A PROJECT REPORT ON

WORKING CAPITAL MANAGEMENT AND

RATIO ANALYSIS OF SAGAR TEXTILES,
MUMBAI
SUBMITTED BY:
MISS. ANJALI R. KUKREJA
(21461)
INTERNAL PROJECT GUIDE:
MRS. REKHA KANKARIYA
SUBMITTED IN PARTIAL FULFILLMENT
OF THIRD YEAR
BACHELOR DEGREE OF BUSINESS
ADMINISTRATION
OF SAVITRIBAI PHULE PUNE
UNIVERSITY.
ST. MIRAS COLLEGE FOR GIRLS
2016-17
1
 DECLARATION
I, hereby declare that the Finance report entitled, WORKING
CAPITAL MANAGEMENT AND RATIO ANALYSIS, with special
reference to SAGAR TEXTILES, MUMBAI, is written and
submitted by me to the University of Pune in the partial fulfillments
of requirement for the award of degree of Bachelors of Business
Administration under the guidance of Mrs. Rekha Kankariya, is my
original work and the interpretation drawn are based on the true
information collected my myself.

Declared by:
Anjali Kukreja

Date:

2
 ACKNOWLEDGEMENT

I would like to thank SAGAR TEXTILES for providing me all

relevant and priceless information.
It is my privilege to express my sincerest regards to our project
coordinator, Mrs. Rekha Kankariya, for her valuable inputs, able
guidance, encouragement, and cooperation throughout the duration of
my project.
I deeply express my sincere thanks to our Principal, Dr.
GulshanGidwani, and Head of BBA Department, for encouraging and
allowing me to present the project on the topic Working capital
management for the partial fulfillment of the requirements leading to
the award of BBA degree.
Last but not the least; I am thankful to my family members for their
valuable support in completing this project. I express my thanks to my
friends for their cooperation and support.

3
4
Index:
Sr.No. Contents Page nos.
1 Objectives of the study
2 Research Methodology
3 Limitations of the study
4 Chapter:1 Working Capital
Management
5 Chapter:2 Company Profile
6 Chapter:3 Calculation of
Working Capital
7 Chapter:4 Calculation Of
Changes in Working Capital
8 Chapter:5 Ratio Analysis
9 Chapter:6 Conclusions and
Suggestions
10 Chapter:7 Annexure
11 Chapter:8 Bibliography

5
OBJECTIVES OF THE STUDY:
1. To study what is working capital and its management.
2. To study the liquidity position through various working capital
related ratios.
3. To study 4 main working capital components and policies of these
components such as receivables account management, payables
account management, cash management, and inventory
management.
4. To explain the changes i.e. increase or decrease in the working
capital of specific period of time.
5. To know the overall efficiency and performance of the firm
SAGAR TEXTILES.
6. To interpret of the financial position of the firm of is appropriate
or not.

RESEARCH METHODOLOGY:
For the purpose of the study necessary information has been collected
through primary and secondary sources.
Primary Data:
Primary data is collected for the first time, and is original in character.
These include the information collected from the officials and existing
company through discussions and personal interaction with finance
manager.
Secondary Data:
The secondary data for this project was collected through annual
reports, trading and profit and loss account of 3 years from 2014 to
2016 and some more information collected from internet and text
sources.

6
LIMITATIONS OF THE STUDY:
The study conducted and done is analytical, subject to the following
limitations:
1. The study is based on historical data and information provided
in the annual reports therefore it may not be a future indicator.
2. There may be some fractional differences in the calculation of
ratios.
3. Limited interaction with concerned heads due to their busy
schedule and distance between Pune and Mumbai. (As the
company is located in Mumbai.)
4. The study duration is short.

CHAPTER 1
7
WORKING CAPITAL MANAGEMENT

1.1 INTRODUCTION TO WORKING CAPITAL

MANAGEMENT:
Working Capital Management is a significant in financial
management due to the fact that it plays a pivotal role in keeping the
wheels of a business enterprise running. It is concerned financial
decisions of short-term.. Lack of efficient and effective working
capital leads to earn low rate of return on capital employed. A firm
invests a part of its permanent capital in fixed assets and keeps a part
of it for working capital i.e. for meeting day to day requirements. The
requirement of working capital varies from firm to firm depending
upon the nature of the business, production policy, market conditions,
conditions of supply, etc. Working capital is the most vital ingredient
of the business and thus working capital management if carried out
efficiently and effectively will ensure the health of the organization.
Working capital is defined as excess of current assets over current
liabilities.Working capital is the difference between inflow and
outflow of funds. Proper assessment of working capital is required for
proper working capital management. Working capital is also known as
circulating, fluctuating and revolving capital.

1.2 MEANING:

8
Working capital may be regarded as the life blood of a business. Its
effective provision can do much to ensure the success of a business
while its inefficient management can lead not only to the loss of
profits but also to the ultimate downfall of what otherwise might be
considered as a promising concern.
In accounting,Working Capital is the difference between inflow and
outflow of funds. In other words it is a net cash inflow. It is defined as
excess of current assets over current liabilities and provisions.
CURRENT Assets of the business held in cash
form or that can be quickly turned into
ASSETS
the cash form. (e.g. cash at bank)

LESS
CURRENT Money owed by business which will
need to be paid in next 12 months.
LIABILITES

Working capital management refers to a company's managerial

accounting strategy designed to monitor and utilize the two
9
components of working capital, current assets and current liabilities,
to ensure the most financially efficient operation of the company.
The primary purpose of working capital management is to make sure
the company always maintains sufficient cash flow to meet its short-
term operating costs and short-term debt obligations.
Decisions relating to working capital and short-term financing are
referred to as working capital management. These involve managing
the relationship between a firm's short-term assets and its short-term
liabilities. The goal of working capital is that it makes sure that firm is
capable of continuing its operations. Working capital management
involves the following- inventory management, debtors management,
creditors management and cash management.

1.3 CONCEPT OF WORKING CAPITAL:

10
There are two concepts of working capital. These are:
1. Gross Working Capital:
The investment made by company into current assets is known as
Gross Working Capital. Current assets are the assets which can be
converted into cash within an accounting year or operating cash.
Thus, Gross working capital is the total of all current assets. This
includes:
Cash in hand and bank balances,
Bills receivables,
Sundry Debtors,
Short term loans and advances,
Inventories of stocks, as raw materials, work in progress, stores and
spares, finished goods.,
Prepaidexpenses.

2. Net Working Capital:

Net working Capital is referred to as difference between current assets
and current liabilities.Net working Capital of the firm can be positive
or negative. A positive working capital arises when current assets are
more than current liabilities and negative working capital arises when
current liabilities are more than current assets.Current Liabilities
include:
Bills payable,
Sundry creditors,
Outstanding expenses,
Short-term loans advances and deposits,
11
Dividend payable, and
Bank overdraft.
Gross working capital refers to the amount of funds invested in
current assets that are employed in the business process while, Net
Working Capital refers to the difference between current assets and
current liabilities.
The two concepts of working capital, gross working capital and net
working capital are exclusive. Both are equally important for the
efficient management of working capital.

1.4 NEED AND IMPORTANCE OF WORKING

CAPITAL:

12
Working capital is the life blood and nerve center of business.
Working capital is very essential to maintain smooth running of a
business. No business can run successfully without an adequate
amount of working capital. Working capital management is
particularly more important to small firms. A small firm may reduce
its fixed assets requirement by renting or leasing plant and equipment,
but there is no way it can avoid an investment in current assets. The
finance manager should, therefore, devote considerable time to
manage current assets. It is important to maintain a right amount of
working capital in the firm on continuous basis. Working capital
management involves two main processes i.e. (i) Determination of
size and the amount of working capital and (ii) Arranging the sources
of working capital.
The main importance of working capital are as follows:

1. Strengthen The Solvency

Working capital helps to operate the business smoothly without any
financial problem for making the payment of short-term liabilities.
Purchase of raw materials and payment of salary, wages and overhead
can be made without any delay. Adequate working capital helps in
maintaining solvency of the business by providing uninterrupted flow
of production.

