“WORKING CAPITAL MANAGEMENT IN SANDFITS

FOUNDRIES PVT LTD “

A PROJECT REPORT

Submitted to the

SCHOOL OF MANAGEMENT

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINSTRATION

By

SARANGAN.S

(Reg. No: 3511010625)

UNDER THE SUPERVISION AND GUIDANCE OF

Ms. PRIYA XAVIER

SRM School of management

Kattankulathur, Chennai- 603 203

May 2012
 DECLARATION

I hereby declare that the project report entitled , “WORKING CAPITAL

MANAGEMENT ” , submitted to SRM School of Management in partial fulfillment of the
requirement for the award of the Degree of Master of Business Administration, is a record of the
original research work done under the supervision and guidance of MS. PRIYA XAVIER, Asst.
Professor, SRM School of Management, SRM University, Chennai and that it has not formed
the basis for the award of any degree / associate ship / fellowship of other similar title to any
candidate of any university.

Place: CHENNAI
Date:

Signature of the candidate

(SARANGAN.S)
 BONAFIDE CERTIFICATE

This to certify that this project report titled “WORKING CAPITAL

MANAGEMENT” is the bonafide work of SARANGAN.S (3511010625) who carried out the
research under my supervision.

Certified further, that to the best of my knowledge the work reported herein does not
from part of any other project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other candidate.

Submitted for the viva-voce examination held on

Ms. Priya Xavier

Dr.JAYASHREE SURESH

PROJECT GUIDE DEAN

EXTERNAL EXAMINER

THIS IS TO CERTIFY THAT THE CANDIDATE WAS EXAMINED BY US IN THE THESIS WORK/VIVA-VOCE

EXAMINATION HELD AT SRM SCHOOL OF MANAGEMENT, KATTANKULATHUR.

 ACKNOWLEDGEMENT

I express my sincere gratitude to God Almighty without which I would never be able to
accomplish my project.

I acknowledge the valuable contribution of all the employers in Clarion Cosmetics Pvt
Lmtd and the Marketing Manager Mr Singh for their assistance and guidance for developing our
ideas and helping us with the practical implications of marketing.

I would like to express our deepest gratitude and thanks to Dr. JAYASHREE SURESH,
head of the department for her valuable support in doing my project. She has been a source of
encouragement and guidance in all our Endeavour’s.

I express our profound thanks to Ms. PRIYA XAVIER, project guide, for his consistent
encouragement and invaluable suggestion in completing this project, without her the completion
of this project would be practically impossible.

I also thank my friends and all the others who worked along with me in successful
completion of my project.
 CONTENTS

CHAPTERS PAGE NO:

ACKNOWLEDGEMENT 1

LIST OF TABLES 2

LIST OF GRAPHS 3

Limitations of the study 7

CHAPTER‐II INDUSTRY PROFILE 8‐14

CHAPTER‐III COMPANY PROFILE 15‐23

CHAPTER‐IV THEORETICAL FRAME WORK 24‐40

CHAPTER‐V DATA ANALYSIS

& INTERPRETAION 41‐72

CHAPTER‐VI FINDINGS 73‐78

SUGGESTIONS

BIBILIOGRAPHY 79
 CHAPTER 1

INTRODUCTION
INTRODUCTION

1. WORKING CAPITAL MANAGEMENT

The success of business, among other things depends upon the manner in which
its capital is managed in the dynamic business setting, the composition of working
capital mismanaged, in the dynamic business setting, the difference between the
current assets and current liabilities. Constantly changes in relation to the level of
activity of the business concern and rates at which the current assets of current
liabilities keep changing in relation to each other and other things are significant factors
also continuous review and direction of the financial manager.

It is the task of the financial maintain an appropriate level of working capital that
is enough current assets to pay off current liabilities neither excess nor less because
excessive working capital leads to interruption in the smooth functioning of the
business concern.

There are numerous instances in the history of business world where inadequacy
of working capital has led to business failures when a firm finds it difficult to meetings
day to day.

Operating expenses essential out lays may have to be postponed for want of
funds, operating plans will go out of gear & enterprise objectives on investment slumps
the suppliers & creditors of the firm may have to wait longer to raise their dues & will
hesitate to extend further credit to the firm.
 Thus efficient management of working capital in an important prerequisite for
successful working of a business concern it reduces the chances of business failure
generates a felling of security and confidence in the minds of personnel in the
organization it assurance solvency of steady of the organization.

1.1 NEED AND IMPORTANCE OF THE STUDY:

1. Their projects is helpful in knowing the companies position of funds maintenance and
setting the standards for working capital inventory levels, current ratio level, quick
ratio, current amount turnover level & web torn turnover levels.

2. This project is helpful to the managements for expanding the dualism & the project
viability & present availability of funds.

3. This project is also useful as it companies the present year data with the previous year
data and there by it show the trend analysis, i.e. increasing fund or decreasing fund.

4. The project is done entirely as a whole entirely. It will give overall view of the
organization and it is useful in further expansion decision to be taken by management.
 1.2 OBJECTIVE OF THE STUDY:

1. To examine the effectiveness of working capital management polices with the

help of accounting ratio.
2. To study liquidity position of the company by taking various measurements.
3. To evaluation the financial performance of the company.
4. To make suggestions for policy makers for effective management of working
capital.

1.3 METHODOLOGY

Primary Data

DEF: The first handed information/Fresh data collected through various methods is
known as primary data.

In respect of primary data which the researchers is directly collects data that
have not been previously collected.

The primary data was gathered through personal interaction with various
functional heads and other technical personnel. Some information was also collected
by observation.

Secondary Data :

DEF: The data which have been already collected & comprised for another purpose.

Secondary data was collected various reports / annual reports, documents charts,
management information systems, etc in SAND FITS. And also collected various
magazines, books, newspapers and internet.
 The analysis of the information gathered has been made on the basis of the
clarifications sought during the personal discussions with the concerned people and
perception during the personal visits to the important areas o services.

In marking observations identifying problems and suggesting certain remedies

such emphasis was given on the basis of opinions gathered during the personal
discussions and with the personal experience gained during the academic study of
M.B.A course.

1.4 SCOPE OF THE STUDY

1. The scope is limited to operations of SAND FITS PVT Ltd, Coimbatore.

2. The period consider 2 months

The scope of the study is limited to collecting the financial data published in the
annual reports of the company with reference to the objectives stated above and an
analysis of the data with a view to suggest favorable solution to various problems
related to financial performance.
 1.5 LIMITATION OF THE STUDY:

1. The following are the various aspects involved in the analysis of the study.

2. The study in limited 4 years (2006‐2007) to (2007‐2008) performance of

the company.

3. The data used in this study have been taken from published annual report only.

4. This study in conducted within a short period. During the limited period the study
may not be retailed, full fledged and utilization in all aspects.

5. Financial accounting does not take into account the price level changes.
 CHAPTER – II

MACHINE TOOLS INDUSTRY – AN OVERVIEW

MACHINE TOOLS INDUSTRY – AN OVERVIEW

India ranks nineteenth in production and sixteenth in consumption of machine

tools in the world. The Indian machine tool industry averaged more than 35 percent
growth in 2004‐05. Imports exceeded production in the year 2004 with us$356 million
worth machine tools being imported while the production was only us$225 million.
Machine tools from I percent of Indies engineering industry and contributes 0.3 Percent
of total machinery exports.

The Indian machine tool industry currently consists about 450 manufacturing
units of which approximately 33 percent (150 units) Fall under the organized category.
Further ten Major Indian companies constitute also most 70 percent of the total
production. The government Owned Hindustan Machine tools Limited (HMT) alone
accounts for Nearly 32% of Machine tools Manufactured in India Approximately 75% of
the Indian Machine tool producers have received the coveted. 150 certification while
the large organized players cater to Indian’s Heavy and Medium industries, the small
scale sectors meets the demand of ancillary and other units

World wide the total modify locations are 3,336. First highest modify location
country is United States in 1333 lowest Modify location countries are Belarus, Bosnia
and Merzegovina, Bulgaria, Croatia, Malta, Russian Federation in only one Modify
Location. 51 modify location are located in India. Modern Machine Tool in India’s
leading Industrial Magazine on machine tools and Ancillary industries. Published in
affectation with the country’s apex Body for the machine tools industry. Indian machine
tool Manufacture’s association (IMMA)
 With a healthy readership base of over 2 lakhs, this Premium quarterly magazine
is regularly referred to by the key decision makers in the machine tool, cutting and other
manufacturing Industries that include CEOs. Directors, senior managers, as well as
engineers and shop. Floor technical personal apart from students. It serves as the bench
mark and with word it this ever growing sector of Indian industry.

