LIST

PROPORTION OF EACH CURRENT LIABILITY TO TOTAL

CURRENT LIABILITIES:(In Percentage)
Particulars 2006 2007 2008 2009 2010

Sundry Creditors 84.7 79.24 75.1 73.01 73.94

Other Liabilities 7.06 5.67 5.28 5.35 5.19

Provisions 8.24 15.09 19.62 21.64 20.87

Total 100 100 100 100 100

Graph No. 4

PROPORTION OF EACH CURRENT LIABILITY TO TOTAL

CURRENT LIABILITIES:(in Percentage)

100% 8.24
15.09 19.62
7.06 21.64 20.87
90%
5.67
80% 5.28 5.35 5.19
70%
60%
50% Provisions
84.7 Other Liabilities
79.24 75.1
40% 73.01 73.94
Sundry Creditors
30%
20%
10%
0%
Years (2006 2007 2008 2009 2010)

Interpretation:

1
 The proportion of each current liability to total current liabilities has beendecreasing
year by year. Specially, this has been seen in case of creditors and other liabilities which is a
sign of smart utilization of current liabilities. The proportion of sundry creditors and other
liabilities was 84.7%and 7.06% respectively in 2006. They had reduced to 79.24% and
5.67%respectively in 2007. The proportion of sundry creditors and other liabilities has reduced
in 2010 to 73.94% and 5.19% respectively.

The proportion of provisions hasincreased from 8.24% to 20.87% within a period of

five years. It is more than 50% of the provisions which comprises of taxes, fringe benefit tax,
interim dividend, corporate dividend tax, other provisions like employee benefits, post
retirement medical benefits…..etc. The reason behind increase in provisions is that the
company has been able to increase the production and consequently the taxes have increased.

Table No.5

2
THE TABLE SHOWING NET WORKING CAPITAL:
(Rs. In Crores)
Sr. Particulars 2006 2007 2008 2009 2010
No.
(A) CURRENT ASSETS 1133.68 1460.85 1656.22 2085.99 2220.19

(B) CURRENT LIABILITIES 802.36 1047.42 1295.3 1515.7 1600.17

(C) NET WORKING 331.33 413.43 360.93 570.30 620.03

CAPITAL
(A-B)

Graph No.5

THE GRAPH SHOWING NET WORKING CAPITAL:

(Rs. in Crores)

Net Working Capital

700
620.03
570.3
600

500
413.43
360.93
400 331.33

300 Net Working Capital

200

100

0
Years (2006 2007 2008 2009 2010)

Interpretation:
In 2006, the net working capital was 331.33 croreswhichincreasedto 413.43 crores the
next year. But in 2008, the amount of net working capitalreduced to 360.93 crores as a result
of increased current liabilities. Then, in 2009 the net working capital was 570.30 crores which

3
increased up to 620.03 crores in 2010. It is the amount which represents the company’s
requirement of working capital.

Table No.6

COMPARISON BETWEEN INCREASE IN SALES AND INCREASE

IN NET WORKING CAPITAL:
(In Percentage)

Years Increase in Sales (%) Increase in Net Working Capital (%)

2007 33.61 24.79

2008 15.09 -12.70

2009 18.96 58

2010 14.60 8.72

Graph No.6

4
COMPARISON BETWEEN INCREASE IN SALES AND INCREASE IN
NET WORKING CAPITAL:
(In Percentage)

90

80
58
70

60 24.79

50

40 Working Capital
33.61 sales
30
8.72
20 18.96
15.09 14.6
10

-12.7
0
Year(2007 2008 2009 2010)

Interpretation:
In 2007, sales increased by 33.61% which resulted in increase of net working capital by
24.79%. In 2008, the company has utilized the working capital more efficiently where the
company has been able to increase sales by 15.09% and at the same time is able to reduce the
net working capital by 12.70% which resulted in fewer blockages of funds in inventory and
cash. In 2009, the condition was not very good as the increase in sales by 18.96% resulted in
increase in working capital more than thrice the increase in sales i.e. 58%. The reason being
proportionate increase in current assets is more than that of current liabilities. In 2010, the
company is able to increase the sales by 14.60% which hasresulted in net working capital
increase by 8.72%.

