You are on page 1of 30

Capital required for a business can be classified under two main categories via, 1) 2


Fixed Capital Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments in these assets represent that part of firm’s capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day – to- day expenses etc. These funds are known as working capital. 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 & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. CONCEPT OF WORKING CAPITAL There are two concepts of working capital: 1. 2.

Gross working capital Net working capital

The gross working capital is the capital invested in the total current assets of the enterprises current assets are those Assets which can convert in to cash within a short period normally one accounting year. CONSTITUENTS OF CURRENT ASSETS

1) 2) 3) 4) 5)

Cash in hand and cash at bank Bills receivables Sundry debtors Short term loans and advances. Inventories of stock as:
a. b. c. d.

Raw material Work in process Stores and spares Finished goods

6. Temporary investment of surplus funds. 7. Prepaid expenses 8. Accrued incomes. 9. Marketable securities.

In a narrow sense, the term working capital refers to the net working. Net working capital is the excess of current assets over current liability, or, say: NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES. Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary

course of business within a short period of normally one accounting year out of the current assts or the income business. CONSTITUENTS OF CURRENT LIABILITIES 1. 2. 3. 4. 5. 6. 7.

Accrued or outstanding expenses. Short term loans, advances and deposits. Dividends payable. Bank overdraft. Provision for taxation , if it does not amt. to app. Of profit. Bills payable. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits. The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1.

It enables the enterprise to provide correct amount of working capital at correct time.


Every management is more interested in total current assets with which it has to operate then the source from where it is made available.


It take into consideration of the fact every increase in the funds of the enterprise would increase its working capital.

It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.4. .   It is an indicator of the financial soundness of enterprises. is also important for following reasons:  It is qualitative concept. which indicates the firm’s ability to meet to its operating expenses and short-term liabilities. This concept is also useful in determining the rate of return on investments in working capital. however.  IT indicates the margin of protection available to the short term creditors. The net working capital concept.

etc.CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in to ways: o o On the basis of concept. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research. On the basis of time. . working capital may be classified as:   Permanent or fixed working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working TEMPORARY OR VARIABLE WORKING CAPITAL Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. As the business grow the requirements of working capital also increases due to increase in current assets. Temporary or variable working capital PERMANENT OR FIXED WORKING CAPITAL Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time. finished goods and cash balance. Every firm has to maintain a minimum level of raw material. work. Variable working capital can further be classified as seasonal working capital and special working capital. This minimum level of current assts is called permanent or fixed working capital as this part of working is permanently blocked in current assets.

increases their efficiency.  Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill.Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.  Regular Payment Of Salaries.  Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production. Wages And Other Day TO Day Commitments: It leads to the satisfaction of the employees and raises the morale of its employees.  Easy loans: Adequate working capital leads to high solvency and credit standing can arrange loans from banks and other on easy and favorable terms. reduces wastage and costs and enhances production and profits. IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL  SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production.  Exploitation Of Favorable Market Conditions: If a firm is having adequate working capital then it can exploit the favorable market conditions such as purchasing its requirements in bulk when the prices are lower and holdings its inventories for higher prices. .  Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence reduces cost.  Ability To Face Crises: A concern can face the situation during the depression.

DISADVANTAGES WORKING CAPITAL 1. it is the inadequate working capital which is more dangerous from the point of view of the firm. confidence. high morale which results in overall efficiency in a business. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. 4. It may reduce the overall efficiency of the business. Redundant working capital leads to unnecessary purchasing and accumulation of inventories. It should have neither redundant or excess working capital nor inadequate nor shortages of working capital.  High Morale: Adequate working capital brings an environment of securities. Quick And Regular Return On Investments: Sufficient working capital enables a concern to pay quick and regular of dividends to its investors and gains confidence of the investors and can raise more funds in future. . 3. OF REDUNDANT OR EXCESSIVE Excessive working capital means ideal funds which earn no profit for the firm and business cannot earn the required rate of return on its investments. Both excess as well as short working capital positions are bad for any business. However. EXCESS OR INADEQUATE WORKING CAPITAL Every business concern should have adequate amount of working capital to run its business operations. 2.

