A

SUMMER TRAINING PROJECT REPORT

ON

“AN ANALYSIS OF WORKING CAPITAL MANAGEMENT OF AVRO INDIA

LIMITED”

At

A Project Report Submitted for the partial fulfillment for the award of the degree in
Master of Business Administration

UNDER THE SUPERVISION OF SUBMITTED

BY: DR. PRIYANKA MALHOTRA NAME- ANMOL
PAHAWA
ROLL NO- 2201330700033
BATCH- 2022-24

DEPARTMENT OF MBA

NOIDA INSTITUTE OF ENGINEERING & TECHNOLOGY, GREATER

1
 NOIDA
(AN AUTONOMOUS INSTITUTE)

2
3
GREATER NOIDA - BETA PLAZA BRANCH
GROUND FLOOR, UNIT NO. 10, PLOT NO. LS-01, BETA-1, BETA PLAZA, GREATER NOIDA- 201310.

4
 Student’s Declaration

I hereby declare that summer training project report entitled “Working Capital Management

of Avro India Limited” submitted to MBA department at Noida Institute of Engineering and

Technology, Greater Noida. It is the best of my knowledge that it has not published earlier

anywhere or presented to any institution/university for an end of any degree.

Anmol Pahawa (2201330700033)

MBA Department
NIET
Greater Noida

5
 Acknowledgement
Any accomplishment requires the effort of many people, and this work is not different. I am
thankful to my faculty supervisor Dr. Priyanka Malhotra for supporting me and guiding me
throughout the project. This report would not have been possible without her help. I would also
like to express my gratitude towards (HOD), for her cooperation and giving her valuable time
and information for my thesis preparation.

Anmol Pahawa (2201330700033)

MBA Department
NIET
Greater Noida

6
 Table of content

I. Introduction of the study 01-11

a) Introduction
b) Objective of the study
c) Need and Scope of study
d) Limitation of the Study

II. Company Profile 12-19

a) History of the company
b) Company product
c) Organization structure
d) Financial position

III. Research Methodology 20-21

a) Sampling Design
b) Sampling Size
c) Data Collection

IV. Data Analysis & Interpretation 22-36

a) Data Analysis
b) Interpretation

V. Conclusion 37-41
a) Findings
b) Recommendation
c) Managerial implication of the study
d) Societal implication of the study

VI. Bibliography 42-44

7
8
INTRODUCTION
OF THE TOPIC

9
 Introduction

Working capital is required to ensure that a firm is able to continue its routine operations and that
it has sufficient funds to satisfy both maturing short-term debt and upcoming expenses. The
administration of working capital includes overseeing inventories, cash and records receivable
and payable. The working capital is an accounting concept which represents the excess of current
assets over current liabilities. In which current assets includes items such as cash and bank
balance, debtors, stock etc. and current liabilities includes items such as creditors, bills payables,
etc. If current assets are less than current liabilities, an entity has a working capital deficiency,
also called a working capital deficit.

Working capital = total current assets – total current liabilities

Working capital management is significant in Financial Management due to the fact that it plays a
pivotal role in keeping the wheels of a business enterprise running. Working capital management is
concerned with short-term financial decisions. The need for skilled working capital management has
thus become greater in recent years. A firm invests a part of its permanent capital in fixed assets and
keeps a part of it for working capital i.e., for meeting the day-to-day requirements.

The requirement of working capital varies from firm to firm depending upon the nature of business,
production policy, market conditions, seasonality of operations, conditions of supply etc. Working
capital to a company is like the blood to human body.

10
The importance of working capital can be understood with the help of following points:

(i) Adequate working capital is required to meet the commitments towards short-term liabilities
like salaries, wages, power and fuel expenses, taxes, etc.

(ii) It ensures to maintain the operations on a smooth basis by maintaining the required level of
inventory.

(iii) It enhances liquidity and solvency of a business enterprise.

(iv) It provides necessary funds to meet the contingencies.

(v) It helps in the measurement and analysis of profits of a business enterprise.

(vi) It builds reputation in the market and it becomes easier to raise funds when working capital
position is healthy and stable.

Kinds of Working Capital

Working capital may be classified into two kinds such as:

(i) Working capital on the basis of concept again classified into two categories such as gross
working capital and net working capital.

(ii) Working capital on the basis of time classified into two categories such as permanent
working capital and temporary working capital.

