ANALYSIS METHODOLOGY

The Researcher has selected following analysis methodology: a) Liquidity as by current ratios and quick ratios b) Components of working capital and their importance c) Growth of working capital and future projected levels of Working capital. d) Growth of individual components of working capital and their future projections e) Networking capital as a % of sales f) Growth of sales and growth of networking capital g) Projected sales and projected working capital needs h) To determine whether the company is in accordance with norms of Tandon committee-II norms of lending; that is. Current ratio at least 1.33 times that of current liabilities. i) To determine operating cycle and cash cycle of the company.

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BALANCE SHEETS Rs. Crores Sl.No Particulars 01. 02. 03. 04. 05. 06. 07. 08. 09. 10. 11. 12. 13. 14. 15. Shareholder's funds Loan funds Total Net block Work In Progress Investments Total Inventories Debtors Cash Loans & Advances Total Current Assets (-) Current Liabilities. = Net amount assets Total assets 1998-99 1999-00 2000-01 2001-02 1470.39 1612.35 3077.63 3048.98 4548.02 4661.33 2206.75 2723.83 1493.92 22.43 806.66 21.74 1512.27 1752.46 3037.25 3258.04 4549.52 5010.50 3039.99 3008.23 303.99 29.87 563.05 36.58

3723.10 3552.23 225.70 193.7

3372.85 3607.86 188.27 199.11

3 715.27 1066.57 110.43 132.65 114.69 120.18

1133.21 1195.70 111.08 224.54 246.18 226.05

1184.05 1495.17 359.13 386.07

1655.10 1867.04 478.43 464.44

824.92 1109.10 4548.02 4661.33

1176.67 1402.60 4549.52 5010.50

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INCOME STATEMENTS Rs. Crores 0 1 0 2 0 3 0 4 0 5 Total Income Total Expenses Profit loss (+-) Adjustments Profit for the year 5 1375.3 8 1231.2 1 144.1 7 2 (-) 9.12 2 135.0 4 141.9 100.99 263.44 1802.7 6 1668.0 4 134.7 (-) 180.9 7.2 80.85 270.68 (-) 7.24 2024.51 2205.45 2134.28 1863.60

Objective 1: Analysis of liquidity of the company as revealed by Current Ratios and Quick Ratios. Table 1: Current assets, liabilities (Rs Crores), Current and Quick Ratios no. Of times) Year parameter Current assets Current liabilities Inventories Current assets no less of 1998-99 1184.05 359.13 225.70 958.35 3.29 2.67 ______ ______ 99-00 1495.17 386.07 193.73 1301.44 3.87 3.37 3.66 3.17 2000-01 1655.10 478.43 188.27 1466.83 3.46 3.06 _______ _______ 2001-02 1867.04 464.44 199.11 1667.93 4.02 3.59

Inventories Current Ratios,

times Quick Ratios, no of times Average Current Ratios Average Quick Ratios NOTE : Current Ratios

= Total Current Assets / Current Liabilities

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1998-99 Similarly other years Quick Ratios Current Liabilities 1998-99 Similarly other years

= 1184.05/359.13 = Total Current

= 3.29 Assets-Inventories /

= 958.35/359.134 = 2.67

Results are shown graphically is next page. GRAPH 1: Showing Current ratios and quick ratios. 4.02 (CR) 3.87 No of Times. 3.29 2.67 3.37 3.06 3.46 3.59 (Q R)

1998-99 Conclusion: Liquidity

1999-00

2000-01

2001-02

of the company is quite good as per analysis

above current ratios and quick ratios are on the rise only and have reached a high of 4.02 times and 3.59 times during latest year by any standards, these are quite high and good. a very good sign. Minor differences between current ratios and quick ratios indicate lower levels of inventory, which is

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Graph 2: showing average Current ratios and Quick ratios.

3.66 3.17

No of Times.

