Download - afzal hussain project1
-
8/3/2019 afzal hussain project1
1/92
-
8/3/2019 afzal hussain project1
2/92
-
8/3/2019 afzal hussain project1
3/92
-
8/3/2019 afzal hussain project1
4/92
-
8/3/2019 afzal hussain project1
5/92
-
8/3/2019 afzal hussain project1
6/92
-
8/3/2019 afzal hussain project1
7/92
-
8/3/2019 afzal hussain project1
8/92
-
8/3/2019 afzal hussain project1
9/92
-
8/3/2019 afzal hussain project1
10/92
-
8/3/2019 afzal hussain project1
11/92
-
8/3/2019 afzal hussain project1
12/92
-
8/3/2019 afzal hussain project1
13/92
-
8/3/2019 afzal hussain project1
14/92
-
8/3/2019 afzal hussain project1
15/92
-
8/3/2019 afzal hussain project1
16/92
-
8/3/2019 afzal hussain project1
17/92
-
8/3/2019 afzal hussain project1
18/92
-
8/3/2019 afzal hussain project1
19/92
-
8/3/2019 afzal hussain project1
20/92
-
8/3/2019 afzal hussain project1
21/92
-
8/3/2019 afzal hussain project1
22/92
-
8/3/2019 afzal hussain project1
23/92
-
8/3/2019 afzal hussain project1
24/92
-
8/3/2019 afzal hussain project1
25/92
-
8/3/2019 afzal hussain project1
26/92
-
8/3/2019 afzal hussain project1
27/92
-
8/3/2019 afzal hussain project1
28/92
-
8/3/2019 afzal hussain project1
29/92
-
8/3/2019 afzal hussain project1
30/92
-
8/3/2019 afzal hussain project1
31/92
-
8/3/2019 afzal hussain project1
32/92
-
8/3/2019 afzal hussain project1
33/92
-
8/3/2019 afzal hussain project1
34/92
-
8/3/2019 afzal hussain project1
35/92
-
8/3/2019 afzal hussain project1
36/92
-
8/3/2019 afzal hussain project1
37/92
-
8/3/2019 afzal hussain project1
38/92
-
8/3/2019 afzal hussain project1
39/92
-
8/3/2019 afzal hussain project1
40/92
-
8/3/2019 afzal hussain project1
41/92
-
8/3/2019 afzal hussain project1
42/92
-
8/3/2019 afzal hussain project1
43/92
-
8/3/2019 afzal hussain project1
44/92
-
8/3/2019 afzal hussain project1
45/92
-
8/3/2019 afzal hussain project1
46/92
-
8/3/2019 afzal hussain project1
47/92
-
8/3/2019 afzal hussain project1
48/92
-
8/3/2019 afzal hussain project1
49/92
-
8/3/2019 afzal hussain project1
50/92
-
8/3/2019 afzal hussain project1
51/92
-
8/3/2019 afzal hussain project1
52/92
-
8/3/2019 afzal hussain project1
53/92
-
8/3/2019 afzal hussain project1
54/92
-
8/3/2019 afzal hussain project1
55/92
-
8/3/2019 afzal hussain project1
56/92
-
8/3/2019 afzal hussain project1
57/92
-
8/3/2019 afzal hussain project1
58/92
-
8/3/2019 afzal hussain project1
59/92
-
8/3/2019 afzal hussain project1
60/92
-
8/3/2019 afzal hussain project1
61/92
-
8/3/2019 afzal hussain project1
62/92
-
8/3/2019 afzal hussain project1
63/92
-
8/3/2019 afzal hussain project1
64/92
Working Capital Leverage Components
Observation
Working capital leverage increase in 2009-10 as compare to 2005-06 its shows the
efficient use of current assets and current liabilities. In year 2007-08 lowest working capital
leverages. Company reduces its current assets and tries to increasing in profitability.
3&4.Working Capital Ratio Analysis & Comparison with ROI
INTRODUCTION
Ratio analysis is the powerful tool of financial statements analysis. A ratio is define as
the indicated quotient of two mathematical expressions and as the relationship between
two or more things. The absolute figures reported in the financial statement do not provide
meaningful understanding of the performance and financial position of the firm. Ratio helps
to summaries large quantities of financial data and to make qualitative judgment of the firms
financial performance.
