projectworking capital mgt

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1. INTRODUCTION

Working capital plays a key role in a business enterprise just as the role of art in the

human body. It acts as grease to run the wheels of fixed assets. Its effective provisions

can ensure the success of a business while its in effective management can lead not

only to loss but also to the ultimate downfall of what otherwise might be considered as a

promising concern. In other words, efficiency of a business enterprise depends largely

on its ability to manage its working capital.

ABOUT THE TOPIC

MEANING

The term working capital refers to that portion of an organization capital which is

required in the short run to finance current assets. Such as cash, bank balance, debtors

and Inventories the value of the assets keeps changing over a period of time.

DEFINITION

According to the institute of chartered Accountants of India defines, Working

capital means the funds available for day-to-day operations of an enterprise.

According to Shubin defines working capital as, capital required for purchase of

Raw Materials and for meeting day-to-day expenditure on sales, wages, rents and

advertising, etc.

Working capital is also known as revolving or circulating capital or Fluctuating

capital or short-term capital.

According to Ramamurthy working capital refers to the funds, which a company

must possess to finance its day to day operations. Its concerned with the management

of the firms current assets and current liability.

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1.1 CONCEPT OF WORKING CAPITAL

According to I.M. Pandey, there are two concepts of working capital.

1. GROSS WORKING CAPITAL

The total current assets are termed as the gross working capital or circulating capital.

total current assets include the firms investment, in which can be converted in to cash

with in an accounting year and include cash, short-term securities, debtors, (accounts

receivable or book debts) bills receivable and stock (inventory).

2. NET WORKING CAPITAL

Net working capital refers to the difference between current assets and current liabilities.

Current liabilities are those claims of outsiders which are expected to mature for

payment within an accounting year and include creditors, bills payable and outstanding

expenses.

A net working capital concept indicate or measures the liquidity and also suggests the

extent to which working capital needs may be financed by the permanent sources of

funds. Net working capital refers to the portion of firms current assets, which financed

with long term funds.

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TYPES OF WORKING CAPITAL

1. PERMANENT WORKING CAPITAL

Permanent working capital is the minimum investment kept in the form of inventory of

raw material, work in process, finished goods, stores & spares and book debts to

facilitate and interrupted operation in the firm. Though this investment is table in short

run, it certainly various in long run depending upon the expansion program under taken

by a firm. It may increase or decrease over a period of time. The minimum level of

current assets maintained in a firm is usually known as permanent or regular working

capital

Permanent working capital may be of two kinds.

a. Initial working capital

Immediately after a companys formation, for sometime a company will need

relatively large working funds to discharge its liabilities on account of purchase of raw

materials, payment of wages, salaries, so this is referred to as initial working capital.

b. Regular or Normal Working Capital

It is represented by excess of current assets over current liabilities and has

always to be maintained by a company. A business will always have to maintain

minimum levels of stocks of different items-raw materials, consumables, semi-

manufactured and manufactured goods only then the circulatory process of cash being

converted in to stores of raw materials/goods and back in to cash, can continue without

hindrance and generate a surplus in the hands of the company every time and this

capital is called as regular working capital.

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2. TEMPROARY OR VARIABLE WORKING CAPITAL

A firm is required to maintain an additional current assets temporarily over and above

permanent working capital to satisfy cyclical demands. Any additional working capital

apart from permanent working capital required to support the changing production and

sales activities is refer to as temporary or variable working capital. in other words, an

amount over and above the permanent level of working capital is temporary, fluctuating

or variable working capital.

There are two types.

a. Seasonal working capital

It is required to meet the financial needs of seasonal periods. Thus it is used to

buy raw materials, which are available only during a particular season.

b. Special working capital

It is required to meet situation, which cannot be foreseen and therefore no

advance preparation can be made to face them as they arise. For instance there may be

an abrupt increase in demand for the goods and services produced by a company. It

may succeed in securing a big contract or a large order for the execution of which large

order for the execution of which large investment have to be made in current Assets. So

the capitals required for such circumstance are called as special working capital.

3. Balance sheet working capital:

The balance sheet working capital is one, which is calculated from the items appearing

in the balance sheet.

