Beruflich Dokumente
Kultur Dokumente
REPORT
ON
WORKING CAPITAL
MANAGEMENT
AND PROFITABILITY AT ATUL
AUTO LTD
Shapar (Veraval)
SUBMITTED TO
SAURASHTRA UNIVERSITY
IN PARTIAL FULFILLMENT FOR THE AWARD OF THE
MBA DEGREE
SUBMITTED BY
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Working Capital Management &
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PREFACE
Today in the era of globalization where in emerging of varied types of trends of
technological advancement is taking place to give the end user a product which is
better than the best with the changes & development in the field of business
economics & corporate world & emergence of various companies in the Indian
market user had the cutting edge to invest into various fields in order to get the
maximum benefit out of the existing schemes in the regulatory environment.
The objective of this report is to understand the Working Capital Management
and Profitability of Atul Auto Ltd. through various analyses.
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ACKNOWLEDGEMENT
It gives me immense pleasure to present this project report on Working Capital
Management and Profitability carried out at ATUL AUTO LTD. In partial
fulfillment of post-graduate course M.B.A.
No work can be carried out without the help and guidance of various persons. I
am happy to take this opportunity to express my gratitude to those who have been
helpful to me in completing this project report.
I would like to thank Mr. Hitesh Popat sir to help me in granting permission in
this organization. I am especially thankful to Mr. J.V. Adhiya sir (Vice President
of Finance) for their valuable advice and guidance during my project completion.
I am also thankful to Mr. Hiren Nayak sir (HR Depart.) for granting me
permission for this project.
I would be failing in my duty if I do not express my deep sense of gratitude to Dr.
Dharmesh S. Raval sir without his guidance it wouldnt have been possible for
me to complete this project work.
Lastly I would like to thank my parents, friends and well wishers who
encouraged me to do this research work and all those who contributed directly or
indirectly in completing this project to whom I am obligated to.
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DECLARATION
We, Ankit J. Raichura Students of MBA IV (Finance) 2008-2010 studying at
M.H.Gardi School of Management, Anandpar, declare that the project work
entitled Working Capital Management and Profitability of Atul Auto
Ltd.,Rajkot Was carried by us in the partial fulfillment of MBA program under
the Saurashtra University, Rajkot.
This project was undertaken as a part of academic curriculum according to the
university rules and norms and it has not commercial interest and motive. It is my
original work. It is not submitted to any other organization for any other purpose.
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TABLE OF CONTENT
SR
No.
Particulars
Page
No.
1.
Executive Summary
01
2.
COMPANY INFORMATION
02
3.
1.1 Introduction
1.2 Brief History
1.3 Managing Team
1.4 Group of Companies
1.5 Forms of organization and Size of Unit
1.6 Organization Structure
1.7 Contribution of Unit
WORKING CAPITAL MANAGEMENT
04
05
06
07
08
10
11
12
4.
2.1 Introduction
2.2 Need of Working Capital
2.3 Concept of W.C. Management
2.4 Types of Working Capital
2.5 Importance of W.C. Management
2.6 Determination of Working Capital
2.7 Sources of working capital
2.8 Working Capital Components
RESEARCH METHODOLOGY
13
14
15
16
19
20
22
23
35
3.1 Introduction
3.2 Objective of the Study
3.3 Scope and Limitation of the Study
3.4 Linear Correlation Co-Efficient
3.5Types of data collection
3.6 Data Analysis
36
37
38
39
41
42
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Return on Investments
Working Capital Size & Level Analysis
Working Capital Ratio Analysis and Comparison
with Return on Investments.
43
45
57
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EXECUTIVE SUMMARY
Atul Auto Ltd. is Indias reputed and leading manufacturer of Light Vehicle
Transport. Atul group also in other businesses like Auto Finance, two wheeler
and 4 wheeler distributors. Dealing in Petroleum Fuels and Products,
Telecommunication and also in Real Estate.
Atul Auto Ltd. have a very good market share with product differentiation like
goods carries, passenger carries, special carries. Atul Auto Ltd. covers the good
market share in Gujarat, Uttaranchal, Rajasthan, Orissa and Uttar Pradesh. Atul
Auto Ltd. exports their product in Nigeria, Egypt, Kenya, Tanzania, and plenty of
African country.