In addition to manufactures, this publication also reaches out to exporters,

dealers, distributors, R&D personnel Educational institution, consultants, industry
associations and trade commissions almost every entry in the industry.

Modern machine tools provide an intelligent balanced and cohesive insight into
the machine tools and ancillary industries in India in terms of the death editorial
content. It includes the latest trends and technologies highly useful technical articles
and case studies. Business strategies views and vision of industry leaders and one of the
largest ranges of machines tools/cuttings tools. This apart, there is exhaustive coverage
of the current national and international news, upcoming projects, tenders, events and
much more that help the readers to effectively manage their business in a facilitator and
guide for this burgeoning industry.

Modern machine tools strives to facilitate effective interaction among several

fatuities of the machine tool, cutting and user industries by enabling them in reaching
out to their prospects buyers and sellers through better trade contacts and more
business opportunities.

Machine tool industry has undergone a radical shift in its paradigm thinking, the
Indian machine tool industry is now recognized as a provider of low‐cost high quality
learn manufacturing solutions. The industry resiliently supports all its users to enhance
productivity as well as improve competitiveness, for the betterment of the final
customer.
 Being an integral sector, growth of the machine tool industry has an immense
bearing on the entire economy, especially India’s manufacturing industry. And is even
more crucial for development of the country’s strategic segments such as Defense,
railways, space and atomic energy.

World over too, industrialized‐advanced countries have created market inches on

the back of a well‐ developed and supportive machine tool sector.

In India as well, indigenous machine tools have the highest impact on capital
output ratios. Machine tool consumption of Rs. 1,000 Crore truly supports the
advancement of the country’s engineering sector, output of which is estimated to be
worth over Rs. 1,50,000 crore.

2.2 Manufacturing range:

The Indian machine tool industry manufactures almost the complete range of
metal cutting and metal forming machine tools complete range of metal‐cutting and
metal‐forming machine tools.

Customized in nature, the products from the Indian basket comprise and
conventional machine tools as well as computer numerically controlled (CNC) machines.
There are other variants offered by Indian manufactures too, including special purpose
machines, casting, handling systems and TPM friendly machines.

Efforts within the industry, are now on to better the features of CNC machines,
and provide further value additions at lower costs, to meet specific requirements of
users. Based on the perception of the current trends, and emerging demands, CNC
segment could be the driver of growth for the machine tool industry in India.
2.3 Current trends :

A slowdown in the Indian economy since mid‐1999 had its fallout on prospects of
Indian machine tool manufactures. The Indian machine tool industry is besieged by lack
of adequate business opportunities that has stemmed from sluggish demand in the
home market of all user industries.

Output by domestic metal working machine tool manufacturers in 2001

calendar year declined by 14 pr cent to Rs.5, 137 million marking the fourth yeast of
decline, since 1997, for the Indian machine tool industry. Much of this fall was due to
subdued investment by all the major users segments of machine tools, except the
Defense industry, primarily because of a higher capital expenditure outlay.

While decrease in domestic production was dormant in case of conventional

metalworking machine tools computer numerically conventional metalworking machine
tools, computer numerically controlled (CNC) machine tool manufacturers too suffered,
although marginally. Lathes, machining centers, special purpose machines, and grinding
machines were among the machine tools that sustained much of the order inflow during
2001.even though these segments registered decline, in comparison with the previous
corresponding year.

2.4 Export Performance:

In view of an imminent slowdown in the Indian economy, most Indian machine

tool manufactures focused on potential overseas markets for business opportunities.
Sustenance on Indian market alone did not look feasible enough.

Further, there has off late been a perceptible change in the image of the made in
India brand in overseas markets particularly true for Indian‐built machine tools.
Enhanced features, competitive pricing, and marketing focus has increased demand for
Indian –made machine tools in overseas markets, particularly in Europe, United states,
and East‐Asian regions.
 And this is what Indian machine tool manufactures are hoping to leverage so as
to post an optimistic export turnover in the next few years.

Indian‐made machine tools are currently exported to over 50 countries: major

ones being United states, Italy, Brazil. Germany and the middle East. Lathes and
automats, presses, electro‐discharge machines, and machining centers formed the bulk
of export orders for Indian manufactures. These machines from the Indian basket are
generally favored in overseas markets primarily due to their cost‐competitiveness, as
compared to that available elsewhere compared to those available elsewhere.

This vision of the Indian machine tool industry is now to step out and establish a
relative presence in, other potential markets. World‐over, market leaders have been
those who have looked to increase their market presence beyond their national
frontiers.

2.5 Industry Structure

Machine tool industry in India comprises about 450 manufactures with 150 units
in the organized sector. Almost 70 percent of production in India is contributed by ten
major companies of this industry. And over three‐quarters of total machine tool
production in the country comes out of ISO certified companies. Many machine tool
manufacturers have also obtained CE marking certification, in keeping with
requirements of the European markets. The industry has an installed capacity of over Rs.
10,000 million and employs a workforce totaling 65,000 skilled and unskilled personnel.

Machine tool industry in India is scatted all over the country. The hub of
manufacturing activities, however, is concentrated in places like Mumbai and Pune in
Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad, Baoada,
Jamnagar, Rajkot and Surendranagar in Gujarat, Combatore and Chennai (Madras) in
Tamilandu: some parts in East India; and Bangalore in Karnataka.

Bangalore is considered as the hub for the Indian machine tool industry. The city,
for instance, house HMT machines Tools limited, a company that manufactures nearly
32 percent of the total machine tool industry’s output.

2.6 User Industries Services

The industry’s prospects mainly depend on growth of engineering industries. The

user sectors of machine tools are the automotive, automobile and ancillaries, Railways,
Defense, Agriculture, steel, Fertilizers, Electrical, Electronics, Telecommunication,
textile machinery, ball & roller bearings, industrial values, power‐driven pumps, multi‐
product engineering companies, earth moving machinery, compressors and consumer
durable like washing machines, refrigerators, television sets, watches, dish‐washers,
vacuum cleaners, air conditioners, etc.
 CHAPTER III

PROFILE OF SAND FITS PVT

LIMITED

ORGANISATION PROFILE

3.1 INTRODUCTION

Sand fits is once of the leading machine tool manufacturing units in India
established in the year 1943, Sand fits’s production are well known in the field of
machine tools the company in organized in four divisions via the machine tools forge
foundry and CNC division which pulsated with the activities of 697 employees turning
out a wide range of production the four divisions equipped with the modern facilities for
design development of manufacture of machine tools, are manned by qualified
personnel with proven record of technical knowledge and exquisite craft smashup
acquitted over a period of year.

Sand fits is proud of its diverse of machine tools the cutler& tools venders milling
machines copy lathes thread rolling machines & Sand fits CNC machines which keep
pace with the ever changing technology in addition the company also manufactures a
wide of industrial forgings for railway automotive & ordnance applications.

Sand fits’s wriest investment has been in its excellent collaboration with world
famous names like Jones & shipman of UK for surface grinding and cutter of tool
vendors gamin of France for milling machines scoffers of grace for thread rolling
machines George finisher of Switzerland for coping lather Mitsubishi Heavy industries of
Japan for machining centers of Kayo spiky of Japan for CNC lather the collaboration have
culminated in Sand fits producing machine tools of the highest quality conforming to
international standards by virtue of their dependability prevision engineering & proven.

PROFILE OF SAND FITS

The SAND FITS PVT is one of the oldest, machine Tools industries in India and has
entire its golden jubilee year in 1993‐94. The company has incorporated has the joint
stock company is 1943 has a private company with objective of manufacturing,
instruments with the Technical assistance of a few Czechoslovakia Engineers. The
company was incorporated in Many 1943 as a public limited company in private sector.
The name SAND FITS symbolizes the technical co‐operation extended in the initial phase
by some Czechoslovakian engineers who suggested the naming of the company as SAND
FITS after their capital city PRAGUE (SAND FITS).

