Travancore Titanium Products Limited

CHAPTER 1INTRODUCTION

Introduction to the study. Finance is one of the most important and well concentrated factors in every organization. Finance is an important function of any business, as money is required to meet the various activities of it. Finance is needed to promote or establish the business, acquires fixed assets, make investigations, develop product, meeting day to day affairs of the company, encourage managers to make progress and create value.Management of the current assets held by a firm is known as working capital management. It involves administering and controlling of current assets as well as procurement and financing of the current assets. Current assets include cash, marketable securities, short term investments, accounts receivable, inventory etc and financing of current assets include current liabilities and borrowings. Thus working capital management deals with funds involved in day-to-day operations of the firm.The proper management of working capital may bring about the success of a business firm. It is reflected by the fact that financial manager spend a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favourable credit terms, controlling the movement of cash, administering of accounts receivables and monitoring the investment in inventories consume a great deal of their time. It has been found that the largest portion of a financial managers time is utilized in the management of working capital.

1.2 Statement of the ProblemPublic sector in India has come to be regarded as the biggest single economic institution in the country. The entire process of economic development vests on these public sector firms. The working capital position of these enterprises has not been satisfactory owing to numerous factors. The present study is undertaken with a view to examine the practice in working capital management.The Travancore Titanium products Ltd is a profitable public enterprise. While estimating the needs for working capital purposes in addition to those factors that influence the magnitude of working capital such as cash, accounts receivables and inventory, since the efficient management of working capital depends on the efficient administration of these components.1.3 Objectives of the StudyThe Study has been undertaken with the following objectives To study the pattern of working capital employed in Travancore Titanium Products Ltd To analysis and interpret the efficiency of the working capital To study the cash management practices. To study the inventory management practices To study the management of receivables and accounts payable To observe the trend of working capital To measure the liquidity position of TTP Ltd

1.4 MethodologyResearch Methodology is way to systematically solve the research problem. It may be understood as a science of studying how research is done scientifically. In this we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology.

Research DesignA research design is an arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure.

It is the conceptual structure within which research is conducted and it constitutes the blueprint for the collection, measurement and analysis of data. It includes an outline of what the researcher will do from within the hypothesis and its operational implications to the final analysis of the data. The research design adopted in this study is descriptive research design.A descriptive research design is the one which includes the description of the state of affairs as it exists at present. It includes survey and fact finding enquiries of different kinds. The researcher has no control over the variables. The major purpose of descriptive research is description of the state of affairs, as it exists at present.

Data CollectionThe methodology of the study is through collecting the primary and secondary dataPrimary DataData collected by the investigator directly for the purpose of investigation is called primary data. Primary data has been collected through:- Formal interview with finance manager and department head Conversation with people of all levels in the finance department

Secondary DataThe investigator makes use of data present in published and unpublished sources for secondary data. The secondary data were obtained from Company annual reports Journals and information Brochures of the firm Company Web-sites etc

Processing of dataProcessing implies editing, coding, classification of collected data so that they are amenable to analysis. Percentages are often used data presentation for they simplify numbers, reducing all of them to zero to hundred ranges.

Data Analysis tools and techniquesAnalysis refers to the computation of certain measures along with searching for patterns of relationships that exists among data groups. For analysis the data, ratio analysis, schedule of changes in working capital and trend analysis have been used.Data Interpretation refers to the task of drawing inferences from the collected facts after an analytical study. It is essential since the usefulness and utility of research findings lie in proper interpretation. Interpretation leads to explanatory concepts that can serve as guide for future research designs.

1.5 Scope and Significance of the StudyThe study relate to the management of working capital at Travancore Titanium Products Limited, Thiruvananthapuram. The study of working capital and in management is of immense significance in working of any organization. Without a very good amount of planning of the working capital system, the operation of the company becomes very difficult. The working capital system of a large organization like Travancore Titanium Products Limited could be complicated and a proper study will help to understand the functioning of the working capital management and examine its effectiveness. This study will also be highly beneficial to management for designing their future policy.1.6 LimitationsThe study has the following limitations There are several matters which are kept as confidential matters that are not exposed to us. The study is mainly based on secondary data The statistics of only five years are considered The figures used for analysis has been taken from the annual reports of the company. The data contained in the reports are historical and time value concept of money is not applied.1.7 Chapterisation

Chapter 1:-IntroductionProvides the introduction to the study including statement of the problem, Objectives, Scope of the study, Research Design and Chapter 2:-Industry ProfileGives the profile of the industry as a wholeChapter 3:-Company ProfileDeals with the profile of Travancore Titanium Products Ltd, where the details regarding the history of the organization, as well as the product offered and the social import of the company are given in detail.Chapter 4 Theoretical perspective This chapter deals with the theoretical perspectiveChapter 5:-Data Analysis and interpretationThe data collected was tabulated and analyzed and a suitable report was prepared on the basis of findings for that different tool and techniques are used.Chapter 6:-Findings, conclusions and suggestionsInvolves the various findings, conclusions and suggestions to Working Capital Management of TTP Ltd

CHAPTER 2INDUSTRY PROFILE

INDUSTRY PROFILE

2.1 WORLD SCENARIO

The use of Titanium dioxide is very vast and it has been producing in various parts of the world in different level, which includes multi National companies as well as small industries. . It is estimated that worlds total installed capacity for titanium dioxide production is of the order of 4.22 to 4.83 million tones per annum.

The credit for recognizing the existence of Titanium goes to Rev. William George who found traces of black magnetic sand unfamiliar to him in Menacine Parish (U.K) and be named it Menacine. But it was M.H.K Laplast who discovered Titanium. He examined Rutitle and identified as an oxide of a metal and named it as Titanium. The use of Titanium minerals in welding electrode coating gained acceptance in the mid thirties while titanium metal has been of commercial importance since 1948.

The top 5 producers of world now control 78% of the global capacity. They are Dupont (USA), Millennium Inorganic chemicals (Australia), Kert Meger (Canada), Huntsman Trioxides and Kronos (Germany) and ISK(Japan), Cinkarna, Precheza, Zachem, Prolice. Han Kook (South Korea), Sakaiand Tyka (Japan), Kerala Minerals and Metals Ltd (India) and two other Ukrainian producers come next. All others are very small producers.

Titanium dioxide enjoys a large market by any measure; historically the market has grown in volume at 3.5% to reach close to $8 billion in production value today. In the last decade demand has slowed to 3% and it is expected in the next decade, growth will be in the range of 2.5 to 3.5%. Titanium dioxide is used in industries like Paint, Plastics, fiber, paper inks etc.

Titanium dioxide pigment consumption rose sharply in Western Europe and Asia/pacific (excluding Japan) during the year 2000. East Asia is presently the most attractive region in the world of Titanium Dioxide.

2.3 NATIONAL SCENARIO

The Indian reserves of llmanik and Rutile are expected to be around 6,00,000 tones per year and most important sources are South Kerala and Tamil Nadu. Beach reserves are also seen in Retnagiri(Maharashtra), Ganjan(Orissa) and Sreekakulam(Andhra Pradesh). The reserves in Kerala and Tamil Nadu are about 20 million tones. This information throws light into the possibilities of new manufacturers and competition in Titanium Dioxide pigment industry in the Indian Market.

The demand of Titanium dioxide of India based on 8%growth was

YearVolume

2004-200563000

2005-200668000

2006-200773500

2007-200879400

2008-200985750

2009-201092600

Currently there are four units in India engaged in the manufacturing of Titanium dioxide pigment (Rutile and Anatase) with a total combined capacity of 44560 metric tons per annum. These units are

The Kerala Minerals and Metals Ltd, Chavara Kollam The Travancore Titanium products Ltd, Thiruvananthapuram The Kilburn Chemicals Ltd, Chennai The Kalmark Chemicals Ltd, Kolkata

The Kerala Minerals and Metals Ltd (KMML) is the only unit producing Rutile grade Titanium dioxide pigment in India with an installed capacity of 30,000 tons per annum.

2.4 STATE SCENARIO

The history of mineral separating in Kerala starts with the discovery of monazite in the black beach sand on Manavalakurichi in the year 1909 by a German Scientist named Shomburg. This black sand contains large stock of rare minerals. Kerala is enriched with huge amount of mineral deposit stretch along the seashore between Neendakara and Kayamkulam. These mineral deposits are commonly called black sand or dark sand.

