impact of current assets on working capital of otpl

8/9/2019 Impact of Current Assets on Working Capital of OTPL

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“Impact of Current Assets on Working Capital”. AT

OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! %OTPL&Contents

'l. "o. Titles Page "o.

I C(apter )

Introduction

Literature Review

Statement of the Problem

Purpose of the Study

Scope of the study

Objectives of the Study

3

37

3

3

3

!"

II C(apter *

Or#ani$ation Profile

Or#ani$ation %hart

&ata %ollection 'ethod

!(

)"

)*

III C(apter +

Results + discussion with %harts + #raphs

,indin#s

Su##estions

%onclusions

)377

7-

7

I# C(apter ,

.ppendi/

0iblio#raphy

1oinin# Report

2eely Reports

-"

-"

-(

-*


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OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! %OTPL&

Intro-uction /

4he project is assi#ned to me “Impact of %urrent .ssets on 2orin# %apital56 .t

Oil#ear 4owler Polyhydron Private Limited O4PL86 4he various information re#ardin#

classification9 determinants9 components9 sources9 arran#ement operatin# cycle have been

also discussed and aspects relatin# to the perspective of Oil#ear 4owler Polyhydron

Private Limited O4PL86

Ratio .nalysis has been carried out usin# ,inancial Information for last three

accountin# years i6e6 from *""3 to *""): Ratios lie %urrent Ratio9 2orin# %apital

4urnover Ratio9 Inventory 4urnover Ratio9 &ebtors 4urnover Ratio have also been

analy$ed6 . Statement of %han#es in 2orin# %apital has also been analy$ed and

attached 4urnover + Performance of the %ompany for last three years has also been

analy$ed6


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$EA"I"G 0 !E1I"ITIO" O1 WOR2I"G CAPITAL /

2orin# capital in simple terms is the amount of funds9 which a company9 must

have to finance its day;to;day operation9 it can be re#arded as part


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!efinition of Working Capital /

Genesten3erg /

“ 2orin# %apital means %urrent .ssets of a company that are chan#ed in the

ordinary course of business9 from one to another9 for e/9 from cash to inventories9

inventories to receivable9 receivable to cash56

Gat(man 0 !ug 4all /

“2orin# %apital as e/cess of current assets over current liabilities65

Westen 0 5rig(am /

“ 2orin# capital refers to a term investment in short term assets cash9 short term

securities accounts receivables and inventories65

6. 'mit( /

“ 4he Sum of the current assets is the worin# capital of the business65

7WOR2I"G CAPITAL 8 C9RRE"T A''ET' : C9RRE"T LIA5ILITIE'”.


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Working capital c;cle /

Intro-uction

4he worin# capital cycle can be defined as?

4he period of time9 which elapses between the point at which9 cash be#ins to be

e/pended on the production of a product and the collection of cash from a customer

4he dia#ram below illustrates the worin# capital cycle for a manufacturin# firm


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4he upper portion of the dia#ram above shows in a simplified form the chain of

events in a manufacturin# firm6 =ach of the bo/es in the upper part of the dia#ram can be

seen as a tan throu#h which funds flow6 4hese tans9 which are concerned with day;to;

day activities9 have funds constantly flowin# into and out of them6

4he chain starts with the firm buyin# raw materials on credit6

In due course this stoc will be used in production9 wor will be carried out on the

stoc9 and it will become part of the firm@s wor in pro#ress 2IP8

2or will continue on the 2IP until it eventually emer#es as the finished product

.s production pro#resses9 labor costs and overheads will need to be met

Of course at some sta#e trade creditors will need to be paid

2hen the finished #oods are sold on credit9 debtors are increased

4hey will eventually pay9 so that cash will be injected into the firm

=ach of the areas A stocs raw materials9 wor in pro#ress and finished #oods89 trade

debtors9 cash positive or ne#ative8 and trade creditors A can be viewed as tans into and

from which funds flow6

2orin# capital is clearly not the only aspect of a business that affects the amount

of cash?


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4he business will have to mae payments to #overnment for ta/ation

,i/ed assets will be purchased and sold

Lessors of fi/ed assets will be paid their rent

Shareholders e/istin# or new8 may provide new funds in the form of cash

Some shares may be redeemed for cash

&ividends may be paid

Lon#;term loan creditors e/istin# or new8 may provide loan finance9 loans

will need to be repaid from time to time9 and

Interest obli#ations will have to be met by the business6

Bnlie movements in the worin# capital items9 most of these Cnon;worin#

capital@ cash transactions are not everyday events6 Some of them are annual events e6#6

ta/ payments9 lease payments9 dividends9 interest and9 possibly9 fi/ed asset purchases and

sales86 Others e6#6 new e>uity and loan finance and redemption of old e>uity and loan

finance8 would typically be rarer events6


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CO$PO"E"T' O1 WOR2I"G CAPITAL

4here are two components of 2orin# %apital

A. Current Assets

5. Current Lia3ilities

A. Current Assets

.n asset is termed as current assets when it is ac>uired either for the purpose of

sellin# or disposin# of after tain# some re>uired benefit throu#h the process of

manufacturin# of which constantly chan#es in form and contributes to transactions tae

place with the operation of the business althou#h such assets does continue for lon# in the

same form6

%omponents of %urrent .ssets are as follows?

%ash + 0an 0alance

Stoc of Raw 'aterial at cost; wor in process and ,inished Doods6

.dvanced Recoverable in %ash or ind or ind or for value to be received6

Security deposits with electricity board;telephone department balances with

customers6


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&eposits under the company scheme6

Prepaid =/penses6

'iscellaneous Stores implements #oods in transit6

.dvanced payment of income taes credit certificates6

=/cise duty and sales ta/ recoverable6

Outstandin# debts for a period e/ceedin# si/ months.

