a study on working capital management in opt consultancy services-data updated
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A STUDY ON WORKING CAPITAL MANAGEMENT IN OPT
CONSULTANCY SERVICES
CONTENTS
Chapter No Particulars Page No.
Acknowledgement
Certificate
Contents
List of Tables
List of Charts
1.
1.1
1.2
1.3
1.4
1.5
Working Capital Management
Introduction
Need of Working Capital Management
Gross W.C and Net W.C
Types of working capital
Determinants of working capital
9
1011
2.
2.1
2.2
2.3
2.4
Research Methodology
Introduction
Types of research methodology
Objective of the study
Scope and Limitation of the study
14
15
16
3.
3.1
3.2
Introduction to the company
Industry Profile
Company Profile
17
22
4.
4.1
4.2
4.3
Data analysis and Interpretation
Working capital Analysis
Ratio Analysis
Trend Analysis
31
36
70
5.
5.1
Findings & Suggestions
Findings 79
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5.2
5.3
Suggestion
Conclusion
80
81
LIST OF TABLES
Table. no Name of Tables Page. no
4.1 Schedule of Changes in Working Capital (2005 06) 31
4.2 Schedule of Changes in Working Capital (2006 07) 32
4.3 Schedule of Changes in Working Capital (2007 08) 33
4.4 Schedule of Changes in Working Capital (2008 09) 34
4.5 Schedule of Changes in Working Capital (2009 10) 35
4.2.1 Current Ratio 42
4.2.2 Quick Ratio 44
4.2.3 Absolute Liquid Ratio 46
4.2.4 Inventory Turnover Ratio 48
4.2.5 Debtors Turnover Ratio 50
4.2.6 Creditors Turnover Ratio 52
4.2.7 Fixed Asset Turnover Ratio 54
4.2.8 Cash to Current Asset Ratio 56
4.2.9 Current Asset Turnover Ratio 58
4.2.10 Inventory to Sales Ratio 60
4.2.11 Working Capital Turnover Ratio 62
4.2.12 Inventory to Current Asset Ratio 64
4.2.13 Gross profit Ratio 66
4.2.14 Administrative Expenses Ratio 68
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LIST OF CHARTS
Figure. no Name of Tables Page. no
4.3.1 Current Assets 71
4.3.2 Fixed Assets 72
4.3.3 Cash & Bank Balances 73
4.3.4 Inventory 74
4.3.5 Sundry Debtors 75
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CHAPTER I
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WORKING CAPITAL MANAGEMENT
1.1) Introduction Working capital management
Working capital management is concerned with the problems that arise while
attempting to manage the current assets, the current liabilities and the inter relationship that
exist between them. The term current assets refers to those assets which in ordinary course of
business can be, or, will be, turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm. The major current assets
are cash, marketable securities, account receivable and inventory. Current liabilities warethose liabilities which intended at their inception to be paid in ordinary course of business,
within a year, out of the current assets or earnings of the concern. The basic current liabilities
are account payable, bill payable, bank over-draft, and outstanding expenses.
The goal of working capital management is to manage the firms current assets and
current liabilities in such way that the satisfactory level of working capital is mentioned. The
current assets should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety.
Definition:-
According to Guttmann & Dougall-
Excess of current assets over current liabilities
According to Park & Gladson-
The excess of current assets of a business (i.e. cash, accounts receivables, inventories)
over current items owned to employees and others (such as salaries & wages payable, accounts
payable, taxes owned to government).
1.2) Need of working capital management
The need for working capital gross or current assets cannot be over emphasized. As
already observed, the objective of financial decision making is to maximize the shareholders
wealth. To achieve this, it is necessary to generate sufficient profits. This will naturally
depend upon the magnitude of the sales among other things but sales cannot convert into
cash. There is a need for working capital in the form of current assets to deal with theproblem arising out of lack of immediate realization of cash against goods sold. Therefore
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sufficient working capital is necessary to sustain sales activity. Technically this is refers to
operating or cash cycle. If the company has certain amount of cash, it will be required for
purchasing the raw material which may be available on credit basis. Then the company has to
spend some amount for labor and factory overhead to convert the raw material in work in
progress, and ultimately finished goods. These finished goods convert in to sales on creditbasis in the form of sundry debtors. Sundry debtors are converted into cash after expiry of
credit period. Thus some amount of cash is blocked in raw materials, WIP, finished goods,
and sundry debtors and day to day cash requirements. However some part of current assets
may be financed by the current liabilities also. The amount required to be invested in this current
assets is always higher than the funds available from current liabilities. This is the precise reason why
the needs for working capital arise
1.3) Gross working capital and Net workingcapital
There are two concepts of working capital management
1. Gross working capital
Gross working capital refers to the firms investment in current assets. Current assets
are the assets which can be convert in to cash within a year includes cash, short term
securities, debtors, bills receivable and inventory .
2. Net working capital
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 and include creditors, bills payable and outstanding
expenses. Net working capital can be positive or negative
Efficient working capital management requires that firms should operate with some
amount of net working capital, the exact amount varying from firm to firm and depending,
among other things; on the nature of companies. Net working capital is necessary because the
cash outflows and inflows do not coincide. The cash outflows resulting from payment ofcurrent liabilities are relatively predictable. The cash inflow are however difficult to predict.
The more predictable the cash inflows are, the less net working capital will be required.
The concept of working capital was, first evolved by Karl Marx. Marx used the term
variable capital means outlays for payrolls advanced to workers before the completion of
work. He compared this with constant capital which according to him is nothing but dead
labor. This variable capital is nothing but wage fund which remains blocked in terms of
financial management, in work- in-process along with other operating expenses until it is
released through sale of finished goods. Although Marx did not mentioned that workers also
gave credit to the firm by accepting periodical payment of wages which funded a portioned of
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W.I.P, the concept of working capital, as we understand today was embedded in his variable
capital.
1.4) Types of working capital
The operating cycle creates the need for current assets (working capital). However the
need does not come to an end after the cycle is completed to explain this continuing need of
current assets a destination should be drawn between permanent and temporary working
capital.
