Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam INTRODUCTION Working capital management is the life blood of any organization. Today, working capital had got vital importance. Most of the business concern has to give special attention on their investment than fixed capital. Working capital management usually involves the administration on current assets namely cash and marketable securities, receivables and inventories and the administration of current liability. The goal of working capital is to manage current asset and current liability in such a way that a satisfactory level of working capital is maintained.

Working capital management is short term financial management which is concerned with decisions relating current assets and current liability. Funds are needed for short term purposes i.e. for the purchase of raw materials, payment of wages and other day to day expenses etc.

For a fast growth and expansion, any firms needs larger amount of working capital. Therefore estimates of working capital on long term basis are also required to determine whether or not adequate working capital will be generated to meet the firms expansion.

United Electricals Industries Ltd is one among the major public sector undertakings in the state. Being a manufacturing concern the company has to invest a substantial amount in working capital and only a nominal amount in fixed assets on the total assets. The working capital of the company mainly shall consist of stock, debtors and cash. This study is mainly focusing on analyzing the management of cash, debtors and stock. Efforts should be made to improve the working capital position and thereby improve the overall performance of the firm

1.1 OBJECTIVES OF THE STUDY 1. To study the liquidity position of the firm. 2. To understand working capital management of United Electricals Industries Ltd. 3. To study the profitability of the firm. 4. To ascertain the adequacy of working capital during the period of evaluation.

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

1.2 SCOPE OF THE STUDY The study aims at assessing the working capital position and liquidity position of the company. Another scope of the study is to understand the working capital management practices with the help of ratios like current ratios, liquidity ratios and also by estimation of working capital.

1.3 RESEARCH METHODOLOGY The type of research used for the study is descriptive research. It includes fact finding enquiries of different kinds. The major purpose of descriptive research is description of the state of affairs as it exits at present. Data collection Data collection is done through secondary data collection. Secondary data Secondary data are those which already had been collected by someone else and which have already been passed through statistical process. The secondary data were collected from 1. 2. 3. 4. 5. company records annual reports journals text books Internet etc.

1.4 DATA ANALYSIS TECHNIQUES The principle technique of analysis used in the project is ratio analysis. For the purpose of financial analysis, the profit and loss account and balance sheet of the company has been analyzed.

1.5 LIMITATIONS y More time is required to have an in-depth study. The time allotted for this work is for a period of 45 days which is insufficient to make an in-depth study.

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam PERIOD OF THE STUDY For the purpose of the study periods of 5 years have been taken. The study is conducted for 5 years from 2004 2005 to 2008- 2009 by using the data collected from the annual reports of the firm

SCHEMA OF THE STUDY  Chapter I Introduction which Includes objectives of the study, methodology, period of the study, scope of the study, limitations and schema of the study.  Chapter II includes information about Company profile.  Chapter III includes Working capital management-theory and concepts.  Chapter IV includes data analysis and interpretations  Chapter V includes findings and suggestions  Chapter VI includes Conclusion

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam INDUSTRY PROFILE Electrical Industry in India came into existence only after the First World War period. The first electrical industry to be set up in India was the Fan Industry in Calcutta in 1921. The manufacture of electrical equipments like transformers, motors, generators and insulators were taken up later. The first Public Sector Electrical Industry to be set up in Kerala was the Metropolitan Engineering Company Ltd. Thiruvananthapurarm in 1945. The starting of United Electrical Industries Ltd. (U.E. I) at Kollam in 1950 closely followed it. In 1960 the management of the United Electrical Industry Ltd; had taken over by the Government of Kerala. At present there are five Public Sector electrical equipment industries in Kerala.

One of the main problems the industrial world faces now is the scarcity of energy. The demand is more and the supply is less. More research is done to find out alternative sources of energy. The researchers are still in the beginning phase. Till some new alternative energy sources is found out, but the dependence will be on the existing sources. Electricity being the important among them plays a major role in almost all the industries. Production of electricity has become more expensive which demands careful utilization and accurate measurement keeping this in mind, analogue measuring instruments have been replaced by electronic ones by suppliers of electricity.

Up to the 1870s electricity had little use beyond the telephone an telegraph. After the invention of the incandescent lamp by Edison in 1879 and the subdivision of lighting circuits for individual control of the lamps, it was no longer practical to measure lamp hours. Then by the introduction of transformer helped to make the present system of AC transmission and distribution possible. there was one obstacle ,no meter to accurately measure and record the usage of electricity. Around this time the first new standard model watt-hour meter was developed by Elihu Thomson and Thomas Duncan which was a commercial success. Although it was designed for the AC circuits, worked equally well with DC circuits at that time. After that meters were made by different manufacturers in different models and versions according to the demand and consistency in designs.

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam With the advances in the electronics in the 1970s the manufacturers started introduction of electronic registers and automatic meter reading devices. By the mid 1980s hybrid meters with electronic registers were mounted. By the early 1990s introduction of electronic parts resulted in the dropping of the induction type models and paved the way to electronic models which become more feasible and popular. Most popular electric meters are: y y y y Electronic Energy Meter Single phase AC Watthour meter Static energy meters Induction Meters

In India some of the leading Meter Manufacturing Companies are y y y y y Bharath Electric Meters,Coimbatore Star Enterprices,Mumbai Syntron Controls, Mumbai Gayathri control and Automation Pvt Ltd,Gujarat New India Trading Corporation,Maharashtra

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam COMPANY PROFILE The united electrical industries ltd, Kollam a public limited company incorporated in the year 1950, is the main factory in India to set up for the manufacture of electricity house service meter. UEI Ltd is located at Pallimukku, about three Km south of Kollam on the wayside of National Highway-47, to Trivandrum, the capital of Kerala state. The company started its manufacturing activities in collaboration with MESSORS ARON METERS LTD, now a subsidiary of M/s Ferranti Ltd, Hollinwood.

The company owes its origin to the far sightedness and vision of Sri K.P.S Nair, the chief Engineer of Travancore-Cochin state and Sri Abraham Pothen an eminent industrialist. Through the company was incorporated in the year 1950, but it could start its production only in 1951.