CO/RELATIO" 5ETWEE" C9RRE"T A''ET' A"! WOR2I"G CAPITAL

4he worin# capital is in simple terms is the amount of funds which company

must have to finance its day;to;day operations6 4he interaction between current assets and

current liability is main theme of theory of worin# capital6 In #eneral terms worin#

capital means difference between current assets and current liabilities6

4he current assets are main source of worin# capital6 It refers to those assets9

which can be converted into cash within a year6 4he current assets are inventories9 cash

and ban balance9 sundry debtors9 loans and advances etc

%urrent asset mana#ement is one the most important aspect of the overall

financial mana#ement6 4he efficient mana#ement of worin# capital can determine its

profitability sill of every financial mana#er lies in the efficient mana#ement re>uires

maintainin# proper relationship between current asset and current liability6 4herefore9

plannin# and control of current asset is he most important function of finance mana#er6


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. study of worin# of worin# capital is major part of e/ternal and internal

analysis6 0ecause9 of its close relationship with current day;to;day operations of business6

2orin# capital consists broadly the assets of business that are used at current operations

which was represented by raw materials9 stores9 2IP9 and finished #oods9 merchandise9

bills receivable6 =tc6

C(aracteristics of Current Assets

2hile mana#in# the worin# capital bear in mind of two characteristics of

%urrent assets6

(6 Short life span6

*6 Swift transformation into other assets forms6

%urrent assets a life span9 cash balance may be held idle for a wee or two

accounts receivable may have life span of 3* to E" days and inventories may be need for

* to E" days6 It s depends upon time re>uire in the activities of procurement of9

production9 sales and collection9 and the de#ree of synchroni$ation amon# them6

=ach %urrent .ssets swiftly transform into other asset cash is used for re>uirin#

raw materials? raw material are transform in to finished #oods9 finished #oods are

#enerally sold on credit are convertible into account receivable and finally accounts

receivable on reali$ation9 #enerate cash6


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4he short life span of worin# capital component and they swift transformation

from one from to another has certain implication6

C9RRE"T A''ET' CYCLE

(6 &ecisions relatin# to worin# capital mana#ement are repetitive and fre>uent6

*6 4he difference between profit and present value is insi#nificant6

,inished Doods

.F% Receivable 2IP

Raw 'aterials

Suppliers%ash

2a#es < ,actory

overhead


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36 4he close interaction amon# worin# capital components implies that efficient

mana#ement one component cannot undertae without simultaneous consideration of

other components6

2orin# capital means assets of the company that are chan#ed in the ordinary

capital of business term to another6 ,or e/9 from another as for as from cash to

inventories9 inventories to debtors and a#ain debtors in to cash where it is collected6

2orin# capital refers to a term investment in short term assets cash: short;term

securities account receivable and inventories6 %urrent asset mana#ement that affects a

firm li>uidity is at another important finance function6 In addition to the mana#ement of

lon#;term assets9 %urrent assets should be mana#ed efficiently for safe #uardin# the firm

a#ainst the dan#erous of li>uidity and insolvency6 Investment in %urrent .ssets affects

the firm profitability9 li>uidity and ris6

Current Lia3ilities

%omponents of %urrent Liabilities are as follows?

Gon;Refundable non;interest bearin# advances a#ainst subscription to shares6

Sundry %reditors for the #oods and e/penses6

Income ta/ deducted at sources from contractors6

=/penses Payable6


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.mount due to promoter of company6

Bnclaimed &ividend6

Security &eposits6

&ealers &eposits6

Liabilities for bills discounted6

I$PORTA"CE O1 WOR2I"G CAPITAL /

2orin# %apital is most important in every or#ani$ation whether it is a small or

bi# concern6 4herefore it is said that9 worin# capital is the blood and center at a

business6

(6 .de>uately 2orin# %apital creates certainty9 security and confidence in the

minds of the person in the mi#ht as well in the minds of creditors and worers6

*6 It creates a #ood credit standin# for the firm because credit standin# depends upon

the ability to pay promptly6 . company with ade>uate worin# capital is always

able to meet %6L6 in time6

36 It ensure solvency and stability of the enterprise it also ensures continuity in

production and sales6

!6 It enables the company to tae advanta#e of cash discount allowed by the

suppliers of raw materials or merchandise6

)6 It enables the presti#e of the company and the morale of its worers because a

company with ade>uately worin# capital is always able to pay wa#es and

salaries promptly and re#ularly6


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E6 It enables the company to procure loans terms bans on easy and competitive

terms6

76 In terms of boon it enables the company to meet increasin# demand of its product6

-6 In the time of depression9 it enables the company to overcome the crises

successfully6

6 It enables the company to hold up inventory and wait for better maretin#

opportunities so as to secure hi#her prices6

("6 It enable the company on its business successfully and achieve pro#ress and

prosperity9

$ETO!' O1 E'TI$ATI"G WOR2I"G CAPITAL /

Conuidity and #reater importance is attached

to current ratio9 li>uidity ratio9 etc69 which pertain to the li>uidity of a business6

Operating c;cle met(o-

In order to understand what #ives rise to differences in the amount of timin# of

cash flows9 we should first now the len#th of time which is re>uired to convert cash into

resources9 resources into final product9 the final product into receivables and receivables

bac into cash6


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CLA''I1ICATIO" O1 WOR2I"G CAPITAL


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A. On t(e 3asics of Concept

%a& "et Working Capital

4his is the difference between current assets and current liabilities6 %urrent

Liabilities are those that are e/pected to mature within an accountin# year and include

creditors9 bills payable and outstandin# e/penses6

Investment is current assets represent a very si#nificant portion of the total

investment in assets6 In case of public limited companies in India9 current assets

constitute around E"H of the total capital employed6 4herefore the finance mana#er

should attention to worin# capital mana#ement6

2orin# %apital 'ana#ement is no doubt si#nificant for all firms9 but its

si#nificance is enhanced in cases of small firms6 . small firm has more investment in

current assets than fi/ed assets and therefore current assets should be efficiently

mana#ed6

4he worin# capital needs increase as the firm #rows6 .s sales #row9 the firm

needs to invest more in debtors and inventories6 4he finance mana#er should be aware of

such needs and finance them >uicly6

%urrent .ssets can be finance throu#h lon#;term and short;term sources6 4he

ratio of lon#;term to short;term source will depend on whether the firm is a##ressive of


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conservative6 It the firm is a##ressive then it will finance a part of its permanent current

assets with short;term funds6 On the other hand9 a conservative firm will finance its

permanent assets and also a part of temporary current assets with lon#;term financin#6

%3& Gross Working Capital

4his refers to the firm@s investment in current assets6 %urrent .ssets are the assets

which can be converted into cash within a short period say9 an accountin# year6 %urrent

assets include cash9 debtors9 and bill receivable9 short;term securities6 etc6

A. On t(e 3asis of Time

a. Permanent Working Capital

Permanent 2orin# %apital is permanently loced up in the circulation of current

assets6 It covers the minimum amount re>uested for maintainin# the circulation of current

assets6

i. Initial Working Capital

.t its inception and durin# the formative period of its operations a company must

have enou#h cash fund to meet its obli#ations6 4he need for initial worin# capital is for

every company to consolidate its position6

ii. Regular Working Capital


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It refers to the minimum amount of li>uid capital re>uired to eep up the

circulation of the capital from the cash inventories to account receivable and from

account receivables to bac a#ain cash6 It consists of ade>uate cash balance on hand and

at ban9 ade>uate stoc of raw materials and finished #oods and amount of receivables6