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NEED FOR WORKING CAPITAL

The need for working capital cannot be over emphasized. Every business concern

requires some amount of working capital. The need for working capital arises due to the

time gap between production and realization of cash. Thus the working capital is needed

for the following.

1. For purchase of raw material and others stores for conversion into finished

goods.

2. To pay wages and salaries to workers and managerial staff.

3. To pay Expenses on account of running maintenance and servicing of plant and

machinery.

4. To pay rates and taxes such as import and custom duties.

5. To pay general administration we expenses such as salaries to office staff, rent,

interest, electricity and telephone bills.

6. To pay expenses on sales, such as expenses on packing, advertisements and

publicity, salaries and commission to salesman, descant and commission to

dealers, railway freight, loading charges and so on.

Though these are the general needs of working capital of a concern but the

amount needed as working capital in a new business concern depends primarily on its

size and ambitions of its promoters.

The amount of working capital needs goes on increasing with the growth and

expansion of business till it attains maturity. At maturity the amount of working capital

needed is called normal working capital.

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LIMITATIONS OF THE STUDY

This study was made on the basis of past financial statements, past can never be

hundred percent representative of future; it can at least be guidance for the future

course of business actions and certainly not a exact forecast of events to take

place at later dates.

The study made by using working capital ratios. Ratios are made by only clues

and the clues are not substituted for original figures. So the suggestions given on

the basis of ratios are difficult to implement in practice.

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FACTORS INFLUENCING WORKING CAPITAL

There are not set rules to determine working capital requirement of firm. A large number

of factors influence working capital needs of a firm. The following are the description of

factors which generally influence the working capital requirements.

Nature and Size of Business

Demand

Availability of raw materials

Production Policy

Price level changes

Credit Policy

Availability of Credit

Efficiency and performance

Rapidity of turnover

Length of the period manufacture

Terms of purchase

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PRODUCTION CYCLE PROCESS

The term production or manufacturing cycle refers to the time involved in the

manufacturing of goods. Longer the production cycle, the higher will be the working

capital requirement and vice versa. It covers the time span between the procurement of

raw material and the completion of the manufacturing process leading to the production

of finished goods. Longer the production cycle, the higher will be the working capital

requirement and vice versa. Manufacturing firms have large production cycle firms

require less working capital.

PRODUCTION POLICY

Production policy means whether, it is continuous or seasonal demand for products.

What kind of production policy should be followed in above cases? There are goods are

two options to such companies, either they confine their production only to period when

goods are purchased or they follow a steady production policy throughout the year and

produce goods at a level to meet peak demand.

GROWTH AND EXPANSION

As company grows, it is logical to expect that a larger amount of working capital in

required. it is very difficult to determine the relationship between the growth in the

volume of business of a company and increase in its working capital required. It is very

difficult to determine the relationship between the growth in the volume of business of a

company and increase in its working capital required. Other things being equal, growth

industries required more working capital than those the static.

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PROFIT LEVEL

Firms may differ in their capacity to generate profit from business. some firms enjoy a

dominant position, due to quality product or good marketing management or monopoly

power in the market and earn a high profit margin. Other firms may earn low profits. The

net profit is a source of working capital to the extent that it has been earned in cash. A

high net profit margin contributes towards the working capital pool. A firms with high

profit level requires less working capital and vice versa.

AVAILIBILITY OF CREDIT

The need for working capital in a firm will be less, if it avails liberal credit facilities. A firm

enjoying banks credit facilities. Similarly, the availability of credit from banks also

influences the working capital needs of the firm. A firm enjoying bank credit facilities can

secure funds to finance its working capital requirement very easily, whenever it requires.

It can therefore, perform its business activities with less working capital than a firm

without such credit facility.

BUSINESS CYCLE

The amount of working capital requirements of a firm varies with every movements of

business cycle. The variations in the business conditions may be in two directions.

Upward phase & downward phase, upward phase are when boom conditions prevail, in

this case more working capital is required to cover the lag between the increased sales

and receipt of cash as well as to finance purchase of additional material. The downward

phase, in this case, the need for working capital will be very less, since there is nogrowth in sales.