1) Permanent working capital
The need for current assets arises, as already observed, because of the cash cycle. To
carry on business certain minimum level of working capital is necessary on continues and
uninterrupted basis. For all practical purpose, this requirement will have to be met
permanent as with other fixed assets. This requirement refers to as permanent or fixed
working capital
2) Temporary working capital
Any amount over and above the permanent level of working capital is temporary,
fluctuating or variable, working capital. This portion of the required working capital is
needed to meet fluctuation in demand consequent upon changes in production and sales as
result of seasonal changes
Graph shows that the permanent level is fairly constant; while temporary working capital is
fluctuating in the case of an expanding firm the permanent working capital line may not be
horizontal. This may be because of changes in demand for permanent current assets might be
increasing to support a rising level of activity.
1.5) Determinants of working capital
The amount of working capital is depends upon a following factors
1. Nature of business
Some businesses are such, due to their very nature, that their requirement of fixed
capital is more rather than working capital. These businesses sell services and not the
commodities and that too on cash basis. As such, no funds are blocked in piling inventories
and also no funds are blocked in receivables. E.g. public utility services like railways,infrastructure oriented project etc. their requirement of working capital is less. On the other
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hand, there are some businesses like trading activity, where requirement of fixed capital is
less but more money is blocked in inventories and debtors.
2. Length of production cycle
In some business like machine tools industry, the time gap between the acquisition of
raw material till the end of final production of finished products itself is quite high. As such
amount may be blocked either in raw material or work in progress or finished goods or even
in debtors. Naturally the need of working capital is high.
3. Size and growth of business
In very small company the working capital requirement is quite high due to highoverhead, higher buying and selling cost etc. as such medium size business positively has
edge over the small companies. Once the business grows beyond a certain limit, the working
capital requirements may be adversely affected by the increasing size.
4. Business/ Trade cycle
If the company is operating in the time of boom, the working capital requirement may
be more as the company may like to buy more raw material, may increase the production and
sales to take the benefit of favorable market, due to increase in the sales, there may be moreand more amount of funds blocked in stock and debtors etc. similarly in the case of
depressions also, working capital may be high as the sales terms of value and quantity may be
reducing, there may be unnecessary piling up of stack without getting sold, the receivable
may not be recovered in time etc.
5. Terms of purchase and sales
Some time due to competition or custom, it may be necessary for the company to
extend more and more credit to customers, as result which more and more amount is locked
up in debtors or bills receivables which increase the working capital requirement. On theother hand, in the case of purchase, if the credit is offered by suppliers of goods and services,
a part of working capital requirement may be financed by them, but it is necessary to
purchase on cash basis, the working capital requirement will be higher.
6. Profitability
The profitability of the business may be vary in each and every individual case, which
is in turn its depend on numerous factors, but high profitability will positively reduce the
strain on working capital requirement of the company, because the profits to the extent that
they earned in cash may be used to meet the working capital requirement of the company.
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CHAPTER II
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RESEARCH METHODOLOGY
2.1) Introduction
Research methodology is a way to systematically solve the research problem. It may
be understood as a science of studying now research is done systematically. In that various
steps, those are generally adopted by a researcher in studying his problem along with the
logic behind them.
It is important for research to know not only the research method but also know
methodology. The procedures by which researcher goes about their work of describing,
explaining and predicting phenomenon are called methodology Methods comprise the
procedures used for generating, collecting and evaluating data. All this means that it is
necessary for the researcher to design his methodology for his problem as the same may
differ from problem to problem.
Data collection is important step in any project and success of any project will be
largely depend upon now much accurate you will be able to collect and how much time,money and effort will be required to collect that necessary data, this is also important step.
Data collection plays an important role in research work. Without proper data available for
analysis you cannot do the research work accurately.
2.2) Types of data collection
There are two types of data collection methods available.
1. Primary data collection2. Secondary data collection
1) Primary data
The primary data is that data which is collected fresh or first hand, and for first time
which is original in nature. Primary data can collect through personal interview, questionnaire
etc. to support the secondary data.
2) Secondary data collection method
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The secondary data are those which have already collected and stored. Secondary data
easily get those secondary data from records, journals, annual reports of the company etc. It
will save the time, money and efforts to collect the data. Secondary data also made available
through trade magazines, balance sheets, books etc.
This project is based on primary data collected through personal interview of head of
account department, and other concerned staff member of finance department. But primary
data collection had limitations such as matter confidential information thus project is based
on secondary information collected through five years annual report of the company,
supported by various books and internet sides. The data collection was aimed at study of
working capital management of the company
Project is based on
1. Annual report ofOPT Consultancy services, 2006-07
2. Annual report ofOPT Consultancy services, 2007-08
3. Annual report ofOPT Consultancy services, 2008-09
4. Annual report ofOPT Consultancy services, 2009-10
5. Annual report ofOPT Consultancy services, 2010-11
2.3) OBJECTIVES OF THE STUDY
Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any, the company cannot earn profits
and increase its turnover. With this primary objective of the study, the following further
objectives are framed for a depth analysis.
1. To study the working capital management of OPT Consultancy services., Chennai
2. To study the optimum level of current assets and current liabilities of the company.
3. To study the liquidity position through various working capital related ratios.
4. To study the financial performance using trend analysis tool
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2.4) SCOPE & LIMITATIONS OF THE STUDY
Scope of the study
The scope of the study is identified after and during the study. The study of working capital is
based on tools like Trend Analysis, Ratio Analysis, working capital leverage, operating cycle
etc. Further the study is based on last 5 years Annual Reports of OPT Consultancy services
And even factors like competitors analysis, industry analysis were not considered while
preparing this project.
Limitations of the study
Following limitations were encountered while preparing this project:
1) Limited data:-
This project has completed with annual reports; it just constitutes one part of data
collection i.e. secondary. There were limitations for primary data collection because of
confidentiality.
2) Limited period:-
This project is based on five year annual reports. Conclusions and recommendations
are based on such limited data. The trend of last five year may or may not reflect the real
working capital position of the company
3) Limited area:-
Also it was difficult to collect the data regarding the competitors and their financialinformation. Industry figures were also difficult to get.
