A PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

By

WAHABUDIN NOORI

IN PARTIAL FULFILLMENT OF

BACHELOR OF BUSINESS ADMINISTRATION

Submitted to

SAVITRIBAI PHULE PUNE UNIVERSITY

MITSOM College

2017 – 18

PUNE: 411038

CERTIFICATE

1
This is to certify that Mr. WAHABUDIN NOORI of MAEER’s MITSOM
College have successfully completed the project work in partial fulfilment of
requirement for the award of Bachelor of Business Administration prescribed by
the University of Pune.

This project is the record of authentic work carried out during the academic year
2017-2018.

COLLEGE PRINCIPLE PROJECT GUIDE

Dr.R.M Chitnis Prof. Amruta Dixit

2
 DECLARATION

I, Mr. WAHABUDIN NOORI hereby declare that this project is the record of
authentic work carried out by me during the academic year 2017-2018 and has not
been submitted to any other University or Institute towards the award of any
degree.

Signature of student
(Wahabudin Noori)

3
 ACKNOLEDGMENT

Completing a task is never a one-man effort; it is often the result of valuable

contribution of a number of individuals either in direct or indirect manner.

I take this opportunity to thank all those people who contributed to this project
from very beginning till its successful completion.

It gives me immense pleasure to express my deep sense of gratitude with sincere

thanks and appearance to the People who really assisted me is the subject lecturer
PROF.AMRUTA DIXIT, Friends, my classmates and those respondents who
have given me their support. The ideas, suggestions and assistance of these people
really helped me to complete this piece of originality.

I once gain thank all those who really helped and appreciated my work to design
this project report, Thanks.

Wahabudin Noori

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 CHAPTER I
INTRODUCTION

5
INTRODUCTION

1.1 INTRODUCTIO OF WORKING CAPITAL:-

Whatever may be the organization, working capital plays an important role, as the
company needs capital for its day to day expenditure. Thousands of companies
fail each year due to poor working capital management practices. Entrepreneurs
often don't account for short term disruptions to cash flow and are forced to close
their operations.

In simple term, working capital is an excess of current assets over the current
liabilities. Good working capital management reveals higher returns of current
assets than the current liabilities to maintain a steady liquidity position of a
company. Otherwise, working capital is a requirement of funds to meet the day to
day working expenses. So a proper way of management of working capital is
highly essential to ensure a dynamic stability of the financial position of an
organization.

Aditya Constructions is a premier construction firm in pune, Maharashtra. Seeing

the good opportunity to study financial systems and practices of Aditya
Constructions it is relatively important take up internship assignment on ‘A
STUDY ON WORKING CAPITAL MANAGEMENT AT ADITYA
CONSTRUCTIONS ’. During the project work, the working capital position of
this organizations being analyzed.

6
1.2 SELECTION OF TOPIC

The selection of topic is a crucial factor in any research study. There should be
newness and it should give maximum scope to explore the ideas from different
angles.

In present day due to increase in competition, working capital is becoming

necessary for the organization. It is that part of capital which is necessary to
undertake day to day expenditure of the business organization. Whatever may be
the organization, working capital plays an important role, as the company needs
capital for its day to day expenditure. Working capital is the fund invested by a
firm in current assets. Now in a cut throat competitive era where each firm
competes with each other to increase their production and sales, holding of
sufficient current assets have become mandatory as current assets include
inventories and raw materials which are required for smooth production runs.
Holding of sufficient current assets will ensure smooth and uninterrupted
production but at the same time, it will consume a lot of working capital. Here
creeps the importance and need of efficient working capital management. After
due to consultation with the external guide /internal guide, the topic was finalized
and titled as-

“A STUDY ON WORKING CAPITAL MANAGEMENT IN ADITYA

CONSTRUCTIONS, PUNE”

7
1.3 OBJECTIVES OF THE STUDY

The main objectives of study are:-

1) To study the various components of working capital.

2) To analyze the liquidity trend.

3) To appraise the utilization of current asset and current liabilities and find out
short-comings if any.

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1.4 LIMITATIONS

Following are the limitations of the study:

1.4.1 The topic working capital management is itself a very vast topic yet very
important also. Due to time restraints it was not possible to study in depth in get
knowledge what practices are followed at Aditya Constructions.

1.4.2 Many facts and data are such that they are not to be disclosed because of
the confidential nature of the same.

1.4.3 The study is restricted to only the Three Year data of Aditya
Constructions.

1.4.4 The study is mainly carried out based on the secondary data provided in
the financial statements.

1.4.5 Ratios singularly cannot show whether the performance of the company is
good or bad.

9
 CHAPTER II
CONCEPT & METHODOLOGY

10
2.1 Meaning and Concept of working capital
2.1.1 MEANING
Working capital means the capital invested in working assets or current assets
such as cash, stock of goods, debtors and short –term investments, etc. It
represents the liquid funds which are required for the day-to-day operations of an
enterprise.

Working capital is also known as circulating capital or revolving capital because

it keeps on circulating or revolving in business. It is invested, recovered, and
reinvested repeatedly during the operating cycle of business.

In a manufacturing concern the operating cycle involves conversion of cash into

raw materials, raw materials into work in progress, work in progress into finished
goods, finished goods into receivables and receivables into cash.

2.1.2 CONCEPT OF WORKING CAPITAL

The term working capital is used in two senses- gross working capital and net
working capital.

GROSS WORKING CAPITAL:

Gross working capital means the total amount of funds invested in current assets.
Current assets are those assets which are converted into cash in ordinary course of
business. Thus,

Gross Working Capital= Book Value of Current Assets.