The company commenced its manufacturing activities with the assembling of single house service KWH Meter with imported components and sub assemblies. In 1956 the company acquired the present premises to set up a full fledged factory with its own machine shop. In the same year the company started the manufacturing of some assemblies of meter. In 1956 the company acquired 5 acres of land at the present premises for the present factory and office. At the starting time the company had a paid up capital of 400 crores jointly held by the state government and KSIDC. The Company remained a proprietorship until 1960. By 1960 the management was taken over by the Kerala Government. In 1962, the company started diversifying in the areas such as manufacturing of motor control gears with the technical assistance of Mysore Electrical Industries and with substantial participation of Kerala Financial Corporation. As a part of diversification the R&D wing of the company designed and developed polyphase energy meters in the 1965.UEI Ltd was the only company to manufacture and market polyphase meters without foreign technical know how. The commercial production of motor control gears was started during 1968 and production of switch gears started in 1974.

Now the products are marketed under the Brand Name UNILEC. In 1970 the company entered into technical collaboration with General Electrical Company of India ,Ltd

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam Calcutta for the Manufacture of oil and air breakers, circuit breakers upto 22KV rating. The production of low tension (L.T) circuit breakers in 1974. Further during 1975 and 1977 the company as a part of diversification program started commercial production of plastic film capacitors in technical collaboration of RUBYCON, Japan. The company further diversified to Manufacture of carbon film resistors 1978 in technical collaboration with SHINE EL JAPAN I association with M/s Akhane Ohm of Japan.

The main factory building covers a floor space on nearly 30000sq.ft with provision for future addition and expansion. In addition a parallel wing of 7500sq.ft. It accommodates the main material stores and fabrication shop.

The Main factory is divided into three basic departments like meter department, starter department and machine shop. The general layout of each department permits free and continuous flow of material with particular stress on material handling. Again each department is subdivided into sections with several built in features and special facilities to make it independent self contained and efficient from the point of view of economy, quality control and high standard of production.

The machine shop comprises of press shop, lathe shop and drilling and tool room consisting of mechanical and hydraulic presses, capsthan lathes, automatic lathes a series of multiple drilling and tapping machines and special purpose machinery like gear Hibbing and coil winding machines. One complete portion is set apart for plating and painting of components. The panting section has provision for mass production both in dipping and spray painting. The plating section is equipped for vat and barrel type plating for nickel, copper, zinc, tin and silver.

R&D wing of the company is vigilant on quality improvement of existing products and to diversify its activities by taking up new items of production. Owing to globalization and economic liberalization policies , the meter industries in India has now become highly competitive. The products which the company stopped its production due to acute competition are 11KV switch gears, IML switch gears, carbon film resistors and magnet

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam of generators. But now in 2008 onwards UEI.Ltd is producing a new product named A-B Switch. The company sells its products under the trade name UNILEC. They also take repairs of meters and starters. The main consumer o UEI Ltd is Kerala State Electricity Board. They meters starters and A-B switches as per receiving orders from KSEB and other Companies. PRODUCT/SERVICE PROFILE PRODUCT PROFILE 'UNILEC' SINGLE PHASE, TWO WIRE WHOLE CURRENT WATT HOUR METER Product Description Type KVI-M magnetic suspension bearing meters are designed and manufactured to satisfy the highest standards of accuracy and reliability of energy measurement in Single Phase AC Circuits. The metering elements are completely enclosed in a dust proof mechanically strong, tamper-proof steel/ Polycarbonate cabinet. Superior quality laminated core and copper wire coils are used as voltage and current elements. Highly polished, hardened stainless steel pin is used as top bearing.

FEATURES It provides the highest standard of accuracy and reliability of energy measurement in single AC Circuits. It designed for tropical climate It fully complies with is 13010 [2002] and its latest amendments Highly polished, hardened stainless steel pin is used as top bearing

SINGLE PHASE & THREE PHASE Product Description Type UEM static meter is designed and manufactured to satisfy the highest standard of accuracy and reliability of energy measurement in single phase and three phase circuits.

Member Sree Narayana Pillai Institute of Management and Technology, Chavara, Kollam

Analysis of Working Capital Management at United Electricals Industries Ltd Kollam It is UV (Ultra Violet) stabilized for out door application. The meter is broadly divided into base, top cover and terminal cover. The meter base consists of two compartment ie. PCB Compartment & Terminal Compartment. In the PCB Compartment brass terminal suitable upto 40 A positioned securely. A synthetic rubber gasket is used between the top cover and the base to ensure protection against moisture and dust. The top cover is transparent to facilitate easy and clean reading of counter and display of other parameters.

FEATURES:

> > > > > > >

Conforms to ISO 779 and CBIP Technical Report No: 88 Flame retardant & high compact strength Polycarbonate enclosure Computerized Calibration One time 'Life - time' calibration, No Trimpots used Meters perform with low power loss Low voltage operation, at 120V AC Safety protection against high voltage AC

OIL IMMERSED AC MOTOR STARTERS Product Description Oil Immersed Star Delta Starter Type NSD These control gears available in the range of 10 H.P. to 200 H.P. Correct sequence device in corporate in the unit ensures proper sequence of operation so that the Starter is first put into the Star position for starting before a quick changeover is possible to the Delta position for running. The contact tips are of electrolytic copper extrusion, silver plated to prevent corrosion and pitting. These are of self aligning type and are easily replaceable. The starter is with a sheet metal case and facilities are provided to fix pedestal type Ammeter.

Oil immersed Auto transformer Starter Type ATS It minimizes the starting currents and attains a higher starting torque. These starters embody an auto-transformer and reduce the current taken by the motor while starting.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam The starter unit is separate from the transformer and this eliminates carbonized oil from the starter entering the auto- transformer oil. These starters are of floor mounting type and facilities are provided for mounting a pedestal type Ammeter.