Titanium Dioxide Pigment Producing Units in Kerala are

CompanyGrade of Products

Travancore Titanium Products Ltd, Thiruvananthapuram, KeralaAnatase GradeTitanium dioxide pigments treated with Sulphur

The Kerala Minerals and Metals LtdChavara, KeralaRutile GradeTitanium dioxide produced by Chlorination

CHAPTER 3COMPANY PROFILE

COMPANY PROFILE

Thiruvananthapuram could find a place in the industrial map of independent India during the early fifties itself, thanks mainly to M/s. Travancore Titanium Products Ltd. (TTP Ltd) situated at Kochuveli on the outskirts of the city. The unit was promoted by the princely state of Travancore in the year 1946 in collaboration with the British Titan Products Company, United Kingdom .(now known as Tioxide Group Ltd) with object of producing pigment grade titanium dioxide using the titanium rich ilmenite available as placer deposit in the beach sands near Quilion. It is a matter of pride that the manufacture of a rare chemical like titanium dioxide which was confined to highly industrialized nations of the west, was taken up here in Thiruvananthapuram five decades ago by his Highness late Sri Chithira Thirunal Balarama Varma Maharaja who visualized the industrialization of his kingdom by unearthing the rich mineral deposits. Till last decade TTP was the only unit producing this white pigment, not only in India, but also in the whole of South East Asia.

Titanium dioxide finds use in a variety of industrial products such as paints, footwears, toilet soaps, ceramic products, artificial fibres, pharmaceutical preparations, rubber products, plastics, paper printing inks textile printing formulations, flooring materials cosmetics, welding rods etc. Its extreme whiteness, perfect non toxicity and chemical inertness make it an ideal choice as a white pigment. The light scattering property of finely divided titanium dioxide is unmatched by any other known material. The chemical is available in two crystalline forms, viz, anatase and rutile, which are of many commercial significance. The relatively softer anatase is the right material for delustering artificial fibres. In TTP Ltd, the anatase grade is produced by the conventional sulphate technology.

3.2 History

Travancore Titanium products Limited (TTP) was incorporated on 18th December, 1946, in collaboration with British Titan Products Limited, UK, for the manufacture of anatase grade titanium dioxide pigment through Sulphate route.

The installed capacity of the plant was 1800 tonnes per annum(i.e. 5 tonnes per day).

Though commercial operations started in 1950, the full swing production could be maintained from 1-1-1954 consequent on the Central Government granting tariff protection and also after availing a loan of Rs.15 lakhs from IFCI.

The management of the company was vested with a Managing Agency, viz Indian Titan Products Company Pvt Limited as per a Managing Agency Agreement dated 3-3-1947 on a remuneration of 10%of net profits. This arrangement continued till 15-08-1960 when the management was taken over by the State Government.

The company started its first expansion programme in 1957 for doubling the annual production capacity from 1800 to 3600 tonnes (5 to 10 tonnes per day 1800 tonnes rutile and 1800 tonnes anatase).

A Research and Development wing was set up in the company on 1961.

Industrial License for 50 tonnes per day expansion was obtained in July 1961. It was proposed to produce rutile grade and anatase grade side by side.

Next expansion from 10 to 18 tonnes per day was completed in October, 1963. However, the rutile production was temporarily discontinued in 1963.

Government approved the expansion programme for producing 50 tonnes per day in 1967. The sole selling agency agreement with TTK & Co, which has been in existence since 1954, was terminated on 30-06-1970 from which date TTP took over the sales directly.

The next expansion programme to 24,500 tonnes per annum, including plant and equipment for the production of coated rutile grades, was completed in 1973. The installed capacity after the expansion was as follows:

Old Plant:6,500 tonnesNew Plant:18,000 tonnesTotal:24500 tonnes

As the capacity utilization was very low, a committee appointed subsequently by the Government viz, Dr.Vazir Committee, assessed the achievable capacity of the plant as 15,000 tonnes per annum of anatase grade pigment.

The Resource mobilization policy committee set up in 1974 by the state planning board recommended for formation of a sole selling agency for the sale of products of Government companies. Accordingly, the Kerala State Industrial Products Trading Corporation (KSIPTC) was formed in the year 1976.

KSIPTC was appointed as the sole selling agents with effect from 1st March 1979.

Conversion of Sulphuric Acid Plant into DCDA technology by FEDO on a turnkey basis at a cost of Rs.193.69 lakh was inaugurated on 13-09-1980.

The DCDA project started in 1980 was commissioned in June 1984.

Installation of a 1000 KVA generator in December, 1985.

During 1989-1990 another 1000 KVA generator was installed and a 66KV substation commissioned.

Order for constructing a new 300 tonnes per day Sulphuric acid plant with the latest emission control devices awarded to DMCC on 21-10-1993 at a cost of Rs.24.42 crores. The plant was commissioned on 29th March 1996.

Production of rutile by in-house technology in 2002.

Direct marketing again by TTP from 2003.

ISI 9001:2000 Company in 2004.

Antidumping duty imposed on imports from China in 2004.

3.3 MISSION OF THE COMPANYTo attain leadership position in the Titanium dioxide market and achieve a strong national presence in the industrial sector by ensuring customer satisfaction.3.4 QUALITY POLICYTo achieve Customer Satisfaction by effectively managing resources and delivering titanium related products through continual improvement of the Quality Management System.

3.5 CURRENT SCENARIO

TechnicalManufacture of Titanium dioxide pigment through the sulphate route has the drawback of the effluent problems associated with the process. Throughout the world producers of anatase grade pigment have resorted to developmental activities to upgrade the technology so as to overcome this drawback. The last expansion of the titanium pigment plant in TTP was carried out more than 25 years ago. Since then the sulphate route technology for production of titanium dioxide has undergone several changes. It is worth mentioning in this context that TTP should also upgrade its technology to International Standards.

Marketing

Loss of Monopoly Position of TTPFor many years TTP enjoyed a monopoly position in the market as it was the only producer of titanium dioxide pigment in India. TTP lost its monopoly in the with the commencement of production of rutile grade pigment by KMML in 1985 and anatase grade pigment by few small scale companies. Further another serious problem that affected the company is cheap pigments imported from China and other countries.

Effect of Liberalization of the Indian economyIn the wake of liberalization of the economy the import duty on titanium dioxide was also reduced in successive Central budgets.With effect from july 1988 onwards, titanium dioxide pigment was also put under the Open General License(OGL) list, making the imports even more liberal.Exporters were allowed to import raw materials against advance licensed without payment of customs duty. These advances are freely tradable by exporters and available at a price around 50%of the license value.

Impact of WTO regulationsIndia may be forced to comply with the WTO regulations by the year 2002-04 when the import duty rate would come down to the level of around 20%. This would mean that the landed cost of the imported material would come down by around 20%. Besides, more and more competitors would be coming in to Indian market due to the liberalization of the economy. It is therefore obvious that unless immediate steps are taken to counter the impact of liberalization. TTP would be completely out priced in the market and ultimately the operations of the company would become uneconomical. Further there is all possibility that the ISO-14000 certification pertaining to environment could be made mandatory for all chemical manufacturing units in due course. Withdrawal of the levies and service charge on titanium dioxide and also resorting direct marketing will not solve these problems. Hence TTP will have to find alternate options to effectively counter these threats within the next couple of years. Therefore modernization, capacity enhancement and pollution abatement schemes are to be carried out on an emergent basis.

3.6 INDUSTRIAL MEASURES OF THE COMPANYIndustrial relation of the company is very good from its origin. For the benefit of the employees the company has set up recreation clubs and benevolent fund. There are sub committees in the recreation club to look after the fine arts, sports, library and family welfare. The company is housing a technical library and reading room. Conveyance facilities for the transportation of the workers are at its best. To check the mental stress of the employees, the company has provided with a counseling and guidance wing. Through Training department induction programmes for new courses in the company are conducted. COMPETITORSFor many years TTP Ltd enjoyed a monopoly position in the market as it was the only producer of Titanium dioxide pigment in India. TTP Ltd lost its monopoly in the market with the commencement of production of rutile grade pigment by KMML in 1985 and anatase grade pigment by few small scale companies.At present there are no solid competitors for TTP but competition do exists. Major among them are Kilburn Chemicals, Kalmark chemicals and Kerala Minerals and Metals Kollam. But the production capacity is only about 5 to 8 tons per day. So it is not a great threat to the company. The waste removed from the company is given to Travancore Sulphate Ltd at a very low cost. It will be profitable if this is processed in the company itself.