Gross Working Capital – Total of all Current Assets

Net Working Capital – Total Current Assets – Total Current Liabilities

The accounting formula used to calculate the available working capital of a business is -

Working Capital = Current Assets – Current Liabilities

The sole purpose of using working capital is to fund operations, meet the short-term obligation,
continue to have sufficient working capital. It’s continuously paying its employees and suppliers to meet other
obligations like taxes and interest payments even if they have any cash flow challenges. Working capital is
also used to fuel business growth without incurring debt. If the company does not want to take a loan, they can
qualify easily for loans or other forms of credit because of their positive working capital.
11
Concept of Working Capital

1. Gross working capital: (Total Current Assets)

The gross working capital, simply called as working capital refers to the firm’s investment in current
assets. Current assets are the assets, which can be converted into cash within an accounting year or
operating cycle. Thus, Gross working capital, is the total of all current assets. It includes
1. Inventories (Raw materials and Components, Work-in-Progress, Finished Goods, Others)
2. Trade Debtors
3. Loans and Advance
4. Cash and Bank Balances
5. Bills Receivables.
6. Short-term Investment

2. Net Working Capital: (Total Current Assets – Total Current Liabilities):

Net working capital refers to the difference between current assets and current liabilities. Current liabilities
are those claims of outsiders, which are expected to mature for payment within an accounting year. Net
working capital may be positive or negative. A positive net working capital will arise when current assets
exceed current liabilities and a negative net working capital will arise when current liabilities exceed
current assets i.e. there is no working capital, but there is a working capital deficit.

It includes:
1. Trade Creditors.
2. Bills Payable.
3. Accrued or Outstanding Expenses.
4. Trade Advances
5. Short Term Borrowings (Commercial Banks and Others)
6. Provisions

12
Advantages of Adequate Working Capital

Working Capital is the life blood of a business. Just as circulation of blood is essential in the human body for
maintaining life, working capital is very essential to maintain the smooth running of a business. No business can
run successfully without an adequate amount of working capital. The main advantages are:

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 good credit standing can arrange loans
from banks and other on easy and favorable terms.

4. Cash discounts
Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it
reduces costs.

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, increases their efficiency, reduces
wastages and costs.

13
 Disadvantages of Redundant Or Excessive Working Capital

1. Excessive Working Capital means idle funds which earn no profits for the business and hence the

business cannot earn a proper rate of return on its investments.

2. When there is a redundant W.C., it may lead to unnecessary purchasing and accumulation of inventories

causing more chances of theft, waste & losses.

3. Excessive Working Capital implies excessive debtors and defective credit policy which may cause

incidence of bad debts.

4. It may result into overall inefficiency in the organization.

5. When there is excessive working capital, relations with banks other financial institutions may not be

maintained.

6. Due to low rate of return of investments, the value of shares may also fall.

7. The redundant working capital gives rise to speculative transactions.

14
 Introduction to Management of Inventory

Inventory management occupies the most significant position in the structure of working capital. Inventory is
one of the important components of current assets. Inventory management is an important area of working
capital management, which plays a crucial role in economic operation of the firm. Maintenance of large size
of inventories requires a considerable amount of funds to be invested on them. Efficient and effective
inventory management is necessary in order to avoid unnecessary investment and inadequate investment.

Inventory Management refers to the activities that are employed in maintaining the optimum number or the
amount of every inventory item. But effective control depends upon organising and coordination. Thus,
inventory management comprises the functions of planning, controlling and organising the types of all goods,
quantity, status, flow and time-sequence etc. Inventories which comprise of raw materials, consumable stores,
work-in-progress, and finished goods are to be purchased and stored. Inventory management is, therefore, a
scientific method of determining what, when and how to purchase and how much to have in stock for a given
period of time.

An effective inventory management should:

1. Ensure a continuous supply of raw materials and supplies to facilitate uninterrupted production.

2. Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes.

3. Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service.

4. Minimise the carrying costs and time.

5. Control investment in inventories and keep it at an optimum level.

Types of Inventory Management

a) Raw material Inventory-: It consists of those items of inputs such as basic raw materials which are
converted into finished goods through the manufacturing process.
b) Work-in-Progress Inventory –: It consists of those material inputs which are in partially finished or
semi-finished stage under the production process.
c) Finished Goods Inventory -: It consists of completed products which are ready for sale but are lying in
stock i.e. could not be sold so far.

15
Risk Associated with Inventory

1) Price decline

The main risk in inventory investment is that the market value of inventory may fall below what the firm paid
for it, hereby causing inventory losses. It may result from an increase in the market supply of products,
introduction of a new competitive product and price reduction by competitors.

2) Product deterioration
It may result due to holding a product too long or it may occur when inventories are held under improper
conditions of light, heat, humidity and pressure.

3) Obsolescence

Obsolescence means out of date or out of fashion. This risk arises due to the change in consumer tastes, this
can be due to new production techniques, improvement in the product design, specifications etc.

Techniques of Inventory Management

I. ABC Analysis is an inventory categorization technique, which suggests that inventories of a firm are
not of equal value. Thus, the inventory is grouped into three categories (A, B, and C) in order of their
estimated value and importance.

‘A’ items are very important for an organization. Because of the high value of these ‘A’ items, frequent value
analysis is required. In addition to that, an organization needs to choose an appropriate order pattern (e.g.
‘Justin- time’) to avoid excess inventory of these items. For these items, very tight control and accurate
records are required.

‘B’ items are important, but of course less important than ‘A’ items and more important than’ C’ items. For
these, tight control and accurate records are required but lesser than A’ items.

‘C’ items are insignificant in value and are marginally important. For them, simplest controls and minimal
records are sufficient.

16
for example, in case of a Jeweller, Diamond jewellery may be classified as ‘A’ items, Gold jewellery as ‘B’
item and silver jewellery as ‘C’ item.