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ADVANTAGES OF MANAGING ADEQUATE WORKING CAPITAL

Working capital is the lifeblood and nerve centre of business. Just as circulation of blood

is essential in the human body for maintaining life, working capital is very essential

maintain the smooth running of a business.

1. Solvency of the business: Adequate working capital helps in maintaining

solvency of the business by providing uninterrupted flow of production.

2. Good will: Sufficient working capital enables a business concern to make

prompt payments and hence helps in creation and maintaining good will.

3. Easy loans: A concern having adequate working capital high solvency and good

credit standing can arrange loans from banks & others on easy and favorable

terms.

4. Regular supply of raw materials: Sufficient working capital ensures regular

supply of raw materials and continuous production.

5. Regular payments of salaries, wages & other day-to-day Commitments: A

company which has ample working capital can make regular payment of salaries,

wages and other day-to-day commitments which arises the morale of its

employees, increases efficiency, reduces wastages and costs and enhances

production and profits.

6. Cash Discounts: Adequate working capital also unable a concern to avail cash

discounts on the purchase and hence it reduces cost.

7. High morale: Adequacy of working capital creates an environment of security

confidence, high morale, and creates overall efficiency in a business.

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THE DANGERS OF EXCESSIVE WORKING CAPITAL ARE:

It results in unnecessary accumulation of inventories. Thus, chances of Inventory

mishandling, waste, theft and business losses increase.

It is an indication of defective credit policy and slack collection period.

Consequently higher incidence of bad debts results, which adversely affects not

only profits but the working capital funds also.

Excessive working capital makes management co placement, which degenerates

the managerial efficiency.

Tendencies of accumulation inventories to make speculative profits will grow.

This may tend to make dividend policy liberal and difficult to cope with at a future

date when the firm is unable to make speculative profits.

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2.1 OBJECTIVES OF THE STUDY

To ensure optimum investments in current assets

To find out relationship between working capital and liquidity position of the

company.

To analysis the working capital trends. To ensure adequate flow of funds for

current operation.

Working capital is mainly managed to attain a trade off between risk and

profitability i.e., if we hold more cash there is less risk of insolvency and also

profitability is low on the other hand. If we do not cash more cash it leads to

insolvency and more profitability.

If we want to avoid risk i.e., not to become insolvent, we have to maintain more

working capital which increases net working capital or the current ratio. The more

liquid the firm, less chance is there for it to become insolvent that is in other

words less risk ( insolvent means unable to pay its obligations promptly).

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If we want more profitability, we must be ready to take more risk. If we want to

reduce the risk the profitability also decreases. Both are directly related. Thus

working capital management involves trade off between risk and profitability.

2.2 SCOPE OF THE STUDY

This study is makes me necessary to analysis the company liquidity position as well as

the financial position. The scope of working capital management is reflected in the fact

that financial managers spend most of their time in managing current assets and current

liabilities. Adequate working capital needs to be maintained in order to discharge day to

day liabilities and protect the business from adverse effects in times of calamities and

emergencies.

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2.3 RESEARCH METHODOLOGY

METHOD OF DATA COLLECTION

Both primary and secondary data were collected by researcher.

PRIMARY DATA

Primary data consist of information from the discussion with the heads of the

departments, official staff of department.

Personal interviews with the personnel of finance department and their

related field employees were done.

Personal interview also with general manager (finance) has been done.

SECONDARY DATA

Only secondary data have been collected from the annual records of RR

Shipping Private Limited.

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RESEARCH AREA

The Research Area aimed to find out the position of working capital of the company.

This study was made with the main objective of making a retrospective study of the

financial transaction made by the company. For this purpose, various related areas have

been studied.

TOOLS USED

The following tools were adopted to analysis the working capital of RR SHIPPING PVT

LTD.

Ratio Analysis

Working capital management

1. Statement of changes in working capital

2. Funds flow statement

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2.4 REVIEW OF LITERATURE

PAST RESEARCH REPORTS AND FINDINGS

This chapter consists of some of the earlier work on working capital management which

has been done by various researchers. This includes their name, name of University,

Research topic name, his objectives and methodology and his major findings and

suggestions are referred.

