impact of current assets on working capital of otpl
TRANSCRIPT
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“Impact of Current Assets on Working Capital”. AT
OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! %OTPL&Contents
'l. "o. Titles Page "o.
I C(apter )
Introduction
Literature Review
Statement of the Problem
Purpose of the Study
Scope of the study
Objectives of the Study
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37
3
3
3
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II C(apter *
Or#ani$ation Profile
Or#ani$ation %hart
&ata %ollection 'ethod
!(
)"
)*
III C(apter +
Results + discussion with %harts + #raphs
,indin#s
Su##estions
%onclusions
)377
7-
7
I# C(apter ,
.ppendi/
0iblio#raphy
1oinin# Report
2eely Reports
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Intro-uction /
4he project is assi#ned to me “Impact of %urrent .ssets on 2orin# %apital56 .t
Oil#ear 4owler Polyhydron Private Limited O4PL86 4he various information re#ardin#
classification9 determinants9 components9 sources9 arran#ement operatin# cycle have been
also discussed and aspects relatin# to the perspective of Oil#ear 4owler Polyhydron
Private Limited O4PL86
Ratio .nalysis has been carried out usin# ,inancial Information for last three
accountin# years i6e6 from *""3 to *""): Ratios lie %urrent Ratio9 2orin# %apital
4urnover Ratio9 Inventory 4urnover Ratio9 &ebtors 4urnover Ratio have also been
analy$ed6 . Statement of %han#es in 2orin# %apital has also been analy$ed and
attached 4urnover + Performance of the %ompany for last three years has also been
analy$ed6
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$EA"I"G 0 !E1I"ITIO" O1 WOR2I"G CAPITAL /
2orin# capital in simple terms is the amount of funds9 which a company9 must
have to finance its day;to;day operation9 it can be re#arded as part
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OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! %OTPL&
!efinition of Working Capital /
Genesten3erg /
“ 2orin# %apital means %urrent .ssets of a company that are chan#ed in the
ordinary course of business9 from one to another9 for e/9 from cash to inventories9
inventories to receivable9 receivable to cash56
Gat(man 0 !ug 4all /
“2orin# %apital as e/cess of current assets over current liabilities65
Westen 0 5rig(am /
“ 2orin# capital refers to a term investment in short term assets cash9 short term
securities accounts receivables and inventories65
6. 'mit( /
“ 4he Sum of the current assets is the worin# capital of the business65
7WOR2I"G CAPITAL 8 C9RRE"T A''ET' : C9RRE"T LIA5ILITIE'”.
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Working capital c;cle /
Intro-uction
4he worin# capital cycle can be defined as?
4he period of time9 which elapses between the point at which9 cash be#ins to be
e/pended on the production of a product and the collection of cash from a customer
4he dia#ram below illustrates the worin# capital cycle for a manufacturin# firm
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OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! %OTPL&
4he upper portion of the dia#ram above shows in a simplified form the chain of
events in a manufacturin# firm6 =ach of the bo/es in the upper part of the dia#ram can be
seen as a tan throu#h which funds flow6 4hese tans9 which are concerned with day;to;
day activities9 have funds constantly flowin# into and out of them6
4he chain starts with the firm buyin# raw materials on credit6
In due course this stoc will be used in production9 wor will be carried out on the
stoc9 and it will become part of the firm@s wor in pro#ress 2IP8
2or will continue on the 2IP until it eventually emer#es as the finished product
.s production pro#resses9 labor costs and overheads will need to be met
Of course at some sta#e trade creditors will need to be paid
2hen the finished #oods are sold on credit9 debtors are increased
4hey will eventually pay9 so that cash will be injected into the firm
=ach of the areas A stocs raw materials9 wor in pro#ress and finished #oods89 trade
debtors9 cash positive or ne#ative8 and trade creditors A can be viewed as tans into and
from which funds flow6
2orin# capital is clearly not the only aspect of a business that affects the amount
of cash?
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4he business will have to mae payments to #overnment for ta/ation
,i/ed assets will be purchased and sold
Lessors of fi/ed assets will be paid their rent
Shareholders e/istin# or new8 may provide new funds in the form of cash
Some shares may be redeemed for cash
&ividends may be paid
Lon#;term loan creditors e/istin# or new8 may provide loan finance9 loans
will need to be repaid from time to time9 and
Interest obli#ations will have to be met by the business6
Bnlie movements in the worin# capital items9 most of these Cnon;worin#
capital@ cash transactions are not everyday events6 Some of them are annual events e6#6
ta/ payments9 lease payments9 dividends9 interest and9 possibly9 fi/ed asset purchases and
sales86 Others e6#6 new e>uity and loan finance and redemption of old e>uity and loan
finance8 would typically be rarer events6
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CO$PO"E"T' O1 WOR2I"G CAPITAL
4here are two components of 2orin# %apital
A. Current Assets
5. Current Lia3ilities
A. Current Assets
.n asset is termed as current assets when it is ac>uired either for the purpose of
sellin# or disposin# of after tain# some re>uired benefit throu#h the process of
manufacturin# of which constantly chan#es in form and contributes to transactions tae
place with the operation of the business althou#h such assets does continue for lon# in the
same form6
%omponents of %urrent .ssets are as follows?
%ash + 0an 0alance
Stoc of Raw 'aterial at cost; wor in process and ,inished Doods6
.dvanced Recoverable in %ash or ind or ind or for value to be received6
Security deposits with electricity board;telephone department balances with
customers6
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&eposits under the company scheme6
Prepaid =/penses6
'iscellaneous Stores implements #oods in transit6
.dvanced payment of income taes credit certificates6
=/cise duty and sales ta/ recoverable6
Outstandin# debts for a period e/ceedin# si/ months.
