working capital-brief study

8/18/2019 Working capital-Brief Study

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PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

BY

ANKIT GARG

11PBA011

A Study conducted at RANBAXY PARMACE!TICALS LT"

!nde# t$e %u&dance o' ASSTT( PRO)( POONAM BASSI

In *a#t&a+ 'u+'&++,ent o' t$e

MASTER "EGREE O) B!SINESS A"MINISTRATION -MBA.

AT

BA""I !NI/ERSITY O) EMERGING SCIENCES AN"

TECNOLOGY

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"ECLARATION

I, Ankit Garg student of Baddi University of Emerging Sciences and

Technology, School of Management Studies, hereby declare that ro!ect reort

on WORKING CAPITAL MANAGEMENT is the record of original "ork

carried out by me and the information rovided in the study is authentic to the

best of my kno"ledge# This reort has not been submitted to any other

University or Institution for the a"ard of any degree# $othing is coied in this

ro!ect, if anything is found to be coied, I "ill be solely resonsible for that#

ANKIT GARG

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PRE)ACE

Businesses face ever increasing ressure on costs and gro"ing %inancing

re&uirements as a result of intensive cometition in globali'e markets# Many of

them are therefore considering "ays of making themselves more efficient# In

identifying ossible otions it is imortant not to focus e(clusively on income

and e(ense items, but also to take the balance sheet into account#

Imrovements to the e(isting caital structure can free u valuable resources

and bring increased efficiency# Active "orking caital management is an

e(tremely effective "ay to increase enterrise value# )timi'ing "orking

caital results in a raid release of li&uid resources and contributes to an

imrovement in free cash flo" and to a ermanent reduction in inventory and

caital costs#

The attemt is aimed to analy'e the various asects of "orking caital

management of *anba(y and comare it "ith that of +r *eddys and "ith

industry standards#

By adoting various calculation and analysis and then making interretation

"ith the solution of secific roblem, best efforts on giving aroriate

suggestion to the comany have been made#

To this conte(t various methods and techni&ues like ratio analysis, statistical

tool and "orking to"ards the otimal level of "orking caital, estimation of

"orking caital and various ratios have been used to dra" an e(act icture of

comany#

ABSTRACT

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A ro!ect "ork is a mandatory re&uirement for the Business Management

-rogram# This tye of study aims at e(osing the young rosective e(ecutive

to the actual business "orld#

This ro!ect gives me kno"ledge about the "orking caital of the comany#

.orking caital refers to the funds re&uired for day to day oerations of the

organi'ation# It is very effective "ay to !udge a comanys cash flo" rosects,

as cash is like blood life for any comany#

The reort initially begins "ith the comany rofile, follo"ed by the detailed

analysis of comany, like businesses of the comany, roducts offered by the

comany, financials of the comany, etc

The reort involves a lot of research to understand "hat e(actly "orking caital

is, "hy comanies re&uire "orking caital, "hat are the ideal ratios for

.orking /aital a /omany should maintain, etc(

T$e *u#*o2e &2 to de3e+o* an act&on *+an t$at c#eate2 2uc$ a 4o#5&n%

ca*&ta+ t$at 4&++ u*%#ade2 and 2tanda#d&6e t$e 7ua+&ty o' 8u2&ne22 ana+y2&2(

0arious tools, including financial tools, are used in this ro!ect to calculate and

comare the financial osition of the comany, e#g# ratio analysis, S.)T

analysis, etc#

TABLE O) CONTENTS

/1A-TE*23

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Introduction 45

Industry -rofile 46

)rgani'ational rofile 34

.orking caital 35

/1A-TE*27

$eed and Scoe of study 78

)b!ective of study 79

/1A-TE*28

:iterature revie" 7;

/1A-TE*29

Methodology 76

/1A-TE*2;

)&nanc&a+ *e#'o#,ance o' Ran8a9y

:i&uidity *atios 83

-rofitability *atios 8;

:i&uidity Analysis 86

*atio Analysis 94

/redit Analysis < -olicies 9;

/1A-TE*25

:imitations ;3

%inding of Study ;7

*ecommendations and Suggestions ;9

/onclusion ;=

/1A-TE*26

Bibliograhy 54

Aendices 53

CAPTER:1

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INTRO"!CTION

A firm is re&uired to maintain a balance bet"een li&uidity and rofitability

"hile conducting its day to day oerations# :i&uidity is a recondition to ensure

that firms are able to meet its short2term obligations and its continued flo" can

be guaranteed from a rofitable venture#

The imortance of cash as an indicator of continuing financial health should not

be surrising in vie" of its crucial role "ithin the business# This re&uires that

business must be run both efficiently and rofitably# In the rocess, an asset2

liability mismatch may occur "hich may increase firms rofitability in the

short run but at a risk of its insolvency#

The urose of this ro!ect is to e(amine the trends in "orking caital and its

imact on firms erformance# The trend in "orking caital needs and

rofitability of firm is e(amined to identify the causes for any significant

differences#

The rest of the reort is organi'ed as follo"s> It starts "ith the Industry rofile

< then a detailed introduction of the comany# The follo"ing section of the

reort looks briefly at the theoretical underinnings and the relevant literature"hich attemts to e(lain the link bet"een oor erformance and "orking

caital management#

After that, the analysis art covers in deth analysis of "orking caital of

*anba(y# %inally the conclusion is made < it has been observed that the overall

structure of "orking caital of the co# is good and it is a gro"ing concern# The

comany uses various techni&ues to maintain its "orking caital# Some

suggestions have been given on the basis of the conclusion#

IN"!STRY PRO)ILE

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Industry Definition

“The Indian pharmaceutical industry is a success story providing employment for millions and ensuring that essential drugs at

affordable prices are available to the vast population of this sub-

continent.”

Richard Gerster

The Ind&an P$a#,aceut&ca+ Indu2t#y today is in the front rank of Indias

science2based industries "ith "ide ranging caabilities in the comle( field of

drug manufacture and technology#

)act2 a8out t$e Ro+e o' P$a#,aceut&ca+ Indu2t#y &n Ind&an G#o22 "o,e2t&c

P#oduct -G"P.;

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• Indian -harmaceutical Industry ranks fourth in the "orld, ertaining to

the volume of sales#

• The estimated "orth of the Indian -harmaceutical Industry is !S< =

8&++&on#

• The gro"th rate of the industry is about 1>? *e# yea##

• Almost most @0? of the domestic demand for bulk drugs is catered by

the Indian -harma Industry#

• The -harma Industry in India roduces around 0? to ? of the global

Generic drugs#

• The Indian -harmaceutical Industry is one of the biggest roducers of the

Act&3e P$a#,aceut&ca+ In%#ed&ent2 ?A-I@ in the international arena#

• The Indian -harma sector leads the science2based industries in the

country#

• Around 0? of the total harmaceutical roduce is e(orted#

• ? of the total e(orts constitute of formulations and the other ?

comrises of bulk drugs#

• The Indian -harma Industry includes small scaled, medium scaled, large

scaled layers, "hich totals nearly >00 different comanies#

• As er the resent gro"th rate, the Indian -harma Industry is e(ected to

be a !S< 0 8&++&on industry by the year 743;#

• The multinational comanies, investing in research and develoment in

India may save u to >0? to 0? of the e(enses incurred

• The cost of hiring a research chemist in the US is '&3e t&,e2 higher than

its Indian counterart#

%ollo"ing the de2licensing of the harmaceutical industry, industrial

licensing for most of the drugs and harmaceutical roducts has been done

a"ay "ith# Manufacturers are free to roduce any drug duly aroved by the

+rug /ontrol Authority# Technologically strong and totally self2reliant, the

harmaceutical industry in India has lo" costs of roduction, lo" *


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)ver 74,444 registered harmaceutical manufacturers e(ist in the country# The

domestic harmaceuticals industry outut is e(ected to e(ceed *s754 billion

in the financial year 7433, "hich accounts for merely 3#8C of the global

harmaceutical sector# )f this, bulk drugs "ill account for *s ;9 billion ?73C@

and formulations, the remaining *s 734 billion ?6=C@# In financial year 7437,

imorts "ere *s 74 billion "hile e(orts "ere *sD6 bn#

The above grah sho"s the ercentage of harmaceutical roducts e(ort by

various countries#

INTRO"!CTION TO RANBAXY

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“Ranbaxy Laboratories Limited (Ranbaxy) is

a research based international

pharmaceutical company serving customers

in over 150 countries. For more than 50years, e have been providing high !uality,

a"ordable medicines trusted by healthcare

pro#essionals and patients across

geographies.”

