1.1 INTRODUCTION
The working capital meets the short-term financial requirements of a business
enterprise. It is a trading capital, not retained in the business in a particular form for
longer than a year. The money invested in it changes form and substance during the
normal course of business operations. The need for maintaining an adequate working
capital can hardly be questioned. Just as circulation of blood is very necessary in the
human body to maintain life, the flow of funds is very necessary to maintain business.
If it becomes weak, the business can hardly prosper and survive. Working capital
starvation is generally credited as a major cause if not the major cause of small
business failure in many developed and developing countries (Rafuse, 1996). The
success of a firm depends ultimately, on its ability to generate cash receipts in excess
of disbursements. The cash flow problems of many small businesses are exacerbated
by poor financial management and in particular the lack of planning cash
requirements (Jarvis et al, 1996).
The Management of Working Capital
While the performance levels of small businesses have traditionally been
attributed to general managerial factors such as manufacturing, marketing and
operations, working capital management may have a consequent impact on small
business survival and growth (Kargar and Blumenthal, 1994). The management of
working capital is important to the financial health of businesses of all sizes. The
amounts invested in working capital are often high in proportion to the total assets
employed and so it is vital that these amounts are used in an efficient and effective
way. However, there is evidence that small businesses are not very good at managing
their working capital. Given that many small businesses suffer from
undercapitalisation, the importance of exerting tight control over working capital
investment is difficult to overstate.
A firm can be very profitable, but if this is not translated into cash from operations
within the same operating cycle, the firm would need to borrow to support its
continued working capital needs. Thus, the twin objectives of profitability and
liquidity must be synchronised and one should not impinge on the other for long.
APGCCS, Rajampet Page 1
Investments in current assets are inevitable to ensure delivery of goods or services to
the ultimate customers and a proper management of
same should give the desired impact on either profitability or liquidity. If resources
are blocked at the different stage of the supply chain, this will prolong the cash
operating cycle. Although this might increase profitability (due to increase sales), it
may also adversely affect
the profitability if the costs tied up in working capital exceed the benefits of holding
more inventory and/or granting more trade credit to customers.
Another component of working capital is accounts payable, but it is different in the
sense that it does not consume resources; instead it is often used as a short term source
of finance. Thus it helps firms to reduce its cash operating cycle, but it has an implicit
cost where discount is offered for early settlement of invoices.
MEANING OF WORKING CAPITAL
Ordinarily, the term “working capital” stands for that part of the capital, which
is required for the financing of working or current needs of the company. Working
capital is the lifetime of every concern. Whether it is manufacturing or non-
manufacturing one without adequate working capital, there can be no progress in the
industry.
Inadequate working capital means shortage of raw materials, labor etc., resulting in
partial current assets less current liabilities-has no economic meaning in the sense of
implying some type of normative behavior. According to this line of reasoning, it is
largely an accounting artifact. Working capital management, then, is a misnomer.
The working capital of the firm is not managed. The term describes a category of
management decisions affects specific types of current assets and current liabilities. In
turn, those decisions should be rooted in the overall Valuation
APGCCS, Rajampet Page 2
DEFINITIONS
According to Weston and Brigham
”Working capital refers to a firm’s investment in short term
assets- cash, short term securities, accounts receivables and inventories”.
- Weston and Brigham
According to Hoagland
“Working capital is descriptive of that capital which is not
fixed. But the more common use of the working capital is to consider it as the
difference between the book value of the current assets and the current liabilities.
-HOAGLAND
Composition of Working Capital:
1.Current Assets:a. Inventories Raw Materials
Work in progressFinished goodsStores and sparesMiscellaneous Goods
b. Receivables Trade debtorsLoans and advancesOther debtor balances
c. Marketable securities Govt securitiesSemi-Government securitiesShares, Debenture, etc.,
d. Cash and bank balance Cash in HandCash At BankCash in Transit
2.Current Liabilities:
a. Sundry creditors Interest accused on loanAdvances received from customsShort term loans from banksTrade dues and other liabilitiesDeposits from public, etc.,
APGCCS, Rajampet Page 3
1.2INDUSTRY PROFILE
Over view Indian Automobile Industry
Starting its journey from the day when the first car rolled on the streets of
Mumbai in 1898, the Indian automobile industry has demonstrated a phenomenal
growth to this day. Today, the Indian automobile industry presents a galaxy of
varieties and models meeting all possible expectations and globally established
industry standards. Some of the leading names echoing in the Indian automobile
industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai
Motors, Hero Honda and Hindustan Motors in addition to a number of others.
During the early stages of its development, Indian automobile industry
heavily depended on foreign technologies. However, over the years, the
manufacturers in India have started using their own technology evolved in the native
soil. The thriving market place in the country has attracted a number of automobile
manufacturers including some of the reputed global leaders to set their foot in the soil
looking forward to enhance their profile and prospects to new heights. Following a
temporary setback on account of the global economic recession, the Indian
automobile market has once again picked up a remarkable momentum witnessing a
buoyant sale for the first time in its history in the month of September 2009.
The automobile sector of India is the seventh largest in the world. In a year, the
country manufactures about 2.6 million cars making up an identifiable chunk in the
world’s annual production of about 73 million cars in a year. The country is the
largest manufacturer of motorcycles and the fifth largest producer of commercial
vehicles. Industry experts have visualized an unbelievably huge increase in these
figures over the immediate future. The figures published by the Asia Economic
Institute indicate that the Indian automobile sector is set to emerge as the global leader
by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles
following Japan, South Korea and Thailand. Experts state that in the year 2050, India
will top the car volumes of all the nations of the world with about 611 million cars
running on its roads.
APGCCS, Rajampet Page 4
At present, about 75 percent of India’s automobile industry is made up by small
cars, with the figure ranking the nation on top of any other country on the globe. Over
the next two or three years, the country is expecting the arrival of more than a dozen
new brands making compact car models.
Recently, the automotive giants of India including General Motors (GM),
Volkswagen, Honda, and Hyundai, have declared significant expansion plans. On
account of its huge market potential, a very low base of car ownership in the country
estimated at about 25 per 1,000 people, and a rapidly surging economy, the nation is
firmly set on its way to become an outsourcing platform for a number of global auto
companies. Some of the upcoming cars in the India soil comprise Maruti A-Star
(Suzuki), Maruti Splash (Suzuki), VW Up and VW Polo (Volkswagen), Bajaj small
car (Bajai Auto), Jazz (Honda) and Cobalt, Aveo (GM) in addition to several others.
History of the Automobile industry in India
The economic liberalization that dawned in India in the year 1991 has succeeded
in bringing about a sustained growth in the automotive production sector triggered by
enhanced competitiveness and relaxed restrictions prevailing in the Indian soil. A
number of Indian automobile manufacturers including Tata Motors, Maruti Suzuki
and Mahindra and Mahindra, have dramatically expanded both their domestic and
international operations. The country’s active economic growth has paved a solid road
to the further expansion of its domestic automobile market. This segment has in fact
invited a huge amount of India-specific investment by a number of multinational
automobile manufacturers. As a significant milestone in its progress, the monthly
sales of passenger cars in India exceeded 100,000 units in February 2009.
The beginnings of automotive industry in India can be traced during 1940s. After
the nation became independent in the year 1947, the Indian Government and the
private sector launched their efforts to establish an automotive component
manufacturing industry to meet the needs of the automobile industry. The growth of
this segment was however not so encouraging in the initial stage and through the
1950s and 1960s on account of nationalization combined with the license raj that was
hampering the private sector in the country. However, the period that followed 1970s,
witnessed a sizeable growth contributed by tractors, scooters and commercial
APGCCS, Rajampet Page 5
vehicles. Even till those days, cars were something of a sort of a major luxury.
Eventually, the country saw the entry of Japanese manufacturers establishing Maruti
Udyog. During the period that followed, several foreign based companies started joint
ventures with Indian companies.
During 1980s, several Japanese manufacturers started joint-ventures for
manufacturing motorcycles and light commercial-vehicles. During this time, that the
Indian government selected Suzuki for a joint-venture to produce small cars.
Following the economic liberalization in 1991 and the weakening of the license raj,
several Indian and multi-national car companies launched their operations on the soil.
After this, automotive component and automobile manufacturing growth remarkably
speed-up to meet the demands of domestic and export needs.
Experts have an opinion that during the early stages the policies and the
treatment by the Indian government were not favorable to the development of the
automobile industry. However, the liberalization policy and various tax reliefs
announced by the Indian government over the recent past have pronounced a
significantly encouraging impact on this industry segment. Estimates reveal that
owing to several boosting factors, Indian automobile industry has been growing at a
pace of about 18% per year. Therefore, global automobile giants like Volvo, General
Motors and Ford have started looking at India as a prospective hot destination to
establish and expand their operations.
Like many other nations India’s highly developed transportation system has
played a very important role in the development of the country’s economy over the
past to this day. One can say that the automobile industry in the country has occupied
a solid space in the platform of Indian economy. Empowered by its present growth,
today the automobile industry in the country can produce a diverse range of vehicles
under three broad categories namely cars, two-wheelers and heavy vehicles.