-
8/3/2019 afzal hussain project1
65/92
ROLE OF RATIO ANALYSIS
Ratio analysis helps to appraise the firms in the term of there profitability and
efficiency of performance, either individually or in relation to other firms in same industry.
Ratio analysis is one of the best possible techniques available to management to impart the
basic functions like planning and control. As future is closely related to the immediately past,
ratio calculated on the basis historical financial data may be of good assistance to predict the
future. E.g. On the basis of inventory turnover ratio or debtors turnover ratio in the past, the
level of inventory and debtors can be easily ascertained for any given amount of sales.
Similarly, the ratio analysis may be able to locate the point out the various arias which needthe management attention in order to improve the situation. E.g. Current ratio which shows a
constant decline trend may be indicate the need for further introduction of long term finance
in order to increase the liquidity position. As the ratio analysis is concerned with all the
aspect of the firms financial analysis liquidity, solvency, activity, profitability and overall
performance, it enables the interested persons to know the financial and operational
characteristics of an organization and take suitable decisions.
-
8/3/2019 afzal hussain project1
66/92
EFFICIENCY RATIO
1. Working capital turnover ratio
It signifies that for an amount of sales, a relative amount of working capital is needed. If any
increase in sales contemplated working capital should be adequate and thus this ratio helps
management to maintain the adequate level of working capital. The ratio measures the
efficiency with which the working capital is being used by a firm. It may thus compute net
working capital turnover by dividing sales by net working capital.
Working Capital Turnover Ratio =
Years 2005-06 2006-07 2007-08 2008-09 2009-10Sales 989,129,942 1,290,284,137 1,217,733,969 803,977,774 1,168,174,548
Net W.C 147,766,758 142,536,699 246,785,954 231,351,865 195,623,613W.C. TOR 6.69 9.05 4.93 3.48 5.97
Sales
Net Working Capital
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
67/92
Relation between Working Capital Turnover and ROI
Year W.C. TOR ROI2005-
066.69 7.73
2006-
079.05 7.13
2007-
084.93 4.55
2008-
093.47 1.73
2009-
105.96 0.59
Observation:
From the above figure we can say that the Working Capital Turnover was fluctuated year by
year. The highest ratio in 2006-07 and low in 2008-09 year. It means that company fails to
use of working capital efficiently in the 2008-09. But in the year 2009-10 company increase
the ratio by 72%. Company decreased inventory, cash & bank balance and sundry debtors as
compare to previous year and increased current liabilities as compare to previous year.
Correlation between working capital turnover and return on investment is 0.66 it means
relation between them is partial positive. Working capital turnover ratio leads towards
profitability so, we can say that effective utilization of working capital resources is very
essential for maintain and improve profitability of the business.
Co-relation r =
-
8/3/2019 afzal hussain project1
68/92
2. Inventory turnover ratio
Inventory turnover ratio indicates the efficiency of the firm in producing and selling its
product. This ratio indicates the effectiveness and efficiency of the inventory management.
The ratio shows how speedily the inventory is turn into cash or receivables through sales. It is
calculated by dividing the cost of good sold by average inventory.
Inventory Turnover Ratio =
Inventory Turnover
Years 2005-06 2006-07 2007-08 2008-09 2009-10Cost of Goods
Sold944,744,377 1,225,196,366 1,169,161,821 784,863,874 1,162,235,516
Average Inventory 58,360,743 86,361,010 153,995,270 200,589,406 185,181,788
Inventory TOR 16.19 14.19 7.59 3.91 6.28
Cost of Goods Sold
Average Inventory
-
8/3/2019 afzal hussain project1
69/92
Inventory Turnover Ratio
Relation between Inventory Turnover and ROI
Year InventoryTOR
ROI
2005-
0616.19 7.73
2006-
0714.19 7.13
2007-
087.59 4.55
2008-
093.91 1.73
2009- 6.28 0.59
Correlation (r) =
-
8/3/2019 afzal hussain project1
70/92
10
Observation
It was observed that Inventory turnover ratio indicates maximum sales achieved with the
minimum investment in the inventory. As such, the general rule high inventory turnover is
desirable but high inventory turnover ratio may not necessary indicates the profitable
situation. An organization, in order to achieve a large sales volume may sometime sacrifice
on profit, inventory ratio may not result into high amount of profit. Companys inventory
level is high as compare to the sales. So the turnover ratio may be decline and profitability
also decreases. Inventory turnover ratio and Return on investment have strong correlation. So
it means that Inventory strongly affects the profitability of Atul Auto Ltd.