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CHAPTER III
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3.1 INDUSTRY PROFILE
3.2 COMPANY PROFILE
CHAPTER IV
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DATA ANALYSIS AND INTERPRETAITION
4.1 WORKING CAPITAL ANALYSIS
Working capital management is concerned with the problems which arise in
attempting to manage the current assets, the current liabilities and the inter relationship that
exist between them. The term current assets refers to those assets which in ordinary course of
business can be, or, will be, turned in to cash within one year without undergoing a
diminution in value and without disrupting the operation of the firm. The major current assets
are cash, marketable securities, account receivable and inventory. Current liabilities ware
those liabilities which intended at their inception to be paid in ordinary course of business,
within a year, out of the current assets or earnings of the concern. The basic current liabilities
are account payable, bill payable, bank over-draft, and outstanding expenses.
The goal of working capital management is to manage the firm s current assets
and current liabilities in such way that the satisfactory level of working capital is mentioned.
The current should be large enough to cover its current liabilities in order to ensure a
reasonable margin of the safety.
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The consideration of the level investment in current assets should avoid two danger
points excessive and inadequate investment in current assets. Investment in current assets
should be just adequate, not more or less, to the need of the business firms. Excessive
investment in current assets should be avoided because it impairs the firm s profitability, as
idle investment earns nothing. On the other hand inadequate amount of working capital can
be threatened for the solvency of the firms because of its inability to meet its current
obligation. It should be realized that the working capital need of the firms may be fluctuating
with changing business activity. This may cause excess or shortage of working capital
frequently. The management should be prompt to initiate an action and correct imbalance
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE 4.1
PARTICULARS
2005
AMOUNT
Rs.
2006
AMOUNT
Rs.
INCREASE
AMOUNT
Rs.
DECREASE
AMOUNT
Rs.
ASSETS:
CURRENT ASSETS
Inventory (ERP Software
Licences)
250940.647 5825092.799 3315686.752 -----
Sundry Debtors 2763427.255 1590439.776 ------ 1172987.479
Cash & Bank Balance 83610.810 58403.077 ------ 25207.733
Loans and Advances 1551164.710 27974575.056 26423410.350 ------
Prepaid Expenses 5649.150 13732.400 8083.250 ------
Accrued Income 79277.450 2925.000 ------ 76352.450
TOTAL CURRENT ASSETS 6992535.422 35465168.108 29747180.35 1274547.662
LESS:CURRENT LIABILITIES
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Sundry Creditors 6453315.833 4106607.313 2346708.520 ------
TOTAL CURRENT
LIABILITIES6453315.833 4106607.313 2346708.520 ------
NET WORKING CAPITAL 539219.589 31358560.79 32093888.87 1274547.662
NET INCREASE IN
WORKING CAPITAL30819341.21 ------ ------ 30819341.21
TOTAL 31358560.79 31358560.79 32093888.87 32093888.87
Thus there is an increase in Net Working Capital compared to the last year. OPT Consultancy
services Financial Position was Increase in the year (2006).
Source: Annual Report OPT Consultancy servicesChennai From 2006-2010
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE 4.2
PARTICULARS2006
AMOUNT
Rs.
2007AMOUNT
Rs.
INCREASEAMOUNT
Rs.
DECREASEAMOUNT
Rs.
ASSETS:
CURRENT ASSETS
Inventory 5825092.799 5429251.165 ------ 395841.634
Sundry Debtors 1590439.776 3093057.061 1502617.285 -----
Cash & Bank Balance 58403.077 605026.901 546623.824 ------
Loans and Advances 27974575.056 2128152.721 ------ 25846422.34
Prepaid Expenses 13732.400 17021.883 3289.483 ------
Accrued Income 2925.000 396425.127 393500.127 ------
TOTAL CURRENT
ASSETS35465168.108 11668934.86 2446030.719 26242263.97
LESS:
CURRENT LIABILITIES
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Sundry Creditors 4106607.313 15182116.746 ------ 11075509.43
TOTAL CURRENT
LIABILITIES4106607.313 15182116.746 ------ 11075509.43
NET WORKING CAPITAL 31358560.79 3513181.88 2446030.719 37317773.4
NET DECREASE IN
WORKING CAPITAL------ 34871742.68 34871742.68 ------
TOTAL 31358560.79 31358560.79 37317773.4 37317773.4
Thus there is a decrease in Net Working Capital in the year 2006 when compared with the
previous year of OPT Consultancy servicesSo the Companys financial position has to be
increased.
Source: Annual Report OPT Consultancy servicesChennai From 2005-2009
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE 4.3
PARTICULARS
2007
AMOUNT
Rs.
2008
AMOUNT
Rs.
INCREASE
AMOUNT
Rs.
DECREASE
AMOUNT
Rs.
ASSETS:
CURRENT ASSETS
Inventory 5429251.165 3880115.603 ------ 1549135.562
Sundry Debtors 3093057.061 2311550.508 ------ 781506.553
Cash & Bank Balance 605026.901 593151.324 ------ 11875.577
Loans and Advances 2128152.721 10179277.86 8051125.137 ------
Prepaid Expenses 17021.883 32054.500 15032.617 ------
Accrued Income 396425.127 292198.000 104227.127
TOTAL CURRENT
ASSETS11668934.86 17288347.79 80661577.54 2446744.819
LESS:
CURRENT LIABILITIES
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Sundry Creditors 15182116.746 9596597.936 5585518.85 ------
TOTAL CURRENT
LIABILITIES15182116.746 9596597.936 5585518.85 ------
NET WORKING CAPITAL 3513181.88 7691749.854 136516766 2446744.819
NET INCREASE IN
WORKING CAPITAL11204931.74 ------ ------ 112049317.6
TOTAL 7691749.854 7691749.854 13651676.6 13651676.6
Thus there is an increase in Net Working Capital Compared with the last year, OPT
Consultancy services financial position was increased in the year (2007)
Source: Annual Report OPT Consultancy servicesChennai From 2005-2009
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE 4.4
PARTICULARS
2008
AMOUNT
Rs.
2009
AMOUNT
Rs.
INCREASE
AMOUNT
Rs.
DECREASE
AMOUNT
Rs.