etc. one has to study the business under varying circumstances such as a new concern requires a lot of funds to meet its initial requirements such as promotion and formation etc. Due to lower rate of return n investments. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained. To maintain the inventories of the raw material. work-in-progress. components and spares. advertising.5. The amount needed . production and sales. The need for working capital arises due to the time gap between production and realization of cash from sales. These expenses are called preliminary expenses and are capitalized. stores and spares and finished stock. To provide credit facilities to the customer. The redundant working capital gives rise to speculative transactions DISADVANTAGES OF INADEQUATE WORKING CAPITAL Every business needs some amounts of working capital. For studying the need of working capital in a business. To meet the selling costs as packing. There are time gaps in purchase of raw material and production. and realization of cash. There is an operating cycle involved in sales and realization of cash. To pay wages and salaries To incur day-to-day expenses and overload costs such as office expenses. Thus working capital is needed for the following purposes:       For the purpose of raw material. 7. 6. the values of shares may also fall.

PRODUCTION POLICY: working capital. NATURE OF BUSINESS: The requirements of working is very limited in public utility undertakings such as electricity. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS 1. SIZE OF THE BUSINESS: Greater the size of the business. greater is the requirement of working capital.for working capital depends upon the size of the company and ambitions of its promoters. There are others factors also influence the need of working capital in a business. and no funds are tied up in inventories and receivables. The requirement of the working capital goes on increasing with the growth and expensing of the business till it gains maturity. water supply and railways because they offer cash sale only and supply services not products. generally larger will be the requirements of the working capital. . of working capital along with fixed investments. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. 2. At maturity the amount of working capital required is called normal working capital. 3. Greater the size of the business unit. So working capital is directly proportional to the length of the manufacturing process. If the policy is to keep production steady by accumulating inventories it will require higher 4.

8. sales decline. of working capital due to rise in sales. 9. RATE OF STOCK TURNOVER: There is an inverse corelationship between the question of working capital and the velocity or speed with which the sales are affected. difficulties are . WORKING CAPITAL CYCLE: The speed with which the working cycle completes one cycle determines the requirements of working capital. the business contracts. SEASONALS VARIATIONS: Generally. rise in prices. 6. A firm having a high rate of stock turnover wuill needs lower amt. BUSINESS CYCLE: In period of boom. of working capital as compared to a firm having a low rate of turnover. Longer the cycle larger is the requirement of working capital. during the busy season. On the contrary in time of depression. there is need for larger amt.5. a firm requires larger working capital than in slack season. optimistic expansion of business. etc. of working capital and vice-versa. DEBTORS CASH FINISHED GOODS RAW MATERIAL WORK IN PROGRESS 7. when the business is prosperous. CREDIT POLICY: A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt.

of working capital. 12. Management ability. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend. etc. Such firms may generate cash profits from operations and contribute to their working capital. Importance of labor. RATE OF GROWTH OF BUSINESS: In faster growing concern. Irregularities of supply. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more earning capacity than other due to quality of their products. Banking facilities. . of working capital. etc. 11. monopoly conditions. we shall require large amt. The dividend policy also affects the requirement of working capital. PRICE LEVEL CHANGES: Changes in the price level also affect the working capital requirements. Others FACTORS: These are:        Operating efficiency. Generally rise in prices leads to increase in working capital. 10. Import policy. Asset structure.faced in collection from debtor and the firm may have a large amt.

i.MANAGEMENT OF WORKING CAPITAL Management of working capital is concerned with the problem that arises in attempting to manage the current assets. liquidity and structural health of the organization. WORKING CAPITAL ANALYSIS As we know working capital is the life blood and the centre of a business. So working capital management is three dimensional in nature as 1. a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. It is concerned with the decision about the composition and level of current assets. The liquidity position of the firm is totally effected by the management of working capital. It is concerned with the decision about the composition and level of current liabilities. This involves the need of working capital analysis.e. And the most important part is the efficient management of working capital in right time. current liabilities. There should be no shortage of funds and also no working capital should be ideal. Adequate amount of working capital is very much essential for the smooth running of the business. . liquidity and risk. It concerned with the formulation of policies with regard to profitability. it is neither adequate nor excessive as both the situations are bad for any firm. So. 2. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained. 3. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability.

Inventory turnover. 8. Fund flow analysis. Payable turnover ratio. Budgeting. Absolute liquid ratio 4.The analysis of working capital can be conducted through a number of devices. such as: 1. Current ratio. RATIO ANALYSIS A ratio is a simple arithmetical expression one number to another. 5. 3. 2. 7. Working capital turnover ratio. 6. 2. Working capital leverage 9. Quick ratio 3. 1. Ratio of current liabilities to tangible net worth. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios can be calculated for these purposes: 1. Ratio analysis. . Receivables turnover.