EMPLOYEESThe TTP employees are grouped into two categories namely the Officer category and the workers category. There are 890 employees in the company. The number of women employees are 76. No women employee is employed in the production units. Contract workers are appointed as per the day to day functional requirements, constructions etc.

CONSUMERSThe major industrial consumers like paint industry, plastic, ceramic wires, ITC. Artificial fiber printing inks, soaps, talcum powder, paper etc. TTP Ltd entered export market in 1976. The company already exported substantial quantities of TiO2 to USA, Afro Asian countries and Western Europe.

3.7 PRODUCTS OF THE COMPANYTitanium Dioxide is a white pigment the properties of which are superior to any other pigment developed so far. Its properties like high reflectance, high refractive index, optimum particle size distribution, high dispersion, excellent whiteness, high tinting strength and hiding power make it a crucial ingredient for the manufacture of nearly all consumer products we use in our daily life. Paint, rubber, textiles, plastic, paper, cosmetics, synthetic fibers, ceramics, printing inks are some of the major industries that make use of this wonder pigment.The major products of the company are the anatase grade Titanium dioxide. Indian Standard specification have been formulated for Titanium Dioxide in paints, cosmetic industry. Titanium Dioxide pigments for cosmetic industry shall be in the form of soft, dry white powder. There are five specifications

Titanium dioxide ISI Grade Titanium dioxide General Purpose Titanium dioxide Granular Titanium dioxide Rayon Grade Titanium dioxide Special Grade

This Anatase grade Titanium dioxide is used in all types of white and pastel shades of paints, White-walled tyres, Glazed paper, Plastics, Printed fabrics, Soaps and powders, flooring materials like linoleum, white mosaics, pharmaceutical and cosmetic products. It is also used in electronic components, materials for interior decorations, footwear and leather goods, dyes and printing inks.The other products which are currently manufactured by Travancore Titanium Products Ltd are Titanium dioxide Rutile Grade Potassium Titan ate Sodium Titan ate Anatase SG

PRODUCT PROFILETitanium dioxide is the main product of TTP Ltd is one of the largest industries in India that produces Titanium dioxide. In addition to Titanium dioxide, the company manufactures small quantities of Potassium Titanate, Sodium Titanate, and Phosphate free Titanium dioxide. All these find use in fluxes for different type of welding electrodes, as Catalysts etc. TTP also produces sulphuric acid for captive consumption.There are two grades of Titanium dioxide namely I grade and II grade. These grades are chemically same but are different based on their physical property. The company deals with the production of Titanium dioxide which belongs to Grade I. The most important commercials are of ileminite is a compound of oxide of iron, titanium and traces of other elements.The Titanium dioxide is not a consumer item. This is an industrial raw material. Consumer products that use Titanium dioxide are paints, footwear, rubber products, plastics, paper, artificial fibers, flooring materials, textiles painting mix, colored printing inks, welding electrodes and metal composites, cosmetics such as baby powder, lipsticks, nail polish, pharmaceuticals etc. Natural rubber latex is processed with titanium oxide while making Hawaii chapel sole, a popular small scale industry. The qualities of Titanium dioxide are as follows: It is a non toxic substance It has high refractive index and so it gives a bright appearance when used in paints. It has an opacifying quality which triggers the use of Titanium dioxide in paper industry. That is, it helps in reducing the transparency of paper making it possible to write or print on both sides.

3.8 RAW MATERIALS

Iimenite Concentrated Sulphuric Acid Scrap/Sponge iron Glycerine mono steronate Turkey red oil K2SO4 Mono aluminum phosphate Potassium hydroxide Zinc oxide Zinc Dust3.9 PRODUCTION PROCESS1. Grinding the Ilmenite2. Digestion3. Reduction4. Setting5. Concentration6. Precipitation7. Filtration & Washing8. Leaching9. Treatment10. Calcinations

3.10 ORGANISATIONAL SETUP

TTP Ltd is a public sector undertaking managed by the Government of Kerala. The Board of Directors of TTP Ltd consists of The Chairman, Managing Director, Executive Director, Additional Secretary of Finance and Special Secretary to Industries.The Chairman and Managing Director (CMD) is the Chief Executive. Usually a senior Government official from IAS or IPS cadre next to CMD is Executive Director and General Manager. In TTP Ltd employees are grouped into two as office category and workers category.Working HoursShiftTimings

Office time9.00 - 16.00 hrs

General8.00 - 16.00 hrs

I Shift6.00 - 14.00 hrs

II Shift14.00 22.00 hrs

III Shift22.00 06.00 hrs

Special11.00 19.00 hrs

Labour Welfare Scheme

TTP Ltd provides a vast number of welfare amenities to its employees for the promotion of the better labour management relationship. They are: Canteen facility Titanium Recreation Club Benevolent fund Legal claim Industrial Health Service awards Education subsidy High qualification education benefit Housing Supplementary Medical benefits Conveyance and leave facility

Trade UnionThe first Trade Union came in to being in TTP Ltd in 1951 at present there are three recognized unions. Titanium products Labour Union(INTCU) Titanium General Labour union(CITU) Titanium employee council.

Marketing CentresThe company has 33 stockiest all over India and also more than 175 customers. The main customers are Asian Paints Colgate Paragon Berger Paints Shalimar PaintsChannels of Distribution

Finished Goods or Products

Stockiest

Traders

Direct customers

3.11 DEPARTMENTSProduction DepartmentFor the manufacturing of Titanium dioxide, the raw material used is Ilmenite. This raw material is brought from Chavara, manavalakurichi and from Orissa. About 54% of IImenite contains Tio2. Though Tio2 can be produced by conventional methods like Chloride and Sulphate process , the method adopted in TTP is Sulphate process.Functions Prepare a plan regarding the effective utilisation of raw material. Ensure that quality is strictly followed in the production process. Determining the production targets. Periodic meeting of production managers to review their performance. Ensure implementation of safety measures in the operation of equipments and avoid danger to men and equipment.

Personnel DepartmentPersonnel department is responsible for the administration of the human factor in the Organisation and aims at putting opportunity for human resource in to effective use and provides opportunity for maximum individual development.Functions Recruitment and Selection Man Power Planning Personal records of all employees Enter into a long term settlement with trade unions Analysis of promotion possibility of employees.

Legal DepartmentThe main function of the legal department is Conduct of cases Service matters Disciplinary proceedings Financial matters Commercial transations

Safety DepartmentIt came into existence in 1984. The main aim of the department is to maintain an accident free environment.Functions Overall function of safety in the company Supervision of emergency centre Advisory function Lowering safety committee meetings Giving work permission Plant safety inspection Accident investigation Report any accident to Managing Director of the companyEngineering DepartmentIt is responsible for installation of the factory structures which includes plant and machinery, office equipments and their maintenance and up keep to the optimum production levels of TTP.There are four main sections under engineering department they are:a. Mechanicalb. Electricalc. Civild. Instrumentation

Security and Vigilance DepartmentTTP Ltd has a well established Security and Vigilance Department functioning under security superintendent and Vigilance Officer.Functions To check all incoming and outgoing goods and vehicles To protect the personnel and property of the organisation To assist the management in case of strikes.

Material DepartmentMaterial Management is an integrated function of various section of an organisation. Dealing with supply of materials and allied activities in order to achieve max coordination and optimum expenditure on materials.Functions Receipt of material Inspection Issue and Inventory control

Commercial DepartmentPurchasing of goods place a vital role with an industrial organisation. The aim of the department is to provide right material in the right time at right cost.Training DepartmentIt enhances the skill aptitude and ability of workers. The main function of is to give training to employees. The department two type of training a. In House Trainingb. Outside agency training

Project DepartmentIt is created for carrying out the project works successfully. At first identify the scope of the project then the chief manager carries out the project for the company. It also includes the plant modification and expansion.

Marketing DepartmentThe marketing department does the marketing activities of the products in TTP Ltd. It conducts market research activities regards to TiO2. TTP has opened its marketing department in 2003.Functions Maintain better customer relationship Develop new market and maintaining existing market Develop the brand image of the product. Conduct market research programme for analyzing needs and wants of the customers.

Human Resource DepartmentEmployees remain the most important factor in modern manufacture Organisation. This department will be directly responsible for the personnel function of the company. 3.12 Finance DepartmentFinance is the life blood of an organisation. TTP follows the integrated system of accounting. Finance department is headed by the the finance controller.Objectives

Preparation of corporate plans and budget. Financial planning cost control and ensuring uniform and correct observation of financial disciplines of the company. Monitoring the progress of the budget achievements Providing accounting services to all levels ensuring updating of systems procedures for the same. Advising management on funds utilisation and its utilisation. Evolve an audit manual.