*anba(y :aboratories :td# "as incororated in une 3=53, in the name of MFS

:E-ITIT *A$BAH :AB)*AT)*IES :T+ and it commenced its business in

MA*/1 3=57, in technical and financial collaboration "ith an international

comany named :E-TIT S-A, MI:A$, ITA:H#

*anba(y :aboratories -vt# :td# merged "ith :etit *anba(y :aboratories -vt#

:td#J in 3=57 *anba(y and comany also merged "ith this comany in 3=55#

The collaboration arrangement "ith MFS :E-TIT "as terminated in 3=55K after

"hich Indian nationals ac&uired the entire share caital of the comany#

Therefore the "ord :etit "as removed from the name of the comany# The

name is kno"n as *A$BAH :AB)*AT)*IES :IMITE+# In 3=68 the

comany issued shares to the general ublic and became a full fledged -UB:I/

:IMITE+ /)M-A$H

#

At resent *anba(y have four lants for the manufacture of bulk drugs t"o at

Mohali, one at +e"as ?M#-@ A$+ Another at Toansa near *)-A*# At resent,

*anba(y is the second most Indian comany engaged in the manufacturing of -harmaceuticals, Bulk +rugs and %ine /hemicals#10


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$ission

%&nriching lives globally,

ith !uality and a"ordable

pharmaceuticals'

ision"Achieve signifcant business in

proprietary

prescription products

With a strong presence in developed markets"

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/AL!ES

O)

RANBAXY LABORATORIES LIMITE"

1. Achieving cu2to,e# 2at&2'act&on is fundamental to our business

2. -rovide roducts and 2e#3&ce2 o' t$e $&%$e2t 7ua+&ty

3. -ractice d&%n&ty and e7u&ty &n #e+at&on2$&*2 and rovide oortunities

for our eole to reali'e their full otential

4. Ensure *#o'&ta8+e %#o4t$ and enhance "ealth of the shareholders

5. %oster mutually beneficial #e+at&on2 4&t$ a++ ou# 8u2&ne22 *a#tne#2

6. Manage our oerations "ith high concern for 2a'ety and en3on,ent

7. Be a resonsible co#*o#ate c&t&6en

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OBJECTI/ES

O)

RANBAXY LABORATORIES LT"(

3# To be a leader in the -harmaceutical industry#

7# To be a rofitable comany "ith a steady gro"th in earnings#8# To set an e(amle as a socially resonsible comany#

9# To diversify in health care related areas#

;# To strive for e(cellence and continuous imrovement in all sheres#

5# To imrove the &uality of life of eole by roviding better services and

&uality roducts#

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JOINT /ENT!RE O) TE COMPANY(

7444 *anba(y files I$+ Alication for Asthma Molecule2*B(958D, after successful comletion of re2clinicalstudies# *anba(y ac&uires Bayers Generics business?trading under the $ame of Basics@ in Germany#*anba(y forays into Bra'il, the largest harmaceuticalmarket in South America and achieves global sales of

U#S# 7#; million in this market#

7443 *anba(y took a significant ste for"ard in 0ietnam by initiating the Setting u of a ne" manufacturingfacility "ith an investment of U#S# 34 million#*anba(y achieved a turnover of U#S# ;47 millionfor the year 7447 and moved closer to achieving atarget of 3 billion dollar by 7449#

7447 *eceives aroval from %+A to market Mida'olam1ydrochloride Syru 7 Mg baseF ml# *anba(yreceives and aroval from %+A to manufacture andmarket /efodo(ime -ro(etil for )ral Susension,:isinoril L 1ydrochlorothia'ide Tablets Us,Tera'osin 1ydrochloride /asules and Amo(cillin)ral susension US-#1eralding the comanys entryinto the Indian )T/ market#

7448 *anba(y received the economic times a"ard for cororate e(cellence2for the comany for year#*anba(y signed an agreement to ac&uire *-G?Aventis@ SA along "ith its fully o"ned subsidiary,)-I1 SA*:, in %rance

7449 *anba(y launched its first range of herbal ro!ects#

744; Ac7u&2&t&on o' add&t&ona+ 2ta5e &n Ran8a9y P$a#,aceut&ca+ Ltd(DB#a6&+ *anba(y announced the ac&uisition of Be2Tabs

-harmaceuticals ?-ty@ :imited

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744D Ac&uired by the aanese giant, the =#57 billion+aiichi Sankyo, ranked $o# 8 in aan

BRIE) INTRO O) RANBAXY PLANTS IN IN"IA

In the chemical division, various bulk drugs are manufactured# The

chemical division had three units in -un!ab# )ne is located at Toansa, t"o are

located at Mohali and one unit is located at +e"as near Indore in Madhya

-radesh, "here /iroflo(acine is manufactured# In the lant of the chemical

division, various drugs like Antibiotics, Anti2malarial, Antibacterial and Anti2

ulcer are manufactured# )ne of the older lants of *anba(y "as closed after the

accident in une 7448#the second one is still "orking

The 3==3, the Toansa lant started functioning in 3==7 and the +e"as lant

started functioning in 3===# 0arious lant heads indeendently manage all these

lants#

In each unit, searate facilities "ith resect to the manufacture of drugs, along

"ith their manufacturing areas have been rovided# This is re&uired to reduce

the chances of any cross contamination under the drug la"s and to comly "ith

good manufacturing ractices#

At Mohali lant, searate blocks have been rovided for the rearation of each

drug #The Toansa, Mohali and +e"as lants are lanned in such a "ay that their

system, facilities, manufacturing ractices and standards meet the re&uirements

of %+A# Mohali -lant also mainly in the manufacturing of Active

-harmaceutical Ingredients ?A-I@# The -lant is divided into t"o lant areas AD

and A=

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WORKING CAPITAL MANAGEMENT

INTRO"!CTION

As levers of financial management go, none bears more "eight than "orking

caital# The viability of every business activity rests on daily changes in

receivables, inventory and ayables# Its the lifeblood of the business, and

every managers rimary task to kee it moving and ut shareholders caital to

"ork efficiently and effectively#

.orking /aital is the caital used for the day2to2day oerations in the

organi'ation# It denotes the money that circulates in the organi'ation for smooth

functioning of the organi'ation#

Good management of "orking caital "ill generate cash, hel to imrove the

rofits, solidify the relationshis "ith suliers and customers, and reduce risks#

This ro!ect "as undertaken to analy'e the "orking caital olicies, "orking

caital management of the comany and to reduce do"n their roblems and

finding the solutions "ith resect to the "orking caital management of the

comany#

.orking in an organi'ation, esecially "ith a brand like *A$BAH the main

ob!ective is to learn ma(imum from the intellectually stimulating mentors and

multi2dimensional colleagues in the organi'ation#

• To 2tudy and co,*a#e t$e 4o#5&n% ca*&ta+ o' RANBAXY 4&t$ &t2

co,*et&to#2 &n t$e &ndu2t#y

• To 2ee 4$et$e# t$e co,*any &2 *#e*a#ed 4&t$ enou%$ 4o#5&n%

ca*&ta+ to 'ace any 5&nd o' cont&n%enc&e2(

• To a22e22 L&7u&d&ty *o2&t&onD Lon% te#, 2o+3encyD o*e#at&ona+

e''&c&encyD and o3e#a++ *#o'&ta8&+&ty o' RANBAXY

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/a+ue Add&t&on 'o# t$e co,*any