Working capital is life blood of any business organization. This study shows the
working capital management of Atul Atuo Ltd. It includes, working capital size
and level analysis, working capital ratio analysis and comparison with
profitability ratio (ROI).
In this study working capital ratios compare with profitability ratio (ROI). With
the help of karl pearsons correlation co-efficient statistical tools and found the
relationship between those ratios. Through this we could found working capital
impact on profitability of the Atul Auto Ltd.
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Chap.
1
Company
Information
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PROJECT AT A GLANCE
Name of the unit
:-
:-
:-
Fax
:-
Website
:-
www.atulautoltd.co.in
Established year
:-
1983
:-
Form of organization
:-
Founder
:-
Jentibhai Chandra
Bankers
:-
Auditors
:-
Weekly off
:-
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1.1 INTRODUCTION
20 years ago Jentibhai Chandra has started the business as a manufacturer of
automobile- Chhakara. The business was started at Jamnagar on Small base.
After some years diversification was made and they have started manufacturing
of DIESEL 3-WHEELERS along with chhakara. With the aim to cover
national market they have started emptier plant at Shapar (Veraval) because of
better transportation services and many other things.
At present the company is running under the name ATUL AUTO LIMITED.
Basically company is producing diesel engine vehicles. It produces 3-wheelers
like chhakera, pick-up van, delivery van and passenger van.
Now a days company is selling its products mainly in Andhra Pradesh,
Karnataka, Gujarat, Rajasthan, MP and Maharashtra. ATUL AUTO LIMITED
is leading company as a manufacturer of diesel 3-wheelers.
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Vice Chairman
Executive Director
Director
Director
Director
Auditors
M/S Purohit Company & Company
Charted Accounts
Jamnagar.
Bankers
1.
2.
3.
4.
Functional Managers
1. Finance Manager
: Mr. J. H. Adhiya
2. Personal Manager : Mr. M.H. Desai
3. Marketing Manager : Mr. K. M. Cheriyan
4. Production Manager : Mr. P. J. Raval
Registered & Transfer Agent
Sharex India Private Ltd.
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Basic Forms
1.
2.
3.
4.
Other Forms
1.
2.
Characteristics:
Free transfer of shares.
Large No. of Membership.
Artificial Legal Personality.
Limited liability.
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1.
2.
3.
4.
Size of Unit
Size of unit can measured from in total capital divested in business. On the basis
of capital investment, there are main two types of industry. But there are there
other types also.
1.
2.
Other
1. Tiny Industry
2. Cottage Industry
3. Ancillary Industry
The total investment in large-scale industry; must be more than 20 corers and up
to 100 corers. Total investment of ATUL AUTO LIMITED is more than 20
corers. Thats why it is large-scale industry.
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LINE ORGANIZATION
LINE & STAFF ORGANIZATION
MATRIX ORGANIZATION
FUNCTIONAL ORGANIZATION
PROJECT ORGANIZATION
COMMITTEE ORGANIZATION
From above given all type of organization ATUL AUTO LIMITED had
adopted LINE ORGANIZATION.
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Chap.
2
Working
Capital
Management
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2.1 INTRODUCTION
Working capital management is concerned with the problems arise in attempting
to manage the current assets, the current liabilities and the inter relationship that
exist between them. The term current assets refers to those assets which in
ordinary course of business can be, or, will be, turned in to cash within one year
without undergoing a diminution in value and without disrupting the operation of
the firm. The major current assets are cash, marketable securities, account
receivable and inventory. Current liabilities ware those liabilities which intended
at there inception to be paid in ordinary course of business, within a year, out of
the current assets or earnings of the concern. The basic current liabilities are
account payable, bill payable, bank over-draft, and outstanding expenses.
The goal of working capital management is to manage the firms current assets
and current liabilities in such way that the satisfactory level of working capital is
mentioned. The current should be large enough to cover its current liabilities in
order to ensure a reasonable margin of the safety.
A managerial accounting strategy focusing on maintaining efficient levels of both
components of working capital, current assets and current liabilities, in respect to
each other. Working capital management ensures a company has sufficient cash
flow in order to meet its short-term debt obligations and operating expenses.
Definition :
According to Guttmann & DougallExcess of current assets over current liabilities.
According to Park & GladsonThe excess of current assets of a business (i.e. cash, accounts receivables,
inventories) over current items owned to employees and others (such as salaries
& wages payable, accounts payable, taxes owned to government).