Exports of Automobile Industry
Today, India is among the world’s largest producers of small cars. The New
York Times has rated India as a very strong engineering base with an incomparable
expertise in the arena of manufacturing a number of low-cost, fuel-efficient cars has
APGCCS, Rajampet Page 6
encouraged the expansion plans of the manufacturing facilities of a number of
automobile leaders like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki.
On 22 February 2010, Hyundai motors exported its 10,00,000th car, the feat
which was achieved by the firm in just over 10 years. Hyundai Motors is the largest
passenger car exporter and the second largest car manufacturer in the country. In the
similar lines, General Motors has announced its plans to export not less than 50,000
cars made in India by the year 2011. In yet another proposal, Ford Motors is to setup a
manufacturing facility costing about US$500 million in India with an annual capacity
of 250,000 cars. The firm has stated that the facility will play a major part in its
strategic plan to make India a hub for its global production business. In yet another
significant move, Fiat motors has stated that it will source a big volume of auto
components from India worth about US$1 billion. In the year 2009, India overtook
China by emerging as the fourth largest exporter of cars in Asia.
Various Segments of the Indian Automobile Industry
Motor cycles manufacture makes up the major share in the two-wheeler segment
of the Indian automobile industry. About 50% of the motor cycles are manufactured
by Hero Honda. While Honda manufactures about 46% of the scooters, TVS produces
82% of the mopeds running on the Indian roads.
About 40% of the three-wheelers manufactured in India are used for
transporting goods with Piaggio manufacturing 40% of the vehicles sold in the Indian
market. On the other hand, Bajaj has emerged as the leader in manufacturing three-
wheelers used for passenger transport. The firm produces about 68% percent of the
three wheelers used for passenger transport in India. The Indian passenger vehicle
segment is dominated by cars which make up about 80% of it. Maruti Suzuki
manufactures about 52% of passenger cars while the firm enjoys a complete
monopoly in the manufacture of multi-purpose vehicles. In the utility vehicles
segment Mahindra makes up a 42% share.
Tata Motors is the leader in the Indian commercial vehicles market while it holds
more than 60% share. Tata Motors also enjoys the credit of being the world’s fifth
largest manufacturer of medium and heavy commercial vehicles.
APGCCS, Rajampet Page 7
Potential of Indian Automobile Industry
There is a very stiff competition in the automobile industry segment in India.
This has helped many to realize their dreams of driving the most luxurious cars.
During the recent past, a number of overseas companies have started grabbing a big
chunk of the market share in both domestic and export sales. Every new day dawns in
India with some new launches by active players in the Indian automobile arena. By
introducing some low cost cars, the industry had made it possible for common men to
buy cars for their personal use. With some innovative strategies and by adopting some
alternative remedial measures, the Indian automobile industry has successfully come
unaffected out of the global financial crisis.
While the automobile industry in India is the ninth largest in the world, the
country emerged as the fourth largest automobiles exporter on the globe following
Japan, South Korea and Thailand, in the year 2009. Over and above, a number of
automobile manufacturers based in India have expanded their operations around the
globe also giving way for a number of reputed MNCs to enthusiastically invest in the
Indian automobile sector.
Nissan Motors has revealed its prospective plans to export 250,000 vehicles
produced in its India plant by the year 2011. General Motors has also come up with
similar plans.
During the current fiscal year, the Indian automobile industry rode high on the
resurgence of consumer demand in the country as a result of the Government’s fiscal
stimulus and attractively low interest rates. As a result the total turnover of the
domestic automobile industry increased by about 27 per cent.
A reply produced in the Lok Sabha recently has quoted data from the Society of
Indian Automobile Manufacturers and has revealed that the total turnover of the
Indian automobile Industry in April-February 2009-10 was 1,62,708.77 crore.
This is a remarkable achievement compared with the total revenue of Rs
1,28,384.53 crore reported during the same period of last fiscal year. Specifically, the
segment of commercial vehicles witnessed the biggest jump in revenues by 31 per
APGCCS, Rajampet Page 8
cent by reporting Rs 38,845.09 crore. During the same period, the passenger vehicle
segment in the country witnessed a growth of 27 per cent over the last fiscal year by
reporting a total revenue of Rs 76,545.96 crores. These figures imply a highly
prospective road lying immediately ahead of the Indian automobile industry.
Predictions made by Ernst and Young have estimated that the Indian
passenger car market will have a growth rate of about 12 percent per annum over the
next five years to reach the production of 3.75 million units by the year 2014. The
analysts have further stated that the industry’s turnover will touch $155 billion by
2016. This achievement will succeed in consolidating India’s position as the seventh
largest automobiles manufacturer on the globe, eventually surging forth to become the
third largest by the year 2030 behind China and the US.
The Automotive Mission Plan launched by the Indian government has
envisaged that the country will emerge as the seventh largest car maker on the globe
thereby contributing more than 10 percent to the nation’s $1.2-trillion economy.
Further, industry experts believe that the nation will soon establish its stand
as an automobile hub exporting about 2.75 million units and selling about a million
units to be operated on the domestic roads.
APGCCS, Rajampet Page 9
Over view Indian Cement Industry
Cement Industry in India is on a roll at the moment. Driven by a booming real
estate sector, global demand and increased activity in infrastructure development such
as state and national highways, the cement industry has witnessed tremendous growth.
The origins of Indian cement industry can be traced back to 1914 when the
first unit was set-up at Porbandar with a capacity of 1000 tones. Today cement
industry comprises of 125 large cement plants and more than 300 mini cement plants.
The Cement Corporation of India, which is a Central Public Sector Undertaking, has
10 units. There are 10 large cement plants owned by various State Governments.
Cement industry in India has also made tremendous strides in technological up
gradation and assimilation of latest technology. Presently, 93 per cent of the total
capacity in the industry is based on modern and environment-friendly dry process
technology.
The induction of advanced technology has helped the industry immensely to
conserve energy and fuel and to save materials substantially. Indian cement industry
has also acquired technical capability to produce different types of cement like
Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast
Furnace Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement,
Sulphate Resisting Portland Cement, White Cement etc. Some of the major clusters of
cement industry in India are: Satan (Madhya Pradesh), Chandrapur (Maharashtra),
Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (Andhra Pradesh),
Bilaspur (Chattisgarh), and Chandoria (Rajasthan).
Cement industry in India is currently going through a consolidation phase.
Some examples of consolidation in the Indian cement industry are: Gujarat Ambuja
taking a stake of 14 per cent in ACC, and taking over DLF Cements and Modi
Cement; ACC taking over IDCOL; India Cement taking over Raasi Cement and Sri
Vishnu Cement; and Grasim's acquisition of the cement business of L&T, Indian
Rayon's cement division, and Sri Digvijay Cements. Foreign cement companies are
also picking up stakes in large Indian cement companies. Swiss cement major Holcim
has picked up 14.8 per cent of the promoters' stake in Gujarat Ambuja Cements
APGCCS, Rajampet Page 10
(GACL). Holcim's acquisition has led to the emergence of two major groups in the
Indian cement industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the
Aditya Birla group through Grasim Industries and Ultratech Cement. Lafarge, the
French cement major has acquired the cement plants of Raymond and Tisco. Italy
based Italcementi has acquired a stake in the K.K. Birla promoted Zuari Industries'
cement plant in Andhra Pradesh, and German cement company Heidelberg Cement
has entered into an equal joint-venture agreement with S P Lohia Group.
Issues concerning Cement Industry
High Transportation Cost is affecting the competitiveness of the cement
industry. Freight accounts for 17% of the production cost. Road is the
preferred mode for transportation for distances less than 250km. However,
industry is heavily dependent on roads for longer distances too as the railway
infrastructure is not adequate.
Cement industry is highly capital intensive industry and nearly 55-60% of the
inputs are controlled by the government.
There is regional imbalance in the distribution of cement industry. Limestone
availability in pockets has led to uneven capacity additions.
Coal availability and quality is also affecting the production.
The Indian Cement industry is the second largest cement producer in the world,
with an installed capacity of 144 million tonnes. The industry has undergone rapid
technological up gradation and vibrant growth during the last two decades, and some
of the plants can be compared in every respect with the best operating plants in the
world. The industry is highly energy intensive and the energy bill in some of the
plants is as high as 60% of cement manufacturing cost. Although the newer plants are
equipped with the latest state-of-the-art equipment, there exists substantial scope for
reduction in energy consumption in many of the older plants adopting various energy
conservation measures.
The Indian cement industry is a mixture of mini and large capacity cement
plants, ranging in unit capacity per kiln as low as 10 tpd to as high as 7500 tpd.