A "ell designed and imlemented "orking caital management is e(ected to

contribute ositively to the creation of a firms value The urose of this ro!ect

is to e(amine the trends in "orking caital management and its imact on

firms erformance#

This ro!ect "ould hel *anba(y in comaring its financial status "ith its

cometitors# The in deth analysis might bring out some key issues that may be

ignored but may rove significant for the comany# 0arious analyses conducted

for analy'ing the "orking caital "ill rove beneficial to the comany#

Wo#5&n% Ca*&ta+;

Wo#5&n% Ca*&ta+ &nc+ude2 t$e cu##ent a22et2 and cu##ent +&a8&+&t&e2 a#ea2

o' t$e 8a+ance 2$eet( Wo#5&n% Ca*&ta+ can 8e ca++ed 8y &t2 a+te#nat&3e na,e

: Net Cu##ent A22et2F(

.orking /aital Management is the rocess of lanning and controlling thelevel and mi( of current assets of the firm as "ell as financing these assets# It

may be regarded as a life blood of a businessK its effective rovision can do

much to ensure the success of a business, "hile its efficient management may

lead not only to loss of rofits but loss to ultimate do"nfall in a going concern#

Analysis of "orking caital is of ma!or imortance to internal and e(ternal

analysis because it is closely related to the current day2to2day oerations#

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WORKING CAPITAL INCL!"ES )O!R

BALANCE SEET ITEMS

• Stoc5 2 stocks of ra" materials, artly comleted roduction and finished

goods a"aiting sale#

• "e8to#2 2 amounts o"ed to the comany, mainly from customers in

resect of sales made on credit#

• C#ed&to#2 2 amounts o"ed BH the comany, mainly to suliers of ra"

materials, services ?electricity, "ater, telehone, rent, etc#@ but also,

ossibly, unaid ta( demands, unaid dividends and other items#

• Ca2$ 2 bank balances, cash holdings and short2term investments#

T$e t$#ee ,ao# c$a#acte#&2t&c2 o' cu##ent a22et2 a#e;

• They have a short life san#

• /ash balances are held only for a "eek or so#

• They are raidly transformed into other assets form#

So,e o' t$e dec&2&on2 ta5en &n 4o#5&n% ca*&ta+ ,ana%e,ent a#e;

• An ade&uate suly of ra" materials#

• /ash to meet the oerational ayments#

• The ability to grant credit to customers#

• Investment in various current assets#

• Aroriate sources of fund to finance current assets#

• -roortion of long term and short term funds to finance current assets#

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O8ect&3e o' Wo#5&n% Ca*&ta+ Mana%e,ent>

• T"o fold ob!ective of "orking caital management

• Maintenance of "orking caital, and

• Availability of amle funds at the times of need#

!2e2 o' Wo#5&n% Ca*&ta+;

• The tyical uses of "orking caital are as follo"s>

• Ad!usted net loss from oerations

• -urchase of non2current assets>

• *eayment of long2term debt ?debentures or bonds@ and short2term debt

?bank borro"ing@

• *edemtion of redeemable reference shares

• -ayment of cash dividend#

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A"/ANTAGES O) A"EH!ATE WORKING

CAPITAL

• Inc#ea2e &n de8t ca*ac&ty and %ood4&++> Ade&uate "orking caital

reresents the financial soundness of the comany# If one comany is

financially sound it "ould be able to ay its creditors timely and

roerly# It "ill increase comanys good"ill# Thus a firm "ith ade&uate

"orking caital can raise re&uisite funds from market, borro" short2term

credit from banks, and urchase inventories of ra" materials, etc#, for thesmooth oeration of its business#

• Inc#ea2e &n *#oduct&on e''&c&ency> .ith ade&uate "orking caital the

firm can smoothly carryout research and develoment activities and thus

adds to its roduction efficiency#

• E9*+o&tat&on o' 'a3o#a8+e o**o#tun&t&e2> In the resence of ade&uate

"orking caital, a comany can avail the benefits of favorableoortunities# Ade&uate "orking caital "ill hel the comany to have

bulk urchases, seasonal storage of ra" material etc#, "hich "ould

reduce the cost of roduction#

• Meet&n% cont&n%enc&e2 and ad3e#2e c$an%e2> A comany can easily

face certain business and economic crises# A comany having ade&uate

"orking caital can successfully meet contingencies such as business

oscillations, financial crisis arising from heavy losses etc#

• A3a&+a8+e ca2$ d&2count> Maintenance of ade&uate "orking caital

enables a comany to avail the advantage of cash discount by making

cash ayments for to the suliers of ra" materials and merchandise#

• Att#act&3e "&3&dend to S$a#e$o+de#2> It enables the comany to offer

attractive dividend to the shareholders so that sense of security and

confidence "ill increase among them# It also increases the market value

of its shares#20


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"ISA"/ANTAGE O) INA"EH!ATE WORKINGCAPITAL

• Lo22 o' %ood4&++ and c#ed&t4o#t$&ne22; As the firm fails to honor its

current liabilities it loses it good"ill and credit"orthiness among its

creditors#

• ), cant ,a5e u2e o' 'a3o#a8+e o**o#tun&t&e2> The firm fails to

undertake the rofitable ro!ects, "hich not only revent the firm from

availing the benefits of favorable oortunities but also stagnate its

gro"th#

• Ad3e#2e e''ect2 o' c#ed&t o**o#tun&t&e2; The firm also fails to avail the

attractive credit oortunities but also stagnate its gro"th#

• O*e#at&ona+ &ne''&c&enc&e2; It leads the comany to oerating

inefficiencies, as day2to2day commitments cannot be met#

• E''ect2 on '&nanc&a+ ca*ac&ty; Inade&uacy of "orking caital also

"eakens the shock2absorbing caacity of the firm because it cannot meet

the contingencies arising from business oscillations, financial losses, due

to shortage of "orking caital#

• Non:ac$&e3e,ent o' P#o'&t Ta#%et; The firm cannot imlement

oerational lans due to unavailability of fund, "hich "ill lead to non2

achievement of rofit targets#

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"an%e#2 o' Redundant 4o#5&n% ca*&ta+

• :o" rate of return on caital

• +ecline in /aital and Efficiency

• :oss of Good"ill and /onfidence

• Evils of )ver2/aitali'ation

• +estruction of Turnover *atio

/omany must have ade&uate "orking caital ursuant to its re&uirements# It

should neither be e(cessive nor inade&uate# Both situations are dangerous#.hile inade&uate "orking caital adversely affects the business oerations and

rofitability, e(cessive "orking caital remains idle and earns no rofits for the

comany# So comany must assure its "orking caital is ade&uate for its

oerations#

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CAPTER:

NEE" O) TE ST!"Y

.orking caital management lays a vital role in any organi'ation and one

should have a thorough kno"ledge about the "orking caital osition#

In vie" of this conte(t, I have undertaken this study and it "ould be a great

advantage to the comany also to kno" its "orking caital#

SCOPE O) TE ST!"Y

Scoe of the study "as confirmed to internal environment only# The study based on the secondary data collected from annual reort, internet etc# #

%inancial statement analysis is the rocess of identifying the financial ositionof the comany# After duly recogni'ing the imortance of financial statementanalysis of this toic has been chosen as the focus of the ro!ect#

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OBJECTI/ES O) TE ST!"Y

•

P#&,a#y o8ect&3e; o To find out the "orking caital osition of the comany for the last

five financial years#

• Seconda#y o8ect&3e;

o To kno" the li&uidity osition of the firm#

o To study the rofitability of the comany

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CAPTER:>

RE/IEW O) LITERAT!RE

.orking caital olicy refers to the firms olicies regarding

3@ target levels for each category of current oerating assets and liabilities, and