In March 1995, the Government of India acquired the controlling interest in the
company by acquiring majority shares and placed the administrative control under the
ministry of commerce and industry from May 1995 to December 1963. The managing
agents M/S united industrial corporation limited initially managed the company.
Administrative control of the company has been transferred from the defense minister
to the department of public enterprise under ministry of industry on the 25 th of April
1986. Presently the company enjoys the status of being a subsidiary of HMT LTD.
Bangalore when a paid up capital of the company was transferred in its name from the
government.

The company has four manufacturing nits located with in the twin cities of
Coimbatore at sulur road at cbe it manufactures a wide range of machine Tools,
accessories and defiance items. A unit of forge and foundry divisions is located at
Kukatpally Coimbatore where manufactures castings and forgings are.
 A CNC project was established with advance technology like numerical control
machines like automobiles CNC lathes, VNC mailing machines etc are manufactures with
the qualified personnel’s in the fields of engineering of technology.

The company has manpower of 2000 employees turning out wide range of
products.

The company has organized into four divisions viz., the machine Tools division
(MT‐I), machine Tools II (MT‐II), forge and foundry division, and the CNC division.

Performance Sand fits machine tools ate penetrating large segments of foreign
markets including UK CIC Canada, Bulgaria, Indonesia, Germany, Japan.

SAND FITS is even mote proud of the fact that it has contributed to the
development of thee machine tools industry in the development of the machine tools
industry in the country and the creation of a vast band of skilled technicians thus Sand
fits to day in name of techno, within the machine tool industry.
3.2 CORPORATE VISION OF SAND FITS TOOL

VISION STATEMENT:

SAND FITS PVT to be the provider of choice for total machine tools solution to
customers and a significant provider of service in Indian industry of oversees too the
strong market position in to be sustained by the provision of integrated products and
services and the aggressive marketing of machine tool knowledge expensive and
support services.

COMPANY STATRATEGY:

1. To maintain good customer relation

2. Providing after seller service
3. Increasing the book order position
4. To maintain good quality and loyalty of the customers on their products
5. Maintain better research and development activities
6. Relation to company and other customer services through conducting the
product exhibition within the company preview
QUALITY VALUE:

 Commitment of the management of the quality at all stager.

 To create quality culture among all employees to maintain quality leadership in
all products.
 To maintain quality leadership in all products and services.
 Total customer satisfaction through quality goods and services.
 Total quality through performance leadership.
3.3 MANUFACTURING FACILITIES

The company has two manufacturing units the order manufacturing unit is
located at in coimbatore, the heart of the city these unit houses the machine toils
division and the corporate head office and accompanies and area of slightly over 1 acres
the company.

Has its second manufacturing has is at balanagar in Coimbatore, about 5 to 6 kilometers

from Coimbatore, airport the CNC division forge shop of foundry division are located in
the balanagar unit the total and available with the currently utilized by the CNC division
forge shop and foundry division leaving a surplus of nearly 100 acres.

3.4 PRODUCT RANGE:

The company has three manufacturing division viz., can

pavilion forge shop and foundry division.

MACHINE TOOLS DIVISION:

The major products manufactured by the company in its machine toll division are
cutler of fool grinders, milling machines, thread rotting machine, lather chuckn etc.
There products were developed with the technical assistance of the world‐renowned
machine tool manufacture by entering into collaboration agreements with M/s.
Escofier, SA, France, M/s. F. Pratt and Co. and U.K. There machines enjoy good
reputation in the market.
FORCE DIVISION:

Railway Duplication

Auto dialer pants

Tractors links

Other casting

BOUNDARY DIVISION:

Casting for companies machine tools:

The sophisticated machines like CNC machining center sideway, grinding

machines, universal grinding machines, jigs boring machine with coordinated system
been added at a cost of Rs. 1,107.05 lacks.

SAND FITSS VALUES:

Underlying our minion in a set of core corporate valued which deliver Sand fits
priorities. This set of values creates an overall framework for determining our derived
future and developing plans to achieve it.

We take advantage of existing synergies and foreseeing higher level of competitiveness.

Safety in the priority value for all aspects of our business.
SWOT Analysis:

STRENGTHS:

 Proven products and brand image.

 High brand loyalty of customer.
 High market shares in few of the products categories.
 Skilled work force.
 ISO 9001 accredited company.
WEEKNESSES:

 Limited product gage.

 Low power supply.
 Out dead technology.
 Inadequacy of working capital.
 Aberrance of MIS.
 Board needs to be board bared and must include.
 Financial expensive.
 Obralete machinery.
 High man power cost.
 Poor marketing plants.
OPPORTUNITIES:

 Prospects of improved in auto and automotive sector.

 Export potential for exports of machines.
 Foreign and components(with up gradation)
Opportunity to from joint venture update technology. And use technical manicuring
experience for globalization through venture partnership.
Diversification into related areas where ever synergy exists.

Threats:

 Dwindling market for some of the products server.

 Competition from imports of latest technology machines.
 A threat from second hand machine imparts.
 Shrinking resources of traditional customers, defense and railways.
The above analysis indicates ample scope and prospects for the company subject to
corrective steps being taken early.
 CHAPTER – IV

CONCEPTUAL & METHODOLOGLCAL FRAME WORK

4.1 NATURE OF WORKING CAPITAL

Working capital management in concerned with the problem that arises in

attempting to manage the current assets current liabilities and the inter relationship the
exist between them the term current assets refers to those assets which in ordinary
course of business can be or will be turned into cash within one year without
undergoing diminution in value and without undergoing in value and without disrupting
the operations of the firm.

The major current assets are cash marketable securities accounts receivable and
inventory, current liabilities those liabilities, which are intended at their inception to be
paid in the ordinary course of business with in a year current liabilities are amount
payable, bills payable bank overdraft and outstanding expenses.
4.2 DEFINITION OF WORKING CAPTIAL:

According to MY Khan and P.K Jain “Working capital refers to manage the firm
current assets and current liabilities in such a way that a satisfactory level of working
capital is maintained.

According to the Shubin “working capital is an amount of fun is necessary to

cover the cost of operating the enterprise”.

Working capital management is concerned with the problems is that arise in

attempting to manage the current assets and the current liabilities and their inter
relationship they arise between them.

Current assets refer to those assets which to ordinary course of business can be
or will be turned into cash within one year without undergoing a diminution in value
and without disrupting the operations of the firm.

The major current assets are cash marketable securities accounts receivable and
their inception to be paid in the ordinary course of business within a year out of Current
Assets or earnings of the concern. The basic Current Liabilities are Bill payables, Bank
Overdrafts and Outstanding expenses.

The goal of working capital managements is to manage the firms Current Assets.
And Current Liabilities in such a way that a satisfactory level of working capital is
maintained.

Thus the current assets should be large enough to cover its current Liabilities in
order to ensure a reasonable margin of safety. Each of the current assts must be
efficiently in order to maintain the liquidity of the short term be managed efficiently in
order to maintain the liquidity of the short term sources of financing must be
continuously managed to ensure that they are obtained and used in a best possible way.
 Therefore interaction between current assets and current liabilities in the main
theme of working capital Management.

The current assets should be large enough to cover is current liabilities in order to
ensure a reasonable margin of safety. The interaction between current assets and
current liabilities in therefore the main theme of the threat of working capital
management.

The two concepts of working capital are:

4.3 Methodological Framework

The data for the period 2001‐2005 used in this study have been taken from
primary and secondary sources. The necessary primary data have been collected from
corporate office of the organization; secondary data have been collected from the
financial statements published in the report of the SAND FITS PVT LTD.

Data was analyzed through various established techniques of working capital and
personal observation. Editing the data, clarification and tabulation of the financial data
collection from the above mentioned source have been done as per the requirements of
the study. Data has been analyzed using various comparative statements and working
capital ratios.

The data is analyzed in the chapter‐4 ‘Analysis of Working Capital

SAND FITS PVT LTD’ under the following head.

1. Trends in Net Working Capital

2. Working Capital Ratios
a) Current Ratios
b) Quick or Acid test Ratio
c) Current Assert Turnover Ratio
d) Current Asserts to Total Asserts Turnover Ratio
e) Working Capital Turnover Ratio
 3. Cash Management
a) Percentage of Cash to Current Asserts
4. Receivables Management
a) Debtors Turnover Ratio
b) Debtors Collection Period
5. Inventory Management
a) Inventory to Total Current Asserts
b) Inventory Turnover Ratio
c) Inventory Holding Period in Days
4.4 NEED FOR WORKING CAPITAL:

Working capital is the amount of funds necessary to cover the cost of

operating the enterprise. Working capital in a going concern is revolving funds; it
consists of cash receipts from sales which are used to cover the cost of current
operations.