Majority of the production of cement in the country (94% ) is by large plants, which
are defined as plants having capacity of more than 600 tpd. At present there are 124
APGCCS, Rajampet Page 11
large rotary kiln plants in the country. The Ordinary Portland Cement (OPC) enjoys
the major share (56%) of the total cement production in India followed by Portland
Pozzolana Cement (PPC) and Portland Slag Cement (PSC). A positive trend towards
the increased use of blended cement can be seen with the share of blended cement
increasing to 43%. There is regional imbalance in cement production in India due to
the limitations posed by raw material and fuel sources. Most of the cements plants in
India are located in proximity to the raw material sources, exploiting the natural
resources to the full extent. The southern region is the most cement rich region while
other regions have almost same cement production capacity. The Indian cement
industry is about 90 years old and its main sources of energy are thermal and
electrical energy. The thermal energy is generally obtained from coal, and the
electrical energy is obtained either from grid or captive power plants of the individual
manufacturing units.
Salient features of Indian cement industry
Indian cement industry is the second largest in the world with an installed
capacity of 135 MTPA. It accounts for nearly 6% of the world production.
There are 124 large plants and around 365 mini plants. The industry presents
a mixed picture with many new plants that employ state-of-the-art dry process
technology and a few old wet process plants having wet process kilns.
Production from large plants (with capacity above 1 MTPA) account for
85% of the total production.
The cement industry has achieved significant progress in terms of reducing
the overall energy intensity.
Dry process plants that the weighted average thermal energy consumption was
734 kCal/kg clinker, and weighted average electrical energy consumption was
89 kWh/tone of cement. The best energy consumption are 692 kCal/kg .
clinker and 66 kWh/ton of cement.
Quantitative details:
The energy intensity of the all the dry process plants (cost of energy as
percentage of total production cost of packed cement) varies from 29 to 61%. This is
observed to vary with the vintage of the plant, the technology employed by the plants
APGCCS, Rajampet Page 12
and the type of cement produced. Specific thermal and electrical energy consumption
for the plants ranges between 692 – 879 kCal/kg. of clinker and 66 – 127 kWh/ton of
cement produced (product mix) respectively. The specific electrical energy also
includes the energy consumed in packing, plant utilities and plant lighting. The
reasons for wide range in specific energy consumption can be mainly attributed to the
differing equipment configuration employed in different sections of the plants by
various cement plants. For example, plants employing ball mills for grinding have
reported higher specific electrical energy consumption as compared to plants having
vertical roller mills. In addition, other factors like the plant capacity, its capacity
utilisation, vintage, product mix, process control system, maintenance aspects, raw
material characteristics and above all the management’s attitude and operational
practices of plant personnel are also important. Besides, various external parameters
like quality of coal, raw materials and power supply have their own repercussions.
A large number of plants have put in vertical roller mills for raw meal
section. The balls mills are still operating in the clinker grinding and coal milling
sections in some of the plants. Some of the newer plants have installed roller press
and vertical roller mills in the clinker grinding section as well. Comparison of energy
performance of Indian cement industry with other countries reveals that there exists
scope for improving the energy performance of the Indian cement industry. The best
reported (as per CMA data) energy performance figures in the world re 65 kWh/t of
cement and 650 kCal/kg of clinker whereas the best in India is 19 kWh/t of cement
and 665 kCal/kg of clinker. This clearly bring out the fact that although we have some
of the best plants in the world in terms of energy performance, there are many plants
where there exists scope for reducing energy consumption.
Cement Industry in India is on a roll at the moment. Driven by a booming
real estate sector, global demand and increased activity in infrastructure development
such as state and national highways, the cement industry has witnessed tremendous
growth. Production capacity has gone up and top cement companies of the world are
vying to enter the Indian market, thereby sparking off a spate of mergers and
acquisitions. Indian cement industry is currently ranked second in the world. The
origins of Indian cement industry can be traced back to 1914 when the first unit was
set-up at Porbandar with a capacity of 1000 tones. Today cement industry comprises
APGCCS, Rajampet Page 13
of 125 large cement plants and more than 300 mini cement plants. The Cement
Corporation of India, which is a Central Public Sector Undertaking, has 10 units.
There are 10 large cement plants owned by various State Governments. Cement
industry in India has also made tremendous strides in technological up gradation and
assimilation of latest technology. Presently, 93 per cent of the total capacity in the
industry is based on modern and environment-friendly dry process technology. The
induction of advanced technology has helped the industry immensely to conserve
energy and fuel and to save materials substantially. Indian cement industry has also
acquired technical capability to produce different types of cement like Ordinary
Portland Cement (OPC), Portland Pozzolana Cement (PPC), Portland Blast Furnace
Slag Cement (PBFS), Oil Well Cement, Rapid Hardening Portland Cement, Sulphate
Resisting Portland Cement, White Cement etc. Some of the major clusters of cement
industry in India are: Satna (Madhya Pradesh), Chandrapur (Maharashtra), Gulbarga
(Karnataka), Yerranguntla (Andhra Pradesh), Nalgonda (AndhraPradesh),
Bilaspur(Chattisgarh), and Chandoria(Rajasthan).
Cement industry in India is currently going through a consolidation phase. Some
examples of consolidation in the Indian cement industry are: Gujarat Ambuja taking a
stake of 14 per cent in ACC, and taking over DLF Cements and Modi Cement; ACC
taking over IDCOL; India Cement taking over Raasi Cement and Sri Vishnu Cement;
and Grasim's acquisition of the cement business of L&T, Indian Rayon's cement
division, and Sri Digvijay Cements. Foreign cement companies are also picking up
stakes in large Indian cement companies. Swiss cement major Holcim has picked up
14.8 per cent of the promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's
acquisition has led to the emergence of two major groups in the Indian cement
industry, the Holcim-ACC-Gujarat Ambuja Cements combine and the Aditya Birla
group through Grasim Industries and Ultratech Cement. Lafarge, the French cement
major has acquired the cement plants of Raymond and Tisco. Italy based Italcementi
has acquired a stake in the K.K. Birla promoted Zuari Industries' cement plant in
Andhra Pradesh, and German cement company Heidelberg Cement has entered into
an equal joint-venture agreement with S P Lohia Group controlled. Indo-
RamaCement.
APGCCS, Rajampet Page 14
Issues concerning Cement Industry
High Transportation Cost is affecting the competitiveness of the cement
industry. Freight accounts for 17% of the production cost. Road is the
preferred mode for transportation for distances less than 250km. However,
industry is heavily dependent on roads for longer distances too as the railway
infrastructure is not adequate.
Cement industry is highly capital intensive industry and nearly 55-60% of the
inputs are controlled by the government.
There is regional imbalance in the distribution of cement industry. Limestone
availability in pockets has led to uneven capacity additions.
Coal availability and quality is also affecting the production.
APGCCS, Rajampet Page 15
Over view of Telecom industry in India
The Indian Telecommunications network is the third largest in the world and the
second largest among the emerging economies of Asia. Today, it is the fastest
growing market in the world. The telecommunication sector continued to register
significant success during the year and has emerged as one of the key sectors
responsible for India’s resurgent India’s economic growth.
Growth
This rapid growth has been possible due to various proactive and positive
decisions of the Government and contribution of both by the public and the private
sector. The rapid strides in the telecom sector have been facilitated by liberal policies
of the Government that provide easy market access for telecom equipment and a fair
regulatory framework for offering telecom services to the Indian consumers at
affordable prices.
Wire line Vs Wireless
It has also undergone a substantial change in terms of mobile versus fixed
phones and public versus private participation. The preference for use of wireless
phones has also been predominant in the sector. Participation of the private entities in
the telecom sector is rapidly increasing rate there by presenting the enormous growth
opportunities. There is a clear distinction between the Global Satellite Mobile
Communication (GSM) and Code Division Multiple Access (CDMA) technologies
used and the graph below shows the divide between the two.
Segment wise Status
Wire line Services With increasing penetration of the wireless services, the
wireline services in the country is becoming stagnant. On the other hand, Broadband
demand has picked up and promises to stabilize fixed line growth.
APGCCS, Rajampet Page 16
GSM Sector
In terms of the Global System for Mobile Communication (GSM) subscriber
base this now places India third after China and Russia. China had 401.7 million GSM
subscribers
CDMA Services
CDMA technology was introduced in India as a limited mobility solution. The
introduction of CDMA services has created competition, lowered tariffs and offered
many citizens access to communication services for the first time.
Internet Services
Internet services were launched in India on August 15, 1995. In November
1998 the government opened up the sector to private operators. A liberal licensing
regime was put in place to increase Internet penetration across the country. The
growth of IP telephony or grey market is also a serious concern. Government loses
revenue, while unlicensed operation by certain operators violates the law and depletes
licensed operators market share. New services like IP-TV and IP-Telephony are
becoming popular with the demand likely to increase in coming years. The scope of
services under existing ISP license conditions are unclear.
Manufacture of Telecom Equipment
Rising demand for a wide range of telecom equipment, particularly in the area
of mobile telecommunication, has provided excellent opportunities to domestic and
foreign investors in the manufacturing sector. The last two years saw many renowned
telecom companies setting up their manufacturing base in India. Ericsson has set up
GSM Radio Base Station manufacturing facility in Jaipur. Elcoteq has set up handset
manufacturing facilities in Bangalore. Nokia set up its manufacturing plant in
Chennai. LG Electronics set up plant of manufacturing GSM mobile phones near
Pune. The Government has already set up Telecom Equipment and Services Export
Promotion.