3. so that corrective actions may be taken in future. inventories and receivables etc. FUND FLOW ANALYSIS Fund flow analysis is a technical device designated to the study the source from which additional funds were derived and the use to which these sources were put. WORKING CAPITAL BUDGET A budget is a financial and / or quantitative expression of business plans and polices to be pursued in the future period time. Preparing schedule of changes of working capital Statement of sources and application of funds. b. The successful implementation of working capital budget involves the preparing of separate budget for each element of working capital. . cash. if any. and to ensure effective utilization of these resources. and then comparing the budgeted figures with actual performance for calculating the variances. He objective working capital budget is to ensure availability of funds as and needed. such as. The fund flow analysis consists of: a. It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates.2. Working capital budget as a part of the total budge ting process of a business is prepared estimating future long term and short term working capital needs and sources to finance them.

1.ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY The short –term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time. floating or circulating assts. CURRENT RATIO . Two types of ratios can be calculated for measuring short-term financial position or short-term solvency position of the firm. The current assets should either be liquid or near about liquidity. the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. These should be convertible in cash for paying obligations of short-term nature. if the current liabilities cannot be met out of the current assets then the liquidity position is bad. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. Current assets movements ‘ratios. So to with the confidence of investors. But a very high degree of liquidity of the firm being tied – up in current assets. 2. creditors. Therefore. On the other hand. it is important proper balance in regard to the liquidity of the firm. the following ratios can be calculated: 1. A) LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. Liquidity ratios. If current assets can pay off the current liabilities then the liquidity position is satisfactory. The short-term obligations are met by realizing amounts from current. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets. To measure the liquidity of a firm.

bill receivables. sundry debtors. A ratio equal or near to the rule of thumb of 2:1 i. dividend payable etc. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. current assets double the current liabilities is considered to be satisfactory. It is defined as the relation between current assets and current liabilities. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. Thus. QUICK RATIO ABSOLUTE LIQUID RATIO 1. bill payable.e. also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm.2. CURRENT RATIO Current Ratio. inventories and work-in-progresses. 3. CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITES The two components of this ratio are: 1) 2) CURRENT ASSETS CURRENT LIABILITES Current assets include cash. Current liabilities include outstanding expenses. marketable securities. CALCULATION OF CURRENT RATIO .

6.48 4. . An asset is said to be liquid if it can be converted into cash with a short period without loss of value. Its current assets are more than its current liabilities. Year Current Assets Current Liabilities Current Ratio 2006 81. Debtors.29 27.12 20. QUICK RATIO = QUICK ASSETS CURRENT LIABILITES Where Quick Assets are: 1) 2) 3) 2007 83. This depicts that company’s liquidity position is sound. QUICK RATIO Quick ratio is a more rigorous test of liquidity than current ratio.(Rupees in crore) e.g. 2.58 4.42 2.08:1 Marketable Securities Cash in hand and Cash at bank. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. It measures the firms’ capacity to pay off current obligations immediately.96:1 Interpretation:As we know that ideal current ratio for any firm is 2:1. The current ratio of company is more than the ideal ratio. If we see the current ratio of the company for last three years it has increased from 2006 to 2008.03:1 2008 13.57 33.

3 : 1 2008 61.g.43 20. However. This shows company has no liquidity problem.48 1.A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms’ liquidity position is not good. a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors.14 27. Company’s quick ratio is more than ideal ratio.58 2. yet there may be doubts regarding their realization into cash immediately or in time. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. CALCULATION OF QUICK RATIO e. (Rupees in Crore) Year Quick Assets Current Liabilities Quick Ratio Interpretation : 2006 44. On the other hand. 3. Absolute Liquid Assets includes : . debtors and bills receivable are generally more liquid than inventories. The ideal quick ratio is 1:1. a firm having a low liquidity position if it has fast moving inventories. As a rule of thumb ratio of 1:1 is considered satisfactory.42 1.55 33. ABSOLUTE LIQUID RATIO Although receivables.6 : 1 2007 47.8 : 1 A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short-term obligations.

