Description
In the modern industrial world, the problem of efficient financial management has prime importance. The efficiency of an organization is measured in terms of certain parameters such as profit/ earnings, management of working capital and payments made to investors in the form of dividend etc., the giant structure of any Industry including IT sector industry can only be built on a sound financial base, which ultimately depends upon the availability of adequate finance in the form of working capital.
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
134
A STUDY ON MANAGEMENT OF WORKING CAPITAL
IN SELECTED IT COMPANIES IN INDIA
Bhavesh Chadamiya
1
and Dr. Vijay Pithadia
2
1
Research Scholar of Karpagam University &
Assistant Professor,
OM VVIM college of IT & Management, Morbi
Email: [email protected]
2
Assistant Professor, H. D. Gadi College, Morbi
Email: [email protected]
ABSTRACT
Working capital is the lifeblood and nerve centre of a business. Just a s
circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a
business. No business, no undertakings, no enterprise can brings a sound
solvency to the business. It also enables an undertaking in creating and
maintaining goodwill. It also enables a business undertaking to pay off its
current dues and also provides regular supply of raw materials. Adequate
working capital provides inherent strength to the business undertaking and
ability to face crisis. Working capital extremely essential for meeting the
daily requirements of an organization. No organization can thrive even for a
single day without adequate working capital. It is evident from the words of
Accounting standards boards guidance which states working capital as “
the funds available for conducting day to day operation of an enterprise.
There are many software industries in India, but due to the limitation of the
words only performance of two companies is possible to cover and these are
‘INFOSYS’ and ‘WIPRO’.
Keywords: Management of Working Capital, Financial Performance, Ratio
Analysis
INTRODUCTION
In the modern industrial world, the problem of efficient financial management has prime
importance. The efficiency of an organization is measured in terms of certain parameters
such as profit/ earnings, management of working capital and payments made to investors in
the form of dividend etc., the giant structure of any Industry including IT sector industry can
only be built on a sound financial base, which ultimately depends upon the availability of
adequate finance in the form of working capital. For bright success of any enterprise the
management of working capital and earnings is a significant function of finance manager
because it affects the price of shares in the stock market and return (i.e., dividends) to the
share holders.
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
135
The financial manager has to take rational decision from time to time keeping in view the
objective of his company. Always the decision must be based on the analytical tools.
Financial analysis is the most useful techniques in this regard. Financial analysis relies on the
comparisons or relationship of the data that enhance the utility of the practical value of the
accounting information. This analysis consists in applying various analytical tools and
techniques to the financial data.
Meaning
Working capital is defined as the exceeds of current assets over current liabilities, current
assets are those assets which will be converted into cash within the current accounting period
or within the next year a result of the ordinary operations of the business, they are cash or
near cash resources, these include, Cash and bank balances, Receivables, Inventory (Raw
material, stores and spares, Work in progress, Finished good and Prepaid expenses.
Definition
The following are some of the definitions on working capital.
1. According to Jules Bogen, Edward S. Mead, John C. Baker, D.W.Mallot,
A.S.Dewing, A.K.Sen, "Working capital means current assets"
2
2. According to E.A.Saliers, W.Maekensie, H.G.Guthaman, Hervert Dongall, Colin
Portk and John.W.Gladson, "Working capital refers to a firm's investment in short-
term assets cash, short-terms securities, accounts receivable and inventories, working
capital showed mean the total current assets minus current liabilities”
3
About The Software Industry
Despite the global economy growing up, the Indian software industry is maintaining a steady
pace of growth. Software development activity is not confined to a few cities is India.