2. Enhance Goodwill
Sufficient working capital enables a business concern to make prompt
payments and hence helps in creating and maintaining goodwill.
Goodwill is enhanced because all current liabilities and operating
expenses are paid on time.

3. Easy Obtaining Loan

A firm having adequate working capital, high solvency and
good credit rating can arrange loans from banks and financial
institutions in easy and favorable terms.

4. Regular Supply of Raw Material

13
Quick payment of credit purchase of raw materials ensures the regular
supply of raw materials from suppliers. Suppliers are satisfied by the
payment on time. It ensures regular supply of raw materials and
continuous production.

5. Smooth Business Operation

Working capital is really a life blood of any business organization
which maintains the firm in well condition. Any day to day financial
requirement can be met without any shortage of fund. All expenses
and current liabilities are paid on time.

6. Ability to Face Crisis:

Adequate working capital enables a firm to face business crisis in
emergencies such as depression.

1.5 CLASSIFICATION OF WORKING CAPITAL:

14
Working capital can be classified into the following types:

1. Permanent Or Fixed Working Capital

Permanent working capital represents the current assets required on
continuing basis over the entire year. A fixed amount of current
assets are required to operate the business. Every business
organization must maintain minimum current
assets to ensure effective utilization of fixed facilities and for
maintaining the circulating of current assets. Thus, minimum level
of current assets is called is called permanent or fixed working capital.
Permanent working capital or fixed working capital consists of
minimum stock, minimum cash and bank balance and minimum
other current assets. Generally, permanent working capital is financed
by long-term sources of funds.

2. Temporary or Variable Working Capital

Temporary working capital represents additional current
assets required during the operation of the year. It is the extra working
capital needed to support the changing production and sales activities
of the firm. Any excess amount of working capital over the permanent
working capital is called temporary working capital. It is required to
meet the seasonal demands and contingencies. Temporary working
capital is fluctuating, sometimes decreasing and sometimes
increasing. Generally, temporary working capital is financed from
short term sources of funds.

1.6FACTORS DETERMINING THE WORKING

CAPITAL REQUIREMENTS:

15
1. NATURE OF BUSINESS:
The nature of companys business is the prime determinant of its
working capital requirements. Business of small size, especially
those engaged in trading of good, need high level of working
capital to fulfill their daily cash requirements.

2. SIZE OF THE BUSINESS:

The size of the business has also an important impact on its
capital needs. Greater the size of the business, greater is the
requirement of working capital. Size may be measured in terms
of operation.

3. PRODUCTION POLICY:
Production policy of a company is another deciding factor with
regard to the level of its working capital requirement. Different
For example, if the management of the enterprise decides to hold
inventory worth 3 months production requirement to maintain
fairly steady production throughout the year, it will require larger
amount of cash in finance the inventory requirements.

4. LENTH OF PRDUCTION CYCLE:

The longer the manufacturing time the raw material and other
supplies have to be carried for a longer in the process with
progressive increment of labor and service costs before the final
product is obtained. So working capital is directly proportional
to the length of the manufacturing process.

16
5. SEASONALS VARIATIONS:
Generally, during the busy season, a firm requires larger working
capital than in slack season.

6. BUSINESS CYCLE:
Business expands during the period of Prosperity and declines
during the period of Depression. Consequently, more working
capital is required during the period of prosperity and less during
the period of depression. Raw materials inventory requirements
vary depending on fluctuation in level of economic activity.

7. CREDIT POLICY:
A concern that purchases its requirements on credit and sales its
product / services on cash requires lesser amount of working
capital and vice-versa.

8. GROWTH AND EXPANSION OF BUSINESS:

If the business has plans for growth and expansion, it requires
large amount of working capital, to fulfill such requirements.

9. PRICE LEVEL CHANGES:

Changes in the price level also affect the working capital
requirements. Generally rise in prices leads to increase in
working capital.

17
10. CAPITAL STRUCTURE OF A COMPANY:
Capital structure of the company refers to the capitalization and it
includes all long term capital sources like loans, reserves, shares
and bonds. If shareholders have provided funds towards the
working capital needs also, the management will find relatively
easy to manage its working capital. If the company has to entirely
depend upon outside sources for both permanent and temporary
working capital needs, it faces an uphill task under scarcity of
money conditions.

1.7 WORKING CAPITAL POLICIES OF THE FIRM:

As the overall ratios suggest, the firm has a Conservative working
capital. In conservative working capital, normally the cash at bank is
more. The risk is less so there is less chance of cash shortage.

Debtors Policy:
Average credit period allowed to debtors is 70 days.
The staff asks for the permission of the proprietor to give the
credit period of more than 90 days.
Credit isnt given to any customer who does not make payment
within 100 days.

Creditors Policy:
Payment is not paid early as that will block the Working Capital.

18
 The credit taken does not exceed Rs.45,00,000.
Cash is given in case of small transactions upto Rs.5000.
Permission of Proprietor is taken when purchase exceeds
expenditure level

Cash Management Policy:

Investments in long term investment is not made if returns are
less, as working capital required will get tied up in the
investment.
Only adequate investment is made in illquid investments.
All deposited funds are insured.

Inventory Management Policy:

Finished goods are purchased only in sufficient quantities as per
the latest trend.

CHAPTER 2: COMPANY PROFILE

19
Name of the company: Sagar Textiles
(Wholesale selling of Shirting fabrics all over India).
Year of establishment: 1991 (celebrating 25 years)
Type of the company: Sole proprietorship.
Name of the proprietor: Mr. PahlajKukreja.
Area of operations: Bhivandi and Kalbadevi, Mumbai.
Number of working days: 6 days a week.
Number of employees: 30
Main supporting staff: Mr. AmitKukreja,
Mr. NileshKukreja.
Contact information: 9322887463 (Mr. Pahlaj).
9321512655 (Mr. Amit).
9595418882 (Mr. Nilesh).

CHAPTER 3: CALCULATION OF
WORKING CAPITAL.

20
 CALCULATION OF WORKING CAPITAL FOR
THE YEAR 2013-14
Particulars Amount
CURRENT ASSETS :-
Closing Stock 45,405,780.00
Stock of Packing Material 29,367.00
Tax Deducted At Source 26,780.00
Vat Receivable 4,358.55
TDS Process - Hardik Creation 1,475.00
SUNDRY DEBTORS 39,114,754.00
SUNDRY DEBTORS FOR BROKERAGE 193964
ADVANCE FOR WORKER :-
Ganga Mukhiya 5,000.00
Narayan Prasad Agnihotri 59,900.00
Pandav Sing 30,550.00
Rahul Chaube 18,600.00
Cash at :-
HDFC Bank 15,347.94
HDFC Bank - Saving 25,949.00
Dhanlaxmi Bank Current A/c 38,357.00
State Bank Of India 89,422.95
Cash on hand 1,135,550.35
LOANS AND ADVANCES :-
S.A.Khairnar [New Co. form'nAdv] 200,000.00
Patel Rasiklal 500,000.00

TOTAL CURRENT ASSETS (A) 86,895,155.79

CURRENT LIABILITIES :-
SUNDRY CREDITORS FOR DYER & 2,613,471.00
FINISH :-
SUNDRY CREDITORS FOR GREY :- 43,867,147.00

21
SUNDRY CREDITORS FOR EXPENSES:- 345342
SUNDRY CREDITORS FOR 998,648.00
BROKERAGE :-
PROVISIONS :-
Audit & Taxation Fees Payable 32,000.00
Telephone Bill Payable 2,711.00
Electricity Charges payable 9,376.00
T. D. S. Payable 388,436.00

TOTAL CURRENT LIABILITIES (B) 48,257,131.00

NET WORKING CAPITAL (A-B = C) 38,638,024.79

CALCULATION OF WORKING CAPITAL FOR

THE YEAR 2014-15

PARTICULARS AMOUNT
CURRENT ASSETS :-
Closing Stock 56,370,850.00

22
Stock of Packing Material 29,367.00
TDS 27,359.00
Prepaid - Insurance 62,865.00
SUNDRY DEBTORS :- 42,721,661.00
SUNDRY DEBTORS FOR 59,713.00
BROKERAGE