large is the amount of sales and profits.42 . The efficiency with which assets are managed directly affects the volume of sales. These are : 1.69 27.17 : 1 2007 1.15 : 1 These ratio shows that company carries a small amount of cash.79 20. (Rupees in Crore) Year Absolute Liquid Assets Current Liabilities Absolute Liquid Ratio Interpretation : 2006 4.09 : 1 2008 5. Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio . B) CURRENT ASSETS MOVEMENT RATIOS Funds are invested in various assets in business to make sales and earn profits. 3.06 33. Current assets movement ratios measure the efficiency with which a firm manages its resources. In India. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. firms have credit limits sanctioned from banks and can easily draw cash.g.58 . e.48 . 2. a number of turnover ratios can be calculated. The better the management of assets.ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS CURRENT LIABILITES ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES. borrowing power & long term investment. Depending upon the purpose. But there is nothing to be worried about the lack of cash because company has reserve.

As both the ratios ignore the movement of current assets. Working Capital Turnover Ratio The current ratio and quick ratio give misleading results if current assets include high amount of debtors due to slow credit collections and moreover if the assets include high amount of slow moving inventories. 1. poor quality of goods. But the level of inventory should neither be too high nor too low. the lesser amount of money is required to finance the inventory. A low inventory turnover implies over investment in inventories. dull business. AVERAGE STOCK = OPENING STOCK + CLOSING STOCK 2 . Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it. INVENTORY TURNOVER RATIO : TURNOVER OR STOCK Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. INVENTORY TURNOVER RATIO = COST OF GOOD SOLD AVERAGE INVENTORY Inventory turnover ratio measures the speed with which the stock is converted into sales. it is important to calculate the turnover ratio. stock accumulations and slow moving goods and low profits as compared to total investment. Usually a high inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold . Where as low inventory turnover ratio indicates the inefficient management of inventory. It will therefore be advisable to dispose the inventory as soon as possible.4.

(Rupees in Crore) Year Cost of Goods sold Average Stock Inventory Turnover Ratio Interpretation : 2006 110. In the company inventory conversion period is decreasing. This shows the efficiency of management to convert the inventory into cash.5 times 2007 103.59 1.5 243 days 2007 365 2.75 times.2 36. Year Days Inventory Turnover Ratio Inventory Conversion Period Interpretation : Inventory conversion period shows that how many days inventories takes to convert from raw material to finished goods. INVENTORY CONVERSION PERIOD: INVENTORY CONVERSION PERIOD = 365 (net working days) INVENTORY TURNOVER RATIO e.8 130 days 2008 365 1.8 55.6 73. 3.75 times These ratio shows how rapidly the inventory is turning into receivable through sales.42 2. This shows that the company’s inventory management technique is less efficient as compare to last year. 2006 365 1.g.8 202 days DEBTORS TURNOVER RATIO : . In 2007 the company has high inventory turnover ratio but in 2008 it has reduced to 1.8 times 2008 96.35 1. 2.

5 22.5 times .3 times 2008 169. Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors.50 7.g. Generally higher the value of debtor’s turnover ratio the more efficient is the management of debtors/sales or more liquid are the debtors.A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. Year Sales Average Debtors Debtor Turnover Ratio 2006 166.19 8. a) b) Debtors Turnover Ratio Average Collection Period DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT) AVERAGE DEBTORS Debtor’s velocity indicates the number of times the debtors are turned over during a year.0 17. This ratio should be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio. So liquidity position of a concern also depends upon the quality of trade debtors.5 18. Two types of ratio can be calculated to evaluate the quality of debtors. AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR 2 e.6 times 2007 151.33 9.

AVERAGE COLLECTION PERIOD : Average Collection Period = No. the more efficient is the management of credit. Now their credit policy become liberal as compare to previous year. The higher the values of debtors turnover.6 38 days 2007 365 8. Generally.5 49 days .3 44 days 2008 365 7. It also helps to analysis the credit policy adopted by company. But in the company the debtor turnover ratio is decreasing year to year. Average Collection Period = 365 (Net Working Days) Debtors Turnover Ratio Year Days Debtor Turnover Ratio Average Collection Period Interpretation : The average collection period measures the quality of debtors and it helps in analyzing the efficiency of collection efforts. It measures the quality of debtors. This shows that company is not utilizing its debtors efficiency.Interpretation : This ratio indicates the speed with which debtors are being converted or turnover into sales. 4. The higher the values or turnover into sales. In the firm average 2006 365 9. shorter the average collection period the better is the quality of debtors as a short collection period implies quick payment by debtors and vice-versa. of Working Days Debtors Turnover Ratio The average collection period ratio represents the average number of days for which a firm has to wait before its receivables are converted into cash.