CO/RELATIO" 5ETWEE" C9RRE"T A''ET' A"! WOR2I"G CAPITAL
4he worin# capital is in simple terms is the amount of funds which company
must have to finance its day;to;day operations6 4he interaction between current assets and
current liability is main theme of theory of worin# capital6 In #eneral terms worin#
capital means difference between current assets and current liabilities6
4he current assets are main source of worin# capital6 It refers to those assets9
which can be converted into cash within a year6 4he current assets are inventories9 cash
and ban balance9 sundry debtors9 loans and advances etc
%urrent asset mana#ement is one the most important aspect of the overall
financial mana#ement6 4he efficient mana#ement of worin# capital can determine its
profitability sill of every financial mana#er lies in the efficient mana#ement re>uires
maintainin# proper relationship between current asset and current liability6 4herefore9
plannin# and control of current asset is he most important function of finance mana#er6
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. study of worin# of worin# capital is major part of e/ternal and internal
analysis6 0ecause9 of its close relationship with current day;to;day operations of business6
2orin# capital consists broadly the assets of business that are used at current operations
which was represented by raw materials9 stores9 2IP9 and finished #oods9 merchandise9
bills receivable6 =tc6
C(aracteristics of Current Assets
2hile mana#in# the worin# capital bear in mind of two characteristics of
%urrent assets6
(6 Short life span6
*6 Swift transformation into other assets forms6
%urrent assets a life span9 cash balance may be held idle for a wee or two
accounts receivable may have life span of 3* to E" days and inventories may be need for
* to E" days6 It s depends upon time re>uire in the activities of procurement of9
production9 sales and collection9 and the de#ree of synchroni$ation amon# them6
=ach %urrent .ssets swiftly transform into other asset cash is used for re>uirin#
raw materials? raw material are transform in to finished #oods9 finished #oods are
#enerally sold on credit are convertible into account receivable and finally accounts
receivable on reali$ation9 #enerate cash6
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4he short life span of worin# capital component and they swift transformation
from one from to another has certain implication6
C9RRE"T A''ET' CYCLE
(6 &ecisions relatin# to worin# capital mana#ement are repetitive and fre>uent6
*6 4he difference between profit and present value is insi#nificant6
,inished Doods
.F% Receivable 2IP
Raw 'aterials
Suppliers%ash
2a#es < ,actory
overhead
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36 4he close interaction amon# worin# capital components implies that efficient
mana#ement one component cannot undertae without simultaneous consideration of
other components6
2orin# capital means assets of the company that are chan#ed in the ordinary
capital of business term to another6 ,or e/9 from another as for as from cash to
inventories9 inventories to debtors and a#ain debtors in to cash where it is collected6
2orin# capital refers to a term investment in short term assets cash: short;term
securities account receivable and inventories6 %urrent asset mana#ement that affects a
firm li>uidity is at another important finance function6 In addition to the mana#ement of
lon#;term assets9 %urrent assets should be mana#ed efficiently for safe #uardin# the firm
a#ainst the dan#erous of li>uidity and insolvency6 Investment in %urrent .ssets affects
the firm profitability9 li>uidity and ris6
Current Lia3ilities
%omponents of %urrent Liabilities are as follows?
Gon;Refundable non;interest bearin# advances a#ainst subscription to shares6
Sundry %reditors for the #oods and e/penses6
Income ta/ deducted at sources from contractors6
=/penses Payable6
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.mount due to promoter of company6
Bnclaimed &ividend6
Security &eposits6
&ealers &eposits6
Liabilities for bills discounted6
I$PORTA"CE O1 WOR2I"G CAPITAL /
2orin# %apital is most important in every or#ani$ation whether it is a small or
bi# concern6 4herefore it is said that9 worin# capital is the blood and center at a
business6
(6 .de>uately 2orin# %apital creates certainty9 security and confidence in the
minds of the person in the mi#ht as well in the minds of creditors and worers6
*6 It creates a #ood credit standin# for the firm because credit standin# depends upon
the ability to pay promptly6 . company with ade>uate worin# capital is always
able to meet %6L6 in time6
36 It ensure solvency and stability of the enterprise it also ensures continuity in
production and sales6
!6 It enables the company to tae advanta#e of cash discount allowed by the
suppliers of raw materials or merchandise6
)6 It enables the presti#e of the company and the morale of its worers because a
company with ade>uately worin# capital is always able to pay wa#es and
salaries promptly and re#ularly6
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E6 It enables the company to procure loans terms bans on easy and competitive
terms6
76 In terms of boon it enables the company to meet increasin# demand of its product6
-6 In the time of depression9 it enables the company to overcome the crises
successfully6
6 It enables the company to hold up inventory and wait for better maretin#
opportunities so as to secure hi#her prices6
("6 It enable the company on its business successfully and achieve pro#ress and
prosperity9
$ETO!' O1 E'TI$ATI"G WOR2I"G CAPITAL /
Conuidity and #reater importance is attached
to current ratio9 li>uidity ratio9 etc69 which pertain to the li>uidity of a business6
Operating c;cle met(o-
In order to understand what #ives rise to differences in the amount of timin# of
cash flows9 we should first now the len#th of time which is re>uired to convert cash into
resources9 resources into final product9 the final product into receivables and receivables
bac into cash6
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CLA''I1ICATIO" O1 WOR2I"G CAPITAL
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A. On t(e 3asics of Concept
%a& "et Working Capital
4his is the difference between current assets and current liabilities6 %urrent
Liabilities are those that are e/pected to mature within an accountin# year and include
creditors9 bills payable and outstandin# e/penses6
Investment is current assets represent a very si#nificant portion of the total
investment in assets6 In case of public limited companies in India9 current assets
constitute around E"H of the total capital employed6 4herefore the finance mana#er
should attention to worin# capital mana#ement6
2orin# %apital 'ana#ement is no doubt si#nificant for all firms9 but its
si#nificance is enhanced in cases of small firms6 . small firm has more investment in
current assets than fi/ed assets and therefore current assets should be efficiently
mana#ed6
4he worin# capital needs increase as the firm #rows6 .s sales #row9 the firm
needs to invest more in debtors and inventories6 4he finance mana#er should be aware of
such needs and finance them >uicly6
%urrent .ssets can be finance throu#h lon#;term and short;term sources6 4he
ratio of lon#;term to short;term source will depend on whether the firm is a##ressive of
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conservative6 It the firm is a##ressive then it will finance a part of its permanent current
assets with short;term funds6 On the other hand9 a conservative firm will finance its
permanent assets and also a part of temporary current assets with lon#;term financin#6
%3& Gross Working Capital
4his refers to the firm@s investment in current assets6 %urrent .ssets are the assets
which can be converted into cash within a short period say9 an accountin# year6 %urrent
assets include cash9 debtors9 and bill receivable9 short;term securities6 etc6