3. #aria3le Working Capital

It refers to the past of the 2orin# %apital that chan#es with the volume of

business: it may be divided into two classes6

i. 'easonal Working Capital

4here is many line of business where the volumes of operations are different and

hence the amount of worin# capital varies with seasons6 4he capital re>uired to meet

the seasonal needs of the enterprise nows as Seasonal 2orin# %apital6

ii. 'pecial Working Capital

4he capital re>uired to meet any special operations such as e/periments with new

products or new techni>ues of production and main# interior advertisin# campai#n etc9

is also now as Special 2orin# %apital6

5. Ot(er !eterminants of Working Capital


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In order to mana#e the 2orin# %apital optimally: on has to #ive due

consideration to the factors that influence the amount of 2orin# %apital to be

maintained6

'O9RCE' O1 WOR2I"G CAPITAL /


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). Long Term 'ources of Working Capital /

4he followin# are the some important of the lon#

term sources of worin# capital6

A. Issue of '(ares Issuin# shares can finance a part of lon#;term worin# capital6

06 Issue of !e3enture Lon# 4erm 2orin# %apital can be collected by the way of

issuin# the debentures6

%6 Retaine- Profits .ccumulated lar#e profit can also consider as a source of financin#

the lon#;term capital6

&6 Term Loans / 4he mid and term loan above three year are also important source of

financin# the lon# term worin# capital needs6

=6 Reser


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'ORT TER$ 'O9RCE' O1 WOR2I"G CAPITAL /

&uration for this #enerally do not e/ceeds one year6 Its sources are

I"TER"AL 'ORT TER$ 'O9RCE'

(6 !epreciation 1un-s &epreciation ,unds created out of the profit is #ood source for

short;term source of financin# worin# capital6

*. ProTER"AL 'ORT TER$ 'O9RCE'6

). Tra-e Cre-it 4rade %redits e/tended by one business unit to the other on the

purchase sale of #oods and e>uipments are very important6


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*. 5ank Cre-it / %ommercial bans are providin# a #reater part of worin# capital in

the form of over drafts cash credit and short;term loans6

+. Cre-it Papers / 0ills Payable9 promissory notes etc are usefully for worin# capital

re>uirements6

!6 Customer Cre-it .mount may also be obtained from customer and these amounts

can be used for purchasin# raw materials9 payin# e/penses etc6

?. 1inancial Corporation 4he financial corporation lies I&0I9 I,%I9 I%I%I9 etc9

advances loans for various types of assistance6

@. Go


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E11ICIE"T 9TILIBATIO" O1 WOR2I"G CAPITAL $A"AGE$E"T

2ell worin# capital mana#ement refers to the administration of all aspects of the

current assets and liabilities6 It is necessary to #et ma/imum benefit6

4here is a direct relation between sale and worin# capital needs6 .s sale #rows

the firm needs capital to invest in inventories and boo debts6

A& Cas( $anagement /

%ash is re>uired to meet the firm@s transactions and precautionary needs6 4he firm

needs cash to mae payments for ac>uisition of resources and services9 for the normal

consist of the business6 It eeps addition funds to meet any emer#ency situation6

%ash 'ana#ement involves three thin#s6

'ana#in# cash flow in and out of the firm6

'ana#in# cash flow within the firm6

,inancin# deficit or investin# surplus cash6 .nd thus controllin# of cash balance at

the point of time6

5& In


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Inventories play very si#nificant role in worin# capital6 It is sin#le most si$able

investment in worin# material9 indi#enous raw material9 spares9 stoc9 tools9 the

maintenance9 and #oods in pro#ress9 stoc of pacin# materials9 stationary etc6 4o

mana#e inventories efficiently and effectively answer should be sou#ht from the

followin# >uestions6

ow much should be orderedJ

2hen should be orderedJ

4he aim of inventory mana#ement thus should be to avoid e/cessive and

inade>uate levels of inventories and to maintain sufficient inventories for the smooth

production and sales operation6

C& $anagement of Receiuired to complete the series of events

as stated below in case of manufacturin# enterprise9 which is cyclical in nature6

,or a manufacturin# firm9 cash is spent on ac>uirin# raw materials9 which are

transformed in to wor in pro#ress6 4he wor in pro#ress is then converted in to finished


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#oods6 ,inished #oods tae the form sales9 which may be credit or cash6 %redit sales

convert in to sundry debtors9 bills receivables9 which after some time9 #ets converted in to

cash6 4his cycle repeats6

OPERATI"G CYCLE O1 $A"91ACT9RI"G CO$PA"Y

%ash

&ebtors < 0R Raw 'aterials

Sales of #oods 2or in Pro#ress

,inished Doods

I$PORTA"CE O1 OPERATI"G CYCLE

Operatin# cycle concept is a new concept in worin# capital mana#ement9 which

has been #ainin# more and more importance in recent years6 4his concept emphasi$es the

importance of time factors in the conversion of raw materials into final product and then

in to sales resultin# in cash collection9 ri#ht from the ac>uisition of raw materials9

normally operatin# cycle passes throu#h the followin# sta#es6

(6 .c>uisition of raw materials6

*6 2or in Pro#ress6


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36 Stoc of finished #oods6

!6 Sale and reali$ation of sales proceeds6

Operatin# cycle concept plays an important role in determinin# the worin#

capital re>uirement of firm6 &uration of manufacturin# process ri#ht from the ac>uisition

of raw materials till they are sole out after bein# converted into final products and the

cash is reali$ed determines the amount of worin# capital re>uired6 Lon#er the operatin#

cycle #reater will be the amount of worin# capital re>uired and shortest operatin# cycle

re>uires limited amount of worin# capital6 4herefore9 an efficient mana#ement should

try to reduce the time elapsed in these consecutive sta#es in operatin# cycle6


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!ETER$I"A"T' O1 WOR2I"G CAPITAL /

. firm should plan its operations in such a way that it should have neither too

much not too of little worin# capital6 4he worin# capital re>uirement is determined by

a wide variety of factors6 4hese factors9 however9 affect different enterprise differently6

4hey also vary from time to time6 In #eneral9 the followin# factors are involved in a

proper assessment of the >uantum of worin# capital re>uired6

4he followin# are the some important determinants of worin# capital

). General "ature of 5usiness

4he worin# capital re>uirements of an enterprise are basically related to the

conduct of business6 =nterprise falls in to some broad cate#ories dependin# on the nature

of their business6 ,or instance9 public utilities have certain features which have a bearin#

on their worin# capital needs6 4he two relevant features are9

(6 4he cash nature of business9 that is9 cash sale6

*6 Sale of services rather than commodities6

In a view of these features9 they do not maintain bi# inventories and have9

financial enterprise6 4he nature of their business is such that they have to maintain a

sufficient amount of cash9 inventories9 and boo debts6

*. Pro-uction C;cle


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4he >uantum of worin# capital is also determined by production policy6 In case

of certain lines of business9 the demand for products is seasonal9 that is9 they are

purchased durin# certain months of the year6 4here are two options to open to such

enterprise? either they confine production only to period when #oods are purchased or

they follow a steady production policy throu#hout the year and product #oods at a level

to meet the pea demand6 In former case9 there are worin# force and physical facilities

without ade>uate production and sale6

?. Cre-it Polic;