11
 NET WORKING CAPITAL:

It means the excess of current assets over current liabilities. Current assets include
cash in hand, cash at bank, sundry debtors, bills receivables, marketable
securities, inventory and prepaid expenses. Current liabilities include sundry
creditors, bills payable, short-term loans (repayable within one year) and acquired
expenses. Thus,

Net Working Capital= Current Assets - Current Liabilities.

The working capital requirement of a firm depends, to a great extent up on the

operating cycle of the firm. The operating cycle may be defined as the duration
from the procurement of goods or raw materials and ending with sales realization.
The length and nature of the operating cycle may differ from one firm to another
depending up or the size and nature of the firm.

2.2 OPERATING CYCLE

The duration of time required for completing the following sequence of events in
case of manufacturing firm is called Operating Cycle.

1. Conversion of cash into raw material.

2. Conversion of raw material into work in progress.

3. Conversion of work-in-progress into finished goods.

4. Conversion of finished goods into debtors & bills receivable through sale.

5. Conversion of debtors & bills receivable into cash.

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 Operating Cycle

2.2.1 OPERATING CYCLE PERIOD (OCP)

The operating cycle period of any firm can be defined as the sum of its inventory
conversion period and the receivable conversion period less deferral period.

INVENTORY CONVERSION PERIOD (ICP):

It is the time required for the conversion of raw material in to finished goods
sales. In a manufacturing concern the ICP is consisting of raw materials
conversion period (RMCP), work in progress conversion period (WPCP), and the
finished goods conversion period (FGCP). The RMCP refers to the period for
which the raw material is generally kept in store before is issued to the production
department. The WPCP refers to the period for which the raw materials remain in
the production process before it is taken out as a finished unit. The FGCP refers to
the period for which finished units remain in stores before being sold to the

13
customers.

INVENTORY CONVERSION PERIOD = RAW MATERIAL

CONVERSION PERIOD (RMCP) + WORK-IN-PROGRESS
CONVERRSION PERIOD (WPCP) + FINISHED GOODS CONVERSION
PERIOD (FGCP).

RECEIVABLES CONVERSION PERIOD (RCP):

It is the time required to convert the credit sales in to cash realization. It refers to
the period between the occurrence of credit sales and collection of debtors.

DEFERRAL PERIOD (DP):

The firm might be getting some credit facilities from the supplier of raw material
wage earners etc. this period for which the payment it these parties are deferred or
delayed is known as deferral period (DP).

Thus,

OPERATING CYCLE PERIOD (OCP):

The total of inventory conversion period and raw material conversion period less
deferral period is known as operating cycle period (OCP).

OPERATING CYCLE PERIOD (OCP) = INVENTORY CONVERSION

PERIOD (ICP) + RECEIVABLES CONVERSION PERIOD (RCP) –
DEFERRAL PERIOD (DP).

14
2.3 TYPES OF WORKING CAPITAL

Working capital can be classified as follows:

2.3.1 PERMANENT WORKING CAPITAL:

It refers to the minimum amount of working capital required permanently to

operate the minimum level of business activity. It is permanently locked up in
current assets. It is, therefore, raised through long-term sources of finance.

Permanent working capital is of two kinds:

A) INITIAL WORKING CAPITAL:

Initial working capital is that part of permanent working capital which is required
at the time of commencement of a business. It is the amount needed to start
business activities.

B) REGULAR WORKING CAPITAL:

It means that part of permanent working capital which is required for the
continuous business operations. It represents the excess of current assets over
current liabilities. It consists of enough cash to meet short-term obligations, to
build up inventory and enough stock of finished goods to ensure quick delivery to
customers.

2.3.2 TEMPORARY OR VARIABLE WORKING CAPITAL:

It is the working capital that is required in addition to permanent working capital.

It is required to meet seasonal and special needs of business. It is fluctuating in
nature in nature and is, therefore known as variable working capital. It is
generally raised from short-term sources of finance.

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TEMPORARY WORKING CAPITAL IS OF TWO TYPES:

A) SEASONAL WORKING CAPITAL:

It means the extra working capital required during a particular season. Firms
dealing in products of a seasonal nature (e.g., woolen garments, fans, umbrellas,
etc.) require more working capital during busy season.

B) SPECIAL WORKING CAPITAL:

It refers to extra funds required to meet future contingencies that may arise in
business. It is advisable to set up a reserve working capital to act as a cushion in
times of emergencies.

2.4 IMPORTANCE OF WORKING CAPITAL

Adequate amount of working capital provides the following advantages:

Timely payment of dues: Timely payment of liabilities helps to ensure short-

term solvency of business.

Smooth Working: Adequate working capital enables the business to purchase

raw materials, pay wages and salaries and meet their expenses. It keeps the flow
of production and distribution uninterrupted.

High credit worthiness: A business with satisfactory working capital position

enjoys high credit standing.

Cash discount: An enterprise with sufficient liquid funds can take advantages of
cash discount.

16
Availing business opportunities: A business having sufficient working capital
can execute special orders at a short notice.

Good relations with employees: An enterprise having adequate working capital

can pay wages and salaries to its employees in time.

Timely payment of dividend: A company may lose its reputation if dividends are
not paid in time to shareholders due to shortage of cash.

2.5 FACTORS DETERMINING WORKING CAPITAL

The working capital requirements of an enterprise depend on the following

factors:

Nature of Business: Manufacturing firms require considerable working capital as

they have to build up stock of raw materials and finished products. On the other
hands public utility undertakings require less working capital as they do not have
to maintain inventory.