Oil Immersed Slipring Motor starter Typel & Type They have electrical interlock between the stator and rotor circuits, so that it is not possible to start the motor unless all the rotor resistances are in circuits. The starter is fool-proof as the motor can only be started from the full of position. Rotor resistances are of high grade resistance wires, wound on ceramic tubes. Oil dashpot type relays control the overload, no-volt releases and trip the starter in case of low voltage or power failure. The contacts are of electrolytic copper extrusions of ample size and are silver plated. These are of self aligning type and are replaceable. FEATURES > Overload protection. Oil dashpot time lag type magnetic overload relays

calibrated from full load to double full load which are easily adjustable. > Electrolytic grade copper contacts. The starter is provided with easily replaceable

oil break contacts. > > > Manual tripping is provided by a lever at the side of the starter. Cable arrangement. Provision for cable entry/cable box provided. Starting torque. Rotor resistance suitable for higher starting torque can be

provided for stator rotor starters. > > Spare parts. All spare parts are available from the factory and stockists. Normal operation at 3 starts per hour.

FULLY AUTOMATIC AUTO TRANSFORMER STARTER TYPE FAATS Product Description The salient feature of this starter is its automatic switch over to frill rated voltage. The starting current is minimized to attain higher starting torque with the help of an auto transformer. The panel consists of Thermal Overload Relay, Star Contractor with timer (0-30 sec), a Main Contractor and a Run Contractor. The starting time can be set by the

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam user depending upon the application thermal overload relay is provided for overload protection. FEATURES > > > > > > Fully Automatic change over from Start to Run for pre-set time Under voltage and overload protection Conforming to IS: 13947 part JV/Sec.1 Available in oil cooled and air cooled versions of Auto Transformers Range available from 10 HP to 400 HP Also available in star-delta configuration without Auto Transformer (Type

FANSD) > Micro Processor based motor protection relay available on request.

Air break switches Product Description Air Break Switches are used for to isolate 11KV lines from transformers. FEATURES All Ferrous parts are hot dip galvanized The contact ends are Tin Coated The fixed contact element are made of excruded electrolytic grade copper flat

with flexible ends The leakage current passes to earth and not between terminals of the poll or

between polls The operating mechanism is suitable for normal operation by one man without

undue effort Switch is permitted to pad locking in both open and close position.

KONARAK DOMESTIC WATER METER

Product Description Konark water meters are used to measure the flow of water. Konark water meters are inferential, mul-tijet, dry dial, and magnetic type. Konark water meters are inferential,

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam Multijet, dry dial magnetic type. They have both pointer & cyclometer reading counters and is sealed against tampering

FEATURES The hydrostatically tasted brass body is machined to a very high degree of

accuracy. Both Nuts and Nipples are made in Brass. Internal components are made of high quality, self lubricating, wear resistant and

anticorrosive Engineering plastics. Is specification no. IS: 779 - 1994 Class B (Latest amendment) Equivalent to

international standard ISO- 4064. UNILEC UPS

Product description The Unilec Model is off-line UPS system, providing power for your computer or other electronic devices. When Inputted main voltage ranges beyond 165 to 270V (Brownout) or if there is power failure (Black out). In this condition the Inverter battery comes into action and supplies power through output socket. Changeover time is less than 8ms, so supply to computer remains virtually uninterrupted. FEATURES Safety protection against short circuit, over load, low battery Low voltage operation, at 270 V AC Electronic shutdown with continuous buzzer sound Designed to suit the Indian environmental conditions.

But now production of this product has been stopped due to low demand

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam WORKING CAPITAL MANAGEMENT-THEORY ANDCONCEPTS WORKING CAPITAL-DEFINITION AND CONCEPTS Working capital refers to the difference between currents assets and current liabilities. Working capital classified into fixed and variable part. The minimum level of investment in current assets regularly employed in business is called fixed or permanent working capital and extra working capital needed to support the changing business activity is called variable working capital.

Management of working capital refers to the management of current assets as well as current liabilities. The major trust is of course on the management of current assets. This is understandable because current liabilities arise in the context of current assets.

The importance of working capital management is reflected in the fact that finance mangers spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling the movement of cash, administering accounts receivables and investing short term surplus funds consume great deal of time of financial managers.

Working capital or investment in current assets, however small it is, necessary for the purchase of raw materials ,for meeting the day to day expenditure on wages, rents etc and for maintaining the fixed assets. The fate of large scale investment in fixed capital is often determined by a relatively small amount of current assets. Working capital is like the heart of organization. If it is weak, the business cannot prosper and survive although there is a large investment of fixed assets. Besides the existence of working capital in the organization, it must be adequate as well. Inadequate as well as redundant working capital is dangerous for the health of the organization. Adequacy of working capital is the life blood and controlling nerve of the organization.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam DEFINITION In accounting, "working capital is the difference between the inflow and outflow of funds. It is the excess of current assets over current liabilities and provisions".

In simple words, "working capital refers to that part of the firm's capital which is required for financing short-term or current assets such as cash, marketable securities, debtors and inventories.

Working Capital Concepts There are two general working capital concepts: 1. Net working capital concept 2. Gross working capital concept

1. Net working capital concept Net working capital is the difference between current assets and current liabilities. This concept is useful to groups interested in determining the amount and nature of assets that may be used to pay current liabilities. 2. Gross working capital concept Gross working capital refers to the amount of funds invested in current assets that are employed in the business process. This is a going concern concept.

Classification and sources of working capital Working capital may be classified in the following ways. 1. Permanent or fixed working capital requirements 2. Temporary or variable working capital requirements

1. Permanent or fixed working capital requirements It is the amount of funds required to produce the goods and services necessary to satisfy demand at its lowest point. As part of working capital investment this type of working capital is as permanent investments in fixed assets. This is so because there is always a

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam minimum level of current assets which is continuously required by the enterprise to carry out its day to day business operations and this minimum cannot be expected to reduce at any time. Sources of permanent or fixed working capital requirements a) Shares b) Debentures c) Public deposits d) Loans from financial institutions e) Ploughing back the profits

2. Temporary or variable working capital requirements It changes its form from cash to inventory to receivables and back to cash but it differs in that it is not always gainfully employed. Businesses that are seasonal and cyclical in nature require more temporary working capital that firms that are not so influenced. Therefore, managers should obtain the capital that is temporarily invested in current assets from sources that will allow its return when it is use. Sources of temporary or variable working capital requirements a) Trade creditors b) Depreciation as a source of finance c) Commercial bankers d) Indigenous bankers e) Tax liabilities f) Accounts receivable credit

Objectives of working capital management 1. will 2. To minimize the amount of capital employed in financing the current assets. This also lead to an improvement in return on capital employed. To manage the current assets in such a way that the marginal return on investment

in these assets is not less than the cost of capital acquired to finance them. This will ensure the maximum of the value of the business unit.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam 3. To maintain a proper balance between the amount of current assets and current

liabilities in such a way that a firm is always able to meet its financial obligations whenever due. This will ensure smooth working of the unit without any production held up due to paucity of funds. Thus, the objective sis to ensure the maintenance of satisfactory level of working capital in such a way that it is neither inadequate nor excessive. It should not only be sufficient to cover the current liabilities but should ensure a reasonable margin of safety also.