-
8/3/2019 afzal hussain project1
71/92
3. Receivable Turnover Ratio
Receivable turnover ratio provides relationship between credit sales and receivables of a firm.
It indicates how quickly receivables are converted into sales.
Receivable Turnover Ratio =
Receivable Turnover Ratio
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Sales 989,129,942 1,290,284,137 1,217,733,969 803,977,740 1,168,174,548Avg. Debtors 56,950,707 75,164,572 84,527,787 60,639,803 37,416,036Rec. TOR 17.36 17.17 14.41 13.26 31.22
Net Sales
Average gross Receivables
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
72/92
Receivable Turnover Ratio
-
8/3/2019 afzal hussain project1
73/92
Relation between Receivable Turnover and ROI
Year ReceivableTOR
ROI
2005-
0617.36 7.73
2006-
0717.17 7.13
2007-
0814.41 4.55
2008-
09 13.26 1.732009-
1031.22 0.59
Observation
From 2005-06 to 2008-09 there were no huge difference in Receivable turnover ratio. But in
2009-10 this ratio increase by 80% as compare to 2005-06 it was highest changes in last 5
years period of time. Company decreases average debtors so the collection turnover ratio
increment possible. Company increased the receivable turnover ratio but it was not affected
to the positive profitability indices. Here inverse correlation between receivable turnover ratio
and return on investment. It indicates that receivables failed to give positive impact in
profitability of the Atul Auto Ltd.
Correlation r = -
-
8/3/2019 afzal hussain project1
74/92
4. Current Assets Turnover Ratio
Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current
assets .current assets includes the assets like inventories, sundry debtors, bills receivable, cash
in hand or bank, marketable securities, prepaid expenses and short term loans and advances.This ratio includes the efficiency with which current assets turn into sales. A higher ratio
implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up
of funds in current assets. An analysis of this ratio over a period of time reflects working
capital management of a firm.
Current Assets Turnover Ratio =
Current Assets Turnover Ratio
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Sales 989,129,942 1,290,284,137 1,217,733,969 803,977,740 1,168,174,548Current Assets. 202,827,813 297,983,139 354,668,069 312,977,074 307,865,931C. A. TOR 4.87 4.33 3.43 2.57 3.79
Sales
Average total assets
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
75/92
Current Assets Turnover Ratio
Relation between Current Assets Turnover and ROI
YearC.A.
TOR ROI
2005-
064.87 7.73
2006-
074.33 7.13
2007-
083.43 4.55
2008-
092.57 1.73
2009-
103.79 0.59
Observation
Correlation r =
-
8/3/2019 afzal hussain project1
76/92
Current Assets turnover ratio decreased every year compare to 2005-06. In 2005 -06 ratio
was highest and in 2008-09 the ratio of current assets is very low because of high inventory.
In year 2009-10 this ratio increased by 47%. But it has not given any positive impact on the
profitability. Current assets ratio not indicates any particular trend over the period of time.
Here strong correlation between current assets turnover and return on investment. Its indicate
that company use the current assets effectively. Effective utilization of current assets helps to
create healthy profit.
-
8/3/2019 afzal hussain project1
77/92
LIQUIDITY RATIO
1. Current Ratio
Current assets include cash and those assets which can be converted in to cash within a year,such marketable securities, debtors and inventories. All obligations within a year are include
in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short
term bank loan income tax liabilities and long term debt maturing in the current year. Current
ratio indicates the availability of current assets in rupees for every rupee of current liability.
Current Ratio =
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Current Assets. 202,827,813 297,983,139 354,668,069 312,977,074 307,865,931Current Liabilities 55,061,055 155,446,441 107,882,116 81,625,209 112,242,318Current Ratio 3.68 1.92 3.28 3.83 2.74
Current Assets
Current Liabilities
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
78/92
Current Ratio
-
8/3/2019 afzal hussain project1
79/92
Relation between Current Ratio and ROI
YearCurrent
Ratio ROI
2005-
063.68 7.73
2006-
071.92 7.13
2007-
083.28 4.55
2008-
093.83 1.73
2009-
102.74 0.59
Observation
The current ratio indicates the availability of funds to payment of current liabilities in the
form of current assets. A higher ratio indicates that there were sufficient assets available with
the organization which can be converted in cash, without any reduction in the value. As idealcurrent ratio is 2:1, where current ratio of the firm is more than 2:1, it indicates the
unnecessarily investment in the current assets. Ratio is higher in the 2008-09 because current
liability decreased by 24%. Correlation between current ratio and return on investment is
negative. To improve the profitability company must decrease the current ratio because some
unnecessary investment in current assets blocked the money.