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The operating cycle creates the need for current assets (working capital).
However the need does not come to an end after the cycle is completed to explain
this continuing need of current assets a destination should be drawn between
permanent and temporary working capital.
Working
Capital
Permanent Working
Capital
Initial
W.C.
Regular
W.C.
Variable Working
Capital
Seasonal
W.C.
Special
W.C.
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W.C
.
Permanent W.C.
Time
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1. RECEIVABLES MANAGEMENT
The term receivable is defined as debt owed to the firm by customers arising
from sales of goods or services in the ordinary course of business.
Receivables or debtors are the one of the most important parts of the current
assets which is created if the company sells the finished goods to the customer
but not receive the cash for the same immediately. Trade credit arises when firm
sells its products and services on credit and dose not receive cash immediately. It
is essential marketing tool, acting as bridge for the movement of goods through
production and distribution stages to customers. Trade credit creates receivables
or book debts which the firm is expected to collect in the near future. The
receivables include three characteristics
1. It involve element of risk which should be carefully analysis.
2. It is based on economic value. To the buyer, the economic value in goods
or services passes immediately at the time of sale, while seller expects an
equivalent value to be received later on.
3. It implies futurity. The cash payment for goods or serves received by the
buyer will be made by him in a future period.
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Control and managing the cost of trade of credit: when there are no credit
sales, there will not be any trade credit cost. But credit sales increases profits, it is
possible only when the firm is able to keep the costs at minimum.
Size of Receivable in Atul Auto Ltd.
Particulars
Sundry Debtors
Indices
2004-05
2005-06
2006-07
2007-08
2008-09
62,934,110
100
87,395,034
138.87
81,660,540
129.75
39,619,066
62.95
35,213,006
55.95
Receivables Indices
2.
1.
2. INVENTORY MANAGEMENT
The term inventory is used to designate the aggregate of those items of tangible
assets which are
1. Finished goods (saleable)
2. Work-in-progress (convertible)
3. Material and supplies (consumable)
In financial view, inventory defined as the sum of the value of raw material and
supplies, including spares, semi-processed material or work in progress and
finished goods. The nature of inventory is largely depending upon the type of
operation carried on. For instance, in the case of a manufacturing concern, the
inventory will generally comprise all three groups mentioned above while in the
case of a trading concern, it will simply be by stock- in- trade or finished goods.
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Components of Inventory
Components of
Inventory
Raw
Materials
Work-inprogress
Finished
Product
Stores
and
Spares
1. Raw Materials
Raw materials are those inputs that are converted into finished goods through
manufacturing process. A major input for manufacturing a product. In other
words, they are very much needed for uninterrupted production.
2. Work-in-Progress
Work-in-progress is that stage of stocks that are between raw materials and
finished goods. Work-in-progress inventories are semi-finished products. They
represent products that need to under go some other process to become finished
goods.
3. Finished Products
Finished products are those products, which are ready for sale. The stock of
finished goods provides a buffer between production and market.
4. Store and Spares
Stores and spares inventory (include office and plant cleaning materials like,
soap, brooms, oil, fuel, light, bulbs etc.) are those purchased and stored for the
purpose of maintenance of machinery.
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Size of Inventory
Particulars
Raw Materials
W.I.P.
Finished Goods
Total
Indices
2004-05
2005-06
2006-07
2007-08
2008-09
44,769,200 67,035,755 125,346,150 111,552,584 145,870252
26,221,991 28,418,545 64,199,726 71,465,522 24,723,408
1,314,829
4,961,700 18,028,663 10,586,166
6,165,644
72,306,020 100,416,000 207,574,539 193,604,272 176,759,304
100
138.88
287.08
267.76
244.46
Inventory Indices
Inventory components
The firms inventory consist following components
1. Raw material
2. Work- in-progress
3. Finished goods
To analyze the level of raw material inventory and work in progress inventory
held by the firm on an average it is necessary to examine the efficiency with
which the firm converts raw material inventory and work in progress into
finished goods.
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3. CASH MANAGEMENT
Cash is common purchasing power or medium of exchange. As such, it forms the
most important component of working capital. The term cash with reference to
cash management is used in two senses, in narrow sense it is used broadly to
cover cash and generally accepted equivalent of cash such as cheques, draft and
demand deposits in banks.
