Description
Financial statement analysis (or financial analysis) the process of understanding the risk and profitability of a firm (business, sub-business or project) through analysis of reported financial information, by using different accounting tools and techniques.
Origin of Working Capital
The total capital employed in a business organization can be categorized as fixed capital and working capital. The fixed capital that part of the funds, which is invested in, current assets.
The investment in fixed assets is represented by land and buildings (for factory, office go down and stores), equipment such as machinery, furniture and fixtures, intangible assets in the form of patents and goodwill etc. to employ these fixed assets gainfully current assets are required. Current assets consists of raw
materials, working progress, finished goods, stores and spares accounts, receivables, cash in hand and at bank and marketable securities.
Balanced working capital position: The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm’s point of view. Excessive working capital means idle funds, which earn no profits for the firm. Paucity of working capital not only impairs the firm’s profitability but also results in production interruptions and inefficiencies.
WORKING CAPITAL MANGEMENT
Working capital management forms the inching of every business. As Gilberth Harold puts the problems. Unfortunately, there is so much disagreement among financiers, accountants, business men and economists as to the exact meaning of the term Working Capital. Definition of Working Capital: Working Capital or Circulating Capital indicates circular flow of funds in the routine activities of business. Working Capital can be defined as “ Any acquisition of funds which increases the current assets, increases working capital also, for they are one and the same” -Bonnevile. The current assets are cash, marketable securities, accounts receivable and inventory. The current liabilities are those liabilities which are intended at their inception to be paid in the ordinary course of business such as bills payable, bank overdraft and outstanding expenses. The goal of working capital management to manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy.
IMPORTANTCE OF WORKING CAPITAL The source of any enterprise depends on the proper management of working capital aims at protecting the purchasing power of assets and maximizing the return on investments, sales expansion, dividend declaration, plant expansion, increased salaries and wages, rising price level etc., but added strain on working capital maintenance.
CONCEPTS OF WORKING CAPITAL There are two concepts of Working Capital
1 Gross Working Capital 2 Net Working Capital Gross Working Capital: It refers to the company’s investments in Current assets. Current Assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, debtors, bills receivables and stock. Net Working Capital It refers to the difference between current assets and current liabilities. Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year and include creditors, bills payable, and outstanding expenses. Networking Capital can be positive or negative. A positive net working capital will arise when current liabilities are in excess of current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. The two concepts of working capital – gross and networking capital are not exclusive, rather they have equal significance from management view point, the gross working capital concept focuses attention on two aspects of current assets management. 1 Optimum investment current assets and 2 Financing of current assets. Net working capital being the difference between current assets and current liabilities . It is a qualitative concept. It aims at 1 The firms liquidity position and 2 Financing of current assets 3 Suggests the extent to which working capital needs may be financed by permanent sources of funds. The consideration of the level of investment in current assets should avoid two danger points. Current assets have excessive and inadequate investments. Investment in current assets should be just adequate, not more not less to the needs of the business firm. Excessive investment in current
assets should be avoided because it impairs the firm’s profitability an ideal investments nothing. On the other hand inadequate amount of working capital can threaten solvency of the firm because of its inability to meet its current obligations. CHARACTERISTICS OF CURRENT ASSETS In the management of working capital two characteristics of current assets must borne in mind. 1 Short-term span 2 Swiftly transformation into other assets form Current assets have a short life span. Accounts receivable may have a life span of 30 to 60 days, inventories may be held for 30 days to 100 days and cash may be held idle for week or two. Each current asset is swiftly transformed into other assets form. Cash is used for acquiring raw materials. Raw materials are untransformed into finished goods (this transformation may involve several stages of work in progress), finished goods, generally sold on credit, are converted into accounts receivable and finally, accounts receivables, on realization generates cash.
The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and therefore, the need for current assets is felt constantly. But the magnitude of current assets needed in not always the same, it increases and decreases over time. However, there is always a minimum level of current assets which time is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital will fluctuate. The extra working capital needed to support the changing production and sales activities is
called fluctuating or variable or temporary working capital.
DETERMINANTS OF WORKING CAPITAL There are no set rules to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors, which generally influence the working capital requirements of firms.
NATURE AND SIZE OF BUSINESS: The size of business also has an important impact on its working capital needs. Size may be measured in terms of the scale of operations. A firm with large scale of operations will need working capital than small term. The working capital requirements of a firm are basically influenced by the nature of business trading and financial firm has a very less investment infixed assets, but require a large sum of money to be invested in working capital.
TECHNOLOGY AND MANUFACTURING POLICY The manufacturing cycle starts with the purchase and use of raw materials and completes with the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. An extended manufacturing time span means a larger tie-up of funds in inventories. Thus if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chooses.
FIRMS CREDIT POLICY The credit policy of the firm affects the working capital by influencing the level of debtors. The credit term to be granted to customers may depend upon the forms of the industry to which the firm belongs.
AVAILABILITY OF CREDIT Creditors also affect the working capital requirements of a firm. A firm will need less working capital if liberal credit terms are available to it. OPERATING EFFICIENCY The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient to controlling operating costs and utilizing current assets. The use of working capital is improved and pace of a cash conversion cycle is accelerated with operating efficiency. BUSINESS FLUCTUATIONS Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. This business variation effects the working capital requirements especially the temporary working capital requirement of the firm. When these is an upward swing in the economy, sales will increase and vice-versa. PRODUCTION POLICY A steady production policy will cause inventories to accumulate during the off-season periods and the firm will be exposed to greater inventory cost and risk. Thus, if the cost and risks of maintaining a constant production schedules are high, the firm may adopt the policy of varying its production schedules in accordance with the change in demand.
GROWTH AND EXPANSION ACTIVITIES The working capital needs of firm increases it growth in terms of sales of fixed assets. If is difficult to precisely determine the relationship between volume of sales and the working capital needs. The critical fact however is that the need for increased working capital funds does not follow growth in business activities but precedes it.
PROFIT MARGIN AND PROFIT APPROPRIATION Firms differ in their capacity to generate profit from business operations. Some firms enjoy a dominant position, due to quality product or good marketing management or monopoly power in the market and earn a high profit margin. Some other firms may have to operate in an environment of intense competition and may earn low margin of profits. A high net profit margin contributes towards the working capital pool. In fact the net profit is a source of working capital to the extent it has earned in cash.
DIMIENSIONS OF WORKING CAPITAL MANAGEMENT Working Capital Management refers to the administration of all aspects of current assets namely cash, marketable securities, debtors and are many aspects of working capital management, which makes it an important function of the financial manager. Empirical observations show that the financial managers have to spend much of their time to the daily internal operations, relating to the current assets and current liabilities of the firms. Investments in current assets represents a very significant portion of the total investment in assets. It is particularly very important for small firms to manage their current liabilities in financing current assets is far significant incase of small firms, as unlike large firms, the difficulties in raising long terms finances. There is a direct relationship between sale and working capital needs. As sales grow, the firm needs to invest more in inventories and book debts. These needs become very frequent and fast when sales grow continuously. It may thus be concluded that all precautions should be taken for the effective and efficient management of working capital. To decide the levels and financing of current assets, the risk return implications must be evaluated.
FINANCING CURRENT ASSETS The firm must find out the sources of funds to finance its current assets. It can adopt different
financing policies. Three types of financing be distinguished as follows. 1 Long term financing 2 Short term financing 3 Spontaneous financing The important sources of long-term financing are shares, debentures, preference shares, retained earnings and debt from financial institutions. Short term financing refers to those sources of short credit that the firm must arranged in advance. These sources include short term bank loans, commercial papers and factoring receivable. Spontaneous financing refers to the automatic sources of short term funds. The major sources of such financing are trade credit ( creditors and bill payable)and outstanding expenses. Spontaneous sources of finance are cost free. TECHNIQUES FOR THE MANAGEMENT OF WORKING CAPITAL: In this section a few important techniques of working capital are presented. All techniques of working capital management can be divided into two parts. Techniques relevant for the management of working capital as a whole and the techniques relevant for the management of each component of working capital cash account receivable and inventory.
Techniques relevant for the management of working capital One of the very important issues in the management of working capital is to decide how much to invest in current assets. The investment in current assets is generally influenced by sales volume. Therefore before firm is able to decide about he quantum of working capital. It should be forecast its feature sales volume accurately or near accurately. This is equal true about the components of working capital as well. TIME SERIES MODELS: The time series models are based on the assumptions that the past trend will continue
repeating in the future. In the construction of tikes series, models, historical recordings of the factors to be forecasted is taken into the account and their pattern and the relationship over the time is established on the basis of the pattern so established future forecast is made.
ECONOMETRIC MODELS The models here are the equations consisting of dependent and independent variable. These equations attempt to establish the nature of relationship between variables enabling the analysts to study the value of the dependent variable on the basis of the value of the independent variable. These models are sophisticated, very useful techniques. WORKING CAPITAL FORECASTING TECHNIQUES Having determined the sales accurately, steps can to taken to forecast working capital and the various components of it. Working capital requirements can be, determined into two. 1 Percentage Sales method. 2 Operational Cycle method.
NEED FOR WORKING CAPITAL The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm, which does not require any amount of working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavor to do so, a firm should earn sufficient return from its operations. The firm has to invest enough funds in current assets of generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. OPERATING CYCLE: There is a difference between current assets and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment in fixed assets such as plant and machinery or land and buildings. Investment in current assets such as inventories and debtors is realized during the firms operating cycle which is usually less than a year. Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories into cash. The operating cycle of a manufacturing company involves three phases acquisition of resources such as raw material, labour, power and fuel etc., manufacture of product which included conversion of raw material into work-in-progress into finished goods, sale of the produce either for cash or on credit create accounts receivable for collection. Stocks of raw material and work-in-process are kept to ensure smooth production and to guard against non-availability of raw material and other components. The firm holds stock of finished goods to meet the demands of customers on continuous basis and sudden demand from some customers. Debtors are created because goods are sold on credit for marketing and competitive reasons. Thus, a firm makes adequate investment in inventories and debtors, for smooth, uninterrupted production and sale.
Fig:
The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle. The difference between operating cycle and payables deferral period is net operating cycle. Net operating cycle is also referred to as cash conversion cycle.
Statement of the Problem In order to maintain flows operations every firm needs certain amount of current assets. For example cash is required to pay for expenses or to meet obligations for services received or goods purchased etc;, by a firm. On the
identical plane inventories are required to provide the link between production and sale. Similarly accounts receivable generate when goods are sold on credit. Needless to mention cash, bank, debtors, bills receivables closing stock (including raw materials, work in process, finished goods), prepayments and certain other deposits and investments which are temporary in nature present current assets of a firm. Economists like Mead, Mallet, Backer and Field are of the opinion that the whole of these current assets forms the working capital of a firm. And this
concept of working capital of a firm is frequently termed as gross working capital, in the area of financial management. Excessive working capital is bad and causes following: 1. It results in unnecessary accumulation of inventories. Thus, chances of
inventories mishandling, wastage, theft and losses increase. 2. it is an indication of defective credit policy and slag credit collection period. Consequently higher incidence of bad debts results, which
adversely affects profits. 3. It makes management complacent, which generates into managerial inefficiency. 4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make divided policy liberal and difficult to cope with future when firm is unable to make speculative profits.