3.13 Finance Department Hierarchy

Section OfficerComputer CellFinancial ControllerFinancial ManagerAssistant ManagerComputer CellDy.Finance MgrDy. Finance MgrAsst Manager (bills)Section Officer(Bills)Dy. Finance MgrAsst: Manager Stores a/cSection Officer StoresSection Officer Tax/budgetSection Officer final a/cSection Officer Loans & PFAsst Manager Time officeSection officer time officeAsst ManagerSalary/wagesSection Officer Salary/wagesAsst Manger CashSection Officer Cash

Functions To realize all income due to the company To ensure prompt payment with regard toa) Statutory payments like sales tax and income taxb) Payment of wages to employeesc) Payment of excise dutiesd) Payment to suppliers for materials, equipments and machinery etc as per terms and conditions. To make proper entries as per acts, rules and accounts standards. To extract Trial balance, Profit and Loss account and Balance sheet and make proper returns to various laws/statues etc. To make proper cash planning. To send promptly return to Government statutory organisation and other interested parties.

Various Sections under Finance Department PF & ESI section Salary section Sales section Financial accounts section Time office section Budget section Bill section

CHAPTER - 4THEORITICAL PERSPECTIVE

WORKING CAPITAL WORKING CAPITAL MANGEMENT-THEORETICAL ASPECTS Capital required for a business can be classified under two main categories via,1) Fixed Capital2) Working Capital Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as Plant & Machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc.These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.Working Capital refers to the funds invested in Current assets i.e investment in stocks, sundry debtors, cash and other current assets. Current assets are essential to use fixed assets profitably. The requirement for Current assets is usually greater than the amount of funds payable through current liabilities. In other words, the current assets are to be kept at a higher than the current liabilities.

Working capital is a firms investment in short-term assets Cash, short-term securities, accounts receivables and inventories. Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter relationship exist between them .Working Capital Management which encompasses all aspects of the administration of both current assets and current liabilities has two main functions: - 1. Maintenance of working capital at appropriate level2. Availability of ample funds as and when they are needed.Concepts of Working CapitalThere are are two concepts of Working Capital1. Balance Sheet Concept2. Operating Cycle or Circular Flow ConceptBalance Sheet ConceptThere are two interpretations of working capital under the Balance sheet concepta. Gross Working CapitalGross Working capital refers to the firms total investment in Current assets. Current assets are the assets which can be converted into cash with an accounting year and include cash, short-term securities, debtors, bills receivables and stocks.b. Networking CapitalNetworking capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outside which are expected to mature for payment with an accounting year and include creditors, bills payable and outstanding expenses. Networking capital can be positive or negative. A positive networking capital will arise when current asset exceed current liabilities. A negative net working capital occurs when current liabilities in excess of current assets.

Operating Cycle or Circular Flow Concept

Funds invested in current assets keep revolving fast and are being constantly converted into cash and this cash flow out again in exchange for other current assets. Hence, it is also know as revolving or circulating capital. In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of eventsa) Conversion of cash into raw materials b) Conversion of raw materials into work-in-progressc) Conversion of work-in-progress into finished goods.d) Conversion of finished goods into accounts receivablee) Conversion of accounts receivables into cash

Accounts Receivables

CashFinished good

Raw materialsWork- in Progress

Classification of Working Capital

Working Capital can be classified in two ways:a) On the basis of Conceptb) On the basis of Time

On the basis of Time, Working Capital may be classified as:1) Fixed or Permanent Working Capital2) Temporary or Variable Working Capital

KINDS OF WORKING CAPTIALOn the Basis of ConceptOn the Basis of TimeGross Working CapitalNet WorkingCapitalFixed Working CapitalTemporary or VariableSeasonal Working CapitalSpecial Working CapitalRegular Working CapitalReserve Working Capital

Fixed or Permanent Working Capital

Fixed or Permanent working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. The minimum level of current assets is called permanent or fixed working capital. As the business grows, the requirements of permanent working capital also increase due to the increase in current assets. The permanent working capital can further be classified as regular working capital and reserve working capital. Regular working capital is the minimum amount of liquid capital needed to keep up the circulation of capital and Reserve margin or Cushion working Capital is the excess over the needs for working capital which should be always kept in reserve for contingencies.

Temporary or Variable Working Capital

Temporary or Variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. The extra working capital needed to support the changing production and sales activities or the portion of working capital which keeps on fluctuating from time to time on the basis of business activities is called temporary or variable working capital. It represents the additional current assets required at different times during the operating year. It is divided into two as seasonal working capital and special working capital. Seasonal working capital is required to meet the seasonal need of the industry whereas Special working capital is required for meeting special operations.

Factors Determining Working Capital Requirements

The working capital requirements of a concern depend upon a large number of factors such as native and size of business, the characters of their operations, the length of production cycles, the rate of stock turnover and the state of economic situation. The following are important factors generally influencing the working capital requirements.

1. Nature or character of businessIt is the basic factor which influences the working capital needs of the firm because money has to be invested in fixed as well as current assets. In heavy industries huge sums are invested in fixed capital but in case of consumer industries a substantial portion of capital is invested in current assets. In trading industries the working capital requirement is higher than public utilities.

2. Production PolicyThe production policy affects the working capital requirements of a firm. A steady production policy will cause inventories to accumulate during off season period and the firm will be exposed to greater inventory cost and risk. Under such circumstance the firm will rearrange its production schedule in accordance with change in demand for its products.

3. Credit PolicyThe credit policy of a concern is its dealings with debtors and creditors influence considerable the requirements of working capital. A concern that purchases its requirements on credit and sells its products/services on cash requires amount of working capital. On the other hand a concern buying its requirements for cash and allowing credit to its customers, shall need large amount of working capital as very huge amount of funds are bounds to be higher than that of a provision store.

4. Size of Business/Scale of OperationsThe working Capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of the business larger will be the requirements of working capital.

5. Business fluctuationsIn case of most of the product there will be seasonal and cyclical fluctuations. The variation will effect the working capital requirement of the company. During the boom period the firm require large amount of fixed capital and working capital. But during depression period the amount of working capital requirement will be lower. In case of seasonal variations the working capital requirements will increase preferably during the festive season.

6. Price level ChangesChanges in the price level also affect the working capital requirements. Generally the rising prices will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets.

7. Manufacturing process/ Length of production CycleIn manufacturing business, the requirements of working capital increase in direct proportion to length of manufacturing process. Longer the process period of manufacture, larger is the amount of working capital required.8. Rate of Stock TurnoverThere is a high degree of inverse co-realization between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.9. ExpansionThe working capital needs of a firm increase as it grows in terms of sales, fixed assets etc. A growing concern needs funds in fixed assets in order to increase the production capacity and sales which will ultimately increase the working capital requirements. Here also proper planning may be done in order to meet the increasing needs of working capital.10. Profit margin and profit appropriationIf the net profit increases years after year then the working capital will also increase because net profit is a source of fund of the firm. The depreciation policy of the firm will reduce the net profit of the firm which will ultimately reduce the tax liability of the firm. Depreciation is an indirect method of retaining profit and pressuring the firms working capital position.

Principles of Working Capital Management

The following are the general principles of a Sound Working Capital Management Policy:-

1. Principle of Risk VariationRisk here means the inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current asset with less dependence on short term borrowing increases the opportunity for gain or loss.

2. Principle of Equity positionThe principle is concerned with planning total investment in current asset. According to this principle the amount of working capital invested in each component should be adequately justified by a firms equity position. Every Rupee invested in current asset should contribute to the net worth of the firm.3. Principle of Cost of CapitalThe various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher the risks lower the cost. A sound working capital should always try to achieve a proper balance between these two.

4. Principle of Maturity of PaymentsThis Principle concerned with planning the sources of finance for working capital. According to this principle, the firm should make every effort to relate maturities of payments to pattern of various current obligations. It is an important factor in a risk assumption and risk assessments generally, shorter the maturity schedule of current liabilities in relation to expected cash flows the greater the inability to meet its obligation in time.