4he credit policy relatin# to sales and purchases9 also affects the worin# capital6

4he credit policy influences the re>uirements of worin# capital in two ways9

(6 4hrou#h the credit terms #ranted by the firm to its customersuirements of a business are9 thus9

affected by the terms purchase and sale9 and role #iven to credit by company in it@s

dealin# with creditors and debtors6

*6 %redit terms fi/ed by an enterprise are affected by the prevailin# trade practices

as well as chan#in# economic conditions6 If9 for e/ample9 competition were een9 there

would pressure to #rant #enerous credit terms6 Gevertheless9 there is wide scope for


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mana#erial discretion in worin# out a suitable credit policy relevant to each customer

based on the merits of each case6 ,or instance9 liberal credit facilities can be e/tended on

the basis of credit ratin#6 4his will avoid the problem of havin# e/cess worin# capital6

@. Gro4t(s an- E=pansion

.s a company #rows9 it is lo#ical to e/pect that a lar#er amount of worin#

capital is re>uired6 It is9 of course9 difficult to determine precisely the relationship

between the #rowth in the volume of business of a company and the increase in its

worin# capital6 4he composition of worin# capital in a #rowin# company also shifts

with economic circumstance and corporate practices6 Other thin#s9 bein# e>ual9 #rowth

industries re>uire more worin# capital than those that are static6

. Profit Leuality of mana#ement and monopoly power

would by and lar#e determine the profit earned by a firm6 . priori9 it can be #enerali$ed

that a firm dealin# in a hi#h >uality product9 havin# a #ood maretin# arran#ement and

enjoyin# monopoly power in the maret9 is liely to earn hi#h profit and vice;versa6

i#her profit mar#in would improve the prospects of #eneratin# more internal funds

thereby contributin# to the worin# capital pool6

. !i


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.nother appropriation of profit9 which has a bearin# on worin# capital9 is

dividend payment6 4he payment of dividend consumes cash resources and9 thereby9

affects worin# capital to that e/tent6 %onversely9 if the firm does not pay dividend but

retains the profits9 worin# capital increase6 In theory9 a firm should retain profits to

preserve cash resources and9 at the same time9 it must pay dividends to satisfy the

e/pectations of investors6 2hen profits are relatively small9 the choice is between

retention and payment6 4he choice must be made after tain# in to account all the

relevant factors6

D. !epreciation Polic;

&epreciation Policy also e/erts an influence on the >uantum of worin# capital6

&epreciation char#es do not involve any cash outflows6 4he affect of depreciation policy

on worin# capital is9 therefore9 indirect6 In the first place9 depreciation affects the ta/

liability and retention of profits6 &epreciation is allowable e/penditure in calculatin# net

profits6 =nhanced rates of depreciation lower the profits and9 therefore9 the ta/ liability

and9 thus9 more cash profits6 i#her depreciation also means lower disposable profits and9

therefore9 a smaller dividend payment6 4hus9 cash is preserved6 In the second place9 the

selection of method of depreciation has important financial implication6

). Price leuirement of worin# capital6 Risin#

prices necessitate the use of more funds for maintainin# an e/istin# level of activity6 ,or


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the same level of current assets9 hi#her cash outlays are re>uired6 4he effect of risin#

prices is that a hi#her amount of worin# capital needed6 owever9 in the case of

companies9 which can raise their prices proportionately9 there is no serious problem

re#ardin# worin# capital6

)). Operating Efficienc;

4he operatin# efficiency of the mana#ement is also an important determinant of

the level of worin# capital6 4he mana#ement can contribute to a sound worin# capital

position throu#h operatin# efficiency6 .lthou#h the mana#ement cannot control the rise

in prices9 it can ensure the efficient utili$ation of resources by eliminatin# waste9

improvin# co;ordination9 and a fuller utili$ation of e/istin# resources and so on6

=fficiency of operations accelerates the pace of cash cycle and improves the worin#

capital turnover6 It releases the pressure on worin# capital by improvin# profitability and

improvin# the internal #eneration of funds6


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Tec(niFues of Working Capital $anagement /

2orin# %apital mana#ement involves decidin# upon the amount and

composition of current asset and how to finance the asset6 4his decision involves trade off

between ris and profitability6

2orin# %apital 0alances are measured from the financial dates of the company@s

balance sheet6 . study of the causes for chan#es of worin# capital that tae place in the

balance from time to time is necessary6 4hese chan#es can be measured in rupee amount

and also in percenta#e by comparin# current assets9 current liabilities and worin# capital

over the #iven period6

4he importance tools of 2orin# %apital are9

). Ratio Anal;sis of Working Capital /

(6 Ratio analysis of worin# capital6

*6 4urnover of worin# capital Ratio6

36 %urrent Ratio6

!6 %urrent &ebt tan#ible net worth6

)6 Inventory 4urnover Ratio6

E6 &ebtor 4urnover Ratio6


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*. 1un-s 1lo4 Anal;sis of Working Capital /

It is an effective mana#ement tool to study how funds have been produced for a

business and how they have been employed6 4his techni>ue helps to analy$e chan#e in

worin# capital components between two data6 4he comparison of current asset and

current liability at the be#innin# and at the end of specific period show chan#es in such

type of current assets and resources from which 2orin# %apital has been obtained funds

flow statement contributes materially to the financial aspects6

+. Working Capital 5u-get /

4he worin# capital bud#et is an important phase of overall financin# bud#etin#6

4his bud#etin# should be distin#uished from a cash bud#et that is desi#ned to measure all

the financial repayment of loans9 term loan and similar item6 On the other hand worin#

capital repayment and assure that they are duly provided for6 4he objective of that bud#et

is to secure an effective utility of investment6

,. Tren- Anal;sis /

. trend analysis indicates the chan#e9 which has been tain# place from time to

time of an individual item of current assets6 .ssets and utility and net worin# capital on

the basis of some standards year and its effect on worin# capital portion6 It enables

creative the upward and down ward trend of current assets and current liabilities6 4hese

are usa#e measured from review of comprehensive balance sheet of a concern at the end

of account year and result is drawn on the basis of trend shown by them6


36/80


37/80



mar#in of safety6 =ach of the current assets must be mana#ed efficiently in order to

maintain the li>uidity of the firm while not eepin# too hi#h a level of any one of them6 .