64 = .08 2007 151.09 1.0 53. This ratio indicates the number of times the working capital is turned over in the course of the year.87 3. This ratio measures the efficiency with which the working capital is used by the firm. Year Sales Networking Capital Working Capital Turnover Interpretation : This ratio indicates low much net working capital requires for sales.collection period increasing year to year. WORKING CAPITAL TURNOVER RATIO : Working capital turnover ratio indicates the velocity of utilization of net working capital. the reciprocal of this ratio (1/1.609) shows that for sales 2006 166.64 .g. It shows that the firm has Liberal Credit policy. 5. In 2008. Working Capital Turnover Ratio = Cost of Sales Net Working Capital Working Capital Turnover = Sales Networking Capital e. But a very high working capital turnover is not a good situation for any firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.4 2008 169.5 62. These changes in policy are due to competitor’s credit policy.5 103.52 2.

69 crores but in 2007 it has decrease to 1. The above graph is indicate that in 2006 the cash is 4. The company should try to reduce the inventory upto 10% or 20% of current assets. INVENTORIES (Rs. it has to manage its inventories efficiently. The graph shows that inventory in 2005-2006 is 45%. Cash is needed to keep the business running on a continuous basis.of Rs.79 2007-2008 5. So the organization should have sufficient cash to meet various requirements. DEBTORS : 2005-2006 4.05 2005-2006 37. In 2008. in Crores) Year Inventories Interpretation : Inventories is a major part of current assets.01 .15 2006-2007 35. So in 2008. it is increased upto approx. 5. the company has no problem for meeting its requirement as compare to 2007. CASH BNAK BALANCE : (Rs.69 2007-2008 75. 1 the company requires 60 paisa as working capital. in Crores) Year Cash Bank Balance Interpretation : Cash is basic input or component of working capital.79. in 20062007 is 43% and in 2007-2008 is 54% of their current assets. If any company wants to manage its working capital efficiency. The result of that it disturb the firms manufacturing operations.1% cash balance. Thus this ratio is helpful to forecast the working capital requirement on the basis of sale.69 2006-2007 1.

2005-2006 81.33 2006-2007 19. The reason for increasing credit is competition and company liberal credit policy. in Crores) Year Debtors Interpretation : Debtors constitute a substantial portion of total current assets.29 2006-2007 83. The above graph is depict that there is increase in debtors. in Crores) Year Current Assets Interpretation : This graph shows that there is 64% increase in current assets in 2008. Increase in current assets shows the liquidity soundness of company. This increase is arise because there is approx.42 2006-2007 20.58 2007-2008 33.15 2007-2008 136. In India it constitute one third of current assets. in Crores) Year Current Liability Interpretation : 2005-2006 27.48 .(Rs.05 2007-2008 25. 2005-2006 17.94 CURRENT ASSETS : (Rs. It represents an extension of credit to customers. 50% increase in inventories.57 CURRENT LIABILITY : (Rs.

Current liabilities shows company short term debts pay to outsiders.87 2006-2007 62.53 2007-2008 103. But still increase in current assets are more than its current liabilities. COMMON-SIZE P/L A/C COMMON-SIZE BALANCE SHEET COMPARTIVE P/L A/C COMPARTIVE BALANCE SHEET TREND ANALYSIS RATIO ANALYSIS . I have adopted for my study is the various tools. III. V. NET WOKRING CAPITAL : (Rs. There should be an optimum level of working capital. The increase in working capital arises because the company has expanded its business. In 2008 the current liabilities of the company increased. which basically analyze critically financial position of to the organization: I. 2005-2006 53. II. In the company there is increase in working capital. VI. IV.09 RESEARCH METHODOLOGY The methodology. in Crores) Year Net Working Capital Interpretation : Working capital is required to finance day to day operations of a firm. It should not be too less or not too excess.