Cash at :-
HDFC Bank 633,782.14
HDFC Bank - Saving 68,604.00
Dhanlaxmi Bank Current A/c 38,357.00
State Bank Of India 8,679.95
Cash on hand 123,884.00

LOANS AND ADVANCES :-

Dinesh R Yadav 250,000.00
Patel Rasiklal 500,000.00
SagarSyntexPvt Ltd 57,700.00

TOTAL CURRENT ASSETS (A) 100,952,822.09

CURRENT LIABILITIES :-

SUNDRY CREDITORS FOR DYER 10,578,686.00

& FINISH :-
SUNDRY CREDITORS FOR 24,852,134.00
GREY :-
SUNDRY CREDITORS FOR 697,004.00
EXPENSES:-
SUNDRY CREDITORS FOR 1,588,065.00
BROKERAGE:-
23
PROVISIONS :-
Audit & Taxation Fees Payable 28,000.00
Telephone Bill Payable 1,536.00
Electricity Charges payable 19,586.00
T. D. S. Payable 663,038.00

Professional Tax Payable 23,525.00

TOTAL CURRENT LIABILITIES (B) 38,451,574.00

NET WORKING CAPITAL (A-B=C) 62,501,248.09

CALCULATION OF WORKING CAPITAL FOR

THE YEAR 2015-16

PARTICULARS AMOUNT
CURRENT ASSETS :-
Closing Stock 68,981,359.00
Stock of Packing Material 144,722.60
Prepaid - Insurance 77,811.00
SUNDRY DEBTORS 43,287,872.00
SUNDRY DEBTORS FOR 29,161.00
BROKERAGE
24
Cash at :-
HDFC Bank 313,262.39
HDFC Bank - Saving 68,604.00
Dhanlaxmi Bank Current A/c 38,357.00
State Bank Of India 5,776.95
Cash on hand 390,257.80
LOANS AND ADVANCES :-
Dinesh R Yadav 250,000.00
Patel Rasiklal 500,000.00
SagarSyntexPvt Ltd 57,700.00
NagarajPendam 78,105.00
Qutec India (Nagpur) 1,000,000.00

TOTAL CURRENT ASSETS (A) 115,222,988.74

CURRENT LIABILITIES :-

SUNDRY CREDITORS FOR DYER & 9,547,258.00

FINISH
SUNDRY CREDITORS FOR GREY 27,373,742.00

SUNDRY CREDITORS FOR 558,706.00

EXPENSES:-
SUNDRY CREDITORS FOR 3,261,405.00
BROKERAGE
SUNDRY CREDITORS FOR
SALARY:-
Mr. Rahul Sunil Kambale 62,000.00
Alok H. Aswani 90,000.00
Amrendra Kumar Singh 36,458.00
RupaPagare 18,000.00
ShivkumarDube 55,840.00

25
 PROVISIONS :-
Audit & Taxation Fees Payable 36,000.00
Telephone Bill Payable 1,998.00
T.D.S. on Unsecured Loans 467,069.00
Professional Tax Payable 23,525.00
T.D.S. On Brokerage 302,520.00
T.D.S. On Cut Pack 32,154.00
T.D.S. On Grey Checking FAB 135.00
T.D.S. On Process Charges 91,379.00
T.D.S. on Salary 10,000.00
T.D.S. On Professional Fees 4,000.00
T.D.S. On Rent 36,000.00

TOTAL CURRENT LIABILITIES (B) 42,008,189.00

NET WORKING CAPITAL (A-B=C) 73,214,799.74

CHAPTER 4:
CALCULATION OF CHANGES IN
WORKING CAPITAL.
(INCREASE OR DECREASE)
Previous year: 2014 Current Year: 2015
Particulars Previous Current year Increase Decrease
year 2014 2015
CURRENT ASSETS: (A)
Closing stock 45,405,780.00 56,370,850.00 10,965,070.00 --
Stock of packing material 29,367.00 29,367.00 -- --

26
Tax deducted at source 26,780.00 27,359.00 579.00 --
VAT receivables 4,358.55 -- -- 4,358.55
TDS process- Hardik creation 1,475.00 -- -- 1,475.00
Prepaid insurance -- 62,865.00 62,865.00 --
Sundry debtors 39,114,754.00 42,721,661.00 3,606,907.00 --

Sundry debtors for brokerage 193,964.00 59,713.00 -- 134,251.00

Advance for workers 114,050.00 -- -- 114,050.00

Cash at:

HDFC Bank 15,347.94 633,782.14 618,434.20 --

HDFC Bank- savings 25,949.00 68,604.00 42,655.00 --
Dhanlaxmi bank - current 38,357.00 38,357.00 -- --
account
State bank of India 89,422.95 8,679.95 -- 80,743.00
Cash on hand 1,135,550.35 123,884.00 -- 1,011,666.35

Loans and Advances 700,000.00 807,700.00 107,700.00 --

TOTAL CURRENT ASSETS 86,895,155.79 100,952,822.0

(A) 9

Current Liabilities: (B)

SUNDRY CREDITORS FOR --
DYER & FINISH :- 2,613,471.00 10,578,686.00 7,965,215.00

SUNDRY CREDITORS FOR

GREY :- 43,867,147.00 24,852,134.00 19,015,013.00 --

SUNDRY CREDITORS FOR 345,342.00 697,004.00 -- 351,62.00

EXPENSES:-
SUNDRY CREDITORS FOR --
BROKERAGE 998,648.00 1,588,065.00 589,417.00

PROFESSIONAL TAX -- 23,525.00 -- 23,525.00

PAYABLE

PROVISIONS :-

Audit & Taxation Fees 32,000.00 28,000.00 4,000.00 --

27
Payable

Telephone Bill Payable 2,711.00 1,536.00 1,175.00 --

Electricity Charges payable 9,376.00 19,586.00 -- 10,210.00

T. D. S. Payable 388,436.00 663,038.00 -- 274,602.00

TOTAL CURRENT
LIABILITIES (B) 48,257,131.00 38,451,574.00

NET WORKING CAPITAL 38,638,024.7 62,501,248.0

(A-B=C) 9 9
NET INCREASE IN
WORKING CAPITAL 23,863,223.3 23,863,223.3
0 0

TOTAL 62,501,248.0 62,501,248.0 34,424,398.2 34,424,398.2

9 9 0 0

Previous year: 2015 Current Year: 2016

Particulars Previous year Current year Increase Decrease

2015 2016

CURRENT ASSETS: (A)

Closing stock 56,370,850.00 68,981,359.00 12,610,509.00 --
Stock of packing material 29,367.00 144,722.60 115,355.60 --
Tax deducted at source 27,359.00 -- -- 27,359.00
Prepaid insurance 62,865.00 77,811.00 14,946.00 --
Sundry debtors 42,721,661.00 43,287,872.00 566,211.00 --
Sundry debtors for brokerage 59,713.00 29,161.00 -- 30,552.00
Cash at:

HDFC Bank 633,782.14 313,262.39 -- 320,519.75

HDFC Bank- savings 68,604.00 68,604.00 -- --
Dhanlaxmi bank current 38,357.00 38,357.00 -- --
account
State bank of India 8,679.95 5,776.95 -- 2,903.00

28
 Cash on hand 123,884.00 390,257.80 266,373.80 --

Loans and Advances 807,700.00 1,885,805.00 1,078,105.00 --

TOTAL CURRENT ASSETS 100,952,822.0 115,222,988.7
(A) 9 4

CURRENT LIABILITIES (B)