proper balance between %urrent .ssets and %urrent Liabilities is9 therefore9 the main

theme of the theory of worin# capital mana#ement6

2orin# %apital refer to that part of total capital which is ept invest in current

assets that are re>uired for re#ular business operation6 In accountin#9 worin# capital is

taen to mean the difference between %urrent .ssets and %urrent Liabilities6

Accor-ing to Genesten3erg /

“2orin# %apital means %urrent .ssets of a company that are chan#ed in the

ordinary course of business9 from one to another9 for e/9 from cash to inventories9

inventories to receivable9 receivable to cash56

$anagement Pro3lem

4he %ompany wants to study its worin# capital efficiency where current

assets are main constituents of worin# capital mana#ement6 4he company wants to

avoid two dan#erous points i6e e/cessive and inade>uate investment in current

assets6 Investment in Inventories and &ebtors should be minimi$ed so that it can

ma/imi$e its cash and ban balance6

Researc( Pro3lem /


38/80



Research Problem is to ma/imi$e the company@s cash and ban balance throu#h

the study of “Impact of Current Assets on Working Capital”.

'tatement of t(e Pro3lem /

4he study has been undertaen in the or#ani$ation for the purpose to now the

company@s worin# capital mana#ement throu#h the study of “Impact of Current Assets

on Working Capital”.

Purpose of t(e 'tu-;/

4he Purpose of the Study of worin# capital in Oil#ear 4owler Polyhydron

Private Limited is to analy$e the worin# capital with the help of financial ratios and to

chec how the company is maintainin# the worin# capital6

4he study should be made on the basis of the followin#s9

(6 ,inancial Statements6

*6 ,inancial Ratios6

'cope of t(e 'tu-; /

4he worin# capital is spread to some important departments in Oil#ear 4owler

Polyhydron Private Limited6 4he departments are9


39/80



(6 ,inance &epartment6

*6 &esi#n &epartment6

36 Production &epartment6

O3ecti


40/80




41/80



). I"TRO!9CTIO" /

OILD=.R 4O2L=R POLKK&ROG PRI.4= LI'I4=&9 Gow popular by

its short name O4PL8 was formerly nown as Polyhydron Systems Private Ltd6 4he

company established in the year (-)6 4he company9 Polyhydron System Private Ltd9

was one of the four independently run en#ineerin# concern mana#ed by a #roup of

entrepreneurs well nown in the country for their >uality products9 fair approach to

business ethics6 4he #roup is nown in the country as Polyhydron6

Game of the other three companies are9

(6 KLO% K&RO4=%4IGI% PRI.4= LI'I4=&6

*6 POLKK&ROG PRI.4= LI'I4=&6

36 SPI%. 'OB%L& %KLIG&=RS PRI.4= LI'I=&6

4he oldest company in the #roup is KLO% K&RO4=%4IGI% PRI.4=

LI'I4=&9 4he %ompany started in (7! and is en#a#ed in manufacturin# complete

ran#e of ydraulic 4ubes couplin# for metric tubes flan#ed fittin#9 shut of valves and

needle valves POLKK&ROG PRI.4= LI'I4=&6 .s founded in (-! and is nown

in the country for its modern and sophisticated mana#ement techni>ues and >uality


42/80



mareted very reasonable price9 the company manufacturin# Redial Piston Pumps9 Relief

alves9 and &irectional %ontrol alves6 .nd SPI%. 'OB%L& %KLIG&=RS PRI.4=

LI'I=&9 established in 1an A"E for manufacture of 'ould %ylinders to be e/ported to

Italy6 4his company is yet to commence its production6

OILGEAR TOWLER POLYY!RO" PRI#ATE LI$ITE! /

,rom its inspection has been manufacturin# OIL K&R.BLI% SKS4='S +

K&R.BLI% .%4B.4ORS + has later added PIS4IOG type accumulators to its ran#e

of products6

). COLLA5ORATIO"

4he company entered into a joint venture collaboration a#reement with the

OILD=.R %O'P.GK9 OILD=.R 4O2L=R IG4=RG.4IOG.L &IISIOG9 BS. in

&ec (36

4= OILD=.R %O'P.GK is a world famous for its =lectro;ydraulic and

ydraulics products such as sophisticated pumps9 valves and systems and especially

nown in the technolo#y of world for its contribution to the technolo#y of 'etal

=/trusion and 'etal formin# systems6 4he company also has its subsidiaries in .ustralia9

%anada9 ,rance9 Dermany9 Dreat 0ritain9 Italy9 1apan9 and Morea + Spain6

Participate- in follo4ing 5usiness Areas

'aret Oil#ear products in the Indian maret6 Include products lie piston9 pumps9

solenoid valves9 prefil valves and cartrid#e valves6


43/80



'aret ydraulic and =lectro hydraulic and subsystems for presses and machines6

Install9 commission9 and service9 ydraulic and =lectro hydraulic systems

manufacturin# by the Oil#ear %ompany in .sian and South =ast .sian countries6

.ssemble9 service9 repairs and test Oil#ear products6

&esi#n9 manufacturin#9 sell9 Install9 repair9 and service ydraulic and =lectro

hydraulic systems and subsystems9 cylinders and other e>uipment in .sian and South

=ast .sian countries6

*. TE CO"'TIT9TIO" O1 TE CO$PA"Y /

Game

OILD=.R 4O2L=R POLKK&ROG PRI.4=

LI'I4=& O4PL8

%onstitution . private limited company re#istered under

companies act ()E

Location

Re#istered Office

Plot Go !9 R6S6 Go; E"-


44/80



P6O6 Gava#e9 0el#aum9 )""(!

""(8-3(8 *!(()*- ! lines8

""(8-3(8 *!(()7E

otplb#mpl*Noil#ear6co6in

Phone (-3(;*!!(()79 *!!(!)