Importance of working capital Working capita; is the life blood and nerve centre of a business. The main advantages of maintaining adequate amount of working capital are as follows 1. Solvency of the business Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

2. Goodwill Sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. 3. Easy loans A concern having adequate working capital ,high solvency and food credit standing can arrange loans from banks and others on easy and favorable terms. 4. Cash discount Adequate working capital also enables a concern to avail cash discounts on the purchase and hence it reduces cost. 5 Regular supply of raw materials Sufficient working capital ensures regular supply of raw materials and continuous production. 6 Regular payment of salaries, wages and other day-to-day commitments A company which has ample working capital can make regular payment of salaries ,wages and other day-to-day commitments which raises the morale of its employees,

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam increase their effciency,reduces wastages and costs and enhance production and profits. 7. Exploitation of favorable market conditions Only concerns with adequate working capital can exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower

and by holding its inventories for higher prices 8. Ability to face crisis Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods generally there is much pressure on working capital. 9. Quick and regular return on investments Sufficiency of working capital enables a concern to pay quick and regular dividend to investors as there may not be much pressure to plough back profits. 10 High morale Adequacy of working capital created an environment of security, confidence and high morale and creates overall efficiency in a business.

DETERMINANTS OF WORKING CAPITAL There are a number of factors to determine the working capital requirement of firm.The major factors influencing the working capital requirement of a firm are discussed below: 1. Nature and size of the business: The working capital needs of a firm are basically influenced by the nature of its business. Trading and financial firms generally have a low investment in fixed aasets, but require large investment in working capital. In the case of public utilities, they have a limited need of working capital and have to invest abundantly in fixed assets. Their working capital requirements are nominal because they have only cash sales and they supply services and not products. Thus the amount of funds tied up with debtors or stocks is either nil or very small. The working capital need of the manufacturing concerns fall between the two extreme requirements of trading firms and public utilities. The size of

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam the business also has an important impact on the working capital needs. Size may be measured in terms of the scale of operations.

2. Production policy: In certain industries the demand is subject to wide fluctuations due to seasonal variations. In such case the requirements of working capital depends upon the production policy.

3. Length of manufacturing process/production cycle: In manufacturing business the requirement of working capital increases in direct proportion to the length of manufacturing process. Longer the process period of manufacture, larger is the amount of working capital required.

4. Seasonal variations: In certain industries raw material is not available throughout the year. They have to buy raw materials in bulk during the season to ensure uninterrupted flow and process them during the entire year. Thus a large amount is blocked in the form of material inventories during such season which give rise to more working capital requirement.

5. Working capital cycle or operating cycle: In manufacturing concern the working capital cycle starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. This cycle involves purchase of raw materials and stores ,its conversion into finished goods through work in progress with progressive investment of labour and service cost, conversion of finished stock into sales, debtors and receivables and ultimately realisation of cash and this cycle continues again from cash to purchase of raw materials and so on. The speed with which the working capital completes one cycle determines the requirements of working capital. Longer the period of cycle, larger is the requirement of working capital.

6. Rate of stock turnover:

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam There is a high degree of inverse co relationship between the quantum of working capital and the speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low stock turnover.

7. Business cycle: Business cycle refers to alternate expansion and contraction in general business activity. In a period of boom ie when the business is prosperous, there is a need for larger amount of working capital due to the increase in sales, rise in prices, expansion of business etc.One the times of depression, the business contracts, sales declines, difficulties are faced in collection from debtors and firms may have a large amount of working capital lying idle.

8. Credit policy: The credit policy of a concern in its dealings with debtors and creditors influence considerably the requirement of working capital.

9. Earning capacity and dividend policy: A firm that maintains a steady high rate of cash dividend irrespective of its generation of projects needs more working capital than the firm that retains larger part of its projects and does not pay so high rate of cash dividend. Thus the dividend policy of a concern also influences the requirement of its working capital.

10. Other factors: Certain other factors such as operating efficiency, management ability, price level changes, irregularities of supply, import policy, asset structure, importance of labour, banking facilities etc also influence the requirements of working capital.

DANGERS OF INADEQUATE WORKING CAPITAL

1.

The company will not be able to buy it requirements in bulk and cannot avail of

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam discounts. 2. 3. 4. The firm cannot pay its short term liabilities in time. The rate of return on investments also falls with shortage of working capital. It becomes impossible to utilize efficiently the fixed assets due to non availability

of liquid funds. 5. Difficult for the firm to exploit favorable market conditions.

RATIO ANALYSIS Ratio simply means highlighting in arithmetical terms the relationship between figures drawn from various financial statements. Ratio analysis is the most commonly used technique which practically deals with cash and every aspects of the working capital analysis. The ratios can facilitate comparison, interpretation of each and every aspects of the working capital analysis. Ratio analysis is a yard-stick which measures the relationship between two variables. Ratio analysis is the most important method of financial analysis. Theses are widely used as they are simple to understand and easy to calculate. The ratios can be expressed in quotient, percentage and rates.

CLASSIFICATION OF RATIOS Ratios can be broadly classified in to the following ways:L.Statement wise classification: This classification is based on the statements from which items are taken.

a) Balance sheet ratios: These ratios deal with relationship between two items or group of items which are both in the Balance sheet. Eg: - Current ratio, acid test ratio, debtequity ratio etc.

b) Income statement ratios: These ratios focus on the relationship between two items or group of items, all of which are drawn from revenue statement. These ratios are also known as operating ratios. Eg; - Gross profit ratio, net profit ratio, stock turnover ratio

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam c) Combined ratios: These ratios depict the relationship between two items, one of lien is drawn from the Balance sheet and the other from the revenue statement Eg: Debtors turnover ratio, asset turnover ratio, return on capital employed etc.