Correlation (r) = -
-
8/3/2019 afzal hussain project1
80/92
2. Quick Ratio
Quick ratios establish the relationship between quick or liquid assets and liabilities. An asset
is liquid if it can be converting in to cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset .other assets which are consider to be relatively liquid andinclude in quick assets are debtors and bills receivable and marketable securities. Inventories
are considered as less liquid. Inventory normally required some time for realizing into cash.
Their value also be tendency to fluctuate. The quick ratio is found out by dividing quick
assets by current liabilities
Quick Ratio =
Quick Ratio
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Liquid C. A. 130,521,793 197,567,139 147,093,530 119,372,802 131,106,627Current Liabilities 55,061,055 155,446,441 107,882,116 81,625,209 112,242,318Quick Ratio 2.37 1.27 1.36 1.46 1.17
Quick Ratio
Current Assets - Inventory
Current Liabilities
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
81/92
-
8/3/2019 afzal hussain project1
82/92
Relation between Quick Ratio and ROI
YearQuick
Ratio ROI
2005-
062.37 7.73
2006-
071.27 7.13
2007-
081.36 4.55
2008-
091.46 1.73
2009-
101.17 0.59
Observation
Quick ratio indicates that the company has sufficient liquid balance for the payment of
current liabilities. The standard liquid ratio is 1:1 but here liquid ratio is more than 1:1 over
the period of 5 years, it indicates that the firm maintains the over liquid assets than actualrequirement of such assets. Here, correlation between quick ratio and return on investment is
moderate. Such a policy is called conservative policy of finance affects on the cost of the
fund and return on the funds.
Correlation (r) =
-
8/3/2019 afzal hussain project1
83/92
3. Absolute Liquid Ratio
Even though debtors and bills receivables are considered as more liquid then inventories, it
can not be converted in to cash immediately or in time. Therefore while calculation of
absolute liquid ratio only the absolute liquid assets as like cash in hand cash at bank, shortterm marketable securities are taken in to consideration to measure the ability of the company
in meeting short term financial obligation. It calculates by absolute assets dividing by current
liabilities.
Absolute Liquid Ratio =
Absolute Liquid Ratio
Particulars 2005-06 2006-07 2007-08 2008-09 2009-10Absolute Liquid
assets11,441,798 16,113,867 2,387,963 3,752,117 18,628,235
Current Liabilities 55,061,055 155,446,441 107,882,116 81,625,209 112,242,318Absolute Liquid
Ratio0.208 0.104 0.022 0.046 0.166
Absolute Liquid Ratio
Absolute Liquid Assets
Current Liabilities
(Amnt. In Rs.)
-
8/3/2019 afzal hussain project1
84/92
Relation between Absolute Liquid Ratio and ROI
YearAbsolute
Quick RatioROI
2005-06 0.208 7.732006-07 0.104 7.132007-08 0.022 4.55
2008-09 0.046 1.732009-10 0.166 0.59
Observation
Absolute liquid ratio indicates the availability of cash with company is sufficient because
company also has other current assets to support current liabilities of the company. In the
year 2005-06 the ratio high. Because cash was law as compare to current liabilities.
Correlation between Absolute Liquid Ratio and Return on investment is low. But its not anydrastic impact on profitability.
Correlation (r) =
-
8/3/2019 afzal hussain project1
85/92
-
8/3/2019 afzal hussain project1
86/92
CHAPTER
V
-
8/3/2019 afzal hussain project1
87/92
FINDINGS,SUGGESTIONS
AND CONCLUSION
-
8/3/2019 afzal hussain project1
88/92
Findings, Conclusion and Suggestion
Working capital management is important aspects of financial management. The study of
working capital of Atul Auto Ltd. Has reviled that the efficiency and liquidity ratios were as
per the standard industrial practices but liquidity position of the company showed an
increasing trend. The study has been conducted on working capital ratios analysis, working
capital leverage, working capital size a level analysis and comparison with profitability ratio
(Return on Investment) which helped the company to manage its working capital efficiency
and affectively.