Current Ratios Legend Quick Ratios

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Objective 2: Components of working capital and their importance Table 2: Showing gross amount assets, inventories, debtors, cash, loans & advances is Rs Crores and their importance in % Year /Parameter Gross current assets Inventories Debtors Cash Loan & advances Inventories/gross current assets % Debtors/gross current assets % Cash/gross current assets, % Loan & Advances/gross current assets, % Average Inventories/gross current assets, % Average Net/gross current assets, % Average Cash/gross current assets, % Average Loan & Advance / gross current assets, % NOTE: There were calculated as under a) Inventories/gross current assets, % = 225.70 =19.06
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1998-99 1184.05 225.70 715.27 110.43 132.65 19.06 60.40 9.32 11.20 Nil Nil Nil Nil

1999-00 1495.17 193.73 1066.57 114.69 120.18 12.95 71.33 7.67 8.03 13.51 66.05 9.22 11.23

2000-01 1655.10 188.27 1133.21 111.08 224.54 11.37 68.46 6.71 13.62 Nil Nil Nil Nil

2001-02 1867.04 199.11 1195.70 246.18 226.05 10.66 64.04 13.18 12.10 Nil Nil Nil Nil

1184.05 Similarly all others and over different years b) Averages were calculated as under:

Average Inventories / Gross Current Assets = 19.06 + 12.95 4 Similarly all others and over different years. Results are shown graphically as under. + 11.37+10.66 = 13.51 %

Graph 3: Graph Showing Gross Current Assets, Inventories, debtors, cash, Loan & Advance, Rs Crores

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Rs Crores

1184.05

1495.17

1655.10

1867.04 GCA

113.21 1066.57 715.27

1195.70(Debtors)

246.18(Cash) 225.70 193.73 132.65 120.18 188.27 224.54 226.05(L &A 199.11 (Inventories)

110.43

120.18

111.08

1998-99

1999-00

2000-01

2001-02

Graph 4: Showing Components of Working capital averages is %

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Legend Dbts I Ch L&A = Debtors = Inventories = Cash = Loans & Advances

Conclusions: As per analysis above, the most major component of working capital of the company is debtors. On an average, this has formed around 66.05% of Gross Current Assets. Inventories and others follow this.
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Inventories are on the decline (19.06% of Gross Current Assets to 10.66 % of Gross Current Assets); similarly debtors are also on the decline (from a high of 71.33% to 64.04% of Gross Current Assets). But cash and loans & advances are on the rise (9.32 to 13.18% of Gross Current Assets and 11.20 to 12.10% of Gross Current Assets respectively.) High level of debtors in understandable because universally, at least 1 month of credit is allowed to all consumers, similarly loans and advances are also on the rise. This may be due to increasing quantity of employee welfare measures. Therefore the company has to concentrate on debtors the maximum. Controlling out standings, bad debts and agricultural dues; could improve profitability of the company to a large extent mainly because amount involved with debtors is quite high.

Objective 3: Growth of working capital and future projected needs of working capital. Table 3: showing Gross Current Assets, Current Liabilities and Net Working capital (Rs. Crores)
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Their growth rate and projected levels (2002-03) Year / Parameters 1998-99 Gross Current Assets Current Liabilities Net CL Growth, Gross Current Assets, % Growth, Current Liabilities % Growth, Net Working Capital, % Projected Gross Current Assets Projected Current Liabilities Projected Net Working Capital There were calculated as under. a) Growth rate, Gross Current Assets = 1495.17-1184.05= 26.27 % 1184.05 Similarly all others and different periods. b) Average GCA, % = 26.27+10.69+12.80 = 16.58 % 3
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1999-00 2000-01 1655.10 478.43

2001-02 1867.04 464.44

2002-03 NA NA

1184.05 1495.17 359.13 386.07

Working

824.92

1109.10

176.67

1402.60

NA

Capital= GCA NA 26.27 10.69 12.80 16.58 (Average) NA NA 7.50 34.45 23.92 6.09 (-) 2.92 19.20 9.50 (Average) 19.91 (Average) NA NA NA NA NA NA NA NA NA NA NA NA 2176.59 508.56 1681.85

Similarly all others. c) Projections were calculated as under Projected Gross Current Assets Similarly all others Results are shown graphically as under. Graph No. 5: Showing Gross Current Assets, Current Liabilities and Net Working Capital, Rs Crores.