The broader view of cash also induce hear- cash assets, such as marketable sense
as marketable securities and time deposits in banks. The main characteristics of
this deposits that they can be really sold and convert in to cash in short term.
They also provide short term investment outlet for excess and are also useful for
meeting planned outflow of funds. We employ the term cash management in the
broader sense. Irrespective of the form in which it is held, a distinguishing feature
of cash as assets is that it was no earning power. Company have to always
maintain the cash balance to fulfill the dally requirement of expenses.
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2. Precautionary Motive
Cash flows are somewhat unpredictable, with the degree of predictability varying
among firms and industries. Unexpected cash needs at short notice may also be
the result of following:
1. Uncontrollable circumstances such as strike and natural calamities.
2. Unexpected delay in collection of trade dues.
3. Cancellation of some order for goods due unsatisfactory quality.
4. Increase in cost of raw material, rise in wages, etc.
The higher the predictability of firms cash flows, the lower will be the necessity
of holding this balance and vice versa. The need for holding the precautionary
cash balance is also influenced by the firms capacity to have short term
borrowed funds and also to convert short term marketable securities into cash.
3. Speculative motive
Speculative cash balances may be defined as cash balances that are held to enable
the firm to take advantages of any bargain purchases that might arise. While the
precautionary motive is defensive in nature, the speculative motive is aggressive
in approach. However, as with precautionary balances, firms today are more
likely to rely on reserve borrowing power and on marketable securities portfolios
than on actual cash holdings for speculative purposes.
4. Compensating Motive
According to I.M. Pandey, the amount of cash to be held for the first two
motives, which are two most important motives, the following factors must be
taken into account:
The expected cash inflows and outflows based on cash budget.
The degree of deviation between expected and actual net cash flows.
The maturity structure of the firms liabilities.
The firms ability to borrow at short notice in the event of any emergency.
The philosophy of management regarding liquidity and risk of insolvency.
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1.
2.
3.
4.
5.
2. An efficient cash management through a relevant and timely cash budget may
enable a firm to obtain optimum working capital and ease the strains of cash
shortage, fascinating temporary investment of cash and providing funds normal
growth.
3. Cash management involves balance sheet changes and other cash flow that do
not appear in the profit and loss account such as capital expenditure.
2006-07
2,387,963
20.92
2007-08
3,752,117
32.86
2008-09
18,628,235
163.18
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Particulars
Cash & Bank
C.A. Indices
Cash cycle
One of the distinguishing features of the fund employed as working capital is that
constantly changes its form to drive business wheel. It is also known as
circulating capital which means current assets of the company, which are
changed in ordinary course of business from one form to another, as for example,
from cash to inventories, inventories to receivables and receivables to cash.
Basically cash management strategies are essentially related to the cash cycle
together with the cash turnover. The cash cycle refers to the process by which
cash is used to purchase the row material from which are produced goods, which
are then send to the customer, who later pay bills. The cash turnover means the
number of time firms cash is used during each year.
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Chap.
3
Research
Methodology
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3.1 INTRODUCTION
Research methodology is a way to systematically solve the research problem. It
may be understood as a science of studying now research is done systematically.
In that various steps, those are generally adopted by a researcher in studying his
problem along with the logic behind them.
It is important for research to know not only the research method but also know
methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology.
Methods comprise the procedures used for generating, collecting and evaluating
data. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
Data collection is important step in any project and success of any project will Be
largely depend upon now much accurate you will be able to collect and how
much time, money and effort will be required to collect that necessary data, this
is also important step.
Data collection plays an important role in research work. Without proper data
Available for analysis you cannot do the research work accurately.
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Definition
The relationship between two variables such that a change in one is accompanied
by a positive or a negative change in the other and also a greater change in one is
accompanied by a corresponding greater change in the other, is called correlation.
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Return on
Investmen
t
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Return on Investment
The profitability of the firm is measured by establishing relation of net profit with
the total assets of the company. The ratio indicates the efficiency of utilization of
assets in generating revenue.