Software development centers such as Bangalore, Hyderabad, Mumbai, Pune, Chennai,
Chandigarh, Calcutta, Delhi, vadodara, goa are all developing quickly,
Indian software industry is one of the fastest sector of the Indian economy employing about
4.50 lacks worker mostly from the highly skilled and educated segments, during the year
2005-06, the Indian software industry was worth about 159 billion Indian rupee and export
accounted for nearly 70% of this at 2.69 billion USD, in 2005-06 the Indian software
industry is expected to gross over 5.65 billion USD representing the growth of nearly 50%,
Software & services will contribute over 7.5 of the overall GDP growth of India,
It export will account for 35% of the total export from India,
Potential for 2.2 billion jobs in it by 2008,
Software industry will attract foreign direct investment of 4.5 billon,
Market capitalization of it share will be around U.S $ 225 billion
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
136
Performance of Indian Software Industry
Table 1. Year wise performance of Indian software sector
[In Million]
YEAR DOMESTIC EXPORT TOTAL
1996-97 320 430 750
1997-98 490 675 1165
1998-99 695 1020 1710
1999-00 1070 1535 2605
2000-01 1670 2520 4190
2001-02 2500 3900 6400
2002-03 3000 4000 7000
2003-04 3900 4700 8600
2004-05 5800 6000 11800
2005-06 7500 8600 16100
2006-07 8700 9100 17800
2007-08 9500 13500 23000
2008-09 12300 14500 26800
2009-10 17400 18400 35800
The Top Ten Software Company of India
The companies that dominate the software industry are those which look out for these
opportunities and provide instant solutions. The Indian software industry has arrived, and the
companies that are dominating this industry, based on their turnovers, are:
Table 2. The Top Ten Player
Rank Names Sales
(In Rs Mill)
1 TCS LIMITED 97,272
2 WIPRO LIMITED 82,330
3 INFOSYS TECHNOLOGIES LIMITED 71,297
4 SATYAM COMPUTER SERVICES LIMITED 35,209
5 I-FLEX SOLUTIONS LIMITED 11,386
6 TATA INFOTECH LIMITED 9,743
7 CMC LIMITED 8,074
8 MPHASIS BFL LIMITED 7,657
9 MASTEK LIMITED 5,670
10 NIIT LIMITED 3,984
OBJECTIVES OF THE STUDY
The broad objective of this study is to measure CASH management of selected units. Other
objectives of the study are mentioned as under.
To analyze the Working Capital Position of both company
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
137
To examine the liquidity position the both company by some important parameter of
cash and liquidity management such as
Current ratio
Liquid ratio
Cash ratio
Debtor ratio
METHODOLOGY OF THE STUDY
Source of the Data
A study of Indian industry has been made by using data from financial statement of two
companies in Indian software industry
INFOSYS
WIPRO
For detail information has been collected from different websites and magazines, the study
period of five years from 2001-02 to 2005-06
Techniques of Analysis
For the purpose of analysis of data various ratio relating to cash position and cash
management is calculate, moreover, the simple technique such as standard deviations,
average, and T test also applied to analyze the consistency, otherwise the stability and overall
trends in the different financial aspects of the company, in present study data has been
converted into relative measures such as ratios, percentage rather than the absolute data,
Analysis of Working Capital Position
NEXT, it is decided to make an attempt to study the working capital position of the both
companies. In order to highlight the relative strength of the companies in meeting their
current obligation to maintain sound working capital position to the difficulties if any in it,
using the following four ratio makes the analysis of the cash position,
Cash ratio
Current ratio
Liquid ratio
Debtors ratio
Cash Ratio
Cash ratio is the ratio of cash and marketable securities to current liabilities, when we
calculated quick ratio, we remove the inventory which was included in the current ratio.
Ratio = Cash + Marketable Securities
Current Liabilities
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
138
The higher the ratio, the higher liabilities. A low ratio may not matter if the enterprise has
ready access to banks to borrow.
Table 3. Cash Ratio selected unit under study
Infosys Ltd. Wipro Ltd.
Year Ratio Year Ratio
2005-06 7.04 2001-2002 0.54
2006-07 5.16 2002-2003 0.69
2007-08 3.27 2003-2004 0.36
2008-09 3.21 2004-2005 1.10
2009-10 5.11 2005-2006 1.47
Source: Compared from the annual report of the selected units
0
1
2
3
4
5
6
7
8
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Infosys Ltd.
Wipro Ltd.
Fig 1.
Table 4. Calculation of “t” test. Analysis of “t” test in selected unit under the study
Infosys Ltd. Wipro Ltd.