SUNDRY CREDITORS FOR
DYER & FINISH :- 10,578,686.00 9,547,258.00 1,031,428.00 --
SUNDRY CREDITORS FOR 2,521,608.00
GREY :- 24,852,134.00 27,373,742.00 --
SUNDRY CREDITORS FOR 697,004.00 138,297 --
EXPENSES:- 558,706.00
PROFESSIONAL TAX PAYABLE 23,525.00 -- 23,525.00 --
SUNDRY CREDITORS FOR
BROKERAGE 1,588,065.00 3,261,405.00 -- 1,673,340.00
SUNDRY CREDITORS FOR -- --
SALARY 262,298.00 262,298.00
PROVISIONS :-
Audit & Taxation Fees Payable --
28,000.00 36,000.00 8,000.00
Telephone Bill Payable --
1,536.00 1,998.00 462.00
Electricity Charges payable --
19,586.00 19,586.00

T. D. S. Payable --
663,038.00 663,038.00
T.D.S. on Unsecured Loans -- -- 467,069.00
467,069.00
Professional Tax Payable -- --
23,525.00 23,525.00
T.D.S. On Brokerage -- -- 302,520.00
302,520.00
T.D.S. On Cut Pack -- --
32,154.00 32,154.00
T.D.S. On Grey Checking FAB -- --
135.00 135.00
T.D.S. On Process Charges -- --
91,379.00 91,379.00
T.D.S. on Salary -- --
10,000.00 10,000.00
T.D.S. On Professional Fees -- --
4,000.00 4,000.00

29
T.D.S. On Rent -- --
36,000.00 36,000.00
TOTAL CURRENT
LIABILITIES (B) 38,451,574.00 42,008,189.00
NET WORKING CAPITAL
(A-B=C) 62,501,248.09 73,214,799.74

NET INCREASE IN
WORKING CAPITAL 10,713,551.65 10,713,551.6
5

TOTAL 73,214,799.74 73,214,799.74 16,527,374.4 16,527,374.4

0 0

CHAPTER 5: RATIO ANALYSIS:

5.1 INTRODUCTION:
A ratio is a simple arithmetical expression one number to another. The
technique of ratio analysis can be employed for measuring short-term
liquidity or working capital position of a firm. A ratio analysis is a
quantitative analysis of information contained in a companys
financial statements. Ratio analysis is based on line items in financial
statements like the balance sheet, income statement and cash flow
statement; the ratios of one item or a combination of items - to
another item or combination are then calculated. Ratio analysis is
used to evaluate various aspects of a companys operating
and financial performance such as its efficiency, liquidity, profitability
and solvency. The trend of these ratios over time is studied to check
whether they are improving or deteriorating. Ratios are also compared
across different companies in the same sector to see how they stack
up, and to get an idea of comparative valuations. Ratio analysis is a
cornerstone of fundamental analysis.
Ratio can be expressed in two ways:
i) Times:

30
 When one value is divided by another, the unit used to
express the quotient is termed as times. For example, if out
of 100 students in a class, 90 are present, the attendance ratio
can be expressed as follows:
= 90/100= 0.9 times

ii) Percentage:
If the quotient obtained is multiplies by 100, the unit of
expression is termed as percentage. For instance, in the
above example, the attendance ratio as a percentage of total
number of students is as follows:
= 0.9*100= 90%

5.2 BENEFITS OF RATIO ANALYSIS:

1. Helpful in Financial Analysis:

Ratio Analysis helps businesses in assessing their financial standing.
It can be used for short term as well as long term analysis. Financial
statements such as profit and loss account and balance sheet are used
for this purpose.
2. Useful for locating weak areas:
Ratio analysis can be used for finding areas of weakness such as high
ratio of expenses or increase in debt and taking remedial measures.
Problem areas would need more attention than the bright areas.
3. Inter-firm comparison:
Financial analysis facilitates inter firm comparison by bringing their
performance to the same scale.
31
4. Simplified Presentation of Accounting Figures:
Ratio analysis provides more meaningful figures by showing
relationship with different metrics. An absolute profit figure such as
Rs.4 lacs of profit does not say much until or unless it is put in
relation to total revenue. It offers information in a more
comprehensive manner.
5. Assessing Operating Efficiency:
Ratio analysis not only shows the financial standing of the business
but also helps in evaluating operating efficiency. Various ratios such
as debtors turnover or inventory turnover may be used for this
purpose. These ratios help in analyzing different aspects of the
business quickly and accurately. This is done by calculating
accounting ratios.
6. Helpful in comparative analysis:
The ratios are not been calculated for one year only. When many year
figures are kept side by side, they help a great deal in exploring the
trends visible in the business. The knowledge of trend helps in making
projections about the business which is a very useful feature
7. Enables SWOT analysis:
Ratios help a great deal in explaining the changes occurring in the
business. The information of change helps the management a great
deal in understanding the current threats and opportunities and allows
business to do its own SWOT (Strength-Weakness-Opportunity-
Threat) analysis.

32
5.3LIMITATIONS OF THE RATIOS:
1.Means and not the End:
Ratios are means to an end rather than the end by itself.
2. False Results:
Ratio Analysis is calculated using financial statements. The analysis
would be incorrect if the statements are characterized by errors.
3. No Fixed Terminology:
Ratio Analysis is still evolving and various terms may be interpreted
in different ways. This makes comparison difficult. For example, a
ratio requiring use of profit may be calculated using profit before tax
or profit after tax. This may give erroneous results.
4. No Attention to Qualitative Factors:
Ratio analysis is quantitative and does not take into account the
qualitative factors. This gives one-sided view.

33
5. Overlooks Inflation:
Since ratio analysis does not pay attention to change in price level, the
temporal comparison does not serve much purpose. For example, cost
of production of two years cannot be meaningfully compared if there
has been a big change in figures due to change in price level. Inflation
or deflation also affects revenue and profits.
6. Misleading Results:
Ratio analysis brings financial statements of different firms to same
level. Such analysis does not provide information about the
magnitude of their operations. For example, two firms may have
similar net profit ratio but greatly different scale of business. A firm
generating Rs. 50000 in sales is more efficient than the firm
generating same profit on Rs.1000000 sales.

5.4TYPES OF THE RATIOS, CALCULATION,

INTERPRETATION AND GRAPHICAL
REPRESENTATION OF RATIOS OF SAGAR
TEXTILES:
CURRENT RATIO:
Current Ratio, also known as working capital ratio is a measure of
general liquidity and its most widely used to make the analysis of
short-term financial position or liquidity of a firm. It is defined as the
relation between current assets and current liabilities.

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

34
1) Current Assets2) Current Liabilities
Current assets include cash, marketable securities, bill receivables,
sundry debtors, inventories and work-in-progresses.
Current liabilities include outstanding expenses, bill payable, dividend
payable, short-term borrowings, sundry creditors, etc.
A relatively high current ratio is an indication that the firm is liquid
and has the ability to pay its current obligations in time. On the hand a
low current ratio represents that the liquidity position of the firm is
not good and the firm shall not be able to pay its current liabilities in
time. A ratio equal or near to the rule of thumb of 2:1 i.e. current
assets double the current liabilities is considered to be satisfactory.

Calculation of CURRENT RATIO:-

Current Assets Current Ratio
Year Current Liabilities

2013-14 86,895,155.79 / 48,257,131.00 1.8:1

2014-15 100,952,822.09 / 38,451,574.00 2.6:1

2015-16 115,222,988.74 / 42,008,189.00 2.7:1

Graphical Representation:

35
 current ratio
3
2.7
2.6
2.5

2 1.8
current ratio
1.5

0.5

0
2013-14 2014-15 2015-16

Interpretation:
As we know that ideal current ratio for any firm is 2:1.
If we see the current ratio of the company for last three years it has
increased from 2014 to 2016. The current ratio of company is more
than the ideal ratio. This depicts that companys liquidity position is
sound. Its current assets are more than its current liabilities.

QUICK RATIO:
Quick ratio is a more rigorous test of liquidity than current ratio.
Quick ratio may be defined as the relationship between quick/liquid
assets and current or liquid liabilities. An asset is said to be liquid if it
can be converted into cash with a short period without loss of value. It
measures the firms capacity to pay off current
obligationsimmediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES
36
A high ratio is an indication that the firm is liquid and has the ability
to meet its current liabilities in time and on the other hand a low quick
ratio represents that the firms liquidity position is not good.