WASSER HARNINGS (1998)

Wasser Harning (1998) studied to conduct risk-return analysis of working capital

position. To analyze the financial liquidity position of the company, to determine, the

structure and utilization of working capital and its various components. Since over 99 per

cent of the company is shipped to one single buyer in Germany, the company can

consider the option of making this major client and equity holders in the company so that

the problem of lack of funds can be made light.

GOPALAKRISHNAN (1991)

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Gopalakrishnan (1991) analyzed the performance of the company for at-least 10 years

with regard to the liquidity and profitability and management of working capital. The

study ascertains the reason for light liquidity on low profitability.The study reveals that a

major part of working capital is blocked in inventories in trade. The company has not

been able to maintain the desired stock level due to liquidity problems, which in turn has

affected the capacity utilization of machine and louse quality production.

BHARATHI (1996)

Bharathi (1996) studied the working capital management is concerned with the

management of current assets and current liabilities and the inter relationship that exists

between them. His main objective of the study is to determine the amount of working

capital employed by the company.

Analysis of working capital management by the company for the period 1994-95

analyses the reason for the variation in working capital movements using ratios. Analysis

of the effectiveness of cash management to determine the schedule of changes in

working capital and cash flow statements. Credits rating assessments of the company

for the year 1994-95 taking into the consideration the financial risk, management risk

and industry risk.

DR.P. INDRASANA REDDY AND K. SOMEASWAR RAO (1990)

A study was conducted on Hindustan Cables Limited by Dr.P. Indrasana Reddy and K.

Somaswar Rao in 1990. This study was based on the data and information obtained

from the annual report of the Hindustan Company Limited 1989-90 to 1993-94. This

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study reveals that the liquidity position of HCL is satisfactory as its current ratio and

quick ratios remained above the standard norms through out the period of study. The

working capital management is not up to expected level. It needs to be improved by

effective utilization and control of current assets.

INDIRANI (1997)

Indirani (1997) determined the amount of working capital employed by hotel. To analyze

the working capital management for the hotel during the period 1992-96 and also the

analysis of financial performance of hotel.

Mr. SURESH ANNAMALAI UNIVERSITY (1989)

Analysis of working capital management at Chettinadu Cement Corporation Limited in

Chennai has done by Mr. Suresh of Annamalai University during the year 1989.

The researchers main objectives of his project study is to determine the amount of

working capital employed by the company and analysis the working capital management

by the company for the specified period of 4 years (1985-88) to assess the

implementation of Tandon committee norms in regard to working capital management by

the company.

WASSWA HANNINGTON (1998)

Wasswa Hannington (1998) has studied working capital management at Vantage

Leathers (India) Ltd., Madras. According to sec. 58 of the Companies Act (1956) a

company can accept public deposits amounting to 25 per cent of its net worth which is

the case of Vantage Leather (India) Ltd., amount to Rs. 1 crore. So it is strongly

recommended that the company explorers this type of financing as it does not require

attaching any of the assets of the company as security.

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VISWANATHAN.R (1999)

Viswanathan.R. R (1999) studied the working capital employed in the company. To

analysis the financial performance on the company and also to prepare fund flow

statement. The company can increase its capital base by going for public issue and part

of this fund can be used for financing its current assets.

Working Capital = Current Assets Current Liabilities

3. ANALYSIS AND INTERPRETATION

FUNDS FLOW STATEMENT

Funds flow statement is method by which we study changes in the financial position of a

business enterprise between beginning and ending financial statement data. Hence, the

funds flow statement is prepared by comparing two balance sheets and with help of such

other informations derived from the accounts has may be needed broadly speaking, the

preparation of a funds flow statement consists of two parts:

1. statement (or) schedule of changes in working capital

2. Statement of sources and application of funds.

STATEMENT OF SOURCES AND APPLICATIONS OF FUNDS

This statement may be presented in two parts as sources and application of fund.

SOURCES OF FUND

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Funds from operation

Sales of fixed assets

Increase of shares

Insurance of shares

Decrease in working capital

APPLICATION OF FUND

Purchase of fixed assets

Payment of loan

Payment of dividend

Increase in working capital

Funds from lose

WORKIG CAPITAL STATEMENT (OR) SCHEDULE OF CHANGES IN

WORKING CAPITAL

The statement of changes in working capital is concerned with the current assets and

current liabilities alone, as their shown in the balance sheets of the current year and the

previous year. All non current assets and non current liabilities, profits and losses,

additional information available are completely ignored.