Forum and Telecom Testing and Security Certification Centre (TETC). A large
number of companies like Alcatel, Cisco have also shown interest in setting up their
APGCCS, Rajampet Page 17
R&D centres in India. With above initiatives India is expected to be a manufacturing
hub for the telecom equipment.
Opportunities
The telecom sector has been one of the fastest growing sectors in the Indian
economy in the past 4 years. This has been witnessed due to strong competition that
has brought down tariffs as well as simplification of policy environment that has
promoted healthy competition among various players.. The mobile sector alone has
been growing rapidly and has emerged as the fastest growing market in the whole
worlds. Currently of a size nearing 70 million (GSM and CDMA), this sector is
expected to reach a size of nearly 200 million subscribers by financial year 2008. The
government has eased the rules regarding inter circle and intra circle mergers. This
has led to a slew of mergers and acquisitions in the recent past. Also as the sector is
moving closer to maturity, further consolidation is a reality and this will lead to the
survival of more profitable players in this segment In order to further promote the use
of Internet in the country the government is taking proactive steps to develop this
sector with the help of the various players in this segment.
For this purpose, the use of broadband technology is being mooted and this
will go a long way in improving the productivity of the Indian economy as well as
turn out to be the next big opportunity for telecom companies after the mobile
communications segment Non-voice services and VAS are the gold mines. The big
takeoff is expected with the rollout of 3G services in early 2007, once the spectrum
issues are sorted out. Internet users base fast reaching near the English speaking
population base. Local language and content required for further growth Infrastructure
equipment cost is down to a fraction of what prevailed just a few years ago. Operators
can plan better expansion plan now Increased viability for the operators to expand to
semi-urban and rural markets, hence, accelerate growth further It’s not without reason
that India is tipped to be the world’s third-larges economy by 2050! No wonder if it
happens much earlier Investors can look to capture the gains of the Indian telecom
boom and diversify their operations outside developed economies that are marked by
saturated telecom markets and lower GDP growth rates. At a time when global
telecom majors are struggling to cope with their losses and the rollout of 3G
networks, which has been a non-starter for close to a year now; India, with its
telecom.
APGCCS, Rajampet Page 18
Over view of Indian pharmaceutical industry
The Indian Pharmaceutical Industry currently tops the chart amongst India 's
science-based industries with wide ranging capabilities in the complex field of drug
manufacture and technology. The Indian Pharmaceutical Industry ranks very high
amongst all third world countries, in terms of technology, quality and the vast range
of medicines that are manufactured.
The Pharmaceutical industry has grown from mere US$ 0.3 billion
turnover in 1980 to about US$ 21.73 billion in 2009-10. The country now ranks 3 rd
in terms of volume of production (10 per cent of global share) an 14 th largest by
value (1.5 per cent of global share). One reason for lower value share is the lowest
cost of drugs in India ranging from 5 per cent to 50 per cent less as compared to
developed countries. Indian pharmaceutical industry growth has been fuelled by
exports and its products are exported to a large number of countries with a sizeable
share in the advanced regulated markets of the US and Western Europe .
Many Indian companies maintain highest standards in Purity, Stability and
International Safety, Health and Environmental (SHE) protection in production and
supply of bulk drugs even to some innovator companies. This speaks of the high
quality standards maintained by a large number of Indian Pharma companies as these
bulk actives are used by the buyer companies in manufacture of dosage forms which
are again subjected to stringent assessment by various regulatory authorities in the
importing countries. More of Indian companies are now seeking regulatory approvals
in USA in specialized segments like Anti-infectives, Cardiovasculars, CNS group.
Along with Brazil & PR China, India has carved a niche for itself by being a top
generic Pharma player.
Increasing number of Indian pharmaceutical companies have been getting
international regulatory approvals for their plants from agencies like USFDA (USA),
MHRA (UK), TGA (Australia), MCC (South Africa), Health Canada etc. India has
the largest number of USFDA-approved plants for generic manufacture. Considering
that the pharmaceutical industry involves sophisticated technology and stringent
"Good Manufacturing Practice (GMP) requirements, major share of Indian Pharma
exports going to highly developed western countries bears testimony to not only the
APGCCS, Rajampet Page 19
excellent quality of Indian pharmaceuticals but also its price competitiveness. More
than 50 per cent share of exports is by way of dosage forms. Indian companies are
now seeking more Abbreviated New Drug Approvals (ANDAs) in USA in specialized
segments like anti-infective, cardio vascular and central nervous system groups.
Exports
India currently exports drug intermediates, Active Pharmaceutical Ingredients
(APIs), Finished Dosage Formulations (FDFs), Bio-Pharmaceuticals, Clinical
Services to various parts 0f the world. The domestic Pharma Industry has recently
achieved some historic milestones through a leadership position and global presence
as a world class cost effective generic drugs' manufacturer of AIDS medicines. Many
Indian companies are part of an agreement where major AIDS drugs based on
Lamivudine, Stavudine, Zidovudine, Nevirapine will be supplied to Mozambique,
Rwanda, South Africa and Tanzania which have about 33 per cent of all people living
with AIDS in Africa. Yet another US Scheme envisages sourcing Anti Retrovirals
from some Indian companies whose products are already US FDA approved.
APGCCS, Rajampet Page 20
2.1Need of the study
A firm is required to maintain a balance between liquidity and profitability
while conducting its day to day operations. Liquidity is a precondition to ensure that
firms are able to meet its short-term obligations and its continued flow can be
guaranteed from a profitable venture. The importance of cash as an indicator of
continuing financial health should not be surprising in view of its crucial role within
the business. This requires that business must be run both efficiently and profitably. In
the process, an asset-liability mismatch may occur which may increase firm’s
profitability in the short run but at a risk of its insolvency. Begin their working
capital sections with a discussion of the risk and return tradeoffs inherent in
alternative working capital policies. Thus, the manager of a business entity is in a
dilemma of achieving desired trade off between liquidity and profitability in order to
maximize the value of a firm.
2.2 Objectives
To analyse the trend in working capital needs of the firms and to examine the
causes for any significant differences between the industries.
To examine the impact of return on total assets on working capital
management.
2.3 SOURCE OF DATA
Thus the empirical study is based on a sample of 25 small manufacturing
companies. The data has been collected from the financial statements of the sample
firms having a legal entity and have filed their annual return to the Registrar of
Companies. The sample was drawn from the directory of Small Medium Industrial
Development Organisation (SMIDO), a database for registered manufacturing firms
operating in diverse activities and for which data was available for a 5 years’ period,
covering the accounting period2007-08 to 2010-11.The companies qualified for the
above two conditions are further grouped into industries based on
the classification as listed in the 2007 directory. Thus the data set covers 25 firms
from five industry subsectors: auto mobiles, cements, two wheelers Telecomm and
APGCCS, Rajampet Page 21
Chemicals furniture. This has given a balanced panel data set of 25 firm-year
observations for a sample of 25 firms.
2.4 SAMPLE DATA:
The annual reports collected from the internet of select non-financial
industries are named as Automobiles Industry ,Cement Industry ,Two Wheeler
Industry, Pharmaceutical Industry, Telecom communication Industry under that
the select sample companies are:
AUTOMOBILES INDUSTRY
1.Setco Automotive Ltd2.Autoline Industries Ltd3.Steel Strips Wheels Ltd4.Kar Mobiles Ltd5.Wheels India Ltd
CEMENT INDUSTRY
1.Kesoram Industries Ltd2.NCL Industries Ltd3. OCL India Ltd4.J. K. Cement Limited 5.JK Lakshmi Cement Ltd
TELECOMM:1.Hathway Bhawani Cabletel & Datacom Ltd2. Delton Cables Ltd3.Mahanagar Telephone Nigam Ltd 4.Tulip Telecom Ltd 5.Hartron Communications Ltd
CHEMICALS 1.Balaji Amines Ltd2.Aarti Industries Ltd3.Aditya Birla Chemicals (India) Ltd 4.Aban Offshore Ltd5. Lime Chemicals Ltd
APGCCS, Rajampet Page 22
TWO WHEELERS1.Bajaj Auto Ltd2.TVS Motor Company Ltd3.Hero MotoCorp Ltd.4.Mahindra & Mahindra Ltd5.Maruti Suzuki India Ltd
2.5 PERIOD OF STUDY:
The period of the study is 2007-2008 to 2010-2011
2.6 TOOLS OF ANALYSIS:
The tools of analysis is divided into two types which are :
1. Financial tools
2. Statistical tools.
1. FINANCIAL TOOLS:
Financial Tools which used for the study are:
Ratios of Working Capital
Operating profit margin
(OPM) : =PBIT
SALES
Return on total assets
(ROTA) : =PBIT
TOTAL ASSETS
Assets turnover
(A_TURN) : =SALES
TOTAL ASSETS
Capital Gearing
APGCCS, Rajampet Page 23
(GEAR) : =TOTAL DEBTTOTAL ASETS
Current Ratio
(CR) : =C URRENT ASSETS
CURRENT LIABILITES
Quick Assets Ratio
(QAR) : =CURRENT ASSETS−STOCK
CURRENT LIABILITIES
Current assets to Total assets
(CA/TA) : =CURRENT ASSETS
TOTAL ASSETS
Current liabilities to Total assets
(CL/TA) : =CURRENT LIABILITES
TOTAL ASSETS
Total detors to Current assets
(TD/CA) : =TRADEDETORS
CURRENT ASSTES
2. Statistical tools.
REGRESSION ANALYSIS
ROTA = ∝ + β1 sales + β2 gear + β3 cata + β4 clta + β5 turnca
APGCCS, Rajampet Page 24
Table 1: Profitability Liquidity and operation efficiency of Select Auto Mobiles Industries during the year 2007-08 to 2010-11.