II. EOQ model is used to calculate optimal lot size of inventory. Excess inventory and shortage of
inventory, both are dangerous. Therefore a firm must maintain optimal inventory. The optimum level
of inventory can be determined with a popular technique known as Economic Order Quantity (EOQ).
EOQ determines the optimum order quantity that minimizes the total cost of inventory.

Calculating Economic Order Quantity (EOQ)

Calculating economic order quantity requires high school-level algebra. Once you get the variables from
your inventory management system, it’s easy to plug in the numbers and calculate EOQ. When you use a robust
ERP, these calculations may all be handled for you, including order costs like inventory ordering costs, holding
costs and stock out costs.

Three Variables (or Inputs) Used to Calculate EOQ

There are several variations of the formula used to calculate EOQ. One popular EOQ formula is based on these
variables, also called inputs:

1. D = Demand in units (annual)

2. S = Order cost

3. H = Holding costs (per unit, per year)

Economic Order Quantity (EOQ) Formula

EOQ = √ [2DS/H]

For example, Demand from last year was 10,000 units. The average order cost was $5,000. The holding cost is $3
per unit, per year.

17
 EOQ = √ [2 x D x S / H]

= √ [ (2 x 10,000 x $5,000) / $3]

= √ [33,333,333.33]

= 5,774 units

OBJECTIVE OF THE
STUDY

18
 Objective of the study

The objectives of the study are as follows:

 To evaluate the financial performance of Avro Furniture.

 To analyze the effect of working capital management of the company on profitability.

 To study the working capital management of Avro Furniture.

19
NEED AND SCOPE
OF THE STUDY

20
 Need and Scope of study

 Working capital management involves managing a company’s short-term assets and liabilities to
ensure it has enough resources to cover its day-to-day operational needs.
 The scope of working capital management includes managing cash, accounts receivable,
accounts payable and inventory effectively.
 Effective working capital management helps ensure a company can meet its short-term
obligations and maximize profitability while minimizing financial risk.

21
LIMITATION OF
THE STUDY

22
 Limitation of the Study

 To maintain the confidentiality of the information data availability is a big issue.

 The internship has been undertaken for 45 days but it is very much difficult to set true
practical experience with current circumstances in this short span of time.
 The analysis is based on the data provided by the company and can be biased.
 The analysis made on the working capital management for a particular period of time the current
assets and current liabilities will change for an analysis made at any other of time.

23
COMPANY PROFILE

24
 History of the company

AVRO INDIA LIMITED (formerly known as Avon Mold last Limited) came into existence in 2002 at
Ghaziabad in Uttar Pradesh with an aim of providing quality plastic molded furniture to people in the
brand name of Avon, now also added Brand AVRO. The company provides wide range of plastic injection
molded furniture to cater to every needs of customer.

The company is using global technologies in fully automatic environment and is a green category
industry with zero pollution of any kind. Company also uses recycled materials to save environment. It
has a dedicated team of professionals looking after all dimensions of production and marketing to
ensure100 percent customer satisfaction.

Industry - Furniture and Home Furnishings Manufacturing

Company size- 51-200 employees
Headquarters- South of G.T. Road Industrial Areas (Opp. Rathi Udyog Ltd), Electro steel
Casting Compound Ghaziabad, Uttar Pradesh
Type- Public Company
Founded- 2002
Avro India Limited (AIL) is a leading Public Limited Indian Non-Government Company incorporated
in India on 01 July 1996 and has a history of 27 years and three months. Its registered office is in
Ghaziabad, Uttar Pradesh, India.
Avro India offers a wide range of products and services, including:
 Carts, Dollies & Trolley

25
 Trolley
 Plastic Furniture & Supplies
 Plastic Tables & Stools
 Plastic Chairs & Chairs Set

26
 Kids Plastic Furniture

The company’s main USPs are

3 years guarantee on selected products, India’s only company to do so. •

Customer Friendly Prices, almost 40% cheaper than National Brands. •

Aesthetically designed Furniture with proven technical parameters for durable quality

• Largest range of furniture to suit every customer’s need.

The company is using global technologies in fully automatic environment and is a green

category industry with zero pollution of any kind. Company also uses recycled materials to save

environment. It has a dedicated team of professionals looking after all dimensions of production

and marketing to ensure 100 percent customer satisfaction. AVRO INDIA LIMITED is an ISO

9001:2015 certified company and follows the principle laid down for best manufacturing

practices in spirits. The company has grown multi-fold in the last 18 years and has recently been

listed on the National Stock of Exchange of India under SME Emerge in July 2018.The company

has received the Greatest Brand Award in 2018 from Asia One, Dubai. As CSR Activity, it

supports the education and growth of the girl child, supports organ donation and Swaach Bharat

Abhiyaan.

27
Company product

28
Organization structure

29
30
Financial position

31
32
33
 RESEARCH
METHODOLOGY

34
 Research Methodology

The term research refers to the systematic method consisting of enunciating the problem,
formulating a hypothesis collecting the data, analyzing the facts and reaching the certain
conclusions.
Research Methodology is a way to solve systematically the research problem. It may be
understood as a science of studying how research is done scientifically.