Net Profit
Return on Investment =
Year
Net Profit
Total Assets
2004-05
30,155,499
390,094,141
ROI
7.73 %
2005-06
41,980,321
583,793,97
4
7.19%
Total Assets
2006-07
31,438,941
690,831,93
8
4.55%
X 100
2007-08
2008-09
12,669,841
4,596,564
733,998,35
778,616,638
5
1.73%
0.59%
Return on Investment
Observation
From year 2004-05 the return on investment were reduced continuously. Net
sales in Rs. was increase but the no. of unit is reduced because raw material price
and product prices hike. Its happened due to the competition and competitors. In
the year 2008-09 the return on investment reduces by 92% as compare to the year
2004-05. Its shows the inefficient utilization of the available resources.
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Working
Capital Size
&
Level
Analysis
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2005-06
2006-07
2007-08
2008-09
72,306,020
62,934,110
11,441,798
56,145,885
100,416,000
87,395,034
16,113,867
94,058,239
207,574,539
81,660,540
2,387,963
63,045,027
193,604,272
39,619,066
3,752,117
76,001,619
176,759,304
35,213,006
18,628,235
77,265,386
202,827,813
297,983,140
354,668,069
312,977,074
307,865,931
53,374,115
1,686,940
55,061,055
147,766,758
139,779,195
15,667,246
155,446,441
142,536,699
92,499,837
15,382,278
107,882,115
246,785,954
71,621,898
10,003,311
81,625,209
231,351,865
100,822,850
11,419,468
112,242,318
195,623,613
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Particulars
A. Current Assets
Inventories
Sundry Debtors
Cash & Bank
Loans & Advances
Total of A
(Gross W.C.)
B. Current Liabilities
Current Liabilities
Provision
Total of B
Net W.C. (A-B)
(Amnt. In Rs.)
2005-06
142,536,699
96.46
2006-07
246,785,954
167.01
2007-08
231,351,865
156.56
2008-09
195,623,613
132.39
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Years
Net W.C (A-B)
W.C. Indices
Observations
It was observe that in the year 2006-07 indices is very high because of mismatch
of current assets and current liabilities. Current Assets increase by 19% and
Current Liabilities decrease by 30%. After year 2006-07 companys decreased its
working capital continuously. By reducing working capital company might be
increased its profitability in next years. The fall in working capital is a clear
indication that the company is utilizing its short term resources with efficiency.
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Current Assets
Total assets are basically classified in two parts as fixed assets and current assets.
Fixed assets are in the nature of long term or life time for the organization.
Current assets convert in the cash in the period of one year. It means that current
assets are liquid assets or assets which can convert in to cash within a year.
Current Assets Size
(Amnt. In Rs.)
C.A. Indices
2004-05
72,306,020
62,934,110
11,441,798
56,145,885
2005-06
100,416,000
87,395,034
16,113,867
94,058,239
2006-07
207,574,539
81,660,540
2,387,963
63,045,027
2007-08
193,604,272
39,619,066
3,752,117
76,001,619
2008-09
176,759,304
35,213,006
18,628,235
77,265,386
202,827,813
297,983,140
354,668,069
312,977,074
307,865,931
100
146.91
174.86
154.31
151.79
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Particulars
Inventories
Sundry Debtors
Cash & Bank
Loans & Advances
Other Assets
Total of C.A.
2008-09
57.41
11.44
06.05
25.10
No. in %
100
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Total of C.A.
(No. in %)
Observation
It was observed that the size of current assets is increasing with increases in the
sales. The excess of current assets is showing positive liquidity position of the
firm but it is not always good because excess current assets then required, it may
adversely affects on profitability. Current assets include some funds investments
for which company pay interest.
The balance of current assets is maintained in the years 2004-05 and 2005-06. As
per my view in year 2006-07 is ideal because in this year Inventory was increase
and Sundry Debtors, Cash & Bank Balance and Loan & Advances were decrease
compare to last two financial years. In the year 2007-08 again Inventory was
increase and Sundry Debtors and Cash & Bank were decrease but Loans &
Advances increased. But it was not bed situation for the company.
In the year 2008-09 the Inventory was down by 7.19% compare to last year and
Cash & Bank Balance and Loans & Advances were decrease. But Sundry
Debtors was decrease by 9.64% compare to last year.
With the help of Composition of Current Assets company try to maintain and
increase the inventory level and its profitable for the company. In last five years
company reduces Sundry Debtors continuously, so we can say that company has
no more risk regarding Bed Debts.