Inadequate working capital is also bad and causes following:
1. It stagnates growth.
It becomes difficult for the firm to undertake
profitable projects due to inadequacy of funds. 2. It becomes difficult to implement operating plans and achieve firms profit target. 3. Operating inefficiencies creep in and it becomes difficult even to meet dayto-day commitments. 4. Fixed assets are not efficiently utilized for the lack of working capital
funds. Thus the firms profit would deteriorate. 5. Paucity of working capital funds render the firm unable to avail attractive credit opportunities. 6. The firm losses it reputations when it is not in a position to honor its shortterm obligations. As a result, the firm faces tight credit terms.
An enlightened management should therefore maintain the right amount of working capital on an continue basis, only then a proper functioning of operations will be ensured. OPTIMUM WORKING CAPITAL Determining the optimal level of current assets involve a trade-off between costs that rise with current assets and costs that fall with current
assets. The former are referred to as carrying cost and lather as shortage costs carrying costs are mainly in the nature of the cost of financing a higher level of current cost are mainly in the nature of the cost of financing a higher level of current assets. Shortage of cost is mainly in the form of disruption in production schedule, loss of sales, and loss of customer goodwill. Therefore, the optimal levels of current assets are described as the total costs (The sum of carrying cost and shortage costs) are minimized at that level. It has been explained in the following diagram.
Objectives of the Study The present Study in Amara Raja Power Systems limited is undertaken to evaluate the working capital strategy in the organization by establishing the following objectives.
1) To identify the amount of Gross and Networking Capital of Amara Raja Power Systems Limited over the study period.
2) To study the changes in Net Working Capital during the study period.
3) To design the Operating Cycle and to find the duration for each cycle.
4) To understand the impact on Liquidity management on the Shareholders
Profitability.
5) To give viable suggestions based on the findings to improve the Liquidity progress of Amara Raja Power Systems Ltd. in Amara Raja Batteries.
To various objectives are interrelated and it is clear that the analysis and interpretation of these objectives are helpful to different users for different purposes.
Methodology of Research Research design In view of the objectives of the study listed above an exploratory research design has been adopted. Exploratory research is one which is largely interprets and already available information and it lays particular emphasis on analysis and interpretation of the existing and available information it makes use of secondary data and lays particular emphasis and interpretation of the existing and available information.
Sources of data The study is based on secondary data, discussions with personnel concerned. The secondary data consists the annual reports of Amara Raja Power Systems Limited ranging for the last six years. Various other reports like company’s magazines, published books and web sites.
Tools of Analysis To analyze the data acquired from the secondary sources the following tools are used: • • • • Working capital Funds flow statement Ratio analysis Operating cycle method
Scope and period of the Study: The scope of the study is defined below in terms of concepts adopted and period under focus: First the study management or working capital is confined only to the Amara Raja Power Systems Limited. Secondly, the binary concepts of working capital i.e. Gross and Net are used in measuring profitability and liquidity respectively and also to arrive at various objectives of the study. Thirdly, the study is based on the annual reports of the company for a period of six years form 1999-2005. The reason for restricting the study of this period is due to time constraint. Thus on the whole the purpose of the project is to analyze the past and present performance of company on various financial areas like
1. Working Capital Management 2. Inventory Management 3. Receivables Management
Since the past performance will be the essential yard stick or data for predicting.
LIMITATIONS
Limitations of the Study
1. The information provided in the company balance sheet is only the data source available. 2. Some required secondary data which is not provided by company. 3. The information available in the balance sheets have taken from the published annual report, so it has only limitations. 4. Since financial matters are sensitive in nature the same could not be acquired easily. 5. There is only two months period to finish the project, due to lack of time in depth of financial matters have not been touched.
INDUSTRY PROFILE
The power electronics is the application of electronic circuit to energy conversion i.e., it encompasses the use of electronic components, the application of circuit theory and design techniques and the developments of analytical tools toward efficiency electronic conversion, control and conditioning of electronic power. The power electronics market comprises of uninterrupted power supplies (UPS), AC/DC power supplies, battery chargers and invertors. In 2003, the total world wide power electronics market was $6351 millions, which is expected to grow at a compound annual growth rate of 6.1% to reach $7203 million by 2006. power electronics is used in computers, automobiles military, medical applications, telecommunications systems and satellites, motors, lighting and alternative energy (like solar and wind).
The major manufacturers in the power electronics industry (India) are :
1 Exide industries. 2 Hyderabad batteries limited. 3 Amararaja power systems private limited
4 Tudor Indian limited 5 Standard batteries.
COMPANY PROFILE: Amara Raja Power Systems is a member company in Amara Raja Group of companies, which has become a leading business group in India forgoing ahead with its innovative and collaborative technology and emphasis on human resource development. AMARA RAJA GROUP AND ITS ENTERPRENEUR: “Sri Galla Ramachandra Naidu” who is an electrical engineering with an experience promoted Amara Raja Group. Amararaja Group of companies: 1 Amara Raja Batteries Limited (ARBL), Karakambadi,Tirupati. 2 Amara Raja Power Systems Pvt Ltd.(ARPSPL), karakambadi, Tirupati. 3 Harsh Electronics Pvt.Ltd(HEPL), karakambadi, Tirupati. 4 Mang Precision Products Pvt Ltd., (MPPPL) Petamitta, Chittor. 5 Amara Raja Electronics Pvt.Ltd.,(APREPL), Dighavamgham, Chittoor.
AMARA RAJA BATTERIES LIMITED- THE FLAGSHIP COMPANY: Amara Raja Batteries Private Limited (ARBL) Company is incorporated under the company’s act, 1956 in 13th February 1985, and converted into public limited company on 6 th September 1990. ARBL is the first company in India to manufacture VRLA ( value regulated lead acid) Batteries. The main objective of the company is manufacturing of good quality of SEALED MAINTENANCE
FREE acid batteries (SMF).
Innovation by Collaboration: Amara Raja Batteries limited is in collaboration with Johnson controls Inc. This is tie up between Amara Raja , the largest manufacturer of VRLA in Indian ocean Rim, and Johnson Controls is also a leading global manufacturer of automotive batteries. Both have have pioneered innovative batteries in several crucial sectors. Through this tie-up it is now possible for offering power solutions in the automotive sector as well as the industrial sector from one source.
Quality Products: Amara Raja has always offered time tested world class Technology and process developed on international standards. High integrity VRLA systems like Power Stack and Power Plus and the recently launched high performance UPS battery- KOMBAT and AMARON hi-life automotives battery AMARON exemplify this. They are products of the collaborative battery efforts of engineering at Johnson Controls Inc. and Amara raja.
New Sensation: With AMARON launched in January 2000,Amara Raja has pioneered the introduction of hi_cube automotive batteries in India. This zero maintenance product uses the revolutionary patented Silver X technology developed by Johnson controls for high environments and incorporates many superior features that make it the most advantage battery on roads any where in the world. 1.3.3 Marketing Focus: The company has clear-cut policy of direct selling with out any intermediate. So they have setup six branches, operated by corporate operations office located in chennai. The company has virtual monopoly in higher A.H. (Amp Hour) rating market for its product VRLA. It is also having
the facility for industrial and automotive batteries.
1.3.4 Expansion: The company is setting up to Rs. 1920 lacks plant in 18 acres in Karakambadi village, Renigunta Mandal. The project site is a notified under “B” category. Amara Raja’s Core Value: 1 Work with integrity. 2 Customers satisfaction. 3 Effective employee selection, employee development, motivation and recognition. 4 Safety and environment. Amara Raja Core Purpose: To transform the spheres of influence and to enrich the quality of life by building institutions that provides better access to better opportunities, goods and services to more people all the time. Amara Raja’s Strengths: 1 Proven technology from Gould National Battery Co.Ltd(GNB) and being a pioneer. 2 Strong and well organized customer base. 3 Full- organized infrastructure in place. 4 Manufacturing facilities perceived as benchmark in India. 5 Complete range of VRLA batteries. 6 Proven field performance in all user segments. 7 Approved vendor status in major user segments.
AMARA RAJA POWER SYSTEMS: Amara Raja Power systems Pvt.Ltd.,(ARPSL) was incorporated in the year 1984 and was copromoted by Andhra Pradesh electronic development corporation (APEDC) with a vision to provide “Complete and integrated DC solutions” to customer requirement. The company is situated in 200acre Amara Raja Complex, Renigunta, and 7 kilo meters from Tirupati, India with a manufacturing facility with a capital outlay of Rs.71 crores, machinery and testing with Rs.53 crores. Growth: Amara Raja Power Systems began its operations with first commercial production of uninterrupted power supply systems in 1987 in technical collaboration with M/s. HDR Power Systems Inc., USA. In the 1989 Thyristor based battery charger were added to the product line and ever since, it is the leading manufacturer of custom build battery charger in India catering all the types of applications and services. Designs and products of ARPSL are tested and well accepted by leading consultants Viz. Mecon, EIL, PGCIL, TCE etc. To cater to a wide range of applications and customer needs, Amara Raja has developed custom built investers in 1990 for Indian Railways used in the AC coaches. Also they are regular suppliers of chargers as per research design and standard organization (RDSO) specifications for Traction and signal & telecommunications for Indian Railways. With change in technology and opening up of telecom sector, they are quick to adapt to the fast changing scenario. As a result in 1999, Amara Raja has started manufacturing switch mode rectifiers (SMR) in technical collaboration with M/s. Rectifier technologies, Australia for telecom applications with expanded, modernized and integrated plant facilities. The company also received the ISO-9001 certification in the year 1999. ARPSL implemented an ERP program in the march 2000 for enhanced operational efficiencies and tighter integration for expanding operations and spreading of business. The company has crossed 30 crores turnover in 2003.
Product Range: 1. Conventional battery Chargers : up to 220V/50 24V/2000A Application(s): 1 Power Process Industries 2 Power Generating stations 3 Power Transmission 4 Oil & Natural gas plants 5 Sub-stations 2.Switch mode Rectifiers (SMR): Modules of 48V/25A upto 200A and 48V/100A upto 3200A Modules of 110V/15A Application(s): 1 ERBX 2 Telecom Exchanges 3.Integrated Power Supply Systems(IPS) Application(S): 1 Signaling 2 Telecom 3 Traction 4. DC/AC Distribution Boards. 5. Charge/Discharge Units for Battery Information.
Customers and Solutions: Today ARPSL is the largest supplier of Switch Mode Power Supply (SMPS) Systems to core Indian Utilities such as Bharat Sanchar Nigam Ltd., Indian Railways, Power Generating
Stations, MTNL, BEL, PUNCOM and HTL. Major MNC’s like Siemens, Fujitsu, Motorola and Tata Liberty are among ARPSL clientele. With their rich experience and available technology they were closely involved with Indian Railways in developing SMPS based Integrated Power Supply Systems for Signaling and Telecommunication applications. ARPSL obtained RDSO approval in 2000 for its SMPS based Integrated Power supply(IPS) System and seems then they are preffered suppliers of IPS. Today they provide complete and integrated DC solutions with having manufacturing facility for MF-VRLA Battery, Thyristor based Battery Charger, Switc Mode Power Supply Systems, DC/AC Distribution Board, Bus Ducts and associated accessories in single complex with an experience of more then 15 years in these products catering to Power and Process, Telecom and Railway sector. Organization Chart of ARPSL: The organization chart of ARPSL is given in figure 1-1. The various departments in APRSL are given below: Research and Development. 1 Engineering. 2 Quality Management Department. 3 Operations. 4 Quality Assurance. 5 Information Technology*. 6 Human Resource Development*. 7 Finance and Accounts Development*. 8 Supply Chain*.