Size of Business: Firms carrying on large scale operation and undertaking high
volume of production require more working capital than small scale firms.

Manufacturing Cycle: It means the time involved in the production of goods.

Longer is the time gap between the purchase of raw material and production of
finished goods higher is the need of working capital.

Rapidity of Turnover: Turnover means the speed with which the amount of
working capital is recovered by the sale of goods. When the turnover is rapid, the
mount of working capital required is small. This is because working capital is
locked up in business for a short period.

Terms of Purchase and Sale: A business firm requires comparatively small

amount of working capital if it buys goods and services on credit and sells them in

17
cash. On the other hand, if it purchases in cash and sales on credit, larger amount
of working capital will be required.

Credit Policy: When a credit policy is followed, more working capital is

required. On the contrary, smaller working capital is needed in case of a tight
credit policy.

Operating Efficiency: Better utilization of resources leads to reduction in cost

and improves profitability as a result need of working capital is reduced.

Goodwill of Business: An enterprise enjoying good reputation in the market can

easily and quickly obtain short term loans from commercial banks it requires a
less amount of working capital.

Seasonal Variation: Working capital requirements of business which are subject

to seasonal variations are comparatively high during a particular season.

2.6 RESEARCH METHODOLOGY

Research methodology is a systematic approach in management research to

achieve pre-defined objectives. It helps a researcher to guide during the course of
research work. Rules and techniques stated in research methodology save time
and effort of the researcher.

2.6.1 SOURCES OF DATA COLLECTION

PRIMARY DATA:

The primary data are those which are collected for the first time, and thus
happened to be original in character. Primary data include the information
collected from the officials and existing company through discussions.

SECONDARY DATA:

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The secondary data are those which have already been collected and stored. The
secondary data include the information from the company’s financial statement
like balance sheet and income statements and such other information from text
books of financial management, journals and magazine has also been collected.

2.6.2 PRESENTATION OF DATA:

The data collected for the study has been presented in the form of:

 Tables
 Bar graphs and line graphs.

2.6.3 TECHNIQUE USED FOR THE STUDY:

TREND ANALYSIS:

Such analysis present picture of the current assets and current liabilities over the
years and enables to study the increase and decrease in the individual current
assets, current liabilities and its effect on the working capital position of the
organization.

2.7 RATIO ANALYSIS

Ratio analysis is the powerful tool of financial statements analysis. A ratio is

defined as “the indicated quotient of two mathematical expressions” and as “the
relationship between two or more things”. The absolute figures reported in the
financial statement do not provide meaningful understanding of the performance
and financial position of the firm. Ratio helps to summaries large quantities of

19
financial data and to make qualitative judgment of the firm’s financial
performance.

2.7.1 ROLE OF RATIO ANALYSIS

Ratio analysis helps to appraise the firms in the term of their profitability and
efficiency of performance. Ratio analysis is one of the best possible techniques
available to management to impart the basic functions like planning and control.
As future is closely related to the immediately past, ratio calculated on the basis
historical financial data may be of good assistance to predict the future. E.g. On
the basis of inventory turnover ratio or debtor’s turnover ratio in the past, the level
of inventory and debtors can be easily ascertained for any given amount of sales.
Similarly, the ratio analysis may be able to locate the point out the various arias
which need the management attention in order to improve the situation.

2.7.2 LIQUDITY RATIO

Liquidity refers to ability of a concern to meet its current obligations as and when
these become due. The short-term obligations are met by realizing amounts from
current, floating or circulating asset. The current asset either be liquid or near
liquidity. These should be convertible into cash for paying obligation of short-
term nature. To measure the liquidity of a firm, following ratios can be calculated:

A) CURRENT RATIO: Current assets include cash and those assets which can
be converted in to cash within a year, such trade receivables, inventories and short
term loans and advances. All obligations within a year are include in current
liabilities. Current liabilities include trade payable, provisions and other liabilities
maturing in the current year. Current ratio indicates the availability of current
assets in rupees for every rupee of current liability.

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABLITIES.

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B) QUICK RATIO OR ACID TEST RATIO: Quick ratios establish the
relationship between quick or liquid assets and liabilities. An asset is liquid if it
can be converting in to cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset .Other assets which are consider to be
relatively liquid and include in quick assets are trade receivable, short term loans
and advances and marketable securities. Inventories are not included considered
as less liquid. Inventory normally required some time for realizing into cash.
Their value also be tendency to fluctuate. The quick ratio is found out by dividing
quick assets by current liabilities.

QUICK ASSETS = CURRENT ASSETS – INVENTORIES.

QUICK RATIO or ACID TEST RATIO = QUICK ASSETS / CURRENT
LIABLITIES.

C) ABSOLUTE LIQUID ASSET: Even though debtors and bills receivables are
considered as more liquid then inventories, it cannot be converted in to cash
immediately or in time. Therefore while calculation of absolute liquid ratio only
the absolute liquid assets as like cash in hand cash at bank, short term marketable
securities are taken in to consideration to measure the ability of the company in
meeting short term financial obligation. It calculates by absolute assets dividing
by current liabilities.

ABSOLUTE LIQUID ASSETS = QUICK ASSETS – TRADE

RECEIVABLE.

ABOSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS /

CURRENT LIABLITIES.

2.7.3 EFFICIENCY RATIO

21
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly affects the volume of sale.
Activity ratios measure the efficiency and effectiveness with which a firm
manages its resources or assets. These ratios are also called turnover ratios.