7@ ho" current assets "ill be financed#

Generally good "orking caital olicy ?i#e# under conditions of certainty@ is

considered to be one in "hich holdings of cash, securities, inventories, fi(ed

assets, and accounts ayables are minimi'ed# The level of accounts receivables

should be used as a means of stimulating sales and other income# -revious

literature on "orking caital management has found a negative association,

overall, bet"een level of "orking caital and oerating erformance as

measured by oerating returns and oerating margins ?-eterson and *a!an,

3==6@# Under conditions of certainty ?i#e# sales, costs, lead times, ayment

eriods, and so on, are kno"n@, firms have little reason to hold more "orking

caital than a minimum level# :arger amounts "ould increase the level of

oerating assets, increase the need for e(ternal funding, resulting in lo"er

return on assets and a lo"er return on e&uity, "ithout any increase in rofit#

1o"ever the icture changes "hen uncertainty ?i#e# uncertain gro"th@ is

introduced ?Brigham and 1ouston, 7444@# :arger amounts of cash, securities,

accounts receivables, marketable securities, inventories, and fi(ed assets "ill be

needed to suort increased sales *e&uired levels "ill be based on e(ected

sales levels and e(ected order lead times# Additional holdings may be needed

to enable the firm to deal "ith deartures from the e(ected values# %urther,firms "ill also attemt to increase their accounts ayable balances as a means of

financing increased levels of current oerating assets# %irms "hich are in high

gro"th stages "ill face the challenge of maintaining the necessary level of

oerating assets to suort subse&uent gro"th, "hile at the same time

attemting to maintain ade&uate erformance indicators#

This study focuses on understanding ho" I-) comanies manage their "orking

caital and other balance sheet items to suort subse&uent gro"th# This studysuorts the e(isting literature on "orking caital and contributes to the

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e(isting literature by e(amining a samle of firms ?i#e# recent I-) firms@ "hich

have a "ider range of gro"th levels than non2I-) firms# )ur study e(amines

the imact of "orking caital management on the oerating erformance and

gro"th of ne" ublic comanies# The study also e(amines these relationshis

under three categories of gro"th ?i#e# negative gro"th, moderate gro"th, and

high gro"th@# The study also e(amines other selected firm characteristics in

light of "orking caital management> firm oerating and financial risk, amount

of debt, firm si'e, and industry#

An underlying theme of this study is that high gro"th certainly does not ensure

high oerating erformance# /onsistent "ith rior research ?-eterson and

*a!an, 3==6@ this study rovides further evidence that good "orking caital

management is ositively associated "ith better oerating erformance# 1igher

levels of accounts receivable are associated "ith higher oerating erformance,in all three of the gro"th rate categories# The study also finds that maintaining

control over levels of cash, securities, inventory, fi(ed assets, and accounts

ayables is associated "ith higher oerating erformance# .e find that firms

"hich are e(eriencing very high gro"th "ill hold higher levels of cash,

securities, inventory, fi(ed assets, and accounts ayable to suort the high

gro"th# The study suggests that these firms are sacrificing oerating

erformance ?acceting lo"er oerating returns@ to suort the high gro"th#

This, in turn, increases financial and oerating risk for these firms# -erhas I-)firms should stay more focused on their oerating erformance, "hile

maintaining more moderate gro"th levels

Another asect of this study is that it fills a void in the initial ublic offerings

literature# *ecent literature finds that ne" ublic comanies undererform the

market after going ublic# *itter in his 3==3 aer reorts substantially lo"er

stock returns for I-) firms bet"een 3=6; and 3=D9 than for a si'e2and2

industry2matched samle of seasoned firms# Since then there is a gro"ingliterature e(laining I-) undererformance as related to agency cost ?Smith,

3==4@, institutional holdings ?%ield, 3==;@, venture caital ?ain and Gomers,

3==6K ain and ini, 7444@, market timing of I-) ?Benninga, 7449@, and

earnings management ?Teho et al#, 3==DK Ahmad2'aluki et al#, 744D@# 1o"ever,

there is no study linking the "orking caital management and ost2I-)

erformance# )ur aer tries to fill the void# The findings of this study "ould

be interesting to investors and creditors of ne" ublic comanies#

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CAPTER:

RESEARC METO"OLOGY

A study by analy'ing the trends of "orking caital of the firm and to e(amine

the ossible causes for any significant differences# The data has been collected

from the financial statements# %or the urose of this study, rofitability is

measured by *eturn on Total Assets ?*)TA@, "hich is defined as rofit before

interest and ta( divided by total assets#

A comrehensive measure of rofitability is best catured 8y co,*ut&n% t$e

#etu#n on tota+ a22et2 4$&c$ &2 e7ua+ to t$e tota+ +&a8&+&t&e2 o' t$e ',2D

,ade u* ,a&n+y o' e7u&ty ca*&ta+ and cu##ent +&a8&+&t&e2(

All imortant ratios have been calculated to kno" the financial health of the

comany "ith the hel of ast trends, mainly rofitability < return ratios

considered in section I of analysis art#

All imortant comonents of "orking caital have been analy'ed in detail i#e#,

Inventory, /ash, and -ayables etc

T$e ,et$odo+o%y to 8e ado*ted &2 a2 'o++o42;

• /ollection of financial data of *A$BAH and +r *eddy from annual

reorts and comanys internal resources#

• /omutation of various financial ratios and comaring them "ith

standards and "ith each others#

• Analy'ing the trends of "orking caital of the firm and to e(amine the

ossible causes for any significant differences#

• 0arious tools of analysis like *atio analysis etc to be alied#

• All imortant comonents of "orking caital to be analy'ed in detail i#e#

*eceivables, Inventory, /ash, -ayables and )erating cycle#

• Making comarison of the above comutations "ith that of +r *eddys

and industry standards#

• Analysis of results, dra"ing conclusions and giving recommendations#

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CAPTER:

)INANCIAL PER)ORMANCE O) RANBAXY

P#o'&t a'te# Ta9 -PAT. : R2 &n c#o#e

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Sa+e2 -R2 &n c#o#e.

Though the Sales of the comany had been on a constant increase over the last9 years, there "as a sudden fall in the -rofit After Ta( in 7433# The key reason

for the sudden fall in -AT is Miscellaneous E(enses occurred in the comany #

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Co,*a#&2on 4&t$ t$e Indu2t#y Standa#d2

The follo"ing financial comarison has been made keeing in vie" the scale of

oerations of the comany and the Industry Standards# The Industry standards

have been taken from /entre for Monitoring Indian Economy ?/MIE@, March7437#

The follo"ing is the list of /omany taken for /omarison>

3# +r *eddys :aboratories

7# *anba(y :aboratories :td#

%or any comany functioning in the free market, its imortant ho" best it

oerates but this is e&ually imortant that ho" it erforms via2a2via its rivals i#e#other similar comanies in the market# 1ere, to find out about *anba(y, a

comarison has been made "ith +r *eddys :aboratories oerating on

comarable si'e to see "hether *anba(y is follo"ing industry norms or not or

"hether *anba(y is doing better ?or "orse@ comared to its rivals# Its li&uidity

osition has been comared by considering .orking /aital Turnover *atio,

/urrent *atio and Nuick *atio and further -rofitability of *anba(y "ith +r

*eddys :aboratories have been comared by considering *eturn on /aital

Emloyed and Earnings er share#

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L&7u&d&ty Rat&o2

The li&uidity refers to the availability of cash and cash convertible assets "ith

an organi'ation to meet its short2term obligations i#e# creditors and other

/urrent :iabilities# Any comanys li&uidity may vary due to seasonality, the

timing of sales, and the state of the economy# But li&uidity ratios can rovide

small business o"ners "ith useful limits to hel them regulate borro"ing and

sending#

1( Wo#5&n% Ca*&ta+ Tu#no3e# Rat&o

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It is a measurement comaring the deletion of "orking caital to the

generation of sales over a given eriod# This rovides some useful information

as to ho" effectively a comany is using its "orking caital to generate sales#

A comany uses "orking caital to fund oerations and urchase inventory #

These oerations and inventory are then converted into sales revenue for the

comany # The "orking caital turnover ratio is used to analy'e the relationshi

bet"een the money used to fund oerations and the sales generated from these

oerations# In a general sense, the higher the "orking caital turnover, the

better it is because it means that the comany is generating a great degree of

sales as comared to the money it utili'es#

%rom the Industry comarison, it is aarent that *anba(y is lo" than the

Industry standards in 7437 "hich imlies that the sales generated by *anba(y

:aboratories has been less than the cost incurred to generate those sales#

( Cu##ent Rat&o

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The current ratio of *anba(y has been comared "ith +r *eddys :aboratories