Awards: The award received by the company are: 1 Best Industry all round Performance’ award in 1998 by Federation of Andhra Pradesh
Chamber of Commerce and Industry (FAPCCI). 2 ‘Entrepreneur of the year’ awarded to Mr. Ramachandra N. Galla, Chairman and Managing Director in 1998 by Hyderabad Management Association. 3 ‘Business Excellence Award’ in 1998 by Industrial Economists, chennai. 4 ‘Udyog Rattan Award’ in 1999 by the Institute of Economic Studies, New Delhi. 5 “Excellence in Environmental Management “ for the year 2001-02 from the Andhra Pradesh State pollution Control Board. 6 ‘World Excellence Award’ for the year 2003 by Ford Motor Company. Social Concerns: The company has high social concern and it is implementing several programs for clear environment and social uplift. Environmental programmes: 1 Advancement for ISO-14001 Certification. 2 Health monitoring and awareness programme. 3 Both personal and industrial safety programme. 4 Start-up of Environmental Management Systems(EMS) implementation programs. 5 Nil discharge and lowest emission awareness and implementation programme. 6 Waste reduction scheme. 7 Energy conservation programme. 8 Continuous and massive greenbelt development programme. 9 10 Ground water level improvement programme. 11 Central wastage collection, treatment, storage and safe disposal programme. 12 Personal health safe guarding program. Social Programmes: 1 Housing colony to the employees is in process. 2 Total plan-500 families over 5year. 108 already commissioned. 3 Plan to provide community hall, open Auditorium. Recreation Club, Parks and Play Ground. 4 Training center for employees.
5 Bachelor’s Hostel, Co-operative Stores and Bank in operation. 6 Roads, Water supply, Streetlights, Greenery, Education and cultural activities, enhancement in the neighboring villages. 7 Award and reward to the younger generation for improvement of education. 8 Modernization of public parks for the full-fledged recreation of children. 9 Public awareness programme (in Mumbai) on Environmental protection, through street theatre “whose Mumbai is it any way” on the occasion of Earth Day, April 22nd, 2001.
SOCIAL SECURITY SCHEMES
Social security is a security that society furnishes through appropriate Organization against certain risks to which it’s members exposed. These risks are contingencies of life like accidents and occupational diseases. Employer has to provide various benefits like safety measures, compensation in case of involvement of workers in accidents, medical facilities etc, with a view to provide security to his employees against various contingencies. • EMPLOYMENT SECURITY: Benefits under this head include unemployment insurance, technology adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back, lay-off pay, retiring rooms jobs to the sons/daughters of the employees and the like.
•
HEALTH PROTECTION: Benefits under this category include : deferred income plans, pensions, gratuity, provident fund, old age assistance, old age counselling, medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like.
•
PERSONNEL IDENTIFICATION, PARTICIPATION AND STIMULATION: This category covers the following benefits:
Anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlour services, housing, Income tax aid, counseling, quality bonus, recreational programmes, stress counselling, safety measures etc. • HEALTH BENEFITS: family members. Employees state insurance act, 1948 deals comprehensively about the health benefits to be provided. This act is applicable to all factories, establishments, running with power and employing 20 or more workers. Employees in these concerns and whose wages do not exceed Rs.1,000 per month are eligible for benefits under the Act. Benefits under this act include. Providing health maintenance services, emergency care, on-the –job treatment care for minor complaints, health counselling, medical supervision in rehabilitation, accident and sickness prevention, health education programme, treatment in employee colonies etc.
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Today various medical services like hospital, clinical and
dispensary facilities are provided by the organizations not only to employees but also to their
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Medical benefits are extended to employee family members and to the retired employees and their family members. Small organizations which cannot set-up hospitals or large organizations (in those where hospitals cannot be set-up because of various reasons) Provide the medical services through local hospitals and doctors. Sometimes they provide the facility of reimbursement of medical expenses borne by the employees.
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TABLE 1 STATEMENT SHOWING CHANGES IN GROSS WORKING CAPITAL AND NET WORKING CAPITAL (Rs.in Crores) Particulars I. Current Assets Inventory 4.13 6.83 8.61 11.69 9.31 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Debtors Cash & Bank Balances Loans & Advances Other Current Assets
0.60 0.21 1.79 0.04
7.60 2.96 2.95 0.07
13.43 1.22 4.35 0.02
25.73 3.39 5.91 -
11.59 2.47 6.84 -
Gross Working Capital II. Current Liabilities Net Working Capital
6.77
20.41
27.63
46.72
30.21
46.13
5.40 1.37
5.62 14.71
13.16 14.47
21.20 25.52
12.20 18.01 25.85
Source: Compiled from the Annual Reports of Amaraja Power Systems Limited.
GROSS WORKING CAPITAL Vs WORKING CAPITAL 50 45 40 PERCENTAGES 35 30 25 20 15 10 5 0 1 2 3 4 5
NET
Gross Working Capital Net Working Capital
6
YEARS
TABLE 1.1 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2000 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Increase in Working Capital 8.22 8.22 8.00 7.5 14.79 5.40 5.62 0.22 1.80 0.04 12.9 2.95 0.07 20.41 1.15 0.03 4.12 6.03 0.20 6.83 7.60 2.96 2.71 1.57 2.76 2001 Increase Decrease
TABLE 1.2
SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2001 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Decrease in Working Capital 9.33 9.34 0.51 14.79 14.28 5.62 13.16 7.54 2.95 0.07 20.41 4.3 0.01 27.44 1.35 0.06 6.83 7.60 2.96 8.61 13.3 1.22 1.78 5.7 1.74 2002 Increase Decrease
TABLE 1.3 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores)
Effect on Working Capital 2002 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Increase in Working Capital 19.17 19.17 11.11 14.28 2.27 13.16 21.20 8.04 4.3 0.02 27.45 5.91 23.47 1.61 0.02 8.61 13.3 1.22 11.6 25.7 3.39 2.99 12.4 2.17 2003 Increase Decrease
TABLE 1.4 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2003 A. Current Assets Inventories S.Debtors 11.6 25.7 9.3 11.5 2.3 14.2 2004 Increase Decrease
Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Decrease in Working Capital
3.39 5.91 23.47
2.47 6.84 30.11 0.93
0.92
-
21.20 2.27
12.20 17.91
9.00
7.49 17.42 17.42
THE STATEMENT OF SHOWING THE AVERAGE CHANGES IN WORKING CAPITAL.
(Rs.in Crores) YEAR Direction of changes In Working Capital Increasing Amount of change In Working Capital 3.00
2001
2002
Decreasing
0.51
2003
Increasing
11.11
2004
Decreasing
7.49
Average change in Working Capital=
8-.51+11.11-7.49 / 4 = 2.78
Inference:
The data in the above table shows that there is a mixed trend in changes in Working Capital. That is both positive changes and negative changes. However there is an increase and decrease in changes of Working Capital, but the Average change in Working Capital remains positive i.e., increasing trend.
RATIO ANALYSIS
WORKING CAPITAL RATIOS The financial strength and weakness of a firm can identified with the help of financial analysis by properly establishing the relationship between the items of the balance sheet and the profit and loss account. Ratio analysis is a powerful tool of a financial analysis. RATIO ANALYSIS A Ratio is defined as “the indicated Quotient of two mathematical expression” and as “the relationship between two or more things”. Ratio analysis is used as an index of yards stick for evaluating the financial position and the performance of a firm. This technique is very much useful in assessment of working capital requirement and also to
know the performance of the company. By using these ratios we can arrive how much working capital funds are invested in current assets. It is important because investment in current asset’s must not be short or in excess. If investment is short, it hinders the production process and also utilization of the capacity to the full extent. If it is excess than there will be blockage of funds which is not safe for the company i.e., excess interest burden etc. Therefore, the investment in current asset’s must not be in short or in excess. To know this we can use ratio analysis techniques.
Classification from the point of financial management is as follows • • • • Liquidity ratios Leverage ratios Activity ratios Profitability ratios
CURRENT RATIO The current ratio of a firm measures its short-term solvency i.e., its ability to meet short term obligations. It indicates the rupees of current assets available for each rupee of current assets available for current liability. Current Ratio = Current Assets / Current Liabilities
TABLE 1
Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Current Assets 122 204.36 275.61 467.38 302.18 461.22
Current Liabilities Ratio 54 56.2 131.6 212 122 202 2.2 3.6 2.1 2.2 2.4 2.2
Table 1.1 Current Ratio
CURRENT RATIO
4 3.5 3 2.5 RATIO 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the chart shows that the actual Current Ratio is greater than the standard current ratio. But the actual current ratio is not much greater than the standards except in 2000-01. The current ratio has increased from 2.2 in the year 2000 to 3.6 in 2001, and further fallen to 2.1 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the actual current ratio of Amaraja Power Systems Ltd.is found satisfactory. . QUICK RATIO It is a measurement of a firms ability to convert its current assets quickly into cash in order to meet its current liabilities. Quick ratio of 1:1 is considered
satisfactorily. This ratio measures liabilities. Quick ratio
the firms ability to service short term
= Current Assets-Inventories / Current Liabilities. TABLE 2
Year
Current Assets Liquid Liabilities Inventories
Ratio
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
80.76 136 189.46 350.43 209 334.4
54 56.2 131.6 212 122 202.7
1.5 2.4 1.4 1.6 1.7 1.6
Table 2.1 Quick Ratio.
QUICK RATIO
3 2.5 2 RATIO 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEAR
INFERENCE: The data analysis provided in the above chart shows that the Quick Ratio is increases up to 2.4 in the year 2001 and further fallen to 1.4 in the year 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the Quick ratio of ARPSL is found satisfactory.
INVENTROY TURN OVER RATIO This ratio indicates whether the inventory is efficiently used or not. The
purpose behind this is to see whether only minimum required funds have been locked up in inventory. It indicates the efficiency of the firm in producing and selling its products. Inventory Turnover Ratio = Sales / Average Inventory TABLE 3 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 153.77 318.72 364.32 542.00 323.03 508.87 Average Inventory 30.54 54.79 77.23 101.54 105.02 132.52 Ratio 5.03 5.8 4.7 5.3 3.00 3.83
Table:3.1
Inventory Turnover Ratio. INVENTORY TURNOVER RATIO 7 6 5 RATIOS 4 Ratio 3 2 1 0 19992000 20002001 20012002 20022003 20032004 20042005
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Inventory Turnover Ratio is more in the year 2000-01 i.e., 5.03 & 5.8 later it will decreased in 2002 (4.7). Further it again increases to 5.3 in 2003. But later almost all decreasing trend over the study period. Therefore , it can be concluded that on an average the Inventory Turnover Ratio of ARPSL is found satisfactory.
WORKING CAPITAL TURNOVER RATIO
This ratio makes clear whether the business is being carried on with small or large amount of working capital in relation to sales. Working Capital Turnover Ratio = Net sales / Net working capital. ( Net working capital = Total current assets - Current liabilities)
TABLE 4 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Net sales 153.77 318.72 364.32 542.00 323.03 508.91 Net Working Capital 67.98 148.15 144.01 255.31 180.09 258.84 Ratio 2.26 2.15 2.53 2.12 1.79 1.96
Table 4.1
Working Capital turnover Ratio:
WORKING CAPITAL TURNOVER RATIO
3 2.5 RATIOS 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Working capital Turnover Ratio is more in 2000 to 20003. Especially in 2002 recorded a high working capital turnover ratio i.e.,2.53. Further fallen to 1.79 in 2004 and almost all stable over the study period. Therefore, it can be concluded that on an average the Working Capital Turnover Ratio of ARPSL is found satisfactory.