ASSETS:
CURRENT ASSETS
Inventory 3880115.603 9150310.374 5270194.771 1549135.562
Sundry Debtors 2311550.508 4431187.152 2119636.644 781506.553
Cash & Bank Balance 593151.324 371374.749 ------ 11875.577
Loans and Advances 10179277.86 9251176.824 ------ ------
Advance Tax ------ 311019.826 311019.826
Prepaid Expenses 32054.500 23164.140 ------ 8890.360
Accrued Income 292198.000 226382.200 ------ 65815.800
TOTAL CURRENT
ASSETS17288347.79 23764615.27 8066157.754 2446744.819
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LESS:
CURRENT LIABILITIES
Sundry Creditors 9596597.936 7653014.565 943583.371 ------
TOTAL CURRENT
LIABILITIES9596597.936 7653014.565 1943583.371 ------
NET WORKING CAPITAL 7691749.854 1611100.71 9644434.612 1224583.761
NET INCREASE IN
WORKING CAPITAL8419850.856 ------ ------ 8419850.856
TOTAL 16111600.71 16111600.71 9644434.612 9644434.612
Thus there is an increase in Net Working Capital Compared with the last year OPT
Consultancy servicesfinancial position was increased from in this year.
Source: Annual Report OPT Consultancy services, Chennai From 2005-2009
STATEMENT OF CHANGES IN WORKING CAPITAL
TABLE 4.5
PARTICULARS
2009
AMOUNT
Rs.
2010
AMOUNT
Rs.
INCREASE
AMOUNT
Rs.
DECREASE
AMOUNT
Rs.
ASSETS:
CURRENT ASSETS
Inventory 9150310.374 4708448.732 ------ 4441861.642
Sundry Debtors 4431187.152 3066217.179 ------ 1364969.973
Cash & Bank Balance 371374.749 925406.415 554031.666 ------
Loans and Advances 9251176.824
9270117.814 18940.99 ------
Advance Tax 311019.826 589869.330 278849.504 ------
Prepaid Expenses 23164.140 143768.858 120604.718 ------
Accrued Income 226382.200 169833.300 ------ 565489
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TOTAL CURRENT
ASSETS2376461.527 1887366.163 972426.878 5863380.515
LESS:
CURRENT LIABILITIES
Sundry Creditors 765301.4565 8550106.668 ------ 8970921.103
TOTAL CURRENT
LIABILITIES765301.4565 8550106.668 ------ 897092.103
NET WORKING CAPITAL 1611100.71 10323554.96 972426.878 6760472.618
NET DECREASE IN
WORKING CAPITAL------ 57880457 57880457 ------
TOTAL 16111600.71 16111600.71 6760472.628 6760472.628
Thus there is a Decrease in Net Working Capital in the year 2009 when
compared with the previous year of OPT Consultancy servicesSo the companys financial
position has to be increased.
Source: Annual Report OPT Consultancy servicesChennai From 2005-2009
RATIO ANALYSIS
4.2 MEANING OF RATIO:
A ratio is a mathematical relationship between two items expressed in a
quantitative form. Ratio can be defined as Relationship expressed kin quantitative terms
between figures which have cause and effect relationship which are connected with each
other in some manner or the other.
DEFINITION OF RATIO:
According to Accountants Hand Book by Wixon, Kell and Bedford, a
Ratio Is an expression of the quantitative relationship between two numbers.
LIQUIDITY RATIOS:
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It measures the ability of a company to meet its current obligations, and indicate
the short term financial stability of the company. The parties interested in the liquid ratio
would be employees, bankers and short-term creditors.
CURRENT RARIO:
Current Ratio may be defined as the ratio of Current Assets to Current Liabilities.
It is also known as Working Capital Ratio 2:1 ratio. Current Ratio shows the relationship
between total current assets and total current liabilities expressed as a formula.
Current Assets
CURRENT RATIO =
Current Liabilities
QUICK RATIO:
A measure of companys liquidity and ability to meet its obligations, Quick ratio,
often referred to as acid-test ratio, is obtained by subtracting inventories from current assets
and then dividing by current liabilities. Quick ratio is viewed as a sign of companys financial
strength or weakness (higher number means stronger, lower number means weaker).
Liquid/Quick assets
QUICK RATIO =
Current Liabilities
ABSOLUTE LIQUIDITY RATIO:
This is also known as super Quick Ratio (or) Cash Ratio. This ratio
considers only absolute liquidity available with the firm. Absolute Liquid assets include cash
in hand, cash at bank marketable securities. A standard of 0.5: 1 absolute liquidity ratio is
considered an acceptable norm. It is calculated as follows:
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Cash & Bank Balances
ABSOLUTE LIQUIDITY RATIO =
Current Liabilities
INVENTORY TURNOVER RATIO:
Inventory Turnover Ratio also known as stock turnover ratio in the
traditional language; usually establishes relationship between the cost of goods sold during a
given period and the average amount of Inventory outstanding during that period. Inventory
Turnover Ratio can be calculated by of the following formula:
Net Sales
INVENTORY TURNOVER RATIO =
Average Inventory
DEBTORS TURNOVER RATIO:
Receivables (or) Debtors normally include both debtors and Bill
Receivable and represent the uncollected portion of Credit sales receivables constitute an
important component of Current Assets and therefore the quality of receivables to a great
extent determines the liquidity of a firm. This Ratio can be calculated as follows:
Credit Sales
DEBTORS TURNOVER RATIO =
Debtor
CREDITORS TURNOVER RATIO:
This Ratio is similar to receivable turnover ratio. It compares the
Accounts Payable with the total credit purchases. It signifies the credit period enjoyed by the
firm in paying creditors. Accounts payable include both sundry creditors and bills payable. It
is calculated as follows:
Net Purchase
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CREDITORS TURNOVER RATIO =
Average creditors
FIXED ASSET TURNOVER RATIO:
This ratio indicates the extent to which the investment in fixed assets
contributes towards sales. If compared with a previous period, it indicates whether the
investment in fixed assets has been judicious or not, the Ratio is calculated as follows:
Sales
FIXED ASSET TURNOVER RATIO =
Net Fixed Assets
WORKING CAPITAL TURNOVER RATIO:
A measurement comparing the depletion of working capital to the generation
of sales over a given period, this provides some useful information as to how effectively a
company is using its working capital to generate sales.