2. Classification according to the nature:

This type of classification includes the following types of accounting ratios,

a) Liquidity ratios: These ratios indicate the capacity of the business unit to meet its short-term obligation out of its short-term assets. Eg: Current ratio, acid test ratio, etc.

b) Leverage ratios: These ratios are also called efficiency ratios. These ratios measure the owner's stake in the business as well as that of outsiders. The long term solvency of the business can be examined by using leverage ratios.Eg: Debt-equity ratio, proprietory ratio etc. (c) Profitability ratio: The profitability of the business concern can be measured by the profitability ratios. These ratios highlight the end result of business activities by which alone the overall efficiency of the business unit can be judged.

(d). Activity ratios: These ratios evaluate the total use of the business concern along with the use of components of total assets. These ratios are intended to measure the asset management. The efficiency with which the assets are used would be reflected in the speed and rapidly with which the assets are converted in to sale. The greater the rate of turnover indicates the efficiency in the management of assets. Eg: stock turnover ratio, fixed assets turn over ratio etc.

3. Classification according to importance:

It is evident that ratios are more important than others. According to this classification the ratios can be classified into:

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

a) Primary ratios: As success of any business undertaking is measured by the quantum of profit earned by it, the ratio which relates the profit to capital employed is termed as primary ratios. Eg: return on capital employed, operating profit ratio etc.

b) Secondary ratios: This classification is effected to facilitate inter firm comparison and to focus on some factors responsible for the success of unit. When such factors are isolated by means of ratio, they are called secondary ratios. Statement wise classification of ratio is a traditional form while functional classification is more useful and purposive.

DATA ANALYSIS In this project for analysis ratios are used. The Ratios used are: Current Ratio Quick Ratio Cash velocity ratio Cash reservoir ratio Fixed asset turn over ratio Current asset turn over ratio Total asset turn over ratio Working capital turn over ratio Debtors turn over ratio Inventory turn over ratio

DATA ANALYSIS CURRENT RATIO Current ratio shows the short term solvency .In other wards the availability of current assets

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam to meet current liabilities. In a business concern a sound ratio of 2:1. It is considered as an ideal one Current ratio= Current Assets Current Liabilities DISTRIBUTION OF CURRENT ASSETS AND CURRENT LIABILITIES

Year

Current assets

Current liabilities

Current ratio

2004-2005

67909570.22

31918267.05

2.13

2005-2006

51435492.21

42600894.20

1.21

2006-2007

227831675.87

169723853.4

1.34

2007-2008

261522808

172587506

1.51

2008-2009

314649777

206510895

1.52

Table No: 3.01 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF CURRENT ASSETS AND CURRENT LIABILITIES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

CURRENT RATIO
2.5 2 RATIO 1.5 1 0.5 0 20042005 20052006 20062007 YEAR 20072008 20082009

Figure No: 3.01 SIGNIFICANCE The current ratio 2:1 is considered to be satisfactory. Here the current ratio of the company is 2.13, 1.21, 1.34, 1.51, and 1.52 respectively for the last 5 years . In the first year ratio is above 2:1 that means company has a sound liquidity position for meeting its oblgation but the next four years ratio is declaining that indicates not so good for meeting its obligations.

QUICK RATIO Quick ratio is the ratio of quick assets to current liabilities. It is also known as acid test ratio or liquidity ratio. This ratio shows availability of Quick/Liquid assets to discharge current assets.

Quick ratio=

Quick Assets Current Liabilities

DISTRIBUTION OF QUICK ASSETS AND CURRENT LIABILITIES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Quick assets

Current liabilities

Quick ratio

2004-2005

64634352.22

31708567.05

2.03

2005-2006

36130496.21

42600894.20

0.85

2006-2007

223752240.9

165103728.39

1.35

2007-2008

223200662

170561086.38

1.31

2008-2009

263060126

20389473900

0.01

Table No: 3.02 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF QUICK ASSETS AND CURRENT LIABILITIES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Quick ratio
2.5 2 Ratio 1.5 1 0.5 0 20042005 20052006 20062007 Year 20072008 20082009

Figure No: 3.02

SIGNIFICANCE A quick ratio of 1:1 is considered as a standard ratio. Here the quick ratio of the company is2.03, 0.85, 1.35, 1.31, 0.01 respectively for the last 5 years. in this case the quick ratio shows that the position of the company is good except in 2 years i.e. 20052006 and2008-2009

CASH VELOCITY RATIO Cash velocity ratio shows how the cash realized from the sales is effectively utilized in the business. A high velocity indicate ineffective utilization of cash that means cash is held as cash itself without effectively employed in working capital. A low velocity shows that cash s effectively utilized.

Cash velocity ratio=

Net Sales Cash

DISTRIBUTION OF NET SALES AND CASH

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Net sales

Cash

Cash velocity ratio

2004-2005

71163808.83

25334619.78

2.80

2005-2006

49724331.69

524312.5

94.84

2006-2007

357974396.69

38014979.14

9.41

2007-2008

388412099

12736420

30.49

2008-2009

429407301 Table No: 3.03

31558528

13.60

Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF NET SALES AND CASH

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

CASH VELOCTY RATIO

100 80 Ratio 60 40 20 0 20042005 20052006 20062007 Year 20072008 20082009

Figure No 3.03 SIGNIFICANCE In the years 2004-2005, 2006-2007, 2007-2008, 2008-2009 this ratio shows a better position except in the year 2005-2009. In 2005-2006 this ratio is 94.84 that means a high velocity indicates ineffective utilization of cash i.e. cash is held as cash itself without effectively employed in working capital.