Year Ratio
?(X- X ) ?(X- X )
2
Year Ratio
?(X- X ) ?(X- X )
2
2006 7.09 2.282 5.208 2006 0.54 -0.29 0.084
2007 5.16 0.402 0.162 2007 0.69 -0.14 0.019
2008 3.27 -1.488 2.214 2008 0.36 -0.47 0.221
2009 3.21 -1.548 2.396 2009 1.10 0.27 0.073
2010 5.11 0.352 0.124 2010 1.47 0.64 0.409
? X
23.79 10.10
?Y
0.807
Calculated value of “t” is 5.337 while table value of T is 2.306, thus
TC>TT
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
139
0
1
2
3
4
5
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Infosys Ltd.
Wipro Ltd.
The calculated value of “t” is greater than the table value. The Null Hypothesis is rejected.
The results are not as per the exception.
Current Ratio
This ratio is an indication of the firm’s commitment to meet its short term commitment to
meet its short term liabilities; this ratio was 2:1
Current Ratio = Currents Assets
Current Liabilities
Table 5. Current ratio in selected units under study
Infosys Ltd. Wipro Ltd.
Year Ratio Year Ratio
2005-06 3.71 2005-06 3.82
2006-07 3.90 2006-07 3.57
2007-08 2.35 2007-08 2.33
2008-09 2.19 2008-09 2.17
2009-10 2.77 2009-10 2.40
Fig 2.
ABHINAV
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VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
140
Table 6. Calculation of “t” test. Analysis of “t” test in selected unit under the study
Infosys Ltd. Wipro Ltd.
Year Ratio
?(X- X ) ?(X- X )
2
Year Ratio
?(X- X ) ?(X- X )
2
2005-06 3.71 0.726 0.527 2005-06 3.82 0.962 0.925
2006-07 3.90 0.916 0.839 2006-07 3.57 0.712 0.507
2007-08 2.35 -0.634 0.402 2007-08 2.33 -0.528 0.279
2008-09 2.19 -0.794 0.630 2008-09 2.17 -0.688 0.473
2009-10 2.77 -0.214 0.046 2009-10 2.40 -0.458 0.210
? X
14.92 2.444
?Y
14.29 2.394
The calculated value of T is 0.257 while table value of T is 2.306
TC
In the modern industrial world, the problem of efficient financial management has prime importance. The efficiency of an organization is measured in terms of certain parameters such as profit/ earnings, management of working capital and payments made to investors in the form of dividend etc., the giant structure of any Industry including IT sector industry can only be built on a sound financial base, which ultimately depends upon the availability of adequate finance in the form of working capital.
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
134
A STUDY ON MANAGEMENT OF WORKING CAPITAL
IN SELECTED IT COMPANIES IN INDIA
Bhavesh Chadamiya
1
and Dr. Vijay Pithadia
2
1
Research Scholar of Karpagam University &
Assistant Professor,
OM VVIM college of IT & Management, Morbi
Email: [email protected]
2
Assistant Professor, H. D. Gadi College, Morbi
Email: [email protected]
ABSTRACT
Working capital is the lifeblood and nerve centre of a business. Just a s
circulation of blood is essential in the human body for maintaining life,
working capital is very essential to maintain the smooth running of a
business. No business, no undertakings, no enterprise can brings a sound
solvency to the business. It also enables an undertaking in creating and
maintaining goodwill. It also enables a business undertaking to pay off its
current dues and also provides regular supply of raw materials. Adequate
working capital provides inherent strength to the business undertaking and
ability to face crisis. Working capital extremely essential for meeting the
daily requirements of an organization. No organization can thrive even for a
single day without adequate working capital. It is evident from the words of
Accounting standards boards guidance which states working capital as “
the funds available for conducting day to day operation of an enterprise.
There are many software industries in India, but due to the limitation of the
words only performance of two companies is possible to cover and these are
‘INFOSYS’ and ‘WIPRO’.
Keywords: Management of Working Capital, Financial Performance, Ratio
Analysis
INTRODUCTION
In the modern industrial world, the problem of efficient financial management has prime
importance. The efficiency of an organization is measured in terms of certain parameters
such as profit/ earnings, management of working capital and payments made to investors in
the form of dividend etc., the giant structure of any Industry including IT sector industry can
only be built on a sound financial base, which ultimately depends upon the availability of
adequate finance in the form of working capital. For bright success of any enterprise the
management of working capital and earnings is a significant function of finance manager
because it affects the price of shares in the stock market and return (i.e., dividends) to the
share holders.