Sources of Working CapitalA large scale manufacturing concern may procure fund from various sources to meet its working capital requirement from time to time. The source of working capital may be classified into two namelya) Long term sourcesb) Short term sources

Long term Sources of Working CapitalThe long term sources of working capital financing involve the following:-i. Issue of Shares : It is the most important source of long term regular working capital. As far as possible effect should be made to procure maximum amount of regular working capital out of the proceedings of the issue of shares.ii. Issue of Debentures: Regular working capital can be raised by the issue of debentures or bonds. The cost of capital is lower in this use by issuing debentures, the company may trade on equity in favourable circumstances but it must be a caution in rising funds by issuing debentures.iii. Sale of fixed assets: If there are any idle fixed assets in the firm it can be sold out and the proceeds may be utilized for financing the working capital requirements.iv. Security from employees and customers: Certain companies require security deposits from their employees before giving them employment and from their regular customers under terms of service contract. The security deposits are not refundable during the period the employee is in the service of the firm or the customer is registered with it.v. Term Loans: Under this agreement banks advance loans by mid-term and long-term loans for three to seven years repayable in yearly or half-yearly installments. Banks provide credit on the basis of the following modes of security such as hypothecation, pledge, lien, mortgage and charge etc.

Sources of Short term working capitalShort term financing refers to those sources of short term that the firm must arrange in advance. This may be classified into two:-a) Internal SourcesInternal Sources means sources of fund from inside the firm.i. Depreciation fundDepreciation fund created out of the profit of the company provide a good source of working capital, provided they are not invested in or represented by an asset.ii. Provision for taxationThere remains a time lag between making the provision for the payment of taxation. A company may utilize such provision as a source of fund.iii. Accrued expensesThe company may sometime postpone the payment of certain expenditure due on the date of finalization of the accounts. These accrued expenses also constitute an important source of working capital.

b) External sourcesExternal sources of working capital mean sources of fund from outside the firmi. Normal tradeTrade credit provides short term finance to the company by selling the goods, inventories and equipments on the basis of deferred payments.ii. Bank creditThe greater part of working capital is supplied by commercial banks to their customers through direct advances, in the shape of loans, cash credit, over-draft and through discounting the credit papers.iii. Public DepositMost companies can depend on their sources to meet the working capital requirement by public deposit.iv. Customers CreditAdvances may also be obtained from customers against the contract entered into by the enterprise.v. Loan from Managing Director or DirectorsSometimes Directors or Managing Directors of a company provide loans to the company at a very negligible rate of interest or at no rate of interest.vi. Government AssistanceCentral and State Government of the company provide short term finance to industries by allowing for tax concessions, sanctioning direct loans or grants to industries or a class of industries to assist their production etc.

Importance or Advantages of Adequate Working CapitalWorking Capital is the life blood and nerve centre of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows: Solvency of the BusinessAdequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. GoodwillSufficient working capital enables a business concern to make prompt and hence helps in creating and maintaining goodwill.

Easy loansA concern having adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. Cash DiscountsAdequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. Regular supply of raw materialsSufficient working capital ensures regular supply of raw materials and continuous production. Regular payments of salaries, wages and other day-to-day commitmentsA company which has ample working capital can make regular payment of salaries, wages and other day-today commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits. Exploitation of favorable market conditionsOnly concerns with adequate working capital can exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding its inventories for higher prices. Quick and regular return on investmentEvery investor wants a quick and regular return on his investment. Sufficiency off working capital enables a concern to pay quick and regular dividends to its investors as there may not be much pressure to plough back profits. High MoraleAdequacy of working capital creates an environment of security, confidence, high morale and creates overall efficiency in business.

Demerits of Excess Working Capital Excess working capital means idle funds which earn no profits for a business and hence the business cannot earn a proper rate of return on its investments. It may lead to unnecessary purchasing and accumulated inventories causing more changes of theft, waste and losses. It implies excessive debtors and defective credit policy which may cause higher incidence of bad debts. It may also result into inefficiency of the organization. Chance of speculative transaction. The value of shares may fall due to low rate of return on investment.

Demerits of Inadequate Working Capital Leading to inability of the concern to pay its short term liabilities on time. May lead to inability of the concern to buy its requirements in bulk and cannot avail discounts etc. Inability of the firms to meet day to day expenses. Leading to fall in rate of return on investments.

Needs or Objects of Working CapitalWorking Capital is needed for the following purposes: For the purchase of raw materials, components and spares. To pay wages and salaries To incur day-to-day expenses and overhead costs such as fuel, power and office expenses etc. To meet the selling costs as packing, advertising etc. To Provide credit facilities to the customers To maintain the inventories of raw materials, work-in-progress, stores and spares and finished stock.Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. working capital management polices of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as It concerned with the formulation of policies with regard to profitability, liquidity and risk. It is concerned with the decision about the composition and level of current assets. It is concerned with the decision about the composition and level of current liabilities.

WORKING CAPITAL ANALYSISAs we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis.The analysis of working capital can be conducted through a number of devices, such as:1. Ratio analysis.2. Fund flow analysis.3. Budgeting.

CHAPTER-5

DATA ANALYSIS AND INTERPRETATION

A study of working capital would reveal whether it is serving the purpose for which it has been created or not. Working Capital typically means the firms holding of current or short term assets such as cash receivables, inventory and marketable securities. TTP has issued capital of 200000 lakhs shares of Rs 1000 each and paid up capital of 155350 shares of Rs 1000 each. The major tool used for analyzing the capital productions of TTP are Ratio Analysis Schedule of Changes in Working Capital Trend Analysis

1).RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. The term ratio in it refers to the relationship expressed in mathematical terms between two individual figures or groups of figures connected with each other in some logical manner and are selected from financial statements of the concern. The ratio analysis is based on the fact that a single accounting figure by itself may not communicate any meaningful information but when expressed as a relative to some other figure, it may definitely provide some significant information. A ratio helps to express the relationship between two accounting figures in such a way that users can draw conclusions about performance, strengths and weakness of firms.Ratios are exceptionally useful tools with which one can judge financial performance of enterprise over a period of time. The efficiency of the enterprise can also be judged against the industry average. The ratio analysis helps the analyst to form a judgment whether performance of the firm at a point of time is good, questionable or poor. The analysis will also indicate whether the financial conditions of the firm is improving or deteriorating and whether the cost, profitability or efficiency is showing an upward or downward trend.Advantages of Ratio Analysis Ratios are helpful in judging financial performance of an enterprise over a period of time. Ratios tell the various aspects of management performance and the overall financial position. A study of the trend of strategic ratios may help the management in the task of planning and forecasting. The ratios measure the efficiency of operation of enterprise. Hence they can be used as a tool of management control. Ratios facilitate inter firm comparison.Limitations of Ratio Analysis Variation in price level makes the interpretation of ratios invalid Accounting and financial ratios will tend to interpret wrong direction if based on unauthentic data. The differences in the definition of item in the balance sheet and income statement make the interpretation of ratios difficult. It is difficult to decide a proper basis for comparison The ratio calculated at a point of time are less informative and defective as they suffer from short-term changes.

Analysis of Short term Financial Position or Test of LiquidityThe short term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. But a very high degree of liquidity of the firm being tied up in current assets.(A). Liquidity RatioLiquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The current assets should either be liquid or near about liquidity. These should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated1. Current Ratio2. Quick Ratio or Acid Test Ratio3. Absolute Liquid Ratio1. Current RatioCurrent Ratio is the ratio of current assets to the total liabilities. It is expressed as follows. The current ratio of the firm measures its short term solvency i.e its ability to meet short term obligations. A current ratio of 2:1 is considered to be an ideal one. It provides a margin of safety to the creditors. It is an index of the firms financial stability. It is calculated by dividing current assets by current liabilitiesCurrent Ratio = Current Asset Current LiabilitiesCurrent Assets include cash and those assets that can be converted into cash with a year such as marketable securities, debtors and inventories. Prepaid expenses are also included in the current assets. Current Liabilities include expenses, short-term bank loan and income tax liability etc. 2. Quick Ratio or Acid Test RatioQuick Ratio establishes a relationship between quick or liquid assets and current or liquid liabilities. It measures the firms capacity to pay off current obligations immediately.

Quick Ratio = Quick or Liquid Assets Current LiabilitiesThe term quick asset refers to current assets which can be converted into cash immediately without a loss of value. Quick assets consist of cash in hand, bank balance, bank debts and readily saleable securities. A quick ratio of 1:1 is considered satisfactory though it is only a rule of thumb3. Absolute Liquidity RatioThis ratio is obtained by dividing cash i.e cash in hand and cash at bank and Marketable securities by current liabilities. It is also known as cash position ratio.Absolute liquidity ratio = Cash + Marketable Securities (Absolute Liquid Assets) Current LiabilitiesA ratio of 0.75:1 is recommended to ensure liquidity. This test is more vigorous measure of a firms liquidity position.