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The following is the principles for preparation of working capital statement.

Increase in current asset - Increase working capital

Decrease in current assets - Decrease working capital

Increase in current liability - Decrease working capital

Decrease in current liability - Increase working capital

STATEMENT SHOWING SCHEDULE OF CHANGES IN WORKING CAPITAL

(2004 2005)

Particulars 2004 2005 Increase Decrease

Current Asset

Inventories 12481.90 14191.74 1709.84

Sundry debtors 20774.99 18638.08 2136.91

Cash and bank

balance1732.98 2399.08 666.1

Loan advances 1940.42 21708.33 1967.91

Total CurrentAssets

54730.29 56937.23

Less Current Liabilities

CurrentLiabilities

11436.92 16138.97 4702.05

Provisions 1207.86 1188.05 19.81

Total currentliabilities

12644.78 17327.02

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Working

capital (CA CL) 42085.51 39610.21

2475.30

Decrease in

working capital

2475.30

Total 6838.96 6838.96

Result: Increase in Working Capital (42085.51-39610.21) = 2475.30


(2005 2006)


Current Asset

Inventories 14191.74 16411.91 2220.17

Sundry debtors 18638.08 14816.17 3821.91

Cash and bank

balance2399.08 2714.69 315.61

Loan advances 21708.33 19457.71 2250.62

Total CurrentAssets

569372.23 53400.48


CurrentLiabilities 16138.97 14924.68 1214.29

Provisions 1188.05 1573.37 385.32


17327.02 16498.05

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Working

capital (CA CL)39610.21 36902.43

2707.78

Decrease in

working capital

2707.78

Total 6457.85 6457.85



(2006 2007)


Current Asset

Inventories 16411.91 27161.82 10749.91

Sundry debtors 14816.17 7708.96 7107.21

Cash and bank

balance2714.69 4400.91 168.22

Loan advances 19457.71 17213.55 2244.16

Total CurrentAssets


CurrentLiabilities

14924.68 24567.39 9642.71

Provisions 1573.37 2092.83 519.46

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16498.05 26660.22

Working

capital (CA CL)36902.43 29825.02

7077.41

Decrease in

working capital7077.41

Total 18994.08 18994.08


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(2007 2008)


Current Asset

Inventories 27161.82 37439.44 10277.62

Sundry debtors 770.96 9011.93 1302.97

Cash and bank

balance4416.84 3828.69 588.85

Loan advances 17163.80 14395.99 2767.81

Total CurrentAssets

56452.12 64676.05


CurrentLiabilities

24517.64 33313.57 8795.93

Provisions 2092.83 2671.98 579.15


26660.22 20499.69

Working

capital (CA -CL)29791.19 20499.69

9292.21

Decrease in


Total 29791.19 29791.19 12731.74 12731.74


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(2007 2008)


Current Asset

Inventories 37439.44 67748.23 30308.80

Sundry debtors 9011.93 9205.63 193.70

Cash and bank

balance3828.69 5072.99 1244.30

Loan advances 14395.99 6554.23 7841.76

Total CurrentAssets

64676.05 88581.08


CurrentLiabilities

33313.57 53686.01 8795.93

Provisions 2671.98 5540.39 579.15


35985.55 59226.40

Working

capital (CA CL)28690.50 29354.68

664.43

Decrease in


Total 28690.50 30019.11 31746.80 31746.80

Result: Increase in Working Capital (28690-29354) = 664.43

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FUNDS FLOW STATEMENT FOR 2004

(RS.In lakhs)

PARTICULARS Amount Amount

Sources of fund :



Unsecured loan

360.49

1246.90

639.33

8328.66

3998.67

1691.89

2475.30

10705.33

14873.13 TOTAL SOURCES

Applications of fund :

Purchase fixed assets

Investment

Capital work in progress

Payment of secured loan

Payment of deferred tax liabilities

Miscellaneous expenditure

TOTAL APPLICATIONS 14873.13


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(Rs. In lakhs)


Sources of fund :




Increase Unsecured loan

Investment


1166.94

13716

644.55

2313.33

2707.78

559.08

7710.50

951

1285.85

15527.49Total Sources (A)



Payment of unsecured loan


Total Applications (B) 15527.49


(Rs. In lakhs)


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term liquidity and short term solvency. Positions of a firm are dependent on its cash

flows.