Research Design:
Descriptive research procedure is used for describing the recent situations in the organization
and analytical research to analyze the results by using research tools.

Data Source & Collection Methods:

There are two types for collecting data
1. Primary data
2. Secondary data

Secondary Data
Secondary data are those which have already been collected by someone else and which have
already been passed through the statistical process. The Secondary data consist of reality
available companies already complied statistical statements. Secondary data consists of not
only published records and reports but also unpublished records.
The analysis of the project report is based on secondary data, which included-
 Balance sheet of company
 Profit and loss A/C of Avro India Limited
 Cost sheets

Purpose
The purpose of this paper is to properly analysis of the working capital management of Avro
Company over the period 2017-2020.
35
Population
The population of this study was carried for a single company, i.e., AVRO. Sample
involved the working capital structure of the company.

STATISTICAL TOOLS & TECHNIQUES

The statistical techniques like ratios have been in the study. These have been very useful in
doing the interpretation and analysis of the data collected through secondary sources.
 Current ratio
 Quick ratio
 Inventory to sales ratio
 Debtor turnover ratio
 Average payment period
 Debt equity ratio
 Gross profit ratio
 Total asset turnover ratio
 Net profit ratio
 Cash to current ratio
 Raw material to turnover ratio
 Work in progress turnover ratio
 Cash turnover ratio
 Creditors to inventory

36
DATA ANALYSIS
&
INTERPRETATION

37
 Data Analysis and Interpretation
1. Current ratio:
It is also known as Working Capital ratio. It is a measure of liquidity and used in making analysis of
short term financial position.
Current Ratio: Current assets / Current liabilities
Table No. 1

Year 2018- 2019 2019-2020 2020-2021

Current assets 2157.99 2659.86 2489.10

Current liabilities 851.18 1183.63 1346.81

Current Ratio 1.26 1.24 1.36

Figure No. 1

Current Ratio
1.38
1.36
1.36

1.34

1.32

1.3
(in time)

1.28
1.26
1.26
1.24
1.24

1.22

1.2

1.18
2017-2018. 2018-2019 2019-2020

Interpretation
It is increasing in the year 2019-20 because current liabilities are decreased this year as

compare to 2018-19. It is increasing in year 2017-2018 i.e 1.26 because current assets are

increasing.. Overall this ratio is satisfactory as it is nearest to the thumb rule i.e. 2:1.

38
 2. Liquid Ratio:

Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio between
quick ratio & current liabilities. Quick ratio refers to all current assets except Inventory &
prepaid expenses.
Liquid Ratio = Liquid assets / Current Liabilities
Table No. 2
Year 2017- 2018 2018-2019 2019-2020
Quick Ratio 989.66 617.56 852.37

Current liabilities 851.18 1183.63 1346.81

Liquid Ratio 1.44 1.14 0.98

Figure No. 2
1.6
1.44 Liquid Ratio
1.4

1.2 1.14

0.98
1
(in time)

0.8

0.6

0.4

0.2

0
2017-2018 2018-2019 2019-2020

Interpretation
Liquid Ratio is more rigors test of liquidity than the current ratio. It is the ratio between quick

ratio & current liabilities. Quick ratio refers to all current assets except Inventory & prepaid

expenses. Idol ratio 1:1 we calculated 1.44 in 2017-18 which decreased from 1.44 to 1.14 to

0.98 in 2019-20.

39
 3. Inventory to sales ratio

The Inventory to Sales Ratio metric measures the amount of inventory you are carrying
compared to the number of sales orders being fulfilled. Calculate inventory to sales using the
following formula:
Inventory to sales ratio = cost of goods sold/ average inventory

Year 2017- 2018 2018-2019 2019-2020

Cost of goods sold 3704.99 4291.94 5252.77

Average inventory 1636.73 1636.73 1636.73

Inventory to sales ratio 2.79 2.81 3.56

Figure No. 3

Inventory to sales ratio

4
3.56
3.5

3 2.79 2.81

2.5
(in time)

1.5

0.5

0
2017-2018 2018-2019 2019-2020

Interpretation
Viewing the trend of inventory sales ratio we calculated 2.79 in 2017-18 and 2.81 in 2018-19

which leads to increase in the trend i.e. 3.56 in 2019-20. It is increasing as compared to last

year.

40
 4. Debtor Turnover Ratio :
This ratio indicates the velocity of debt collection generally higher the ratio means the more
efficient management of debtors or more liquid are debtors and vice versa.
Debtor Turnover Ratio = Net credit sales / Average receivables

Table No. 4

Year 2017- 2018 2018-2019 2019-2020

Net credit sales 4159.74 5171.13 5742.04
Average receivables 220.87 264.13 397.16
Debtors Turnover Ratio 7.22 7.64 8.09

Figure No. 4

Debtor Turnover Ratio

8.2 8.09

7.8
7.64
7.6
(in time)

7.4
7.22
7.2

6.8

6.6
2017-2018 2018-2019 2019-2020

Interpretation
Generally, the higher the value of debtor turnover, the more efficient is the management of

debtors/sale or more liquid is the debtor’s similarly low debtors turnover implies inefficient

management of debtors/sale and less liquid debtor. In 2017-18 d.t.r was 7.22 and further it

got increased in 2018-19 from 7.64 to 8.09 because of increase in sales and debtors in 2018-

19 and again in 2019-20 it is 8.09.