A. On t(e 3asis of Time
a. Permanent Working Capital
Permanent 2orin# %apital is permanently loced up in the circulation of current
assets6 It covers the minimum amount re>uested for maintainin# the circulation of current
assets6
i. Initial Working Capital
.t its inception and durin# the formative period of its operations a company must
have enou#h cash fund to meet its obli#ations6 4he need for initial worin# capital is for
every company to consolidate its position6
ii. Regular Working Capital
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It refers to the minimum amount of li>uid capital re>uired to eep up the
circulation of the capital from the cash inventories to account receivable and from
account receivables to bac a#ain cash6 It consists of ade>uate cash balance on hand and
at ban9 ade>uate stoc of raw materials and finished #oods and amount of receivables6
3. #aria3le Working Capital
It refers to the past of the 2orin# %apital that chan#es with the volume of
business: it may be divided into two classes6
i. 'easonal Working Capital
4here is many line of business where the volumes of operations are different and
hence the amount of worin# capital varies with seasons6 4he capital re>uired to meet
the seasonal needs of the enterprise nows as Seasonal 2orin# %apital6
ii. 'pecial Working Capital
4he capital re>uired to meet any special operations such as e/periments with new
products or new techni>ues of production and main# interior advertisin# campai#n etc9
is also now as Special 2orin# %apital6
5. Ot(er !eterminants of Working Capital
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In order to mana#e the 2orin# %apital optimally: on has to #ive due
consideration to the factors that influence the amount of 2orin# %apital to be
maintained6
'O9RCE' O1 WOR2I"G CAPITAL /
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). Long Term 'ources of Working Capital /
4he followin# are the some important of the lon#
term sources of worin# capital6
A. Issue of '(ares Issuin# shares can finance a part of lon#;term worin# capital6
06 Issue of !e3enture Lon# 4erm 2orin# %apital can be collected by the way of
issuin# the debentures6
%6 Retaine- Profits .ccumulated lar#e profit can also consider as a source of financin#
the lon#;term capital6
&6 Term Loans / 4he mid and term loan above three year are also important source of
financin# the lon# term worin# capital needs6
=6 Reser
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'ORT TER$ 'O9RCE' O1 WOR2I"G CAPITAL /
&uration for this #enerally do not e/ceeds one year6 Its sources are
I"TER"AL 'ORT TER$ 'O9RCE'
(6 !epreciation 1un-s &epreciation ,unds created out of the profit is #ood source for
short;term source of financin# worin# capital6
*. ProTER"AL 'ORT TER$ 'O9RCE'6
). Tra-e Cre-it 4rade %redits e/tended by one business unit to the other on the
purchase sale of #oods and e>uipments are very important6
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*. 5ank Cre-it / %ommercial bans are providin# a #reater part of worin# capital in
the form of over drafts cash credit and short;term loans6
+. Cre-it Papers / 0ills Payable9 promissory notes etc are usefully for worin# capital
re>uirements6
!6 Customer Cre-it .mount may also be obtained from customer and these amounts
can be used for purchasin# raw materials9 payin# e/penses etc6
?. 1inancial Corporation 4he financial corporation lies I&0I9 I,%I9 I%I%I9 etc9
advances loans for various types of assistance6
@. Go
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E11ICIE"T 9TILIBATIO" O1 WOR2I"G CAPITAL $A"AGE$E"T
2ell worin# capital mana#ement refers to the administration of all aspects of the
current assets and liabilities6 It is necessary to #et ma/imum benefit6
4here is a direct relation between sale and worin# capital needs6 .s sale #rows
the firm needs capital to invest in inventories and boo debts6
A& Cas( $anagement /
%ash is re>uired to meet the firm@s transactions and precautionary needs6 4he firm
needs cash to mae payments for ac>uisition of resources and services9 for the normal
consist of the business6 It eeps addition funds to meet any emer#ency situation6
%ash 'ana#ement involves three thin#s6
'ana#in# cash flow in and out of the firm6
'ana#in# cash flow within the firm6
,inancin# deficit or investin# surplus cash6 .nd thus controllin# of cash balance at
the point of time6
5& In
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Inventories play very si#nificant role in worin# capital6 It is sin#le most si$able
investment in worin# material9 indi#enous raw material9 spares9 stoc9 tools9 the
maintenance9 and #oods in pro#ress9 stoc of pacin# materials9 stationary etc6 4o
mana#e inventories efficiently and effectively answer should be sou#ht from the
followin# >uestions6
ow much should be orderedJ
2hen should be orderedJ
4he aim of inventory mana#ement thus should be to avoid e/cessive and
inade>uate levels of inventories and to maintain sufficient inventories for the smooth
production and sales operation6
C& $anagement of Receiuired to complete the series of events
as stated below in case of manufacturin# enterprise9 which is cyclical in nature6
,or a manufacturin# firm9 cash is spent on ac>uirin# raw materials9 which are
transformed in to wor in pro#ress6 4he wor in pro#ress is then converted in to finished
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#oods6 ,inished #oods tae the form sales9 which may be credit or cash6 %redit sales
convert in to sundry debtors9 bills receivables9 which after some time9 #ets converted in to
cash6 4his cycle repeats6
OPERATI"G CYCLE O1 $A"91ACT9RI"G CO$PA"Y
%ash
&ebtors < 0R Raw 'aterials
Sales of #oods 2or in Pro#ress
,inished Doods
I$PORTA"CE O1 OPERATI"G CYCLE
Operatin# cycle concept is a new concept in worin# capital mana#ement9 which
has been #ainin# more and more importance in recent years6 4his concept emphasi$es the
importance of time factors in the conversion of raw materials into final product and then
in to sales resultin# in cash collection9 ri#ht from the ac>uisition of raw materials9
normally operatin# cycle passes throu#h the followin# sta#es6
(6 .c>uisition of raw materials6
*6 2or in Pro#ress6
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36 Stoc of finished #oods6
!6 Sale and reali$ation of sales proceeds6
Operatin# cycle concept plays an important role in determinin# the worin#
capital re>uirement of firm6 &uration of manufacturin# process ri#ht from the ac>uisition
of raw materials till they are sole out after bein# converted into final products and the
cash is reali$ed determines the amount of worin# capital re>uired6 Lon#er the operatin#
cycle #reater will be the amount of worin# capital re>uired and shortest operatin# cycle
re>uires limited amount of worin# capital6 4herefore9 an efficient mana#ement should
try to reduce the time elapsed in these consecutive sta#es in operatin# cycle6
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!ETER$I"A"T' O1 WOR2I"G CAPITAL /
. firm should plan its operations in such a way that it should have neither too
much not too of little worin# capital6 4he worin# capital re>uirement is determined by
a wide variety of factors6 4hese factors9 however9 affect different enterprise differently6
4hey also vary from time to time6 In #eneral9 the followin# factors are involved in a
proper assessment of the >uantum of worin# capital re>uired6
4he followin# are the some important determinants of worin# capital
). General "ature of 5usiness
4he worin# capital re>uirements of an enterprise are basically related to the
conduct of business6 =nterprise falls in to some broad cate#ories dependin# on the nature
of their business6 ,or instance9 public utilities have certain features which have a bearin#
on their worin# capital needs6 4he two relevant features are9
(6 4he cash nature of business9 that is9 cash sale6
*6 Sale of services rather than commodities6