for the year 7437# A /urrent ratio measures the ability of an entity to ay its

near2term obligations# Though the ideal current ratio deends to some e(tent on

the tye of business, a general rule of thumb is that it should be at least 7>3# The

higher the current ratio, the greater the OcushionO bet"een current obligations

and a firms ability to ay them# A lo"er current ratio means that the comany

may not be able to ay its bills on time, "hile a higher ratio means that the

comany has money in cash or safe investments that could be ut to better use

in the business#

The ideal /urrent ratio to be maintained by the harmaceutical cannot be

accurately assessed because the scale of oerations and the inventory si'e has

been different for all the concerns in the Industry# According to /MIE Industry

Standards the current ratio for 7433 is 3#95

As er the above grah, the /urrent ratio maintained by *anba(y in 7437 is

above the normal industry standards#

>( Hu&c5 Rat&o

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Nuick *atio also kno"n as OAcid Test *atio‟ is an even conservative measure

of li&uidity# The ratio e(resses the degree to "hich a comanys current

liabilities are covered by the most li&uid current assets# 1ere Nuick assets

include all current assets e(cet inventories#

A high ratio indicates under stocking and lo" ratio indicates over stocking#

Stock is e(cluded because it may take time to be converted into cash# Nuick

ratio measures those assets, "hich are immediately converted into cash "ithout

much loss# Though there is no "ay to measure an ideal Nuick ratio but as a rule

of thumb, it should be at least 3>3#

%rom the above comarison, it can be inferred that a *anba(ys /urrent

liabilities is less than the +r *eddys :aboratories #

P#o'&ta8&+&ty Rat&o2

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-rofit is the difference bet"een revenue and e(enses over a eriod of time#

The rofitability ratios are calculated to measure the oerating efficiency of the

comany#

1( Retu#n on Ca*&ta+ E,*+oyed

A return on caital emloyed, also called earning o"er is a measure of

business erformance "hich is not affected by interest charges and ta(2burden#

It abstracts a"ay the effect of caital structure and ta( factor and focuses on

oerating erformance#

Retu#n on Ca*&ta+ e,*+oyed P#o'&t Be'o#e Ta9 Tota+ A22et2

As comared to +r *eddys :aboratories, *anba(y has less /aital emloyed#

( Ea#n&n%2 *e# S$a#e-EPS.

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E-S states a cororations rofits on a er share basis# It can be helful in

further comarison to the market rice of the stock# It is an inde( of rofitability

from shareholders oint of vie"# The higher the earning er share, the more

attractive "ill be the investment lan#

Ea#n&n%2 *e# 2$a#e P#o'&t a'te# ta9 Nu,8e# o' e7u&ty 2$a#e2

%rom the Industry comarison, it is clear that the earnings er share for the

E&uity Shareholders of *anba(y are negative# The main reason for the figure of

E-S being negative is the drastically lo" -rofits it has incurred in the year

7437#

LIH!I"ITY ANALYSIS O)

RANBAXY LABORATORIES LIMITE"

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:i&uidity of any comany is the indicator as to ho" the comany is laced "ith

reference to its caacity to meet its current financial obligation# This means that

here "e have to consider the current assets "hich can be easily converted into

cash to meet its immediate financial obligations or dues# :i&uidity osition of

*anba(y :aboratories :imited has been analy'ed in the follo"ing aragrahs

based on different measures#

Cu##ent A22et2

*anba(y has a gro"th of around 76;C in current assets over the eriod of five

years# %rom *s 7767#=7 crore in 744D comany has increased its current assets

to 5447#;4 crore#

Cu##ent L&a8&+&t&e2

%rom 744D to 7437, current liabilities for *anba(y :aboratories have increased

from *s 9;63#83 /r to *s 57D9#75 "ith average current liabilities over this eriod being *s ;945#56 /r# As "e see here, gro"th rate for current liabilities in

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this eriod has been 394 C "hich is half than the gro"th of current assets

"hich sho"s that current liabilities have increased at slo"er ace than its

corresonding assets#

Net Wo#5&n% Ca*&ta+

$et "orking caital is an imortant measure "hich itself indicate margin of

safety or cushion of rotection rovided to the creditors# As the follo"ing

diagram sho"s, the comany has negative net "orking caital in 744D and 744=and then net "orking caital start increasing# The greater the amount of net

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"orking caital, the greater the li&uidity of the firm# $./ of the comany

increased from *s 23;56#3= to *s 766;#75 /r# $et "orking caital in the year

744D is negative because increase in current liabilities is more than the current

assets "hich has let to decline in $et "orking caital#

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Rat&o Ana+y2&2

Even though above analysis based on comosition rovide some indicator to the

li&uidity osition of the comany, these do not sho" the e(tent of margin of

safety rovided for current creditors# %or this, ratio analysis has been done as

follo"s>

Cu##ent Rat&o

*elationshi bet"een current assets and current liabilities is sho"n by current

ratio# It basically measures comanys ability to meet its short term obligation

out of its short term resources# 1igher the current ratio, the greater is the

assurance of the ability to ay the current liabilities and vice versa# 1o"ever,even though a higher value of current ratio is good for the creditors against their

credit, it may not be good for the management as it "ill indicate oor financial

lanning and over caitali'ation# In normal circumstances, hyothetical norm of

7>3 is suosed to be a good current ratio and if the current ratio for the

comany is less than that, the solvency or li&uidity of the comany becomes

&uestionable#

As it is evident from the grah that the comany had an average current ratio of

3#7 over the eriod of five years from 744D to 7437# 1o"ever, as it is clear from

the data that it varied from 3#9 to 4#D "hich sho"s a variation over the years#

%urther, a current ratio of less than 7 is normally not suosed to be good as

such it can be considered the comany assed through a difficult hase of li&uidity#

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Hu&c5 Rat&o o# Ac&d Te2t Rat&o

/urrent assets sometime also include a high amount of slo" moving inventory

or "hich may not move at all "hich means that even though current ratio of a

comany is very high, even though it may not be in a osition to meet its

immediate liabilities# %or that, an analysis of &uick ratio is also needed "hich

sho"s the e(tent of cushion rovided from the &uick assets to the current

creditors# This ratio e(cludes the inventory and bank overdraft, "hich are

normally difficult to reali'e at short notice# Nuick ratio is defined as the ratio of

&uick assets to &uick liabilities# Under normal circumstance, an ideal &uick ratio

of 3>3 is suosed to be good enough "hich "ill reflect a satisfactory current

financial condition#

Above data for *anba(y :aboratories indicates that Acid Test *atio for the

eriod under study has consistently been belo" 3 e(cet for 7434 "here it "as

highest of 3#5# It sho"s that the comany has a healthy li&uidity osition in this

eriod# As such, considering the above data, it can be said that comanys

immediate ayment osition "as satisfactory and its li&uid assets "ere ade&uate

to meet its short term obligations#

In3ento#y to Sa+e2 Rat&o o# In3ento#y Tu#no3e# Rat&o41


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*elationshi bet"een the sales and average stock ket by the comany is

normally reflected by the Inventory to Sales *atio "hich is also called as

Inventory Turnover *atio# This is also an indicator for the li&uidity of the

concern as it "ill reflect the rate at "hich inventories are being converted into

sales and subse&uently cash# A higher inventory to sales ratio "ill sho" higher

efficiency on the art of the management and vice versa#

%ollo"ing grah sho"s that Inventory Sales *atio varied from 9#46 in 744D to

8#55 in 7437# )n an average, the value of Inventory Sales *atio remained 9#4

for this eriod, the inventory management of the comany can be said to be

satisfactory from 744D to 7437

"e8to#2 to Sa+e2 Rat&o o# "e8to#2 Tu#no3e# Rat&o

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A comany adots a olicy for credit and collection and this is imortant to find

out ho" the debtors are erforming over the year# +ebtors to Sales *atio or

+ebtors Turnover *atio is the indicator of number of times the debtors are

turned over during the year# Since debtors constitute a ma!or element of current

assets, the credit and collection olicy of a concern must be under continuous

"atch# The li&uidity of a firm deends uon the &uality of debtors to a great

e(tent# +ebtors Turnover *atio measures the raidity or slo"ness of debtors‟

collectability# Generally, the higher the value of the debtors‟ turnover ratio, the

more efficient is the management of assets#

As has been seen in the follo"ing grah, initially debtors to sales ratio for

*anba(y in 744D "as 9#DD and in 7437 it goes to 7#95# This sho"s that the

debtors turnover ratio in the *anba(y is not a good sign from the li&uidity oint

of vie"#

Cu##ent A22et2 to Sa+e2 Rat&o

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/urrent Assets Turnover *atio or /urrent assets to sales ratio is alied to

measure the turnover and rofitability of the total current assets emloyed to

conduct the oerations of a firm# This is calculated by dividing the amount of

sales by the amount o f current assets# This "ill give an overall imression of

ho" raidly the total investment in current assets is bring turned# :o"er the

turnover of the current assets, the "orse is the utili'ation of current assets and

vice2versa#

This is to say that analysis of current assets to sales ratio over a eriod of time