4. Inventory Turnover RatioThis ratio establishes relationship between sales and stock which reflects the speed of turning over stock into sales. Higher inventory ratio is always beneficial to the concern.Inventory/Stock Turnover Ratio = Sales Inventory

5. Debtors Turnover RatioThe purpose of this ratio is to discuss the credit collection power and policy of the firm.Debtors Turnover Ratio = Net Credit SalesDebtors including Bills receivables

6. Working Capital Turnover Ratio This ratio is used to assets the efficiency with which the working capital utilized in a business. This measures the relationship between the net sales and net working capital.Working Capital Turnover Ratio = Net Sales Net Working Capital7. Current Assets Turnover RatioThis ratio indicates the extend to which the investments in current assets contribute towards sales. The ratio reveals whether the investment in current assets has been judicious or not.Current Assets Turnover Ratio = SalesCurrent Assets

8. Debtors Collection Period

Collection Period = 365/debtors turnover9. Fixed Assets Turnover RatioThis ratio measures if the investments in the Fixed Asset have been judicious or not. Higher ratio indicates better performance. It is calculated as followsFixed Assets Turnover Ratio = Net Sales Fixed Assets10. Proprietary RatioIt is also known as Net Worth to total assets ratio, which establishes the relationship between proprietors assets. It is computed as:Proprietary Ratio = Share holders fund Total Assets11. Fixed Assets RatioFixed Assets Ratio of the company show the extent to which the long-term funds have been used for financing the fixed assets, the ratio is calculated as follows.Fixed Assets Ratio = Fixed Asset Long term funds

12. Net Profit RatioThis ratio is also known as profit margin. This measures the relationship between net profit and sales of the concern. It indicates the operational efficiency of the business. It is given by the formula.Net Profit Ratio = Net Profit x 100Sales

13. Earnings per ShareThis ratio help in the assessment of the profitability of a firm from the standpoint of equity share holders. This measures the profit available to equity shareholders per share basis. It is calculated as follows:-Earning per share = net profit/number of shares14. Dividend Per ShareThe Dividend per share ratio represents the dividend paid to the shareholders on per share basis. It is calculated as follows:-Dividend Per Share = Proposed Dividend Number of equity share2) SCHEDULE OF CHANGES IN WORKING CAPTIAL

The cash flow statement reflects a firms liquidity or solvency. The cash flow statement was previously known as the statement of changes in financial position or flow of funds statement. The balance sheet is a snapshot of a firms financial resources and obligations at a single point in time and the income statement summarizes a firms financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents. It excludes transactions that do not directly affect cash receipts and payments. These non cash transactions include depreciation and write-offs on bad debts. The cash flow statement is a cash basis report on three types of financial activities; operating activities, investing activities, financial activities. Non cash activities are usually reported in footnotes.

The cash flow statement is intended to provide information on a firms liquidity and solvency and its ability to change cash flows in future circumstances provide additional information for evaluating changes in assets, liabilities and equity improve the comparability of different firms operating performance by eliminating the effects of different accounting methods indicate the amount, timing and probability of future cash flows.

The cash flow statement has been adopted as a standard financial statement because it eliminates allocations which might be derived from different accounting methods such as various timeframes for depreciating fixed assets.

The schedule of changes in working capital is a tool to ascertain the working capital as well as measures to assess the funds generated a lot in the management of current assets and current liabilities. It is prepared in order to measure the increase and decrease in working capital over a period of time

Working Capital = Current Assets Current Liabilities

3) TREND ANALYSIS

It is better to determine ratios for a series of years rather than determining a single year ratio. A single year ratio does not reveal the true picture because it does not tell any change that has occurred over time. If a series of years are taken then the performance of the firm can be known better. The word trend means future possibilities. An efficient and effective management tries to know the actual performance and also discover future prospects of the business. Trend analysis acquaints us with the profitability and the short term and the long term liquidity of the business. In addition, it also discovers the future prospects of the business in terms of profitability, operational efficiency and financial soundness of the enterprise. Trend analysis is also termed as intra firm comparison, wherein financial statement of the same enterprise for two or more years is compared. Trend analysis is also named as horizontal analysis.

Procedure for calculating trends

One year is taken as a base year, generally the first or last year is taken as the base year. The figures of base year are taken as 100. Trend percentage is calculated in relation to base year.

The following table shows the current ratio of TTP Ltd under study.

Current ratio of TTP LtdYear Current Assets(Rs.in lakhs)Current Liabilities(Rs.in Lakhs)Current Ratio

2005 - 200612296.878460.561.45:1

2006 - 20079464.055619.351.68:1

2007 - 200810393.216454.761.61:1

2008 - 20099028.455352.781.69:1

2009 20107118.334964.131.43:1

Chart No:Current Ratio of TTP Ltd.

Interpretation:This table shows that current ratio of TTP Ltd varies from 1.45 in 2005 2006 to 1.43 in 2009 2010. In a sound Organisation current ratio of 2:1 is considered to be ideal one. The current ratio is not satisfactory.

2. Quick Ratio or Acid Test RatioQuick Ratio establishes a relationship between quick or liquid assets and current or liquid liabilities. It measures the firms capacity to pay off current obligations immediately.Quick Ratio = Quick or Liquid Assets Current LiabilitiesThe term quick asset refers to current assets which can be converted into cash immediately without a loss of value. Quick assets consist of cash in hand, bank balance, bank debts and readily saleable securities. A quick ratio of 1:1 is considered satisfactory though it is only a rule of thumb

Quick Ratio of TTP LtdYearQuick AssetCurrent LiabilitiesQuick Ratio

2005 20069616.998460.561.14:1

2006 20075675.105619.351.01:1

2007 20088255.876454.761.28:1

2008 20095082.045352.780.95:1

2009 20104911.314964.130.99:1

.

Chart No:Quick Ratio of TTP Ltd

Interpretation:This table shows that the quick ratio of TTP Ltd varies from 1.14 in 2005-2006 to 0.99 in 2009-2010. During first years it is found to be balanced but later it falls down

3. Absolute Liquidity RatioThis ratio is obtained by dividing cash i.e cash in hand and cash at bank and Marketable securities by current liabilities. It is also known as cash position ratio.Absolute liquidity ratio = Cash + Marketable Securities (Absolute Liquid Assets) Current LiabilitiesA ratio of 0.75:1 is recommended to ensure liquidity. This test is more vigorous measure of a firms liquidity position.

Absolute Liquidity Ratio of TTP LtdYearAbsolute Liquid Assets(Rs.in lakhs)CurrentLiabilities(Rs.in lakhs)Absolute LiquidRatio

2005 - 20064933.658460.560.58:1

2006 - 20073417.895619.350.61:1

2007 20084827.226454.760.74:1

2008 20092034.035352.780.38:1

2009 - 20102548.754964.130.51:1

Chart No:Absolute Liquidity Ratio of TTP Ltd

Interpretation:This ratio provides the most vigorous measures of liquidity position of the organization. The highest ratio is in the year 2007-2008 and the lowest ratio is in the year 2008-2009. It is also not satisfactory

4. Inventory Turnover RatioThis ratio establishes relationship between sales and stock which reflects the speed of turning over stock into sales. Higher inventory ratio is always beneficial to the concern.Inventory/Stock Turnover Ratio = Sales InventoryInventory/Stock Turnover Ratio of TTP LtdYearSalesInventoryInventory/Stock Turnover Ratio

2005 200692488.712377.873.9

2006 200768019.963234.412.1

2007 200812895.682963.144.4

2008 200911940.813041.873.9

2009 201013388.243076.714.3

Chart No:Inventory turnover ratio of TTP Ltd

Intrepretation:The above table indicates the high turnover ratio of the firm is 4.4 in the year 2007. Usually a high inventory turnover ratio indicates efficient management of inventory because more frequently the stocks are sold. But in the year2010, it has reduced to 4.3. this shows that the companys inventory management technique is average efficient as compared to last years.