A cash flow statement is a statement which portrays the changes in the cash position

between two accounting periods. The detailed analysis provided in such a statement

provides a clear insight to the management about the different sources of cash flows and

the different uses or applications for which cash is needed.

INCREASE IN CURRENT LIABILITY - INCREASE CASH

DECREASE IN CURRENT LIABILITY - DECREASE CASH

INCREASE IN CURRENT ASSET - DECREASE CASH

DECREASE IN CURRENT ASSET - INCREASE CASH

CASH FLOW STATEMENT 2004


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Sources of cash :

Opening cash

Unsecured loan

Cash from operation

1732..98

10705.33

4534.82

Total sources 16973.13



Investment




Closing stock

360.49

1246.90

639.33

8328.66

3998.67

2399.08

Total Applications 16973.13



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Sources of cash :

Opening balance

Cash from operation

Investment


666.25

571.51

1055.09

7843.51

582.06

2714.69

11458.25

56.30

890.27

Total cash available (A) 15119.51

Applications of cash :







CASH FLOW STATEMENT FOR 2007


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Sources of cash :

Opening balance

Cash from operation


2034.8

558.2

978.29

4468.53

556.5

4400.91

4416.84

15711.52

1009.85








Closing stock



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Sources of cash :

Opening balance


Cash from operatiom

9506.09

4474.95

664.43

631.29

3788.70

3828.69

1609.84

18699.96





Increase working capital


Share capital


DATA ANALYSIS AND INTERPRETATION

The analysis and interpretation of financial statement is used to determine the financial

position and results of operation as well. A number of method or devices are used to

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study the relationship between different statement. An effort is made to those devices

which clearly analysis the position of the enterprise.

Therefore, the only importance is given to working capital management of the company.

The following of the tools used in the study.

RATIO ANALYSIS

INTRODUCTION

Ratio analysis is a powerful tool of analysis. In financial analysis, a ratio is use as a

bench mark for evaluating the financial position and performance of a firm. The absolute

accounting figures reported in the financial statement do not provide a meaningful

understanding 0f a performance and financial position of a firm. An accounting figure

conveys meaning when it is related to some other relevant information.

The relationship between two accounting figures expressed mathematically, is known as

a financial ratio. Ratio helps to summarize large quantities of financial data and to make

qualitative judgment about the firms financial performance.

The following are the important categories

1) Liquidity Ratio

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Current ratio

Quick ratio

Cash ratio

Liquidity Ratios:

If it is decided to study the liquidity position of the concerns, in order to

highlight the relative strength of the concerns in meeting their current obligations

to maintain sound liquidity and to pin point the difficulties if any in it, then liquidity

ratios are calculated. These ratios are used to measure the firms ability to meet

short-term obligations. The important liquidity ratios are:

CURRENT RATIO:-

This is the most widely used ratio. It is the ratio of current assets to

current liabilities. It shows a firms ability to cover its current liabilities with its

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current assets. This is also known as Working Capital Ratio. It is expressed as

follows:

Current Assets

Current Ratio = Current Liabilities

CURRENT RATIO FOR THE FIVE YEARS 2004 - 2009

(Rs. In lakhs)

YEAR CURRENT ASSETS CURRENT LIABILITIES RATIO

2004-2005 54730.29 12644.78 4.32

2005-2006 56937.23 54730.29 1.04

2006-2007 53400.48 56485.24 0.94

2007-2008 64676.05 28690.50 2.25

2008-2009 88581.08 59226.40 1.49

CURRENT RATIO FOR THE FIVE YEARS 2004 - 2009

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4.32

1.04 0.94

2.25

1.49

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

Year

Ratio

Series1

QUICK RATIO: -

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It shows a firms ability to met current Liabilities with its most liquid (quick)

Assets. Liquid Assets are those assets, which are readily converted into cash.