WORKING CAPITAL RATIOS:

5
 1. CURRENT RATIO:

Current ratio is used to judge ability of current assets to meet current liabilities.
The standard current ratio is two for manufacturing companies. Current assets should
be twice the current liabilities. Whenthe ratio is two, the current assets are sufficient
enough to satisfy the claims of liabilities. It is required to keep sound short term
solvency position.

Formula:

CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITIES

Table No. 7

CURRENT RATIO:
(Rs. in Crores)

Year Current Assets Current Liabilities CurrentRatio

2006 1133.69 802.36 1.41

2007 1460.85 1047.42 1.39

2008 1656.22 1295.3 1.28

2009 2085.99 1515.7 1.38

2010 2220.19 1600.17 1.39

Graph No. 7

CURRENT RATIO:

6
 Current Ratio

1.45
1.41
1.39 1.39
1.4 1.38

1.35
Current Ratio

1.3 1.28

1.25

1.2
Years 2006 2007 2008 2009 2010

Interpretation:
In 2006, the company’s current ratio was 1.41 which has reduced to 1.39 in the next
year. In 2008,the ratiowas 1.28 which the company has been able to increase the next year to
1.38 which is almost same for 2010. It means, though the company has tried to increase the
ratio up to a certain limit, it has not reached to the standard ratio of 2. Thus, the company’s
current assets are not sufficient enough to meet current liabilities. (Current ratio<2)

2. LIQUID RATIO:
Liquid assets include all current assets except inventories and prepaid expenses. Liquid
liabilities include all current liabilities except bank overdraft or cash credit. Higher the liquid

7
ratio better will be the situation. A liquid ratio of one with current ratio as two is supposed to
be standard and ideal. It is calculated as-

LIQUID RATIO= LIQUID ASSETS / LIQUID LIABILITIES

 Liquid assets= Total Current Assets - Inventory and Prepaid expenses

 Liquid Liabilities = Total Current Liabilities - Bank overdraft

Table No. 8

LIQUID RATIO:
(Rs. in Crores)

Year Current Assets Inventory Liquid Assets Current Ratio

(i) (ii) (i-ii) Liabilities
2006 1133.68 191.81 941.87 802.36 1.17

2007 1460.85 247.01 1213.84 1047.42 1.16

2008 1656.22 262.95 1393.27 1295.3 1.08

2009 2085.99 281.32 1804.67 1515.7 1.19

2010 2220.19 303.53 1916.66 1600.17 1.2

Graph No. 8

LIQUID RATIO:

8
 Liquid Ratio
1.19
1.2
1.2
1.17
1.18 1.16
1.16

1.14

1.12

1.1 1.08 Ratio

1.08

1.06

1.04

1.02
Year(2006 2007 2008 2009 2010)

Interpretation:
The above graph shows that the company is able to keep the liquid ratio more than 1
which is considered as standard liquid ratio. In 2006, it was 1.17 which was almost same for
the next year. In 2008, it reduced to 1.08 still it is more than one and hence good. As a result
of reduced percentage of inventory, the company is able to maintain the ratio (1.2) in 2010
also.

Thus, the company’s liquid assets are sufficient enough to satisfy the claims of
creditors and other liabilities.

9
 3. WORKING CAPITAL TURNOVER RATIO:
The working capital turnover ratio is indication of operating efficiency. It indicates
whether the working capital is effectively utilized in increasing sales or not?If the working
capital ratio is higher, it shows that the company has achieved higher volume of sales with
relatively small amount of working capital which is indication of operating efficiency.