CASH POSITION RATIO
Cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio. Cash ratio=cash+marketable securities/current liabilities TABLE 5 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Cash 20,79,611 29.64 12.4 33,96,015 24.73 27.95 Current liabilities 374.85 28.69 84.81 157.20 61.27 126.7 Ratio 0.053 1.00 0.14 0.22 0.40 0.22
Table 5.1 Cash Position Ratio:
CASH POSITION RATIO
1.2 1 RATIOS 0.8 0.6 0.4 0.2 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Cash Position ratio is 0.053 in the year 2000. Later it increases to (1) in 20001. Further fallen to 0.114 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the cash position ratio of ARPSL is found satisfactory.
DEBTORS TURNOVER RATIO Debtors turn over ratio indicates the no of times debtors turn over each year. Generally the higher the value of debtors turnover, the more efficient is the
management of credit . Debtors turnover ratio = credit sales/average debtors (or) debtors turnover ratio = sales /debtors
TABLE 6 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Total sales 159.6 334.08 379.17 560.87 333.60 525.46 Average debtors 60.37 76.06 133.49 257.31 115.90 216.24 Ratio 2.6 4.4 2.84 2.18 2.87 2.42
Table 6.1 Debtors Turnover Ratio:
DEBTORS TURNOVER RATIO
5 4.5 4 3.5 RATIOS 3 2.5 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Debtors Turnover ratio is 2.6 in the year 2000. But it increased to 4.4 in 2001, further fallen to 2.84 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the Debtors Turnover ratio of ARPSL is found satisfactory.
DEBTORS COLLECTION PERIOD The average collection period measures the quality of debtors since it period,
indicates speed of their collection. The shorter the average collection
the better the quality of debtors, since a short collection period implies the
prompt payments by debtors.
TABLE 7 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Days in a year Debtors turnover ratio 365 365 365 365 365 365 2.6 4.4 2.84 2.18 2.87 2.42 In days 140 days 83 days 128 days 167 days 127 days 150 days
INFERENCE: The data analysis provided in the above chart shows that the Debtors collection period is 140 days in 2000. But it is fallen to 83 days in 2001. Later it increases to 128 in 2002. Further almost all increasing trend over the study period. Therefore, it can be concluded that on an average the Debtors Collection period of ARPSL is found Satisfactory.
EARNINGS PER SHARE The profitability of the common shareholders investment can also be measured in many other ways. One such measure is to calculate the earnings per share. The earnings per share is calculated by dividing the profit after taxes by the total number of common (ordinary) shares outstanding.
EPS = profit after tax-Preference Dividend / no of equity shares TABLE 8 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Profit after tax 5.48 26.16 19.83 22.12 12.29 19.94 No of equity shares 5,77,600 5,77,600 5,77,600 5,77,600 5,77,600 5,77,600 EPS 9.5 45.30 34.33 38.31 21.28 34.52
Table 8.1 Earning Per Share:
EPS 50 45 40 35 RATIOS 30 25 20 15 10 5 0 19992000 20002001 20012002 20022003 20032004 20042005 EPS
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Earning per share is 9.5 in the year 2000. It is raised to 45.30 in the year 2001. later it fallen to 34.33 in 2002 and again fallen to 21.28 in 2004 due to debtors. Later it again raised to 34.52 in 2004-05. Therefore, it can be concluded that on an average the Earning Per share of ARPSL is found satisfactory.
CREDITORS TURNOVER RATIO This ratio calculates the creditors turnover ratio of the company. The following is the definition for the creditors turnover ratio.
Creditors Turnover Ratio=Purchases/Average Creditors.
TABLE 9 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Purchases 114.85 198.84 234.85 380.73 157.83 297.75 Average Creditors 125.83 15.13 37.46 101.27 84.93 74.17 Ratio 9.00 13.00 6.27 3.75 1.86 4.00
Table:9.1 Creditors Turnover Ratio.
CREDITORS TURNOVER RATIO
14 12 PERCENTAGE 10 8 Ratio 6 4 2 0 19992000 20002001 20012002 20022003 20032004 20042005
YEARS
INFERENCE: The data analysis provided in the above chart shows that the creditors turnover ratio is 9 in the year 2000. later it increased to 13 in 2001. Further fallen to 6.27 in 2002 and 1.86 in 2004. Again it raised to 4 in the year 2005. Therefore it can be concluded that on an average the creditors turnover ratio of ARPSL is found satisfactory.
RETURN ON CAPITAL EMPLOYED RATIO: This ratio calculates the return on capital employed. The following is the definition for the return on capital employed ratio. Return on Capital Employed= EBIAT/Average Capital employed
Table 10 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 EBIAT 8.47 41.86 32.83 35.93 18.85 32.01 Average Capital employed Ratio 30.31 60.91 54.70 88.80 7.62 43.21 0.28 0.68 0.60 0.40 0.25 0.74
Table:10.1 Return on Capital Employed
RETURN ON CAPITAL EMPLOYED
0.8 0.7 0.6 percentage 0.5 0.4 0.3 0.2 0.1 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
years
INFERENCE: The data analysis provided in the above chart shows that the Return on capital employed is 0.28 in the year 2000. Later it raised to 0.68 in the year 2001. Further fallen to 0.25 in the year 2004. Again it raised to 0.74 in the year 2005. Therefore it can be concluded that on an average the Return on capital employed of ARPSL is found satisfactory.
RETURN ON NETWORTH RATIO:
This ratio calculates the return on Net worth. The following is the definition for the return on net worth ratio. Return on Net worth= EAT/Net worth
Table 10 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 EAT 5.48 26.16 19.83 22.12 12.29 20.00 Net worth 32.40 56.34 74.15 91.80 101.01 122.53 Ratio 0.17 0.46 0.27 0.24 0.12 0.16
TABLE :11.1 Return on Net worth
RETURN ON NETWORTH
0.5 0.45 0.4 0.35 PERCENTAGE 0.3 0.25 0.2 0.15 0.1 0.05 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Return on Net worth is 0.17 in the year 2000. Later it is increased to 0.46 in the year 2001. Then almost all stable over the study period. Therefore it can be concluded that on an average the Return on Net worth of ARPSL is found satisfactory. OPERATING CYCLE
PARTICULARS
2000
2001
2002
2004
Raw materials Payments & Benefits Manuf.exp Taxes & Licences Depreciation
95473655 10252441 4589420 26731609 8347589
182860975 14612863 8754564 57640545 9957186
368970142 26931303 13615749 79626493 14374995
188605718 34916533 7315729 45687482 17211150
145394714 Add.op.stock in process 3633047 149027761 Less clo.Stock in process Cost of production Add.op.stock of F.G 5709845 143317916 30833
273826133 5709845 279535978 16695313 262840665 26568
316146236 16695313 332841549 10322736 322518813 115988
503518682 10322736 513841418 24020436 489820982 -
293736672 29849453 323586065 29849453 293736612 5721726
143348749 Less.cl.stock of F.G 26568
262867233 115985
322634798 -
489820982 5721726
299458338 6823297
Cost of goods sold Raw materials period Rmcl X 365/Rmc Work in process Conversion period
143322181
262751248
322518813 75215601X365 210036689 =130.7 10322736 X365 322518813 =11.68
484099256 86985087X365 368970142 =86 24020436X365 484099256 =17.89
292635041 56217408X365 188605718 =108.79 29849453X365 293736612 =37
3483545240 68349380X365 287493865 =86.77 37689259X365 324789625 =42.35
35531236X365 51515523X365 95473655 =135.8 5709845X365 =14.54 182860975 =102.8 16695313X365 262840665 =23
cl.WIPX365/cost of prod. 143317916
F.G.Convertion period cl.f.gX365/cost of goods sold
26568x365 143822181 =0.06
115985X365 262751248 =0.16
X 365 322518813 =0.000001
5721726X365 484099256 =4.3
6823297X365 292635041 =8.5
9945270X365 324783805 =11.17
collection period(Deb.con 6037271X365 period) cl.Deb.X365/credit sales 159620442 =14
76061052X365 334085791 =83.1
133491610X365 379172049 =128.5
257319891X365 560870412 =167.5
115908585X365 333601680 =126.8
178407865X365 453495786 =150.21
payment Deferral period Purchases.
21083955X36 =67
9178015X365 198845262 =17
65758456X365 234658351 =102
136789371X365 380739628 =131
33089146X365 157838039 =76.5
105783094X365 408952783 =94.41
Cl.creditors X 365/credit- 114852818
FINDINGS
On the overall evaluation of the working capital management at each and every aspect, the following findings are found.
1. The current ratio is more than the industry standard of 2:1 through out the period of observation. It indicated the liquidity position of the firm is good. 2. The quick ratio is also above the standard level of 1:1 through out the period. This shows the company saving high liquidity position and capable of meeting the quick liabilities promptly. This is also an indication of the efficient management of the inventories, which are reduced considerably during the period of observation. 3. Cash position ratio during the year 1999-2000 is very low at 0.1. However the remarkable improvement in the cash position has been achieved. There after and the company is capable of meeting all its commitments promptly. 4. The reserves and surplus is always accumulating every year. The company reserves are more than the company capital. 5. The company operating cycle and cash cycle is decreasing year by year gradually. 6. The company’s book debts constitute a major portion in the working capital 7. The shareholders are getting maximum returns. 8. The funds flow reveals the liquidity of the firm.
SUGGESTIONS The following suggestions are made in accordance with the stated findings. 1. The idle working capital should be fully utilized by reducing the operation cycle to a minimum level. 2. The company is maintaining huge inventories, which results in high
inventory carrying cost. The company should maintain an optimum size of inventory to decrease the inventory carrying costs. 3. The company should increase its sales volume, so as to results in optimum utilization of capacity and maximization of profit. 4. The hike cash holding of the firm should be kept for any other purpose such as investing in the investments or discharging the loads. 5. The company can utilize the maximum long term funds through bank and financial institutions. 6. They should see that then debtors be collected with in a specified time by the company, so that they can discharge some of its creditors or current liabilities and avoid payment of interest. 7. The company can utilize the reserves and surplus by either capitalizing or can invest the money some where as investments to get benefits. 8. It is oblivious that the working capital which is expressed to very much liquid. Thus the business has been made vulnerable to technical insolvency a grievance problem before the management.
BIBLIOGRAPHY
Financial Management-
I.M Pandey Vikas Publishing House New Delhi. M.Y.khan & P.K.Jain Vikas Publishing House New Delhi. Prasanna Chandra,Tata Megraw Hill Publishing Co. Limited, New Delhi.
Financial Management-
Financial ManagementTheory & Practices
Working Capital Management- Choudhary, Anil,B.R, Eastern house Calcutta.
doc_816451745.doc
Financial statement analysis (or financial analysis) the process of understanding the risk and profitability of a firm (business, sub-business or project) through analysis of reported financial information, by using different accounting tools and techniques.
Origin of Working Capital
The total capital employed in a business organization can be categorized as fixed capital and working capital. The fixed capital that part of the funds, which is invested in, current assets.
The investment in fixed assets is represented by land and buildings (for factory, office go down and stores), equipment such as machinery, furniture and fixtures, intangible assets in the form of patents and goodwill etc. to employ these fixed assets gainfully current assets are required. Current assets consists of raw
materials, working progress, finished goods, stores and spares accounts, receivables, cash in hand and at bank and marketable securities.
Balanced working capital position: The firm should maintain a sound working capital position. It should have adequate working capital to run its business operations. Both excessive as well as inadequate working capital positions are dangerous from the firm’s point of view. Excessive working capital means idle funds, which earn no profits for the firm. Paucity of working capital not only impairs the firm’s profitability but also results in production interruptions and inefficiencies.