A) DEBTORS TURNOVER RATIO: Trade Receivable turnover ratio provides

relationship between credit sales and receivables of a firm. It indicates how
quickly receivables are converted into sales.

DEBTORS TURNOVER RATIO = SALES / AVERAGE ACCOUNT

RECEIVABLE

AVERAGE A/C RECEIVABLE = (OPENING TRADE DEBTOR +

CLOSING TRADE DEBTOR) / 2

AVERAGE COLLECTION PERIOD = 365 / DEBTORS TURNOVER

RATIO.

B) INVENTORY TURNOVER RATIO: Inventory turnover is the ratio of cost

of goods sold to average inventory. It measures how many times per period a
business sells and replaces its inventory again.

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD /

AVERAGE INVENTORY

AVERAGE INVENTORY = (OPENING STOCK + CLOSING STOCK) / 2

COST OF GOODS SOLD = SALES – GROSS PROFIT.

C) WORKING CAPITAL TURNOVER RATIO: It signifies that for an

amount of sales, a relative amount of working capital is needed. If any increase in
sales contemplated working capital should be adequate and thus this ratio helps
management to maintain the adequate level of working capital. The ratio
measures the efficiency with which the working capital is being used by a firm.

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WORKING CAPITAL TURNOVER RATIO = SALES / NET WORKING
CAPITAL.

23
 CHAPTER III
ORGANIZATIONAL PROFILE

24
3.1 COMPANY PROFILE
Aditya Constructions was founded in 2004 and working as a constructions firm in
a small scale projects in Pune, Maharashtra.

Aditya Constructions product range covers the applications in construction, roads

and highways, other infrastructure projects.

The state-of-art manufacturing includes assembly, axles and drivelines, frame

shop and automated cab painting facilities.

3.2 VALUES

 Integrity: we must conduct our business fairly, with honesty and

transparency.
 Understanding: we must be caring, show respect, compassion and
humanity for our colleagues and customers around India, and always work
for the benefit of the communities we serve.
 Excellence: we must constantly strive to achieve highest possible
standards in our day to day work and in quality of goods and services we
provide.
 Unity: we must work cohesively with our colleagues across the groups and
our customers and partners around the world, building strong relationships
based on tolerance, understanding and mutual co-operation.

25
 3.3 SUCCESS FACTORS

 Clear market strategy.

 Competitive raw material sourcing skills.
 World class low cost of manufacturing.
 Sound financial management.
 Growth internally generated.

MANAGEMENT HIERARCHY

DIRECTOR
DIRECTOR

SERVICE FINANCE STORE

DEPARTMET DEPARTMENT DEPARTMENT

FINANCE
MANAGER

SENIOR
ACCOUNTANT

ACCOUNTANT EXCISE AND CUSTOM CASHIER

26
 CHAPTER IV
SUMMARY AND CONCLUSIONS

27
4.1 FINDINGS
The findings of the study are presented in five TABLEs:-

TABLE I: COMPONENTS OF WORKING CAPITAL.

TABLE II: TRENDS of CURRENT ASSETS and CURRENT

LIABLITY.

TABLE III: TREND of WORKING CAPITAL.

TABLE IV: LIQUIDITY TREND of ORGANIZATION.

TABLE V: MEASURES to EFFECTIVE WORKING CAPITAL

MANAGEMENT.

28
STATEMENT OF WORKING CAPITAL OF ADITYA CONSTRUCTIONS. FOR
THE YEAR 2012-13

PARTICULARS CONTRIBUTION
AMOUNT(Rs.) PERCENTAGE(%)
CURRENT ASSETS (C.A.)

INVENTORIES 4,84,38,862 18.42

TRADE RECEIVABLES 5,68,76,974 21.63
CASH and CASH EQUIVALENTS 11,46,66,685 43.6
SHORT TERM LOANS AND
ADVANCES 4,30,16,093 16.35

GROSS WORKING CAPITAL 26,29,98,614 100

CURRENT LIABLITIES (C.L.)

TRADE PAYABLES 2,40,91,972 27.1

PROVISIONS 6,04,44,239 68
OTHER LIABLITIES 43,57,362 4.9

TOTAL OF CURRENT LIABLITIES 8,88,93,573 100

NET WORKING CAPITAL

(C.A.-C.L.) 39,29,68,273

29
Current assets and liabilities of 2012-13

Figure No-I

30
STATEMENT OF WORKING CAPITAL OF ADITYA CONSTRUCTIONS. FOR
THE YEAR 2013-14

PARTICULARS CONTRIBUTION
AMOUNT(Rs.) PERCENTAGE(%)
CURRENT ASSETS (C.A.)

INVENTORIES 6,58,65,993 27.98

TRADE RECEIVABLES 3,26,81,556 13.88
CASH and CASH EQUIVALENTS 7,01,18,738 29.79
SHORT TERM LOANS AND
ADVANCES 6,67,41,970 28.35

GROSS WORKING CAPITAL 23,54,08,257 100

CURRENT LIABLITIES (C.L.)

TRADE PAYABLES 95,95,348 11.05

PROVISIONS 7,58,39,826 1.59
OTHER LIABLITIES 13,76,688 87.36

TOTAL OF CURRENT LIABLITIES 8,68,11,862 100

NET WORKING CAPITAL

(C.A.-C.L.) 17,41,05,041

Current assets and liabilities of 2013-14

figure No-II

31
 4.1.3 STATEMENT OF WORKING CAPITAL OF ADITYA
CONSTRUCTIONS FOR THE YEAR 2014-15

PARTICULARS CONTRIBUTION
AMOUNT(Rs.) PERCENTAGE (%)
CURRENT ASSETS (C.A.)

