gaurang desai-1231

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- BY

GAURANG .V. DESAI(ROLL NO 1231)

Faculty Guide

Prof. Naresh Shah



CONTENTCONTENT

y Objectives of study

y Methodology & limitation of Study

y Overview of company

y Working capital theory

y working capital requirement of Elecon

y Ratios

y Operating Cycley Suggestions and Findings

y Bibliography



OJECTIVES OF THE STUDYOJECTIVES OF THE STUDY

To evaluate the financial performance of the company in

context ofWorking capital.

To analyze the working capital performance of thecompany for the last five years that is 2004-05 to 2008-09.

To estimate the working capital requirement of Elecon.

To study the operating and cash cycle of the company.



METHEDOLOGYMETHEDOLOGY

Primary Data :

In the project primary data was collected by

consulting various executives of the company.

Secondary Data :

Study is mainly based on the

secondary data, which are collected from the books,

records, journals and profiles of the organization and 5

years annual reports of the company.



LIMITATION OF STUDYLIMITATION OF STUDY

Limited data

Limited period

Limited area



INTRODUCTION OF COMPANYINTRODUCTION OF COMPANY

From a modest start of design and manufacture of Elevators and Conveyors from which incidentally, thecompany derives its corporate identity. viz. "Elecon".

Established in 1951, Elecon Engineering is a leadingplayer in industrial gears ,material handling equipmentsand windmills.

Elecon is the first industrial gear company to achieveISO 9001 certificate in 1994 and ISO 9001:2000 versionin 2001.

Elecon is India's largest gear manufacturer with all

types of gear transmission products under one roof.



BUSINESS PORTFOLIOBUSINESS PORTFOLIO

Bulk Material Handling Plants (MHE)

From elevators, conveyors and gears to material handlingplants. For over 5 decades, Elecon has supplied hi-tech equipment to coresectors such as steel, fertilizer, cement, coal, lignite and iron are mines,power stations and port mechanization in India and abroad.

Industrial Gears

Driven by excellence since 1951, Elecon is Asia·s largest gearmanufacturing company enjoying a significant presence in India and abroad.Elecon is the supplier of choice to core sectors like Sugar, Cement,

Chemical, Fertilizer, Steel, Plastic Extrusion and Rubber.

Windmill

ELECON take the opportunity to help the world inreducing the Global Warming by providing the solution to generate theGREEN POWER by harnessing energy through renewables, mainly throughWind.



WORKING CAPITALWORKING CAPITAL

y Working capital is the amount of capital that a business has

available to meet the day to- day cash requirements of its

operations, or more specially, for financing the conversion of

raw material into finished goods, which the company sells for

payment.

y In simple words, working capital refers to that part of

the firm·s capital, which is required for financing short-term

or current assets such as cash, marketable securities, debtors

and inventories.



DETERMINENT OF WORKINGDETERMINENT OF WORKING

CAPITALCAPITALNature of IndustrySize of BusinessManufacturing CycleProduction Policy

Volume of SalesTerms of purchase & Sales Business Cycle

Growth and ExpansionSupply of Raw Materials

Price Level changesOperating Efficiency

Profit Margin

Profit Appropriation

Capital Structure



NEED FOR WORKING CAPITALNEED FOR WORKING CAPITAL

For the purchase of raw material.

To pay wages & salaries.

To incur day to day expenses and overhead costs. To meet selling costs.

To provide credit facilities to the customer.

To maintain the inventories of raw material, work in

progress, stores and spares and finished stock.



Maintains solvency of business.

Helps in creating & maintaining goodwill.

Helps in arranging loans from banks & others on easy

and favorable terms. Ensures regular supply of raw materials.

Regular payment of salaries, wages & other day to daycommitment.

Enables a concern to face business crisis.

IMPORTANCE OR ADVANTAGES OFIMPORTANCE OR ADVANTAGES OF

ADEQUATEADEQUATE WCWC::--



WORKING CAPITALWORKING CAPITAL

REQUIREMENT OF ELECONREQUIREMENT OF ELECON

PARTICULARS 2008-09 2007-08 2006-07 2005-06 2004-05

CURRENT

ASSET

100,845.9 80,963.70 60,871.21 43,341.26 36,780.06

CURRENTLIABILITIES

43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

NETWORKING

CAPITAL

57,668.62 45,960.06 35,312.27 21,670.83 10,939.60

Working capital is the funding that a

company needs to support its accounts receivable and

inventory, and is offset by the amount of funding it

obtains from its suppliers through accounts payable.