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Current liabilities
Current liabilities mean the liabilities which have to pay in current year. It
includes sundry creditors means supplier whose payment is due but not paid yet,
thus creditors called as current liabilities. Current liabilities also include short
term loan and provision as tax provision. Current liabilities also includes bank
overdraft. For some current assets like bank overdrafts and short term loan,
company has to pay interest thus the management of current liabilities has
importance.
2004-05
53,374,115
1,686,940
55,061,055
100
2005-06
139,779,195
15,667,246
155,446,441
2006-07
92,499,837
15,382,278
107,882,115
282.32
195.93
2007-08
71,621,898
10,003,311
81,625,209
148.24
(Amnt In Rs.)
2008-09
100,822,850
11,419,468
112,242,318
203.85
Observation
Current Liabilities graph not shown continuous growth. In the year 2008-09
current liabilities in increase compare to 2006-07 and 2007-08 years. It means
company creates the credit in the market by good transaction. To get maximum
credit from supplier which is profitable to the company it reduces the need of
working capital of firm.
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Changes in W.C.
Increase
Decrease
2007-08
2008-09
193,604,272
39,619,066
3,752,117
76,001,619
176,759,304
35,213,006
18,628,235
77,265,386
312,977,074
307,865,931
5,111,143
71,621,898
10,003,311
81,625,209
231,351,865
100,822,850
11,419,468
112,242,318
195,623,613
35,728,252
29,200,952
1,416,157
30,617,109
16,844,968
4,406,060
14,876,118
1,263,767
35,728,252
51,868,137
51,868,137
Observation
As per the table data current assets decreased and current liabilities increased so
the working capital decreased as compare to the previous year. Inventory
decreased by 9% and current liabilities increased by 41% as compare to previous
year.
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% Changes in ROCE
Working capital Leverage =
Total Assets
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Working Capital Management &
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Particulars
ROCE %
% Change in ROCE
% Change in C.A.
W. C. Leverages
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Working Capital Management &
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Observation
Working capital leverage increase in 2008-09 as compare to 2004-05 its shows
the efficient use of current assets and current liabilities. In year 2006-07 lowest
working capital leverages. Company reduces its current assets and tries to
increasing in profitability.
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Working Capital Management &
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Working Capital
Ratio Analysis &
Comparison with
ROI
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INTRODUCTION
Ratio analysis is the powerful tool of financial statements analysis. A ratio is
define as the indicated quotient of two mathematical expressions and as the
relationship between two or more things. The absolute figures reported in the
financial statement do not provide meaningful understanding of the performance
and financial position of the firm. Ratio helps to summaries large quantities of
financial data and to make qualitative judgment of the firms financial
performance.
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Profitability
The technique of ratio analysis has certain limitations of use in the sense
that it only highlights the strong or problem arias, it dose not provide any
solution to rectify the problem arias.
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EFFICIENCY RATIO
1. Working capital turnover ratio
It signifies that for an amount of sales, a relative amount of working capital is
needed. If any increase in sales contemplated working capital should be adequate
and thus this ratio helps management to maintain the adequate level of working
capital. The ratio measures the efficiency with which the working capital is being
used by a firm. It may thus compute net working capital turnover by dividing
sales by net working capital.
Sales
Working Capital Turnover Ratio =
Sales
Net W.C
W.C. TOR
2004-05
989,129,942
147,766,758
6.69
2005-06
1,290,284,137
142,536,699
9.05
2006-07
1,217,733,969
246,785,954
4.93
2007-08
803,977,774
231,351,865
3.48
2008-09
1,168,174,548
195,623,613
5.97
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Years
Year
W.C. TOR
ROI
2004-05
2005-06
2006-07
2007-08
2008-09
6.69
9.05
4.93
3.47
5.96
7.73
7.13
4.55
1.73
0.59
Co-relation (r) =
0.66
Observation:
From the above figure we can say that the Working Capital Turnover was
fluctuated year by year. The highest ratio in 2005-06 and low in 2007-08 year. It
means that company fails to use of working capital efficiently in the 2007-08.
But in the year 2008-09 company increase the ratio by 72%. Company decreased
inventory, cash & bank balance and sundry debtors as compare to previous year
and increased current liabilities as compare to previous year. Correlation between
working capital turnover and return on investment is 0.66 it means relation
between them is partial positive. Working capital turnover ratio leads towards
profitability so, we can say that effective utilization of working capital resources
is very essential for maintain and improve profitability of the business.