Calculation of QUICK RATIO:-

Quick Assets (CA-Stock-prepaid
Year expenses) Quick Ratio
Quick Liabilities (CL-Bank o/d-
o/s expenses)

2013-14 41,460,008.79 / 4,825,131.00 0.85:1

2014-15 44,489,740.09 / 38,451,574.00 1.15:1

2015-16 46,019,096.74 / 42,008,189.00 1.09:1

Graphical Representation:

quick ratio
1.4

1.2 1.15
1.09
1
0.85
0.8 quick ratio

0.6

0.4

0.2

0
2013-14 2014-15 2015-16

Interpretation:
37
 A quick ratio is an indication that the firm is liquid and has the ability
to meet its current liabilities in time. The ideal quick ratio is 1:1.
Companys quick ratio is more than ideal ratio. This shows company
has no liquidity problem. The firm is capable to pay off its current
liabilities.

ABSOLUTE LIQUID RATIO:

Although receivables, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their
realization into cash immediately or in time. So absolute liquid ratio
should be calculated together with current ratio and acid test ratio so
as to exclude even receivables from the current assets and find out the
absolute liquid assets.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is
generally thought that if quick assets are equal to the current liabilities
then the concern may be able to meet its short-term obligations.
However, a firm having high quick ratio may not have a satisfactory
liquidity position if it has slow paying debtors. On the other hand, a
firm having a low liquidity position if it has fast moving inventories.

38
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS
CURRENT LIABILITES

Calculation of ABSOLUTE LIQUID RATIO:

Cash at Bank+ Short-term Absolute liquid
Year investments ratio
Current Liabilities
2013-14 169,076.89 / 48,257,131.00 0.0035:1

2014-15 749,423.09 / 38,451,574.00 0.019:1

2015-16 426,000.34 / 42,008,189.00 0.010:1

Graphical representation:-

absolute liquid ratio

0.02 0.02
0.02
0.02
0.01
0.01
0.01 absolute liquid ratio
0.01
0.01
0.01
0 0
0
0
2013-14 2014-15 2015-16

39
Interpretation:
These ratio shows that company carries a small amount of cash. But
there is nothing to be worried about the lack of cash because company
has reserve, borrowing power & long term investment.

TOTAL ASSETS TURNOVER RATIO:

The asset turnover ratio is an efficiency ratio that measures a
company's ability to generate sales from its assets by comparing net
sales with average total assets. In other words, this ratio shows how
efficiently a company can use its assets to generate sales.This gives
investors and creditors an idea of how a company is managed and
uses its assets to produce products and sales.If a company can
generate more sales with fewer assets it has a higher turnover ratio
40
which tells it is a good company because it is using its assets
efficiently. A lower turnover ratio tells that the company is not using
its assets optimally.

TOTAL ASSETS TURNOVER RATIO = NET SALES

TOTAL ASSETS

Calculation of TOTAL ASSETS TURNOVER RATIO:

Net sales Total assets t/o
Year Total assets ratio

2013-14 188,572,437.00 / 92,467,990.65 2.03 times

2014-15 228,457,373.00 / 111,060,690.52 2.05 times

2015-16 227,059,813.28 / 1.77 times

128,033,313.27

Graphical representation:-

41
 total assets t/o ratio
2.1
2.05
2.052.03

1.95

1.9
total assets t/o ratio
1.85

1.8 1.77
1.75

1.7

1.65

1.6
2013-14 2014-15 2015-16

Interpretation:
This ratio measures how efficiently a firm uses its assets to generate
sales, so a higher ratio is always more favorable. Higher turnover
ratios mean the company is using its assets more efficiently. Lower
ratios mean that the company isn't using its assets efficiently and most
likely have management or production problems. This company has
not used assets efficiently in the last year that is 2016 and well
managed in previous years 2014 and 2015.

FIXED ASSETS TURNOVER RATIO:

42
The fixed-asset turnover ratio is, in general, used by analysts to
measure operating performance. It is a ratio of net sales to fixed
assets. This ratio specifically measures how able a company is to
generate net sales from fixed-asset investments, namely property,
plant and equipment (PP&E), net of depreciation. In a general sense, a
higher fixed-asset turnover ratio indicates that a company has more
effectively utilized investment in fixed assets to generate revenue.

FIXED ASSETS TURNOVER RATIO = NET SALES

FIXED ASSETS

Calculation of FIXED ASSETS TURNOVER RATIO:-

Net sales Fixed assets t/o
Year Fixed Assets ratio

2013-14 188,572,437.00 / 5,572,834.86 33.8 times

2014-15 228,457,373.00 / 10,107,868.43 22.6 times

2015-16 227,059,813.28 / 12,810,324.53 17.7 times

Graphical representation:-

43
 fixed assets t/o ratio
40

3533.8

30

25 22.6
fixed assets t/o ratio
20 17.7

15

10

0
2013-14 2014-15 2015-16

Interpretation:
A higher fixed assets turnover ratio is generally better. However, there
might be situations when a high fixed asset turnover ratio might not
necessarily mean efficient use of fixed assets. The company has huge
decline in the fixed assets turnover ratio from 2014 to 2016 and thus,
it is not generating much revenue from the fixed assets.

CURRENT ASSETS TURNOVER RATIO:

44
The asset turnover ratio is an efficiency ratio that measures a
company's ability to generate sales from its assets by comparing net
sales with average total assets. In other words, this ratio shows how
efficiently a company can use its assets to generate sales.

The total asset turnover ratio calculates net sales as a percentage of

assets to show how many sales are generated from each rupee of
company assets.

CURRENT ASSETS TURNOVER RATIO = NET SALES

CURRENT ASSETS

Calculation of CURRENT ASSETS TURNOVER RATIO:-

Net sales Current assets
Year Current Assets t/o ratio

2013-14 188,572,437.00 / 86,895,155.79 2.1 times

2014-15 228,457,373.00 / 100,952,822.09 2.2 times

2015-16 227,059,813.28 / 115,222,988.74 1.9 times

Graphical representation:-

45
 current assets t/o ratio
2.3

2.2

2.1

current assets t/o ratio

2

1.9

1.8

1.7
2013-14 2014-15 2015-16

Interpretation:
This ratio measures how efficiently a firm uses its current assets to
generate sales, so a higher ratio is always more favorable. Higher
turnover ratios mean the company is using its current assets more
efficiently. Lower ratios mean that the company isn't using its current
assets efficiently and most likely have management or production
problems. This company has not used its current assets efficiently in
the last year that is 2016 and well managed in previous years 2014
and 2015.

DEBTORS TURNOVER RATIO

46
Debtors Turnover Ratio indicates the efficiency of the staff in-charge
of the collection of back debts. The higher the value of debtors
turnover ratio, the more efficient is the management of receivables.
The ratio should be compared with ratio of similar firms and industry
average to get a better picture of the quality of debtors. The ratio also
helps in cash budgeting since the flow of cash from customers can be
estimated on the basis of estimated sales.

DEBTORS TURNOVER RATIO = NET CREDIT SALES

TRADE DEBTORS

Calculation of DEBTORS TURNOVER RATIO:-

Net credit sales Debtors
Year Trade Debtors turnover ratio

2013-14 188,572,437.00 / 39,308,718.00 4.7 times

2014-15 228,457,373.00 / 42,781,374.00 5.3 times

2015-16 227,059,813.28 / 43,317,033.00 5.2 times

Graphical representation:-

47
 debtors t/o ratio
5.4

5.3

5.2

5.1

5
debtors t/o ratio
4.9

4.8

4.7

4.6

4.5

4.4
2013-14 2014-15 2015-16

Interpretation:
The higher the debtors turnover ratio shows better credit policies. It
also indicates that the debtors are highly liquid. The ratio has been
high as well as stable in past three years, which shows that the
management has been efficient enough to collect the funds from the
debtors.