41
 5. Average Payment Period ratio

The average payment period ratio represents the average no. of days taken by the firms to pay
its creditors.
Average Payment Period = Total Trade Creditors / Net Credit Annual Purchase x No. of
days.

Table No.5
Year 2017-2018 2018-2019 2019-2020

Total Trade Creditors 851.18 1183.63 1346.81

Net credit annual purchase 2345.63 2670.36 3084.04

Average Payment Period 132.45 161.78 159.39

Figure No. 5

Average Payment Period

180
161.78 159.39
160

140 132.45

120
(in days)

100

80

60

40

20

0
2017-2018 2018-2019 2019-2020

Interpretation
Average payment period represents the average no. of days taken by the firm to pay its
creditors. Generally higher the payment period the better it is as it implies the greater credit
period by the firm and consequently the larger the benefit reaped from credit suppliers. In
2017- 18 it was 132.45 and in 2018-19 it increased to 161.78 and then again decreased to
159.39 in 2019-20.
42
 6. Debt equity ratio:
It shows the relationship between external and internal equities & it is calculated to
measure the claim of outsiders and owners against company’s assets.
Debt Equity Ratio = Long term Debts / Shareholders Funds
Table No. 6
Year 2017- 2018 2018-2019 2019-2020
Long term Debts 2742.61 2760.56 1785.81
Shareholders’ Funds 2276.57 2848.32 3083.38
Debt Equity Ratio 1.15 0.92 0.56

Figure No. 6

Debt Equity Ratio

1.4
1.2 1.15

1 0.92
(in times)

0.8
0.56
0.6

0.4

0.2

0
2017-2018 2018-2019 2019-2020

Interpretation
The debt equity ratio is calculated to measure the extent to which debt financing has been

used in business. The ratio indicates the proportionate clamed of owners and the outsiders

engaged the firm assets.. The outsider of the other hand want that share holder should invest

and share holder should invest and share their risk with their proportionate investment. It has

been decreased from 1.15 to 0.92 to 0.56 in 2019-2020.

43
 7. Gross Profit Ratio
Gross profit ratio measures the relationship of gross profit to net sales and is usually
represented as a percentage. Thus it is calculated by dividing the gross profit by sales.
Gross Profit Ratio = Gross Profit / Sales * 100
Table No. 7
Year 2017- 2018 2018-2019 2019-2020
Gross Profit 828.14 1260.75 941.59
Sales 4159.74 5171.31 5742.04
Gross Profit Ratio 19.90 24.37 16.39

Figure No.7

Gross Profit Ratio

30

24.37
25

19.90
20
16.39
(in times)

15

10

0
2017-2018 2018-2019 2019-2020

Interpretation
Gross profit ratio establishes a relationship between gross profit and sales and this indicates

the efficiency of the management in manufacturing, selling and other activities of firm. The

two basis element of ratio is gross profit and sale of the company. Gross profit ratio is

changing per year in 2017-18 from 19.90 increased to 24.37 in 2018-2019 and finally

decreased 16.39

in 2019-20.

44
 8. Total assets turnover ratio

The ratio of the value of a company’s sales or revenues generated relative to the value of
its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with
which a company is deploying its assets in generating revenue.
Total Asset Turnover ratio = Total assets / credit sales * 100 Table No.
8
Year 2017- 2018-2019 2019-
2018 2020
Total assets 2335.52 2774.68 2496.27
Credit sales 4159.74 5171.31 5742.04

Total assets turnover ratio 56.14 53.65 43.47

Figure No. 8

Total assets turnover

60 ratio
56.14
50
43.47

40
(in time)

30

20

10

0
2017-2018 2018-2019 2019-2020

Interpretation

The higher the asset turnover ratio, the better the company is performing, since higher ratios

imply that the company is generating more revenue. In 2017-18it is 56.14 and in 2018-19 it is

53.65 and ultimately decreased to 43.47 in 2019-20.

45
 9. Net Profit Ratio
Net profit ratio established a relationship between net profit and sales. This ratio is the
overall measure of firms profitability and is calculated as :
Net Profit Ratio = Net profit after tax / Net Sales * 100
Table No.9
Year 2017- 2018 2018-2019 2019-2020
Net profit after tax 323.73 651.88 359.11
Net sales 4159.74 5171.31 5742.04
Net Profit Ratio 7.7 12.60 6.25

Figure No. 9

Net Profit Ratio

14
12.60

12

10

7.7
8
(in times)

6.25
6

0
2017-2018 2018-2019 2019-2020

Interpretation
Net profit ratio establishes a relationship between net profit and sales and this indicates the

efficiency of the management in manufacturing, selling and other activities of firm. The two

basis element of ratio is net profit and sale of the company. Net profit ratio is 7.7 in 2017-18

and increasing to 12.60 in 2018-19 and finally decreased 6.25 in 2019-20.