Name of the Company OPMROT
AA_TUR
NGEA
RCR QAR
CATA
CL/TA
Setco Automotive Ltd 45.16 0.28 1.63 1.04 3.12 3.12 0.65 0.068Steel Strips Wheels Ltd 13.92 0.14 1.14 1.13 1.67 1.67 0.36 0.51Autoline Industries Ltd 3.76 0.14 0.87 0.9 1.62 1.62 0.36 0.44Kar Mobiles Ltd 4.67 0.14 1.59 0.66 1.83 1.83 0.7 0.7Wheels India Ltd 2.79 0.13 1.7 0.7 1.53 1.53 0.56 0.51Mean 14.06 0.17 1.39 0.89 1.95 1.95 0.53 0.45Standard Deviation 17.95 0.06 0.36 0.21 0.66 0.66 0.16 0.23
Source: Data collected from annual reports of select Automobiles industry.
Interpretation:
Operating Profit Margin
From table 1, it is observed that the Operating Profit Margin of Secto
Automotive Ltd is high (45.16%) because the operating profit of the company is
increased year after year. The Mean operating profit Margin is 14.06% with Standard
Deviation of 17.95 %. Out of the five companies only one company Secto
Automotive Ltd Operating Profit Margin value is more than the Mean value. So, the
Secto Automotive Ltd performance is good during the study period.
Return on Total Assets
The Return On Total Assets of Secto Automotive Ltd is high (0.28%) when
compared to the other companies. The Mean of Return on Total Assets is 0.17 with
Standard Deviation of 0.06% out of the five company’s only one company Secto
Automotive Ltd Rota on Total Assets value is more than the Mean value. So, the
Secto Automotive Ltd performance is good.
Assets Turnover Ratio
The Assets turnover of Secto Automotive Ltd is high (1.63%) because the
total assets of the company in increased year by year. The Mean Assets turnover is
1.39 with Standard Deviation of 0.36 %.out of the five company’s only one company
Secto Automotive Ltd Assets turnover value is more than the Mean value. So, the
Secto Automotive Ltd performance is good during the study period.
APGCCS, Rajampet Page 25
Gearing Ratio
The Gear Ratio of steel strips is high (1.13%) when compared other companies.
The Mean of Gear Ratio is 0.89 with Standard Deviation of 0.21%. Only one company
Steel Strips performance is good during the study period.
Current ratio
The Current Ratio of Secto Automotive Ltd is high (3.12) when compared to the
other companies because of increasing of the Current Ratio increased year by year. The
Mean Current Ratio is 1.95 with the Standard Deviation of 0.66%. Out of five companies
only one company secto Automotive Ltd Current Ratio value is more than the Mean
value. So the secto Automotive Ltd performance is good during the study period.
Quick Assets Ratio
The Quick Assets Ratio of Secto Automotive Ltd is high (3.12) when compared
to the other companies. Because of increasing of the Quick Assets Ratio is increased year
by year. The Mean Quick Assets Ratio is 1.95 with the Standard Deviation of 0.66%. Out
of five companies only one com Quick Assets Ratio value is more than the Mean value
so, the Secto Automotive Ltd performance is good during study period.
Current Assets to Total Assets
The Kar Mobile Ltd Current Asset to Total Assets value is high (0.7) when
compare the other companies. The Mean of Current Assets Total Assets is 0.53 with the
Standard Deviation of 0.16%. Out of five companies only one company kar mobiles Ltd
Current Assets to Total Assets value is more than the Mean value. So, the Kar Mobile Ltd
performance is good.
Current liabilities toTotal Assets
The Kar Mobile Ltd Current liabilities to Total Assets high (0.7) when compared to the other companies. The Mean of Current liabilities to Total Assets is 0.45 with Standard Deviation of 0.23 out of five company’s only one company Kar Mobiles Ltd Current liabilities Total Assets value more than Mean value. So, the Kar Mobile Ltd performance is good during the study period.
APGCCS, Rajampet Page 26
Table 2: Profitability Liquidity and operation efficiency of select Cement
Industries during the year 2007-08 to 2010-11.
Name of the CompanyOPM
ROTA
A_TURN
GEAR
CR QARCAT
ACL/TA
Kesoram Industries Ltd 10.04 0.17 1.09 0.88 1.59 1.59 0.45 0.29
NCL Industries Ltd 3.96 0.18 0.67 0.89 1.31 1.31 0.34 0.26
OCL India Ltd 4.26 0.21 0.88 1.05 1.72 1.72 0.46 0.28
J. K. Cement Limited 5.3 0.2 0.95 0.83 1.61 1.61 0.41 0.25JK Lakshmi Cement Ltd
4.2 0.2 0.74 0.96 1.77 1.77 0.4 0.4
Mean 5.55 0.19 0.87 0.92 1.60 1.60 0.41 0.30
Standard Deviation 2.56 0.02 0.17 0.09 0.18 0.18 0.05 0.06Source: Data collected from annual reports of select Cement industry.
Interpretation:
Operating profit margin
From table 2: it is observed that the operating profit margin of Kesoram
Industries Ltd is high 10.4% because of the operating profit of the company increase
year of after year. The Mean of operating profit margin is operating profit value more
than the Mean value. So Kesoram Industries Ltd performance is good during the study
period.
Return on Total assets:
The Return on Total assets of Kesoram Industries Ltd is low when compared
to all the companies that is 0.17. There is fluctuation in the select companies the Mean
of Return on Total assets is 0.19. It is more than the Return on Total assets of
Kesoram Industries Ltd the Standard Deviation of Kesoram Industries Ltd is 0.02 it
the low when compare to the Standard Deviation the Ocl India Ltd, J.K Cement Ltd,
JK Lakshmi Cement Ltd maintain the more return on total assets compare to the Mean
value the companies good in performance during the study period.
Assets turnover ratio:
The Kesoram Industries Ltd maintain the Assets turnover ratio is high 1.09.
The Mean of Assets turnover ratio is 0.87. The Standard Deviation of Assets turnover
ratio is 0.17.the Assets turnover ratio value is more than the Mean of the companies
out of the five companies only one company maintain Assets turnover ratio above the
1.1%. So, Kesoram Industries Ltd good during the study period.
APGCCS, Rajampet Page 27
Gearing Ratio:
The Gearing Ratio value Kesoram Industries Ltd is 0.88 it is low when
compared to the all the companies. Ocl India Ltd maintain1.05 it is the high value
when compared. The Mean of Kesoram Industries Ltd is 0.92 Standard Deviation is
0.09%.out of the five companies only the Ocl India Ltd the Gearing ratio value is
more than the Mean value. So the Ocl India Ltd performance is good during the study
period.
Current Ratio:
The Current Ratio value all the selected five companies is below the Standard
Deviation norms of 2:1 the Mean of the companies is 1.60, Standard Deviation is
0.18%.out of five companies JK lakshmi Ltd current ratio is 1.77, it is the high when
compared to the Mean of the companies. So all the companies need maintain the
liquidity portion according to the stranded norms to meet the obligations and smooth
running.
Quick Assets Ratio:
The Quick Assets Ratio value JK lakshmi Ltd was high 1.77:1 when compared
to the others. The Mean of the Quick Assets Ratio is 1.60:1, Standard Deviation is
0.18%. The JK lakshmi Ltd maintain the high Quick Assets Ratio when compared to
its Mean. So, all the companies maintain the good liquidity and performance is good
during the study period.
Current assets total assets:
The Ocl India Ltd the Current assets total assets is high that is 0.46 when
compared to the other companies. The Mean of Current assets total assets is 0.41,
Standard Deviation is 0.05% the Ncl industries Ltd it is only one the Current assets
total assets value is good percentage so the company’s performance is good.
APGCCS, Rajampet Page 28
Current liabilities total assets:
The Current liabilities total assets of JK lakshmi Ltd is high 0.4 the Mean of
Current liabilities total assets is 0.41 Standard Deviation is 0.05%.out of the five
companies only one company JK lakshmi Ltd maintain the Current liabilities total
assets value more than the Mean value. So the JK lakshmi Ltd performance is good
study period.
APGCCS, Rajampet Page 29
Table 3: Profitability Liquidity and operation efficiency of select Telecomm
communication Industries during the year 2007-08 to 2010-11.