In a view of these features9 they do not maintain bi# inventories and have9
financial enterprise6 4he nature of their business is such that they have to maintain a
sufficient amount of cash9 inventories9 and boo debts6
*. Pro-uction C;cle
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4he >uantum of worin# capital is also determined by production policy6 In case
of certain lines of business9 the demand for products is seasonal9 that is9 they are
purchased durin# certain months of the year6 4here are two options to open to such
enterprise? either they confine production only to period when #oods are purchased or
they follow a steady production policy throu#hout the year and product #oods at a level
to meet the pea demand6 In former case9 there are worin# force and physical facilities
without ade>uate production and sale6
?. Cre-it Polic;
4he credit policy relatin# to sales and purchases9 also affects the worin# capital6
4he credit policy influences the re>uirements of worin# capital in two ways9
(6 4hrou#h the credit terms #ranted by the firm to its customersuirements of a business are9 thus9
affected by the terms purchase and sale9 and role #iven to credit by company in it@s
dealin# with creditors and debtors6
*6 %redit terms fi/ed by an enterprise are affected by the prevailin# trade practices
as well as chan#in# economic conditions6 If9 for e/ample9 competition were een9 there
would pressure to #rant #enerous credit terms6 Gevertheless9 there is wide scope for
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mana#erial discretion in worin# out a suitable credit policy relevant to each customer
based on the merits of each case6 ,or instance9 liberal credit facilities can be e/tended on
the basis of credit ratin#6 4his will avoid the problem of havin# e/cess worin# capital6
@. Gro4t(s an- E=pansion
.s a company #rows9 it is lo#ical to e/pect that a lar#er amount of worin#
capital is re>uired6 It is9 of course9 difficult to determine precisely the relationship
between the #rowth in the volume of business of a company and the increase in its
worin# capital6 4he composition of worin# capital in a #rowin# company also shifts
with economic circumstance and corporate practices6 Other thin#s9 bein# e>ual9 #rowth
industries re>uire more worin# capital than those that are static6
. Profit Leuality of mana#ement and monopoly power
would by and lar#e determine the profit earned by a firm6 . priori9 it can be #enerali$ed
that a firm dealin# in a hi#h >uality product9 havin# a #ood maretin# arran#ement and
enjoyin# monopoly power in the maret9 is liely to earn hi#h profit and vice;versa6
i#her profit mar#in would improve the prospects of #eneratin# more internal funds
thereby contributin# to the worin# capital pool6
. !i
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.nother appropriation of profit9 which has a bearin# on worin# capital9 is
dividend payment6 4he payment of dividend consumes cash resources and9 thereby9
affects worin# capital to that e/tent6 %onversely9 if the firm does not pay dividend but
retains the profits9 worin# capital increase6 In theory9 a firm should retain profits to
preserve cash resources and9 at the same time9 it must pay dividends to satisfy the
e/pectations of investors6 2hen profits are relatively small9 the choice is between
retention and payment6 4he choice must be made after tain# in to account all the
relevant factors6
D. !epreciation Polic;
&epreciation Policy also e/erts an influence on the >uantum of worin# capital6
&epreciation char#es do not involve any cash outflows6 4he affect of depreciation policy
on worin# capital is9 therefore9 indirect6 In the first place9 depreciation affects the ta/
liability and retention of profits6 &epreciation is allowable e/penditure in calculatin# net
profits6 =nhanced rates of depreciation lower the profits and9 therefore9 the ta/ liability
and9 thus9 more cash profits6 i#her depreciation also means lower disposable profits and9
therefore9 a smaller dividend payment6 4hus9 cash is preserved6 In the second place9 the
selection of method of depreciation has important financial implication6
). Price leuirement of worin# capital6 Risin#
prices necessitate the use of more funds for maintainin# an e/istin# level of activity6 ,or
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the same level of current assets9 hi#her cash outlays are re>uired6 4he effect of risin#
prices is that a hi#her amount of worin# capital needed6 owever9 in the case of
companies9 which can raise their prices proportionately9 there is no serious problem
re#ardin# worin# capital6
)). Operating Efficienc;
4he operatin# efficiency of the mana#ement is also an important determinant of
the level of worin# capital6 4he mana#ement can contribute to a sound worin# capital
position throu#h operatin# efficiency6 .lthou#h the mana#ement cannot control the rise
in prices9 it can ensure the efficient utili$ation of resources by eliminatin# waste9
improvin# co;ordination9 and a fuller utili$ation of e/istin# resources and so on6
=fficiency of operations accelerates the pace of cash cycle and improves the worin#
capital turnover6 It releases the pressure on worin# capital by improvin# profitability and
improvin# the internal #eneration of funds6
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Tec(niFues of Working Capital $anagement /
2orin# %apital mana#ement involves decidin# upon the amount and
composition of current asset and how to finance the asset6 4his decision involves trade off
between ris and profitability6
2orin# %apital 0alances are measured from the financial dates of the company@s
balance sheet6 . study of the causes for chan#es of worin# capital that tae place in the
balance from time to time is necessary6 4hese chan#es can be measured in rupee amount
and also in percenta#e by comparin# current assets9 current liabilities and worin# capital
over the #iven period6
4he importance tools of 2orin# %apital are9
). Ratio Anal;sis of Working Capital /
(6 Ratio analysis of worin# capital6
*6 4urnover of worin# capital Ratio6
36 %urrent Ratio6
!6 %urrent &ebt tan#ible net worth6
)6 Inventory 4urnover Ratio6
E6 &ebtor 4urnover Ratio6
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*. 1un-s 1lo4 Anal;sis of Working Capital /
It is an effective mana#ement tool to study how funds have been produced for a
business and how they have been employed6 4his techni>ue helps to analy$e chan#e in
worin# capital components between two data6 4he comparison of current asset and
current liability at the be#innin# and at the end of specific period show chan#es in such
type of current assets and resources from which 2orin# %apital has been obtained funds
flow statement contributes materially to the financial aspects6
+. Working Capital 5u-get /
4he worin# capital bud#et is an important phase of overall financin# bud#etin#6
4his bud#etin# should be distin#uished from a cash bud#et that is desi#ned to measure all
the financial repayment of loans9 term loan and similar item6 On the other hand worin#
capital repayment and assure that they are duly provided for6 4he objective of that bud#et
is to secure an effective utility of investment6
,. Tren- Anal;sis /
. trend analysis indicates the chan#e9 which has been tain# place from time to
time of an individual item of current assets6 .ssets and utility and net worin# capital on
the basis of some standards year and its effect on worin# capital portion6 It enables
creative the upward and down ward trend of current assets and current liabilities6 4hese
are usa#e measured from review of comprehensive balance sheet of a concern at the end
of account year and result is drawn on the basis of trend shown by them6
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mar#in of safety6 =ach of the current assets must be mana#ed efficiently in order to
maintain the li>uidity of the firm while not eepin# too hi#h a level of any one of them6 .