CASH RESERVOIR RATIO Cash reservoir ratio shows availability of available cash reservoir to meet the current liabilities. If the ratio is more than one, it reveals a better position and if the ratio is less than one, it shows a reverse position. Cash Reservoir Ratio= Cash Reservoir Current Liabilities

DISTRIBUTION OF CASH RESERVOIR AND CURRENT LIABILITIES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Cash reservoir

Current liabilities

Cash reservoir ratio

2004-2005

25334619.78

31918267.05

0.79

2005-2006

524312.5

42600894.20

0.20

2006-2007

38014979.14

169723853.4

0.22

2007-2008

12736420

172587506

0.07

2008-2009

31558528

206510895

0.15

Table No: 3.04 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF CASH RESERVOIR AND CURRENT LIABILITIES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

CASH RESERVOIR RATIO

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 20042005 20052006 20062007 Year 20072008 20082009

Ratio

Figure No 04 SIGNIFICANCE If the ratio is more than one, reveals a position. Here the ratios are 0.79, 0.20, 0.22, 0.07, and 0.15 which means that, the ratio shows an unsatisfactory position.

FIXED ASSET TURN OVER RATIO Fixed asset turn over ratio shows how is fixed asset effectively utilized for generating sales. Fixed asset turn over ratio = Sales Fixed assets

DISTRIBUTION OF SALES AND FIXED ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Sales

Fixed Assets

Fixed asset turn over ratio

2004-2005

71163808.83

5750792.90

12.37

2005-2006

49724331.69

5351686.78

9.29

2006-2007

357974396.69

7366622.32

48.59

2007-2008

388412099

8623351

45.04

2008-2009

429407301

12901344

33.28

Table No: 3.05 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF SALES AND FIXED ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

FIXED ASSET TURN OVER RATIO

60 50 Ratio 40 30 20 10 0 20042005 20052006 20062007 Year 20072008 20082009

Figure No 3.05 SIGNIFICANCE Fixed asset turn over ratio a favorable sign in the company. Here the ratios are 12.37, 9.29, 48.59, 45.04, and 33.28 for the consecutive 5 years respectively. In all the years fixed asset turn over ratios shows a better position

CURRENT ASSET TURN OVER RATIO Current asset turn over ratio shows investment in current assets in relation to turnover. In other wards employment of current assets to generate sales turnover. Efficiency of utilizing current asset to create sales can be analyzed with the help of this ratio. If current asset is effectively utilized, this ratio shows a better position. If the ratio is below the acceptable level, it depicts the fact that current asset is not effectively utilized for creating sales. Current asset turn over ratio= Net sales Current assets

DISTRIBUTION OF NET SALES AND CURRENT ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Sales

Current Assets

Current asset turn over ratio

2004-2005

71163808.83

67909570.22

1.04

2005-2006

49724331.69

51435492.21

0.96

2006-2007

357974396.69

227831675.87

1.57

2007-2008

388412099

261522808

1.48

2008-2009

429407301

314649777

1.36

Table No: 3.06 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF NET SALES AND CURRENT ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

CURRENT ASSET TURNOVER RATIO

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 20042005 20052006 20062007 Year 20072008 20082009

Ratio

Figure No 3.06

SIGNIFICANCE In the years 2004-2005, 2006-2007, 2007-2008, 2008-2009 current asset turn over shows a better position except in the year 2005-2006. In 2005-2006 this ratio is 0.97 that means one rupee of current asset is employed to generate 0.97 rupee sales. Hence current asset is not effectively utilized.

TOTAL ASSETS TURN OVER RATIO This ratio shows that the firms ability in generating sales from all financial resources committed to total assets. Total asset turn over ratio = sales Total assets

DISTRIBUTION OF SALES AND TOTAL ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Sales

Total Assets

Total asset over ratio

turn

2004-2005

71163808.83

73660363.12

0.97

2005-2006

49724331.69

56787178.99

0.87

2006-2007

357974396.69

235198298.2

1.52

2007-2008

388412099

270146159

1.44

2008-2009

429407301

327551121

1.31

Table No: 3.06 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF SALES AND TOTAL ASSETS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

TOTAL ASSETS TURN OVER RATIO

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 20042005 20052006 20062007 Year 20072008 20082009

Ratio

Figure No 3.07

SIGNIFICANCE In the year 2005-2006 the ratio is 0.87 and in the next year the ratio is increased to 1.52, then it is decreased to 1.44. the ratio of the company shows an unfavorable sign in the fist 2 years and in the next 3 years shows a favorable sign. The assets of the company are not effectively utilized by the management initially. But later it is utilized effectively.

WORKING CAPITAL TURN OVER RATIO This ratio shows how working capital is effectively utilized for generating sales. Working capital turn over ratio = sales Net working capital

DISTRIBUTION OF SALES AND NET WORKING CAPITAL

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam Net Year Sales Working capital Working capital

turn over ratio

2004-2005

71163808.83

35991303.17

1.98

2005-2006

49724331.69

8834598.01

5.62

2006-2007

357974396.69

58107822.47

6.16

2007-2008

388412099

88935302

4.37

2008-2009

429407301

108138882

3.97

Table No: 3.08 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF SALES AND NET WORKING CAPITAL

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

WORKING CAPITAL TURN OVER RATIO

7 6 5 Ratio 4 3 2 1 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Year

Figure No 3.08

SIGNIFICANCE Working capital turn over ratio shows a favorable sign in the company. Here the working capitals turn over ratio are1.98, 5.63, 6.16, 4.37, and 3.97 for the consecutive 5 years respectively. In all the years, working capital turn over ratio shows a better position.