To provide reliable financial information about economic resources and obligation of a business firm. the financial position from different angles is tried to be presented in well and systematic manner. 3.The above parameters are used for critical analysis of financial position. To provide reliable information about change in net resources (recourses less obligations) missing out of business activities. OBJECTIVES OF FINANCIAL STATEMENTS: According to accounting Principal Board of America (APB) states The following objectives of financial statements: 1. To provide other needed information about charges in such economic resources and obligation. as in the case of an income statement. 4. I sincerely hope. the recommendation are made which would suggest the organization in formulation of a healthy and strong position financially with proper management system. ratios and comparative analysis. ANALYSIS OF FINANCIAL STATEMENTS FINANCIAL STATEMENTS: Financial statement is a collection of data organized according to logical and consistent accounting procedure to convey an under-standing of some financial aspects of a business firm. as in the case of balance sheet or may reveal a series of activities over a given period of time. (2) The income statement or the profit and loss Account. Thus. With the evaluation of each component. By critical analysis with the help of different tools. the organization would be able to conquer its in efficiencies and makes the desired changes. 2. it becomes clear how the financial manager handles the finance matters in profitable manner in the critical challenging atmosphere. the term ‘financial statements’ generally refers to the two statements (1) The position statement or Balance sheet. To provide financial information that assets in estimating the learning potential of the business. LIMITATIONS OF FINANCIAL STATEMENTS: . through the evaluation of various percentage. It may show position at a moment in time.

Financial statements suffer from the following limitations: 1. 3. and the profit & loss A/c shows the result of operation during a certain period in terms revenue obtained and cost incurred during the year. profit & loss A/c is that they do not give all the information regarding the financial operation of the firm. The financial statements are prepared on the basis of historical costs Or original costs. The actual value can only be determined when the business is sold or liquidated. so they appear to give final and accurate position. Financial statements have been prepared for different accounting periods. The costs and incomes are apportioned to different periods with a view to determine profits etc. Nevertheless. 2. generally one year. The allocation of expenses and income depends upon the personal judgment of the accountant. FINANCIAL STATEMENT ANALYSIS It is the process of identifying the financial strength and weakness of a firm from the available accounting data and financial statements. the profitability shown by the income statements may be represent the earning capacity of the concern. Financial statements do not given a final picture of the concern. The utility of these statements is dependent upon a number of factors. The statement are not prepared with the keeping in view the economic conditions. the balance sheet loses the significance of being an index of current economics realities. There are certain factors which have a bearing on the financial position and operating result of the business but they do not become a part of these statements because they cannot be measured in monetary terms. So fixed assets are shown at cost less accumulated deprecation. The analysis and interpretation of these statements must be done carefully otherwise misleading conclusion may be drawn.Though financial statements are relevant and useful for a concern. The value of fixed assets in the balance sheet neither represent the value for which fixed assets can be sold nor the amount which will be required to replace these assets. during the life of a concern. they provide some extremely useful information to the extent the balance sheet mirrors the financial position on a particular data in lines of the structure of assets. liabilities etc. The existence of contingent assets and liabilities also make the statements imprecise. 5. The data given in these statements is only approximate. The financial statements are expressed in monetary value. So financial statement are at the most interim reports rather than the final picture of the firm. Similarly. The basic limitation of the traditional financial statements comprising the balance sheet. The value of assets decreases with the passage of time current price changes are not taken into account. 4. The analysis is done . Thus. The concern is expected to continue in future. there are certain assets in the balance sheet which will realize nothing at the time of liquidation but they are shown in the balance sheets. the financial position and operation of the firm. still they do not present a final picture a final picture of a concern. The balance sheet is prepared on the presumption of a going concern. Moreover.

CLASSIFICATION OF RATIOS Ratios can be classified in to different categories depending upon the basis of classification The traditional classification has been on the basis of the financial statement to which the determination of ratios belongs.only with synopsis. etc. 2999/. which are connected with each other in some manner. 2499/. If you need this project. its cost is Rs.CALCULATIONS OF RATIOS Ratios are relationship expressed in mathematical terms between We will send you a hardcopy with hard binding and a softcopy in CD from . mail us at this id : bkm@allprojectreports. Dabur India Ltd. These are:   Profit & Loss account ratios Balance Sheet ratios Composite ratios Project Description : Title : Working Capital Management of ____________ Pages : 73 Category : Project Report for MBA We made this project of various companies like Reliance Industries. Grasim Industries.only without Synopsis and Rs.