Formula:

WORKING CAPITAL TURNOVER RATIO = NET SALES/NET WORKING CAPITAL

Table No.9

WORKING CAPITAL TURNOVER RATIO:

(Rs. in Crores)

Year Net Sales Current Assets Current Liabilities Net working capital Ratio
(times)
2006 2520.59 1133.68 802.36 331.33 7.61

2007 3367.61 1460.85 1047.42 413.43 8.15

2008 3875.76 1656.22 1295.3 360.93 10.74

2009 4610.66 2085.99 1515.7 570.30 8.09

2010 5283.99 2220.19 1600.17 620.03 8.52

10
Graph No.9

WORKING CAPITAL TURNOVER RATIO:

Working Capital Turnover Ratio

12 10.74

10
8.52
8.15 8.09
7.61
8

6 ratio

0
Year 2006 2007 2008 2009 2010

Interpretation:
The working capital turnover ratio was 7.61 times in 2006 whichincreased to 8.15times
the next year. In 2008, it was highup to 10.74 times as a small amount of working capital had
been able to generate comparatively greater amount of sales.But, the next year the ratio gets
reduced to 8.09. In 2010, the company is able to increase the ratio slightly i.e. 8.52.
Thus, the company is successful to increase the working capital turnover ratio.

11
 4. INVENTORY TURNOVER RATIO:
It indicates whether the inventory investment is efficiently used or not? It also
indicates blockage of funds in inventory. Higher the ratio; better is the control on inventory.
Inventory should be kept to minimum possible level. A high ratio indicates that maximum
sales turnover is achieved with the minimum investment in inventory. On the other hand a low
inventory turnover ratio may indicate over investment in inventory.

Formula:

INVENTORY TURNOVER RATIO = SALES / AVERAGE STOCK

(Average Stock= Opening stock + Closing stock/2)

Table No.10

INVENTORY TURNOVER RATIO:

(Rs. in Crores)

Year Net Sales Opening Closing Average Ratio

Stock Stock Stock
2006 2520.59 162.78 178.58 170.68 14.77

2007 3367.61 178.58 228.91 203.75 16.53

2008 3875.76 228.91 257.3 243.11 15.94

2009 4610.66 257.3 259.85 258.57 17.83

2010 5283.99 259.85 264.4 262.12 20.16

12
Graph No.10

INVENTORY TURNOVER RATIO:

Inventory Turnover Ratio

25

20.16
20 17.83
16.53 15.94
14.77
15
Ratio

Inventory Turnover Ratio

10

0
Year(2006 2007 2008 2009 2010)

Interpretation:
The above graph shows that the company’s inventory turnover ratio is having an
increasing trend except the year 2008 where the ratio hasmarginally reduced. In 2006 the ratio
was 14.77 times which has increased up to 20.16 times within a period of five years. It is a
sign of good management and efficient utilization of inventory.

13
 5. DEBTORS TURNOVER RATIO:
‘Debtors’ is a very important component of current assets. It states whether the firm is
able to collect the debts more promptly or not. It indicates the speed at which the sundry
debtors are converted in the form of cash. Higher the ratio, better is the receivables
management policies and their implementation.

Formula:

DEBTORS TURNOVER RATIO= NETCREDIT SALES / DEBTORS

Table No. 11

DEBTORS TURNOVER RATIO:

(Rs in Crores)

Year Sales Debtors Ratio

2006 2520.59 659.64 3.82

2007 3367.61 803.89 4.19

2008 3875.76 956.22 4.05

2009 4610.66 1012.26 4.55

2010 5283.99 1212.79 4.36

Graph No. 11

14
DEBTORS TURNOVER RATIO:

Debtors Turnover Ratio

4.55
4.6
4.36
4.4
4.19
4.2
4.05
Ratio

Ratio
4
3.82
3.8

3.6

3.4
2006 2007 2008 2009 2010
Years

Interpretation:
From the above graph we can say that the debtors turnover ratio for all the years is
round about 4 times which was 3.82 for 2006 andincreased up to 4.19 for 2007. The ratio
reduced the next year to 4.05. In 2009, the ratio was 4.55 but in 2010, the ratio gets reduced to
4.36 as thecompany is not able to realize the debtors fully. Hence, the ratio is reduced as
compared to previous year. Thus, the ratio is fluctuating all the years.