WORKING CAPITAL MANGEMENT
Working capital management forms the inching of every business. As Gilberth Harold puts the problems. Unfortunately, there is so much disagreement among financiers, accountants, business men and economists as to the exact meaning of the term Working Capital. Definition of Working Capital: Working Capital or Circulating Capital indicates circular flow of funds in the routine activities of business. Working Capital can be defined as “ Any acquisition of funds which increases the current assets, increases working capital also, for they are one and the same” -Bonnevile. The current assets are cash, marketable securities, accounts receivable and inventory. The current liabilities are those liabilities which are intended at their inception to be paid in the ordinary course of business such as bills payable, bank overdraft and outstanding expenses. The goal of working capital management to manage the firms current assets and current liabilities in such a way that a satisfactory level of working capital is maintained. This is because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy.
IMPORTANTCE OF WORKING CAPITAL The source of any enterprise depends on the proper management of working capital aims at protecting the purchasing power of assets and maximizing the return on investments, sales expansion, dividend declaration, plant expansion, increased salaries and wages, rising price level etc., but added strain on working capital maintenance.
CONCEPTS OF WORKING CAPITAL There are two concepts of Working Capital
1 Gross Working Capital 2 Net Working Capital Gross Working Capital: It refers to the company’s investments in Current assets. Current Assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, debtors, bills receivables and stock. Net Working Capital It refers to the difference between current assets and current liabilities. Current Liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year and include creditors, bills payable, and outstanding expenses. Networking Capital can be positive or negative. A positive net working capital will arise when current liabilities are in excess of current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. The two concepts of working capital – gross and networking capital are not exclusive, rather they have equal significance from management view point, the gross working capital concept focuses attention on two aspects of current assets management. 1 Optimum investment current assets and 2 Financing of current assets. Net working capital being the difference between current assets and current liabilities . It is a qualitative concept. It aims at 1 The firms liquidity position and 2 Financing of current assets 3 Suggests the extent to which working capital needs may be financed by permanent sources of funds. The consideration of the level of investment in current assets should avoid two danger points. Current assets have excessive and inadequate investments. Investment in current assets should be just adequate, not more not less to the needs of the business firm. Excessive investment in current
assets should be avoided because it impairs the firm’s profitability an ideal investments nothing. On the other hand inadequate amount of working capital can threaten solvency of the firm because of its inability to meet its current obligations. CHARACTERISTICS OF CURRENT ASSETS In the management of working capital two characteristics of current assets must borne in mind. 1 Short-term span 2 Swiftly transformation into other assets form Current assets have a short life span. Accounts receivable may have a life span of 30 to 60 days, inventories may be held for 30 days to 100 days and cash may be held idle for week or two. Each current asset is swiftly transformed into other assets form. Cash is used for acquiring raw materials. Raw materials are untransformed into finished goods (this transformation may involve several stages of work in progress), finished goods, generally sold on credit, are converted into accounts receivable and finally, accounts receivables, on realization generates cash.
The need for current assets arises because of the operating cycle. The operating cycle is a continuous process and therefore, the need for current assets is felt constantly. But the magnitude of current assets needed in not always the same, it increases and decreases over time. However, there is always a minimum level of current assets which time is continuously required by the firm to carry on its business operations. This minimum level of current assets is referred to as permanent or fixed working capital. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital will fluctuate. The extra working capital needed to support the changing production and sales activities is
called fluctuating or variable or temporary working capital.
DETERMINANTS OF WORKING CAPITAL There are no set rules to determine the working capital requirements of firms. A large number of factors, each having a different importance, influence working capital needs of firms. Therefore, an analysis of relevant factors should be made in order to determine total investment in working capital. The following is the description of factors, which generally influence the working capital requirements of firms.
NATURE AND SIZE OF BUSINESS: The size of business also has an important impact on its working capital needs. Size may be measured in terms of the scale of operations. A firm with large scale of operations will need working capital than small term. The working capital requirements of a firm are basically influenced by the nature of business trading and financial firm has a very less investment infixed assets, but require a large sum of money to be invested in working capital.
TECHNOLOGY AND MANUFACTURING POLICY The manufacturing cycle starts with the purchase and use of raw materials and completes with the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. An extended manufacturing time span means a larger tie-up of funds in inventories. Thus if there are alternative technologies of manufacturing a product, the technological process with the shortest manufacturing cycle may be chooses.
FIRMS CREDIT POLICY The credit policy of the firm affects the working capital by influencing the level of debtors. The credit term to be granted to customers may depend upon the forms of the industry to which the firm belongs.
AVAILABILITY OF CREDIT Creditors also affect the working capital requirements of a firm. A firm will need less working capital if liberal credit terms are available to it. OPERATING EFFICIENCY The operating efficiency of the firm relates to the optimum utilization of resources at minimum costs. The firm will be effectively contributing in keeping the working capital investment at a lower level if it is efficient to controlling operating costs and utilizing current assets. The use of working capital is improved and pace of a cash conversion cycle is accelerated with operating efficiency. BUSINESS FLUCTUATIONS Most firms experience seasonal and cyclical fluctuations in the demand for their products and services. This business variation effects the working capital requirements especially the temporary working capital requirement of the firm. When these is an upward swing in the economy, sales will increase and vice-versa. PRODUCTION POLICY A steady production policy will cause inventories to accumulate during the off-season periods and the firm will be exposed to greater inventory cost and risk. Thus, if the cost and risks of maintaining a constant production schedules are high, the firm may adopt the policy of varying its production schedules in accordance with the change in demand.
GROWTH AND EXPANSION ACTIVITIES The working capital needs of firm increases it growth in terms of sales of fixed assets. If is difficult to precisely determine the relationship between volume of sales and the working capital needs. The critical fact however is that the need for increased working capital funds does not follow growth in business activities but precedes it.
PROFIT MARGIN AND PROFIT APPROPRIATION Firms differ in their capacity to generate profit from business operations. Some firms enjoy a dominant position, due to quality product or good marketing management or monopoly power in the market and earn a high profit margin. Some other firms may have to operate in an environment of intense competition and may earn low margin of profits. A high net profit margin contributes towards the working capital pool. In fact the net profit is a source of working capital to the extent it has earned in cash.
DIMIENSIONS OF WORKING CAPITAL MANAGEMENT Working Capital Management refers to the administration of all aspects of current assets namely cash, marketable securities, debtors and are many aspects of working capital management, which makes it an important function of the financial manager. Empirical observations show that the financial managers have to spend much of their time to the daily internal operations, relating to the current assets and current liabilities of the firms. Investments in current assets represents a very significant portion of the total investment in assets. It is particularly very important for small firms to manage their current liabilities in financing current assets is far significant incase of small firms, as unlike large firms, the difficulties in raising long terms finances. There is a direct relationship between sale and working capital needs. As sales grow, the firm needs to invest more in inventories and book debts. These needs become very frequent and fast when sales grow continuously. It may thus be concluded that all precautions should be taken for the effective and efficient management of working capital. To decide the levels and financing of current assets, the risk return implications must be evaluated.
FINANCING CURRENT ASSETS The firm must find out the sources of funds to finance its current assets. It can adopt different
financing policies. Three types of financing be distinguished as follows. 1 Long term financing 2 Short term financing 3 Spontaneous financing The important sources of long-term financing are shares, debentures, preference shares, retained earnings and debt from financial institutions. Short term financing refers to those sources of short credit that the firm must arranged in advance. These sources include short term bank loans, commercial papers and factoring receivable. Spontaneous financing refers to the automatic sources of short term funds. The major sources of such financing are trade credit ( creditors and bill payable)and outstanding expenses. Spontaneous sources of finance are cost free. TECHNIQUES FOR THE MANAGEMENT OF WORKING CAPITAL: In this section a few important techniques of working capital are presented. All techniques of working capital management can be divided into two parts. Techniques relevant for the management of working capital as a whole and the techniques relevant for the management of each component of working capital cash account receivable and inventory.
Techniques relevant for the management of working capital One of the very important issues in the management of working capital is to decide how much to invest in current assets. The investment in current assets is generally influenced by sales volume. Therefore before firm is able to decide about he quantum of working capital. It should be forecast its feature sales volume accurately or near accurately. This is equal true about the components of working capital as well. TIME SERIES MODELS: The time series models are based on the assumptions that the past trend will continue
repeating in the future. In the construction of tikes series, models, historical recordings of the factors to be forecasted is taken into the account and their pattern and the relationship over the time is established on the basis of the pattern so established future forecast is made.
ECONOMETRIC MODELS The models here are the equations consisting of dependent and independent variable. These equations attempt to establish the nature of relationship between variables enabling the analysts to study the value of the dependent variable on the basis of the value of the independent variable. These models are sophisticated, very useful techniques. WORKING CAPITAL FORECASTING TECHNIQUES Having determined the sales accurately, steps can to taken to forecast working capital and the various components of it. Working capital requirements can be, determined into two. 1 Percentage Sales method. 2 Operational Cycle method.
NEED FOR WORKING CAPITAL The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardly find a business firm, which does not require any amount of working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavor to do so, a firm should earn sufficient return from its operations. The firm has to invest enough funds in current assets of generating sales. Current assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash. OPERATING CYCLE: There is a difference between current assets and fixed assets in terms of their liquidity. A firm
requires many years to recover the initial investment in fixed assets such as plant and machinery or land and buildings. Investment in current assets such as inventories and debtors is realized during the firms operating cycle which is usually less than a year. Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories into cash. The operating cycle of a manufacturing company involves three phases acquisition of resources such as raw material, labour, power and fuel etc., manufacture of product which included conversion of raw material into work-in-progress into finished goods, sale of the produce either for cash or on credit create accounts receivable for collection. Stocks of raw material and work-in-process are kept to ensure smooth production and to guard against non-availability of raw material and other components. The firm holds stock of finished goods to meet the demands of customers on continuous basis and sudden demand from some customers. Debtors are created because goods are sold on credit for marketing and competitive reasons. Thus, a firm makes adequate investment in inventories and debtors, for smooth, uninterrupted production and sale.
Fig:
The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle. The difference between operating cycle and payables deferral period is net operating cycle. Net operating cycle is also referred to as cash conversion cycle.
Statement of the Problem In order to maintain flows operations every firm needs certain amount of current assets. For example cash is required to pay for expenses or to meet obligations for services received or goods purchased etc;, by a firm. On the
identical plane inventories are required to provide the link between production and sale. Similarly accounts receivable generate when goods are sold on credit. Needless to mention cash, bank, debtors, bills receivables closing stock (including raw materials, work in process, finished goods), prepayments and certain other deposits and investments which are temporary in nature present current assets of a firm. Economists like Mead, Mallet, Backer and Field are of the opinion that the whole of these current assets forms the working capital of a firm. And this
concept of working capital of a firm is frequently termed as gross working capital, in the area of financial management. Excessive working capital is bad and causes following: 1. It results in unnecessary accumulation of inventories. Thus, chances of
inventories mishandling, wastage, theft and losses increase. 2. it is an indication of defective credit policy and slag credit collection period. Consequently higher incidence of bad debts results, which
adversely affects profits. 3. It makes management complacent, which generates into managerial inefficiency. 4. Tendencies of accumulating inventories tend to make speculative profits grow. This may tend to make divided policy liberal and difficult to cope with future when firm is unable to make speculative profits.