1867.04 1655.1 1495.17 1184.05 1176.67 1402.6 1109.1 824.92

Rs Crores

359.13

386.07

478.43

464.44

1998-99 Gross Current Assets

1999-00 Current Liabilities

2000-01

2001-02

Net Working Capital= GCA CL

Graph No. 6:Graph showing growth rates of Gross Current Asset; Projected Current Liabilities and Net Working Capital, % 34.45
26.27

23.92 19.2

GCA

10.67 7.5 6.09

12.8

1999 -00

2000 - 01

2001 --2.92 02

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NWC

CL

Graph No 7: Graph Showing Average growth rates of Gross Current Assets, Current Liabilities & Net Working Capital

19.91 16.58 Average Growth Rate 9.5

Gross Current Ratios net Working Capital

Current Liabilities

Conclusions: Considering previous trends, it was found out that growth of networking capital is more than that of gross current assets. (19.91% against 16.58%). Hence is order to maintain present level of liquidity, the company has to either liabilities or increase gross current assets.

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Considering their growth rates, for the year 2002-2003 Gross current assets Current Liabilities Networking capital = = = Rs.2176.59 Crores Rs.508.56 Crores Rs.1681.85 Crores.

Further, the present liquidity of the liquidity of the company is very good, is proved by this analysis also. Networking capital is on the rise (Rs.824.92 Crores to Rs.1402.60 Crores) and is much more than amount liabilities.

Objective 4: Growth of individual components of working capital future needs. Table 4: Showing components of working capital (Rs. Crores), growth rates (%) and future projections (Rs. Crores). Year/Parameter 1998 -1999 19992000 20002001 20012002
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Projections

Inventories 0 Debtors Cash Loan & advances Growth, Inventories, % Growth, debtors, % Growth, Cash, % Growth Loan&Advance, % Projections Inventories Debtors Cash Loan & Advance 5

225.7

193.

188.2

199. 11 1195.7 0 246.1 8 226. 05 5. 75

NA NA NA NA (-) 3.74 (Average) 20.29 (Average) 40.77 (Average) 26.03 (Average)

73 7 715.27 066.57 1133.21 10.43 132.6 NA NA NA NA 114.69 120. 18 (-) 14.16 49. 11 3. 85 -9.40 4 (-) 2.82 6.2 5 (-) 3.14 86.83 111.08 224.5

5. 51 121. 62 0.6 7

1438.30

NA NA 1066.57 NA NA

NA 1133.21 NA NA NA

1195.70 NA NA NA NA

NA NA NA NA

191.66 1438.30 346.55 284.89

These are graphically shown as under: Graph No. 8: Showing components of working capital (Rs.Crores) and Projected levels (Rs.Crores)
246.18 226.05 346.55 284.89

715.25

225.70

111.08 224.54

193.73

199.11

110.43 132.65

1998-99

1999-00 Inventories

114.69 120.18

188.27

2000-01 Cash

2001-02

191.66

2002-03 100

Debtors

laon & Advances

RS Crores

121.62

Graph 9:Showing growth rates of components of working capital in %

49.11

86.83

3.85 -9.40 1999-00 -14.16

6.25 -2.82 -3.14 2000-01

5.25 5.51 0.67 2001-02

CASH

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Growth Rate
DEBTORS

L&A

INVENTORIES

44.77

Graph 10: Showing average growth rates (%) of components of working capital.
26.03 20.29

-3.74 102 Inventories Debtors Cash Loan & Advances

Average Growth rate in %

Conclusions: Considering previous trends, average growth rate of inventors is (-) 3.74% debtors 20.29%, cash 40.77% and loans and advances 26.03%. Earlier conclusion that the company has to concentrate on debtors is proved here also. Again, the company has to control growth of loans and advances using these growth rates; future projected levels of inventories are Rs.191.66 Crores, debtors Rs1438.30 Crores, Cash 346.55 Crores, loan and advances Rs.284.89 Crores. Objective 5: Analysis of networking capital as a % of sales revenues, projections and growth rates. Table 5: Showing networking capital, sales revenues (Rs. Crores) Year /Parameter Sales revenues Gross Current Assets 375.38 1184.0 5 1802.76 1495.17 024.51 1655.1 0 19981999 19992000 20002001 20012002 2134.2 8 1867.0 4 20022003 NA NA

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Current Loans 3 Net Working Capital Growth. % Sales Growth, Networking Capital, % Projected sales Projected Networking Capital Networking Capital/Sales, % 2

359.1 386.07 824.9 1109.10 NA NA NA 31.07 34.45 NA

478.4 43 1176.6 7 12.3 0 6.0 9 NA 0 2

464.4 4 1402.6 0 5.4 19.2 NA NA 16.26 (Average) 19.91 (Average) NA 2481.31

NA 59.97

NA 61.52 2

NA 58.1

NA 65.72

1681.85 67.78

Note: The above were calculated as under.

a)

Growth %, sales = 1802.76 - 1375.38 =31.07 % 1375-38 Similarly all others.