15
 6. CREDITORS TURNOVER RATIO:
Credit is given to customers in order to increase sales by other business firms. And the
payment is postponed for future period. Thus, creditors allow time to pay and cash is not paid
at the time of actual transaction. As soon as the transaction takes place, it becomes a liability
to pay the creditor as per credit policy.

Formula:

CREDITORS TURNOVER RATIO= CREDIT PURCHASES / CREDITORS

Table No.12

CREDITORS TURNOVER RATIO:

(Rs. in Crores)

Year Credit Purchases Creditors Ratio

2006 1821.43 679.63 2.68

2007 2557.19 830.07 3.08

2008 2695.33 972.76 2.77

2009 3032.24 1106.54 2.74

2010 3240.38 1183.08 2.74

Graph No.12

16
CREDITORS TURNOVER RATIO:

Creditors Turnover Ratio

3.08
3.1

2.9
2.77
2.8 2.74 2.74
Ratio

Ratio
2.68
2.7

2.6

2.5

2.4
2006 2007 2008 2009 2010
Years

Interpretation:

The above graph shows that the creditors’ turnover ratio in 2006 was 2.68 times which
has increased up to 3.08 in 2007. In 2008, it gets reduced to 2.77. For 2009 and 2010 it is
2.74. Thus, the creditors’ turnover ratio was the highest in 2007. The ratio indicates the
promptness with which the creditors are paid on time.

17
UNDERTRADING/ OVERTRADING:
 OVERCAPITALIZATION/ UNDERTRADING:
When investment in working capital increases, current ratio also increases; liquidity
becomes stronger but due to which capital turnover ratio deteriorates which reduces
return on investment. (ROI) Thus, it affects on profitability negatively.

 UNDERCAPITALIZATION/ OVERTRADING:
When investment in working capital decreases, current ratio also decreases; liquidity
becomes poor, but which improves capital turnover ratio which results into higher ROI
and consequent increase in profitability.

Thus, the management has to strike proper balance between the two which will help to increase
profitability at the same time it should not be at the cost of solvency of the business.

Table No.13

 THE TABLE SHOWING UNDERTRADING / OVERTRADING:

Ratio 2005-06 2006-07 2007-08 2008-09 2009-10

Current Ratio 1.41 1.39 1.28 1.38 1.39

Liquid Ratio 1.17 1.16 1.08 1.19 1.2

Working Capital 7.61 8.15 10.74 8.09 8.52

Turnover Ratio
Inventory 14.77 16.53 15.94 17.83 20.16
Turnover Ratio
Debtors Turnover 3.82 4.19 4.05 4.55 4.36
Ratio
Creditors 2.68 3.08 2.77 2.74 2.74
Turnover Ratio

Interpretation:

18
 The above table shows that the company is not overtrading as the liquid ratio for all the
years is more than one which is supposed to be the standard liquid ratio. And even the current
ratio is almost about 1.4 for all the years which is less than the standard current ratio of
two.Comparatively the company was overtrading in 2007-08 where the company has reduced
the investment in working capital and as a result current ratio gets reduced and working capital
turnover ratio has increased considerably.

The company is utilizing its resources fully and using them to increase sales of the
company which is the ultimate objective of any business. The working capital turnover ratio
and the inventory turnover ratio indicate that the company is utilizing its resources efficiently
and trying to increase the ratios. The company has made credible attempts to increase the
ratios. And hence, the company is not under-trading too. Comparatively the company was
under-trading in 2008-09 where the company increased the investment in working capital and
consequent increase in current ratio marginally. It resulted in lower working capital turnover
ratio.

Thus, the company is neither overtrading nor under-trading.

OPERATING CYCLE OF THE COMPANY

19
 “Operating cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash.”

“Lesser the period of cycle, lower the requirement of working capital and higher the
period of cycle, higher is the requirement of working capital”.

Formula: Operating Cycle

=Raw materials holding period + W-i-p holding period + Finished goods

holding period + Debtors collection period – Creditors deferral period

1) Raw materials holding period =

(Average raw material / Raw materials consumed) * 365
Where,
Average raw materials = (Opening raw materials + Closing raw materials/2) and
Raw materials consumed = Opening stock of raw materials + Purchases of raw materials
- Closing stock of raw materials

2) W-i-p holding period = (Average w-i-p/ Manufacturing cost)*365

Where,
Average w-i-p = (Opening w-i-p + Closing w-i-p /2)
W-i-p is valued on manufacturing cost.