Return on investment of the company reduced year by year. So the profitability of the
firm automatically down. Compare to year 2005-06 with 2009-10 return on
investment down by 92%.
Working capital size of Atul Auto Ltd. not indicate any specific trend and fluctuate
every year. Company decrease the working capital size in year 2009-10 as compare to
previous year. Here lack of combination between current assets and current liabilities
so the profitability was reduced.
Current assets are more than current liabilities indicates that company use long term
funds for short term requirements, where long term funds are most costly than short
term funds.
Company has a more inventories in total current assets. It is very good because
inventory is essential for the smooth business operation. Company increases the
current liabilities size and tries to maintain liquidity ratios as per standard industrial
practices.
Atul Auto Ltd. Increase the working capital leverage but its failed to increased
profitability.
-
8/3/2019 afzal hussain project1
89/92
Working capital turnover ratio leads towards profitability. Working capital turnover
ratio and ROI have a positive correlation (0.66). It means that changes in working
capital turnover directly effect on profitability of the business. Thus, working capital
turnover is very important for the business.
Correlation between inventory turnover ratio and return on investment near to perfect.
If there is a positive change in inventory turnover ratio it gives positive sign in
profitability of the company and vice versa. So company should keep the inventory as
per the sales. Raw material is major part of the inventory. Company required reducing
the raw material size and holding period so, company need less funds for working
capital and increase the profitability.
There is a negative correlation between receivable turnover ratio and return on
investment. It is due to the strict credit policy of the Atul Auto Ltd. It has given
negative impact on the sales of the company. Company should develop liberal credit
policy so, it will help in increasing sales and also the profitability of the firm.
Positive correlation of current assets turnover ratio and return on investment. It means
that current assets plays vital role in profitability. Companys current assets were
always more than requirement it affect on profitability of the company. The higher
current assets turnover ratio implies more efficient use of the funds.
Current ratio of the company in last years above the ideal current ratio. It indicates
companys good liquidity position and also indicates unnecessary investment in
current assets. Correlation with return on investment is 0.19 and it is negative. It
means that our funds have blocked in unnecessary current assets.
Quick ratio of Atul Auto Ltd. also above the ideal ratio. We found moderate
correlation between quick ratio and return on investment. Here company require to
reduce some investment in current assets so the cost of fund reduce and profitability
increase.
Correlation between absolute liquid ratio and return on investment is weak. This ratiodid not match with ideal ratio and it was below as compare to ideal ratio. Its not big
-
8/3/2019 afzal hussain project1
90/92
impact on profitability of the Atul Auto Ltd. as per our view it is good because cash is
less performing assets in working capital.
Atul Auto Ltd. working capital shows the good liquidity position. Positive working capital
indicates that company has the ability of the payments of short terms liabilities. Working
capital of Atul Auto Ltd. not indicates any trend for particular period of time. All over
working capital management of the company is average and its impact on profitability is
average.
-
8/3/2019 afzal hussain project1
91/92
BIBLIOGRAPHY
BIBLIOGRAPHY
Books Referred
-
8/3/2019 afzal hussain project1
92/92
1. I.M. Pandey - Financial Management - Vikas Publishing House Pvt. Ltd. - Ninth
Edition 2006
2. Ravi M. Kishore Financial Management - Taxman Allied Services Pvt. Ltd.,
New Delhi. 7 th Edition 2008
3. G. Sudarsana Reddy Financial Management - Himalaya Publication House Pvt.
Lt. Mumbai 1 st Edition 2008.
4. Dr. R.S. Khandelwal Quantitative Analysis For Management -Ajmera Book
Company-2 nd Edition 2008
Websites References
1. www.atulauto.co.in
2. www.google.co.in
Annual Reports
1. Annual report of Atul Auto Ltd. 2005-06
2. Annual report of Atul Auto Ltd. 2006-07
3. Annual report of Atul Auto Ltd. 2007-08
4. Annual report of Atul Auto Ltd. 2008-09
5. Annual report of Atul Auto Ltd. 2009-10
http://www.atulauto.co.in/http://www.google.co.in/http://www.google.co.in/http://www.atulauto.co.in/