DEBTORS TURN OVER RATIO This ratio shows the credit collection power and policy of the firm. Debtors turn over ratio = Sales Debtors

DISTRIBUTION OF SALES AND DEBTORS

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Sales

Debtors

Debtors turn over ratio

2004-2005

71163808.83

20820293.49

3.41

2005-2006

49724331.69

32173766.98

1.54

2006-2007

357974396.69

146534994.90

2.44

2007-2008

388412099

199910795

1.94

2008-2009

429407301

231255816

1.85

Table No: 3.09 Source: Annual report of United Electricals Industries limited Debtors holding period= 365

Debtors turn over ratio

DISTRIBUTION OF DEBTORS TURN OVER RATIO AND PERIOD

COLLECTION

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Sales

Debtors

Debtors turn over ratio

Debtors collection period

2004-2005

71163808.83

20820293.49

3.41

107.03

2005-2006

49724331.69

32173766.98

1.54

237.01

2006-2007

357974396.69

146534994.90

2.44

149.59

2007-2008

388412099

199910795

1.94

188.14

2008-2009

429407301

231255816

1.85

197.29

Table No: 3.10 Source: Annual report of United Electricals Industries limited

PICTORIAL REPRESENTATION OF DEBTORS TURN OVER RATIO AND DEBTORS COLLECTION PERIOD

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

DEBTORS TURNOVER RATIO

250 200 150 Ratio 100 50 0 2004- 2005- 2006- 2007- 20082005 2006 2007 2008 2009 Year
Debtors turn over ratio Debtors collection period

Figure No 3.09

SIGNIFICANCE Debtors turn over ratio can be analyzed that collection period is longer for almost all the years. A larger collection period indicates inefficiency in credit collection performance. But in 2004-2005 the collection period is shorter. A shorter collection period implies prompt payment by debtors. It reduces the change of debtors.

INVENTORY TURN OVER RATIO Inventory turn over ratio indicates the number of times inventory stock is replaced during the year. A slow rate would signify that inventory does not sell fast and stays on in the ware house for long time. A high ratio is good from the point of view of liquidity. Inventory turnover ratio = Cost of goods sold Average stock

DISTRIBUTION OF COST OF GOODS SOLD AND AVERAGE STOCK

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Cost of goods sold

Average stock

Inventory turn over ratio

2004-2005

68770000

67155719.84

1.02

2005-2006

52559864.75

7652498

6.86

2006-2007

322025890.56

19469362

16.54

2007-2008

358130170

30250424

11.83

2008-2009

376469605

31872957.5

11.81

Table No: 3.11 Source: Annual report of United Electricals Industries limited Inventory holding period Inventory holding period shows how many times inventory is held in stock for production. A low holding period shows low production and unnecessary blocking of working capital into inventory. Inventory holding period= 365 Inventory turn over ratio

DISTRIBUTION OF INVENTORY AND SALES

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Year

Cost of goods Average stock sold

Inventory turn Inventory over ratio holding period

2004-2005

68770000

67155719.84

1.02

357.84

2005-2006

52559864.75

7652498

6.86

53.20

2006-2007

322025890.56

19469362

16.54

22.06

2007-2008

358130170

30250424

11.83

30.85

2008-2009

376469605

31872957.5

11.81

30.90

Table No: 3.12 Source: Annual report of United Electricals Industries limited.

PICTORIAL REPRESENTATION OF INVENTORY TURN OVER RATIO AND INVENTORY HOLDING PERIOD

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

INVENTORY TURN OVER RATIO

400 350 300 250 Ratio 200 150 100 50 0 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Year

Figure No 3.10

SIGNIFICANCE In 2005-2006 inventory is held for 53 days so the position of 2005-2006 is unsatisfactory in relation to remaining years.

SCHEDULE OF CHANGES IN WORKING CAPITAL Schedule of changes in working capital in 2004-2005

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Particulars

2004

2005

Increase

Decrease

Current assets

Inventories

26438043.63

16712087.82

9725955.81

Sundry debtors

51746994.91

20820293.49

30926701.42

Cash and bank balances Loans and advances Total current assets Current liabilities

16736253.28

25334619.78

8598366.5

12301487.91

5042569.13

725891.78

107222779.7

67909570.22

Current liabilities & provision Total current liability

49793299.22

31918267.05

17875032.17

49793299.22

31918267.05

17875032.17

Working capital

57429480.51

35991303.17

26473398.67

47911576.01

Net working capital(decrease)

21438177.34

21438177.34

The decrease in working capital during the period 2004-2005 was due to the decrease in inventory, sundry debtor and loans and advances. Schedule of changes in working capital in 2005-2006

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Particulars

2005

2006

Increase

Decrease

Current assets

Inventories

16712087.82

13530336

3181751.82

Sundry debtors

20820293.49

32173766.98

11353473.49

Cash and bank balances Loans and advances Total current assets Current liabilities

25334619.78

524312.5

24810307.28

5042569.13

5207076.73

164507.6

67909570.22

51435492.21

11517981.09

27992059.1

Current liabilities & provision Total current liability

31918267.05

42600894.20

10682627.15

31918267.05

42600894.20

10682627.15

Working capital

35991303.17

8834598.01

11517981.09

38674686.25

Net working capital(decrease)

27156705.16

27156705.16

The increase in working capital during the period 2005-2006 was due to the increase in sundry debtor and loans and advances.

Schedule of changes in working capital in 2006-2007

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Particulars

2006

2007

Increase

Decrease

Current assets

Inventories

13530336

34859289

21328953

Sundry debtors

32173766.98

146534994.90

114361227.9

Cash and bank balances Loans and advances Total current assets Current liabilities

524312.5

38014979.64

37490667.14

5207076.73

8176630.53

2969553.8

51435492.21

227585894.1

176150401.8

Current liabilities & provision Total current liability

42600894.20

162581045.9

119980151.7

42600894.20

162581045.9

119980151.7

Working capital

8834598.01

65004848.2

176150401.8

119980151.7

Net working capital(increase)

56170250.19

56170250.19

The increase in working capital during the period 2006-2007 was due to the increase in inventory, sundry debtor, cash and bank balances and loans and advances. Schedule of changes in working capital in 2007-2008

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

Particulars

2007

2008

Increase

Decrease

Current assets

Inventories

34859289

46090126

11230837

Sundry debtors

146534994.90

199910795.40

53375800.5

25278559.33

Cash and bank balances Loans and advances Total current assets Current liabilities Current liabilities & provision Total current liability

38014979.64

12736420.31

5636945.53

8176630.53

2539685

64606637.5

30915504.86

227585894.1

162581045.9 165322638.2

2741592.3

162581045.9

165322638.2

2741592.3

Working capital

65004848.2

95954388.5

64606637.5

33657097.16

Net working capital(increase)

30949540.3

30949540.3

The increase in working capital during the period 2007-2008 was due to the increase in inventory, and sundry debtor.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam Schedule of changes in working capital in 2008-2009