3) Finished goods holding period =

(Average stock of finished goods/Cost of production)*365
Where,
Average finished goods =
(Opening stock of finished goods + Closing stock of finished goods/2)
Finished goods are valued on the basis of cost of production.

Table No.14

CALCULATION OF INVENTORY HOLDING PERIOD:

20
Holding Particulars 2006 2007 2008 2009 2010
Period
I)Raw Average Raw 51.43 59.62 82.20 96.73 92.15
Materials Materials
Raw materials 1838.91 1935.55 2114.27 2318.21 2657.27
Holding
consumed
Period
Raw materials 10 12 14 16 13
holding period
II)W-i-p Average w-i-p 78.76 100.32 114.38 112.90 128.87
Holding
Manufacturing 2035.49 2742.04 3041.66 3470.77 3930.65
Period
cost
W-i-p Holding 14 14 14 12 12
Period
III)Finished Average 40.49 43.82 49.00 48.96 58.46
Goods Finished goods
Cost of 2332.16 3065.14 3432.63 4017.83 4478.13
Holding
Production
Period
Finished Goods 7 6 6 5 5
Holding Period

Graph No.13

INVENTORY HOLDING PERIOD:

21
 35
6 5
30 6
7 5

25
12
14
period in Days

20 14 12
14 III) Finished Goods Holding
Period
15 II) W-i-p Holding Period
I) Raw materials Holding
Period
10
16
14 13
12
10
5

0
2006 2007 2008 2009 2010
Years

Interpretation:

The above graph can be interpreted as follows.

 Raw materials holding period: Raw material holding period has increased over the
years except 2010 where it has reduced to 13days. It was 10 days for 2006 which
increased to 16 days for 2009 as a result of increase in the prices of raw materials.
 W-i-p holding period has reduced over the years. It is 12 to 14 days for all the years.
The higher period shows requirement of high working capital.
 Finished goods holding period has also reduced from 7 days to 5 days because of which
there is fewer blockages of funds in finished goods. The limited stock of finished goods is
kept in inventory which is sufficient.

4) Debtors collection period = (Average debtors/ Credit sales)*365

Where,

Average debtors = (Opening debtors +closing debtors/2)

22
Debtors are valued on the total cost.

Table No.15

Particulars 2006 2007 2008 2009 2010

I. Average 600.47 731.77 880.06 984.24 1112.53

Debtors
II. Total Cost 2332.16 3065.14 3432.63 4017.83 4478.13

Debtors 94 87 94 90 91
Collection Period

Graph No.14

Debtors Collection Period

94

92
Period in Days

90
94 94 Debtors Collection Period
88
91
90
86
87
84

82
2006 2007 2008 2009 2010
Years

Interpretation:

The debtors’ collection period has been fluctuating throughout the years. In 2006 it
was 94 days which reduced in 2007 to 87 days because of which the investment in debtors
reduced and there was increase in debtors’ turnover ratio. In 2008 the debtors’ collection
period again increased to 94 days which reduced the next year. The debtors’ collection period
is fluctuating and it is because of realization of debt.

Table No.16

23
 GROSS OPERATING CYCLE (In Days)

Particulars 2006 2007 2008 2009 2010

A) Inventory Holding Period:(in Days)

I) Raw materials 10 12 14 16 13
Holding Period
II) W-i-p Holding 14 14 14 12 12
Period
III) Finished Goods 7 6 6 5 5
Holding Period
Total 31 32 34 33 30

B) Debtors Collection Period:

Debtors Collection 94 87 94 90 91
Period
C) Gross Operating Cycle: (A+B)
Period in Days 125 119 128 123 121

Graph No.15

24
 Gross Operating Cycle
128
126
124
Period in days

122 128
125 Gross Operating Cycle
120
123
118 121
119
116
114
2006 2007 2008 2009 2010
Years

Interpretation:

The above graph shows that the gross operating cycle in 2006 consisted of 125 days
which reduced to 119 days the next year. As a result the funds blocked in gross working
capital reduced which increased the efficiency of the resources and their usage. In 2008 the
cycle increased to 128 days which went on decreasing the consequent years. It shows the
efficiency with which the firm has been able to reduce the investment in raw materials, w-i-p,
finished goods and debtors. The gross operating cycle for 2007 is of minimum days as the
investment in debtors is realized promptly which reduced the days of debtors collection period.