5. Debtors Turnover RatioThe purpose of this ratio is to discuss the credit collection power and policy of the firm.Debtors Turnover Ratio = Net Credit SalesDebtors including Bills receivables

Debtors Turn Over Ratio of TTP LtdYearNet Sales(Rs. in Lakhs)Average Debtors(Rs. in Lakhs)Ratio

2005 200692488.71759.2712.2

2006 200768019.96607.9511.2

2007 200812895.68884.2414.6

2008 200911940.81994.8812.00

2009 201013388.24719.1118.6

Chart No:

Interpretation:This ratio indicates the speed with which debtors are being converted or turnover into sales. The higher value of debtors turnover, the more efficient is the management of credit. But in the company the debtor turnover ratio is decreasing in the previous years but in the present situation the ratio is slightly increased because of the credit policies taken by the company. The current ratio is 18.6 %.

6. Working Capital Turnover Ratio This ratio is used to assets the efficiency with which the working capital utilized in a business. This measures the relationship between the net sales and net working capital.Working Capital Turnover Ratio = Net Sales Net Working Capital

Working Capital Turnover Ratio of TTP LtdYearNet Sales(Rs.in lakhs)Working Capital(Rs.in Lakhs)Working Capital Turnover Ratio

2005 20069248.873836.312.41

2006 20076801.993844.701.77

2007 20081289.563938.453.27

2008 20091194.083675.663.25

2009 20101338.822154.196.21

Chart No:Working Capital Turnover Ratio of TTP

Interpretation: From the above table shows that, the working capital turnover ratio is positive value of working capital. This means that the working capital is utilized in an efficient manner. But the year 2008,2009 and 2010 they shows a high positive working capital so this means the company can utilize their working capital in an efficient manner.

7. Current Assets Turnover RatioThis ratio indicates the extend to which the investments in current assets contribute towards sales. The ratio reveals whether the investment in current assets has been judicious or not.Current Assets Turnover Ratio = SalesCurrent Assets

Current Assets Turnover Ratio of TTP LtdYearSales ( Rs.in lakhs)Current Assets (Rs. in lakhs)Current Assets Turnover Ratio

2005 200692488.7112296.870.75

2006 200768019.9694640.570.72

2007 200812895.6810393.211.24

2008 200911940.819028.451.32

2009 201013388.247118.331.88

Interpretation:

Chart No:Current Asset Turnover Ratio of TTP

8. Debtors Collection Period

Collection Period = 365/debtors turnover

Showing Debtors Collection period of Debtors of TTP LtdYearDebtors Turnover RatioPeriod

2005 200612.230

2006 200711.233

2007 200814.625

2008 200912.0030

2009 201018.620

Chart No:Debtors Collection Period of TTP

Interpretation The average collection period measures the quality of debtors and it helps in analyzing the efficiency of collection efforts. It also helps to analyze the credit policy adopted by company. In the firm, average collection period decreases from this year they will decreased. This shows that the firm has liberal credit policy but they can not strictly follow.

9. Fixed Assets Turnover RatioThis ratio measures if the investments in the Fixed Asset have been judicious or not. Higher ratio indicates better performance. It is calculated as followsFixed Assets Turnover Ratio = Net Sales Fixed AssetsShowing Fixed Assets Turnover Ratio of TTP LtdYearNet Sales(Rs. in lakhs)Fixed Assets(Rs. in lakhs)Fixed AssetsTurnover Ratio

2005 20069248.871849.325

2006 20076801.991630.434.17

2007 20081289.561476.348.73

2008 20091194.081739.946.86

2009 20101338.821795.577.45

Interpretation:

Chart No:Fixed Assets Turnover ratio of TTP Ltd

10. Proprietary RatioIt is also known as Net Worth to total assets ratio, which establishes the relationship between proprietors assets. It is computed as:Proprietary Ratio = Share holders fund Total Assets

Showing Proprietary Ratio of TTP LtdYearShare holders fund(Rs. in lakhs)Total Assets(Rs.in lakhs)Proprietary Ratio

2005 20065996.345996.341.00

2006 20075718.245718.241.00

2007 20085901.545911.541.00

2008 20095908.515908.511.00

2009 20104373.274464.170.98

Interpretation:

Chart No:Proprietary Ratio of TTP Ltd

11. Fixed Assets RatioFixed Assets Ratio of the company show the extent to which the long-term funds have been used for financing the fixed assets, the ratio is calculated as follows.Fixed Assets Ratio = Fixed Asset Long term funds

Statement showing Fixed Asset Ratio of TTP LtdYearFixed Asset(Rs. in lakhs)Long-term funds(Rs.in lakhs)Fixed Assets Ratio

2005 20061849.035996.340.31

2006 20071630.435718.240.29

2007 20081476.345901.540.25

2008 20091739.945908.510.29

2009 - 20101795.574373.270.41

Interpretation: This chart shows that the firm has adopted the impudent policy of using shot term fund for acquiring fixed asset

Chart No:Fixed Assets Ratio of TTP Ltd

12. Net Profit RatioThis ratio is also known as profit margin. This measures the relationship between net profit and sales of the concern. It indicates the operational efficiency of the business. It is given by the formula.Net Profit Ratio = Net Profit x 100Sales

Showing Net Profit Ratio of TTP LtdYearNet Profit(Rs.in Lakhs)Sales(Rs. in lakhs)Net Profit Ratio

2005 2006326.719248.873.53

2006 2007121.886801.991.79

2007 2008183.291289.561.42

2008 200969.711194.080.05

2009 2010158.521338.821.18

Interpretation:

Chart No:Net Profit Ratio of TTP Ltd

13. Earnings per ShareThis ratio help in the assessment of the profitability of a firm from the standpoint of equity share holders. This measures the profit available to equity shareholders per share basis. It is calculated as follows:-Earning per share = net profit/number of sharesStatement Showing Earnings per share of TTP LtdYearNet ProfitNo: of equity shareEarnings per share

2005 2006326.7117.8518.30

2006 2007121.8817.856.82

2007 2008183.2917.8510.26

2008 200969.7117.853.90

2009 - 2010158.5217.858.88

Interpretation:

Chart No.Earning Per Share of TTP Ltd

14. Dividend Per ShareThe Dividend per share ratio represents the dividend paid to the shareholders on per share basis. It is calculated as follows:-Dividend Per Share = Proposed Dividend Number of equity share

Statement showing Dividend per share of TTP LtdYearProposed DividendNo: of equity shareDividend per share

2005 200653.0217.852.97

2006 200753.0217.852.97

2007 200817.6717.850.99

2008 200953.0217.852.97

2009 - 201053.0217.852.97

Intrepretation:

Chart No:Dividend Per Share of TTP Ltd

2) SCHEDULE OF CHANGES IN WORKING CAPTIAL

The cash flow statement reflects a firms liquidity or solvency. The cash flow statement was previously known as the statement of changes in financial position or flow of funds statement. The balance sheet is a snapshot of a firms financial resources and obligations at a single point in time and the income statement summarizes a firms financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues. The cash flow statement includes only inflows and outflows of cash and cash equivalents. It excludes transactions that do not directly affect cash receipts and payments. These non cash transactions include depreciation and write-offs on bad debts. The cash flow statement is a cash basis report on three types of financial activities; operating activities, investing activities, financial activities. Non cash activities are usually reported in footnotes.

The cash flow statement is intended to provide information on a firms liquidity and solvency and its ability to change cash flows in future circumstances provide additional information for evaluating changes in assets, liabilities and equity improve the comparability of different firms operating performance by eliminating the effects of different accounting methods indicate the amount, timing and probability of future cash flows.

The cash flow statement has been adopted as a standard financial statement because it eliminates allocations which might be derived from different accounting methods such as various timeframes for depreciating fixed assets.

The schedule of changes in working capital is a tool to ascertain the working capital as well as measures to assess the funds generated a lot in the management of current assets and current liabilities. It is prepared in order to measure the increase and decrease in working capital over a period of time

Working Capital = Current Assets Current Liabilities

The schedule of changes in working capital for the period under study is as follows:

Schedule of changes in Working Capital for the year ended 2005-2006(Rs in lakhs)Particulars20052006IncreaseDecrease

A. Current Assets:

Inventories2075.868422679.87903604.01061-

Sundry Debtors811.69725759.2769252.42033

Cash & Bank Balance4204.209244933.65687729.44763

Other Current Assets

Loans and Advances3563.186873924.06089360.874402-

TOTAL( A)10654.9617812296.87371--

B. Current Liabilities

Liabilities 6433.478527265.68362832.20510-

Proposed dividend

Provision for dividend53.0225153.02251--

Provision for taxation1141.85543936.59383205.26160-

TOTAL(B)8460.561567423.09486--

Working Captial(A B)2194.400224873.77885--

Net Increase in Working Captial2679.37863--2679.37863

TOTAL4873.778854873.778852731.798962731.79896

Interpretation:In the above table, we can see that, in 2006 there is a negative working capital. This means that company is not making any effort for improving its working capital position and it leads to production interruption and efficiency.