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
135
The financial manager has to take rational decision from time to time keeping in view the
objective of his company. Always the decision must be based on the analytical tools.
Financial analysis is the most useful techniques in this regard. Financial analysis relies on the
comparisons or relationship of the data that enhance the utility of the practical value of the
accounting information. This analysis consists in applying various analytical tools and
techniques to the financial data.
Meaning
Working capital is defined as the exceeds of current assets over current liabilities, current
assets are those assets which will be converted into cash within the current accounting period
or within the next year a result of the ordinary operations of the business, they are cash or
near cash resources, these include, Cash and bank balances, Receivables, Inventory (Raw
material, stores and spares, Work in progress, Finished good and Prepaid expenses.
Definition
The following are some of the definitions on working capital.
1. According to Jules Bogen, Edward S. Mead, John C. Baker, D.W.Mallot,
A.S.Dewing, A.K.Sen, "Working capital means current assets"
2
2. According to E.A.Saliers, W.Maekensie, H.G.Guthaman, Hervert Dongall, Colin
Portk and John.W.Gladson, "Working capital refers to a firm's investment in short-
term assets cash, short-terms securities, accounts receivable and inventories, working
capital showed mean the total current assets minus current liabilities”
3
About The Software Industry
Despite the global economy growing up, the Indian software industry is maintaining a steady
pace of growth. Software development activity is not confined to a few cities is India.
Software development centers such as Bangalore, Hyderabad, Mumbai, Pune, Chennai,
Chandigarh, Calcutta, Delhi, vadodara, goa are all developing quickly,
Indian software industry is one of the fastest sector of the Indian economy employing about
4.50 lacks worker mostly from the highly skilled and educated segments, during the year
2005-06, the Indian software industry was worth about 159 billion Indian rupee and export
accounted for nearly 70% of this at 2.69 billion USD, in 2005-06 the Indian software
industry is expected to gross over 5.65 billion USD representing the growth of nearly 50%,
Software & services will contribute over 7.5 of the overall GDP growth of India,
It export will account for 35% of the total export from India,
Potential for 2.2 billion jobs in it by 2008,
Software industry will attract foreign direct investment of 4.5 billon,
Market capitalization of it share will be around U.S $ 225 billion
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
136
Performance of Indian Software Industry
Table 1. Year wise performance of Indian software sector
[In Million]
YEAR DOMESTIC EXPORT TOTAL
1996-97 320 430 750
1997-98 490 675 1165
1998-99 695 1020 1710
1999-00 1070 1535 2605
2000-01 1670 2520 4190
2001-02 2500 3900 6400
2002-03 3000 4000 7000
2003-04 3900 4700 8600
2004-05 5800 6000 11800
2005-06 7500 8600 16100
2006-07 8700 9100 17800
2007-08 9500 13500 23000
2008-09 12300 14500 26800
2009-10 17400 18400 35800
The Top Ten Software Company of India
The companies that dominate the software industry are those which look out for these
opportunities and provide instant solutions. The Indian software industry has arrived, and the
companies that are dominating this industry, based on their turnovers, are:
Table 2. The Top Ten Player
Rank Names Sales
(In Rs Mill)
1 TCS LIMITED 97,272
2 WIPRO LIMITED 82,330
3 INFOSYS TECHNOLOGIES LIMITED 71,297
4 SATYAM COMPUTER SERVICES LIMITED 35,209
5 I-FLEX SOLUTIONS LIMITED 11,386
6 TATA INFOTECH LIMITED 9,743
7 CMC LIMITED 8,074
8 MPHASIS BFL LIMITED 7,657
9 MASTEK LIMITED 5,670
10 NIIT LIMITED 3,984
OBJECTIVES OF THE STUDY
The broad objective of this study is to measure CASH management of selected units. Other
objectives of the study are mentioned as under.
