors in financing the company’s assets.
5000
4500
4000
3500
3000 5 years data
3.13.1) Profit Margin Ratio: The profit margin ratio also known as the
operating performance ratio measures the company’s ability to turn its sales into
net income to evaluate the profit margin it must be compared to competitors and
industry statistics.
Significance: This shows the amount of sales that the company is able to turn
into income.
5000
4000
5 years data:
1000
0
1 2 3 4 5
Interpretation: The profit margin ratio of the firm has been decreasing
continuously as we can see the reason is that the sales of the firm is increasing
rapidly but the profits of the firm have remained almost the same with not much
comparative increase.
3.13.2) Asset Turnover Ratio: The asset turnover ratio measures how
efficiently a company is using its assets. The turnover value varies by industry.
It is calculated by dividing net sales by average total assets.
6000
5000
4000
5 years data:
1000
0
1 2 3 4 5
Interpretation: The average asset turnover ratio has remained almost stagnant
without much fluctuation though there is a fluctuation in the total asset of the
company because the net sale of the company has also increased comparatively.
3.13.3) Return on assets ratio: ROA is a combination of the profit margin ratio
and the asset turnover ratio it can be calculated separately by dividing net
income by average total assets or by multiplying the profit margin ratio times
the asset turnover ratio.
5000
4500
4000
3500
3000 5 years data:
1500 ROA
1000
500
0
1 2 3 4 5
Interpretation: The ratio has significantly increased in the year 2015 but after
that the ratio has decreased in 2 consecutive years still the company has a
healthy ratio without any serious issues.
2500
2000
0
1 2 3 4 5
3.13.5) Earnings per share: Earnings per share (EPS) represent the net income
earned for each share of outstanding common stock. In a simple, capital
structure it is calculated by dividing net income by the number of weighted
average common shares outstanding.
Earnings per share : net income/average shares outstanding.
Significance: Earning per share is a very important figure. It reveals a about the
financial health of a company. Increasing EPS is a very good sign for a
particular company. EPS tells you how much profit a company earns from a
single stock available in the market.
2000
500
0
1 2 3 4 5
Activity ratios measures company sales per another assets account-the most
common assets accounts used are accounts receivable or inventory, these
accounts are used in the denominations of the most popular activity ratios.
3.14.1) Average collection period: This ratio measures how long a firm’s
average sales remains in the hands of its customers. A longer collection period
collection automatically creates a larger investment in assets
Significance: This ratio shows the period of the time the company would take to
recover money from its debtors, the lower the amount of days the better it is for
the company.
5000
4000
5 years data:
1000
0
1 2 3 4 5
Interpretation: The average collection period of the firm has drastically reduces
which shows a very good improvement because the collection period has
reduced from 14days in 2014 to just 18days in 2018 which makes a difference.
3.14.2) Inventory turnover ratio: This ratio measures the number of times
company’s investments in inventory is turned over during a given year. The
higher the turnover ratio, the better, since a company with a high turnover
requires a smaller investment in inventory than one producing the same level of
sales with a low turnover rate. Company management has to be sure, however,
to keep inventory at a level that is just right in order not to miss sales.
Significance: This ratio indicates the efficiency in turning over inventory and
can be compared with the experience of other companies in the same industry. It
also provides some indication as to the adequacy of a company’s inventory for
the volume of business being handled.
6000
5000
4000
5 years data:
3000 Inventories
COGS
2000 Inventory turnover ratio
1000
0
1 2 3 4 5
Interpretation: The inventory turnover ratio has fluctuations as we can see it has
increased and also decreased in the past year but there is a comparative increase
from the year 2016 because of increase in COGS without equivalent increase in
the inventories.
3.14.3) Fixed asset turnover: The fixed (or capital) assets turnover ratio
measures how intensively a firm’s fixed assets such as land, building and
equipment are used to generate sales. A low fixed assets turnover implies that a
firm has too much investment in fixed assets relative to sales: it is basically a
measures of productivity.
Significance: This ratio shows the firms relationship between the sales and the
fixed assets of the company. If a business shows a weakness in this ratio, its
plant may be operating below capacity and manage should be looking at the
possibility of selling the less productive assets.
6000
5000
4000
5 years data:
1000
0
1 2 3 4 5
Interpretation: The fixed ratio has raised and slightly fluctuations has occurred
in these years which means the fixed assets of the company are doing good
sometimes.