425.8094    %0 708:9 41 9.59.:77039..0 7.88300/0/94 00590-:830887:33343.03947:594 47 41..5574    .9:73 4507.3.-4.70.7094   % #$                                     .425.0 98 473 .425.0  $4 3    90 .0  '% #$ #8 374708  0.3 .3.3706:708 5.3/3   841907.0394708 8 ..5 848 9..8 8   .834574-021472009398706:702039.706:7020394390-.88098  1 .8. .4393:4:8-.943 .9 3.3.3:1.8473.8990473.3.3.425.88098  $ #8 374708  0.... 011..59.9 3   90 .88-.7 .3 .909.0903.4254303941473.8 94 2.47 5.8 /0.5 8 3/..0 39075709.94384:/ ..0 98 3.3.0394708 011.03947 3     8   3    8.74:8 706:7020398  %0 .8..948 051:941470.80/ :594 .9 9 /89:7- 90 1728 2.039 .8 94 2009 . %:8987.3..0394708 39075709.74708 -:9 3   9 .7 3. 2.03.  9 .88418.039  %0 7..:77039.3 84:/979470/:.8 -.943  3.59.0 8:11.59.9438  3    9 8 3.79 41 .70.35:947.:77039 .41#8 90.425.88 $49047..398 94 2..8..8.88098 %0.

70.70.8431473.70/954.8:-89.39.70/98.88098 33/.3   &##%% #8 374708  0.780 -0.58/05.:77039.7 0-9478 39075709.3/.80 8.9 .990708 3.:77039.88098 %0.88098 3    %8 3.425.943 0-9478.5574    3.7 :7703988098 39075709.70.88098848906:/984:3/308841.425.99.:8090708.07.   &##%$$%$ #8 374708  0.:77039 ...70.9 9070 8  3.3-07.-4.#8 374708  0..:77039.70.43899:90.80 3 3.943 %8 7.803.3 0903843 41 .70.:8942078  %0 70.43899:9043097/41.83.-9 39075709.943                                                       .7 :77039.80 3 /0-9478  9 7057080398 .5 848 9.42509943.0394708  3.70/9 94 .54794341949.80 3 .

425....172  %070 84:/ -0 ..70.70.3. 39075709.-.390708 3.3.74:89448 .425.3...:77039.:77039.943 473 .  9 84:/ 349 -0 944 08847 349944 0.70.:77039.384799072/0-985.-908848.8.088 390..398.7024709..79.425.7 09473..80/  :9 89 3.0 /.943841.-908 41 90 .3/0/98 -:83088   #$#%    %0 2094/44 .59..59..3 4592:2 0.94 /.0 .:77039 .803473.944:98/078 3   90 .0.943      $!.7808-0.59.88098.13..59.80 3 473 . 8706:70/94 13.3 3.805.70.54894341949047.59.0 41 473 .-908   % #!% #8 374708  0. 4507.3.3.  %03./4590/147 289:/890.80 3 .425.:8090.


     $$%   !#%'!.


 '  !#%'$% ' %#$$ ' #% $$                    .

42543039 9013.. .4:78080884-.9084.89.3/ 4-..8041..08.:.-4:9.3:3/07 89.. %0.943.93900..42089.7084:7.92485070 9070.8070841.99078357419.3/488..42203/.3....3.3.4:393!73.3307 ..943..7 49013.943   %4574.084113.79.9./070.94341...08.0203988902  83../ 974:900.3.3033097084: 7.0.908 %014434-0.4:393574..31472..47.3/2.. ..9020398 0307.3.08.94341/.3/..308   $$ $%%%$  $%%%$ 3.02./0.-094.:.3.89.5489431742/1107039.84548943.3.05.3..0.3/341842013.70107894909489. ! 89.436:07983011.95745072.2..9.9439..31472.3/8974354894313..9020398.3.03.7/41207..08009472.3.8390.70838:.7084:7.08009   %03.47/394.08 70.943 410.3088970/94-057080390/30 .30/.0/:7094.40.90203947.7.3..9020398   %4574.3/4-.0890 /0870/.4342.948.889900541/11070399448 9-0.0.2.-031472.3.47/3944.0.3..-4:90.-02.79.9438  28834:941-:83088.42089..2420393920 .733549039.-4:9..-:83088 172 92.943.943 31472:./04907300/0/31472.43889039 .74:8507.039.4190 -:83088  %% $ $%%%$ .702.035074/41920 .8390...7.88 9047.850.-013..70:80/147..3../070.. ..902039479057419.548943 9900.9841.07.43..4.3/089013.07..94341.9.9.902039 %:8  909072 13.8809830892.9.9.943. -:83088172   %4574.8041-.425.3..9020398  %054894389.4:39  %'$ $%%%$ .209078.9.94341.3.9434:/-0.3.908   %4574.