To analyze the Working Capital Position of both company
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
137
To examine the liquidity position the both company by some important parameter of
cash and liquidity management such as
Current ratio
Liquid ratio
Cash ratio
Debtor ratio
METHODOLOGY OF THE STUDY
Source of the Data
A study of Indian industry has been made by using data from financial statement of two
companies in Indian software industry
INFOSYS
WIPRO
For detail information has been collected from different websites and magazines, the study
period of five years from 2001-02 to 2005-06
Techniques of Analysis
For the purpose of analysis of data various ratio relating to cash position and cash
management is calculate, moreover, the simple technique such as standard deviations,
average, and T test also applied to analyze the consistency, otherwise the stability and overall
trends in the different financial aspects of the company, in present study data has been
converted into relative measures such as ratios, percentage rather than the absolute data,
Analysis of Working Capital Position
NEXT, it is decided to make an attempt to study the working capital position of the both
companies. In order to highlight the relative strength of the companies in meeting their
current obligation to maintain sound working capital position to the difficulties if any in it,
using the following four ratio makes the analysis of the cash position,
Cash ratio
Current ratio
Liquid ratio
Debtors ratio
Cash Ratio
Cash ratio is the ratio of cash and marketable securities to current liabilities, when we
calculated quick ratio, we remove the inventory which was included in the current ratio.
Ratio = Cash + Marketable Securities
Current Liabilities
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
138
The higher the ratio, the higher liabilities. A low ratio may not matter if the enterprise has
ready access to banks to borrow.
Table 3. Cash Ratio selected unit under study
Infosys Ltd. Wipro Ltd.
Year Ratio Year Ratio
2005-06 7.04 2001-2002 0.54
2006-07 5.16 2002-2003 0.69
2007-08 3.27 2003-2004 0.36
2008-09 3.21 2004-2005 1.10
2009-10 5.11 2005-2006 1.47
Source: Compared from the annual report of the selected units
0
1
2
3
4
5
6
7
8
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Infosys Ltd.
Wipro Ltd.
Fig 1.
Table 4. Calculation of “t” test. Analysis of “t” test in selected unit under the study
Infosys Ltd. Wipro Ltd.
Year Ratio
?(X- X ) ?(X- X )
2
Year Ratio
?(X- X ) ?(X- X )
2
2006 7.09 2.282 5.208 2006 0.54 -0.29 0.084
2007 5.16 0.402 0.162 2007 0.69 -0.14 0.019
2008 3.27 -1.488 2.214 2008 0.36 -0.47 0.221
2009 3.21 -1.548 2.396 2009 1.10 0.27 0.073
2010 5.11 0.352 0.124 2010 1.47 0.64 0.409
? X
23.79 10.10
?Y
0.807
Calculated value of “t” is 5.337 while table value of T is 2.306, thus
TC>TT
ABHINAV
NATIONAL MONTHLY REFEREED JOURNAL OF REASEARCH IN COMMERCE & MANAGEMENT
www.abhinavjournal.com
VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
139
0
1
2
3
4
5
2001-2002 2002-2003 2003-2004 2004-2005 2005-2006
Infosys Ltd.
Wipro Ltd.
The calculated value of “t” is greater than the table value. The Null Hypothesis is rejected.
The results are not as per the exception.
Current Ratio
This ratio is an indication of the firm’s commitment to meet its short term commitment to
meet its short term liabilities; this ratio was 2:1
Current Ratio = Currents Assets
Current Liabilities
Table 5. Current ratio in selected units under study
Infosys Ltd. Wipro Ltd.
Year Ratio Year Ratio
2005-06 3.71 2005-06 3.82
2006-07 3.90 2006-07 3.57
2007-08 2.35 2007-08 2.33
2008-09 2.19 2008-09 2.17
2009-10 2.77 2009-10 2.40
Fig 2.
ABHINAV
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VOLUME NO.1, ISSUE NO.9 ISSN 2277-1166
140
Table 6. Calculation of “t” test. Analysis of “t” test in selected unit under the study
Infosys Ltd. Wipro Ltd.
Year Ratio
?(X- X ) ?(X- X )
2
Year Ratio
?(X- X ) ?(X- X )
2
2005-06 3.71 0.726 0.527 2005-06 3.82 0.962 0.925
2006-07 3.90 0.916 0.839 2006-07 3.57 0.712 0.507
2007-08 2.35 -0.634 0.402 2007-08 2.33 -0.528 0.279
2008-09 2.19 -0.794 0.630 2008-09 2.17 -0.688 0.473
2009-10 2.77 -0.214 0.046 2009-10 2.40 -0.458 0.210
? X
14.92 2.444
?Y
14.29 2.394
The calculated value of T is 0.257 while table value of T is 2.306
TC