CONT«..CONT«..

The working capital requirement is increasing by

98%,63%, 30%,25% from 2004-05 to 2008-09.



INTERPRETATIONINTERPRETATION

After analysis the 5 year data we can say that the Working

Capital requirement is increasing year by year. We are looking

increasing pattern in working capital.

The company is managing working capital very preciselyas we know that Elecon Engineering is high working capital

oriented organization.

The sale is increasing year by year which results into increase

in debtors and cash which ultimately results into increase inworking capital requirement.

Elecon is getting new order at regular interval as it gives

importance to quality.



Investment in the current asset is also increasing with

increase in the span. On the other hand there is also

increase in the current liabilities. We can say that

current assets and current liabilities go hand in hand.

Elecon is using short term loans from bank to financeworking capital.

Elecon is also utilizing spontaneous finance.



CURRENT RATIOCURRENT RATIO

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

CURRENT

ASSETS

100,845.90 80,963.70 60,871.21 43,341.26 36,780.06

CURRENT

LIABILITIE

S

43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

CURRENT

RATIO

2.33 2.31 2.38 2.00 2.32

This ratio explains the relationship between current

assets and current liabilities of a business.

Current Ratio = Current Assets/ Current Liabilities



y A conventional rule is that a current ratio of 2:1 or

more is considered satisfactory.

y The current ratio of Elecon is more than 2:1.So it is

sufficient and good for Elecon.

y Elecon has more current asset then current liabilities

claim so unit is able to meet current obligation in full

and it can be said that its liquidity position is sound.

y The current ratio is more than 2 due to higher level of

inventory.



QUICK RATIOQUICK RATIO

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

QUICK

ASSETS

60929.64 57055.93 45239.32 27738.15 15365.24

QUICK

LIABILITIE

S

43,177.28 35,003.64 25,558.94 21,670.43 15,840.46

QUICK

RATIO

1.41 1.63 1.77 1.28 0.97

Quick ratio is a more rigorous test of liquidity than

current ratio. Quick ratio may be defined as the

relationship between quick/liquid assets and current or

liquid liabilities.

Quick Ratio = Quick Assets/ Quick Liabilities



y

Generally quick ² ratio of 1:1 is considered to representa satisfactory to current financial condition and this

ratio is sufficient.

y Elecon has ability to pay its current claim quickly.

y

So, Elecon has sufficient current assets which can easilyconvert into the cash immediately.

y By exclusion of stock from current assets leads to

drastic change in quick ratio.



ABSOLUTE LIQUID RATIOABSOLUTE LIQUID RATIO

To know the absolute liquidity of the company

absolute liquid ratio is calculated.

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

ABSOLUTE

LIQUID

ASSETS

137150.42 100394.99 74262.88 52009.51 45975.075

CURRENT

LIABILITIES

100,845.90 80,963.70 60,871.21 43,341.26 36,780.06

ABSOLUTE

LIQUID

RATIO

1.36 1.24 1.22 1.20 1.25



1.1

1.15

1.2

1.25

1.3

1.35

1.4

2008-09 2007-08 2006-07 2005-06 2004-05

Absolute liquid ratio

liquid ratio

y The ideal ratio is 0.5:1

y Elecon is having absolute liquidity which is good sign

y In the last year the ratio has been increased to 1. 36y Elecon has ability to pay its current claim quickly.

y So, Elecon has sufficient current assets which can easilyconvert into the cash immediately.



INVENTORY TURNOVER RATIOINVENTORY TURNOVER RATIO

INVENTORY TURNOVER RATIO = COST OF GOOD SOLDAVERAGE INVENTORY

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

COGS 6397.72 5543.69 4903.67 2393.83 1763.28

AVERAGE

INVENTORY

1367.035 1229.20 972.95 668.67 532.715

INVENTORY

TURNOVER

RATIO

4.68 Times 4.51 Times 5.04 Times 3.58 Times 3.31 Times

Inventory turnover ratio measures the speed with which thestock is converted into sales. Usually a high inventory ratio indicates an

efficient management of inventory because more frequently the stocks are

sold; the lesser amount of money is required to finance the inventory.



0

1

2

3

4

5

6

2008-09 2007-08 2006-07 2005-06 2004-05

inventory turnover ratio

inventory turnover ratio

y This ratios shows how rapidly the inventory is turninginto receivable through sales.

y In 2006-07 the company has high inventory turnoverratio but in 2007-08 and 2008-09 it has reduced.

y This shows that the company·s inventory managementtechnique is very much efficient as it converts the stock into finished goods more than 4 times in a year.



