WORKING CAPITAL

MANAGEMENT ANALYSIS
OF TITAN COMPANY LTD.

Submitted By,
Farhan Abdul Shaheed
Batch C
Reg No. 37120055
Submitted to,
Dr. Santhosh Kumar S
Professor
SMS, CUSAT
 Introduction
The working capital management is more important in the present situation than even the
management of profit. The finance manager must be very careful and vigilant as the
treatment of various components of working capital such as: cash, inventory, receivables. The
working capital management today plays an important role in the management of business.
The success or failure of a business also depends upon the way in which current assets and
current liabilities are managed. Therefore, a study has been undertaken to examine the
working capital management of TITAN Company Limited. The need of the study is to
determine the working capital requirements and analysis the financial performance of the
Titan company Limited. Working capital is required for raw material procurement. The
operational efficiency of a business mainly depends on the management of working capital. It
not managed properly; working capital can cause seriously trouble in business. This involves
a need for working capital analysis. The study covers an basic analysis of the working capital
management of the firm for the period of 3 years that is 2018-19 to 2020-21. The ratio
analysis has been done to know the liquidity and efficiency of the firm and trend is analyses
for forecasting the future trend of the firm. This study is purely based on Secondary data viz
company’s financial statement. Past records and data have been used in the project.
Secondary data were collected from annual reports, financial statements records of the
company. Tools used for the purpose of the study are ratio analysis, and analysis of
Comparative financial statements.
 Titan Company

Titan is today one of the country’s most admired and respected companies. With a
corporate lineage tracing back to the Tata Group and Tamil Nadu Industrial
Development Corporation (TIDCO), Titan has transformed itself from being one of
the world’s largest integrated watch manufacturers with an enviable distribution a
footprint, to a premier lifestyle Company with a presence in the jewellery, watches,
fragrances, eyewear and Indian dress wear segments.
Driven by the relentless pursuit of excellence and credo of customer-centric
innovation, Titan products today touch the daily lives of millions of consumers. The
Company’s quality and design proposition and personalised service orientation has
been a key differentiator enabling it to build a deep customer connect. The Company
continues to invest in the latest technology for facilitating seamless and immersive
shopping experiences.
Titan’s growth is led by its dedicated and talented people. Underpinned by its
unwavering commitment to crafting a sustainable and environment-friendly world and
building long-term mutually beneficial relationships with all its partners and
stakeholders, while always staying rooted to the Tata ethos and values, the Company
remains focussed on creating long-term value
Financial Capital of Titan
The Company aims to create value for all its stakeholders by managing the financial capital in
a commercially astute and diligent manner thereby harnessing opportunities for longterm
sustainable economic growth. While the provision of high quality and affordable products
and services directly benefits the Company’s consumers, a focus on building a profitable and
sustainable business model generates economic value for varied stakeholder groups. The
Company’s effective management of cash flows by use of advanced technologies, well-
defined processes, competent people and resource management enables in sustaining and
growing its businesses and thereby deliver a significant positive contribution to the financial
capital.
The Company’s investment decision is always evaluated against targeted return on capital,
which has to be higher than the cost of capital. Apart from creating value through its
business activities, the resulting financial capital is also reinvested in each of the other
capitals in a carefully balanced and calibrated manner to further achieve financial goals and
objectives. Funding mechanism such as equity, short term debt and operating cash are the
main sources of the Company’s financial capital.
Working Capital Analysis

Working capital is the money a business would have leftover if it were to pay all of its current
liabilities with its current assets. Current liabilities are debts that are due within one year or
one operating cycle. Current assets are assets that a company plans to use over the same
period. Examples of current liabilities are accounts payable, short-term loans, payroll taxes
payable, and income taxes payable. Any account that is payable within a year or operating
cycle is a current liability.

Some examples of current assets are cash, accounts receivable, investments that can be
liquidated, and inventory.

Efficient working capital management helps maintain smooth operations and can also help
to improve the company's earnings and profitability. Management of working capital
includes inventory management and management of accounts receivables and accounts
payables. The main objectives of working capital management include maintaining the
working capital operating cycle and ensuring its ordered operation, minimizing the cost of
capital spent on the working capital, and maximizing the return on current asset
investments.  