proper balance between %urrent .ssets and %urrent Liabilities is9 therefore9 the main
theme of the theory of worin# capital mana#ement6
2orin# %apital refer to that part of total capital which is ept invest in current
assets that are re>uired for re#ular business operation6 In accountin#9 worin# capital is
taen to mean the difference between %urrent .ssets and %urrent Liabilities6
Accor-ing to Genesten3erg /
“2orin# %apital means %urrent .ssets of a company that are chan#ed in the
ordinary course of business9 from one to another9 for e/9 from cash to inventories9
inventories to receivable9 receivable to cash56
$anagement Pro3lem
4he %ompany wants to study its worin# capital efficiency where current
assets are main constituents of worin# capital mana#ement6 4he company wants to
avoid two dan#erous points i6e e/cessive and inade>uate investment in current
assets6 Investment in Inventories and &ebtors should be minimi$ed so that it can
ma/imi$e its cash and ban balance6
Researc( Pro3lem /
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Research Problem is to ma/imi$e the company@s cash and ban balance throu#h
the study of “Impact of Current Assets on Working Capital”.
'tatement of t(e Pro3lem /
4he study has been undertaen in the or#ani$ation for the purpose to now the
company@s worin# capital mana#ement throu#h the study of “Impact of Current Assets
on Working Capital”.
Purpose of t(e 'tu-;/
4he Purpose of the Study of worin# capital in Oil#ear 4owler Polyhydron
Private Limited is to analy$e the worin# capital with the help of financial ratios and to
chec how the company is maintainin# the worin# capital6
4he study should be made on the basis of the followin#s9
(6 ,inancial Statements6
*6 ,inancial Ratios6
'cope of t(e 'tu-; /
4he worin# capital is spread to some important departments in Oil#ear 4owler
Polyhydron Private Limited6 4he departments are9
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(6 ,inance &epartment6
*6 &esi#n &epartment6
36 Production &epartment6
O3ecti
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). I"TRO!9CTIO" /
OILD=.R 4O2L=R POLKK&ROG PRI.4= LI'I4=&9 Gow popular by
its short name O4PL8 was formerly nown as Polyhydron Systems Private Ltd6 4he
company established in the year (-)6 4he company9 Polyhydron System Private Ltd9
was one of the four independently run en#ineerin# concern mana#ed by a #roup of
entrepreneurs well nown in the country for their >uality products9 fair approach to
business ethics6 4he #roup is nown in the country as Polyhydron6
Game of the other three companies are9
(6 KLO% K&RO4=%4IGI% PRI.4= LI'I4=&6
*6 POLKK&ROG PRI.4= LI'I4=&6
36 SPI%. 'OB%L& %KLIG&=RS PRI.4= LI'I=&6
4he oldest company in the #roup is KLO% K&RO4=%4IGI% PRI.4=
LI'I4=&9 4he %ompany started in (7! and is en#a#ed in manufacturin# complete
ran#e of ydraulic 4ubes couplin# for metric tubes flan#ed fittin#9 shut of valves and
needle valves POLKK&ROG PRI.4= LI'I4=&6 .s founded in (-! and is nown
in the country for its modern and sophisticated mana#ement techni>ues and >uality
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mareted very reasonable price9 the company manufacturin# Redial Piston Pumps9 Relief
alves9 and &irectional %ontrol alves6 .nd SPI%. 'OB%L& %KLIG&=RS PRI.4=
LI'I=&9 established in 1an A"E for manufacture of 'ould %ylinders to be e/ported to
Italy6 4his company is yet to commence its production6
OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! /
,rom its inspection has been manufacturin# OIL K&R.BLI% SKS4='S +
K&R.BLI% .%4B.4ORS + has later added PIS4IOG type accumulators to its ran#e
of products6
). COLLA5ORATIO"
4he company entered into a joint venture collaboration a#reement with the
OILD=.R %O'P.GK9 OILD=.R 4O2L=R IG4=RG.4IOG.L &IISIOG9 BS. in
&ec (36
4= OILD=.R %O'P.GK is a world famous for its =lectro;ydraulic and
ydraulics products such as sophisticated pumps9 valves and systems and especially
nown in the technolo#y of world for its contribution to the technolo#y of 'etal
=/trusion and 'etal formin# systems6 4he company also has its subsidiaries in .ustralia9
%anada9 ,rance9 Dermany9 Dreat 0ritain9 Italy9 1apan9 and Morea + Spain6
Participate- in follo4ing 5usiness Areas
'aret Oil#ear products in the Indian maret6 Include products lie piston9 pumps9
solenoid valves9 prefil valves and cartrid#e valves6
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'aret ydraulic and =lectro hydraulic and subsystems for presses and machines6
Install9 commission9 and service9 ydraulic and =lectro hydraulic systems
manufacturin# by the Oil#ear %ompany in .sian and South =ast .sian countries6
.ssemble9 service9 repairs and test Oil#ear products6
&esi#n9 manufacturin#9 sell9 Install9 repair9 and service ydraulic and =lectro
hydraulic systems and subsystems9 cylinders and other e>uipment in .sian and South
=ast .sian countries6
*. TE CO"'TIT9TIO" O1 TE CO$PA"Y /
Game
OILD=.R 4O2L=R POLKK&ROG PRI.4=
LI'I4=& O4PL8
%onstitution . private limited company re#istered under
companies act ()E
Location
Re#istered Office
Plot Go !9 R6S6 Go; E"-
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P6O6 Gava#e9 0el#aum9 )""(!
""(8-3(8 *!(()*- ! lines8
""(8-3(8 *!(()7E
otplb#mpl*Noil#ear6co6in
Phone (-3(;*!!(()79 *!!(!)