INVENTORIES 80547677 29.6

TRADE RECEIVABLES 36112144 13.27
CASH and CASH EQUIVALENTS 70661328 25.98
SHORT TERM LOANS AND
ADVANCES 84768679 31.15

GROSS WORKING CAPITAL 272089828 100

CURRENT LIABLITIES (C.L.)

TRADE PAYABLES 3916782 3.49

PROVISIONS 79852116 25.4
OTHER LIABLITIES 28522596 71.11

TOTAL OF CURRENT LIABLITIES 112291494 100

NET WORKING CAPITAL

(C.A.-C.L.) 159798334

32
Current assets and liabilities of 2014-15
figure No-III

33
 TABLE I

COMPONENTS OF WORKING CAPITAL MANAGEMENT of

ADITYA CONSTRUCTIONS.

PARTICULARS YEARS

2012-13 (Rs) 2013-14 (Rs) 2014-15 (Rs)

INVENTORIES 4,84,38,862 6,58,65,993 8,05,47,677

TRADE RECEIVABLES 5,68,76,974 3,26,81,556 3,61,12,144

CASH and CASH

11,46,66,685 7,01,18,738 7,06,61,328
EQUIVALENTS

SHORT TERM LOANS

43,016,093 6,67,41,970 8,47,68,679
and ADVANCES

TRADE PAYABLES 2,40,91,972 95,95,348 39,16,782

PROVISIONS 6,04,44,239 7,58,39,826 7,98,52,116

OTHER LIABLITIES 43,57,362 13,76,688 2,85,22,596

34
An insight into the table reveals that:

a) Cash and cash equivalents in 2012-13 was Rs. 11,46,66,685. In 2013-14

cash and cash equivalents decreased by 38.85% to Rs7,01,18,738 as
compared to year 2012-13. But in 2014-15 there has been a small rise of
0.77% to Rs.7,06,61,328 as compared to year 2013-14.
b) Trade receivables balance in 2012-13 was Rs. 5,68,76,974. In 2013-14
debtors balance decreased by 42.54% to Rs. 3,26,81,556 as compared to
year 2012-13. In 2014-15 debtors balance increased by 10.49% to Rs.
3,61,12,144 as compared to year 2013-14.

c) Inventories increased at a good speed. The inventories were Rs

4,84,38,862 in 2012-13. In 2013-14 it increased by 35.98% to Rs
6,58,65,993 as compared to 2012-13. In 2014-15 it increased to Rs
8,05,47,677with the increase of 22.29% as compared to year 2013-14 .

d) Short term loans and advances in year 2012-13 was Rs. 4,30,16,093. In
year 2013-14 it increased by 55.16 % to Rs. 6,67,41,970 as compared to
2012-13. In 2014-15 it increased by 27% to Rs. 8,47,68,679 as compared
to 2013-14.

e) There was a decrease in trade payables throughout the study of three

years. Trade payable balance in the year 2012-13 was Rs 2,40,91,972. In
the year 2013-14 trade payables decreased by 60.17% to Rs.95,95,344 as
compared to year 2012-13. In the year 2014-15 trade payables further
decreased by 59.18% to Rs.39,16,782 as compared to2013-14.

f) There were other liabilities of the firm also. It stood Rs. 43,57,362 in the
year 2012-13. In the year 2013-14 it decreased by 68.40% to Rs.13,76,688
as compared to year 2012-13. In the year 2014-15 it increased by
1971.83% to Rs 2,85,22,596 as compared to year 2013-14.

35
 STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2012-13 and 2013-14)

PARTICULARS 2012-13(Rs) 2013-14(Rs) INCREASE DECREASE

CURRENT ASSETS(C.A.)

INVENTORIES 4,84,38,862 6,58,65,993 1,74,27,131

TRADE RECEIVABLES 568,76,974 3,26,81,556 2,41,95,418

CASH and CASH

11,46,66,685 7,01,18,738 4,45,47,947
EQUIVALENT
SHORT TERM LOANS and
4,30,16,093 6,67,41,970 2,37,25,877
ADVANCES

GROSS WORKING CAPITAL 26,29,98,614 23,54,08,257 2,75,90,357

CURRENT LIABLITIES(C.L.)

TRADE PAYABLES 2,40,91,972 95,95,348 1,44,96,624

PROVISIONS 6,04,44,239 7,58,39,826 1,53,95,587

OTHER LIABLITIES 43,57,362 13,76,688 29,80,674

TOTAL OF CURRENT
LIABLLITIES 8,88,93,573 8,68,11,862 2,08,11,711

NET WORKING
CAPITAL(C.A.-C.L.) 17,41,05,041 14,85,96,395 2,55,08,646

36
 STATEMENT SHOWING CHANGES IN WORKING CAPITAL
(2013-14 and 2014-15)

PARTICULARS 2013-14(Rs) 2014-15(Rs) INCREASE DECREASE

CURRENT ASSETS(C.A.)

1,41,46,81,68
INVENTORIES 6,58,65,993 8,05,47,677
4

TRADE RECEIVABLES 3,26,815,56 3,61,12,144 34,30,588

CASH and CASH

7,01,18,738 7,06,61,328 5,42,545
EQUIVALENT
SHORT TERM LOANS and
6,67,41,970 8,47,68,679 1,80,26,709
ADVANCES

GROSS WORKING CAPITAL 23,54,08,257 27,20,89,828 3,66,81,571

CURRENT LIABLITIES(C.L.)