"ill sho" the overall efficiency of the "orking caital management of the

comany#

%ollo"ing grah sho"s that the comany over the eriod of time has reduce its

efficiency as it is reflected by the figures that /urrent Assets to Sales *atio has

decline from 7#39 in 744D to 4#=6 in 7437# It sho"s that the decreased volume

of current assets in relation to sales "as ut in a commercially cautious manner#

CRE"IT ANALYSIS

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Besides establishing credit standard, a firm should develo rocedures for

evaluating credit alicants# The second asect of credit olicy of a firm is

credit analysis and investigation#

There are t"o stes involved in the credit investigation#

• )btaining /redit Information

• Analysis of /redit Information

O8ta&n&n% o' c#ed&t &n'o#,at&on

The first ste in credit analysis is obtaining credit information on "hich to the

base evaluation of a customer# The sources of information are>

Inte#na+ Sou#ce2> Usually comany re&uires their customers to fill various

forms and documents giving details about financial oerations# Some times

comany also asks for references# Another source of internal information is the

records of the firm contemlating an e(tension of credit#

E9te#na+ Sou#ce2> Some of the e(ternal sources of information are

• %inancial Statements

• Bank *eferences

• Trade *eferences

• /redit Bureau *eorts

Ana+y2&2 o' c#ed&t &n'o#,at&on

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)nce the credit information has been collected from different sources, it should

be analy'ed to determine the credit "orthiness of customer# The analysis should

cover t"o asects# Nuantitative Analysis The assessment of the &uantitative

asects is based on the factual information available from the financial

statements, ast records of the firm and so on#

%irst ste in this assessment is to reare an aging schedule to calculate

average age of accounts ayable# Another method is ratio analysis, i#e#

calculation of li&uidity, rofitability and debt caacity ratios, of the alicant#

These ratios "ill hel to find out financial strength of alicant#

Nualitative Analysis This tye of assessment is based on sub!ective !udgment# It

covers &uality of management, references from suliers, banks and other

reorts reared by secial credit bureaus# )n the basis of all these things

analysis "ill be dra"n under &ualitative analysis#

CRE"IT TERMS

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)ther imortant decision in receivables management is related to terms of

credit# The stiulations under "hich goods are sold on credit are referred as

credit terms# These are relates to the reayment of the amount under the credit

sale#/redit terms have three comonents>

• /redit -eriod

• /ash +iscount

• /ash +iscount -eriod

C#ed&t Pe#&od

It is the duration of time for "hich trade credit is e(tended P during this eriod

the overdue amount must be aid by the customer#

Ca2$ "&2count

This is the amount for "hich the customer can take advantage of by making

early ayment# Sometimes comany offer its customer a condition that if they

"ill ay amount early than the scheduled the time than they "ill get some

discount# This is called cash discount# /ash discount rovided by the comany

can affect the sales volume, average collection eriod and rofits of the

comany#

Ca2$ "&2count Pe#&od

It refers as duration during "hich the cash discount can be availed of# It is

directly related to sales generally# %or instance, if comany increases its cashdiscount eriod than its average collection eriod "ill also increase# .ith the

increase in average collection eriod sales level is also increases#

CRE"IT POLICIES

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/ollection olicies refer to the rocedures follo"ed to collect the account

receivables "hen, after the e(iry of the credit eriod they become due# It

includes t"o asects>

?i@ +egree of collection efforts and

?ii@ Tye of collection efforts#

"e%#ee o' Co++ect&on e''o#t2

It refers "hat degree of effortsK comany is using to collect its receivables# If

comany use strict efforts than bad debts costs "ill decline, and average

collection eriod "ill also reduce# But cost involved in this kind of strategy iscomaratively high# Also sales volume can be decline "ith this olicy# )n the

other hand, lenient efforts are !ust oosite to strict efforts# So comany has to

decide that method in "hich overall cost is lo" and revenue is high#

Ty*e o' co++ect&on e''o#t2

The methods available are

• Telehone calls for ersonal contacts

• :etters including reminders

• -ersonal 0isits

• 1el of /ollection agencies

• :egal Action

CRE"IT POLICY O) RANBAXY

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As "e kno" that a manufacturing comany is fre&uently deals "ith debtors and

most of its sales are credit sales# A huge amount of caital is blocked in to

receivables# Therefore to make an effective credit olicy is very imortant for

the comany# *anba(y is, like many other comanies, involves in both kinds of

sales i#e# domestic as "ell as e(orts# It have different credit olicies for both

domestic and e(ort customers#

)o# do,e2t&c cu2to,e#2> Most of the domestic sales of *anba(y are based on

advance ayment# Some art of contract money is received in advance and then

sale is made# *emaining amount is received later on# Generally, the credit

eriod allo"ed by *anba(y is u to 9; days but sometimes it "ent u to 54

days also ?only via rior aroval of management@# /omany also doesnt lan

for any bad debts losses, but if any bad debt haen than it has to be "ritten off

fully#

%or obtaining information related to the ne" alicants only internal sources are

used# As comany generally deals "ith blue chi comanies or old customers, it

is not a difficult !ob to obtain information about them# $o e(ternal source is

used by *anba(y#

And for the analysis art, comany use both &ualitative and &uantitative tools#

As er &ualitative tool, comany generally go for market reutation and ast

record of customer and for &uantitative tool, comany use the si'e of order,

financial osition of customer etc#

As far as collection efforts are concerned, comany generally uses lenient

efforts# But in some cases comany also go for strict methods# *anba(y

normally uses all tyes of collection efforts like letters including reminders,

telehone calls, ersonal visits < legal actions# But comany doesnt take hel

of collection agencies#

The collection cost is very nominal in domestic sales and difficult to determine#

.hereas caital cost is e&ual to the cost of "orking caital "hich is not

determined because of confidentiality#

)o# E9*o#t Sa+e2> %rom the sale data of *anba(y it "as found that around 55C

of sales are based on e(orts# Therefore it is very imortant area for lanning#49


50/67

E(orts are based on letter of credit# A foreign comany "ho "ant to urchase

the material from *anba(y sent an :/ first# Than on the basis of that :/, e(ort

order is made# /oy of that order is sent to cororate office and head office at

Gurgaon and $e" +elhi resectively## %rom the manufacturing lants, the

material is disatched as er the e(ort order and :/ is sent to bank for

collection# Banks collects the amount and transfers it to *anba(ys account# $o

other credit olicy is resent for e(ort sale of *anba(y#

/ollection cost is around 4#; P 3 C of e(ort order# /aital cost is here also

e&ual to the "orking caital cost#

CAPTER:=

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LIMITATIONS O) ST!"Y

• Availability of the financial data "as very limited "hich is not disclosed

due to sensitive nature for the comany#

• The year ended for *anba(y is +ecember, and that of +r *eddys is

March# So figures taken are ast 9 years but 8 months difference is there

in the corresonding figures#

• The main comonent of "orking caital is cost of caital, "hich is notdescribed in the ro!ect because of confidential nature#