Inadequate working capital is also bad and causes following:
1. It stagnates growth.
It becomes difficult for the firm to undertake
profitable projects due to inadequacy of funds. 2. It becomes difficult to implement operating plans and achieve firms profit target. 3. Operating inefficiencies creep in and it becomes difficult even to meet dayto-day commitments. 4. Fixed assets are not efficiently utilized for the lack of working capital
funds. Thus the firms profit would deteriorate. 5. Paucity of working capital funds render the firm unable to avail attractive credit opportunities. 6. The firm losses it reputations when it is not in a position to honor its shortterm obligations. As a result, the firm faces tight credit terms.
An enlightened management should therefore maintain the right amount of working capital on an continue basis, only then a proper functioning of operations will be ensured. OPTIMUM WORKING CAPITAL Determining the optimal level of current assets involve a trade-off between costs that rise with current assets and costs that fall with current
assets. The former are referred to as carrying cost and lather as shortage costs carrying costs are mainly in the nature of the cost of financing a higher level of current cost are mainly in the nature of the cost of financing a higher level of current assets. Shortage of cost is mainly in the form of disruption in production schedule, loss of sales, and loss of customer goodwill. Therefore, the optimal levels of current assets are described as the total costs (The sum of carrying cost and shortage costs) are minimized at that level. It has been explained in the following diagram.
Objectives of the Study The present Study in Amara Raja Power Systems limited is undertaken to evaluate the working capital strategy in the organization by establishing the following objectives.
1) To identify the amount of Gross and Networking Capital of Amara Raja Power Systems Limited over the study period.
2) To study the changes in Net Working Capital during the study period.
3) To design the Operating Cycle and to find the duration for each cycle.
4) To understand the impact on Liquidity management on the Shareholders
Profitability.
5) To give viable suggestions based on the findings to improve the Liquidity progress of Amara Raja Power Systems Ltd. in Amara Raja Batteries.
To various objectives are interrelated and it is clear that the analysis and interpretation of these objectives are helpful to different users for different purposes.
Methodology of Research Research design In view of the objectives of the study listed above an exploratory research design has been adopted. Exploratory research is one which is largely interprets and already available information and it lays particular emphasis on analysis and interpretation of the existing and available information it makes use of secondary data and lays particular emphasis and interpretation of the existing and available information.
Sources of data The study is based on secondary data, discussions with personnel concerned. The secondary data consists the annual reports of Amara Raja Power Systems Limited ranging for the last six years. Various other reports like company’s magazines, published books and web sites.
Tools of Analysis To analyze the data acquired from the secondary sources the following tools are used: • • • • Working capital Funds flow statement Ratio analysis Operating cycle method
Scope and period of the Study: The scope of the study is defined below in terms of concepts adopted and period under focus: First the study management or working capital is confined only to the Amara Raja Power Systems Limited. Secondly, the binary concepts of working capital i.e. Gross and Net are used in measuring profitability and liquidity respectively and also to arrive at various objectives of the study. Thirdly, the study is based on the annual reports of the company for a period of six years form 1999-2005. The reason for restricting the study of this period is due to time constraint. Thus on the whole the purpose of the project is to analyze the past and present performance of company on various financial areas like
1. Working Capital Management 2. Inventory Management 3. Receivables Management
Since the past performance will be the essential yard stick or data for predicting.
LIMITATIONS
Limitations of the Study
1. The information provided in the company balance sheet is only the data source available. 2. Some required secondary data which is not provided by company. 3. The information available in the balance sheets have taken from the published annual report, so it has only limitations. 4. Since financial matters are sensitive in nature the same could not be acquired easily. 5. There is only two months period to finish the project, due to lack of time in depth of financial matters have not been touched.
INDUSTRY PROFILE
The power electronics is the application of electronic circuit to energy conversion i.e., it encompasses the use of electronic components, the application of circuit theory and design techniques and the developments of analytical tools toward efficiency electronic conversion, control and conditioning of electronic power. The power electronics market comprises of uninterrupted power supplies (UPS), AC/DC power supplies, battery chargers and invertors. In 2003, the total world wide power electronics market was $6351 millions, which is expected to grow at a compound annual growth rate of 6.1% to reach $7203 million by 2006. power electronics is used in computers, automobiles military, medical applications, telecommunications systems and satellites, motors, lighting and alternative energy (like solar and wind).
The major manufacturers in the power electronics industry (India) are :
1 Exide industries. 2 Hyderabad batteries limited. 3 Amararaja power systems private limited
4 Tudor Indian limited 5 Standard batteries.
COMPANY PROFILE: Amara Raja Power Systems is a member company in Amara Raja Group of companies, which has become a leading business group in India forgoing ahead with its innovative and collaborative technology and emphasis on human resource development. AMARA RAJA GROUP AND ITS ENTERPRENEUR: “Sri Galla Ramachandra Naidu” who is an electrical engineering with an experience promoted Amara Raja Group. Amararaja Group of companies: 1 Amara Raja Batteries Limited (ARBL), Karakambadi,Tirupati. 2 Amara Raja Power Systems Pvt Ltd.(ARPSPL), karakambadi, Tirupati. 3 Harsh Electronics Pvt.Ltd(HEPL), karakambadi, Tirupati. 4 Mang Precision Products Pvt Ltd., (MPPPL) Petamitta, Chittor. 5 Amara Raja Electronics Pvt.Ltd.,(APREPL), Dighavamgham, Chittoor.
AMARA RAJA BATTERIES LIMITED- THE FLAGSHIP COMPANY: Amara Raja Batteries Private Limited (ARBL) Company is incorporated under the company’s act, 1956 in 13th February 1985, and converted into public limited company on 6 th September 1990. ARBL is the first company in India to manufacture VRLA ( value regulated lead acid) Batteries. The main objective of the company is manufacturing of good quality of SEALED MAINTENANCE
FREE acid batteries (SMF).
Innovation by Collaboration: Amara Raja Batteries limited is in collaboration with Johnson controls Inc. This is tie up between Amara Raja , the largest manufacturer of VRLA in Indian ocean Rim, and Johnson Controls is also a leading global manufacturer of automotive batteries. Both have have pioneered innovative batteries in several crucial sectors. Through this tie-up it is now possible for offering power solutions in the automotive sector as well as the industrial sector from one source.
Quality Products: Amara Raja has always offered time tested world class Technology and process developed on international standards. High integrity VRLA systems like Power Stack and Power Plus and the recently launched high performance UPS battery- KOMBAT and AMARON hi-life automotives battery AMARON exemplify this. They are products of the collaborative battery efforts of engineering at Johnson Controls Inc. and Amara raja.
New Sensation: With AMARON launched in January 2000,Amara Raja has pioneered the introduction of hi_cube automotive batteries in India. This zero maintenance product uses the revolutionary patented Silver X technology developed by Johnson controls for high environments and incorporates many superior features that make it the most advantage battery on roads any where in the world. 1.3.3 Marketing Focus: The company has clear-cut policy of direct selling with out any intermediate. So they have setup six branches, operated by corporate operations office located in chennai. The company has virtual monopoly in higher A.H. (Amp Hour) rating market for its product VRLA. It is also having
the facility for industrial and automotive batteries.
1.3.4 Expansion: The company is setting up to Rs. 1920 lacks plant in 18 acres in Karakambadi village, Renigunta Mandal. The project site is a notified under “B” category. Amara Raja’s Core Value: 1 Work with integrity. 2 Customers satisfaction. 3 Effective employee selection, employee development, motivation and recognition. 4 Safety and environment. Amara Raja Core Purpose: To transform the spheres of influence and to enrich the quality of life by building institutions that provides better access to better opportunities, goods and services to more people all the time. Amara Raja’s Strengths: 1 Proven technology from Gould National Battery Co.Ltd(GNB) and being a pioneer. 2 Strong and well organized customer base. 3 Full- organized infrastructure in place. 4 Manufacturing facilities perceived as benchmark in India. 5 Complete range of VRLA batteries. 6 Proven field performance in all user segments. 7 Approved vendor status in major user segments.
AMARA RAJA POWER SYSTEMS: Amara Raja Power systems Pvt.Ltd.,(ARPSL) was incorporated in the year 1984 and was copromoted by Andhra Pradesh electronic development corporation (APEDC) with a vision to provide “Complete and integrated DC solutions” to customer requirement. The company is situated in 200acre Amara Raja Complex, Renigunta, and 7 kilo meters from Tirupati, India with a manufacturing facility with a capital outlay of Rs.71 crores, machinery and testing with Rs.53 crores. Growth: Amara Raja Power Systems began its operations with first commercial production of uninterrupted power supply systems in 1987 in technical collaboration with M/s. HDR Power Systems Inc., USA. In the 1989 Thyristor based battery charger were added to the product line and ever since, it is the leading manufacturer of custom build battery charger in India catering all the types of applications and services. Designs and products of ARPSL are tested and well accepted by leading consultants Viz. Mecon, EIL, PGCIL, TCE etc. To cater to a wide range of applications and customer needs, Amara Raja has developed custom built investers in 1990 for Indian Railways used in the AC coaches. Also they are regular suppliers of chargers as per research design and standard organization (RDSO) specifications for Traction and signal & telecommunications for Indian Railways. With change in technology and opening up of telecom sector, they are quick to adapt to the fast changing scenario. As a result in 1999, Amara Raja has started manufacturing switch mode rectifiers (SMR) in technical collaboration with M/s. Rectifier technologies, Australia for telecom applications with expanded, modernized and integrated plant facilities. The company also received the ISO-9001 certification in the year 1999. ARPSL implemented an ERP program in the march 2000 for enhanced operational efficiencies and tighter integration for expanding operations and spreading of business. The company has crossed 30 crores turnover in 2003.
Product Range: 1. Conventional battery Chargers : up to 220V/50 24V/2000A Application(s): 1 Power Process Industries 2 Power Generating stations 3 Power Transmission 4 Oil & Natural gas plants 5 Sub-stations 2.Switch mode Rectifiers (SMR): Modules of 48V/25A upto 200A and 48V/100A upto 3200A Modules of 110V/15A Application(s): 1 ERBX 2 Telecom Exchanges 3.Integrated Power Supply Systems(IPS) Application(S): 1 Signaling 2 Telecom 3 Traction 4. DC/AC Distribution Boards. 5. Charge/Discharge Units for Battery Information.
Customers and Solutions: Today ARPSL is the largest supplier of Switch Mode Power Supply (SMPS) Systems to core Indian Utilities such as Bharat Sanchar Nigam Ltd., Indian Railways, Power Generating
Stations, MTNL, BEL, PUNCOM and HTL. Major MNC’s like Siemens, Fujitsu, Motorola and Tata Liberty are among ARPSL clientele. With their rich experience and available technology they were closely involved with Indian Railways in developing SMPS based Integrated Power Supply Systems for Signaling and Telecommunication applications. ARPSL obtained RDSO approval in 2000 for its SMPS based Integrated Power supply(IPS) System and seems then they are preffered suppliers of IPS. Today they provide complete and integrated DC solutions with having manufacturing facility for MF-VRLA Battery, Thyristor based Battery Charger, Switc Mode Power Supply Systems, DC/AC Distribution Board, Bus Ducts and associated accessories in single complex with an experience of more then 15 years in these products catering to Power and Process, Telecom and Railway sector. Organization Chart of ARPSL: The organization chart of ARPSL is given in figure 1-1. The various departments in APRSL are given below: Research and Development. 1 Engineering. 2 Quality Management Department. 3 Operations. 4 Quality Assurance. 5 Information Technology*. 6 Human Resource Development*. 7 Finance and Accounts Development*. 8 Supply Chain*.