The need of working capital arises because of time gaps in manufacturing and
marketing cycle of business operations. This time gap is due to time gaps between
Cash and purchase of Raw‐Materials.

a) Purchase and production

b) Production and sales
c) Sales and Realization of cash.
During these intervals, the company should have ready working or operating
funds to keep their business going. Thus every business concern should have sufficient
liquidity funds as its disposal to buy Raw‐Materials, stores etc to pay wages to personnel
and to meet incidental expenses with the installed plant equipment, tools and other
fixed assets, the concerned would be able to produce finished goods by spending cash
or Raw Materials, intermediate goods Labor remuneration etc. The goods so produced
will swell into inventories or stock soon, the stock will take the form of debtors or Bill
Receivable on maturity.
 There is therefore, a need for working capital, because the production Sales and
cash payment and realization of cash are not instantaneous, the company needs cash to
purchase Raw material and to meet expenses as there may not be helps to meet future
agencies.

The stocks or Raw materials are kept in order to assure smooth production and
protect against the risk of Non availability of raw material. Similarly, stocks of finished
goods have to be carried to meet the demands of the customers on continuous basis
and sudden demand. Thus, an adequate amount of funds has to be invested in current
assets for smooth and uninterrupted. Production and sales process, which is refers to as
operating cycle or cash cycle. The operating cycle determines the need for working
capital.

The operating cycle represents the period during which investment of one unit of
remain blocked till recovery out of revenue, in other words, the operating cycle refers to
the time necessary to complete.

a) Conversion of cash into Raw Material.

b) Conversion of Raw Material into finished goods.
c) Conversion of finished goods into cash sales or credit sales.
d) Conversion to credit sales or receivable into cash.
Thus, it is said Management must know the length of time required to convert cash into
resource used by the firm, the resource into the resource used the firm the resource
into final product. The final product into receivable bank into cash. This is the operating
cycle of an enterprise.
 Thus, it is said Management must know the length of time required to

convert cash into resource used by the firm, the resource into the firm the resource into
final product. The final product into receivable bank into cash. This is the operating cycle
of an enterprise.

The pattern of operating cycle depends upon the nature of the enterprise. The
financial institution may have a shorter cycle while trading concern has and extended
one. The usual operating cycle of manufacturing concern is shown. In real business
situation, the operating or cash flow cycle in not as simple and smooth going as the
depicted above. A going concern by nature undergoes the process of liquidity the
besides, a circular flow among working capital itself, all process of liquidity valued added
to the product of the firm.

Therefore, we can say that, working capital in needed not only for financing
current assets but also to meet various other requirements like payment of dividends,
interest etc. Therefore, it is recovery for a product financial manager to provide correct
amount of working capital at the time to provide for operating reach.

5.5 SCOPE OF WORKING CAPITAL MANAGEMENT

Since a firm has to maintain a sound working position and there should be
optimum investment in working capital, effective management involves manages of
current assets and current liability. Current asserts management involves management
of current assets like Cash.

Marketable Securities, Account Receivable, inventories etc. effective in order to

maintain liquidity of the firm. The process of current asserts management can be as
follow management of cash and Marketable Securities.
 a) Management of cash and Marketable Securities.
b) Management of Cash.
Current liability management is concerned with the management of curr3ent
liabilities like, trade Credit or Account Payable, Accruals etc. which represents short
term financial source and must be cautiously management to ensure that they are
obtained and used in the best way possible.

4.6 OBJECTIVES OF WORKING CAPITAL

The main if working capital management in to attain trade off between

profitability and risk. Here risk refers to the profitability that a firm will become
technically involvement that is unable to pay obligation promptly. Risk is commonly
measured by using either the amount of net working capital of the current ratio. Thus
more the net working capital the more liquidity is associated with increasing levels of
risks.

To have higher profit the firm may have to sacrifice solvency that is take the risk
of technical insolvency and maintain relatively low level of current assets. When the
firm does so, its profitability would improve but greater risk of technical insolvency.

Thus, if a firm wants to increase profitability it must also increases its risk and if it
want to decrease risk, it must decrease profitability. Thus, working capital management
involves trade off between risk and profitability.
4.7 COMPONENTS OF WORKING CAPITAL

The main components of working capital are currents assets & currents liabilities.

A. CURRENT ASSETS:

Current assets comprised items that would get converted in to cash in short
term, within a year, through the business operations current asserts include.

Inventories including stock of raw material, work in progress, finished goods &
factory supplies. Packing, shipment material, office supplies etc

Loan & advances, other balances; include sundry debtors, bills receivables and others
including loans and advances, prepaid expenses etc.

Marketable securities including government securities and semi government securities,

cash and bank balances.

B. CURRENT LIABILITIES:

Current liabilities are those which are expected to fall due of mature for payment
in short period of one year and they represent short term source of funds. They include:

C. SHORT TERM BORROWINGS:

Include bank borrowings other than those against own debentures and other
mortgages, trade creditors and other labializes sundry creditors, outstanding expenses
and advances received etc.

Provision for taxation, dividends and other current provisions.

4.8 GROSS WORKING CAPITAL:

Gross working capital in represented by the sum total of all current assets of the
enter price adequate funds have to be provided to sustain the movement of the row
material through the work in process to the finished goods stage and then to receivables
and up to realization of cash.

NET WORKING CAPITAL:

Net working capital in excess of current assets over current liabilities the concept
of net working capital highlights the character of serves from which the funds have been
obtained to support that position of current liabilities.

PRORIETORS FUNDS

CREDITORS
NEED FOR WORKING CAPITALS

Business firms aim at maximizing the wealth of shareholders. In its endeavor to

maximize shareholder’s wealth a firm should earn sufficient return from its operation
earning a steady amount of profits required successfully sales activity. The firm has to
invest enough funds in current assets for the success of sales activity current assets are
needed because sales don’t convert into cash instantaneously there is always an
operating cycle involved in the conversion of sales into cash.

PERMANENT AND TEMPORARY WORKING CAPITAL:

The above figure shows permanent level is fairly constant, while temporary
working capital is fluctuating some times increasing and some time decreasing in
accordance with seasonal demands, in the case an expanding firm the permanent
working capital may not be horizontal. This is because the demand for permanents
current asserts might be increasing or decreasing support a rising level of activity. In that
the line should be a rising one.
 Temporary or

Permanent

TIME

PERMANENT AND TEMPORARY WORKING CAPITAL.

Both kinds of working capital are necessary to facilitate the sale process through
the operation cycle. Temporary working capital is created is created to meet liquidity
requirements that are purely transient nature.

4.9 THE DANGERS OF EXCESSIVE WORKING CAPITAL

1. It results in unnecessary accumulation of inventories thus chances of inventory

mishandling waste theft and losses increases.
2. It is an indication of defective credit policy and slack collection period.
Consequently higher incidence of bad debts results, which adversely effect
degenerated into management co placement, which degenerated into
managerial inefficient.
3. Excessive working capital makes management complacent, which degenerates
into managerial efficiency.
 4. Tendencies of accumulating inventories to make speculation profits grow this
may tend to make dividend policy liberal and difficult to cope with in future when
the firm is unable to make speculative profits.
INADEQUATE WORKING CAPTIAL

1. It stages growth and become difficult for the firm to undertaken profitable
projects for non‐availability of working capital funds.
2. It becomes difficult to implement operating plans and achieve the firms profit
target.
3. Operating inefficiencies creep in when it becomes difficult even to meet day‐to‐
day commitments.
4. Fixed assets are not efficiently utilized for the lack of working capital funds thus
the firms profitability would deteriorate.
5. Paucity of working capital funds renders the firm unable to avail attractive credit
opportunities etc.
6. The firm losses its reputation when it is not in position to honor its short term
obligation as result the firm faces tight credit terms.
Thus, enlightened management should therefore maintains a right

amount of working capital on a continuous basis which helps to develop the

organization effectively and efficiently.