Net Sales
WORKING CAPITAL TURNOVER RATIO=
Net Working Capital
CASH TO CURRENT ASSET RATIO:
The cash asset ratio is similar to the current ratio, except that the current
ratio includes current assets such as inventories in the numerator. Some analysts believe that
including current assets makes it difficult to convert them into usable funds for debt
obligations. The cash asset ratio is a much more accurate measure of a firm's liquidity
Cash
CASH TO CURRENT ASSET RATIO=
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Current Assets
CURRENT ASSET TURNOVER RATIO:
The ratio is calculated to ascertain the efficiency of use of current
assets of the concerns. With an increase in sales, current assets are expected to increase.
However, an increase in the ratio shows that current assets turned over faster resulting in
higher sales for a given investment in current assets. Higher ratio is generally an index of
better efficiency and profitability of the concern. This ratio gives a general impression about
the adequacy of working capital in reaction to sales.
Sales
CURRENT ASSET TURNOVER RATIO=
Current Assets
INVENTORY TO SALES RATIO:
Inventory to Sales Ratio indicates the manner in which a firms inventory in
turning. The inventory to sales ratio indicates the efficiency with which inventory turnover
into sales.
Inventory
INVENTORY TO SALES RATIO=
Sales
INVENTORY TO CURRETN ASSETS RATIO:
It indicates the amount of inventory in Current Assets. Any increase
amount of inventory indicates the lower liquidity as compared to the other Current Assets.
Average Inventory
INVENTOTY TO CURRENT ASSETS RATIO=
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Current Assets
DEBT UTILIZATION RATIOS
The debt utilization ratio measures the proportion of debt and low
efficiently management used the debt capital. The higher the ratio, the greater the amount
other peoples money being used in an attempt to generate profits
DEBT RATIO:
The Debt Ratio measures the proportion of total assets financed by the times
creditor. The lighter the ratio the greater the amount other peoples money being used in an
attempt to generate profits, the ratio is calculated as follows,
Total Liability
DEBT RATIO=
Total Assets
PROFITABILITY RATIOS:
These measures the overall effectiveness in terms of returns generated, with
profits being related to sales and adequacy of such profits as to sales or investment. The
profitability ratios are important to internal management, to bankers, to investors, and to the
owners.
GROSS PROFIT RATIO:
Gross Profit Ratio expresses the relationship of gross profit of sales to net sales
in terms of percentage, representing the percentage of gross profit earned on sales.
Gross Profit
GROSS PROFIT RATIO= *100
Net Sales
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ADMINISTRATIVE EXPENSES RATIO:
This Ratio is also known as supporting ratios operating ratio. They
indicate the efficiency with which business as a whole functions. It is better for the concern to
known how it is able to save or waste over expenditure in respect of different items of
expenses. Therefore each aspect of cost of sales & operation expenses are analyzed.
Administrative Expenses Ratio
ADMINISTRATIVEEXPENSESRATIO= *100
Net Sales
CURRENT RATIO:
Current Asset
CURRENT RATIO =
Current Liabilities
TABLE 4.2.1
Source: Annual Reports OPT Consultancy services, Chennai from 2005-010
27
YEAR CURRENT ASSETS
Rs
CURRENT LIABILTIES
Rs
RATIO
2005-06 35465.16 4106.607 8.63
2006-07 11668.93 15182.11 0.77
2007-08 17288.34 9596.59 1.8
2008-09 23764.61 7653.01 3.11
2009-10 18873.66 8550.106 2.21
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INTERPRETATION:
The Current Ratio measures the ability of the firm to meet its Current Liabilities.
The standard norms of Current Ratio are 2:1. From the above table it can be inferred that
the Current Ratio of OPT Consultancy servicesShows higher in the year 2005-06 (i.e.)
8.63%.But from 2006-07 to 2009-10 there has been continuously decreased (i.e.) 2.21.When
compare to previous years.
CURRENT RATIO:
FIGURE 4.2.1
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QUICK RATIO:
Liquidity Assets
Quick Ratio =
Current Liabilities
Where as (Quick Assets = Current Assets - (Stock + Prepaid Expenses)
29
8.63
0.77
1.8
3.11
2.21
0
1
2
3
4
5
6
7
8
9
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
CURRENT RATIOS
RATIOS
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TABLE 4.2.2
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
The Quick Ratio (or) Liquidity ratio gives a measure of Liquidity the expected
industry standard is 1:1. From the above table it can be inferred that the Quick Ratio of OPT
30
YEARS QUICK ASSETS
Rs
CURRENT LIABILTIES
Rs
RATIOS
2005-06 296263430 4106607.313 7.21
2006-07 6222661.813 1518211.675 0.41
2007-08 13376177.687 9596597.936 1.4
2008-09 14591140.756 7653014.565 1.91
2009-10 14021444.04 8550106.668 1.67
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Consultancy servicesincrease in trend from the year 2007-08 to 2009-10(i.e.) 1.40 to1.67.Has
a safe Liquidity position with the ratio of quick assets to current liabilities in the period from
the year 2007-08 to 2009-10 (i.e.) 1.40 to 1.67.When we compared to standard ratio 1:1 the
quick ratios are higher. So the company has good liquidity ratio for all year.
QUICK RATIO
FIGURE 4.2.2
31
7.22
0.41
1.4
1.911.67
0
1
2
3
4
5
6
7
8
RATIOS
2005-06
2006-07
2007-08 2008-09 2009-10
YEARS
QUICK RATIOS
RATIOS
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ABSOLUTE LIQUIDITY RATIO:
Cash & Bank Balances
Absolute Liquidity Ratio =
Current Liability
TABLE 4.2.3
YEARS
CASH & BANK BALANCE
Rs
CURRENT LIABILITIES
Rs RATIOS
2005-06 58403.077 55107605.94 0.001
2006-07 605026.901 15182116.746 0.04
2007-08 593151.324 9596597.936 0.03
2008-09 371374.749 7653014.565 0.01
2009-10 925406.415 8550106.668 0.05
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the OPT Consultancy serviceshas a high
Absolute Liquidity Ratio in the year 2007 (i.e.) 0.04 When compare to 2006 and the ratio
decrease from 2007-08 to 2008-09 (i.e.) 0.01 finally the ratio has increased in the year 2009
-10 (i.e.) 0.05.The ideal cash position is .05:1. So the companys cash position ratio is not
satisfactory.