Particulars Current assets Inventories Sundry debtors Cash and bank balances Loans and advances Total current assets Current liabilities Current liabilities & provision Total current liability Working capital Net increase in working capital

2008

2009

Increase

Decrease

46090126 199910795.40 12736420.31

47165380 231255816 31558528

1075254 31345021 18822108

2539685

4424271

1884586

261277026

314403995

53126969

165322638.2

200246662

34924023.8

165322638.2 95954388.5 18202945.2

200246662 114157333 -

34924023.8 53126969 34624023.8 18202945.2

114157333

114157333

53126969

53126969

The increase in working capital during the period 2006-2007 was due to the increase in inventory, sundry debtor, cash and bank balances and loans and advances

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

FINDINGS y The solvency position of the company is increasing due to increase in current ratio. y . The debtors turn over ratio shows fluctuating trend. This shows the strength of credit management capacity of the company. y y Fixed asset turn over ratio of the company is increased in the last years. The total assets turn over ratio shows that the assets of the firm are not effectively utilized by the management initially. But later it is utilized effectively. y Current assets turn over ratio shows that current assets are effectively utilized in the company except in the year 2005-2006. y Cash velocity ratio shows decreasing tend which means an effective utilization of cash except in the year 2005-2006. y Working capital turn over ratio shows an increasing trend, which means working capital is effectively utilized in the company. y Cash reservoir ratio shows a downward trend. It means that the unavailability of available cash reservoir to meet the current liabilities. y Quick ratio of the company shows a better position. From this it is analyzed that the liquidity position of the firm is satisfactory. y y Inventory turn over ratio shows a better position except in the year 2005-2006 Debtors collection period shows an increasing trend .it affects the speed of working capital cycle and effective re-investment of working capital and ultimately affects internal rate return of the company. y Inventory holding period shows a constant trend. It saves the company from the risk of waste due to obsolence, waste due to changes in technology and trend,

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam inventory carrying and holding cost and finally unnecessary blocking of working capital into inventory.

SUGGESTIONS

y y

It should be taken into account to keep the current ratio at 2:1 Since the company has an efficient production line they should have to utilize the maximum capacity and should avoid unnecessary costs.

Company can reduce the cost of producing by reducing cost, wastage etc. company should purchase the raw materials from any source where they are getting cheaper rate.

The company should increase the efficiency of production and delivery of goods. It helps the company to acquire new business and charge premium prices for newly introduces products.

Measures may be taken to reduce liabilities there by current ratio can be improved.

The old debts of the company must be collected as quickly as possible. Appointment of factors (brokers) may be considered for collection of debtors outstanding for a period exceeding 3 years.

Care should be given in the area of working capital management and capital structure. Efforts may be taken to provide an adequate amount of working capital in line with companys optimum production capacity achievement.

Utilization of working capital is not proper n the unit. There fore it is advisable for the management to consider the working capital policy,inorder to ensure the proper utilization of working capital.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam y Investment in fixed assets should be effectively utilized there by fixed asset turn over ratio can be decreased. y It is suggested to hold sufficient amount of liquid cash so as to meet unforeseen contingencies and absolute quick liabilities.

CONCLUSION The investment in current assets should be optimum for any firm for smooth, uninterrupted production and sales. So in the management of current liabilities .Both these provide adequate working capital position to the firm. In shaping the working capital of a firm, it should kept in mind the relative asset liquidity and relative financial liquidity of the working capital management. The consideration of working capital management and financing miens are thus crucial to the working capital management, which is further supported by a good inventory management, optimum credit policy and fine cash management.

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

BIBLIOGRAPHY

Bhalla V.K,Working Capital Management Text and Cases Anmol Publications Pvt Ltd , New Delhi (2003)

Pandey I.M- " Financial Managemnt,Vikas Publishing House Pvt Ltd, New Delhi(2002)

Prasanna Chandra, Financial Management Theory and Practices

Reports Annual report of United Electricals Industries Ltd

Website www.unilecindia.com

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam

DEBTORS TURNOVER RATIO.

DTO is calculated by dividing the net credit sales by average debtors outstanding during the year. It measures the liquidity of a firm's debts. Net credit sales are the gross credit sales minus returns, if any, from customers. Average debtors are the average of debtors at the beginning and at the end of the year. This ratio shows how rapidly debts are collected. The higher the DTO, the better it is for the organization.
Net Credit Sales Debtors turnover ratio =

--------------------------Average Debtors

Higher the ratio is better the position of the firm in collecting the overdue means the effectiveness of the collection department and vice versa.

INVENTORY TURNOVER RATIO

The ratio expresses the speed of converting the stock into sales. In other words, how fast the stock is being converted into sales in a year. The greater the ratio of conversion leads to lesser the number of days /weeks /months required to convert the stock into sales.

Cost of Goods Sold Inventory turnover ratio

-------------------------------Average Stock

Higher the ratio is better the firm in converting the stock into sales and vice versa

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam ITR reflects the efficiency of inventory management. The higher the ratio, the more efficient is the management of inventories, and vice versa. However, a high inventory turnover may also result from a low level of inventory, which may lead to frequent stock outs and loss of sales and customer goodwill. For calculating ITR, the average of inventories at the beginning and the end of the year is taken. In general, averages may be used when a flow figure (in this case, cost of goods sold) is related to a stock figure (inventories).

TREND ANALYSIS Time or trend analysis of ratio indicates the direction of change. This kind of analysis is particularly applicable to the items in profit and loss account. The trend of sales and net income may be studied as a rate of fixed expansion trend in the growth of the business and general price level. In order to attain a true trend of growth, the sales figure is adjusted by suitable index of general price.

WORKING CAPITAL TURNOVER RATIO

This is also known as working capital leverage ratio. This ratio indicates whether or not working capital has been effectively utilized in marketing sales. This ratio

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Analysis of Working Capital Management at United Electricals Industries Ltd Kollam indicates the number of times the working capital is turned over in the course of a year. Sales Working Capital Turnover Ratio = ----------------------------Net Working Capital

A higher ratio indicates efficient utilization of working capital and a low ratio indicate otherwise. But a very high working capital turnover ratio is not a good situation for any firm and hence care must be taken while interpreting the ratio.

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