=;mail otplb#mNsanchearnet6com
2ors ""(8-3(8 *!(()*- ! lines8
""(8-3(8 *!(()7E
otplb#mpl*Noil#ear6co6in
5oar- of !irectors /
C(airman 'r6 Robert &rae6
$anaging !irector 'r6 6M6Samant6
!irector Pro-uction 'r6 6&6 Madrolar6
!irector Commercial 'r6 G6 Radharishana Rao
!irector 1inance 'r6 &6S6 %hitnis
!irector 'r6 Srianth Srinivasan6
Colla3orators ; 4= OILD=.R %O'P.GK
OILD=.R 4O2L=R IG4=RG.4IOG.L &IISIOG9 BS.6
,. A''ET'? ;
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,.)& LA"! A"! 59IL!I"G
Land and the site of the re#istered office A ((")! S>6ft ("*E S>6m68
0uildin# and the site of the re#istered office; !-3" S>6ft !)" S>6m68
Land at site of plant (; **"" S>6ft6 *"! S>6m68
0uildin# at site of plant (; (E** S>6ft )( S>6m68
Land site of the wors *)-9("" S>6ft *37- S>6m68
0uildin# Site of the wors *)9""" S>6 ft *3** S>6m686
,.*& $ACI"ERYH A"!LI"GH E9IP$E"T A"! TE'T RIG'
,.+& O11ICE A"! E9IP$E"T
Communication /
ead Office? ;
Phone lines E Gos6
,a/ lines ( Go
=;mail ( Go
=lectronic =/chan#e ("3" %apacities6
Laths 3 Go s Paintin# =>uipment * Sets
ori$ontal 0ore 3 Go s =lectro Static %leaner ( Go s
%G% 'achine %enter ( Go s %leanin# 'achine * Go s
%G% ertical 'achine %enter ( Go s Pallet 4rucs * Go s
&rillin# 'achine 3 Go s .ir %ompressors 3 Go s
'illin# 'achine ( Go s Pr#au#e %alibrator ( Go s
Surface 'achine * Go s ardness 4ester ( Go s
onin# 'achine ( Go s Pumps 4est Stands 3 Go s
ac Saws * Go s alve 4est Stands ( Go s
4ID 2eldin# Set ( Go s Deneratin# Stands 3 Go s
,lame %uttin# =>uipments ( Set Over head %ranes 3 Go s
.rc 2eldin# Set * Go s
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2ors? ;
Phone lines E Gos6
,a/ line ( Go6
=;mail ( Go
=lectronic =/chan#e ("3" %apacities6
,.,& !ATA PROCE''I"G
%omputer ;;;; *! Gos6 1or
&esi#n .ccountancy
Inventory Plannin#
Sales Purchase
.dministration6
?& 'TA11 /
'ales Engineers J , 'upport
Purc(ase * Officers J + 'upport
Planning ) Engineer
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!esign D Engineers J ) 'upport
Accounts an- A-ministrations @ Officers J + 'upports
$anufacturing + Engineers J , 'upports
'er
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onin#
Wel-ing :
4ID 2eldin#6
.R% 2eldin#
'urface Treatment /
%leanin# by Merosene
Phosphatin#
Paintin#6
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$et(o-olog; a-opte- an- -ata collection /
4he nature of the study was collection analysis and interpretation of worin#
capital mana#ement in “O4PL5 4he information about this was #athered throu#h
followin# sources6
• Primar; !ata /
Primary &ata are those9 which are collected fresh and for the first time9 and thus it
happens to be ori#inal in character6
4he primary sources of data are collected from the financial e/ecutives throu#h
personal discussion in the li#ht of the set objectives6 .lon# with this9 informal discussion
with other9 member of the finance6
• 'econ-ar; !ata /
Secondary &ata are those have already been collected by someone else and while
already been passed throu#h statistical process6
• .nnual Report of the %ompany6
• .nnual .ccounts of the %ompany6
• Led#er Profit and Loss .ccount6
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'TATE$E"T 'OWI"G CA"GE' I" WOR2I"G CAPITAL I" *+
OTPL
Particulars ** *+ Increase !ecrease
A& Current Assets
(6 Inventories6
*6 S6 &ebtors
36 %ash + 0an 0alance
!6 Other %6 .ssets6
)6 Loans + .dvances6
TOTAL
5& Current Lia3ilities
(6 %urrent Liabilities
*6 Provision
TOTAL
Working Capital
%A/5&
Get Increase in
2orin# %apital
GRA"! TOTAL
(9!39*9)-!
(9!79(9**)
E97"9*(*
)9"!9!E*
*39)-9*E
,H)?H)H?*
--97E9-!!
)E9E79*"(
)H,?H,,H,?
*HH+H
*39((9-3
*HD+H,DH,?@
(9-*9-797E3
(9E*9E797"3
9*!9!-*
E9-39"E)
(-9"""9E3
,H@DH@DH@
(9*793"9**
!79-9*3-
)H@H)DH?+
*HD+H,DH,?@
*HD+H,DH,?@
39)-9(7
()9!-9!7-
*9)!9*7"
(97-9E"3
;;;;;;;;;
;;;;;;;;
-9779E3
@H)H,D+
@H)H,D+
;;;;;;;;;
;;;;;;;;;
;;;;;;;;;
;;;;;;;;;
)9)*9*"E
39)39!!-
;;;;;;;;;;;;
,?H?H@?,
*39((9-3
@H)H,D+
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I"TERPRETATIO"
.s we can see in the above year *""*;"39 there is an increase in the worin#
capital by Rs6 *39((9-36 4his is because?
(6 .s we can see that there is a #reat increase in %urrent .ssets as the company is
looin# to invest more in the inventory of raw material in this year9 because of the
shorta#e of raw material in the maret9 so overall there is increase in the current
assets6 0ut in current assets loans and advance are decreased6
*6 .s we can see there is decrease of Rs6 39)39!!- in the liabilities of the company9
which is #ood for the company6 0ut Rs6 -9779E3 increases provisions6
36 So from all the above calculation we can see that there is #ood increase in the
worin# capital6 So we can say that company is more liely to increase there
inventory because they thinin# it for the lon# term perspective6
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'TATE$E"T 'OWI"G CA"GE' I" TE WOR2I"G CAPITAL I" *,
OTPL P#T LT! %Rs. In T(ousan-&
Particulars *+ *, Increase !ecrease
A& Current Assets
(6 Inventories
*6 S6 &ebtors
36 %ash + 0an 0al6
!6 Other %6 .ssets
)6 Loans + .dvances
TOTAL
5& Current Lia3ilities
(6 %urrent Liabilities
*6 Provision
TOTAL
Working Capital
%A/5&
Get Increase in 2orin#
%apital
GRA"! TOTAL
(-9*--
(E9*-
9*!
E9-3
(9-"E
,@HD@D
(*9-3"
!97-
)H@)D
*DH+?
(E9)!39
,?HD+
3!9E""
3*9(**
(*9!*
9!)
(93
*HD
*-9)!(
79EE!
+@H*?
,?HD+
,?HD+
(E93(*
()9-)!