Working capital is a prevalent metric for the efficiency, liquidity and overall health of a
company. It is a reflection of the results of various company activities, including revenue
collection, debt management, inventory management and payments to suppliers. This is
because it includes inventory, accounts payable and receivable, cash, portions of debt due
within the period of a year and other short-term accounts. Hence it is important to assess the
working capital positions and how it changes for a company to ensure smooth operations
without liquidity crunch or crisis.
 1) COMPUTATION OF ABSOLUTE WORKING CAPITAL

Net working capital is the aggregate amount of all current assets and current liabilities. It
is used to measure the short-term liquidity of a business, and can also be used to obtain a
general impression of the ability of company management to utilize assets in an efficient
manner.

The net working capital figure is more informative when tracked on a trend line, since
this may show a gradual improvement or decline in the net amount of working capital
over an extended period.

Net working capital can also be used to estimate the ability of a company to grow
quickly. If it has substantial cash reserves, it may have enough cash to rapidly scale up
the business. Conversely, a tight working capital situation makes it quite unlikely that a
business has the financial means to accelerate its rate of growth.

(NET WORKING CAPITAL (WC)= TOTAL CURRENT ASSETS – TOTAL CURRENT LIABILITIES)

YEAR TOTAL CURRENT TOTAL CURRENT NET WORKING

ASSETS (Cr.) LIABILITIES CAPITAL
2021 12,501.00 7,193.00 5,308.00
2020 9,534.83 5,243.88 4,290.95
2019 9,085.26 5,169.25 3, 916.01

(All values in Cr.)

 CA,CL & WORKING CAPITAL
14,000.00

12,000.00

10,000.00

8,000.00

6,000.00

4,000.00

2,000.00

0.00
2021 2020 2019

CA CL NET WC

Absolute net working capital of Titan Company Ltd. for the financial year 2019, 2020 and
2021 are 3916.01, 4290.95 & 5308.00 respectively. The value of net working capital
increased from 2019 to 2020, as well as 2020 to 2021. The higher value of net working
capital shows that the company is functioning more efficiently than previous years and it has
the financial resources to meet all of its short-term financial obligations. The big increase in
2021 was due to a very high investment of 2679 Cr. on Current Investments which helps the
liquidity position of the company.
 2) PROPORTION OF CURRENT ASSETS & FIXED
ASSETS

YEAR TOTAL TOTAL FIXED TOTAL FIXED

CURRENT ASSETS ASSETS CURRENT ASSETS%
ASSETS ASSETS%

2021 12,501.00 15,860.00 1,984.00 78.8% 15.8%

2020 9,534.83 13,187.95 2,067.25 72.2% 21.6%
2019 9,085.26 11,469.82 1,094.98 79.2% 12%

PROPORTION OF CURRENT ASSETS

90.00%
78.80% 79.20%
80.00%
72.20%
70.00%
60.00%
50.00%
40.00%
30.00%
21.60%
20.00% 15.80%
12.00%
10.00%
0.00%
2021 2020 2019

TOTAL CURRENT ASSETS% FIXED ASSETS%

Proportion of current asset to total asset indicates the extent of total funds invested for the
purpose of working capital and throws light on the importance of current assets of a firm. It
observes the portion of total assets occupied by the current assets.

The proportion of current assets to total asset for the financial years 2019, 2020 and 2021 are
79.2%, 72.2% and 78.8% respectively which shows that almost 80% of total assets are used
as current assets.
Proportion to fixed asset is a financial analysis technique that shows in percentage terms the
portion of the company's total assets are tied up with fixed assets. It represents the portion of
total assets that cannot be used as working capital.

The proportion to fixed asset for the company for the financial year 2019, 2020 and 2021 are
12%, 21.6% and 15.8% respectively. There is a decrease in the value of proportion of fixed
asset to total asset from 2020 to 2021 by 5.8% showing increase in working capital usage
than previous year.

3) LIQUIDITY ANALYSIS

Liquidity ratios are an important class of financial metrics used to determine a

debtor's ability to pay off current debt obligations without raising external capital.
Liquidity ratios measure a company's ability to pay debt obligations and its margin of
safety through the calculation of metrics including the current ratio, quick ratio, and
absolute liquid ratio.

3.1) Current ratio

The current ratio measures a company's ability to pay off its current liabilities
(payable within one year) with its total current assets such as cash, accounts
receivable, and inventories. The higher the ratio, the better the company's liquidity
position.