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ABSOLUTE LIQUIDITY RATIO
FIGURE 4.2.3
33
0.001
0.04
0.03
0.01
0.05
0
0.005
0.01
0.015
0.02
0.025
0.03
0.035
0.04
0.045
0.05
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
ABSOLUTE LIQUIDITY RATIOS
RATIOS
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INVENTORY TURNOVER RATIO:
Net Sales
Inventory Turnover Ratio =
Average Inventory
TABLE 4.2.4
YEAR
NET SALES
Rs
AVERAGE INVENTORY
Rs RATIO
2005-
06
39377253.95
1
5825092.799 6.76
2006-07
57364832.075
5429251.165 10.57
2007-
08
63273345.62
5
3880115.603 16.31
2008-
09
77237254.71
3
9150310.374 8.44
2009-
10
89967678.58
3
4708448.732 19.11
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
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From the above table it can be inferred that the companys
Inventory increase in year 2005-06 to 2009-10 (i.e.) 6.76 to 19.11.has been increased in the
year 2010 (i.e.) 19.11.when compared to previous years
INVENTORY TURN OVER RATIO:
FIGURE 4.2.4
35
6.76
10.57
16.31
8.44
19.11
0
2
4
6
8
10
12
14
16
18
20
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
INVENTORY TURNOVER RATIO
RATIOS
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DEBTORS TURNOVER RATIO:
Credit Sales
Debtors Turnover Ratio =
Debtors
TABLE 4.2.5
YEAR CREDIT SALES
Rs
DEBTORS
Rs
RATIO
2005-
06 39377253.95
1590439.77
6 24.76
2006-
07 57364832.08
3093057.06
1 18.55
2007-
08 63273345.63
2311550.50
8 27.372008-
09 77237254.71
4431187.15
2 17.43
2009-
10 89967678.53
3066217.17
9 29.34
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
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INTERPRETATION:
From the above table it can be inferred that the Debtors Turnover Ratio of
OPT Consultancy servicesincrease in the year 2005-06 to 2009-10 (i.e.) 24.76 to 29.34.shows
high in the year 2010 (i.e.) 29.34.When compare to previous years.
DEBTORS TURN OVER RATIO:
FIGURE 4.2.5
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CREDITORS TURNOVER RATIO:
Net Purchase
Creditors Turnover Ratio =
Average Creditors
TABLE 4.2.6
38
24.76
18.55
27.37
17.43
29.34
0
5
10
15
20
25
30
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
DEBTORS TURN OVER RATIO
RATIO
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YEAR
NET PURCHASE
Rs
AVERAGE CREDITORS
Rs RATIO
2005-
06 34098754.434 4106607.313 8.30
2006-07 55053121.762 15182116.746 3.63
2007-
08 56214265.402 9596597.936 5.86
2008-
09 75714393.653 7653014.565 9.89
2009-
10 77310587.362 8550106.668 9.04
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the OPT Consultancy
servicescompanys creditors turnover ratio in year 2005-06 to 2007-08 (i.e.) 8.30 to 5.86 .has
been decreased by 29% in the year 2008 and the ratio finally increases in the year 2010 (i.e.)
9.04 when compared to the previous years.
CREDITORS TURNOVER RATIO:
FIGURE 4.2.6
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FIXED ASSET TURNOVER RATIO:
Sales
Fixed Assets Turnover Ratio =
Net Fixed Assets
TABLE4.2.7
40
8.3
3.63
5.86
9.89
9.04
0
1
2
3
4
5
6
7
8
9
10
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
CREDITORS TURNOVER RATIO
RATIO
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YEAR SALES
Rs
NET FIXED ASSETS
Rs
RATIO
2005-
06
39377253.9
5 740010.6 53.21
2006-
07
57364832.0
8 986728.6 58.14
2007-
08
63273345.6
3 1700745.121 37.2
2008-
09
77237254.7
1 1621368.217 47.63
2009-
10
89967678.5
3 1664269.636 54.05
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the Fixed Asset Turnover Ratio of
OPT Consultancy services has increased by 58.14% in the year 2007, and the ratio finally
decreases in the year 2010 (i.e.) 54.05 when compare to previous years.
FIXED ASSET TURNOVER RATIO:
FIGURE 4.2.7
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CASH TO CURRENT ASSET RATIO:
Cash
Cash to Current Asset Ratio=
42
53.21
58.14
37.2
47.63
54.05
0
10
20
30
40
50
60
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
FIXED ASSET TURNOVER RATIO
RATIO
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Current Assets
TABLE 4.2.8
YEAR CASH
Rs
CURRENT ASSET
Rs
RATIO
2005-
06 58403.077 35465168.1 1.65
2006-
07 605026.901 11668934.86 0.05
2007-
08 593151.324 17288347.79 0.03
2008-09 371374.749 23764615.27 0.02
2009-
10 925406.415 18873661.63 0.05
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the Ratio increase in the year 2005-06 to
2009-10 (i.e.) 1.65 to 0.05.The Cash to Current Asset Ratio shows higher in the year 2005-
06 (i.e.) 1.65.But from 2006-07 to 2009-10 there has been continuously decreased (i.e.) 0.05
when compared to previous year.
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CASH TO CURRENT ASSET RATIO:
FIGURE4.2.8
CURRENT ASSET TURNOVER RATIO:
Sales
44
1.65
0.05 0.03 0.02 0.050
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
CASH TO CURRENT ASSET RATIO
RATIO
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Current Asset Turnover Ratio =
Current Assets
TABLE 4.2.9
YEAR SALES
Rs
CURRENT ASSETS
Rs
RATIO
2005-
06
39377253.9
5 335465168.1 1.11
2006-
07
57364832.0
8 11668934.86 4.92
2007-
08
63273345.6
3 17288347.79 3.66
2008-
09
772237254.