*9)E-
*9E*
(933
;;;;;;;;;;
;;;;;;;;;;
+?H)*D
+?H)*D
;;;;;;;
;;;;;;;
;;;;;;;
;;;;;;;
;;;;;;;
()97((
*9-7)
)H?@
(E9)!3
+?H)*D
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In the above table it is seen that9 there is an increased in the worin# capital by
Rs6E9 --3 in the year *""!;")9 this is because? ;
(6 .s we can see of the %urrent .ssets side there is decrease in Inventories9 cash and
ban balance and loans and advances6 4here is an increased in sundry debtors9 other
current assets and company also #iven the advance to supplies by Rs6 (9*()6 4his
decrease in Inventory because there is unavailability of their main raw material6
0ecause of the shorta#e of it in the maret6
*6 %urrent Liabilities side there has been increased in current liabilities and provisions of
Rs6 *9*(" and Rs6 -9-E respectively and also company has taen the advance from
customers of Rs6 9"-*6
36 So9 looin# above calculation we see that worin# capital of the company is
increased9 because current assets are more than current liability6 2orin# %apital is
increased from Rs6 E9-7! to Rs6 E9--36 0ecause in this year company has taen the
advance from customer and #iven advance to suppliers6
RATIO A"ALY'I'
$eaning /
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Ratio .nalysis is a widely used tool of financial analysis6 It defined as the
systematic use of to interpret the financial statement so that the stren#th and weaness
of a firm well as its historical performance and current financial condition can be
determined6 4his relationship can be e/pressed
(6 Percenta#e says net profits are *) percent of sales6
*6 Proportion of numbers the relationship between net profit and sales is (?!89 these
alternative methods of e/pressin# items which are related to each other are9 for the
purpose of financial analysis9 referred to as ration analysis6
T;pes of Ratios
Ratio can be classified into followin# cate#ories9
(6 %urrent Ratios6
*6 Get 2orin# %apital Ratios6
36 4otal .ssets 4urnover Ratios6
!6 Inventory 4urnover Ratios6
)6 ,i/ed .ssets 4urnover Ratios6
E6 %reditors 4urnover Ratios6
76 %reditors %ollection Period6
-6 &ebtors 4urnover Ratios6
6 &ebtors %ollection Period6
("6 Dross Profit 'ar#in Ratios6
$ERIT' A"! !E$ERIT' O1 TE RATIO /
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$erits of t(e Ratio /
4he followin# are the some important merits of the ratio
(6 Ratio .nalysis reflects the worin# efficiency of a concern6
*6 Since9 ratio analysis relates the financial health of a concern9 insurance other
financial institution relay on them while jud#in# loan application and in tain#
vital investment decision6
36 It helps in establishin# trends since the result are preparin# plans for the future6
!6 It is helpful in forecastin# liely events in future6
!emerits of t(e Ratio /
4he followin# are the some important demerits of the ratio6
(6 4he striin# aspect of ratio analysis is the absence of an e/plicit theoretical
structure: different methods of collection are adopted by different concerns6
*6 ,or concert analysis inside information must be nown by the analyst since most
concern report to portray of easy picture of the financial attachments6
36 %han#e in the basis of accountin# may pose difficulty in analysis ratios between
one period
). Current Ratios /
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It can be calculated as current assets divided by current liabilities6 4he current
ratio measures the relative ability of a company to pay its short;term debts6 4he ratio is
used to reveal how well a company could meet a sudden demand to pay off its short;term
creditors6
,ormulas9
%urrent Ratio Q %urrent .ssets
%urrent Liabilities
Current Ratio
22.2
2.4
2.6
2.8
2002-2003 2003-2004 2004-2005
Years
R a t i o s
Current Ratio
Interpretation /
Particulars **/*+ *+/*, *,/*?
%urrent .ssets !9E9E9""" -9*"9-9""" 9!9)-9"""
%urrent Liabilities (97E9(9""" 39E*9")9""" !9*(9(9"""
Current Ratio *.@@ *.*@ *.*?
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.s a conventional rule9 a current ratio of *?( or more considered satisfactory6 4he
O4PL %ompany9 has current ratio is *6EE?(: therefore9 it may be interpretated to be
satisfactory company6 4he current ratio represents a mar#in of safety for creditors6 4he
hi#her the current ratio9 the #reater the mar#in of safety9 so9 there has been increased in
the ratio durin# *""*;*""39 when compared with *""3;*""! and *""!;*"")6 So9 lar#er
the amount of current assets in relation to current liabilities9 the more the firm@s ability to
meet its current obli#ation6 ,irm with less than *?(9 current ratio may be doin# well9
while firm with *?( or even hi#her current ratio may be stru##lin# to meet their
obli#ations6 4his is so because9 if Rs6* is your %urrent .ssets and Rs6( is Kour %urrent
Liabilities6 4hus %urrent Ratio shown is *?(9 which is an Ideal Ratio6
*. uick Ratio
It establishes a relationship between >uic or li>uid9 assets and current liabilities6
.n asset is li>uid if it can be converted in to cash immediately or reasonably soon
without a loss of value6 %ash is most li>uid assets6 Other assets9 which are considered to
be relatively li>uid and included in the >uic assets9 are debtors9 and bills receivable and
maretable securities6 Inventories are considered to be less li>uid9 inventories normally
re>uires some time for reali$in# in to cash: their value also has a tendency to fluctuate6
,ormula
uic Ratio Q %urrent .ssets A Inventories
%urrent Liabilities
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Particulars **/*+ *+/*, *,/*?