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Working Capital Management &
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Average Inventory
Inventory Turnover
Inventory TOR
2004-05
2005-06
2006-07
2007-08
2008-09
944,744,377
1,225,196,366
1,169,161,821
784,863,874
1,162,235,516
58,360,743
86,361,010
153,995,270
200,589,406
185,181,788
16.19
14.19
7.59
3.91
6.28
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Years
Cost of Goods
Sold
Average Inventory
Year
2004-05
2005-06
2006-07
2007-08
2008-09
Inventory
TOR
16.19
14.19
7.59
3.91
6.28
ROI
7.73
7.13
4.55
1.73
0.59
Correlation (r) =
0.92
Observation
It was observed that Inventory turnover ratio indicates maximum sales achieved
with the minimum investment in the inventory. As such, the general rule high
inventory turnover is desirable but high inventory turnover ratio may not
necessary indicates the profitable situation. An organization, in order to achieve
a large sales volume may sometime sacrifice on profit, inventory ratio may not
result into high amount of profit. Companys inventory level is high as compare
to the sales. So the turnover ratio may be decline and profitability also decreases.
Inventory turnover ratio and Return on investment have strong correlation. So it
means that Inventory strongly affects the profitability of Atul Auto Ltd.
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Working Capital Management &
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2005-06
1,290,284,137
75,164,572
17.17
2006-07
1,217,733,969
84,527,787
14.41
2007-08
803,977,740
60,639,803
13.26
2008-09
1,168,174,548
37,416,036
31.22
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Particulars
Sales
Avg. Debtors
Rec. TOR
Year
Receivable
TOR
ROI
2004-05
2005-06
2006-07
2007-08
2008-09
17.36
17.17
14.41
13.26
31.22
7.73
7.13
4.55
1.73
0.59
Observation
From 2004-05 to 2007-08 there were no huge difference in Receivable turnover
ratio. But in 2008-09 this ratio increase by 80% as compare to 2004-05 it was
highest changes in last 5 years period of time. Company decreases average
debtors so the collection turnover ratio increment possible. Company increased
the receivable turnover ratio but it was not affected to the positive profitability
indices. Here inverse correlation between receivable turnover ratio and return on
investment. It indicates that receivables failed to give positive impact in
profitability of the Atul Auto Ltd.
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Sales
Current Assets Turnover Ratio =
2006-07
1,217,733,969
354,668,069
3.43
2007-08
2008-09
803,977,740 1,168,174,548
312,977,074
307,865,931
2.57
3.79
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Particulars
Sales
Current Assets.
C. A. TOR
Year
2004-05
2005-06
2006-07
2007-08
2008-09
C.A.
TOR
4.87
4.33
3.43
2.57
3.79
ROI
7.73
7.13
4.55
1.73
0.59
Correlation (r) =
0.74
Observation
Current Assets turnover ratio decreased every year compare to 2004-05. In 2004
-05 ratio was highest and in 2007-08 the ratio of current assets is very low
because of high inventory. In year 2008-09 this ratio increased by 47%. But it has
not given any positive impact on the profitability. Current assets ratio not
indicates any particular trend over the period of time. Here strong correlation
between current assets turnover and return on investment. Its indicate that
company use the current assets effectively. Effective utilization of current assets
helps to create healthy profit.
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Working Capital Management &
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Current Assets
Particulars
Current Assets.
Current Liabilities
Current Ratio
Current Liabilities
2004-05
202,827,813
55,061,055
3.68
2005-06
297,983,139
155,446,441
1.92
2006-07
354,668,069
107,882,116
3.28
2007-08
312,977,074
81,625,209
3.83
2008-09
307,865,931
112,242,318
2.74
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Current Ratio =
Year
2004-05
2005-06
2006-07
2007-08
2008-09
Current
Ratio
3.68
1.92
3.28
3.83
2.74
ROI
7.73
7.13
4.55
1.73
0.59
Observation
The current ratio indicates the availability of funds to payment of current
liabilities in the form of current assets. A higher ratio indicates that there were
sufficient assets available with the organization which can be converted in cash,
without any reduction in the value. As ideal current ratio is 2:1, where current
ratio of the firm is more than 2:1, it indicates the unnecessarily investment in the
current assets. Ratio is higher in the 2007-08 because current liability decreased
by 24%. Correlation between current ratio and return on investment is negative.