TRADE PAYABLES 95,95,348 3,91,6782 56,78,566

PROVISIONS 7,58,39,826 7,98,52,116 40,12,290

OTHER LIABLITIES 13,76,688 2,85,22,596 2,71,45,908

TOTAL OF CURRENT
8,68,11,862 11,22,91,494 2,54,79,632
LIABLLITIES

NET WORKING CAPITAL

14,85,96,395 15,97,98,334 1,12,01,939
(C.A.-C.L.)

37
 TABLE II

COMPONENTS OF CURRENT ASSETS

(figures in percentage)

CURRENT
2012-13 (%) 2013-14 (%) 2014-15 (%)
ASSETS(C.A.)

INVENTORIES 18.42 27.98 29.6

TRADE RECEIVABLES 21.63 13.88 13,27

CASH and CASH
43.6 29.79 25.98
EQUIVALENTS
LOANS and ADVANCES 16.35 28.35 31.15

TOTAL OF CURRENT
100 100 100
ASSETS(C.A.)

Figure No-IV

38
 TABLE III

COMPONENTS OF CURRENT LIABLITIES

(figures as in percentage)

CURRENT
2012-13 (%) 2013-14 (%) 2014-15 (%)
LIABLITIES(C.L.)

TRADE PAYABLES 27.10 11.05 3.49

PROVISIONS 68.00 87.36 71.11

OTHER LIABLITIES 4.9 1.59 25.4

TOTAL OF CURRENT
100 100 100
LIABLITIES

Figure No-V

TABLE IV
39
 CURRENT ASSETS TREND

CURRENT ASSETS (C.A.) YEARS

2012-13 2013-14 2014-15

INVENTORIES 4,84,38,862 6,58,65,993 8,05,47,677

TRADE RECEIVABLES 5,68,76,974 3,26,81,556 3,61,12,144

CASH and CASH

11,46,66,685 7,01,18,738 7,06,61,328
EQUIVALENTS

LOANS and ADVANCES 4,30,16,093 6,67,41,970 8,47,68,679

TOTAL OF CURRENT
26,29,98,614 23,54,08,257 27,20,89,828
ASSETS

INDICES 100 89.51 103.46

40
 TABLE V

CURRENT LIABILITIES TREND

CURRENT LIABLITIES
YEARS
(C.L.)

2012-13 2013-14 2014-15

TRADE PAYABLES 2,40,91,972 95,95,348 3,916,782

PROVISIONS 6,04,44,239 7,58,39,826 7,98,52,116

41
OTHER LIABLITIES 43,57,362 13,76,688 2,85,22,596

TOTAL OF CURRENT
8,88,93,573 8,68,11,862 11,22,91,494
LIABLITIES

INDICES 100 97.66 126.32

TABLE VI

SIZE OF WORKING CAPITAL

PARTICULARS 2012-13(Rs) 2013-14(Rs) 2014-15(Rs)

CURRENT ASSETS(C.A.)
INVENTORIES 4,84,38,862 6,58,65,993 8,05,47,677
TRADE RECEIVABLES 5,68,76,974 3,26,81,556 3,61,12,144

42
CASH and CASH EQUIVALENT 11,46,66,685 7,01,18,738 7,06,61,328
SHORT TERM LOANS and
4,30,16,093 6,67,41,970 8,47,68,679
ADVANCES

GROSS WORKING
26,29,98,614 23,54,08,257 27,20,89,828
CAPITAL(C.A.)

CURRENT LIABLITIES(C.L.)
TRADE PAYABLES 2,40,91,972 95,95,348 39,16,782
PROVISIONS 604,44,239 7,58,39,826 7,98,52,116
OTHER LIABLITIES 43,57,362 13,76,688 2,85,22,596

TOTAL OF CURRENT
8,88,93,573 8,68,11,862 11,22,91,494
LIABLITIES (C.L.)

NET WORKING CAPITAL(C.A.-

17,41,05,041 14,85,96,395 1,59,798,334
C.L.)
INDICES 100 85.35 91.78

43
 TABLE VII

CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABLITIES.

YEARS CURRENT CURRENT CURRENT

ASSETS LIABLITIES RATIO

2012-13 26,29,98,614 8,88,93,573 2.96:1

2013-14 23,53,08,257 8,68,11,862 2.71:1

2014-15 27,20,89,828 11,22,91,494 2.42:1

44
 Figure No-VI

INTERPRETATION
 Current ratio in the year 2012-13 was 2.96:1 which was above the
standard of 2:1.
 In the year 2013-14 the current ratio fall to 2.71:1 as compared to the ratio
2.96:1 of year 2012-13. This fall in current ratio was due to decrease in
current assets. The cash balance and trade receivable is found to be
decreased this year in comparison to the previous year. But still the ratio is
above the standard ratio of 2:1.
 In the year 2014-15 the current ratio fall to 2.42:1 as compared to the ratio
of 2.71:1 of year 2013-14. This fall was mainly due to the increase in
current liabilities. The provisions and other liabilities of the firm were
found to be increased this year as compared to last year. But still the ratio
was above the standard ratio of 2:1.

45
REMARK :

This ratio is used to assess the firm’s ability to meet its short term liabilities on
time. An ideal current ratio should be 2:1, which denotes that the current assets of
the business should at least be twice of its current liabilities.