=;mail otplb#mNsanchearnet6com

2ors ""(8-3(8 *!(()*- ! lines8

""(8-3(8 *!(()7E

otplb#mpl*Noil#ear6co6in

5oar- of !irectors /

C(airman 'r6 Robert &rae6

$anaging !irector 'r6 6M6Samant6

!irector Pro-uction 'r6 6&6 Madrolar6

!irector Commercial 'r6 G6 Radharishana Rao

!irector 1inance 'r6 &6S6 %hitnis

!irector 'r6 Srianth Srinivasan6

Colla3orators ; 4= OILD=.R %O'P.GK

OILD=.R 4O2L=R IG4=RG.4IOG.L &IISIOG9 BS.6

,. A''ET'? ;

mailto:[email protected]:[email protected]


45/80



,.)& LA"! A"! 59IL!I"G

Land and the site of the re#istered office A ((")! S>6ft ("*E S>6m68

0uildin# and the site of the re#istered office; !-3" S>6ft !)" S>6m68

Land at site of plant (; **"" S>6ft6 *"! S>6m68

0uildin# at site of plant (; (E** S>6ft )( S>6m68

Land site of the wors *)-9("" S>6ft *37- S>6m68

0uildin# Site of the wors *)9""" S>6 ft *3** S>6m686

,.*& $ACI"ERYH A"!LI"GH E9IP$E"T A"! TE'T RIG'

,.+& O11ICE A"! E9IP$E"T

Communication /

ead Office? ;

Phone lines E Gos6

,a/ lines ( Go

=;mail ( Go

=lectronic =/chan#e ("3" %apacities6

Laths 3 Go s Paintin# =>uipment * Sets

ori$ontal 0ore 3 Go s =lectro Static %leaner ( Go s

%G% 'achine %enter ( Go s %leanin# 'achine * Go s

%G% ertical 'achine %enter ( Go s Pallet 4rucs * Go s

&rillin# 'achine 3 Go s .ir %ompressors 3 Go s

'illin# 'achine ( Go s Pr#au#e %alibrator ( Go s

Surface 'achine * Go s ardness 4ester ( Go s

onin# 'achine ( Go s Pumps 4est Stands 3 Go s

ac Saws * Go s alve 4est Stands ( Go s

4ID 2eldin# Set ( Go s Deneratin# Stands 3 Go s

,lame %uttin# =>uipments ( Set Over head %ranes 3 Go s

.rc 2eldin# Set * Go s


46/80



2ors? ;

Phone lines E Gos6

,a/ line ( Go6

=;mail ( Go

=lectronic =/chan#e ("3" %apacities6

,.,& !ATA PROCE''I"G

%omputer ;;;; *! Gos6 1or

&esi#n .ccountancy

Inventory Plannin#

Sales Purchase

.dministration6

?& 'TA11 /

'ales Engineers J , 'upport

Purc(ase * Officers J + 'upport

Planning ) Engineer


47/80



!esign D Engineers J ) 'upport

Accounts an- A-ministrations @ Officers J + 'upports

$anufacturing + Engineers J , 'upports

'er


48/80



onin#

Wel-ing :

4ID 2eldin#6

.R% 2eldin#

'urface Treatment /

%leanin# by Merosene

Phosphatin#

Paintin#6


49/80




50/80




51/80



$et(o-olog; a-opte- an- -ata collection /

4he nature of the study was collection analysis and interpretation of worin#

capital mana#ement in “O4PL5 4he information about this was #athered throu#h

followin# sources6

• Primar; !ata /

Primary &ata are those9 which are collected fresh and for the first time9 and thus it

happens to be ori#inal in character6

4he primary sources of data are collected from the financial e/ecutives throu#h

personal discussion in the li#ht of the set objectives6 .lon# with this9 informal discussion

with other9 member of the finance6

• 'econ-ar; !ata /

Secondary &ata are those have already been collected by someone else and while

already been passed throu#h statistical process6

• .nnual Report of the %ompany6

• .nnual .ccounts of the %ompany6

• Led#er Profit and Loss .ccount6


52/80




53/80



'TATE$E"T 'OWI"G CA"GE' I" WOR2I"G CAPITAL I" *+

OTPL

Particulars ** *+ Increase !ecrease

A& Current Assets

(6 Inventories6

*6 S6 &ebtors

36 %ash + 0an 0alance

!6 Other %6 .ssets6

)6 Loans + .dvances6

TOTAL

5& Current Lia3ilities

(6 %urrent Liabilities

*6 Provision

TOTAL

Working Capital

%A/5&

Get Increase in

2orin# %apital

GRA"! TOTAL

(9!39*9)-!

(9!79(9**)

E97"9*(*

)9"!9!E*

*39)-9*E

,H)?H)H?*

--97E9-!!

)E9E79*"(

)H,?H,,H,?

*HH+H

*39((9-3

*HD+H,DH,?@

(9-*9-797E3

(9E*9E797"3

9*!9!-*

E9-39"E)

(-9"""9E3

,H@DH@DH@

(9*793"9**

!79-9*3-

)H@H)DH?+

*HD+H,DH,?@

*HD+H,DH,?@

39)-9(7

()9!-9!7-

*9)!9*7"

(97-9E"3

;;;;;;;;;

;;;;;;;;

-9779E3

@H)H,D+

@H)H,D+

;;;;;;;;;

;;;;;;;;;

;;;;;;;;;

;;;;;;;;;

)9)*9*"E

39)39!!-

;;;;;;;;;;;;

,?H?H@?,

*39((9-3

@H)H,D+


54/80



I"TERPRETATIO"

.s we can see in the above year *""*;"39 there is an increase in the worin#

capital by Rs6 *39((9-36 4his is because?

(6 .s we can see that there is a #reat increase in %urrent .ssets as the company is

looin# to invest more in the inventory of raw material in this year9 because of the

shorta#e of raw material in the maret9 so overall there is increase in the current

assets6 0ut in current assets loans and advance are decreased6

*6 .s we can see there is decrease of Rs6 39)39!!- in the liabilities of the company9

which is #ood for the company6 0ut Rs6 -9779E3 increases provisions6

36 So from all the above calculation we can see that there is #ood increase in the

worin# capital6 So we can say that company is more liely to increase there

inventory because they thinin# it for the lon# term perspective6


55/80



'TATE$E"T 'OWI"G CA"GE' I" TE WOR2I"G CAPITAL I" *,

OTPL P#T LT! %Rs. In T(ousan-&

Particulars *+ *, Increase !ecrease

A& Current Assets

(6 Inventories

*6 S6 &ebtors

36 %ash + 0an 0al6

!6 Other %6 .ssets

)6 Loans + .dvances

TOTAL

5& Current Lia3ilities

(6 %urrent Liabilities

*6 Provision

TOTAL

Working Capital

%A/5&

Get Increase in 2orin#

%apital

GRA"! TOTAL

(-9*--

(E9*-

9*!

E9-3

(9-"E

,@HD@D

(*9-3"

!97-

)H@)D

*DH+?

(E9)!39

,?HD+

3!9E""

3*9(**

(*9!*

9!)

(93

*HD

*-9)!(

79EE!

+@H*?

,?HD+

,?HD+

(E93(*

()9-)!