1802.76 2134.28 2481.3 1402.6 2002-03 104 Sales Rrevenues Networking Capital 1681.8

b) Averages were calculated as under. 3

1375.38

31.07+12.30+5.42 = 16.269. c) Projections were calculated as under.

824.92 1109.1 1176.67

Projected sales= Rs.2134.28 (1.1626)=Rs.2481.31 Crores. The above are graphically shown as under. Graph 11: Showing sales revenues and Networking

1998-99

1999-00

2000-01

2024.51

2001-02

Rs Crores

Graph 12: Showing growth rates (%) of sales revenues and Networking Capital.

34.45 31.07
Growth Rate %

19.2 12.3 6.09 5.42

NWC

SALES

1999-00

2000-01

2001-02
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Graph No. 13: Graph showing average growth rates in % , of sales revenues and Networking Capital

19.91
Average Growth rate

16.26

sales Revenue sales Revenue

Conclusions:

Networking capital Networking capital

Networking is growing at a rate faster than that of sales. This supports earlier conclusions too. Hence if the company wants to maintain same level of liquidity and support-projected sales, this has to put move money into working capital. Considering previous growth rates, for the year 2002-03, projected sales revenues are Rs.2481.31 Crores; for which it requires at least Rs.1681.85 crores of working capital. On an average, networking capital for this company is around 62.62% of sales. (59.97+61.52+58.12+65.72+67.78) 5

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Objective 6: Analysis of operating cycle and cash cycle of the company in days. Table 6: Table showing sales, inventories, and inventory term over ratio (no. Of times) turn over period (days) and similarly for debtors, cash, loans and advances.
Year/Parameter Sales Inventories Debtors Cash Loan & advances Current liabilities ITR= Sales/Inventories a) I T P = 365 / I T R D T R = Sales / debtors b) D T P =365 / D T 190 Days R C T R = Sales / 9.79 15.72 18.22 8.67 13.10 216 Days 205 Days 205 Days 204 Days 1.92 1.69 1.78 1.78 1.79 1998-99 1375.38 225.70 715.27 140.43 132.65 359.13 6.09 60 Days 1999-00 1802.76 193.73 1066.57 114.69 120.18 386.07 9.30 39.25days 2000-01 2024.51 188.27 1133.21 111.08 224.54 478.43 10.75 34 Days 2001-02 2134.28 199.11 1195.70 246.18 226.05 466.44 10.72 34 Days Averages NA NA NA NA NA NA 9.125 42 Days

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Cash c) C T P = 365 / C TR L & A TR = Sales / L&A d) L& ATP = 365/L & A TR C T R = Inventories

37.28Days 23.22Days 20.03Days 42.09Days 30.65days 10.36 35 Days 0.63 15.00 9.01 9.44 10.95

24.33Days 40.50Days 38.66Days 33.33Days 0.502 727.09 302.80 (-) 424.29 0.393 928.75 299.53 (-) 629.22 0.426 856.80 319.75 (-) 537.05 0.487 773 309.98 (-) 463.02

CL e) C T P = 365 / C T 579.36 R 322.28 Op. cycle = a+b+c+d in days Cash cycle a+b+c+d (-) 257.08 in days = (-)e

These are graphically shown as under. Graph No. 14: Graph showing Inventories Turn-over Ratios, Debtors Turn-over Ratios, Cash Turn-over Ratios, Loans & Advances Turnover Ratios, Creditor Turn-over Ratios (No. of times)
18.22

15.72 15

No of Times

10.36 9.79

10.75 9.3 9.01 ITR

10.72 9.04 8.67

6.09

L&ATR CTR

1.92

1.69

1.78

1.78 108

1998-99

1999-00

2000-01

2001-02

DTR

319.75 Graph No. 15: Graph showing Operating Cycle and Cash Cycle of 302.8 299.53

322.28

the company, days.