10. Cash to current asset ratio

46
Cash asset ratio is a company’s ratio which is calculated by dividing cash by current assets * 100.
Cash to current asset ratio = cash / current assets * 100
Table No.10
Year 2017- 2018 2018-2019 2019-2020

Cash 26.63 52.75 175.55

Current assets 2157.99 2659.86 2489.10

Cash to current ratio 1.23 1.98 7.05

Figure No.10

Cash to current asset

8 ratio
7.05
7

5
(in times)

3
1.98
2
1.23
1

0
2017-2018 2018-2019 2019-2020

Interpretation

Under this cash to current asset ratio in 2017-18 t is 1.23 in 2018-19 it is 12.60 and leads to

tremendous increase in 2019-20 it is 7.05.

47
 11. Raw material turnover ratio
The raw material turnover formula measures the rate at which raw material is used over a
measurement period. One can use the formula to see if a business has an excessive raw
material turnover in comparison to its sales level.
Raw material turnover ratio = raw material / sales * 100
Table No.11
Year 2017- 2018 2018-2019 2019-2020
Raw material 2345.63 2670.36 3084.04
Sales 4159.74 5171.31 5742.04
Raw material turnover ratio 56.38 51.63 53.70

Figure No.11

Raw material turnover ratio

57
56.38

56

55

54 53.7
(in times)

53

52 1.98

51

50

49
2017-2018 2018-2019 2019-2020

Interpretation

Under this raw material turnover ratio, this ratio is calculated as 56.38 in 2017-18 which

ultimately leads to fall in the ratio 1.98 in 2018-19 and afterward started increasing i.e. 53.7in

2019-20.

48
 12. Work in progress turnover ratios

Work in progress (WIP) refers to material that has entered the production process but is not
yet a finished product. Work in progress (WIP) therefore refers to all materials and partly
finished products that are at various stages of the production process.
Work in progress turnover ratio = work in progress / sales * 100
Table No. 12

Year 2017-18 2018-19 2019-20

Work in progress 212.90 84.58 76.78
Sales 4159.79 5171.31 5742.04
Work in progress turnover 5.11 1.63 1.33
ratio

Figure No. 12

Work in progress turnover

ratio
5.11
5

4
(in time)

2 1.63
1.33

0
2017-18 2018-19 2019-20

Interpretation
As seen from the analysis-there has been tremendous decrease in the ratio. Being a

manufacturing concern company has to maintain large amount; of work in progress in 2017-

18 it is calculated as 5.11 and further there is tremendous decrease in the ratio i.e. 1.63 in

2018- 19 and in 2019-20 in 1.33.

49
 13. Cash turnover ratios

Indicates a firm's efficiency in its use of cash for generation of sales revenue. It is the
inverse of cash-to-sales ratio
Cash turnover ratio = Sales / Cash
Table No. 13

Year 2017- 2018 2018-2019 2019-2020

Sales 4159.74 5171.31 5742.04
Cash 26.63 52.75 175.55
Cash turnover ratio 156.20 98.03 32.70

Figure No. 13

Cash turnover ratio

180

160 156.20

140

120
98.03
(in time)

100

80

60

40 32.70

20

0
2017-2018 2018-2019 2019-2020

Interpretation
As seen from the analysis-there has been tremendous decrease in the ratio. Being a

manufacturing concern company has to maintain cash. In 2017-18 ratio is calculated as

156.20 and in 2018-19, ratio is decreased to 98.03 and in 2019-20 ratio is 32.70.

50
 14. Operating Profit ratio

Operating ratio establishes the relationship between the cost of goods sold and other
operating expenses on the one hand and sales on the other. In further words, it measures the
cost of operations per rupee of sales. The ratio is calculated by dividing operation cost with
the net sales and it’s generally represented as percentage.
Operating Profit Ratio = Operating profit / Net Sales * 100
Table No.14

Year 2017- 2018 2018-2019 2019-2020

Operating profit 708.69 1173.50 978.12

Net sales 4159.74 5171.31 5742.04

Operating profit ratio 17.03 22.69 17.03

Figure No. 14

25 Operating Profit Ratio

22.69

20
17.03 17.03

15
(in days)

10

0
2017-2018 2018-2019 2019-2020

Interpretation
This ratio is calculated to assess operational efficiency of the business. A decline in operating

profit ratio, is better because it means higher margin and thus more profits. In 2017-18 the

ratio is 17.03 in 2018-19 ratio is 22.69 and in 2019-20 ratio is 17.03.