4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL MANAGEMENT:

1. Working capital management requires must of the finance manger time as it

represent a large position of investment is assets.
2. Working capital management requires much of the finance management time as
it represent larger position of investment in assets.
 3. Action should be taken to curtail unnecessary investment in current assets.
4. All precautions should be taken for the effective and efficient management of
working capital.
5. Larger firms have to manage their current assets and current liabilities very
carefully and should see that the work should be done properly in order to
achieve predetermined organization goals.
6. The financial manger should pay special attention to the managements of current
assets on continuing basis.
FUNDS FLOW STATEMNET

Funds flow analysis design effective management toll to study how funds have
been procured for the business and how they have been employed. The statement of
variation in working capital is based fundamentally on the same approach used for the
preparation of funds flow statement. This technique helps to analyses changes in
working capital between dated or two balance sheets. The comparison of current assets
and current liabilities as shown in the balance sheet at the beginning and the ending of a
specific period.

The statement of changes in working capital reveals to manage to way in which

working capital was obtained and use with this insight management to can prepare the
estimates of the working capital flows. A project statement of changes in working
capital is very much useful in the firm long planning.

CONCEPT OF FUND

The working capital flow or fund arises when the net affect of a transaction is to
increase or decrease the amount of working capital a firm will have same transactions
that will change net working capital and same that will cause no change in net working
capital transaction which change net working capital include most of items of the profit
& loss account and those business events which simultaneously effect both current and
not current balance sheet items. On the other based transaction, which do not increase
or decrease working capital include those which effect only current accounts or only
non current accounts.

USES AND SIGNIFICANCE OF THE FUND FLOW STATEMENT

A Funds Flow statement show how the resource has been obtained and the uses to
which are put it helps in analyzing the financial operations.

1. It helps in determining the financial consequences of business operations.

2. It is useful in judging whether the fund has expanded at too faster rate and
whether financing is trained.
3. It points out the effectiveness with which the management has handled working
capital during the period under review.
4. The statement can assist the financial management in planning intermediate and
long‐term finance to obtaining resources in the further and determining how
they are used.
5. It gives an insight into the evaluation of the present situation it provides
certain useful information about the firm financial policies to out side

world.

The funds flow statement is becoming popular with the management

because it helps to explain why in spite of earn sizeable amount of profits the
company is experiencing difficulty in making payment to creditors the rate of
dividend on equi9ty shares cannot be increased and bank balance is getting thinner.
OBJECTION OF FUND FLOW ANLAYSIS:

1. To indicate the result of current financial position.

2. To lay emphasis on the most significant change that has taken place during
specified period.
3. To show how general expansion in business has been financed or to describe the
sources from which additional funds were derived.
4. To know the relationship between profits from operating distribution of dividing
and rating a new capital or contracting of loans.
5. To give reorganization to the fact that a business exists on flow of funds and is
not a static management.
MANAGEMENT OF CASH

CASH MANAGEMENT:‐

Cash is the important assets for the operations of the business cash is the basis
input to keep the business running on continuous basis. Cash shortage will disrupt
the firms manufacturing operations while excessive cash will simply remain ideas
without contribution any thing towards the firm’s profitable way.

Cash management is concerned with the managing of cash flow into and out of
the firm cash flow with in the firm and cash balances held by the firm at appoint of
time by financing depict investing surplus cash. Cash management is to obtain
adequate control over cash position to keep the firm sufficiently liquidate and to use
excess cash in some profitable way.

CASH PLANNING:‐

Cash planning is technique to plan and control of the use of funds. It protect the
financial condition of them firm by developing a projected cash statement from a
forecast of plans are very crucial and developing the overall operating plans of the
firm.

USES OF CASH MANAGEMENT:‐

1. It indicates company’s future financial need especially for its working capital
requirement.
2. To help to evaluate proposed capital projects.
3. It pinpoints the cash required to finance these projects as well as the cash to be
generated by the company to support them.
4. It helps to improve corporate planning.
5. Cash forecasting helps to future and to formulate projects carefully.
 CHAPTER –V
DATA ANALYSIS & INTERPRETATION
Table-1
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2001 & 31-03-2002
Rs. in Lakhs

S.No. Particulars 31‐03‐2001 31‐03‐2002 Increase Decrease

(a)

Current
Assets

Inventories 1,44,120.00 1,19,395.00 24,725.00

Sundry debtors 71,970.00 61,278.00 10,692.00

Cash & Bank

1,213.00 1,252.00 39.00
balance

Loan & Advance 31,317.00 22,180.00 9,137.00

Total (a) 2,48,620.00 2,04,105.00

(b)

Current
Liabilities

Current Liabilities 3,41,037.00 3,70,306.00 29,269.00

Provisions 82,424.00 83,160.00 736.00

Total (b) 4,23,461.00 4,53,466.00

Working
(a‐b) ‐1,74,8,741.00 ‐2,49,361.00
Capital

Net increase
74,520.00 74,520.00
in W.C

Total of
‐7,74,841.00 ‐1,74,841.00 74,559.00 74,559.00
N.W.C
ANALYSIS:

Above table explaining that working capital shows the continuous increase in the net
working capital through in the year 31-03-2000 to the year of comparing the balance sheet is the
year 31-03-2001 to 31-03-2002. So, this is due to the sale of inventory and reducing the debtors
and increasing the current liabilities and provisions.
Rs. in Lakhs

S.No. Particulars 31‐03‐2002 31‐03‐2003 Increase Decrease

(a)

Current Assets

Inventories 1,19,395.00 72,230.00 47,165.00

Sundry debtors 611,278.00 28,478.00 32,800.00

Cash & Bank

1,252.00 7,041.00 5,789.00
balance

Loan & Advance 22,180.00 13,205.00 8,975.00

Total (a) 2,04,105.00 1,20,954.00

(b)

Current
Liabilities

Current Liabilities 3,70,306.00 3,10,123.00 60,183.00

Provisions 83,120.00 71,062.00 12,099.00

Total (b) 4,53,466.000 3,81,185.00

Working Capital (a‐b) ‐2,49,361.00 ‐2,60,231.00

Net decreased
10,870.00
in W.C

Total of N.W.C ‐2,49,361.00 ‐2,49,361.00 88,940.00 88,940.00

ANALYSIS:

Above table discloses that working capital shows the continuous increase in the net
working capital through in the year 31-03-2002 to the year of comparing the balance sheet is the
year 31st March. So, this is due to the sale of inventory and reducing the debtors and decreasing
the current liabilities and provisions.

Table-2
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2003 & 31-03-2004.
Rs. in Lakhs

S.No. Particulars 31‐03‐2003 31‐03‐2004 Increase Decrease

(a)

Current Assets

Inventories 72,230.00 50,765.00 21,465.00

Sundry debtors 28,478.00 34,042.00 5,564.00

Other current
‐‐‐ 4,932.00 4,932.00
Assets

Cash & Bank

7,041.00 1,56,398.00 1,49,357.00
balance

Loan & Advance 13,205.00 11,368.00 1,837.00

Total (a) 1,02,954.00 2,57,505.00

(b)

Current
Liabilities

Current Liabilities 3,10,123.00 3,77,829.00 67,706.00

Provisions 71,062.00 71,793.00 671.00

Total (b) 3,81,185.00 4,49,562.00

Working Capital (a‐b) ‐2,60,231.00 ‐1,92,057.00

Net decreased
68,174.00 68,174.00
in W.C

Total of N.W.C 1,59,853.00 1,59,853.00

ANALYSIS:

The above table discloses in this working capital as that was the Net decrease in working
capital in this year 31-03-2003 to 31-03-2004 is Rs.68,174.00 due to major reasons of adjusting
current assets as increase and the current liabilities decrease but the provision decreased.