DEBTORS TURNOVER RATIODEBTORS TURNOVER RATIODebtor·s velocity indicates the number of times the

debtors are turned over during a year. Generally higher the

value of debtor·s turnover ratio the more efficient is the

management of debtors/sales or more liquid are the debtors

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)AVERAGE DEBTORS

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

SALES 283913.25 252646.67 136690.75 84496.92 47530.35

DEBTORS 48202.59 44015.10 30108.095 16407.17 11316.75

DEBTORS

TURNOVER

RATIO

5.89 Times 5.74 Times 4.54

Times

5.15

Times

4.20

Times



0

1

2

3

4

5

6

7

2008-09 2007-08 2006-07 2005-06 2004-05

debtors turnover ratio

debtors turnover ratio

y There is uneven trend we can observe in debtors turnover ratio

y This ratio indicates the speed with which debtors are being converted

or turnover into sales. The higher the values or turnover into sales.

y The higher the values of debtors turnover, the more efficient is the

management of credit.y But in the company the debtor turnover ratio is decreasing year to

year. This shows that company is not utilizing its debtors efficiency.

y Now their credit policy becomes liberal as compare to previous years.



CREDITORS TURNOVER RATIOCREDITORS TURNOVER RATIO

It indicates the number of times sundry creditors have been

paid during a year. It is calculated to judge the requirements of

cash for paying sundry creditors. It is calculated by dividing the

net credit purchases by average creditors.

Creditor Turnover Ratio = Net Credit Purchases

Trade Creditor

YEAR 2008-09 2007-08 2006-07 2005-06 2004-05

COST OF

SALES

73747.68 59906.12 49862.03 31281.65 18481.65

CREDITORS 28167.81 27526.23 20395.53 15281.09 10369.10

CREDITORS

TURNOVER

RATIO

2.62 2.18 2.44 2.05 1.78



0

0.5

1

1.5

2

2.5

3

2008-09 2007-08 2006-07 2005-06 2004-05

creditors turnover ratio

creditors turnover ratio

y Higher the payable period lower the working capitalrequirement, but on the other hand it may affect the prestigeof the firm so the company has to frame creditors policy insuch manner.

y The creditors ratio is improving as compare to the last years.y This situation enhances the credit worthiness of the

company.

y Elecon is maintaining good relationship with the creditors .



OPERATING CYCLEOPERATING CYCLE

work-in -progress

finishedgoods

salesAccounts

receivables

Cash

raw-material

RMCP = Average Raw material stock × 365

Total Raw material consumption

WPCP= Average Work-in-progress × 365

Total cost of production

FGCP= Average Finished Goods × 365

Total Cost of goods sold

RCP= Average Receivable × 365

Total Credit sales

CCP= Average Creditors × 365

Total Credit purchase



OPERATING CYCLE PERIODSOPERATING CYCLE PERIODS

Particulars Numbers of Days2008-09

Numbers of Days2007-08

RMCP 70 56

+ WMCP 71 45

+ FGCP 13 6

+ RCP 222 218

TOCP 376 325

-DP 135 145

NOC 241 180



SUGGESTIONS & FINDINGSSUGGESTIONS & FINDINGSy Company·s main strength is its employees and company is properly

taking care of that by providing safety working conditions, canteen

facilities etc

y

Elecon is investing more and more money in subsidiary companiesfor its faster growth.

y Company·s working capital us enough to maintain company·s sales

and other operations easily. Due to high goodwill the company is

not getting any problem in getting short term finance.

y Elecon is continuously trying to maximize the wealth of share

holders.



Conti««.Conti««.

y Company gives 75% of dividend since last two years, instead

of giving 75% dividend the company should give 60 to 65%

and reinvest the balance amount in financing the working

capital.

y Company is targeting to increase foreign exchange

transactions and also trying to avoid hedging risk.

y Company should try to utilize cheap source of finance forfinancing working capital requirements.



BIBILOGRAPHYBIBILOGRAPHY

y http://elecon.nlihost.com/investors-

relations_details.php?type=fs

y http://elecon.nlihost.com/page_details.php?id=31&level1

_id=33

y http://www.netmba.com/finance/financial/ratios

y Annual Reports of Elecon Engineering Ltd of last 5 years

gaurang desai-1231

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