51
 15. Creditors to inventory

Creditors to inventory = Creditors / Inventory

Table No.15

Year 2017- 2018 2018-2019 2019-2020

Creditors 851.18 1183.63 1346.81
Inventory 1499.44 1871.54 1636.73
Creditors to inventory 0.53 0.63 0.82

Figure No. 15

1 Creditors to inventory
0.82
0.8
0.63
0.6 0.53
(in days)

0.4

0.2

0
2017-2018 2018-2019 2019-2020

Interpretation
Under this creditors to inventory there is slightest change in the ratio. In 2017-18 the ratio is

0.53 and in 2018-19 the ratio is 0.63 in 2019-20 there is slightest increase in the ratio i.e.

0.82.

52
CONCLUSION

53
 Conclusion

This study is concerned with working capital management of Avro India Limited.

The study involves practical and conceptual overview of decisions concerning current assets
like cash and bank balance, inventories (like raw materials, work-in-progress, finished
goods), sundry debtors, loans and advances, other current assets and current liabilities like
sundry creditors, securities and other deposits, other current liabilities and provisions of Avro
Company was with the objective of maximizing the overall net profit. And complete
synchronization and coordination among the working capital components which shall
contribute to optimum level of operations. Mismanagement of each or any of these
components shall be detrimental to the objectives of efficient operation, profitability, and
maximization of overall value of the firm.

Findings

1. It is increasing in the year 2017-18 i.e., 1.36 because current assets are increasing.
Overall, this ratio is satisfactory as it is nearest to the thumb rule i.e., 2:1.
2. Quick ratio refers to all current assets except Inventory & prepaid expenses. Idol ratio
1:1 we calculated 1.44 in 2017-18 which decreased from 1.44 to 1.14 to 0.98 in 2019-
20.
3. Viewing the trend of inventory sales ratio, we calculated 2.79 in 2017-18 and 2.81 in
2018-19 which leads to increase in the trend i.e., 3.56 in 2019-20. It is increasing as
compared to last year.
4. In 2017-18 d.t.r was 7.22 and further it got increased in 2018-19 from 7.64 to 8.09
because of increase in sales and debtors in 2018-19 and again in 2019-20 it is 8.09.
5. In 2017-18 it was 132.45 and in 2018-2019 it increased to 161.78 and then again
decreased to 159.39 in 2019-20.
6. The ratio indicates the proportionate clamed of owners and the outsiders engaged the
firm assets. The outsider of the other hand want that shareholder should invest and
shareholder should invest and share their risk with their proportionate investment. It
has been decreased from 1.15 to 0.92 to 0.56 in 2019-2020.

54
7. Gross profit ratio is changing per year in 2017-18 from 19.90 increased to 24.37 in
2018-2019 and finally decreased 16.39 in 2019-20.
8. The higher the asset turnover ratio, the better the company is performing, since

higher ratios imply that the company is generating more revenue. In 2017-18 it is
56.14 and in 2018-19 it is 53.65 and ultimately decreased to 43.47 in 2019-20
9. The Net profit ratio establishes a relationship between net profit and sales, and this
indicates the efficiency of the management in manufacturing, selling and other
activities of firm. The two-basis element of ratio is net profit and sale of the
company. Net profit ratio is 7.7 in 2017-18 and increasing to 12.60 in 2018-19 and
finally decreased 6.25 in 2019-20.
10. Under this cash to current asset ratio in 2017-18 it is 1.23 in 2018-19 it is 12.60 and
leads to tremendous increase in 2019-20 i.e. 7.05.
11. Under this raw material turnover ratio, this ratio is calculated as 56.38 in 2017-18
which ultimately leads to fall in the ratio 1.98 in 2018-19 and afterward started
increasing i.e., 53.7 in 2019-20.
12. Being a manufacturing concern company has to maintain large amount; of work in
progress in 2017-18 it is calculated as 5.11 and further there is tremendous decrease in
the ratio i.e. 1.63 in 2018-19 and in 2019-20 in 1.33.
13. Being a manufacturing concern company has to maintain cash. In 2017-18 ratio is
calculated as 156.20 and in 2018-19, ratio is decreased to 98.03 and in 2019-20 ratio
is 32.70.
14. A decline in operating profit ratio, is better because it means higher margin and thus more
profits. In 2017-18 the ratio is 17.03 in 2018-19 ratio is 22.69 and in 2019-20 is 17.03.
15. In 2017-18 the ratio is 0.53 and in 2018-19 the ratio is 0.63 in 2019-20 there is slightest
increase in the ratio i.e. 0.82.

55
 Recommendation

I highly recommend that Avro India Limited continues its exemplary approach
to working capital management. The company's current practices, characterized
by a judicious balance between current assets and liabilities, reflect a keen
understanding of the importance of liquidity in sustaining day-to-day operations.
Avro's proactive measures in receivables and payables management,coupled
with a responsive adjustment to market dynamics in inventory control, have
proven effective in optimizing cash flow. To enhance working capital
management in the Avro industry, consider optimizing inventory levels to
minimize carrying costs, negotiating favorable payment terms with suppliers,
and implementing efficient receivables management strategies to shorten the
cash conversion cycle. Regularly review and adjust these practices to ensure
they align with the industry's dynamics and economic conditions.