Current ratio of Aditya Constructions is above the standard ratio of 2:1 for the last
three years. Therefore it can be said that the short term financial position of the
company is satisfactory. This company is in a position to pay its current liabilities
in time.

On the other hand the current ratio of the firm is found to be decreasing over the
last three years. So the firm should pay much attention to this.

46
 TABLE VIII

QUICK RATIO or ACID TEST RATIO

QUICK RATIO / ACID TEST RATIO = LIQUID ASSETS / CURRENT

LIABLITIES

LIQUID ASSETS = CURRENT ASSETS – INVENTORY

LIQUID CURRENT QUICK

YEARS
ASSETS LIABLITIES RATIO

2012-13 21,45,59,752 8,88,93,573 2.41:1

2013-14 16,95,42,264 8,68,11,862 1.95:1

2014-15 19,15,42,151 11,22,91,494 1.70:1

Figure No-VII

47
INTERPRETATION
 The quick ratio for the year 2012-13 was 2.41:1. The standard quick ratio
is 1:1. The quick ratio for this year is above the standard level.
 The quick ratio for the year 2013-14 was 1.95:1. This ratio was below the
ratio of 2.41:1 of year 2012-13. This resulted due to decrease in cash
balance and trade receivable. Still the quick ratio is above standard ratio of
1:1.
 The quick ratio for the year 2014-15 was 1.7:1. The ratio was below the
ratio of 1.95:1 of year 2013-14. This fall in ratio was due to increase in
current liabilities. The provisions and other liabilities of the current year
increased as compared to last year. Still the quick ratio is above the
standard ratio.

REMARKS:-

Quick ratio indicates whether the firm is in a position to pay its current liabilities
within a month or immediately. An ideal quick ratio is said to be 1:1. If it is more
it is considered to be better.

Quick ratio of Aditya Constructions is above the standard ratio of 1:1 for the last
three years. Therefore it can be said that the short term financial position of the
company is satisfactory. This company is in a position to pay its current liabilities
instantly.

On the other hand the quick ratio of the firm is found to be decreasing over the
last three years. So the firm should pay much attention to this.

48
 TABLE IX

ABSOLUTE LIQUID RATIO

ABSOLUTE LIQUID RATIO = CASH / CURRENT

LIABLITIES.

ABSOLUTE ABSOLUTE
CURRENT
YEARS LIQUID LIQUID
LIABLITIES
ASSETS RATIO

2012-13 11,46,66,685 8,88,93,573 1.29:1

2013-14 7,01,18,738 8,68,11,862 0.81:1

2014-15 7,06,61,328 11,22,91,494 0.63:1

Figure No-VIII
49
INTERPRETATION
 The absolute liquid ratio for the year 2012-13 was 1.29:1. The standard
absolute liquid ratio is 0.5:1 or 1:2. The absolute liquid ratio for this year
is above the standard level.
 The absolute liquid ratio for the year 2013-14 was 0.81:1. This ratio is
below the ratio of 1.29:1 of year 2012-13. This fall was resulted due to
fall in cash balance. Still the ratio is above the standard ratio.
 The absolute liquid ratio for the year 2014-15 was 0.63:1 which is less
than the ratio 0.81 of year 2013-14. This fall was the result of increase in
provisions under current liablities.

REMARK

Absolute liquid ratio indicates the firm ability to pay off its current liabilities with
its cash and marketable securities. 0.5:1 is considered to the standard absolute
liquid ratio.

Absolute liquid ratio of Aditya Constructions is above the standard ratio of 0.5:1
for last three years. The firm has enough cash to pay off its liablities as per the
ratio of 0.5:1. As per the absolute liquid ratio the firm is in a good position but at
the same time it should pay much attention to the cause that leads to deline in the
ratio over the years.

50
 TABLE X

DEBTOR’S TURNOVER RATIO

DEBTOR’S TURNOVER RATIO = SALES / AVERAGE DEBTOR

AVERAGE DEBTOR = (OPENING DEBTOR + CLOSIND DEBTOR) / 2

DEBTORS CONVERSION DAYS = 365 / DEBTORS TURNOVER RATIO.

YEARS SALES AVERAGE DEBTORS AVERAGE

DEBTORS TURNOVER COLLECTION
RATIO PERIOD
2012-13 34,02,12,17 5,68,76,974 5.98 times 61.04 days
3
2013-14 36,56,28,36 4,47,79,265 8.17 times 44.68 days
5
2014-15 24,07,20,18 3,43,96,850 7 times 52.14 days
9

Figure No-IX

INTERPRETATION
51
  Debtors turnover ratio for the year is 2012-13 was 5.98 times while the
average collection period was 61.04 days.
 In the year 2013-14, debtors turnover ratio and average collection period
stood as 8.17 times and 44.68 days as compared to 5.98 times and 61.04
days of year 2012-13. This resulted due to increase in sales and decrease
in debtors.
 Debtors turnover ratio in the year 2014-15 stood as 7 times in comparison
to 8.17 times of year 2013-14. While average collection period was at
52.14 days. This fall in debtors turnover ratio and average collection
period was mainly due to fall in sales figure.

REMARK

Debtor’s turnover ratio indicates the speed with which the amount is collected
from debtors. Higher the ratio, the better it is, since in indicates that amount from
debtors is being collected more quickly.

52
 TABLE XI

INVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO = COST OF GOODS SOLD /
AVERAGE INVENTORY

COST OF GOODS SOLD = 80% of SALES

AVERAGE INVENTORY = (OPENING INVENTORY + CLOSING

INVENTORY) / 2

INVENTORY CONVERSION DAYS = 365 / INVENTORY TURNOVER

RATIO.