Table-3
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2004 & 31-03-2005.
Rs. in Lakhs

S.No. Particulars 31‐03‐2004 31‐03‐2005 Increase Decrease

(a)

Current Assets

Inventories 50,765.00 43,429.00 7,336.00

Other current
4,932.00 5,313.00 381.00
Assets

Sundry debtors 34,042.00 36,681.00 2,639.00

Cash & Bank

1,56,398.00 51,469.00 1,04,929.00
balance

Loan & Advance 11,368.00 10,466.00 902.00

Total (a) 2,57,505.00 1,47,358.00

(b)

Current
Liabilities
 Current Liabilities 3,77,829.00 3,90,548.00 12,719.00

Provisions 71,733.00 57,232.00 14,501.00

Total (b) 4,49,562.00 4,47,780.00

Working Capital (a‐b) ‐1,92,057.00 ‐3,00,422.00

Net decreased
1,08,365.00 1,08,365.00
in W.C

Total of N.W.C ‐1,92,057.00 ‐1,92,057.00 1,25,886.00 1,25,886.00

ANALYSIS:

In this above table of working capital discloses that as the net increase in working capital
in this 31-03-2004 to 31-03-2005 is Rs.1,08,365.00 due to major reasons of adjusting current
assets as increase and the current liabilities decreases but the provision decreased.
THE STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN 31‐3‐2005 TO 31‐3‐
2006

S.No Particulars 31-03-2005 31-03-2006 Increase Decreased

(a) Current Assets

Inventories 43,429.00 40,255.00 -------- 3,174.00

Sundry
Debtors 5,313.00 5,837.00 524.00 --------

Cash & bank

balances 36,681.00 37,282 601.00 -------

Loans &
advances 51,469.00 1,34,653.00 83,184.00 -------

Total (a) 1,47,358.00 2,34,274.00

(b) Current
Liabilities

Current
liabilities 3,90,548.00 2,71,304.00 1,19,244.00 -------

Provisions 57,232.00 69,406.00 12,174.00

 Total 4,47,780.00 3,40,710.00

Working capital (a-b) -3,00,422.00 -1,06,436.00

Net decrease in W.C 1,93,986.00 1,93,986.00

Total of N.W.C 1,06,436.00 1,06,436.00 2,09,334.00 2,09,334.00

ANALYSIS :‐

Lastly in this year the statement of working capital shows the continued decreased in the net
working capital through in the year 31st March 2005 to the year of comparing the balance sheet is the
year 31st March 2006. So, this is due to funds flow statement.

FUND,S FLOW STATEMENT AS ON 31ST MARCH, 2001.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured
2,39,919.00 Purchased of Fixed Assets 108.00
Loans

Increased in Un‐secured Net increased in working

14,062.00 85,948.00
Loans capital

Funds Lost in operation 1,67,925.00

Total 2,53,981.00 Total 2,53,981.00

ANALYSIS:

During this year 2000‐2001 the funds flow statement the losses of the SAND FITS
PVT LIMITED is still continuing. The company has mobilized his funds increased figures
of the secured and unsecured loans. The company has adjusting their losses through
these areas and in this year the purchasing power of the company is also decreased.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2002.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured
2,64,416.00 Purchased of Fixed Assets 33.00
Loans

Increased in Un‐secured Net increased in working

8,237.00 85,948.00
Loans capital

Work in Progress 746.00 Funds Lost in operation 1,87,418.00

Total 2,73,399.00 Total 2,73,399.00

ANALYSIS:

In this last year of comparing there is the funds flow statement is still including
the losses from the operation. The company has procured huge amount from
borrowing loans in the from of secured and unsecured loans. The company has Wright
off their losses in operations which is the major thread of the company that’s need to be
ratified by the management of the SAND FITS PVT Limited.
FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2003.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in secured Purchased of Fixed

4,07,033.00 652.00
Loans Assets

Increased in Un‐secured Net increased in

13,764.00 10,870.00
Loans working capital

Funds Lost in operation 4,09,284.00

Total 4,20,779.00 Total 4,20,779.00

ANALYSIS:

During this year 2002‐2003 the funds flow statement the losses of the SAND FITS
PVT LIMITED is still continuing. The company has mobilized his funds increased figures
of the secured and un‐secured loans. The company has adjusting their losses through
these areas and in this year the purchasing power of the company is also decreased.

FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2004.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in un‐secured Decreased in

13,747.00 1,05,789.00
Loans secured loans

Sales of fixed assets 9,211.00

Net decreased in working

68,174.00
capital

Funds lost in operations 14,657.00 10,870.00

 Total 1,05,789.00 Total 1,05,789.00

ANALYSIS:

During this year 2003‐2004 the funds flow statement the losses of the SAND FITS
PVT LIMITED is still continuing. The company has mobilized his funds from increased
figures of the secured and un‐secured loans. The company has adjusting their losses
through these areas and in this year the purchasing power of the company is also
decreased.

FUND’S FLOW STATEMENT AS ON 31ST MARCH, 2005.

SOURCES AMOUNT APPLICATIONS AMOUNT

Increased in Share Capital Net increased in

1,700.00 1,08,365.00
funds. working capital

Funds lost in
Increased secured loans 2,12,657.00 1,35,004.00
operations

Increased un‐secured
13,746.00
loans

Sales of fixed assets 15,266.00

Total 2,43,369.00 Total 2,43,369.00

ANALYSIS:

During this year of comparing there is the funds flow statement is still including in
losses from the operations. The company has procured huge amount from borrowing
loans in the form of secured and unsecured loans. The company has Wright off their
losses in operations in operations which is the major thread of the company that’s need
tobe ratified by the management of the SAND FITS PVT Limited.
Funds Flow statement as on 31st March 2006

SOURCES AMOUNT APPLICATIONS AMOUNT

Decreased Security
Sales of fixed assets
2,043.00 loans 18,45,247.00

Net decreased working Decreased unsecurity

capital 1,93,986.00 loans 24,806.00

Funds lost in
operations 16,74,024.00

Total 18,70,053.00 Total 18,70,053.00

ANALYSIS:‐

In this year 2005‐2006 the funds flow statement the losses of the SAND FITS PVT LIMITED is still
continuing. The company has mobilized his funds increased figures of the secured and unsecured loans.
The company has adjusting their losses through these areas and in this year the purchasing power of the
company is also decreased.
Funds Flow statement as on 31st March 2006

SOURCES AMOUNT APPLICATIONS AMOUNT

Decreased Security
Sales of fixed assets
2,043.00 loans 18,45,247.00

Net decreased working Decreased unsecurity

capital 1,93,986.00 loans 24,806.00

Funds lost in
operations 16,74,024.00

Total 18,70,053.00 Total 18,70,053.00

ANALYSIS:‐

In this year 2005‐2006 the funds flow statement the losses of the SAND FITS PVT LIMITED is still
continuing. The company has mobilized his funds increased figures of the secured and unsecured loans.
The company has adjusting their losses through these areas and in this year the purchasing power of the
company is also decreased.

CHART – 1

TRENDS IN NET WORKING CAPITAL

Series1

120
100
80
60
40
20
0

2002-03 2003-04 2004-05 2005-06

INTERPRETATION:‐

Net working capital had shown an increasing trend since, 2002, which in taken as a base year
from 100% to 98.40% in 2006. Which appears to be a normal trend. A careful analysis into the
components of the working capital would reveal the changes in NWC the current assets decreased in the
next years that is 2003‐04 and at the next consecutive assets increased in the next consecutive year to a
good extent, but there is a decreasing trend in the year 2005‐06 as the current liabilities are covered
their in a increase in the next two year, 2003‐04 & 2004‐05 but there is gradual decrease in the year
2005‐06 which is good sign to the company.

This is calculated on the basis of the prevision year i.e. the net working capital shown a
decreasing trend compare to the year 2002‐03 then the net working capital increaser gradually from
2003‐04 & 2005‐06.

TYPES OF RATIOS

Several ratios calculated from the accounting data, can be grouped into
various classes according to financial activity or function to be evaluated the parties
interested in financial analysis are short and long term creditors owners and
managements short term creditors main interested is in the liquidity position or
short term solvency of the form long term creditors on the other hand. Are more
interested in the long‐term solvency and profitability of the form. Similarly owners
are more interested on the form profitability and conditions. Management is
interested in evaluating every aspect of the forms performance. They have protect
interested of all the parties.

The ratios are classified into three types.

(a). Liquidity Ratios

 (b). Leverage Ratios

(c). Profitability Ratios

LIQUIDITY RATIOS:‐

Liquidity Ratios measure the ability of the firm to meet its current

obligations. The analysis of liquidity needs the preparation of cash budget and cash
fund flow statement but liquidity ratios by establishing relationship between cash and
other current asset of current obligation, provide a quick measures of liquidity. A firm
should ensure that it does not suffer form.

LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:‐

Liquidity ratio measures the short‐term solvency of the firm. The

following are the important liquidity ratios.

4.2 WORKING CAPITAL RATIOS:‐

Current Assets

Current Ratio = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Current Liabilities

The current Ratio is calculated by dividing current assets by current liability. The current ratio is
a measure of the firm’s short term solvency a current ratio of 2 or more in considered satisfactory.