Name of the CompanyOPM
ROTA
A_TURN
GEAR
CRQAR
CATA
CL/TA
Hathway Bhawani Cabletel & Datacom Ltd
45.61 0.08 1.2 0.48 0.88 0.88 0.48 0.55
Delton Cables Ltd 13.29 0.12 1.54 0.6 2.19 2.19 0.88 0.4Mahanagar Telephone Nigam Ltd
3.76 -0.01 0.18 0.49 1.08 1.08 0.6 0.58
Tulip Telecom Ltd 4.67 0.23 1.1 1.02 5.41 5.41 0.53 0.12Hartron Communications Ltd
2.79 0.12 0.26 0.88 2.33 2.33 0.22 0.12
Mean 14.02 0.11 0.86 0.69 2.38 2.38 0.54 0.35
Standard Deviation 18.15 0.09 0.60 0.24 1.81 1.81 0.24 0.22Source: Data collected from annual reports of select Telecommunication industry.
Interpretation: Operating profit margin:
From table 3: it observed that the operating profit margin of Hathway
Bhawani Cabletel & Datcom Ltd is (45.16%) it is more when compared to others.
Because of the increase operating profit margin the Mean operating profit margin is
14.02% and Standard Deviation is 18.15 the company Hathway Bhawani Cabletel &
Datcom Ltd operating profit margin value is more than Mean value. So, Hathway
Bhawani Cabletel & Datcom Ltd performance is good during the period of study.
Return on total assets:
The Return on total assets of Tulip Telecom Ltd is high 0.23 when compared
to the other companies. The Mean Return on total assets is 0.11 with Standard
Deviation of 0.09 % out of the five company’s only one company Tulip Telecom Ltd
performance is good Return on total assets value is more than the Mean value. So, the
Tulip Telecom Ltd performance is good.
Assets turnover ratio:
The Assets turnover ratio of Delton Cables Ltd is high 1.54 because it is
increased year by year. The Mean of Assets turnover ratio is 0.86, with Standard
Deviation of 0.60% out of the five company’s. Only one company Delton Cables Ltd
Assets turnover ratio value is more than the Mean value. So, the Delton Cables Ltd
performance is good.
APGCCS, Rajampet Page 30
Gearing ratio:
The Gearing ratio Tulip Telecom Ltd is high 1.02, when compared to the other
companies. The Mean of Gearing ratio is 0.69 with Standard Deviation 0.24%. Only
one company Tulip Telecom Ltd Gearing ratio value more than the Mean value. So,
Tulip Telecom Ltd performance is good during the study period.
Current ratio:
It is observed that the Current ratio of Tulip Telecom Ltd is high 5.41 when
compared to the other companies. Because of increase of the Current ratio is increase
year by year. The Mean of Current ratio is 2.38 with the Standard Deviation of 1.81%.
Out of five company’s only one company Tulip Telecom Ltd Current ratio is more
than the Mean value. So, the Tulip Telecom Ltd performance is good in during the
study period.
Quick Assets Ratio:
It is observed that the Quick Assets Ratio of Tulip Telecom Ltd is high 5.41.
When compared to the other companies. Because of increase in their value year by
year. The Mean of Quick Assets Ratio is 2.38 with the Standard Deviation of 1.81%.
Out of five company’s only one company Tulip Telecom Ltd Quick Assets Ratio
value is more than the Mean value. So, the Tulip Telecom Ltd performance is good
during the study period.
Current assets to total assets:
It is observed that the Delton Cables Ltd Current assets to total assets value is
high 0.88 when compared to the other companies. The Mean of Current assets total
assets is 0.54 with the Standard Deviation of 0.24% other of five company’s only one
company Delton Cables Ltd Current assets to total assets value is more than the Mean
value. So, the Delton Cables Ltd performance is good during the study period.
APGCCS, Rajampet Page 31
Current liabilities to total assets:
It is observed that the Mahanagar Telephone nigam Ltd Current liabilities to
total assets value is high 0.58 when compared to the other company’s only one
company Mahanagar Telephone nigam Ltd Current liabilities to total assets value
more than the Mean value. So, the Mahanagar Telephone nigam Ltd performance is
good during the study period.
APGCCS, Rajampet Page 32
Table 4: Profitability Liquidity and operation efficiency of select Chemical Industries during the year 2007-08 to 2010-11.
Name of the CompanyOPM
ROTA
A_TURN
GEAR
CRQAR
CATA
CL/TA
Balaji Amines Ltd
6.48 0.18 51.2 0.81 2.11 2.11 0.57 0.27
Aarti Industries Ltd 7.28 0.16 1.16 0.8 2.64 2.64 0.66 0.25Aditya Birla Chemicals (India) Ltd
2.59 0.19 0.47 0.42 1.64 1.64 0.38 0.73
Aban Offshore Ltd 1.61 0.33 0.52 2.14 4.13 4.13 0.66 0.18
Lime Chemicals Ltd -5.08 -7.2 1.28 0.5 1.08 1.08 0.5 0.56
Mean 2.58 -1.27 10.93 0.93 2.32 2.32 0.55 0.40
Standard Deviation 4.92 3.32 22.52 0.70 1.16 1.16 0.12 0.24Source: Data collected from annual reports of select Chemical industry.
Interpretation:
Operating profit margin
From table 4: it is observed that the operating profit margin of Balaji Amines Ltd
is 6.48, it is moderate when compared to other, because of the increase in operating
profit the Mean operating profit margin is 2.58% and Standard Deviation 4.92. The
company Balaji Amines Ltd operating profit margin value I s more than the value. So
Balaji Amines Ltd performance is good during the study period
Return on Total Assets:
The Return on Total Assets Aban offshare Ltd ids 0.33 high when compare to
other companies. There is fluctuations in the select companies the Mean of the Return
on Total Assets is negative that is (-1.27) with Standard Deviation of 3.32 out of the
five companies only one Aban offshare Ltd maintain 0.33% ROTI performance . The
Return on Total Assets Aban offshare Ltd ids 0.33 high when compare to other
companies. There is fluctuations in the select companies the Mean of the Return on
Total Assets is negative that is (-1.27) with Standard Deviation of 3.32
Assets Turnover Ratio:
The assets turnover Ratio of Balaji Amines Ltd is 5.12, it is high when compared
to other companies. The Mean of The assets turnover Ratio of Balaji Amines Ltd is
5.12, it is high when compared to other companies annual turnover is 10.28 and
APGCCS, Rajampet Page 33
Standard Deviation is 22.52 the company Balaji Amines Ltd annual turnover is more
than value. So balaji Amines Ltd performance is high good.
Gearing ratio:
It is observed that the Gearing ratio value of Aban offshore Ltd is 2.14 it is high
when compared to companies all companies lime chemical Ltd maintain 0.5 it is very
low when compare to the all the Mean of value of Gearing ratio is 0.93and Standard
Deviation is 0.70.out of five companies only one company aban offshore maintain the
Gearing Ratio value is more than the Mean value. So, the abon offshore Ltd
performance is good during the study period.
Current ratio:
The Current ratio is Abon offshore Ltd is 4.13, it is high compared to all the
companies. The Mean of Current ratio is 2.32 and Standard Deviation is 1.16.out of
five company’s only one company maintain the Current ratio is more than the Mean
value.
Quick asset Ratio:
The Quick asset Ratio is Abon offshore Ltd is 4.13, it is high compared to all the
companies. The Mean of Quick asset Ratio is 2.32 and Standard Deviation is 1.16.
The Abon offshore Ltd maintained high Quick asset Ratio when compared to it is
Mean show all the companies maintain the good liquidity and the performance is
good during the study period.
Current Assets to Total Assets:
The Aarti Industries Ltd & Aban off shore Ltd maintained the same Current Assets to Total Assets ratio i.e. 0.66, it is when compared to all the companies. The Mean of Current Assets to Total Assets is 0.55 & Standard deviation is 0.12. Both Aarti Industries Ltd & Aban off shore Ltd maintained high Current Assets to Total Assets when compared to its Mean. So, these companies performance is during the study period.
APGCCS, Rajampet Page 34
Current Liabilities to Total Assets: The Current Liabilities Total Assets value of Aditya Birla chemicals Ltd is 0.73, it
is high when compared to the all companies. The Mean Current Liabilities to Total
Assets is 0.40 & Standard deviation is 0.24%. Aditya Birla chemicals maintained high
Current Liabilities Total Assets when compared to its Mean.
APGCCS, Rajampet Page 35
Table 5: Profitability Liquidity and operation efficiency of Two Wheelers Industries during the year 2007-08 to 2010-11.
Name of the Company
OPM ROTA A_TURN GEAR CR QAR CATA CL/TA
Bajaj Auto Ltd 6.59 0.38 2.38 0.98 0.83 0.83 0.68 0.83TVS Motor Company Ltd
34.01 0.08 2.19 0.86 1.1 1.1 0.51 0.46
Hero MotoCorp Ltd
7.21 0.59 4.28 1.16 0.42 0.42 0.44 3.02
Mahindra & Mahindra Ltd
8.33 0.26 2.07 1.22 1.1 1.1 0.7 0.65
Maruti Suzuki India Ltd
8.88 0.3 2.6 1.19 1.3 1.3 0.51 0.39
Mean 13.00 0.32 2.70 1.08 0.95 0.95 0.57 1.07Standard Deviation 11.78 0.19 0.90 0.16 0.34 0.34 0.12 1.10
Source: Data collected from annual reports of select Two Wheelers industry.