*9)E-

*9E*

(933

;;;;;;;;;;

;;;;;;;;;;

+?H)*D

+?H)*D

;;;;;;;

;;;;;;;

;;;;;;;

;;;;;;;

;;;;;;;

()97((

*9-7)

)H?@

(E9)!3

+?H)*D


56/80


57/80


58/80



In the above table it is seen that9 there is an increased in the worin# capital by

Rs6E9 --3 in the year *""!;")9 this is because? ;

(6 .s we can see of the %urrent .ssets side there is decrease in Inventories9 cash and

ban balance and loans and advances6 4here is an increased in sundry debtors9 other

current assets and company also #iven the advance to supplies by Rs6 (9*()6 4his

decrease in Inventory because there is unavailability of their main raw material6

0ecause of the shorta#e of it in the maret6

*6 %urrent Liabilities side there has been increased in current liabilities and provisions of

Rs6 *9*(" and Rs6 -9-E respectively and also company has taen the advance from

customers of Rs6 9"-*6

36 So9 looin# above calculation we see that worin# capital of the company is

increased9 because current assets are more than current liability6 2orin# %apital is

increased from Rs6 E9-7! to Rs6 E9--36 0ecause in this year company has taen the

advance from customer and #iven advance to suppliers6

RATIO A"ALY'I'

$eaning /


59/80



Ratio .nalysis is a widely used tool of financial analysis6 It defined as the

systematic use of to interpret the financial statement so that the stren#th and weaness

of a firm well as its historical performance and current financial condition can be

determined6 4his relationship can be e/pressed

(6 Percenta#e says net profits are *) percent of sales6

*6 Proportion of numbers the relationship between net profit and sales is (?!89 these

alternative methods of e/pressin# items which are related to each other are9 for the

purpose of financial analysis9 referred to as ration analysis6

T;pes of Ratios

Ratio can be classified into followin# cate#ories9

(6 %urrent Ratios6

*6 Get 2orin# %apital Ratios6

36 4otal .ssets 4urnover Ratios6

!6 Inventory 4urnover Ratios6

)6 ,i/ed .ssets 4urnover Ratios6

E6 %reditors 4urnover Ratios6

76 %reditors %ollection Period6

-6 &ebtors 4urnover Ratios6

6 &ebtors %ollection Period6

("6 Dross Profit 'ar#in Ratios6

$ERIT' A"! !E$ERIT' O1 TE RATIO /


60/80



$erits of t(e Ratio /

4he followin# are the some important merits of the ratio

(6 Ratio .nalysis reflects the worin# efficiency of a concern6

*6 Since9 ratio analysis relates the financial health of a concern9 insurance other

financial institution relay on them while jud#in# loan application and in tain#

vital investment decision6

36 It helps in establishin# trends since the result are preparin# plans for the future6

!6 It is helpful in forecastin# liely events in future6

!emerits of t(e Ratio /

4he followin# are the some important demerits of the ratio6

(6 4he striin# aspect of ratio analysis is the absence of an e/plicit theoretical

structure: different methods of collection are adopted by different concerns6

*6 ,or concert analysis inside information must be nown by the analyst since most

concern report to portray of easy picture of the financial attachments6

36 %han#e in the basis of accountin# may pose difficulty in analysis ratios between

one period

). Current Ratios /


61/80



It can be calculated as current assets divided by current liabilities6 4he current

ratio measures the relative ability of a company to pay its short;term debts6 4he ratio is

used to reveal how well a company could meet a sudden demand to pay off its short;term

creditors6

,ormulas9

%urrent Ratio Q %urrent .ssets

%urrent Liabilities

Current Ratio

22.2

2.4

2.6

2.8

2002-2003 2003-2004 2004-2005

Years

R a t i o s

Current Ratio

Interpretation /

Particulars **/*+ *+/*, *,/*?

%urrent .ssets !9E9E9""" -9*"9-9""" 9!9)-9"""

%urrent Liabilities (97E9(9""" 39E*9")9""" !9*(9(9"""

Current Ratio *.@@ *.*@ *.*?


62/80



.s a conventional rule9 a current ratio of *?( or more considered satisfactory6 4he

O4PL %ompany9 has current ratio is *6EE?(: therefore9 it may be interpretated to be

satisfactory company6 4he current ratio represents a mar#in of safety for creditors6 4he

hi#her the current ratio9 the #reater the mar#in of safety9 so9 there has been increased in

the ratio durin# *""*;*""39 when compared with *""3;*""! and *""!;*"")6 So9 lar#er

the amount of current assets in relation to current liabilities9 the more the firm@s ability to

meet its current obli#ation6 ,irm with less than *?(9 current ratio may be doin# well9

while firm with *?( or even hi#her current ratio may be stru##lin# to meet their

obli#ations6 4his is so because9 if Rs6* is your %urrent .ssets and Rs6( is Kour %urrent

Liabilities6 4hus %urrent Ratio shown is *?(9 which is an Ideal Ratio6

*. uick Ratio

It establishes a relationship between >uic or li>uid9 assets and current liabilities6

.n asset is li>uid if it can be converted in to cash immediately or reasonably soon

without a loss of value6 %ash is most li>uid assets6 Other assets9 which are considered to

be relatively li>uid and included in the >uic assets9 are debtors9 and bills receivable and

maretable securities6 Inventories are considered to be less li>uid9 inventories normally

re>uires some time for reali$in# in to cash: their value also has a tendency to fluctuate6

,ormula

uic Ratio Q %urrent .ssets A Inventories

%urrent Liabilities


63/80



Particulars **/*+ *+/*, *,/*?

%urrent .ssets !9E9E9""" -9*"9-9""" 9!9)-9"""

;8 Inventory (9-*9--9""" 39!E9""9""" *9-"9!*9"""

Total *H@H)H ,H,HDH @H@DH)@Huic ratio is (?( is considered to represent a satisfactory current

financial condition6 In the year *""*;"3 >uic ratio was (6E* and there has been

decreased in the year compared to *""3;"! and *""!;")6

4he hi#h ratio indicates that all debtors may not be >uic and cash may be

immediately needed to pay operatin# e/penses6 It should be noted that inventories are not

absolutely non;li>uid to a measurable e/tent inventories are available to meet current

obli#ations6 So the company can suffer from shorta#e of funds6 On the other hand9 a

company with low ratio in the year *""3;"! and *"!;")9 indicates that >uic ratio may


64/80



really be prosperin# and payin# its current obli#ation in time if it has been turnin# over

its inventories efficiently6

+. Total Assets Turno


65/80



Total Assets Turnover Ratio

0

1

2

3

4

5

2002-2003 2003-2004 2004-2005

Years

R a t i o s

Total Assets

Turnover Ratio

Interpretation /

4here has been increased in the year *""!;")9 when compared to *""*;*""3 and

*""3;*""!6 .nd hi#h ratio indicates that in the year *""!;")9 that ratio shows the firm@s

ability in #eneratin# sales from all financial resources6

,. In


66/80



Interpretation /

4here has been increased in the ratio in the year *""! A*"")9 when compared

with *""*;*""3 and *""3;*""!6 In the year *""!;*"")9 indicates hi#h ratio9 it means9