%urrent .ssets !9E9E9""" -9*"9-9""" 9!9)-9"""
;8 Inventory (9-*9--9""" 39!E9""9""" *9-"9!*9"""
Total *H@H)H ,H,HDH @H@DH)@Huic ratio is (?( is considered to represent a satisfactory current
financial condition6 In the year *""*;"3 >uic ratio was (6E* and there has been
decreased in the year compared to *""3;"! and *""!;")6
4he hi#h ratio indicates that all debtors may not be >uic and cash may be
immediately needed to pay operatin# e/penses6 It should be noted that inventories are not
absolutely non;li>uid to a measurable e/tent inventories are available to meet current
obli#ations6 So the company can suffer from shorta#e of funds6 On the other hand9 a
company with low ratio in the year *""3;"! and *"!;")9 indicates that >uic ratio may
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really be prosperin# and payin# its current obli#ation in time if it has been turnin# over
its inventories efficiently6
+. Total Assets Turno
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Total Assets Turnover Ratio
0
1
2
3
4
5
2002-2003 2003-2004 2004-2005
Years
R a t i o s
Total Assets
Turnover Ratio
Interpretation /
4here has been increased in the year *""!;")9 when compared to *""*;*""3 and
*""3;*""!6 .nd hi#h ratio indicates that in the year *""!;")9 that ratio shows the firm@s
ability in #eneratin# sales from all financial resources6
,. In
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Interpretation /
4here has been increased in the ratio in the year *""! A*"")9 when compared
with *""*;*""3 and *""3;*""!6 In the year *""!;*"")9 indicates hi#h ratio9 it means9
Inventory turnover ratio implies #ood inventory mana#ement and very hi#h ratio calls for
a careful analysis6 It may indicate under investment in inventory6 2hile a Low ratio
indicate in the year *""*;*""39 that9 it may be result in use of inferior >uality of #oods
and over investment in sales in the *""3;*""!6
,. 1i=e- Assets Turno
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Fixe Assets Turnover Ratio
0
1
2
3
4
2002-2003 2003-2004 2004-2005
Years
R a t i o s
Fixe Assets
Turnover Ratio
Interpretation /
4here has been increased in the ratio durin# *""*;*""3 and *""!;*"")9 when
compared with *""3;*""!6 . low ratio in the year *""*;*""3 indicates in efficiency use
of assets9 and the ne/t two years *""3;*""! and *""!;*"")8 shows hi#h ratio9 which
means that increasin# efficiency of fi/ed assets employed in the or#ani$ation6 One of the
cautions to be ept in the mind is when fi/ed assets are old and substantially depreciated
the ratio tenders to be hi#h9 because9 the denominator of the ratio will be low6
?. Cre-itors Turno
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It is the ratio between the Sales and %reditors or Get %redit Purchase and avera#e
amount of creditors6 It is an important tool of analysis as a firm can maintain minimum
amount of %urrent .ssets9 as credit from suppliers is easily available6
%reditor 4urnover Ratio Q Get Sales
%reditors
Creitors Turnover Ratio
3
3.5
4
4.5
5
2002-2003 2003-2004 2004-2005
Years
R a t i o s
Creitors Turnover Ratio
Particulars **/*+ *+/*, *,/*?
Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""%reditors (9*-93"9""" *9-)9!(9""" *9E393(9"""
Cre-itors Turno
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Creitors Collection !erio
0
50
100
150
2002-2003 2003-2004 2004-2005
Years
R a t i o s
Creitors Collection
!erio
Interpretation /
In the year *""*;*""39 there was increase when compared to *""3;*""! and
*""!;*"")6 4he hi#h ratio of *""*;*""3 indicates that the sales of the year is very low as
compared to *""3;*""! and *""!;*"")9 and also creditors are low as compared to as
compared to *""3;*""! and *""!;*"")6 2hile low ratio in the year *""3;*""! indicates
that creditors are hi#h as compared to other year6
. !e3tors Turno
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Particulars **/*+ *+/*, *,/*?
Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""
&ebtors (9E*9E-9""" 39*(9**9""" !9779"9"""
!e3tors Turnoual turnover ratio6
. !e3tors Pa;ment Perio- /
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. Gross Profit $argin Ratio /
Dross Profit 'ar#in Ratio is the result of relationship between price9 sales9
volume and cost6 . chan#e in #ross profit mar#in can be due to chan#es in any of these
factors6 It represents the limit of beyond which fall in sales price are outside and tolerance
limit6
Dross Profit 'ar#in Ratio Q Dross Profit
Get Sales
Particulars **/*+ *+/*, *,/*?
Dross Profit 79*E9""" (9!*9--9""" (9-E9)!9""" Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""
Gross Profit $argin Ratio ).*@ )+.), ).,+
$ross !ro%it &ar'in Ratio
0
5
10
15
20
2002-2003 2003-2004 2004-2005
Years
R a t i o s
$ross !ro%it &ar'in
Ratio
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0
50
100
150
200250
300
Ratios
2002-
2003
2003-
2004
2004-
2005
Years
Consolidated Statement of Ratios$ross !ro%it
&ar'in Ratio
"e#tors
Collection!erio"e#torsTurnover Ratio
Creitors
Collection
!erioCreitors
Turnover Ratio
Fixe Assets
1I"!I"G A"! '9GGE'TIO"'
1in-ings /
(6 %urrent Ratio of O4PL %ompany shows the solvency of the firm ability to repay its
liabilities6 .s ratio is decline to *6EE6 It shows that company is in solvency state6
%urrent assets are should always be twice of current liabilities6
*6 In a comparative statement of 0alance Sheet9 debtors were (9!79(9""" in the year
*""*;*""39 and it has increased to 39*(9**9""" and !9779"9""" in the last two years6
0ecause increased in credit sales6
36 4otal assets turnover ratio shows the ability to convert all its assets incurrin# fi/ed
assets to sales6 .s per the ratio calculated in the year *""*;*""3 it was *6(*9 which
was low ratio means firm is able to convert its total assets >uicly into funds as per
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2. 4he company net sale is very low in the year *""*;*""3 Rs )9739739"""9 as compared
to *""3;*""! Rs6 ("9-E9E"9"""6 So9 the company should mana#e its current assets9
which effects on production and ultimately on sales6
3. 4he %urrent Ratio of the company is decreased from *6EE to *6)) in the last three;
year *""3 to *"")86 So9 the current ratio should be maintained by the company in
such a way that the ratio does not follow below *?(6
!6 %ompany should #ive minimum payment time to #et prompt payment by debtors6
Conclusion
2orin# capital may be re#arded as lifeblood of a business6 It@s effective
provision can do much to ensure the success of a business9 while it@s inefficient
mana#ement can lead not only to loss of profits but also to the ultimate down fall of what
otherwise mi#ht be considered as a promisin# concern6 . study of worin# capital is of
major importance to internal and e/ternal analysis because of its close relationship with
the current day to day operations of a business.
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(6 ere9 I conclude that %han#es in the financial year is showin# increase in the worin#
capital9 because company maintains its worin# capital properly in the year *""3 to
*"")6
*6 .ccordin# to my calculation %urrent .ssets main part of9 the worin# capital of the
business6 .ccordin# to all Ratios9 It shows that company maintains its ratio is very
well6 So9 In t*e )ear 2004-2005 company showin# better position in the worin#
capital6
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5I5LOGRAPY
• ,inancial 'ana#ement by boos used from which I have taen help for the theory
part of the study?
$.#. 2(an 0 P.2. 6ain
I.$. Pan-e;
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• I have also used the trial balance of Oil#ear 4owler Polyhydron Private Limited
O4PL86 4hose are from the year *""3;*"")6 2hich provide by the official at
0el#aum 2ors6
• I have meet with the different people at the .dministrative &epartment at Oil#ear
4owler Polyhydron Private Limited O4PL86 .s also too their views and information
for my Study6
• I have also too the help form the company site www6oil#ear6co6in