48
 COLLECTION PERIOD
It indicates the collection period of debtors. A high turnover is
considered to be good as there will be better cash flow. If the
collection period is shorter, the quality of debtors will be good and
this means debtors promptly pay their dues. The scope of bad debts
will be less.

COLLECTION PERIOD = NO. OF DAYS IN THE YEAR

DEBTORS T/O RATIO

Calculation of COLLECTION PERIOD:-

No. of days in a year Collection
Year Debtors t/o ratio Period

2013-14 365 / 4.7 77 days

2014-15 365 / 5.3 68 days

2015-16 365 / 5.2 70 days

Graphical representation:-
49
 collection period
78

76

74

72
collection period
70

68

66

64

62
2013-14 2014-15 2015-16

50
 CREDITORS TURNOVER RATIO

This ratio reveals the number of times the creditors turn on average
each year. This tells at what speed the creditors are paid. If the
payment to creditors is delayed the firm sometimes may have to bear
burden of debt service charges. It also measures the efficiency of the
business in utilizing its cash in proper manner.

CREDITORS TURNOVER RATIO = NET PURCHASES

CREDITORS

Calculation of CREDITORS TURNOVER RATIO:-

Net Purchases Creditors

Year Creditors turnover ratio

2013-14 149,382,124.00 / 45,211,137.00 3.3 times

2014-15 173,936,638.00 / 37,715,889.00 4.6 times

2015-16 160,975,469.99 / 41,003,409.00 3.9 times

51
Graphical representation:-

creditors t/o ratio

5

4.5

3.5

3
creditors t/o ratio
2.5

1.5

0.5

0
2013-14 2014-15 2015-16

Interpretation:
Higher ratio indicates how well a firm has been able to manage its
liquidity position. In the year 2013-14, the firm has low credit
turnover ratio due to high credit purchase. In the year 2014-15, the
turnover is higher comparatively as the creditors are less as compared
to that of other years.

52
 PAYMENT PERIOD

From the stand point of liquidity and solvency if the longer credit
period is allowed by the creditors the firm will be in an advantageous
position. The firm can pay promptly to its creditors if the payment
time is properly adjusted. The ratio will tell whether the time period is
normal or not.

PAYMENT PERIOD = NO. OF DAYS IN THE YEAR

CREDITORS T/O RATIO

Calculation of PAYMENT PERIOD:-

53
 No. of days in a year Payment
Year Creditors t/o ratio period

2013-14 365 / 3.3 110 days

2014-15 365 / 4.6 79 days

2015-16 365 / 3.9 93 days

Graphical representation:-

payment period
120

100

80

payment period
60

40

20

0
2013-14 2014-15 2015-16

54
 WORKING CAPITAL TURNOVER RATIO

The working capital ratio, also called the current ratio, is a liquidity
ratio that measures a firm's ability to pay off its current liabilities with
current assets. The working capital ratio is important to creditors
because it shows the liquidity of the company.

Current liabilities are best paid with current assets like cash, cash
equivalents, and marketable securities because these assets can be
converted into cash much quicker than fixed assets. The faster the

55
assets can be converted into cash, the more likely the company will
have the cash in time to pay its debts.

The reason this ratio is called the working capital ratio comes from
the working capital calculation. When current assets exceed current
liabilities, the firm has enough capital to run its day-to-day operations.
In other words, it has enough capital to work. The working capital
ratio transforms the working capital calculation into a comparison
between current assets and current liabilities.

Both of these current accounts are stated separately from their

respective long-term accounts on the balance sheet. This presentation
gives investors and creditors more information to analyze about the
company. Current assets and liabilities are always stated first on
financial statements and then followed by long-term assets and
liabilities.

This calculation gives a firm understanding what percentage a firm's

current assets are of its current liabilities.

Working capital Analysis:

Since the working capital ratio measures current assets as a
percentage of current liabilities, it would only make sense that a
higher ratio is more favorable. A WCR of 1 indicates the current
assets equal current liabilities. A ratio of 1 is usually considered the
middle ground. It's not risky, but it is also not very safe. This means
that the firm would have to sell all of its current assets in order to pay
off its current liabilities.

56
A ratio less than 1 is considered risky by creditors and investors
because it shows the company isn't running efficiently and can't cover
its current debt properly. A ratio less than 1 is always a bad thing and
is often referred to as negative working capital.

On the other hand, a ratio above 1 shows outsiders that the company
can pay all of its current liabilities and still have current assets left
over or positive working capital.

WORKING CAPITAL TURNOVER RATIO = NET SALES

WORKING CAPITAL

Calculation of WORKING CAPITAL TURNOVER RATIO:-

Net sales Working
Year Working capital capital t/o ratio

2013-14 188,572,437.00 / 36,638,024.79 5.1 times

2014-15 228,457,373.00 / 62,501,248.09 3.6 times

2015-16 227,059,813.28 / 73,214,799.74 3.1 times

Graphical representation:-

57
 working capital t/o ratio
6
5.1
5

4 3.6
3.1 working capital t/o ratio
3

0
2013-14 2014-15 2015-16

Interpretation:
A working capital turnover that is too high can be misleading. On the
surface, it appears operating at a very high efficiency, but in reality,
working capital level might be dangerously low. Very low working
capital can possibly cause to run out of money to fund your business.
As the working capital is higher than 1, the firm can easily pay off its
current liabilities from its current assets. However, the company has
decline in working capital turnover ratio from 2014 to 2016.

INVENTORY TURNOVER RATIO:

58
Every firm has to maintain a certain amount of inventory of finished
goods so as to meet the requirements of the business. But the level of
inventory should neither be too high nor too low. Because it is
harmful to hold more inventory as some amount of capital is blocked
in it and some cost is involved in it. It will therefore be advisable to
dispose the inventory as soon as possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is
converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the stocks
are sold; the lesser amount of money is required to finance the
inventory. Whereas, low inventory turnover ratio indicates the
inefficient management of inventory.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

2
Calculation of INVENTORY TURNOVER RATIO:-
Cost of goods sold Inventory t/o
Year Average stock ratio
(opening stock +closing stock / 2)
2013-14 170,099,283.00 / 41,128,233.00 4.1 times

2014-15 203,401,400.00 / 50,888,315.00 3.9 times

2015-16 191,122,076.99 / 316,344,954.5 0.6 times

Graphical representation:-

59
 inventory t/o ratio
4.5
4.1
4 3.9

3.5
3
2.5 inventory t/o ratio

2
1.5
1
0.6
0.5
0
2013-14 2014-15 2015-16

Interpretation:
In 2014, the company has high inventory turnover ratio of 4.1 times
but in 2015 it has reduced to 3.9 times, and again reduced to 0.6 times
in year 2016. This shows that the companys inventory management
technique is less efficient as compare to every last year.

GROSS PROFIT RATIO:

60
Gross profit ratio (GP ratio) is a profitability ratio that shows the
relationship between gross profit and total net sales revenue. It is a
popular tool to evaluate the operational performance of the business.
The ratio is computed by dividing the gross profit figure by net sales.

GROSS PROFIT RATIO = GROSS PROFIT

NET SALES
When gross profit ratio is expressed in percentage form, it is known
as gross profit margin or gross profit percentage. The formula of gross
profit margin or percentage is given below:

GROSS PROFIT RATIO = GROSS PROFIT *100

NET SALES

The basic components of the formula of gross profit ratio (GP

ratio) are gross profit and net sales. Gross profit is equal to net sales
minus cost of goods sold. Net sales are equal to total gross sales less
returns inwards and discount allowed. The information about gross
profit and net sales is normally available from income statement of
the company.

Calculation of GROSS PROFIT RATIO:-

Gross profit / Net sales Gross profit
Year *100 ratio

2013-14 18,473.154.00 / 188,572,437.00 9.7%

*100
2014-15 25,055,973.00 / 228,457,373.00 10.9%
*100
2015-16 35,937,736.29 / 227,059,813.28 15.8%
*100

61
Graphical representation:-

gross profit ratio

18.00%

15.80%
16.00%

14.00%

12.00%
10.90%
9.70%
10.00% gross profit ratio

8.00%

6.00%

4.00%

2.00%

0.00%
2013-14 2014-15 2015-16

Interpretation:
Gross profit is very important for any business. It should be sufficient
to cover all expenses and provide for profit.
There is no norm or standard to interpret gross profit ratio (GP ratio).
Generally, a higher ratio is considered better.
The graph above represents that the company has better gross profit
ratio and there is increase in the percentage of ratio every year from
2014 to 2016.