Inventory turnover ratio implies #ood inventory mana#ement and very hi#h ratio calls for

a careful analysis6 It may indicate under investment in inventory6 2hile a Low ratio

indicate in the year *""*;*""39 that9 it may be result in use of inferior >uality of #oods

and over investment in sales in the *""3;*""!6

,. 1i=e- Assets Turno


67/80



Fixe Assets Turnover Ratio

0

1

2

3

4

2002-2003 2003-2004 2004-2005

Years

R a t i o s

Fixe Assets

Turnover Ratio

Interpretation /

4here has been increased in the ratio durin# *""*;*""3 and *""!;*"")9 when

compared with *""3;*""!6 . low ratio in the year *""*;*""3 indicates in efficiency use

of assets9 and the ne/t two years *""3;*""! and *""!;*"")8 shows hi#h ratio9 which

means that increasin# efficiency of fi/ed assets employed in the or#ani$ation6 One of the

cautions to be ept in the mind is when fi/ed assets are old and substantially depreciated

the ratio tenders to be hi#h9 because9 the denominator of the ratio will be low6

?. Cre-itors Turno


68/80



It is the ratio between the Sales and %reditors or Get %redit Purchase and avera#e

amount of creditors6 It is an important tool of analysis as a firm can maintain minimum

amount of %urrent .ssets9 as credit from suppliers is easily available6

%reditor 4urnover Ratio Q Get Sales

%reditors

Creitors Turnover Ratio

3

3.5

4

4.5

5

2002-2003 2003-2004 2004-2005

Years

R a t i o s

Creitors Turnover Ratio

Particulars **/*+ *+/*, *,/*?

Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""%reditors (9*-93"9""" *9-)9!(9""" *9E393(9"""

Cre-itors Turno


69/80


70/80



Creitors Collection !erio

0

50

100

150

2002-2003 2003-2004 2004-2005

Years

R a t i o s

Creitors Collection

!erio

Interpretation /

In the year *""*;*""39 there was increase when compared to *""3;*""! and

*""!;*"")6 4he hi#h ratio of *""*;*""3 indicates that the sales of the year is very low as

compared to *""3;*""! and *""!;*"")9 and also creditors are low as compared to as

compared to *""3;*""! and *""!;*"")6 2hile low ratio in the year *""3;*""! indicates

that creditors are hi#h as compared to other year6

. !e3tors Turno


71/80



Particulars **/*+ *+/*, *,/*?

Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""

&ebtors (9E*9E-9""" 39*(9**9""" !9779"9"""

!e3tors Turnoual turnover ratio6

. !e3tors Pa;ment Perio- /


72/80


73/80



. Gross Profit $argin Ratio /

Dross Profit 'ar#in Ratio is the result of relationship between price9 sales9

volume and cost6 . chan#e in #ross profit mar#in can be due to chan#es in any of these

factors6 It represents the limit of beyond which fall in sales price are outside and tolerance

limit6

Dross Profit 'ar#in Ratio Q Dross Profit

Get Sales

Particulars **/*+ *+/*, *,/*?

Dross Profit 79*E9""" (9!*9--9""" (9-E9)!9""" Get Sales )9739739""" ("9-E9E"9""" ("97"9""9"""

Gross Profit $argin Ratio ).*@ )+.), ).,+

$ross !ro%it &ar'in Ratio

0

5

10

15

20

2002-2003 2003-2004 2004-2005

Years

R a t i o s

$ross !ro%it &ar'in

Ratio


74/80


75/80



0

50

100

150

200250

300

Ratios

2002-

2003

2003-

2004

2004-

2005

Years

Consolidated Statement of Ratios$ross !ro%it

&ar'in Ratio

"e#tors

Collection!erio"e#torsTurnover Ratio

Creitors

Collection

!erioCreitors

Turnover Ratio

Fixe Assets

1I"!I"G A"! '9GGE'TIO"'

1in-ings /

(6 %urrent Ratio of O4PL %ompany shows the solvency of the firm ability to repay its

liabilities6 .s ratio is decline to *6EE6 It shows that company is in solvency state6

%urrent assets are should always be twice of current liabilities6

*6 In a comparative statement of 0alance Sheet9 debtors were (9!79(9""" in the year

*""*;*""39 and it has increased to 39*(9**9""" and !9779"9""" in the last two years6

0ecause increased in credit sales6

36 4otal assets turnover ratio shows the ability to convert all its assets incurrin# fi/ed

assets to sales6 .s per the ratio calculated in the year *""*;*""3 it was *6(*9 which

was low ratio means firm is able to convert its total assets >uicly into funds as per


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2. 4he company net sale is very low in the year *""*;*""3 Rs )9739739"""9 as compared

to *""3;*""! Rs6 ("9-E9E"9"""6 So9 the company should mana#e its current assets9

which effects on production and ultimately on sales6

3. 4he %urrent Ratio of the company is decreased from *6EE to *6)) in the last three;

year *""3 to *"")86 So9 the current ratio should be maintained by the company in

such a way that the ratio does not follow below *?(6

!6 %ompany should #ive minimum payment time to #et prompt payment by debtors6

Conclusion

2orin# capital may be re#arded as lifeblood of a business6 It@s effective

provision can do much to ensure the success of a business9 while it@s inefficient

mana#ement can lead not only to loss of profits but also to the ultimate down fall of what

otherwise mi#ht be considered as a promisin# concern6 . study of worin# capital is of

major importance to internal and e/ternal analysis because of its close relationship with

the current day to day operations of a business.


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(6 ere9 I conclude that %han#es in the financial year is showin# increase in the worin#

capital9 because company maintains its worin# capital properly in the year *""3 to

*"")6

*6 .ccordin# to my calculation %urrent .ssets main part of9 the worin# capital of the

business6 .ccordin# to all Ratios9 It shows that company maintains its ratio is very

well6 So9 In t*e )ear 2004-2005 company showin# better position in the worin#

capital6


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5I5LOGRAPY

• ,inancial 'ana#ement by boos used from which I have taen help for the theory

part of the study?

$.#. 2(an 0 P.2. 6ain

I.$. Pan-e;


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• I have also used the trial balance of Oil#ear 4owler Polyhydron Private Limited

O4PL86 4hose are from the year *""3;*"")6 2hich provide by the official at

0el#aum 2ors6

• I have meet with the different people at the .dministrative &epartment at Oil#ear

4owler Polyhydron Private Limited O4PL86 .s also too their views and information

for my Study6

• I have also too the help form the company site www6oil#ear6co6in

impact of current assets on working capital of otpl

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