1998-99

1999-00

2000-01

2001-02

-257.08

-424.29

-537.05 -629.22

109 Operating Cycle Cash Cycle

Conclusions: The earlier conclusion that debtors require special attention in proved here also. On an average, debtors take 204 days to, inventories just 42 days, cash 30.65 days, loan & advances 33.33 days. Further, ITP is on the decline (a welcome sign), DTP is on the increase (requires controlling), C TP is on the decline and L&A T P is on the decline. Hence debtor requires tight controlling. An average operating cycle works out to 309.98 days. But creditor term over period is very high. If the company is able to clear off its debts quickly, its reputation will rise.

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Objective (7) To determine whether the company is in accordance with Tandon Committee method-2 of lending, i.e., current ratio is at least 1.33 times over this period. Table 7: Table showing current ratios.

Year 1998-99 1999-00 2000-01 2001-02 Average

Current ratio no of times. 3.29 3.87 3.46 4.02 3.66

Conclusion: As per above analysis, the company is well within Tandon Committee Method-2 norms. An at least current ratio of 1.33 times is

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required as per norms but the company has a current ration of 3.66 times. This is a welcome sign.

Salient conclusions and recommendations 1. Liquidity of the company is extremely good. Current ratios and

quick ratios are on the rise only; they have increased from 3.29 to 4.02 and 2.67 to 3.59 times with latest year. By any standards; these are quite good. Negligible differences between C/R and Q/R indicate low levels of inventories. Very good position of liquidity is mainly due to the reason than these products are extremely essential in nature and hence customer payment position is quite well, maximum credit allowed to customers is 1-2 months only on an average. 2. Most major component of working capital is debtors (66.05% on

an average) followed by inventories and others. Inventories are on the decline (19.06% to 10.66%), debtors (71.33% to 64.04% but cash, loans & advances are on the increase (9.32 to 13.18% and 11.20 to 12.10% respectively).

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High level of debtors is due to the reason that cash sales are almost nil and universally 1 month of credit is given to welfare measures. Hence the company has to concentrate on debtors to a large extent, control outstanding and bad debts, agricultural and rural debts. Since amount involved in debtors is quite high, even a slight improvement of debtor could improve profitability quite high. all customers. Similarly loans and advances are on the rise probably due to increasing levels of employee

3.

Considering previous trends, it was found that growth of

networking capital is more than that of gross current assets (19.91% as against 16.58%). Hence if the company wants to maintain its present level of liquidity; it has either to reduce current liabilities or increase gross current assets). Further the projected levels (for Year 2002-03) a) b) c) GCA = Rs.2176.59 Crores CL = Rs. 508.56 Crores NWC= Rs. 1681.85 Crores.

Also, the analysis that liquidity of the company is extremely good in proved by analysis of this objective also. Networking capital position is quite comfortable and is also on the rise (Rs.824.92 Crores to Rs.1402.60 Crores) and is much more than that of current liabilities.

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4.

Considering previous trends, average growth of inventories is (-)

3.74%; debtors 20.29%; cash 40.77%, loan advances 26.03%. Earlier conclusion that the company has to concentrate on debtors is proved here also, similarly the company has to control growth of loans and advances, using these growth rates, projected levels of inventories are Rs.191.66 Crores, Debtors Rs.1438.30 Crores cash Rs.346.55 Crores, loans and advances Rs.284.89 Crores (For the year 2002-03). 5. Networking capital is growing at a rate faster than that of sales.

This supports earlier conclusions too. Hence if the company wants to maintain same level of liquidity; and also to support projected sales, this has to put more money into working capital. Considering previous trends, for the year 2002-2003; projected sales revenues are Rs.2481.31 Crores for which it requires at least Rs.1681.85 Crores of networking capital and networking capital is approximately around 62.62% of sales. 6. The earlier conclusion that debtors require special attention is

proved here also. On an average, debtors take 204 days to day, inventories just 42 days; cash 30.65 days, Loan & advances 33.33 days. Further, ITP is on the decline (a welcome sign), DTP is on the size (requires attention), cash TP and L and ATP are on the decline. Hence debtor requires tight controlling. On an average, operating cycle works out to 309.98 days. But creditor turn over period is very high. If the company is able to clean off its debts quickly, its reputation will rise. 7. As per analysis, the company is well within Tandon Committee

norms-method (2).
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At least a current ratio of 1.33 times is required as per norms but the company has a current ratio of 3.66 times on average. This is a welcome sign.

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