This is also known as Liquid Ratio and Acid Test Ratio. It is calculated as under;

=LiquidAssets

LiquidRatioCurrentLiabilities

LIQUIDITY RATIO FOR THE FIVE YEARS 2004 - 2009

(Rs. In lakhs)

YEAR LIQUID ASSETS CURRENT LIABILITIES RATIO

2004-2005 42248.39 12644.78 3.34

2005-2006 42745.49 17327.02 2.46

2006-2007 36988.57 16498.05 2.24

2007-2008 29323.42 26660.22 1.09

2008-2009 27236.61 28690.50 0.94

TOTAL 10.07

LIQUIDITY RATIO FOR THE FIVE YEARS 2004 - 2009

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3.34

2.462.24

1.090.94

0

0.5

1

1.5

2

2.5

3

3.5

4

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

Year

Ratio

Series1

CASH RATIO: -

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Cash is most liquid Asset, a financial analyst may examine cash ratio and

its equivalent to current liabilities. Trade investment or marketable securities are

equivalent of cash; therefore, they may be included in the computation of cash

ratio. This Ratio also known as Absolute and Super Quick Ratio.

+ =

CashandBankBalance Short termmarketableSecuritiesCashRatio

CurrentLiabilities

CASH RATIO FOR THE FIVE YEARS 2004 - 2009

(Rs. In lakhs)

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YEAR CASH AND BANKBALANCE

CURRENT LIABILITIES RATIO

2004-2005 1732.98 12644.78 0.13

2005-2006 2399.08 17327.02 0.13

2006-2007 2714.69 16498.05 0.16

2007-2008 4400.91 26660.22 0.16

2008-2009 3828.69 35985.55 0.10

TOTAL 0.68

CASH RATIO FOR THE FIVE YEARS 2004 - 2009

0. 13 0. 13

0. 16 0. 16

0.1

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

2004-

2005

2005-

2006

2006-

2007

2007-

2008

2008-

2009

Year

Ratio

Series1

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FINDINGS

The Current Ratio of the company which measures the liquidity position was

always above or equal to one. Even though the standard ratio is 2:1, the

concern can not be said to be in financial crisis. The ratio is through not very

sound to the satisfactory.

An increased in Working capital in-term of Fixed assets ratio accompanied by the

increase in companys net profit indicates that the business is expanding.

In the total assets the major portion belongs to current assets. In the current

assets major share is form inventories. So it is better for the company to adopt

good inventory control system.

Total Liabilities have increased year by year except in 2007-08. The total

Liability is 9292.21

SUGGESTIONS

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Keeping in view the size of the company and its turnover there is a need to

improve the working of the company with consequential improvement in internal

generations.

Company should take steps to dispose of the non-performing assets so that the

return on capital employed is adequate to its short term or long-term borrowings.

The companys marketing activities are not sufficient. So the company should

take extra efforts for sales promotional and marketing activities. It will create

rapidness in Turnover.

The company can adopt cost audit program to know its the size of inventory is

adequate / excessive when comparing with production program.

The company should prepare sales budget periodically, so that the required

quantum of inventories will be properly estimated.

So far the company maintained adequate amount of Net Working Capital. To

keep the same in future tool, the company can adopt different techniques of

forecasting the working capital

To conclude, to have batter resources and to avoid liquidity crunch the company

should raise capital by the way of issuing shares or borrowing long term loans

from financial institutions.

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CONCLUSION

Successful management of the working capital in any concern will ensure the

success of a business. In the analysis of working capital management, the profit for the

company is good.

According to the RR SHIPPING PVT LTD. working capital management is good

condition, the level of profit is increasing in nature. However to show better business

result, the management may concentrate on keeping the working capital is more

scientific method.

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BIBLIOGRAPHY

T.S Reddy, Y. Hari Prasad Reddy, Cost and management accounting, Margam

publications, Chennai, 2004

M. Y. Khan, P.K. Jain, Management Accounting, Tata Mc Grew Hill Publishing

Company Ltd. New Delhi, 2000

Prasanna Chandra, Financial Management Theory and Practice, Tata Mc Grew

Publishing Company Ltd. New Delhi, 1997

projectworking capital mgt

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