7 23764615.27 3.25
2009-
10
89967678.5
8 18873661.63 4.77
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the Current Asset Turnover Ratio
of OPT Consultancy servicesin year 2005-06 to 2009-10 (i.e.) 1.11 to 4.77.has been increased
which shows the satisfactory level of current asset correspondence to the sales in the
subsequent years and the ratio finally increases in the year 2010 (i.e.) 4.77 when compared to
the previous years
CURRENT ASSET TURNOVER RATIO:
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FIGURE 4.2.9
INVENTORY TO SALES RATIO:
Inventory
Inventory to Sales Ratio=
46
1.11
4.92
3.66
3.25
4.77
0
0.5
1
1.5
2
2.5
33.5
4
4.5
5
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
CURRENT ASSET TURNOVER RATIO
RATIO
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Sales
TABLE 4.2.10
YEAR INVENTORY
Rs
SALES
Rs RATIO
2005-
06 5825092.799
39377253.9
5 0.15
2006-
07 5429251.165
57364832.0
8 0.09
2007-
08 3880115.603
63273345.6
3 0.06
2008-
09 9150310.374
77237254.7
1 0.11
2009-
10 4708448.732
89967678.5
8 0.05
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the Inventory to Sales Ratio of OPT
Consultancy servicesHas been increased in the year 2008 (i.e.) 0.11.When compared to
previous years. But I the year2009, the ratio have been fall down to 0.05.
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INVENTORY TO SALES RATIO:
FIGURE 4.2.10
WORKING CAPITAL TURNOVER RATIO:
48
0.15
0.09
0.06
0.11
0.05
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
INVENTORY TO SALES RATIO
RATIO
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Net Working Capital
WORKING CAPITAL TURNOVER RATIO =
Current Liabilities
TABLE 4.2.11
YEAR NET WORKING CAPITAL
Rs
CURRENT LIABILITIES
Rs
RATIO
2005-
06 31358560.79 4106607.313 7.63
2006-
07 3513181.88 15182116.75 0.23
2007-
08 7691749.854 9596597.936 0.8
2008-
09 16111600.71 7653014.565 2.1
2009-
10 10323554.96 8550106.668 1.2
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the Working Capital Turnover Ratio of OPT
Consultancy servicesThe Working Capital Turnover Ratio shows higher in the year 2006 i.e.
7.63% But from 2007 to 2010 there has been continuously decreased (i.e.) when compared to
previous years.
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WORKING CAPITAL TURNOVER RATIOS
FIGURE 4.2.15
50
7.63
0.23
0.8
2.1
1.2
0
1
2
3
4
5
6
7
8
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
WORKING CAPITAL TURNOVER
RATIO
RATIOS
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INVENTORY TO CURRE NT ASSET RATIO:
Average Inventory
Inventory to Current Asset Ratio =
Current Assets
TABLE 4.2.12
51
YEAR
AVERAGE INVENTORY
Rs
CURRENT ASSET
Rs RATIO
2005-
06 5825092.799 35465168.1 0.16
2006-
07 5429251.165 11668934.86 0.47
2007-
08 38801156.503 17288347.79 0.22
2008-09 9150310.374 2376415.27 0.39
2009-
10 4708448.732 18873661.63 0.25
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Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the companys Inventory to
Current Asset Ratio in the year 2005-06 to 2009-10 (i.e.) 0.16 to 0.25.has increased by 0.25%
in the year 2010 when compare to previous year.
INVENTORY TO CURRENT ASSET RATIO
FIGURE 4.2.12
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GROSS PROFIT RATIO:
Gross Profit
Gross Profit Ratio= * 100
Net Sales
53
0.16
0.47
0.22
0.39
0.25
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
INVENTORY TO CURRENT ASSET
RATIO
RATIO
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Where as (Gross Profit = Net Sales- Cost of Goods Sold)
Cost of Goods Sold = (Opening Stock+ Purchase Less Returns-Current
Liabilities)
Net Sales = (Sales- Sales Return).
TABLE 4.2. 13
YEAR GROSS PROFIT
Rs
CURRENT ASSET
Rs
RATIO
2005-
06 3753475.257 39377253.951 9.53
2006-
07 4171996.853 57364832.075 7.27
2007-
08 5509944.653 63273345.625 8.71
2008-
09 6793055.831 77237254.713 8.80
2009-
10 8215229.528 89967678.583 9.13
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the companys Gross Profit Ratio
increase in year 2005-06 (i.e.) 9.53. But from 2005-06 to 2009-10 there has been slowdown
to some extent, when comparing to the previous years.
GROSS PROFIT RATIO
FIGURE 4.2.13
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ADMINISTRATIVE EXPENSES RATIO:
Administrative Expenses
Administrative Expenses Ratio= *100
Net Sales
55
9.53
7.27
8.71 8.89.13
0
1
23
4
5
6
7
8
9
10
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
GROSS PROFIT RATIO
RATIO
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TABLE 4.2.14
YEAR
ADMINISTRATIVE EXPENSES RATIO
Rs NET SALESRs
RATIO
2005-
06 6660618.145 39377253.951 16.91
2006-
07 9805865.796 57364832.075 17.09
2007-
08
11598635.776 63273345.62
5
18.33
2008-09 13919612.840 77237254.713 18.02
2009-
10
14236372.803 89967678.58
3
15.82
Source: Annual Reports OPT Consultancy services Chennai from 2005-10
INTERPRETATION:
From the above table it can be inferred that the companys
Administrative Expenses Ratio in year 2005-06 to 2009-10 (i.e.) 16.91 to 15.82.has been
increased in the year 2006 (i.e.) 16.91. In the year 2010 the Administrative Expenses Ratio
has been decreased (i.e.) 15.82.When compared to previous years
ADMINISTRATIVE EXPENSES RATIO
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FIGURE 4.2.14
TREND ANALYSIS
57
16.9117.09
18.33
18.02
15.82
14.5
15
15.5
16
16.5
17
17.5
18
18.5
RATIOS
2005-06 2006-07 2007-08 2008-09 2009-10
YEARS
ADMINISTRATIVE EXPENSES RATIO
RATIO
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4.3 MEANING TREND ANALYSIS:
Trend analysis is one of the important tools of analyzing the financial
data. It computes the percentage changes for different variables over a long period and then
makes a comparative study of them. The trend percentage helps the analyst to study the
changes that have occurred darning the period. Such an analysis indicates the progress by
showing ups and downs in its activities
FINANCIAL TREND ANALYSIS is the process of analyzing financial statements of
a company for any continuing relationship. Generally, an analysis is made to find out what
direction a concern is going, how rapidly, and whether there are enough resources to
complete proposed projects.
An aspect of technical analysis that tries to predict the future movement of a stock based on
past data. Trend analysis is based on the idea that what has happened in the past gives traders
an idea of what will happen in the future.