It refers to the days for which the investment in working capital gets blocked. Higher
the period, higher is the requirement of working capital.

5) Creditors deferral period = (Average creditors/Credit purchases)*365

25
Table No.17
Particulars 2006 2007 2008 2009 2010

I. Average 470.48 594.75 710.31 781.86 848.41

Creditors
II. Credit 1838.91 2562.04 2693.26 3101.11 3445.11
purchases
Creditors Credit 93 85 96 92 90
Period (Days)

Graph No. 16

Creditors Deferral Period

96
94
92
90
Creditors Deferral Period
88 96
86 93 92
90
84
82 85
80
78
2006 2007 2008 2009 2010

Interpretation:

The creditors’ deferral period was 93 days in 2006 which reduced the next year to 85
days. The creditors’ deferral period increased in 2008 to 96 days which went on decreasing the
consequent years to 90 days in 2010. Higher the period better is the situation as it results in
postponement of payments and the reduced period refers to immediate payment terms. Thus,
comparatively the creditors deferral period was good in 2008 which was 96 days.

Table No.18

Net Operating Cycle = Gross Operating Cycle – Creditors Deferral

26
 Period
A) Gross Operating 125 119 128 123 121
Cycle
B) Creditors Credit 93 85 96 92 90
Period (Days)
C) Net Operating 32 34 32 31 31
Cycle

Graph No.17

Net Operating Cycle

34
33.5
33
Period in days

32.5
32 34
Net Operating Cycle
31.5
31 32 32
30.5 31 31
30
29.5
2006 2007 2008 2009 2010
Years

Interpretation:

The net operating cycle of the company shows that in 2006 it was 32 days which
increased in 2007 to 34 days. It decreased the next year to 32 days and for the consequent
years it was 31 days. The period of net operating cycle refers to the days for which the funds
gets blocked in working capital which are to be financed by long term funds.

 SOURCES OF FINANCING WORKING CAPITAL:

Table No.19

27
 Financed By (Rs. in Millions) Value in (%)
Bank Borrowings 75.63 1.10%

Corporate Funds 6778.49 98.90%

Graph No.18

SOURCES OF FINANCING OF WORKING CAPITAL: (In Percentage)

Rs. in Millions
Bank Borrowings 1%

Bank Borrowings
Corporate Funds

Corporate Funds 99%

Interpretation:

The working capital is financed by two major sources viz. bank borrowings which is
1.10% and corporate funds which is 98.90%. The percentage of bank borrowings refer to the
totalshort term borrowings and the percentage of corporate funds denotes own funds i.e.
Retained earnings.

Thus, the company has used retained earnings which is a long term source of finance, to
finance a major part of working capital because of which the company has less problems of
facing problems of shortage of funds. Thus, the company is following conservative approach.

FINDINGS:
1) ANALYSIS OF WORKING CAPITAL:

28
  With the increase in sales volume, the company’s current assets have
increased to 2220 crores in 2010.
 The company has utilized current assets efficiently and has reduced the
proportion of inventory and debtors from 16.92% and 58.19% to 13.66%
and 54.64% respectively within five years.
 The proportion of cash and bank balance has increased up to 24.7% which
means the company has increased the investment in cash and bank balance.
 The current liabilities have also increased and become 1600 crores with
increase in sales volume.
 The proportion of sundry creditors and other liabilities has reduced
considerably.
 The proportion of provisions has increased as a result of increased sales and
consequent increase in profit of the company. The proportion of various
taxes and other provisions has also increased.
 The company has efficiently utilized the working capital to increase the
sales and the working capital for 2010 is 620 crores.