TABLE – 2

CURRENT RATIO

(In Lakhs)
 Year Current Assets Current Liabilities Current Ratios

2002-03 17846.14 4652.24 4.10

2003-04 15800.00 5117.81 3.09

2004-05 20272.00 11485.00 1.76

2005-06 1377.11 5130.73 2.69

CHART – 2

CURRENT RATIO

Current Ratios
5.00

4.00
3.00
Rati

2.00
1.00

0.00
2002-03 2003-04 2004-05 2005-06

Year

INTERPRETATION:‐

Generally 2:1 in considered ideal for a concern from the ratios we can observe that the ratios
are above the standard in the year 2002‐03 & 2003‐04 but in the year 2004‐05 the firm in not able to
maintain a standard level of liquidity so the current assets ratio has been directed below standard level
that is by 1.76 but in the year 2005‐06 the company is able to regain its standard level and can obtain its
current assets ratio by 2.69 compared to its current liabilities.
 Quick Assets

Quick or Acid Test Ratio = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Current Liabilities

The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratio measures the firms
liability to meet short term liabilities from its liquid assets that is current assets inventories.

TABLE – 3

QUICK RATIO

Year Quick Assets Current Liabilities Quick Ratios

2002-03 10141.00 4352.00 2.33

2003-04 8697.00 5118.00 1.64

2004-05 15335.00 11486.00 1.34

2005-06 9722.00 5130.00 1.89

CHART‐3

QUICK RATIO

Quick Ratio
2.5

1.5
Rat

1 Series1

0.5

0
2002-032003-042004-052005-06
Year
INTERPRETATION:

Quick ratio is ascertained by comparing the liquid assets this ratio shows the immediately
available assets which can be easily converted in to cash to meet the short term solvency of the
company the normal value which shows the non availability of assets for immediate conversion into
liquid cash in the later year the figures were a little.

ABSOLUTE LIQUIDITY RATIO:‐

It is the ratio of absolute liquidity assets to quick liabilities. However, for calculation purpose it is
taken as ratio of absolute assets includes cash in hand at bank and short term or temporary inventory
investments.

Absolute Liquidity Assets

Absolute Liquidity Ratio = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Current Liabilities

Absolute Liquidity Assets = Cash in hand + Cash at bank + Short term investments

The ideal Absolute Liquidity Ratio is taken as 1:2 or 0.5

Absolute Liquid Current Current

S.No Year
Assets Liabilities Ratio

1 2001-2002 23,432,000.00 453,466,000.00 0.05:1

2 2002-2003 20,246,000.00 381,185,000.00 0.05:1

3 2003-2004 167,776,000.00 449,562,000.00 0.37:1

4 2004-2005 61,935,000.00 447,780,000.00 1.14:1

5 2005-2006 150,900,000.00 340,710,000.00 0.44:1

ANALYSIS:‐

The above tables shows the Absolute Liquidity Ratio during the study period the ratio was 0.08:1
in 2002 and gradually decreases to 0.05 in 2003, which in 2003, which to too below from the standard
0.05:1 so the company, should try to improve and also maintain this ratio

LEVERAGE OR CAPITAL STRUCTURES RATIOS:‐

Leverage ratios indicate, the relative interest of owner and creditors in a business. The
significant Leverage ratios are

1.DEBIT EQUITY RATIO:‐

The ratio examines the relationship between funds and owner’s funds of a firm. In other words
it measures the relative claims of creditors and shareholders against the assets of a business. Debit,
usually refers to the long‐term liabilities. Equity and performance share capitals and reserves.

Long Term Liabilities

Debit Equity Ratio = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Share Holders Funds

Long Term Share Holders Debit equity

S.No Year
Liabilities funds ratio

1 2001-2002 1,978,031,000.00 361,731,000.00 5.47

2 2002-2003 2,398,602,000.00 361,731,000.00 6.63

3 2003-2004 2,306,560,000.00 361,731,000.00 6.38

4 2004-2005 2,532,963,000.00 363,431,000.00 6.97

5 2005-2006 662,910,000.00 1,237,367,000.00 0.54

ANALYSIS:‐

A high debt equity ratio means a high claim of outsider on the assets of business and very highly
debt financed from will be under great pressure to pay the interest charges and it is unfavorable to the
firm. A firm with a debt equity ratio of two or less exposes its creditors to relatively less risk a firm a
high debt equity ratio exposes its creditors to grater risk so this firm should minimize this ratio.

Net Sales

WORKING CAPITAL TURNOVER RATIO = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Working Capital

This ratio in computed by dividing net sales by working capital this ratio helps to measure the
efficiency of the utilization of net working capital is needed if any increase in sales is contemplated
working capital should be a adequate and thus this ratio helps management to maintain the adequate
level of working.

CHART‐4

WORKING CAPITAL TURNOVER RATIO

Year Net Sales Working Capital Working Capital Turnover Ratio

2002-03 15192.02 13493.9 1.1

2003-04 16283.04 10682.82 1.49

2004-05 23993.07 8786.15 2.56

2005-06 24610.98 8646.38 2.85

 CHART ‐5

INTERPRETATION:

This ratio maker a comparison between net sales and net working capital in order to find the
working capital turnover ratio the working capital turnover ratio for the year 2002‐03 in 1.10 hence
there is increase in working capital turnover ratio for the next 3 year has increased in a gradual way in
the last year the net sales has been increased and the working capital in being similarly that of previous
year hence the working that of previous year hence the working that capital turnover ratio is at 2.82 in
the year 2005‐06.

4.4 RECEIVABLES MANAGEMENT

1. DEBTORS TURNOVER RATIO:

Debtor constitute an important constitute of current assets & their fore the quality of debtor to
great extent determines a firm liquidity of a firm use two ratio. They are debtors turnover ratio & debt
collection period ratio. This ratio indication the speed with which debtors receivable are being collected
there it is indicative of the efficiency of trade credit management. The higher the turnover ratio the
better the trade credit management & the better the liquidity of debtors.
 TABLE‐5

DEBTORS TURNOVER RATIO

(In Lakhs)

Year Total Sales Account Receivables Debtors Turnover Ratio

2002-03 15191.02 3803.54 3.99

2003-04 16283.04 4513.34 3.66

2004-05 24948.18 10325.48 2.42

2005-06 25884.26 5143.55 5.03

CHART‐5

DEBTORS TURNOVER RATIO

Debtors Turnover Ratio

6

Debtors Turnover
Ra

2
3

2002-03 2003-04 2004-05 2005-06

0
Year

INTERPRETATION:

From the date of interpretation it in observed that both the rates & account revisable are going
up, we see that in the year 2002‐2003 the division was in a very good portion regarding the collection
but in the year 2004‐2005 due to increase in the amount of average payables the ratio has come down
drastically.

In the year 2005‐06 the decrease in the previous year has been reduced by the increased in the
ratio of current year 2005‐06.
2.DEBITORS COLLECTION PERIOD:

Their ratio indication the extent to which the debts have been collected in time it gives the
average debt collection period the ratio is very helpful to the lenders because it explain them whether
borrowers are collating money in a reasonable time an increase in the period reflects grater blockage of
funds in debtors a very long collection period would imply either power credit selection or and
inadequate collection effort.

TABLE‐6

DEBTORS COLLECTION PERIOD

(In Lakhs)

Debtors Collection
Year No of Days Debtors Turnover Ratio
Period in Days

2002-03 364 3.99 91

2003-04 365 3.66 100

2004-05 365 2.42 151

2005-06 365 5.03 73

 CHART‐6

DEBTORS COLLECTION PERIOD

INTERPRETATION

During the year 2005‐2006 average collection period is very low which indicates the better quality of
debtors as the quick payments by them with in a shot period

During the year 2004‐2005 average collection period is very high as 151 days which indicate ting the
inefficient performance of the debtor as by laet payments.
2. INVENTORY TURNOVER RATIO

This ratio indicates whether inventory has been efficiently used or not. This ratio checks
whether only the required minimum has been looked up in inventory.