Schedule of changes in Working Capital for the year ended 2006-2007 (Rs in lakhs)Particulars20062007IncreaseDecrease

A. Current Assets:

Inventories2679.879033788.953311109.07428

Sundry Debtors759.27692607.95401-151.32291

Cash & Bank Balance4933.656873417.89031-151.76656

Other Current Assets

Loans and Advances3924.060891649.26004-2274.80085

TOTAL( A)12296.873719464.05757--

B. Current Liabilities

Liabilities 7265.683625503.213911762.46971-

Proposed dividend

Provision for dividend53.0225017.6741735.34834-

Provision for taxation1141.8554398.464501043.39093-

TOTAL(B)84605.615655619.35258

Working Captial(A B)3836.312153844.70509-

Net Increase in Working Captial8.39294--839294

TOTAL3844.705093844.705093950.283263950.28326

Interpretation: In the above table, we can see that, during the year 2007, there is a negative working capital. Negative working capital indicates that the firms current liability is more than their current assets. Inadequate working capital indicates production interruption and inefficiencies.

Schedule of changes in Working Capital for the year ended 2007-2008(Rs in lakhs)Particulars20072008IncreaseDecrease

A. Current Assets:

Inventories3788.953312137.33723-1651.61608

Sundry Debtors607.95401884.24695276.29294-

Cash & Bank Balance3417.890314827.226411409.33583-

Other Current Assets

Loans and Advances1649.260042544.40375895.14371-

TOTAL( A)9464.0576710393.21407--

B. Current Liabilities

Liabilities 5503.213916253.61252-750.39861

Proposed dividend

Provision for dividend17.6741753.02251-35.34834

Provision for taxation98.46450148.12606-49.66156

TOTAL(B)5619.352586454.76109--

Working Captial(A B)3844.705093938.45298--

Net Increase in Working Captial93.74789--93.74789

TOTAL3938.452983938.452982580.77248258.77248

Intrepretation:

In the above table, we can see that, during the year 2008, there is a negative working capital. Negative working capital indicates that the firms current liability is more than their current assets. Inadequate working capital indicates production interruption and inefficiencies

Schedule of changes in Working Capital for the year ended 2008-2009(Rs in lakhs)Particulars20082009IncreaseDecrease

A. Current Assets:

Inventories2137.337233946.412621809.7539

Sundry Debtors884.24695994.88119110.63424

Cash & Bank Balance4827.226142034.03935-2793.18679

Other Current Assets

Loans and Advances2544.403752053.12187-491.28188

TOTAL( A)10393.214079028.45503--

B. Current Liabilities

Liabilities 6253.612525143.655291109.95723

Proposed dividend

Provision for dividend53.0225153.02251--

Provision for taxation148.12606156.10839-798233

TOTAL(B)6454.761095352.78619--

Working Captial(A B)39384.552983675.66884--

Net Increase in Working Captial-262.78414262.78414-

TOTAL3938.452983938.452983292.451003292.45100

Interpretation:In the above table, we see that, during the years 2008 and 2009 working capital is increased. Increasing in working capital indicates that the firms current asset is more than their current liabilities. This means that the company is putting efforts on managing the working capital effectively.

Schedule of changes in Working Capital for the year ended 2009-2010(Rs in lakhs)Particulars20092010IncreaseDecrease

A. Current Assets:

Inventories3946.412622207.01342-1739.39920

Sundry Debtors994.88119719.11899-275.76220

Cash & Bank Balance2034.039352548.75952514.72017

Other Current Assets

Loans and Advances2053.121871643.44043-409.68144

TOTAL( A)9028.455037118.33236--

B. Current Liabilities

Liabilities 5143.655529486.420133279.45396-

Proposed dividend

Provision for dividend53.02251-53.02251-

Provision for taxation156.1083999.9381056.17029-

TOTAL(B)5352.786194964.13943--

Working Captial(A B)3675.6688421541.99293--

Net Increase in Working Captial-1521.475911521.47591-

TOTAL3675.668843675.668842424.842842424.84284

Interpretation: In the above table, we see that, during the years 2009 and 2010 working capital is increased. Increasing in working capital indicates that the firms current asset is more than their current liabilities. This means that the company is putting efforts on managing the working capital effectively.

3) TREND ANALYSIS

It is better to determine ratios for a series of years rather than determining a single year ratio. A single year ratio does not reveal the true picture because it does not tell any change that has occurred over time. If a series of years are taken then the performance of the firm can be known better. The word trend means future possibilities. An efficient and effective management tries to know the actual performance and also discover future prospects of the business. Trend analysis acquaints us with the profitability and the short term and the long term liquidity of the business. In addition, it also discovers the future prospects of the business in terms of profitability, operational efficiency and financial soundness of the enterprise. Trend analysis is also termed as intra firm comparison, wherein financial statement of the same enterprise for two or more years is compared. Trend analysis is also named as horizontal analysis.

Procedure for calculating trends

One year is taken as a base year, generally the first or last year is taken as the base year. The figures of base year are taken as 100. Trend percentage is calculated in relation to base year.

Table Showing the Trend Percentage of Sales in TTPYearSales(Rs.in Lakhs)Trend(%)

2005-20069248.87100

2006-200768019.9673.54

2007-200812895.68189.58

2008-200911940.8192.59

2009-201013388.24112.12

Interpretation:The sales have continuously increased in all years upto 2009. The percentage increase in 2009 is 112.12 as compared to 100 in 2005.

Table Showing the Trend Percentage of Working Capital of TTPYearWorking Capital(Rs.in lakhs)Trend(%)

2005 20063836.31100

2006 20073844.70100.21

2007 20083938.45102.43

2008 20093675.6693.32

2009 20102154.1956.60

Interpretation:The tables indicated the various changing trends in working capital of TTP seen over the past 5 years; figures are fluctuating in nature which is not satisfactory.

Trend Analysis of Working Capital

Table Showing the Trend Percentage of Profit of TTPYearNet Profit(Rs.in lakhs)Trend(%)

2005 2006326.71100

2006 2007121.8837.30

2007 2008183.29150.38

2008 200969.7138.03

2009 2010158.52227.39

Interpretation:The figures of profit show an increasing trend. The profit are higher than sales which shows a proper control over cost of goods sold & overall performance of the company is satisfactory.Trend Analysis of Net Profit

CHAPTER -6

FINDINGS AND SUGGESTIONS

FINDINGSThe present study aims at analyzing the working capital position of TTP Ltd. To achieving the objectives of the study, secondary were analyzed. Major findings of the study are summarizing;

The accounting principles followed by the company during last five years are satisfactory.

When considering the last two years the current ratio is decreasing. Both the current assets and current liabilities are showing fluctuating trend. It is advisable that effective measure should be taken to improve the current ratio and make it steady.

The quick ratio of the company is varied from 1.14 to .99. It is not good for the company.

Cash ratio is not that satisfactory. It is much lesser than the standard norm. This shows that the company is not maintaining sufficient cash to meet its liabilities as and when it arises. This can affect the absolute liquidity of the firm adversely.

The proprietary ratio of the company is showing a constant trend and in the last year of study period it came down to .98. so it not satisfactory.

The earnings per ratio of the company is showing a constant trend from 2005 -2006 to 2009-2010. It is not good for the company. The dividend per ratio of the company is showing a constant trend from 2005 2010 to 2009-2010 except in 2007 2008. It means that the profitability of the company is found to be satisfactory.

The working capital is found to be fluctuating.

The sales of the company has been very progressive.

The debtors turn over ratio of TTP was 12.2 percentage in the financial year 2005-2006. In the year 2009-2010 it has improved and reaches 18.6 percentage. It is learned that the debtors turnover is increasing.

The fixed asset turn over ratio of TTP was 5 percentage in the year 2005-2006 and it has improved and reaches 7.45 percentage in the year 2009-2010

The operating ratio of TTP Ltd has seen at 1 percentage in the year 2005 2006. There was slight change in the following year and reaches at 1.15 percentage in the year 2009-2010. It is noted to be that the operating expenses of TTP Ltd, remained almost constant during the past 5 yea