NET PROFIT RATIO:

62
Net profit ratio (NP ratio) expresses the relationship between net
profit after taxes and sales. This ratio is a measure of the overall
profitability. Net profit is arrived at after taking into accounts both the
operating and non-operating items of incomes and expenses. The ratio
indicates what portion of the net sales is left for the owners after all
expenses have been met.It is expressed in percentage.

The relationship between net profit and net sales may also be
expressed in percentage form. When it is shown in percentage form, it
is known as net profit margin.

NET PROFIT RATIO = NET PROFIT *100

NET SALES

Calculation of NET PROFIT RATIO:-

Net profit / Net sales Net profit ratio
Year *100

2013-14 2,114,659.25 / 188,572,437.00 1.12%

*100
2014-15 3,642,536.63 / 228,457,373.00 1.59%
*100
2015-16 7,508,345.97/ 227,059,813.28 3.37%
*100

Graphical representation:-

63
 net profit ratio
3.50% 3.31%

3.00%

2.50%

2.00% net profit ratio

1.59%
1.50%
1.12%
1.00%

0.50%

0.00%
2013-14 2014-15 2015-16

Interpretation:
Net profit (NP) ratio is a useful tool to measure the overall
profitability of the business. There is no norm to interpret this ratio.
To see whether the business is constantly improving its profitability or
not, the analyst should compare the ratio with the previous years
ratio.
Higher the net profit ratio, higher is the profitability of the business.
The graph above represents that the company has better net profit
ratio and there is increase in the percentage of net profit ratio every
year from 2014 to 2016.

5.5 SUMMARY CHART:

64
 Sr.
No. RATIOS YEARS
2014 2015 2016

1. Current Ratio 1.8:1 2.6:1 2.7:1

2. Quick Ratio 0.85:1 1.15:1 1.09:1

3. Absolute Liquid R. 0.0035:1 0.019:1 0.010:1

4. Total assets t/o R. 2.03 times 2.05 times 1.77 times

5. Fixed assets t/o R. 33.8 times 22.6 times 17.7 times

6. Current assets t/o R. 2.1 times 2.2 times 1.9 times

7. Debtors t/o R. 4.7 times 5.3 times 5.2 times

8. Collection Period 77 days 68 days 70 days

9. Creditors t/o R. 3.3 times 4.6 times 3.9 times

10. Payment Period 110 days 79 days 93 days

11. Working Capital t/o R 5.1 times 3.6 times 3.1 times

12. Inventory t/o R. 4.1 times 3.9 times 0.6 times

13. Gross Profit R. 9.7% 10.9% 15.8%

14. Net Profit R. 1.12% 1.59% 3.37%

CHAPTER 6: CONCLUSIONAND
SUGGESTIONS:
65
 6.1 CONCLUSION:
The study on Working Capital Management conducted in Sagar
Textiles to analyse the financial position of the company. The
companys financial analysis is done by using the annual report of 3
years i.e. from 2014 to 2016.
The financial status of Sagar Textiles is enough good.
Gross Profit Ratio and Net profit ratio of the company has increased
in the last year (2016), which is the good sign for the company.
On the overall basis, company is moving forward with efficient
management.

6.2 SUGGESTIONS:
As the Working capital of company is increasing every year
which is a good sign, company should maintain the same in
coming years for a successful business.
However, the working capital turnover ratio of the company is
reducing every year due to the change in net sales. It is required
for the company to increase its sales.
The current and quick ratios are up to the standard requirement.
The company should continue managing it efficiently.
The company has decline in inventory turnover ratio, thus it
should come up with standard measures and precautions to
handle its inventory ratio.

CHAPTER 7: ANNEXURE:
SAGAR TEXTILE
BALANCE SHEET AS AT 31st MARCH, 2014
LIABILITIES RUPEES ASSETS RUPEES

66
 CAPITAL FIXED ASSETS :-
ACCOUNT :-
Mr. Pehlaj L. 7,022,912.69 Net Block 2,264,046.93
Kukreja
SECURED INVESTMENTS :-
LOAN :-
Loan From 27,065,649.96 Public Provident Fund 1,339,747.73
Dhanlaxmi Bank
- C/C
National Saving 2,252.00
Certificate
UNSECURED 10,122,297.00 LIC Policy 1,396,049.20
LOANS :-
LIC Bajaj Allianz 100,000.00
FD - Dhanlaxmi Bank 200,000.00
CURRENT Investments in Gold 160,427.00
LIABILITIES :-
SUNDRY 2,613,471.00 Max Newyork Life 10,312.00
CREDITORS Insurance
FOR DYER &
FINISH :-
FD - HDFC Bank 100,000.00
SUNDRY 43,867,147.00 CURRENT ASSETS :-
CREDITORS
FOR GREY :-
Closing Stock 45,405,780.00
Stock of Packing 29,367.00
Material
SUNDRY 345342 Tax Deducted At Source 26,780.00
CREDITORS
FOR
EXPENSES:-
Vat Receivable 4,358.55
TDS Process - Hardik 1,475.00
Creation
SUNDRY
CREDITORS
FOR
BROKERAGE : 998,648.00 SUNDRY DEBTORS :- 39,114,754.00
-
PROVISIONS :- SUNDRY DEBTORS 193964
FOR BROKERAGE :-
Audit & 32,000.00
Taxation Fees
Payable
Telephone Bill 2,711.00
Payable
Electricity 9,376.00 ADVANCE FOR
Charges payable WORKER :-

67
T. D. S. Payable 388,436.00 Ganga Mukhiya 5,000.00
Narayan Prasad 59,900.00
Agnihotri
Pandav Sing 30,550.00
Rahul Chaube 18,600.00
Cash at :-
HDFC Bank 15,347.94
HDFC Bank - Saving 25,949.00
Dhanlaxmi Bank 38,357.00
Current A/c
State Bank Of India 89,422.95
Cash on hand 1,135,550.35
LOANS AND
ADVANCES :-
S.A.Khairnar [New Co. 200,000.00
form'nAdv]
Patel Rasiklal 500,000.00
TOTAL :- 92,467,990.65 TOTAL :- 92,467,990.65
For S. A. For SAGAR TEXTILES
KHAIRNAR &
CO.
Chartered
Accountants
[ CA. SANJAY ( Mr. PAHALAJ
A. KHAIRNAR ] LAXMANDAS
KUKREJA )
Proprietor Proprietor
M.NO. 37498
Firm Reg.No.
105023W
Place
:Chalisgaon.