Cost of good Sold

I.T.R = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Average Inventory

Cost of goods of Sold = Opening Stock + Purchase + Direct expenses ‐ Closing

 Opening Stock + Closing Stock

Average stock = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

TABLE‐7

INVENTORY TURNOVER RATIO

(In Lakhs)

Year Cost of Goods sold Avg. Inventory Inventory Turnover Ratio

2002-03 10711.19 7704.71 1.39

2003-04 11850.37 7554.4 1.57

2004-05 18665.5 6170.48 3.02

2005-06 16358.92 4495.96 3.46

 CHART‐7

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio

4
3.5
3
2.5
2
1.5
Ra

Inventory Turnover Ratio

1
0.5
0

2002-032003-04 2004-05 2005-06

Year

INTERPRETATION:‐

From the above figure given in the table we can interpret that the inventory to the cost
of goods sold for the year 2002‐03 in 1‐39 their ratio has been increasing continuously in an exponential
manner in all the year which in a good sign to the company. This shows the effective utilization of the
inventory by the company.

In the year 2002‐03 the percentage of inventory in current assets 42.17% which is not beneficial sign to
the company. In the next year has increased by nearly 3% more than the previous year at that time the
company retained not to block the current assets with inventory, in the year 2004‐05 it has decreased
drastically to 24%. In the following year this has increased by 5% but this is not sufficient on the increase
in the recent past was much more than that.
3. INVENTORY HOLDING PERIOD (IN DAYS):

Days in Year

Inventory Holding Period (in days) = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Inventory Turnover Ratio

The ratio represents the length of time required for conversion of investments in inventoried
for conversion of investments in invests airier to cash of a firm as a result, the firm will be able to
forecast its working capital requirements. Lower ratio suggested better inventory management their
ratio is calculated by dividing the number of days of year by inventory turnover ratio.

TABLE‐8

INVENTORY HOLDING PERIOD (IN DAYS)

(In Lakhs)

Year No. of Days Inventory Turnover Ratio Collection Period

2002-03 365 1.93 189 Days

2003-04 365 1.39 263 Days

2004-05 365 2.27 161 Days

2005-06 365 3.29 111 Days

 CHART‐8

INVENTORY HOLDING PERIOD

Collection Period in Days

300
250
200
150
Collection Period in Days
100
Da

50
0

2002-032003-04 2004-052005-06
Year

INTERPRETATION:

In general the inventory ratio of any company should be as low as foible. The reason being
the occurrence of the blockage of money due to holding of the inventory. The figure shows in the year
2004‐05 and 2005‐06 also would have been for the company if they were similar to the velour in the
year 2002‐03 & 2003‐04.

7. AVERAGE COLLECTION PERIOD:‐

The ratio is another device to measure the quality of debtors. It shows the nature of the firm
credit policy to the shorter period. The better the quality of debtors since the short term collecting
period implies prompt payment by debtors and excessively long period implies a too long and liberal and
inefficient credit and collection performance where as too low period indicates a very strict credit and
collection period.

Months in a Year

Average Collection Period = ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

Debtors Turnover
S.No. Year No. of Months in a year Debtors Turnover Average Collection
Ratio period

1. 2001‐2002 12.00 1.26 9.52

2. 2002‐2003 12.00 0.81 14.81

3. 2003‐2004 12.00 2.31 4.76

4. 2004‐2005 12.00 2.52 4.76

5. 2005‐2006 12.00 3.17 3.79

ANALYSIS:‐

The table shows that the average collection period of the company the average collection
period was 9.52 month in 2002, which is decreased to 4.76 in the month of 2005 it shows the company
is unable to collect the money in proper time or company is extending more credit period to the
customer. The company should try to reduce this credit period.
 CHAPTER VI

FINDINGS

1. The company is not having sufficient working capital

2. Inventories are decreased by year by year
3. Loans & advances are decreases by year by year
4. current liabilities are more than current assets.
5. The working capital is negative working capital
6. Current liabilities are decreased by ever year but in 2003‐04 to 14.12% and again
in 2004‐2005 decreased from 14‐42% to 13.39%
7. long – term liabilities are increased by every year but in 2003.04 year long term

liabilities are decreased from 76.356 to 73.989 and again increased from 74.98%
to 7‐8‐76%
8. The Quick Ratio > 1 which shows the sound short‐term solvency.
9. The suggested current ratio is 2:1. But it is not fixed as it various from; industry. Here in this case
the current ration is more than 1 and it is enough to meet the current liability.
10. When comparing Working capital is compared with net sales it is in increasing trend indicating
the effective utilization of the net working capital.
11. The debtor’s turnover ration is high and it shows the better trade credit management.
12. Debtor’s collection period is very less which shows the better trade credit management.
13. Debtor’s collection is very less it shows the better collection of funds from debtors.

14. Inventory holding period is less; it shows the better management of inventory.
15. Through the preparation of funds flows statement analysis it is cleared that the
Company is losing its funds through its operating. But the positive Elements is the
losses through its operations and its decreasing year by year. That is when the
losses where in the year 2000‐01.
16. It is understand that from the year 2000‐01 to the year 2004‐05 there was
decreased in working capital position in the major circumstances this cleared that
 company is trying to procure the funds all the times in order to compensate on
wipe on the losses.
17. It is to be observed that the company’s new worth is decreases considerably.
Through this increase in procurement of secured loans.
18. The decrease in figures of sources and applications from the year 20001‐01 to the
year 20002‐03 makes at clear that the company is no activity increasing or
standardizing of its operations.
CONCLUSION

The company is performing exceptionally well due to the up wising in the global

market followed by the domestic market. It is an up coming one with good and

innovative ideas and believed in improving all the areas of its operations. The company

has a good liquidity position and does not delay its commitment in case of both its

creditors and debtors. The company being mostly dependent on the working capital

facilities, it is maintaining very good relationship with their banks and their working

capital management is well balanced.

SUGGESTIONS:‐

1. The manpower needs to be assessed in relation to production and sales. The

excess of employees should be removed through various measures like VRS,
retirement’s and destructing the requirement of new employees.

2. There are various global challenges that are faced by every company n the
present competitive environment and SAND FITS PVT is not any exemption. To
face the present global challenges the human resources department should be
develop to improve various skills among the employees specially the motivational
skills and having the regular training for the employees about various
developments in the market.

3. The marketing department should be restructured on profit center and product

line basis. The new marketing strategy should also make efforts to regain the
agents in Germany and UK. They should also make efforts to regain the defiance
and railways and find new markets for expansion.

4. There are various development taking in the industry to change it the company
should develop a full fledged research and development department for bringing
technological change and improvement in design and process.

5. The policy of development new market with the accreditation of ISO 9001 and
C.E. making for certain products should be continuous as it will help in
development the confidence of foreign buyers.
6. The sundry debtors should be efficiently managed so that the outstanding are to
be cleared at short intervals. The company should appoint on different areas on a
success fees basis to collect the debtors.
7. The cost of holding inventory is too high so the inventory holding period is to be
reduced and to build up inventory in anticipation of export orders from Russia
and Germany.
8. The company has to make new joint venture with other companies in order to
reduce the losses.
9. The current assets should be managed more effectively so as to avoid
unnecessary blocking of capital that could be used for other purposes.
10. The Working Capital requirement is to be assessed based on the norms circulated
by RBI for the machine tools industry.
11. The inventory turnover ratio has decreased considerably from the year 2001‐02
to 2004‐05. This was due to the huge average stock holding even when there was
a decrease in sales figure this clears that inventory should be managed
appropriately moreover it was improved in the year 2003‐04.
12. The company has maintained proper records showing full particulars,
quantitative details and solutions of fixed assets are indicated for major items in
the register, the managements during the year has conducted a random
verification in respect of fixed assets, which in our opinion is reasonable, having
regard to the size of the company and the nature of tits assets.
13. The management has physically verified the stock of finished goods and work in
progress at the end of the year.
14. In respect of service activities there is a reasonable system for recording receipts
issues and consumption of materials and stores and collection of materials
consumed to the relative jobs, commensurate with the size and nature of its
business.
 BIBILOGRAPHY

BOOKS

Financial management Khan and Jain, Tata Mcgrw Hill

Financial management Prasanna Chandra, Tata Mcgrw Hill

Management accounting R.K. Sharma and K. Gupta

Financial Management and polices V.K. Bhalla, ANMOL Publication

Pvt., Ltd.,

Financial Management K. Rajeswari, Sultan chand & sons

Catalogues & Boucher SAND FITS PVT Ltd.,

Web sites

www. Sand fitstools.org

www.machinetoolsindustry.com