(CURRENT RATIO=CURRENT ASSETS/CURRENT LIABILITIES)

YEAR CURRENT CURRENT CURRENT
ASSETS LIABILTIES RATIO
2021 12,501.00 7,193.00 1.7:1
2020 9,534.83 5,243.88 1.8:1
2019 9,085.26 5,169.25 1.7:1
 CURRENT RATIO
1.82
1.8
1.8

1.78

1.76

1.74

1.72
1.7 1.7
1.7

1.68

1.66

1.64
2021 2020 2019

CURRENT RATIO

The current ratio of the company for the year 2019, 2020 and 2021 are 1.7, 1.8 and 1.7
respectively showing that the company have a stable liquidity in for the previous 3 years. a
The current ratio greater than 1.00 indicates the company has the financial resources to
remain solvent in the short term. However, because the current ratio at any one time is just a
snapshot, it is usually not a complete representation of a company’s short-term liquidity or
longer-term solvency.

3.2) Liquid Ratio

The liquid or quick ratio measures a company's ability to meet its short-term obligations with
its most liquid assets and therefore excludes inventories from its current assets. Due to the
prohibition of inventory from the formula, this ratio is a better sign than the current ratio of
the ability of a company to pay its instant obligations. It is also known as the Acid test ratio.

(LIQUID RATIO or QUICK RATIO=LIQUID ASSETS OR QUICK ASSETS/CURRENT

LIABILIBIES)
Quick ratio= (C+MS+AR) / CL)

C=cash & cash equivalents

MS=marketable securities

AR=accounts receivable

CL=current liabilities

YEAR QUICK CURRENT QUICK

ASSETS LIABILITIES RATIO
2021 4414.00 7193.00 0.61:1
2020 1739.86 5243.88 0.33:1
2019 2122.04 5169.25 0.41:1

LIQUID RATIO/QUICK RATIO

0.7

0.61
0.6

0.5

0.41
0.4
0.33
0.3

0.2

0.1

0
2021 2020 2019

LIQUID RATIO

The quick ratios for Titan Company Ltd. from 2019 to 2021 are 0.41, 0.33 and 0.61
respectively. The higher ratio in 2021 indicates the slightly better liquidity and financial
health of company than the previous years.
However, the low ratio of 0.61:1 must mean that most of the current assets are locked up in
stocks over a period of time. The ideal standard quick ratio is 1: 1. It means that the company
is not in a position to meet its immediate current liabilities; it may lead to technical solvency.
Hence, steps should be taken to reduce the investment in the inventory and see that the ratio
is above level 1: 1.

3.3) Absolute Liquid Ratio

Absolute Liquid Ratio is a type of liquidity ratio that is calculated to analyse the short-term
solvency or financial position of the firm. It is calculated to exclude the receivables from the
current and liquid assets and to know about the absolute liquid assets which includes cash in
hand, cash at bank and marketable securities.

(ABSOLUTE LIQUID RATIO=ABSOLUTE ASSETS/CURRENT LIABILITIES)

YEAR ABSOLUTE CURRENT ABSOLUTE

ASSETS LIABILITIES RATIO
2021 512.00 7193.00 0.071:1
2020 356.00 5243.88 0.067:1
2019 1001.00 5169.25 0.193:1

ABSOLUTE RATIO
0.25

0.2 0.19

0.15

0.1
0.07 0.07

0.05

0
2021 2020 2019

ABSOULUTE RATIOS
Absolute Liquid Assets take into account cash in hand, cash at bank, and marketable
securities or temporary investments. The most favourable and optimum value for this ratio
should be 1: 2 i.e 0.5 It would indicate the adequacy of the 50% worth absolute liquid assets
to pay the 100% worth current liabilities in time.

The absolute liquid ratios for the year 2019, 2020 and 2021 are 0.193, 0.67 and 0.071
respectively. An absolute liquid ratio of more than 1 is considered ideal for most of the
companies and it represents enough funds in the form of cash in order to meet its short-term
obligations in time.

As the ratio is relatively lower than one, it represents the company’s day-to-day cash
management in a poor light.

Conclusion

The liquidity analysis shows that there might be  insufficient cash on hand exists to pay off
short-term debt. But This is very bad news as the company has conditions that skew
its balance sheets, such as lengthier-than-normal credit terms with its suppliers, efficiently-
managed inventory, and very little credit extended to its customers. However, the sharp
increase in short-term borrowings from 2133.17 Cr. in 2020 to 4094 Cr. is a cause of
concern and the company could struggle to pay it back within the short period owing to low
liquidity in the form of cash. The Covid 19 pandemic has also lowered the liquidity position
due to lesser sales and longer operating cycles. However, the economy is on a recovery path
and the position is getting better with time for Titan Company Ltd.