Interpretation:
Operating Profit Margin
From the above table5: it is observed that the operating profit margin of the
Bajaj is 6.59, it is less value when compared to others because of the decrease in the
operating profit. The main operating profit margin is 13.00 & standard deviation is
11.78 company Bajaj operating profit margin value is less than the Mean value. So,
Bajaj ltd performance is poor during the study period.
Return on Total assets:
The maruthi Suzuki and hero Moto corp ltd is high (0.59) when compared to
the other companies the return on total assets is 0.32 with the standard deviation of
0.19 present out of five companies only one company hero Moto corp. return on total
assets value is more than Mean value. So, the hero Moto corp ltd performance is good
during the study period.
Assets turnover ratio:
The hero Moto corp is 2.70 ltd is high (4.28) when compared to all companies
the Mean of hero Moto corp is 2.70 with the slandered deviation of 0.90 present. The
assets turnover ratio value is more than the Mean of the companies out of the five
companies out of five company’s only one company maintain assets turnover ratio is
high. So, the performance of hero Moto corp ltd is good during the study period.
APGCCS, Rajampet Page 36
Gearing Ratio:
The Gearing Ratio of Mahindra & Mahindra ltd is high (1.22) when compared
to the other companies. The Mean of gear is 1.08 with the slandered deviation of
0.16% only one company Mahindra & Mahindra ltd gear value is more than the study
period
Current ratio:
The current ratio of maruthi Suzuki ltd is high (1.3) when compared to the
other companies. The Mean of the current ratio is 0.95 & standard deviation is 0.34.
Here Bajaj auto ltd, Mahindra & Mahindra ltd and maruthi Suzuki maintained the
current ratio value is high when compared to its Mean value. So, these companies
performance is good during the study period.
Quick assets ratio:
The quick assets ratio of maruthi Suzuki ltd is high i.e., 1.3 when compared to
all companies. The Mean of the quick assets ratio is 0.95 & standard deviation is
0.34%. Here Bajaj auto ltd, Mahindra & Mahindra ltd & maruthi Suzuki maintained
the quick assets ratio value is high when compared to its Mean value. So, these
companies performance is well during the study period.
Current assets to total assets:
The current assets to total assets ratio of Bajaj auto ltd is high i.e., 0.7 when
compared to all companies. The Mean of the current assets to total assets is 0.57 &
standard deviation is 0.12. The Bajaj auto ltd maintained the current assets to total
assets value is high when compared to its Mean value. So, these companies
performance is good during the study period.
Current liabilities to total assets:
The current liabilities to current assets of hero motor corporation is high i.e.,
3.02 when compared to all companies. The Mean value of current liabilities to current
assets is 1.07 & standard deviation is 1.10. Here motor corp maintained the current
liabilities to current assets value is high when compared to its Mean value. So, the
motor corporation performance is good during the study period.
APGCCS, Rajampet Page 37
Table6 : Five years Mean and Standard Deviations for the variables
INDUSTRIES
VARIABLES ALL(N=25) AM(N=5) CM(N=5) TC(N=5) CH(N=5) TW(N=5)
A_TURN 0.67
(0.04)
1.38
(0.13)
0.86
(0.12)
0.85
(0.17)
10.92
(0.15)
2.70
(0.48)SD
OPM 1.76
(1.41)
9.07
(1.27)
5.55
(2.86)
14.02
(16.85)
2.58
(9.03)
13
(5.48)SD
GEAR 0.18
(0.03)
0.88
(0.10)
0.92
(0.10)
0.69
(0.07)
0.93
(0.32)
1.08
(0.24)SD
CR 0.35:1
(0.18)
1.95:1
(0.29)
1.6:1
(0.3)
2.37:1
(1.21)
2.32:1
(2.69)
0.95:1
(0.15)SD
QAR 0.35
(0.18)
1.95
(0.29)
1.6
(0.3)
2.37
(1.21)
2.32
(2.69)
0.95
(0.15)SD
CA/TA 0.10
(0.06)
0.52
(0.04)
0.41
(0.05)
0.54
(0.12)
0.55
(1)
0.56
(0.29)SD
CL/TA 0.096
(0.05)
0.28
(0.04)
0.29
(0.05)
0.35
(0.05)
0.42
(0.12)
1.07
(1)SD
TD/CA 0.42
(0.18)
1.55
(0.41)
3.32
(2.67)
1.84
(0.47)
1.96
(0.71)
1.97
(0.47)SD
ROTA 0.023
(0.28)
0.17
(0.03)
0.19
(0.06)
0.09
(0.04)
1.26
(6.95)
0.32
(0.01)SD
CATA 0.096
(0.01)
0.52
(0.05)
0.41
(0.07)
0.38
(0.08)
0.55
(0.21)
0.56
(0.06)
SD
NOTE:The variables are defined as in Appendix
The Standard Deviations is given in parentheses.
Table - 1:FIVE Year Means and Standard Deviations for the Variables
The industries are Automobiles (AU); Cements (CM); Telecomm (TC); Chemicals (CS) and Two
wheelers (TW).
APGCCS, Rajampet Page 38
Assets Turnover Ratio:
Chemical Industry Assets Turnover Ratio Mean value during the study period is high
(10.92) with Standard Deviation of 0.15% followed by Two Wheeler, Automobile,
Cement, Telecom communication. The Mean Assets Turnover Ratio of all companies
is 0.67 with 0.04% standard deviation.
Operating profit margin:
Chemical Industry operating profit margin ratio Mean value during the study period is
high (14.02) with Standard Deviation of 16.85% followed by Two Wheeler,
Automobile, Cement, Chemicals. The mean Operating profit margin of all companies
is 1.76 with 1.41% Standard Deviation.
Gearing Ratio:
Chemical Industry gearing ratio mean value during the study period is high (1.08)
with standard deviation of 0.24% followed by Chemicals, Cement, Automobile,
Telecom communication. The Mean Gearing Ratio of all companies is 0.18 with
0.03% Standard Deviation.
Current Ratio:
Chemical Industry Current Ratio Mean value during the study period is high (2.32)
with Standard Deviation of 1.21% followed by Chemicals, Automobile, Cement,
Telecom communication. The Mean Current Ratio of All companies is 0.35with
0.18% Standard Deviation.
Quick Assets Ratio:
Chemicals Industry Quick Assets Ratio Mean value during the study period is high
(2.37) with Standard Deviation of 1.21% followed by Chemicals, Automobile,
Cement, Two Wheeler. The Mean Quick Assets Ratio of all companies is 0.35 with
0.18% Standard Deviation.
APGCCS, Rajampet Page 39
Current Assets to Total Assets:
Chemical industry Current Assets to Total Assets Mean value during the study period
is high (0.56) with Standard Deviation of 0.29% followed by Chemicals, Telecom,
Automobile, Cement. The Mean Current Assets to Total Assets of All companies is
0.10 with 0.06% Standard Deviation.
Current Liabilities Total Assets:
Chemical industry Current Liabilities Total Asset Mean value during the study period
is high (1.07) with Standard Deviation of 1% followed by Chemicals, Telecom,
Cement, Automobile. The mean Current Liabilities Total Asset of All companies is
0.096 with 0.05% Standard Deviation.
Total Detors to Current Assets:
Chemical industry Total Detors to Current Assets Mean value during the study period
is high (3.32) with Standard Deviation of 2.67% followed by Two Wheeler,
Chemicals, Telecom, Automobile. The Mean Total Detors to Current Assets of All
companies is 0.42 with 0.18% Standard Deviation.
Return on Total Assets:
Chemical industry Return on Total Assets Mean value during the study period is high
(1.26) with Standard Deviation of 6.95% followed by Two Wheeler, Cement,
Automobile, Telecom. The Mean Return on Total Assets of All companies is 0.23
with 0.28% Standard Deviation.
Current Assets Total Assets:
Chemical industry Current Assets Total Assets Mean value during the study period is
high (0.56) with Standard Deviation of 0.06% followed by Chemicals, Automobile,
Cement, Telecom. The mean Current Assets Total Assets of All companies is 0.096
with 0.01% Standard Deviation.
APGCCS, Rajampet Page 40
Table 7: Components of Current Assets and Liquidity Ratios
IndustryCR QAR TD/CA CA/TA CL/TA
2007 2011 2007 2011 2007 2011 2007 2011 2007 2011
AM 2.24:11.71:
12.24 1.17 1.5 1.85 0.57 0.5 0.26 0.30
CM 1.76:11.50:
11.76 1.5 2.05 2.61 0.44 0.33 0.30 0.23
CH 2.02:16.24:
12.02 6.24 2.44 0.93 0.49 0.63 0.31 0.35
TL 2.54:11.99:
12.54 1.99 13.7 2.25 0.57 0.47 0.32 0.33
TW 1.04:10.85:
11.04 0.85 1.92 1.90 0.58 0.56 0.60 2.80
Current Ratio:
The Mean Current Ratio of Automobile, Cement, Telecom, Two Wheeler is decreased
during the study period. Only one Industry Chemicals mean Current Ratio is
increased with 2.02:1 in the year 2007-08 to 6.24:1 in the year 2010-11.