SAGAR TEXTILES
TRADING, PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
31st MARCH, 2014
PARTICULARS RUPEES PARTICULARS RUPEES
To Opening Stock of 36,850,686.00 By Sales of Cloth 188,572,437.00
Cloth
To Purchases of 4,915,046.00 By Closing Stock 45,405,780.00
Finished goods
To Grey Purchases 144,467,078.00
To Processing Charges 29,272,253.00
To Gross Profit c/d 18,473,154.00
TOTAL :- 233,978,217.00 TOTAL :- 233,978,217.00
To Advertisement 2,102,295.17 By Gross Profit b/d 18,473,154.00

68
 Expenses
To Advertisement 128,854.00 By Rate Difference 43,276.91
Expenses-Last Year
To Audit & Taxation 40,000.00 By Bank Saving 13,745.00
Fees Interest
To Bank Charges 112,118.11 By Discount Received 4,900.70
To Bank Interest 3,370,068.00 By FD Interest 17,840.00
Received
To Appeal Fee 500.00 By Interest Received 301,473.00
from Pvt Party
To Claim For Defective 9,235.00 By PPF Interest 99,225.00
Goods Received
To Commission on Sales 742,157.00
To Computer Expenses 63,442.00
To Conveyance 33,391.00
Expenses
To Donation Expenses 1,100.00
To Electricity Expenses 162,117.00
To Pooja Expenses 7,600.00
To Postage & Courier 40,656.00
Expenses
To Interest on TDS 47,184.00
To Hamali Expenses 314,756.00
To Interest Paid to Pvt 1,258,695.00
Parties
To Internet Charges 10,821.00
Expenses
To Office Expenses [Tea 98,201.00
& Coffee]
To Office Rent 180,000.00
To Packing Material & 2,149,165.73
Charges
To Printing & 15,467.00
Stationery
To Professional Fee 10,000.00
To Property Tax - 23,828.00
Godown
To Salaries & Wages 3,002,289.00
To Sales Promotion 71,172.00
Expenses
To Shop Insurance 114,663.00
To Staff Welfare 454,486.00
Expenses
To Transport Charges 673,505.00
To Brokerage on 915,921.00
Purchase
To Cheking Grey 85,000.00
Fabrics
To Professional Tax 2,500.00

69
 To Repairs 233,373.00
&Maintainance
To Vat on Expenses 161,150.35
To Telephone Expenses 53,846.00
To Travelling Expenses 15,475.00
To Depreciation 133,924.00
To Net Profit
transferred to
Capital Account 2,114,659.25
TOTAL :- 18,953,614.61 TOTAL :- 18,953,614.61
For S. A. KHAIRNAR For SAGAR
& CO. TEXTILES
Chartered Accountants
[ CA. SANJAY A. ( Mr. PAHALAJ
KHAIRNAR ] LAXMANDAS
KUKREJA )
Proprietor Proprietor
M.NO. 37498
Firm Reg.No. 105023W
Place :Chalisgaon.
SAGAR TEXTILE
BALANCE SHEET AS AT 31st MARCH, 2015
LIABILITIES RUPEES ASSETS RUPEES
CAPITAL ACCOUNT :- FIXED ASSETS :-
Mr. Pehlaj L. Kukreja 9,801,368.16 Net Block 6,271,958.50
SECURED LOAN :- INVESTMENTS :-
Loan From Dhanlaxmi 23,991,154.16 Public Provident Fund 1,612,468.73
Bank - C/C
Car Loan Interest - SBI 925,584.20 National Saving 2,252.00
Certificate
LIC Policy 1,632,660.20
UNSECURED 37,891,010.00 LIC Bajaj Allianz 100,000.00
LOANS :-
FD - Dhanlaxmi Bank 217,790.00
Investments in Gold 160,427.00
CURRENT Max Newyork Life 10,312.00
LIABILITIES :- Insurance
SUNDRY CREDITORS 10,578,686.00 FD - HDFC Bank 100,000.00
FOR DYER &
FINISH :-
CURRENT ASSETS :-
SUNDRY CREDITORS 24,852,134.00 Closing Stock 56,370,850.00
FOR GREY :-
Stock of Packing 29,367.00
Material
TDS 27,359.00
SUNDRY CREDITORS 697,004.00 Prepaid - Insurance 62,865.00

70
 FOR EXPENSES:-
SUNDRY CREDITORS
FOR
BROKERAGE :- 1,588,065.00 SUNDRY 42,721,661.00
DEBTORS :-
PROVISIONS :- SUNDRY DEBTORS 59,713.00
FOR BROKERAGE :-
Audit & Taxation Fees 28,000.00
Payable
Telephone Bill Payable 1,536.00
Electricity Charges 19,586.00 Cash at :-
payable
T. D. S. Payable 663,038.00 HDFC Bank 633,782.14
HDFC Bank - Saving 68,604.00
Professional Tax Payable 23,525.00 Dhanlaxmi Bank 38,357.00
Current A/c
State Bank Of India 8,679.95
Cash on hand 123,884.00
LOANS AND
ADVANCES :-
Dinesh R Yadav 250,000.00
Patel Rasiklal 500,000.00
SagarSyntexPvt Ltd 57,700.00
TOTAL :- 111,060,690.52 TOTAL :- 111,060,690.52
For S. A. KHAIRNAR For SAGAR
& CO. TEXTILES
Chartered Accountants
[ CA. SANJAY A. ( Mr. PAHALAJ LAXMANDAS KUKREJA )
KHAIRNAR ]
Proprietor Proprietor
M.NO. 37498
Firm Reg.No. 105023W
Place :Chalisgaon.

SAGAR TEXTILES
TRADING, PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
31st MARCH, 2015
PARTICULARS RUPESS PARTICULARS RUPEES
To Opening Stock of Cloth 45,405,780.00 By Sales of Finished 228,457,373.00
Cloth
To Purchases of Finished 17,037,182.00 By Closing Stock 56,370,850.00
goods
To Grey Purchases 156,899,456.00

71
 To Processing Charges 40,429,832.00
To Gross Profit c/d 25,055,973.00
TOTAL :- 284,828,223.00 TOTAL :- 284,828,223.00
To Advertisement Expenses 2,211,024.60 By Gross Profit b/d 25,055,973.00
To Audit & Taxation Fees 50,300.00 By Rate Difference 94,849.00
To Bank Charges 70,808.00 By Bank Saving 5,609.00
Interest
To Bank Interest 2,060,435.20 By Discount Received 39,812.00
To Brokerage on Purchase 1,282,915.00 By FD Interest 17,790.00
Received
To Brokerage on Sale 1,283,366.00 By Interest Received 273,580.00
from Pvt Party
To Car Expenses 28,608.00 By PPF Interest 122,721.00
Received
To Cheking Grey Fabrics 336,224.00
To Computer Expenses 7,461.90
To Conveyance Expenses 60,669.00
To Donation Expenses 1,000.00
To Electricity Expenses 211,207.00
To Entertainment Expenses 6,340.00
To Fire Extinguishers 49,775.08
To Interest on TDS 1,768.00
To Hamali Expenses 341,194.00
To Interest Paid to Pvt Parties 3,976,346.00
To Internet Charges Expenses 8,084.00
To Legal & Professional Fee 500.00
To Office Rent 180,000.00
To Packing Material & 2,392,956.00
Charges
To Pooja Expenses 17,522.00
To Postage & Courier 49,784.76
Expenses
To Printing & Stationery 63,432.80
To Profession Tax on Salary 23,525.00
TO Professional Tax 2,500.00
To Property Tax - Godown 14,600.00
To Repairs & Maintenance 323,837.35
To Salary & Wages 2,233,392.00
To Office Tea & Coffee 104,911.00
Expenses
To Packing Charges 2,349,226.41
To Petrol & Diesel Expenses 73,378.00
To Sales Promotion Expenses 174,462.00
To Shop &Godown Insurance 70,276.00
To Software Expenses 44,000.00
To Staff Welfare Expenses 431,954.00
To Telephone Expenses 91,165.00

72
 To Trade Mark Expenses 35,000.00
To Transport Charges 571,202.00
To Travelling Expenses 35,468.00
To Vat on Expenses 187,734.27
To Depreciation 509,445.00
To Net Profit transferred to
Capital Account 3,642,536.63
TOTAL :- 25,610,334.00 TOTAL :- 25,610,334.00
For S. A. KHAIRNAR & CO. For SAGAR
TEXTILES
Chartered Accountants
[ CA. SANJAY A. ( Mr. PAHALAJ LAXMANDAS KUKREJA )
KHAIRNAR ]
Proprietor Proprietor
M.NO. 37498
Firm Reg.No. 105023W
Place :Chalisgaon.

CHAPTER 8: BIBLIOGRAPHY
www.google.com
www.accountingtools.com
www.studyfinance.com
www.investopedia.com
BOOKS: Taxmanns Financial Management- By Ravi Kishore
Management Accounting- By Dr. Suhas Mahajan and Dr.
Mahesh Kulkarni.
Annual report of 3 years i.e. from 2014 to 2016 of SAGAR
TEXTILES

73