• E(ternal environment influence "as not considered "hile doing the

theoretical standard rather than the industrial standard because of

unavailability of any such secific standard#

• :ack of availability of lant related data to finance deartment "hich

acted as a limitation for the ro!ect#

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)IN"INGS O) ST!"Y

• There is a huge investment in "orking caital at *anba(y :aboratories

:imited, as it has a large roduction cycles# The comany follo"s a

steady roduction olicy and hence there are no seasonal variations#

Aggressive olicy of more rofitability, more risk is follo"ed, "hich is

an ideal situation as far as the strategy for "orking caital financing is

concerned# *anba(y has a good earning recordK thus it en!oys great

confidence of the suliers, as it is looked uon favorably#

• As far as comonents of "orking caital are concerned, on the domestic

front, sales have increased as "ell as the finished goods inventory has

also increased#

• The increase in the current ratio of 7437 as comared to that of the

revious year indicates that the li&uidity osition of the comany is

imroving# The inventory turnover ratio of the comany is not very high#

It should try to achieve a &uicker movement of stock into sales# There is

an inverse relationshi bet"een sales and "orking caital at *anba(y

:aboratories :imited#

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WORKING CAPITAL T!RNO/ER RATIO

• In general higher the ratio, more efficient is the management# Since

*anba(y :aboratories :imited has a lo" "orking caital ratio, it should

look carefully into this area to ensure its effective utili'ation#

"EBTORS T!RNO/ER RATIO

• After analysis of the debtors turnover ratio, it "as found out that

*anba(y :aboratories :imited has a lo" debtors turnover ratio, "hich

may be a result of a liberal and inefficient credit and collection olicy#

This involves the risk of bad debts and the burden of high interests# Thisis another area that should be looked into#

IN/ENTORY T!RNO/ER RATIO

• After analysis of this ratio, "e can conclude that *anba(y :aboratories

:imited is holding an unfavorable &uantity of inventory# Since, the

inventory turnover ratio is not very high, "e can conclude that the

management of inventory is not very efficient because the stocks are notsold very fre&uently, as a result of "hich a large amount of money is

re&uired to finance the "orking caital re&uirement#

H!ICK RATIO

• *anba(y has a satisfactory li&uidity osition#

C!RRENT RATIO

• A current ratio of 7>3 is considered to be a satisfactory# If the current ratio

is 7 or more, it means that the comany is ade&uately li&uid and has the

ability to meet its current obligations# A lo"er current ratio indicates that

the comany may be trading beyond its caacity# *anba(y :aboratories

:imited has a satisfactorily high current ratio but at same time it may

mean that the comany has idle cash "hich "hen invested can yield

returns to the comany#

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RECOMMEN"ATIONS AN" S!GGESTIONS

Pe#ta&n&n% to Wo#5&n% Ca*&ta+ Mana%e,ent;

• Management of the comany "ould be interested in every asect of the

financial analysis# It is their overall resonsibility to see that the firms

resources are most effectively and efficiently utili'ed to ensure a sound

financial osition of the comany#

• The financial olicy of "orking caital management olicy of the

comany has to be revised# The firm follo"s an aggressive olicy as far

as "orking caital management is concerned# According to this olicy,

*isk and -rofitability should be increased and the li&uidity should be

reduced# Though the comany has increased risk and reduced li&uidity,

the rofitability has not increased# This is an area into "hich the

management needs to look# %uture forecasts of cash should also be made

effectively in order to meet une(ected re&uirements#

• As far as the inventory osition is concerned, the comany doesnt have a

sound osition# Better the &uality, lesser "ould be the "ork2in2rocess#

The re!ected stock has to go through further modifications until the

&uality deartment aroves it# This therefore remains as "ork2in2rocess

and increases the value of the "ork2in2rocess# Seeding u the &uality

checks can reduce the holding time of finished goods#

• Efforts should be made to kee the norms u to date# Thus a &uarterly

revie" is suggested# $orms should be as realistic as ossible as to give a

correct estimate of the inventory levels# The firm should make consistent

efforts to increase its earnings in order to move to"ards the ath of

gro"th#

• It is suggested that the firm should neither have too high nor too lo"

debtor turnover ratio#

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• There is an increase in the current ratio suggesting that there may be idle

funds "ith the comany# It is therefore recommended that the comany

should invest the e(cess cash in marketable securities# This "ould be

more rofitable than holding idle cash#

• It may also be mentioned that there is no rule of thumb or standard ratio#

The norms may be different deending uon the nature of the industry

and business condition#

• *anba(y should focus on maintaining its consistency or increasing it as

there is a decline in their )erating -rofit from last 8 years# It can be

done by increasing its sales and decreasing its oerating costs# If

comanys oerating rofit "ill increase, then it "ill hel in increasing itsoverall rofitability#

• /omanys return ratios also need a check# Turnover ratios are

decreasing but not u to that e(tent# +r# *eddys, its nearest cometitor

have better turnover ratios "hich mean that *anba(y has scoe to lo"er

do"n its assets to maintain the same level of sales or increase its sales on

the same level of assets#

• As it "as clear that comany have high li&uidity in its caital structure, it

means a close observation is re&uired for the benefits of share holders# It

should channeli'e its investments to"ards those areas "here returns

"ould be higher#

• The comany should try to reduce its inventory holding to lo"er do"n

the holding cost < increase its *a" Material Turnover# It can also hel in

lo"er do"n the oerating cycle#

• The comany should also try to reduce its Average collection eriod to It

can also hel in lo"er do"n the oerating cycle#

• /omany can make some imrovements in their credit olicy# /urrently

they take advance before delivering the consignment# They can increase

the credit eriod as "ell, currently it is 9; to 374 days deending uon

different arties and their credit"orthiness#

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• As far as the cash management is concerned, its difficult to suggest

anything because I believe that comanys cash lanning is very good#

All the time comany looks for ne" investment oortunities in the

market on a reasonable rate of return#

• The reduction in inventory holding eriod can be done by more outsource

manufacturing#

• As comanys international sales are high ?55C@ and comany should

focus the domestic markets as "ell, as demand for healthcare roducts is

increasing in Indian market# Also it is their social resonsibility to

rovide ma(imum benefits to its domestic customers#

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Pe#ta&n&n% to Wo#5 Cu+tu#e and Wo#5&n% Cond&t&on2;

• Besides imroving the "orking efficiency of the emloyees, it is

imortant that the morale of the emloyees at "ork should be ket uthrough the follo"ing methods>

They could be rovided "ith rigorous training eriodically so that

they can be "ell versed "ith the technology rather than confining

their kno"ledge to their domain only#

They could be rovided "ith regular incentives both monetary and

non2monetary so that they have a ositive attitude to"ards their "ork# )n the contrary, this negative attitude becomes a bottleneck

for the emloyees and the s"iftness of the system as a "hole#

Emloyees are re&uired to give outut rather than utting in time

at their "orklace# Measures should be adoted to measure their

erformance rather than measuring their "ork hours# They can be

given deadlines both for a "ork and the time# %or this, timingscould be made fle(ible#

It is the inter2deendency of the emloyees "hich makes their "orking rigid

and lo"ers their efficiency# This could be removed or at least minimi'ed by

regular training and imroving the "orking conditions for the staff#

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Pe#ta&n&n% to Tec$no+o%y;

The follo"ing changes need to be inculcated in the rovision of technology to

the emloyees> The machines rovided to the emloyees are not u to the mark# There is

no uniformity in the seed and comatibility of systems# The systems

should be regularly ugraded# This "ould have an imact on the "orking

efficiency of the emloyees#

The number of machines on the floor at accounts deartment needs to be

increased because the e(isting systems are not able to do the needful#

The SA- system is over2loaded due to e(haustive usage# This needs to

be corrected by taking the re&uired measures# It can be rectified by

changing or adding a server for suorting SA- in *anba(y#

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CONCL!SION

The study taught me the ractical imlementation of .orking /aital

techni&ues# The "orking caital management in *anba(y -harmaceutical -vt#:td# is done on very e(tensive scale# +ue to imlementation of ratio analysis, it

has become easy to do the "orking caital management# The recorder level

system "as also follo"ed earlier but due to busy schedule, they could not

revie" it so "e did this !ob for them#

+ecisions related to "orking caital are taken rimarily by e(ecutives in sales, urchase and finance deartments# Usually, ra" material olicies are shaed by

urchasing and roduction e(ecutives, "ork in rogress are influenced by the

decision of roduction e(ecutives, and finished goods inventory are evolved by

roduction and marketing e(ecutives#

In *anba(y -harmaceutical, "orking caital management is racticed on

regular basis# The manager and e(ecutives are "ell versed "ith "orking caital

management#

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CAPTER:@

BIBLIOGRAPY

Boo52 Re'e##ed;:

I M -andey, %inancial ManagementJ, $inth Edition, 0ikash -ublishing

1ouse -vt :td#

+r#S#$#Mahesh"ari, %inancial ManagementJ, Second Edition, Sultan

/hand < Sons#

*avi M# ishore, /ost AccountingJ,744D Edition, Ta(mann Allied

Servises -vt# :td

RE)ERENCES;:

• htt>FF"""#moneycontrol#comFfinancialsFranba(ylaboratoriesFbalance2sheetF*:

• htt>FF"""#ranba(y#comFabout2usFovervie"F

• htt>FF"""#moneycontrol#comFstocksFcomanyQinfoFrintQmain#h

• htt>FF"""#moneycontrol#comFfinancialsFdrreddyslaboratoriesFbalance2sheetF+*:

60

http://www.moneycontrol.com/financials/ranbaxylaboratories/balance-sheet/RLhttp://www.ranbaxy.com/about-us/overview/http://www.moneycontrol.com/stocks/company_info/print_main.phphttp://www.moneycontrol.com/financials/drreddyslaboratories/balance-sheet/DRLhttp://www.moneycontrol.com/financials/ranbaxylaboratories/balance-sheet/RLhttp://www.ranbaxy.com/about-us/overview/http://www.moneycontrol.com/stocks/company_info/print_main.phphttp://www.moneycontrol.com/financials/drreddyslaboratories/balance-sheet/DRL


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A**end&ce2

Ba+ance S$eet O' Ran8a9y

Standalone Balance Sheet ------------------- in Rs. Cr. -------------------

Dec '12 Dec '11 Dec '10 Dec '09 Dec '08

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 211.46 211.00 210.52 210.21 210.19

Equity Share Capital 211.46 211.00 210.52 210.21 210.19

Share Application oney 1.11 0.6! 6.60 1!5."5 1!5.66

#re$erence Share Capital 0.00 0.00 0.00 0.00 0.00

%eser&es 1'!09.51 1'!1(.16 4'915.2" ('!4".54 ('((0.92

%e&aluation %eser&es 0.00 0.00 0.00 0.00 0.00

Netorth 1!922.08 1!92".8# $!1#2."0 "!1#".%0 #!&1%.&&

Secure) *oans 944.1" 229.59 195.(9 1!5."( 162.0!

+nsecure) *oans ('"19.4( 4'10(.94 4'065.(( ('1!2.55 ('56(.(0otal De(t "!&%#.%1 "!###.$# "!2%0.&2 #!#"8.#8 #!&2$.#&

otal )ia(ilities %!%8$.%9 %!2$8.#% 9!#9#.12 &!"82.98 &!""2.1"

*++lication Of Funds

,ross -loc ('11".22 ('094.0! 2'"5!.6( 2'620.92 2'("6.!5

*ess/ Accum. epreciation 1'124.69 1'222.0! 1'145.52 1'02!.52 9(0.0!

Net Bloc, 1!99#.$# 1!8&2.00 1!&12.11 1!$9#."0 1!"$%.%8

Capital or in #roress 159.60 222.62 ((0.1" 414.92 42".!!

nest/ents #!1#1.1& #!"10.&9 #!80"."" #!8##.%9 #!%18.0#

3n&entories 1'!(1."4 1'655.2( 1'4"9.91 1'2(0.4" 1'19".52

Sun)ry etors 1'4(5."9 ('6"9.95 1'292.6( 1'5(4.65 1'024.54

Cash an) -an -alance 2'"(4.!! 66.90 22.44 25.56 49."6

Total Current Assets 6'002.50 5'412.0" 2'"04.9" 2'!90.69 2'2!2.92

*oans an) A)&ances 1'6"(.14 2'("2.!2 1'4!0.45 1'96!.65 2'(51.9"

ie) eposits 0.00 1'"!1.14 2'6"9."5 !2".56 1'""5.0"

Total CA' *oans 7 A)&ances !'6"5.64 9'665.94 6'965.2" 5'4"6.90 6'509.9"

61


62/67

e$$ere) Cre)it 0.00 0.00 0.00 0.00 0.00

Current *iailities ('22!.24 5'15!.6" 2'491.0" ('0"2."9 ('"40.11

#ro&isions ('05!.02 ('!55.(1 92!."2 !6(.0( !(1.20

Total C* 7 #ro&isions 6'2"4.26 "'912.99 ('41".90 ('"45.92 4'5!1.(1

Net Current *ssets 1!"01.#8 &$2.9$ #!$"%.#8 1!%"0.98 1!9#8.%&

iscellaneous Epenses 0.00 0.00 0.00 0.00 0.00

otal *ssets %!%8$.%8 %!2$8.#% 9!#9#.11 &!"82.99 &!""2.1$

Continent *iailities (41.45 29!.50 2!6.1( 261.05 252."5

-oo 8alue %s: 45.42 45.60 121.!4 94.16 "4.24

P#o'&t Lo22 Ac O' Ran8a9y

Standalone rofit )oss account ------------------- in Rs. Cr. -------------------

62


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12 mths 12 mths 12 mths 12 mths 12 mths

nco/e

Sales Turno&er 6'((1.46 !'!09.1! 5'6"!.(( 4'!9!.49 4'6!6.21

Ecise uty 2!.91 22.5" 40.96 15.90 24.1!

;et Sales 6'(0(.55 !'6"6.59 5'646.(! 4'!"1.59 4'652.04


64/67

Stoc A)>ustments 49.25 1(5.!2 161.4( ((.96 115.59

otal nco/e %!228. #!8#1.&" %!#&0.2$ $!#01.21 #!1&9.99

3+enditure

%a? aterials 2'45(.09 2'52(.0" 2'1"1.22 1'916.5" 2'049.(0

#o?er 7 uel Cost 2(0.91 194.9" 1(2.!5 109.5! 10"."(

Employee Cost 1'019.59 "45.24 60".2" 5"2.50 4!2.65


65/67

er share data 5annualised6

Shares in issue lahs: 4'229.14 4'220.00 4'210.41 4'204.1! 4'20(.!0

arnin4 er Share 5Rs6 -#.8" -&2.#2 2&.28 1#.%1 -2".8$

Equity i&i)en) @: 0.00 0.0( 40.00 0.00 0.00

-oo 8alue %s: 45.42 45.60 121.!4 94.16 "4.24

7e FinancialRatios


nest/ent aluation Ratios

ace 8alue 5.00 5.00 5.00 5.00 5.00

i&i)en) #er Share == 0.00 2.00 == ==


66/67

;et #ro$it arin@: =2.4! =(9.11 19.!4 11.!2 =22.02

A)>uste) ;et #ro$it arin@: =2.4! =(9.11 19.!4 11.!2 =22.02

%eturn


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Cash Flo ndicator Ratios

i&i)en) #ayout %atio ;et #ro$it == == ".54 == ==

i&i)en) #ayout %atio Cash #ro$it == == !.1( == ==

Earnin %etention %atio == == "6.64 100.00 ==

Cash Earnin %etention %atio 100.00 100.01 "9."1 100.00 100.00

A)>uste)Cash lo? Times 11.!6 (.2" 4.42 15.1( 4."(


Earnins #er Share =(."4 =!2.(2 2!.2" 1(.61 =24."5

-oo 8alue 45.42 45.60 121.!4 94.16 "4.24

working capital-brief study

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