This ratio takes into account both net fixed assets; and current assets. It also
gives an indication of the efficiency with which assets are used; a low ratio
means that excuse in assets are employed to generate sales and/or that some
assets (fixed or current assets) should be liquidated or reduced significance;
sales/total assets.
Significance: This ratio shows the relationship between the sales of the firm and
the total assets the lesser the ratio the better the performance of the company.
this also considers both current assets and fixed assets.
5000
4000
Series1
3000 Series2
Series3
2000
Series4
1000
0
5 years 2018-19 2017-18 2016-17 2015-16 2014-15
data:
Interpretation: The company shows slight increase in the ratio which means that
the assets are not performing well and also it is trying to decrease the ratio by
utilizing the assets in a better way as we can see the ratio decreased in the year
2018.
CHAPTER - 4
The current ratio was less than 1 during the year 2014 but the ratio has
vigorously grown in the next few years and has crossed the mark of one which
shows that the company to pay off the debits in case of any rising problem.
The quick ratio of the company has however never reached the par level of 1,
but there is gradual improvement as it has grown up to 0.1 this is also because
of the increase in the assets when compared with that of the liabilities of the
company.
There is decrease in the cash ratio of the company is decreased from 0.06 in
2014 to 0.05 in the year 2018 which is a healthily sign, it also has increased
when compared to the change is also a tremendous change after being 0.06 in
2014.
The liquidity ratio satisfactory when it is anything above 1 but here we find that
the company has reached the satisfactory level, but there is a decrease of 0.47
from 2018.
The debt-equity ratio has always remained the same with a very less of
fluctuations basically it has decreased all the years expect for the year 2016
where it has increased.
The debts to assets ratio has always been increasing other than the year 2016
where it has drastically grown due to the great increased in the assets which far
greater when compared to the increase in the debts.
The profit margin of the firm has always kept increasing as it has
increased 0.054 in the year 2014 and decreased to 0.037 in the year 2018.
Though there is a drastic in the sales the profit margin has decreasing showing
the company’s move to increase the sales.
The asset turnover ratio has always been increasing in the company as it has
increased from 1.32 in the year 2015 to being 1.22 in the year 2018 which is
because of increase in the asset of the company which shows a weakening sign.
The return on asset ratio has also shown fluctuations where is increase and
decrease still there is an decrease on over all compression where it has
decreased from 0.016 in 2015 to 0.016 in 2018.
The return on equity of the company has remained almost constant though there
is an increase in the constant though there is an increase in the ratio from being
1.58 in 2016 to 2.00 in 2018.
The earnings per share has increased in a great pace ensuring shareholders
adequate profits for their investments and also shows that the company is
attaching its shareholders by doing this.
The average collection period of the debtors has increased from 14days in
2014 to 18days in 2018 which is a great difference; this is because of great
increase in the sales of the company while the debtors are almost constant
comparatively.
The inventory turnover ratio has increased from 1.25 in 2016 to 1.26 in 2018
which shows that there is a comparatively greater increase in sales to that of the
inventory.
The fixed asset ratio has fluctuating ratio from 5.53 in the year 2014 to 5.20 in
2018 which shows slight fluctuations in ratios and in the year 2016 it was
increased to 6.25.
The total asset turnover ratio has grown from 0.83 in 2014 to 1.22 for the year
1.22 because of the comparatively greater growth in the sales than that of the
total assets which shows better utilization of the assets in generating sales.
The liquidity ratios of the company has seen great improvement though it is not
enough for the company it would be reaching the par level in a few years
because of the great improvement in the previous years, so the company should
be going ahead with the same pace so as to increase the liquidity.
The solvency ratios of the company are at the very good stage as we can see
good progress in the company, but it is very important at the same pace, in order
to maintain the ratios at a good pace the company has to improve its operations
as to benefit the solvency ratios or should continue with its great hold.
The profitability ratios shows that the company is mainly not aiming at its
profits but is trying to drastically increase its sales where it has succeeded and
also the earnings per share has increased attaching the customers, so the
company has to focus a little bit more on its profits so as to get the profit of the
firm to a higher level.
The activity ratios also shows that the company has been very good in its
operations where the company has seen to generate more profit with lesser
number of assets which shows the increase in the utilization level of the firm, so
the company should maintain the utilization level or can further try to squeeze
out more sales with the same amount of assets.
CHAPTER – 5
CONCLUSION
5.1) Conclusion:
BIBLIOGRAPHY
BOOKS
Websites:
http://www.futuregroup.in
https://www.bigbazaar.com
http://m.moneycontrol.com
http://www.rediff.com/money/