489088.9020398.70700.13.94190.99024893907270547987..9:70.08009480890831.10/.943419097..3.3.4:3935074/8 0307.:8090.073 8990/43495708039.550.43.9020398.0339080 89.:7703957.90548943 %0.8089905.70843390-.9020398..43/9438  90-..041./3..84 2.4898 %0 .33/041.88418947..:770390.-0706:70/94705.43.041-03.9438   3.4342.73439013.943 4704..3.89.080093090770570803990.43.43.073   %070..5.24:39.5.88098.9:.70/147/1107039.90 %0..5..-0705708039900.9020398843.3..0-0035705.3.9:704190.89..4.:0..-908.43..9020398.9020398 ..4393039.9478..7941908089..794.9:7041.13.3..073 %0/.3..43.3/39075709.790728 %0-...39 %008903.990920416:/..55479430/94/11070395074/8 9.3.4208..080098   %013.3..3/3.88.:/20394190.943-:990.-9843-903.4898 7473. 3:2-07411..8.8:70/324309.:8432.073 %0.29.9478 %0.4342..43.43.073 %0.90203982570.:041.3/ .902039.548943.31.89.70..343-0/0907230/0390-:830888 84/476:/.5.0...701: 490780280.94341908089.420/0503/8:54390 507843.90/   3.89.4:39.079.88098390-.70843..88.:0147 .:2:.5.08009 57419 488. /:73901041.88098  %0-.88098.55742.0900. %0.09089.9:704190172   %013.03.3/3.42578390-.703499.89.80 $413..430 0.3/..3.041920.308.7 9057419.902039..08009.03394 .. 13.420.5..0800985705.70..7.3.07 9070.-0/7.93 708:94190-:83088-:990/4349-0..89..4:39 %089...:04110/.4393:031:9:70 $410/.908  $2.90203982.4898.703495705.39.43..9.0.88098.0738 050.3-084/34790..3.:7.%4:13.3/:801:147.733 .700570880/324309..-0.13...3.907 9.39013..90203982:89-0/430..70...3  3..70/99000533.094/090723057419809.03493 ..3...3349 -020.90/ /0570.88098/0..:0 8490.9020398-0.70/4390-.705705.88098390-./943.70/43905708:2594341.90/94.073 %0:9941908089.89..70.09080.42089.3.90203988:1107174290144329..870.

33084190897:.-90809.. .943 70.4507./08420097020 :801:31472.3/9057419 488.9.9434190172 0.990/4349.89.88098 .080092774789013.0790088 90574.3.7 /.5.54894343.0.9031472..3.94394900903990-.79.9:7041...7/39013.3.:.

3/.4893...30/.943/:73..08841/039139013.-0.:770//:7390 0.548943..4:393/.89.03:04-9..35074/39072870.897039.308841.9..3/13.3/4507.172174290 .079.3.84890708:9 414507..3.9434190172   $%%%$$ 9890574..7 %:8 9013..3/0.3.888/430  .3...9020398 %0.

/943.9#05479147 02.7070..948 O. 90 /090723.3307   $$%  #% $ #.425.3.4898#8 . .90/90.75943 %90473.948..90728-090031:708 .881.948-0438   %080. 98.948..3-0..943 %0 97.82 3/:89708 .902039 94 .3..948 !740.8810/394/1107039.9/ 09....0$0097.03/:89708 7.08 .943417.948 O42548907..9...8 -003 43 90 -.941.74:8.8841.9047!740.908../0985740.59.943 .902.3.4330.&% $ #% $  #.881.4907384202.4:397....70 .3080#0.0203941************ !.88 41 90 13.70  O!7419 488.943850570880/32.-:73/.904708/0503/3:54390-.3.. 89.

3/ #8 . 4394:9$34588.

998/ -2.42 0803/4:.7/.97054798 .459.8419.7/-3/3.3/.5740. 439834588 14:300/985740.4531742  ..9 2.:8.