Awards: The award received by the company are: 1 Best Industry all round Performance’ award in 1998 by Federation of Andhra Pradesh
Chamber of Commerce and Industry (FAPCCI). 2 ‘Entrepreneur of the year’ awarded to Mr. Ramachandra N. Galla, Chairman and Managing Director in 1998 by Hyderabad Management Association. 3 ‘Business Excellence Award’ in 1998 by Industrial Economists, chennai. 4 ‘Udyog Rattan Award’ in 1999 by the Institute of Economic Studies, New Delhi. 5 “Excellence in Environmental Management “ for the year 2001-02 from the Andhra Pradesh State pollution Control Board. 6 ‘World Excellence Award’ for the year 2003 by Ford Motor Company. Social Concerns: The company has high social concern and it is implementing several programs for clear environment and social uplift. Environmental programmes: 1 Advancement for ISO-14001 Certification. 2 Health monitoring and awareness programme. 3 Both personal and industrial safety programme. 4 Start-up of Environmental Management Systems(EMS) implementation programs. 5 Nil discharge and lowest emission awareness and implementation programme. 6 Waste reduction scheme. 7 Energy conservation programme. 8 Continuous and massive greenbelt development programme. 9 10 Ground water level improvement programme. 11 Central wastage collection, treatment, storage and safe disposal programme. 12 Personal health safe guarding program. Social Programmes: 1 Housing colony to the employees is in process. 2 Total plan-500 families over 5year. 108 already commissioned. 3 Plan to provide community hall, open Auditorium. Recreation Club, Parks and Play Ground. 4 Training center for employees.
5 Bachelor’s Hostel, Co-operative Stores and Bank in operation. 6 Roads, Water supply, Streetlights, Greenery, Education and cultural activities, enhancement in the neighboring villages. 7 Award and reward to the younger generation for improvement of education. 8 Modernization of public parks for the full-fledged recreation of children. 9 Public awareness programme (in Mumbai) on Environmental protection, through street theatre “whose Mumbai is it any way” on the occasion of Earth Day, April 22nd, 2001.
SOCIAL SECURITY SCHEMES
Social security is a security that society furnishes through appropriate Organization against certain risks to which it’s members exposed. These risks are contingencies of life like accidents and occupational diseases. Employer has to provide various benefits like safety measures, compensation in case of involvement of workers in accidents, medical facilities etc, with a view to provide security to his employees against various contingencies. • EMPLOYMENT SECURITY: Benefits under this head include unemployment insurance, technology adjustment pay, leave travel pay, overtime pay, level for negotiation, leave for maternity, leave for grievances, holidays, cost of living bonus, call-back, lay-off pay, retiring rooms jobs to the sons/daughters of the employees and the like.
•
HEALTH PROTECTION: Benefits under this category include : deferred income plans, pensions, gratuity, provident fund, old age assistance, old age counselling, medical benefits for retired employees, traveling concession to retired employees, jobs to sons/daughters of the deceased employee and the like.
•
PERSONNEL IDENTIFICATION, PARTICIPATION AND STIMULATION: This category covers the following benefits:
Anniversary awards, attendance bonus, canteen, cooperative credit societies, educational facilities, beauty parlour services, housing, Income tax aid, counseling, quality bonus, recreational programmes, stress counselling, safety measures etc. • HEALTH BENEFITS: family members. Employees state insurance act, 1948 deals comprehensively about the health benefits to be provided. This act is applicable to all factories, establishments, running with power and employing 20 or more workers. Employees in these concerns and whose wages do not exceed Rs.1,000 per month are eligible for benefits under the Act. Benefits under this act include. Providing health maintenance services, emergency care, on-the –job treatment care for minor complaints, health counselling, medical supervision in rehabilitation, accident and sickness prevention, health education programme, treatment in employee colonies etc.
?
Today various medical services like hospital, clinical and
dispensary facilities are provided by the organizations not only to employees but also to their
?
Medical benefits are extended to employee family members and to the retired employees and their family members. Small organizations which cannot set-up hospitals or large organizations (in those where hospitals cannot be set-up because of various reasons) Provide the medical services through local hospitals and doctors. Sometimes they provide the facility of reimbursement of medical expenses borne by the employees.
?
TABLE 1 STATEMENT SHOWING CHANGES IN GROSS WORKING CAPITAL AND NET WORKING CAPITAL (Rs.in Crores) Particulars I. Current Assets Inventory 4.13 6.83 8.61 11.69 9.31 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05
Debtors Cash & Bank Balances Loans & Advances Other Current Assets
0.60 0.21 1.79 0.04
7.60 2.96 2.95 0.07
13.43 1.22 4.35 0.02
25.73 3.39 5.91 -
11.59 2.47 6.84 -
Gross Working Capital II. Current Liabilities Net Working Capital
6.77
20.41
27.63
46.72
30.21
46.13
5.40 1.37
5.62 14.71
13.16 14.47
21.20 25.52
12.20 18.01 25.85
Source: Compiled from the Annual Reports of Amaraja Power Systems Limited.
GROSS WORKING CAPITAL Vs WORKING CAPITAL 50 45 40 PERCENTAGES 35 30 25 20 15 10 5 0 1 2 3 4 5
NET
Gross Working Capital Net Working Capital
6
YEARS
TABLE 1.1 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2000 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Increase in Working Capital 8.22 8.22 8.00 7.5 14.79 5.40 5.62 0.22 1.80 0.04 12.9 2.95 0.07 20.41 1.15 0.03 4.12 6.03 0.20 6.83 7.60 2.96 2.71 1.57 2.76 2001 Increase Decrease
TABLE 1.2
SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2001 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Decrease in Working Capital 9.33 9.34 0.51 14.79 14.28 5.62 13.16 7.54 2.95 0.07 20.41 4.3 0.01 27.44 1.35 0.06 6.83 7.60 2.96 8.61 13.3 1.22 1.78 5.7 1.74 2002 Increase Decrease
TABLE 1.3 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores)
Effect on Working Capital 2002 A. Current Assets Inventories S.Debtors Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Increase in Working Capital 19.17 19.17 11.11 14.28 2.27 13.16 21.20 8.04 4.3 0.02 27.45 5.91 23.47 1.61 0.02 8.61 13.3 1.22 11.6 25.7 3.39 2.99 12.4 2.17 2003 Increase Decrease
TABLE 1.4 SCHEDULE OF CHANGES IN WORKING CAPITAL (Rs.in Crores) Effect on Working Capital 2003 A. Current Assets Inventories S.Debtors 11.6 25.7 9.3 11.5 2.3 14.2 2004 Increase Decrease
Cash & Bank Balances Loans & Advances Other Current Assets Total Current Assets : (A) B.Current Liabilities Current Liabilities and Provisions Net Working Capital (A-B) Decrease in Working Capital
3.39 5.91 23.47
2.47 6.84 30.11 0.93
0.92
-
21.20 2.27
12.20 17.91
9.00
7.49 17.42 17.42
THE STATEMENT OF SHOWING THE AVERAGE CHANGES IN WORKING CAPITAL.
(Rs.in Crores) YEAR Direction of changes In Working Capital Increasing Amount of change In Working Capital 3.00
2001
2002
Decreasing
0.51
2003
Increasing
11.11
2004
Decreasing
7.49
Average change in Working Capital=
8-.51+11.11-7.49 / 4 = 2.78
Inference:
The data in the above table shows that there is a mixed trend in changes in Working Capital. That is both positive changes and negative changes. However there is an increase and decrease in changes of Working Capital, but the Average change in Working Capital remains positive i.e., increasing trend.
RATIO ANALYSIS
WORKING CAPITAL RATIOS The financial strength and weakness of a firm can identified with the help of financial analysis by properly establishing the relationship between the items of the balance sheet and the profit and loss account. Ratio analysis is a powerful tool of a financial analysis. RATIO ANALYSIS A Ratio is defined as “the indicated Quotient of two mathematical expression” and as “the relationship between two or more things”. Ratio analysis is used as an index of yards stick for evaluating the financial position and the performance of a firm. This technique is very much useful in assessment of working capital requirement and also to
know the performance of the company. By using these ratios we can arrive how much working capital funds are invested in current assets. It is important because investment in current asset’s must not be short or in excess. If investment is short, it hinders the production process and also utilization of the capacity to the full extent. If it is excess than there will be blockage of funds which is not safe for the company i.e., excess interest burden etc. Therefore, the investment in current asset’s must not be in short or in excess. To know this we can use ratio analysis techniques.
Classification from the point of financial management is as follows • • • • Liquidity ratios Leverage ratios Activity ratios Profitability ratios
CURRENT RATIO The current ratio of a firm measures its short-term solvency i.e., its ability to meet short term obligations. It indicates the rupees of current assets available for each rupee of current assets available for current liability. Current Ratio = Current Assets / Current Liabilities
TABLE 1
Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
Current Assets 122 204.36 275.61 467.38 302.18 461.22
Current Liabilities Ratio 54 56.2 131.6 212 122 202 2.2 3.6 2.1 2.2 2.4 2.2
Table 1.1 Current Ratio
CURRENT RATIO
4 3.5 3 2.5 RATIO 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the chart shows that the actual Current Ratio is greater than the standard current ratio. But the actual current ratio is not much greater than the standards except in 2000-01. The current ratio has increased from 2.2 in the year 2000 to 3.6 in 2001, and further fallen to 2.1 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the actual current ratio of Amaraja Power Systems Ltd.is found satisfactory. . QUICK RATIO It is a measurement of a firms ability to convert its current assets quickly into cash in order to meet its current liabilities. Quick ratio of 1:1 is considered
satisfactorily. This ratio measures liabilities. Quick ratio
the firms ability to service short term
= Current Assets-Inventories / Current Liabilities. TABLE 2
Year
Current Assets Liquid Liabilities Inventories
Ratio
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005
80.76 136 189.46 350.43 209 334.4
54 56.2 131.6 212 122 202.7
1.5 2.4 1.4 1.6 1.7 1.6
Table 2.1 Quick Ratio.
QUICK RATIO
3 2.5 2 RATIO 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEAR
INFERENCE: The data analysis provided in the above chart shows that the Quick Ratio is increases up to 2.4 in the year 2001 and further fallen to 1.4 in the year 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the Quick ratio of ARPSL is found satisfactory.
INVENTROY TURN OVER RATIO This ratio indicates whether the inventory is efficiently used or not. The
purpose behind this is to see whether only minimum required funds have been locked up in inventory. It indicates the efficiency of the firm in producing and selling its products. Inventory Turnover Ratio = Sales / Average Inventory TABLE 3 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Sales 153.77 318.72 364.32 542.00 323.03 508.87 Average Inventory 30.54 54.79 77.23 101.54 105.02 132.52 Ratio 5.03 5.8 4.7 5.3 3.00 3.83
Table:3.1
Inventory Turnover Ratio. INVENTORY TURNOVER RATIO 7 6 5 RATIOS 4 Ratio 3 2 1 0 19992000 20002001 20012002 20022003 20032004 20042005
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Inventory Turnover Ratio is more in the year 2000-01 i.e., 5.03 & 5.8 later it will decreased in 2002 (4.7). Further it again increases to 5.3 in 2003. But later almost all decreasing trend over the study period. Therefore , it can be concluded that on an average the Inventory Turnover Ratio of ARPSL is found satisfactory.