To improve the profitability company must decrease the current ratio because
some unnecessary investment in current assets blocked the money.
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2. Quick Ratio
Quick ratios establish the relationship between quick or liquid assets and
liabilities. An asset is liquid if it can be converting in to cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset .other
assets which are consider to be relatively liquid and include in quick assets are
debtors and bills receivable and marketable securities. Inventories are considered
as less liquid. Inventory normally required some time for realizing into cash.
Their value also be tendency to fluctuate. The quick ratio is found out by dividing
quick assets by current liabilities
Current Liabilities
Quick Ratio
2004-05
130,521,793
55,061,055
2.37
2005-06
197,567,139
155,446,441
1.27
2006-07
147,093,530
107,882,116
1.36
2007-08
119,372,802
81,625,209
1.46
2008-09
131,106,627
112,242,318
1.17
Quick Ratio
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Particulars
Liquid C. A.
Current Liabilities
Quick Ratio
Year
2004-05
2005-06
2006-07
2007-08
2008-09
Quick
Ratio
2.37
1.27
1.36
1.46
1.17
ROI
7.73
7.13
4.55
1.73
0.59
Correlation (r) =
0.59
Observation
Quick ratio indicates that the company has sufficient liquid balance for the
payment of current liabilities. The standard liquid ratio is 1:1 but here liquid ratio
is more than 1:1 over the period of 5 years, it indicates that the firm maintains the
over liquid assets than actual requirement of such assets. Here, correlation
between quick ratio and return on investment is moderate. Such a policy is called
conservative policy of finance affects on the cost of the fund and return on the
funds.
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Current Liabilities
Absolute Liquid Ratio
Current Liabilities
Absolute Liquid
Ratio
2004-05
2005-06
2006-07
2007-08
2008-09
11,441,798
16,113,867
2,387,963
3,752,117
18,628,235
55,061,055
155,446,441
107,882,116
81,625,209
112,242,318
0.104
0.022
0.208
0.046
0.166
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Particulars
Absolute Liquid
Ratio
Year
2004-05
2005-06
2006-07
2007-08
2008-09
Absolute
Quick
Ratio
0.208
0.104
0.022
0.046
0.166
ROI
7.73
7.13
4.55
1.73
0.59
Correlation (r) =
0.26
Observation
Absolute liquid ratio indicates the availability of cash with company is sufficient
because company also has other current assets to support current liabilities of the
company. In the year 2004-05 the ratio high. Because cash was law as compare
to current liabilities. Correlation between Absolute Liquid Ratio and Return on
investment is low. But its not any drastic impact on profitability.
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Working Capital Management &
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Chap.
4
Findings,
conclusion and
Recommendati
on
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Working Capital Management &
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Working capital size of Atul Auto Ltd. not indicate any specific trend and
fluctuate every year. Company decrease the working capital size in year
2008-09 as compare to previous year. Here lack of combination between
current assets and current liabilities so the profitability was reduced.
Current assets are more than current liabilities indicates that company use
long term funds for short term requirements, where long term funds are
most costly than short term funds.
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Working Capital Management &
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Atul Auto Ltd. Increase the working capital leverage but its failed to
increased profitability.
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Working Capital Management &
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Current ratio of the company in last years above the ideal current ratio. It
indicates companys good liquidity position and also indicates unnecessary
investment in current assets. Correlation with return on investment is
0.19 and it is negative. It means that our funds have blocked in
unnecessary current assets.
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Quick ratio of Atul Auto Ltd. also above the ideal ratio. We found
moderate correlation between quick ratio and return on investment. Here
company require to reduce some investment in current assets so the cost of
fund reduce and profitability increase.
Atul Auto Ltd. working capital shows the good liquidity position. Positive
working capital indicates that company has the ability of the payments of short
terms liabilities. Working capital of Atul Auto Ltd. not indicates any trend for
particular period of time. All over working capital management of the company
is average and its impact on profitability is average.
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BIBLIOGRAPHY
Books Referred
1.
2.
3.
4.
Websites References
1.
www.atulauto.co.in
2.
www.google.co.in
Annual Reports
1. Annual report of Atul Auto Ltd. 2004-05
2.
3.
4.
5.
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