There are three main types of trends: short-, intermediate- and long-term.
CURRENT ASSET:
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TABLE 4.3.1
Y = a + bX Where a = Y ; b = XY
n X2
Current assets value for 2010 11 will be about Rs.34, 06, 45,447
CURRENT ASSET: FIGURE 4.3.1
FIXED ASSET:
59
YEAR
CURRENT ASSET
(Y) X XY X2 Y = a + b x
2005-
06
35465168.1 -2 -70930336.2 4 17194678.994
2006-
07
11668934.86 -1 -11668934.86 1 19303412.247
2007-
08
17288347.79 0 0 0 21412145.52
2008-
09
23764615.27 1 23764615.27 1 25629611.91
2009-
10
18873661.63 2 37747323.26 4 29847078.32
Y=107060727.7 X=0 XY=2108733
2.53
X2=1
0
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TABLE 4.3.2
Y = a + bX Where a = Y ; b = XY
n X2
Fixed assets value for 2010 11 will be about Rs. 2, 08, 75,71.738
FIXED ASSET FIGURE 4.3.2
CASH & BANK BALANCE:
60
YEAR
FIXED ASSET
(Y) X XY X2 Y = a + b x
2005-06
740010.600 -2 -1480021.2 4 845992.897
2006-07
986728.600 -1 -986728.6 1 1094308.666
2007-08
1700745.121 0 0 0 1342624.435
2008-09
1621368.217 1 1621368.217 1 1590940.204
2009-10
1664269.636 2 3328539.272 4 1839255.973
Y=6713122.174 X=0 XY=2483157.689 X2=10
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TABLE 4.3.3
Y = a + bX Where a = Y ; b = XY
n X2
Cash Requirement for 2010 11 will be about Rs. 96, 07,788.49
CASH & BANK BALANCES
FIGURE 4.3.3
INVENTORY
61
YEAR CASH & BANK X XY X2 Y = a + b x
2005-06
58403.077 -2 -116806.154 4 210601.589
2006-
07
605026.901 -1 -605026.901 1 360637.041
2007-
08
593151.324 0 0 0 510672.493
2008-
09
371374.749 1 371374.749 1 660707.945
2009-
10
925406.415 2 1850812.83 4 810743.397
Y=2553362.466 X=0 XY=1500354.524 X2=10
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TABLE 4.3.4
Y = a + bX Where a = Y ; b = XY
n X2
Stock level for 2010 11 will be about Rs. 6, 24, 49,75.056
INVENTORY
FIGURE 4.3.4
SUNDRY DEBTORS
62
YEARS INVENTORY X XY X2 Y = a + b x
2005-06 5825092.799 -2 -11650185.6 43879602.726
2006-07
5429251.165 -1 -5429251.165 1
5649866.627
2007-08
3880115.603 0 0 0
5798643.734
2008-09 9150310.374 1 9150310.374 1
5947420.841
2009-10
4708448.732 2 9416897.464 4
6096197.948
Y=28993218.67 X=0 XY=1487771.073 X2=10
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TABLE 4.3.5
Y = a + bX Where a = Y ; b = XY
n X2
Sundry Debtors for 2010 11 will be about Rs. 3, 63, 33,95.805
SUNDRY DEBTORS
FIGURE 4.3.5
63
YEARS SUNDRY DEBTORS
(Y)
X XY X2 YC= a + b x
2005-061590439.776 -2 -3180879.552 4 1488553.358
2006-07 3093057.061 -1 -3093057.061 1 1917521.847
2007-082311550.508 0 0 0 2346490.336
2008-094431187.152 1 4431187.152 1 2775458.825
2009-103066217.179 2 6132434.358 4 3204427.314
Y=11732451.68 X=0 XY=4289684.897 X2=10
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CHAPTER V
FINDINGS:
In the year of 2005-06, 2006-2007 and 2007-2008 shows increase in
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Working Capital. This indicates that the company has ability of
payment of short-term Liability.
The fixed assets ratio indicates that the working capital of thiscompany is funded by long-term funds which indicate efficient funds
management.
The Short term Liquidity and long- term Liquidity position of the
concern were studied to evaluate the Working Capital of the concern.
During the study period 2005 - 2006 to 2009-2010 the current ratio
of the concern varied from 8.63 to 2.21.But 2007-08 to 2008-09 is
varied from 0.77 to 1.80. This was much less than the prescribed of
2:1. The inference is that the Current Liability may not be easily met
out of Current Asset by the Company.
The Quick ratio of the concern during the period 2005-06 to 2009-10
the study is varied from 7.22 to 1.67.Which was much greater than
the prescribed standard of 1:1.So the company Liquidity level issatisfactory.
In Trend analysis the Cash &Bank Balance have been increased from
2005-05 to 2008-09.So it shows the Cash position of the company is
good.
SUGGESTION:
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The company is a profit seeking one; it has to commit all of its
resources to achieve its goal. To achieve this, profitability, liquidity
and solvency position a crucial elements to be monitored carefully,
thereby the trade off can be reached
This companys ability to meet its current obligations is satisfactory
though it does not meet the conventional norm. This company
maintains current liabilities more than the amount of current assets
which has to be viewed seriously and improvement of this ratio is
required to achieve the optimum level.
Stock Turnover Ratio should be maintained at the constant level.
The Cash & Bank Balances of the company is good.
Using trend analysis it can be suggested that the fixed assets curve
shows steady upward direction much than the current assets curve,
which enable us to understand the companys funds are dumped in
fixed asset, it is not a favorable condition to the company
CONCLUTION:
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The present study reveals that the liquidity position of this company is comparatively good
as it approaches the standard norms throughout the period of study. On the
whole, it can be concluded that the companys overall risk evaluation process is
not at desired level and the author has made the realistic recommendation for
the improvement in operational and managerial efficiency of the company as to
maintain and increase further by effective utilization and control of all the
assets.
BIBILIOGRAPHY
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Management accounting - S.N.MAHESHWARY
Financial management - I.M.PANDEY
Research methodology - C.R.KOTHARI
Management accounting - R.S.N.PILLAI
&
BAGAVATHI
Web site:
www.google.com
www.finance.org
http://www.google.com/http://www.finance.org/http://www.google.com/http://www.finance.org/