WORKING CAPITAL TURNOVER RATIO
This ratio makes clear whether the business is being carried on with small or large amount of working capital in relation to sales. Working Capital Turnover Ratio = Net sales / Net working capital. ( Net working capital = Total current assets - Current liabilities)
TABLE 4 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Net sales 153.77 318.72 364.32 542.00 323.03 508.91 Net Working Capital 67.98 148.15 144.01 255.31 180.09 258.84 Ratio 2.26 2.15 2.53 2.12 1.79 1.96
Table 4.1
Working Capital turnover Ratio:
WORKING CAPITAL TURNOVER RATIO
3 2.5 RATIOS 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Working capital Turnover Ratio is more in 2000 to 20003. Especially in 2002 recorded a high working capital turnover ratio i.e.,2.53. Further fallen to 1.79 in 2004 and almost all stable over the study period. Therefore, it can be concluded that on an average the Working Capital Turnover Ratio of ARPSL is found satisfactory.
CASH POSITION RATIO
Cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash; therefore, they may be included in the computation of cash ratio. Cash ratio=cash+marketable securities/current liabilities TABLE 5 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Cash 20,79,611 29.64 12.4 33,96,015 24.73 27.95 Current liabilities 374.85 28.69 84.81 157.20 61.27 126.7 Ratio 0.053 1.00 0.14 0.22 0.40 0.22
Table 5.1 Cash Position Ratio:
CASH POSITION RATIO
1.2 1 RATIOS 0.8 0.6 0.4 0.2 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Cash Position ratio is 0.053 in the year 2000. Later it increases to (1) in 20001. Further fallen to 0.114 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the cash position ratio of ARPSL is found satisfactory.
DEBTORS TURNOVER RATIO Debtors turn over ratio indicates the no of times debtors turn over each year. Generally the higher the value of debtors turnover, the more efficient is the
management of credit . Debtors turnover ratio = credit sales/average debtors (or) debtors turnover ratio = sales /debtors
TABLE 6 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Total sales 159.6 334.08 379.17 560.87 333.60 525.46 Average debtors 60.37 76.06 133.49 257.31 115.90 216.24 Ratio 2.6 4.4 2.84 2.18 2.87 2.42
Table 6.1 Debtors Turnover Ratio:
DEBTORS TURNOVER RATIO
5 4.5 4 3.5 RATIOS 3 2.5 2 1.5 1 0.5 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Debtors Turnover ratio is 2.6 in the year 2000. But it increased to 4.4 in 2001, further fallen to 2.84 in 2002 and almost all stable over the study period. Therefore, it can be concluded that on an average the Debtors Turnover ratio of ARPSL is found satisfactory.
DEBTORS COLLECTION PERIOD The average collection period measures the quality of debtors since it period,
indicates speed of their collection. The shorter the average collection
the better the quality of debtors, since a short collection period implies the
prompt payments by debtors.
TABLE 7 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Days in a year Debtors turnover ratio 365 365 365 365 365 365 2.6 4.4 2.84 2.18 2.87 2.42 In days 140 days 83 days 128 days 167 days 127 days 150 days
INFERENCE: The data analysis provided in the above chart shows that the Debtors collection period is 140 days in 2000. But it is fallen to 83 days in 2001. Later it increases to 128 in 2002. Further almost all increasing trend over the study period. Therefore, it can be concluded that on an average the Debtors Collection period of ARPSL is found Satisfactory.
EARNINGS PER SHARE The profitability of the common shareholders investment can also be measured in many other ways. One such measure is to calculate the earnings per share. The earnings per share is calculated by dividing the profit after taxes by the total number of common (ordinary) shares outstanding.
EPS = profit after tax-Preference Dividend / no of equity shares TABLE 8 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Profit after tax 5.48 26.16 19.83 22.12 12.29 19.94 No of equity shares 5,77,600 5,77,600 5,77,600 5,77,600 5,77,600 5,77,600 EPS 9.5 45.30 34.33 38.31 21.28 34.52
Table 8.1 Earning Per Share:
EPS 50 45 40 35 RATIOS 30 25 20 15 10 5 0 19992000 20002001 20012002 20022003 20032004 20042005 EPS
YEARS
INFERENCE: The data analysis provided in the above chart shows that the Earning per share is 9.5 in the year 2000. It is raised to 45.30 in the year 2001. later it fallen to 34.33 in 2002 and again fallen to 21.28 in 2004 due to debtors. Later it again raised to 34.52 in 2004-05. Therefore, it can be concluded that on an average the Earning Per share of ARPSL is found satisfactory.
CREDITORS TURNOVER RATIO This ratio calculates the creditors turnover ratio of the company. The following is the definition for the creditors turnover ratio.
Creditors Turnover Ratio=Purchases/Average Creditors.
TABLE 9 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Purchases 114.85 198.84 234.85 380.73 157.83 297.75 Average Creditors 125.83 15.13 37.46 101.27 84.93 74.17 Ratio 9.00 13.00 6.27 3.75 1.86 4.00
Table:9.1 Creditors Turnover Ratio.
CREDITORS TURNOVER RATIO
14 12 PERCENTAGE 10 8 Ratio 6 4 2 0 19992000 20002001 20012002 20022003 20032004 20042005
YEARS
INFERENCE: The data analysis provided in the above chart shows that the creditors turnover ratio is 9 in the year 2000. later it increased to 13 in 2001. Further fallen to 6.27 in 2002 and 1.86 in 2004. Again it raised to 4 in the year 2005. Therefore it can be concluded that on an average the creditors turnover ratio of ARPSL is found satisfactory.
RETURN ON CAPITAL EMPLOYED RATIO: This ratio calculates the return on capital employed. The following is the definition for the return on capital employed ratio. Return on Capital Employed= EBIAT/Average Capital employed
Table 10 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 EBIAT 8.47 41.86 32.83 35.93 18.85 32.01 Average Capital employed Ratio 30.31 60.91 54.70 88.80 7.62 43.21 0.28 0.68 0.60 0.40 0.25 0.74
Table:10.1 Return on Capital Employed
RETURN ON CAPITAL EMPLOYED
0.8 0.7 0.6 percentage 0.5 0.4 0.3 0.2 0.1 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
years
INFERENCE: The data analysis provided in the above chart shows that the Return on capital employed is 0.28 in the year 2000. Later it raised to 0.68 in the year 2001. Further fallen to 0.25 in the year 2004. Again it raised to 0.74 in the year 2005. Therefore it can be concluded that on an average the Return on capital employed of ARPSL is found satisfactory.
RETURN ON NETWORTH RATIO:
This ratio calculates the return on Net worth. The following is the definition for the return on net worth ratio. Return on Net worth= EAT/Net worth
Table 10 Year 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 EAT 5.48 26.16 19.83 22.12 12.29 20.00 Net worth 32.40 56.34 74.15 91.80 101.01 122.53 Ratio 0.17 0.46 0.27 0.24 0.12 0.16
TABLE :11.1 Return on Net worth
RETURN ON NETWORTH
0.5 0.45 0.4 0.35 PERCENTAGE 0.3 0.25 0.2 0.15 0.1 0.05 0 19992000 20002001 20012002 20022003 20032004 20042005 Ratio
YEARS
INFERENCE: The data analysis provided in the above table shows that the Return on Net worth is 0.17 in the year 2000. Later it is increased to 0.46 in the year 2001. Then almost all stable over the study period. Therefore it can be concluded that on an average the Return on Net worth of ARPSL is found satisfactory. OPERATING CYCLE
PARTICULARS
2000
2001
2002
2004
Raw materials Payments & Benefits Manuf.exp Taxes & Licences Depreciation
95473655 10252441 4589420 26731609 8347589
182860975 14612863 8754564 57640545 9957186
368970142 26931303 13615749 79626493 14374995
188605718 34916533 7315729 45687482 17211150
145394714 Add.op.stock in process 3633047 149027761 Less clo.Stock in process Cost of production Add.op.stock of F.G 5709845 143317916 30833
273826133 5709845 279535978 16695313 262840665 26568
316146236 16695313 332841549 10322736 322518813 115988
503518682 10322736 513841418 24020436 489820982 -
293736672 29849453 323586065 29849453 293736612 5721726
143348749 Less.cl.stock of F.G 26568
262867233 115985
322634798 -
489820982 5721726
299458338 6823297
Cost of goods sold Raw materials period Rmcl X 365/Rmc Work in process Conversion period
143322181
262751248
322518813 75215601X365 210036689 =130.7 10322736 X365 322518813 =11.68
484099256 86985087X365 368970142 =86 24020436X365 484099256 =17.89
292635041 56217408X365 188605718 =108.79 29849453X365 293736612 =37
3483545240 68349380X365 287493865 =86.77 37689259X365 324789625 =42.35
35531236X365 51515523X365 95473655 =135.8 5709845X365 =14.54 182860975 =102.8 16695313X365 262840665 =23
cl.WIPX365/cost of prod. 143317916
F.G.Convertion period cl.f.gX365/cost of goods sold
26568x365 143822181 =0.06
115985X365 262751248 =0.16
X 365 322518813 =0.000001
5721726X365 484099256 =4.3
6823297X365 292635041 =8.5
9945270X365 324783805 =11.17
collection period(Deb.con 6037271X365 period) cl.Deb.X365/credit sales 159620442 =14
76061052X365 334085791 =83.1
133491610X365 379172049 =128.5
257319891X365 560870412 =167.5
115908585X365 333601680 =126.8
178407865X365 453495786 =150.21
payment Deferral period Purchases.
21083955X36 =67
9178015X365 198845262 =17
65758456X365 234658351 =102
136789371X365 380739628 =131
33089146X365 157838039 =76.5
105783094X365 408952783 =94.41
Cl.creditors X 365/credit- 114852818
FINDINGS
On the overall evaluation of the working capital management at each and every aspect, the following findings are found.
1. The current ratio is more than the industry standard of 2:1 through out the period of observation. It indicated the liquidity position of the firm is good. 2. The quick ratio is also above the standard level of 1:1 through out the period. This shows the company saving high liquidity position and capable of meeting the quick liabilities promptly. This is also an indication of the efficient management of the inventories, which are reduced considerably during the period of observation. 3. Cash position ratio during the year 1999-2000 is very low at 0.1. However the remarkable improvement in the cash position has been achieved. There after and the company is capable of meeting all its commitments promptly. 4. The reserves and surplus is always accumulating every year. The company reserves are more than the company capital. 5. The company operating cycle and cash cycle is decreasing year by year gradually. 6. The company’s book debts constitute a major portion in the working capital 7. The shareholders are getting maximum returns. 8. The funds flow reveals the liquidity of the firm.
SUGGESTIONS The following suggestions are made in accordance with the stated findings. 1. The idle working capital should be fully utilized by reducing the operation cycle to a minimum level. 2. The company is maintaining huge inventories, which results in high
inventory carrying cost. The company should maintain an optimum size of inventory to decrease the inventory carrying costs. 3. The company should increase its sales volume, so as to results in optimum utilization of capacity and maximization of profit. 4. The hike cash holding of the firm should be kept for any other purpose such as investing in the investments or discharging the loads. 5. The company can utilize the maximum long term funds through bank and financial institutions. 6. They should see that then debtors be collected with in a specified time by the company, so that they can discharge some of its creditors or current liabilities and avoid payment of interest. 7. The company can utilize the reserves and surplus by either capitalizing or can invest the money some where as investments to get benefits. 8. It is oblivious that the working capital which is expressed to very much liquid. Thus the business has been made vulnerable to technical insolvency a grievance problem before the management.
BIBLIOGRAPHY
Financial Management-
I.M Pandey Vikas Publishing House New Delhi. M.Y.khan & P.K.Jain Vikas Publishing House New Delhi. Prasanna Chandra,Tata Megraw Hill Publishing Co. Limited, New Delhi.
Financial Management-
Financial ManagementTheory & Practices
Working Capital Management- Choudhary, Anil,B.R, Eastern house Calcutta.
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