Managerial Implication of the study

 Managers must strike a balance between maintaining sufficient liquidity

to cover day-to-day operational needs and avoiding excess idle cash that
could be invested more productively. Regular monitoring of cash flow
and liquidity ratios is essential for making informed decisions.

 Managers need to focus on reducing the cash conversion cycle, which

involves efficiently managing the time it takes to convert raw materials
into cash. Shortening this cycle enhances liquidity and reduces the need
for external financing.

56
 Managers must optimize inventory levels to avoid tying up excessive
capital in stock. Implementing just-in-time inventory systems and
utilizing technology for demand forecasting can aid in minimizing
holding costs while ensuring products are readily available.

 Understanding the cost of capital and its impact on working capital

decisions is crucial. Managers must evaluate whether to finance short-
term needs through internal sources (like retained earnings) or external
sources (such as short-term loans) based on the cost-effectiveness of each
option.

 Working capital decisions should align with the company's overall

strategic goals. Managers must consider how working capital
management supports long-term growth, expansion, and investment
initiatives.

Societal Implication of the study

 Efficient working capital management contributes to the financial
stability of businesses. Stable businesses are more likely to
maintain consistent employment levels, providing job security for
employees and contributing to overall economic stability in the
community.

 Effective management of payables can positively impact

relationships with suppliers. Timely payments to suppliers can
enhance trust and satisfaction, particularly with local suppliers,
thereby supporting the growth and sustainability of local
57
economies.

58
 Companies with robust working capital management are more
likely to maintain profitability, contributing a stable and
predictable source of tax revenue for local and national
governments. This revenue is essential for funding public services
such as infrastructure, education, and healthcare.

 Managing working capital efficiently often involves adopting

sustainable business practices. This can include reducing waste in
production processes, adopting environmentally friendly practices,
contributing to the overall well-being of the environment.

 Businesses with effective working capital management can provide

better value to consumers. Stable prices, consistent product
availability, and improved customer service are potential outcomes,
positively impacting consumer welfare.

 Investments in technology and innovation, often facilitated by

effective working capital management, can have broader societal
benefits. This includes the development of new products and
services, technological advancements.

59
BIBLIOGRAPHY

60
 Bibliography

1. Smith, J. (2008). "Working Capital Management: Applications and Case

Studies." John Wiley & Sons.

2. Deloof, M. (2003). "Does Working Capital Management Affect

Profitability of Belgian Firms?" Journal of Business Finance &
Accounting, 30(3-4), 573-587.

3. Eljelly, A. M. (2004). "Liquidity–Profitability Tradeoff: An Empirical

Investigation in an Emerging Market." International Journal of
Commerce and Management, 14(2), 48-61.

4. Lazaridis, I., & Tryfonidis, D. (2006). "Relationship between Working

Capital Management and Profitability of Listed Companies in the Athens
Stock Exchange." Journal of Financial Management and Analysis, 19(1),
26-35.

5. Shin, H. H., & Soenen, L. (1998). "Efficiency of Working Capital

Management and Corporate Profitability." Financial Practice and
Education, 8(2), 37-45.

6. Filbeck, G., & Krueger, T. M. (2005). "An Analysis of Working Capital

Management Results Across Industries." Mid-American Journal of
Business, 20(2), 11-18.

7. Afza, T., & Nazir, M. S. (2009). "Working Capital Management and

61
Corporate Performance in Pakistan." The Lahore Journal of Economics,

62
 14(1), 81-98.

8. Raheman, A., & Nasr, M. (2007). "Working Capital Management and

Profitability—Case of Pakistani Firms." International Review of Business
Research Papers, 3(1), 279-300.

9. Padachi, K. (2006). "Trends in Working Capital Management and Its

Impact on Firms' Performance: An Analysis of Mauritian Small
Manufacturing Firms." International Review of Business Research
Papers, 2(2), 45-58.

10.Gitman, L. J., & Zutter, C. J. (2015). "Principles of Managerial Finance."

Pearson.

11.Keown, A. J., Martin, J. D., & Petty, J. W. (2014). "Financial

Management: Principles and Applications." Pearson.

12.Mian, S. L. (2017). "Working Capital and Liquidity Management: A

Practical Guide to Implementing Strategies for Maximizing Short-Term
Financial Resources." McGraw-Hill Education.

13.Van Horne, J. C., & Wachowicz, J. M. (2008). "Fundamentals of

Financial Management." Prentice Hall.

14.Weston, J. F., & Brigham, E. F. (2012). "Essentials of Managerial

Finance." Cengage Learning.

15.Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2016). "Corporate

Finance." McGraw-Hill Education.

63
16.Brealey, R. A., Myers, S. C., & Allen, F. (2017). "Principles of Corporate
Finance." McGraw-Hill Education.

17.Gitman, L. J., & Madura, J. (2014). "Principles of Managerial Finance."

Pearson.

18.Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). "Corporate

Financial Management." Pearson.

19.Pike, R., & Neale, B. (2006). "Corporate Finance and Investment:

Decisions & Strategies." Pearson Education.

20.Brigham, E. F., & Ehrhardt, M. C. (2013). "Financial Management:

Theory & Practice." Cengage Learning.

64