COST OF INVENTORY AVERAGE

AVERAGE
YEAR GOODS TURNOVER AGE OF
INVENTORY
SOLD RATIO INVENTORY

2012-13 2,72,16,9738 4,84,38,862 5.62 times 64.95

2013-14 29,25,02,692 6,58,65,993 4.44 times 82.21

2014-15 19,25,76,151 8,05,47,677 2.39 times 152.72

53
Figure No-X

54
INTERPRETATION
 Inventory turnover ratio for the year is 2012-13 was 5.62 times while the
average age of inventory was 64.95 days.
 In the year 2013-14, inventory turnover ratio and average age of inventory
stood as 4.44 times and 82.21 days as compared to 5.62 times and 64.95
days of year 2012-13. This resulted due to decrease in cost of goods sold
and increase in inventory.
 Inventory turnover ratio in the year 2014-15 stood as 2.39 times in
comparison to 5.62 times of year 2013-14. While average age of inventory
was at 152.72 days in comparison to 82.21 of 2013-14. This fall in
inventory turnover ratio and average age of inventory was mainly due to
fall in cost of goods sold and increase in inventory figure.

REMARKS

Inventory turnover ratio indicates whether stock has been efficiently used or not.
It shows the speed with which the stock is rotated into sales or number of times
the stock is turned into sales during the year.

Inventory turnover ratio of Aditya Constructions is found to be declining over the

period of three years. It indicates that stock does not sale quickly and remains
lying in the go down for a quite long time.

55
 TABLE XII

WORKING CAPITAL TURNOVER RATIO

WORKING CAPITAL TURNOVER RATIO = SALES / NET WORKING

CAPITAL

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT

LIABLITIES.

NET WORKING WORKING CAPITAL

YEAR SALES
CAPITAL TURNOVER RATIO

2012-13 34,02,12,173 17,41,05,041 1.95 times

2013-14 36,56,28,365 14,85,96,395 2.46 times

2014-15 24,07,20,189 15,97,98,334 1.50 times

Figure No-XI
56
INTERPRETATION

 Working capital turnover ratio for the year is 2012-13 was 1.95 times.
 In the year 2013-14, working capital turnover ratio stood as 2.46 times as
compared to 1.95 times of year 2012-13. This resulted due to decrease in
net working capital and increase in sales.
 Working capital turnover ratio in the year 2014-15 stood as 1.5 times in
comparison to 2.46 times of year 2013-14. This fall in working capital
turnover ratio was mainly due to fall in sales.

REMARKS

Working capital turnover ratio indicates how efficiently working capital has been
utilized in making sales. In other words, it shows the number of times working
capital has been rotated in producing sales.

57
 CONCLUSION
Current account is used to assess the company’s ability to meet its short term
Liabilities on time. An ideal current ratio should be 2:1, which denotes that the
current assets of the company should at least be twice of its current liabilities.

Current ratio of Aditya Constructions is above the standard ratio of 2:1 for the last
three years. Therefore it can be said that the short term financial position of the
company is good. This company is in a position to pay its current liability in time.

Quick ratio indicates whether the company is in a position to pay its current
liabilities within a month or immediately. An ideal quick ratio is said to be 1:1.if
it is more it is considered to be better.

Quick ratio of Aditya Constructions is above the standard ratio of 1:1 for the last
three years. Therefore it can be said that the short term financial position of the
company is in a position to pay its current liability instantly.

Absolute liquid ratio indicates the company ability to pay off its current liabilities
with cash and marketable securities. 0.5:1 is considered as the standard absolute
liquid ratio.

Absolute liquid ratio of Aditya Constructions is above the standard ratio of 0.5:1
for last three years. The company has enough cash to pay off its liabilities as per
the ratio 0.5:1. As per the absolute liquid ratio the position of company is good.

Debtor turnover ratio indicates the speed with which the amount is collected from
the debtors. Higher the ratio, better it is, since it indicates that amount frim debtor
is being collected more quickly.

Debtor turnover ratio increased from 5.98 times to 8.17 times due to rise in sales.
In the year 2014-15, fall in sales was the major reason for fall in debtor’s turnover
ratio. Apart from that the firm is managing its debtors well.

58
Inventory turnover ratio indicates weather stock has been fallen efficiently used or
not. It shows the speed with which the stock rotated into sales or number of times
the stock is turned into sales during the year.

Inventory turnover ratio of Aditya Constructions is found to be declining over the

period of three years.

Working capital turnover ratio indicates how efficiently working capital has been
utilized in making sales. In other words, it shows the number of times working
capital has been rotated in producing sales.

With increase in sales in the year 2013-14, working capital turnover ratio also
increased in 2013-14 and with the decrease in sales in 2014-15, working capital
turnover ratio also decrease. It can be said that the working capital turnover ratio
depends largely on sales figure.

To put in a shell, the working capital of Aditya Constructions is found to be

efficient. They are in conformity with the principles of sound financial system.

59
 SUGGESTIONS OR RECOMMENDATIONS

1. Working capital of Aditya Constructions is good position.

2. It should more focus on current assets and current liabilities.

3. It should also focus on absolute liquid ratio for future benefit.

4. It should maintain inventory record properly.

5. The working capital of Aditya Constructions is found to be efficient.

BIBLIOGRAPHY

Company’s financial statement

Aditya Constructions website

www.investopedia.com

60