Quick Assets Ratio:
The mean Quick Assets Ratio of Automobile, Cement, Telecomm, Two Wheeler is
decreased during the study period. Only one Industry Chemicals Mean Current Ratio
is increased with 2.02:1 in the year 2007-08 to 6.24:1 in the year 2010-11.
Total Detors to Current Assets:
The mean Total Detors to Current Assets of Automobile, Chemicals, Telecomm
communication, Two Wheeler is decreased during the study period. Only one
APGCCS, Rajampet Page 41
Industry Chemicals Mean Current Ratio is increased with 2.05:1 in the year 2007-08
to 2.61:1 in the year 2010-11.
Current Assets to Total Assets:
The Mean Current Assets to Total Assets of Automobile, Cement, Telecomm
communication, Two Wheeler is decreased during the study period. Only one industry
Chemicals Mean Current Ratio is increased with 0.49:1 in the year 2007-08 to 0.63:1
in the year 2010-11.
Current Liabilities Total Assets:
The mean Current Liabilities Total Assets of Automobile, Cement, Chemicals,
Telecomm communication is decreased during the study period. Only one industry
Chemicals mean Current Ratio is increased with 0.60:1 in the year 2007-08 to 2.80:1
in the year 2010-11.
APGCCS, Rajampet Page 42
Table: 8 Coefficient Correlation Between Variables
Return on
total assets
Operating profit
margin
Assets turnover
Gearing
Current assets total
assets
Stock current assets
Trade detors current assets
Current liabilities
total assets
Retun On TotalAssets 1 -.711 .997** .284 .335 .304 -.120 .042
Operating profit margin 1 -.662 -.220 .375 -.277 -.386 .423
Assets turnover 1 .260 .404 .324 -.193 .062
Gearing 1 .050 -.806 .162 .707Currentassets total assets 1 .110 -.883* .493
Stock assets total assets 1 -.274 -.767
Trade detor current assets
1 -.171
Current liabilities total assets
1
* Indicate significant at 5% level
** Indicate significant at 1% level
Interpretation:
From table 8, it is observed that Return on Total Assets and Assets Turnover Ratio id
s significant at both 5% and 1% of significance. Current Assets to total Assets and Trade
Debtors to Current Assets is negatively correlated at 5% level of significance. Trade Debtors to
Current Assets is nothing negative relationship with all select variables and the relationship is
insignificant.
APGCCS, Rajampet Page 43
Model Summary
Model R R Square Adjusted R
Square
Std. Error of the
Estimate
1 .435a .189 .140 5.89957
a. Predictors: (Constant), Current liabilities total assets, Trade detors
current assets, Assets turnover, Operating profit margin, Stock current
assets, Gearing, Current assets total assets
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1
Regression 948.397 7 135.485 3.893 .001b
Residual 4072.181 117 34.805
Total 5020.578 124
a. Dependent Variable: Return on total assets
b. Predictors: (Constant), Current liabilities total assets, Trade detors current assets, Assets
turnover, Operating profit margin, Stock current assets, Gearing, Current assets total assets
Coefficientsa
Model Unstandardized Coefficients Standardized
Coefficients
t Sig.
B Std. Error Beta
1
(Constant) -1.715 2.315 -.741 .460
Operating profit margin .149 .029 .439 5.190 .000
Assets turnover .019 .054 .029 .348 .728
Gearing .994 1.393 .063 .713 .477
Current assets total assests -2.120 3.574 -.057 -.593 .554
Stock current assets .132 .239 .049 .551 .583
Trade detors current assets .056 .235 .023 .239 .811
Current liabilites total assets .114 .531 .018 .214 .831
a. Dependent Variable: Return on total assets
APGCCS, Rajampet Page 44
Table 9 : Regression Analysis of Performance Measures and working capital
Variables ROA
Operating profit margin .439 5.190*
Assets turnover .029 .348
Gearing .063 .713
Current assets total assets -.057 -.593
Stock current assets .049 .551
Trade detors current
assets.023 .239
Current liabilities total
assets.018 .214
F – value 3.893*
N 25
R – value .435
Interpretation:
From table 9: It is observed that F-value is significant at 5% level of
significance. So, the model is good fit. In all the select performance measures of
working capital, only one variable (Operating Profit Margin) is significantly affecting
the performance of Return on Total Asset.
APGCCS, Rajampet Page 45
Findings:
In Automobile sector it is found that only one company Setco Automobiles
performance with reference to Operating Profit Margin, Return On Total Assets,
Current Ratio, And Quick Asset Ratio is good. Kar mobiles and Setco Automobiles
performance is good to Asset turnover ratio and Steel strips performance is good
under Gearing Ratio. Under Current Assets to Total Assets both Setco Automobiles
Ltd and Wheels India Ltd Performance is good.
In Cement Sector it is found that only one company Kesoram Industries Ltd
performance with reference to Operating Profit Margin, Asset Turnover Ratio ,and
Current Assets To Total Assets, is good. OCL India Ltd Return On Total Assets,
Gearing Ratio performance is good, J.K cement ltd Asset Turnover Ratio and
J.K.Lakshmi performance is good under Gearing Ratio, Current Ratio, Quick Asset
Turn Ratio.
In Telecomm Communication Sector it is found that only one company Hathway
Bhawani Cabletel and Datacom ltd performance with reference to Operating Profit
Margin, Liabilities and Total Assets, is good. Tulip telecom ltd performance is Good
Asset Turnover Ratio, Gearing Ratio, Current Asset Ratio And Quick Asset Ratio and
Delton cables ltd performance is good under Asset Turnover Ratio, Return On Total
Assets And Current Assets To Total Assets. Under Current Assets To Total Assets
And Current Liabilities To Total Assets Mahanagar Telephone Nigam ltd
performance is good.
In Chemical industries it is found that only one company Aarti Industries Ltd.
performance with reference to Operating Profit Margin, Current Asset Ratio, And
Quick Asset Ratio And Current Assets to Total Assets is good. Balaji Amines
Operating Profit Margin, Asset Turnover Ratio And Current Assets To Total Assets
Performance Is Good To Operating Profit Margin, Return On Total Assets And
Current Liabilities To Total Assets performance is good in Aditya Birla Chemical
India Ltd.
APGCCS, Rajampet Page 46
In Two Wheelers Industry sector it is found that only one company TVS Motors
company performance with reference To Operating Profit Margin, Current Ratio, And
Quick Asset Ratio is good. Hero motocrop ltd performance is good to Return on Total
Asset and Current Assets to Total Assets and Bajaj auto ltd performance is good
under Return On Total Asset, Asset Turnover Ratio, Gearing Ratio, Current
Liabilities To Total Assets And Current Assets To Total Assets. Under gearing ratio
Mahindra & Mahindra ltd performance is good.
APGCCS, Rajampet Page 47
SUGGESTIONS:
1. Steel strips wheels ltd and wheels India ltd both companies performance is
very low with reference to Return On Total Assets And Current Assets To Total
Assets. Therefore the company should concentrate on PBIT and Current Assets, So
that their Return on Total Assets and Current Assets to Total Assets would increase.
2. NCL industries ltd and J.K.cement ltd both companies performance is very
low with reference to Assets Turnover Ratio and Gearing Ratio. Therefore the
company should concentrate on Assets Turnover Ratio and Gearing Ratio, so that
their Assets Turnover Ratio and Gearing Ratio performance would increase.
3. Mahanagar Telephone Nigam ltd and Tulip telecom ltd both companies is very
low with reference to Return On Total Assets And Current Liabilities To Total
Assets. Therefore the company should concentrate on PBIT and Current Liabilities
So that Their Return on Total Assets and Current Assets to Total Assets would
increase.
4. Lime chemicals ltd and Aban Offshore ltd both companies is very low with
reference to Gearing Ratio and Current Assets To Total Assets. Therefore the
company should concentrate on Total Debt and Current Assets so that their Gearing
Ratio and Current Assets to Total Assets would increase.
5. Bajajauto Ltd and Heromotocrop ltd both companies is very low with
reference to Operating Profit Margin And Return on Total Assets. Therefore the
company should concentrate on PBIT and Return on Total Assets so, that their PBIT
and Return On Total Assets would increase.
APGCCS, Rajampet Page 48
CONCLUSION
The different analyses have identified critical management practices and are
expected to assist managers in identifying areas where they might improve the
financial performance of their operation. The results have provided owner-managers
with information regarding the basic financial management practices used by their
peers and their peers attitudes toward these practices. The working capital needs of an
organization change over time as does its internal cash generation rate. As such, the
small firms should ensure a good synchronization of its assets and liabilities.
This study has shown that the Chemical and Two Wheeler industry has been able to
achieve high scores on the various components of working capital and this has
positively impact on its profitability. On this premise this industry may be referred as
the ‘hidden champions’ and could thus be used as best practice among the select
manufacturing companies.
.
APGCCS, Rajampet Page 49