2) FINANCIAL POSITION AND SHORT TERM SOLVENCY WITH THE HELP

OF RATIOS:

 The company’s current ratio for 2010 is 1.39 which is almost similar to
previous year and not sufficient enough to pay current liabilities as it is less
than two which is considered as standard current ratio.
 The company’s short term liquidity position is strong enough as the
company is able to maintain the liquid ratio more than one viz.1.2.
 For 2010, the working capital turnover ratio has increased marginally and it
has become 8.52. The company is trying to increase the ratio with less
investment in working capital.
 The inventory turnover ratio has increased from 14.77 times to 20.16 times
within five years which shows improvement in inventory control
techniques.
 Debtors’ turnover ratio has slightly reduced to 4.36 times as compared to
previous year as debtors are not fully realized. Debtors’ turnover ratio has
been fluctuating on account of realization of debt.
 Creditors’ turnover ratio is 2.74 times which is similar to previous year.

3) UNDER TRADING/ OVERTRADING:

29
  As per various ratios it is seen that the company has a proper amount of
working capital investment and it is utilizing it very well. Hence, it is
neither under-trading nor over-trading.

4) ANALYSIS OF OPERATING CYCLE OF THE COMPANY:

 The debtors collection period is fluctuating because of which there is

change in gross operating cycle and consequently in net operating
cycle.
 The period of gross operating cycle has been decreasingfrom the last
three years.
 The net operating cycle is also decreasing and hence, the working
capital requirement also decreases.

5) SOURCES OF FINANCING WORKING CAPITAL:

 A major portion of working capital is financed by corporate funds which

are about 99% and the remaining part is financed by short term bank
borrowings which is negligible. Hence, the company is following a
conservative approach.
 The proportion of external borrowings is 1.10% while for own funds it is
98.90%.

SUGGESTIONS:
 The company should concentrate on receivables management as a huge
amount of funds are blocked in debtors and should try to recover the debts
on time; otherwise there is possibility that they may become bad.

30
  The company should reduce the investment in cash as it should not be kept
idle in business and invest in short term securities.

 The company should try to increase the current ratio up to two which is
considered as standard current ratio for manufacturing companies. It is
required to keep short term solvency position of the company.

 To increase the current ratio the company should either try to increase
current assets or to reduce current liabilities which will help to increase the
current ratio.

 The liquid ratio of the company is good and the company should keep it up
in the same way.

 The working capital turnover ratio and the inventory turnover ratio are good
and the company should keep it up.

 The debtors’ turnover ratio has been fluctuating and hence proper care
should be taken to recover debts on time.

 The company should reduce the materials holding period as it has been
increasing over the years.

 Whenever the company requires additional funds, it should go for loan

funds. The company is having a sufficient debt capacity and as the loan
funds are the cheapest source of finance,the company can increase the
wealth of shareholders by raising loan funds (debt).

 The company should concentrate on debtors collection period as it is

fluctuating throughout years.

CONCLUSION
The company is efficiently utilizing all its resources well and is having
good control over the working capital management.

31
 Thus, working capital management is very essential aspect of a business
firm which requires constant attention of manager so as to maintain the solvency
position of any business. One has to take into account all the possible
alternatives which takes into account profitability as well as liquidity position of
the business. In this way the manager has to strike out the proper balance
between the two. He should concentrate on how to increase sales and at the same
time there should be recovery of the amount invested in current assets on time.

Thus, to conclude working capital management is very essential aspect of a

business firm which requires a lot of efforts. Otherwise it may threaten the long
term solvency position of a business firm and it will also affect on the
profitability or liquidity.

APPENDIX:

o Bibliography:

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  Financial Management
I.M. Pandey, Ninth Edition; Vikas Publishing House Pvt. Ltd.

 Financial Management
Satish M. Inamdar; Everest Publishing House

 Financial Management
Dr. N.M. Vechalekar

o Webliography:

 www.google.com
 www.moneycontrol.com
 www.cglonline.com
 www.cgglobal.com

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