wcm visaka

Asbestos is a naturally occurring mineral found in underground rock formations, it is recovered by mining and rock crushing. Fine particles, invisible to the eye, are present in the air and water everywhere. All of us may be inhaling them and ingesting them through drinking water every day for our life times without any adverse effect on health. Asbestos is commercially used since 1900 and is called Chrysotile (white) Asbestos and the other group is termed as Amphiboles consisting of Crocidolite (blue), Amosite (brown) etc. White asbestos (chrysotile variety) constitutes 98% of world production for its commercial use. Indian asbestos cement sheet and pipe manufacturers import all their requirements of chrysotile fibres from Canada, Brazil, Russia, Zimbabwe and Kazakhstan for production of AC sheets and pipes. India imports only 20%of world production is also mined in India, but quantity to our asbestos cement production. The Chemical composition of Crocidolite, Amosite and Chrysolite. Asbestos fibre (composed mainly of magnesium and silica), is a great reinforcing agent. While its tensile strength is greater than steel, it has other rare and highly valued fire retardant, chemical resistant and heat insulating qualities. In fact it is a magic mineral and no other substitute can match its properties.

ASBESTOS CEMENT PRODUCTSBecause of its exceptional strength and ability to cover inside area as reinforce only 8.9% of chrysolite are adequate to combine with cement and other raw material. Over 90% of asbestos fibre imports us India go into AC sheet and pipe production. AC Sheets have been used in India for 70 years. Being weatherproof and corrosion resistant, these sheets are practically ageless and maintenance free, where as meta sheets corrode and deteriorate with age and exposure. AC Sheet have also proven to be most cost effective, easy-to-install, strong

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and durable roofing material for warehouses, factories, low-cost housing, and practically, any structure needing a roof, apart from India, Russia, China, Indonesia, Thailand and Brazil are some of the largest users of AC Sheets. AC Sheets and pipes, being corrosion and erosion-free, once properly laid and jointed, need no maintenance or replacement. They are also very cost effective. AC products, which consume low energy in manufacture and do not in way deplete the natural resources, meet the needs of the country in its developing economy in the context of rapidly rising population, and limited resources. AC products are manufacturing under (ISI) license strictly conforming to the standards of Bureau of Indian Standards. IS 459/1992 for flat Sheets and IS 2098/1997 for flat Sheets and Is 1626 (part111)/1994 for roofing accessories.

NEGATIVE REPORTS ON ASBESTOS: The bias the use of asbestos in a few countries is due to the adverse Western media coverage relating to altogether different types and usages ofasbestos in the past in those countries i.e. sprayed-on asbestos and friable low-density asbestos insulation used under uncontrolled conditions at that time due lo lack of adequate scientific knowledge ex. Usage of amphibole (blue) variety in such application resulted in unfortunate western experience. Though these particular usages have since been discontinued in the west, the claims relating to the past keep appearing in the media resulting in general confusion. In India Asbestos Fibre was never used as sprayed insulation. But, once the scientific research into the risk of asbestos was set in motion, development and installation of pollution control system took place, enabling the asbestos mining and asbestos safe and acceptable levels of dust pollution at the work places. Once the safety fears were defined, the Governments have stepped in and laid down pollution control regulation and the mechanisms to enforce their compliance.

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Compliance with these regulation and standards assure the workers in asbestos cement industries a risk-free environment. For the consumer the Asbestos Cement products were always safe.

SITUATION IN INDIABlue asbestos which lead to health problems was banned through out the world including in India In India, only the chrysolite variety of .asbestos, which is considered safer, is used in asbestos-cement products, namely, sheets and pipes. The fibers are mixed and bonded with cement and other raw material. After all the fibres are locked into the matrix there is no chance of air contamination. Even, only the chrysolite variety of asbestos, which is considered safer, is used in asbestos cement products have no increased risk as per study by reputed scientists. Similar is experience in India with workers in asbestos-cement products industry without any adverse health effects in spite of decades of service, there being no risk of exposure to asbestos dust because of (1)Not using amphibole asbestos considered hazardous (2) Adopting west process (3) Observing pollution control measure installed in the factories. Health of the workers is closely monitored as per directives and regulation of the government agencies. There is no risk whatsoever in living or working under the AC roof, as asbestos fibres are bonded (locked in) with cement and cannot get released in to the atmosphere. Transportation of drinking water in AC pipes is absolutely safe as confirmed by the World Health Organization. Ingested asbestos if any does not pose any health risk.

Apart from the fibre variety, the health problems, which arose in the west in the past, were because of usage of mixed asbestos in the building, mostly in friable form for insulation purposes, Indian climatic conditions never required the type of

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asbestos spraying and insulation, at one time common in the west. Thus, the health hazards and risks associated with the past asbestos fibre usage in the western countries, have nothing to do with the asbestos products or application in India. In India Asbestos Cement Sheets have been extensively used by Indian Railways for the last 50 years to provide the safest form of roofing to the thousands of Railways Platforms across the country where over 1 crore people step everyday. It is noteworthy that AC Sheets have withstood the test of time with no reported risk/casualty to the Indian traveler nor has there been any adverse effect on the local environment. Another major consumption of AC Sheets is in the roofing of Food Corporation of India godsons, where millions of tons of food grains are stocked. The above two examples are testimony to the fact that Asbestos Sheets are absolutely safe to use. It is worth noting that India uses only about 6% to 7% of the asbestos produced in the world. (The rest is used in other countries, where obviously, controlled usage is favored as in India) All the member industries of chrysotile asbestos cement products manufacturers association (CACPMA) carry out dust level measurements and health surveillance programs as prescribed by regulatory authorities. Directorate General of Factory Advisory Services & Labour institutes (DGFASLI) has taken up a multi disciplinary national project on occupational health and working environment in asbestos industries in the 2004. The dust levels measured in various departments of twelve factories were less than 0.13 fibre/ml of air. 620 randomly selected employees of above factories were medically screened for asbestos related diseases. No asbestos rested diseases were detected in above employees who are exposed to chrysotile fibre for the last 5-20 years.

POLICIES OF GOVERNMENT OF INDIA ON ASBESTOSThe Government of India has constituted various expert committees to study

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the asbestos does not actually pose a health risk to the workers at the manufacturing plants so long as the work place pollution controls were in place, or to the public who use the asbestos-cement products, the Ministry of Industry. Government of India, have favored controlled usage. The ministry of Industry, Ministry of Labour, Ministry of Environment, Ministry of Consumer Affairs, Bureau of Indian standards, at all have laid-down regulations, standards, guidelines and recommendations specific to the asbestos industry, in line with those of international Labour Organization, World Health Organization and other bodies. The Central and State Pollution Control Boards. Labour and Factory Inspectors also regularly monitor the factories compliance with the mandatory safety standards and pollution control levels. The latest expert committee reviews of Ministry if Environment, Central Pollution Control Board, Ministry of Consumer Affairs and Bureau of Indian Standards Completed in the year 2002-03 have concluded that the asbestos-cement Industry can operate in a safe environment under the laid-down pollution control levels. COURT RULINGS ON ASBESTOS USAGE Concerns caused by the past medical findings in the Western coutries, when asbestos applications were indiscriminate and bereft of pollution controls, resulted not only in anti asbestos media campaign and litigation, but also led some environment activists and NGOs approaching the courts for effective remedies. The Supreme Court of India has in January 1995, disallowed one such appeal and permitted the continued usage of asbestos and asbestos products, as the petitioners failed to produce evidence to prove that asbestos-based items of their manufacturing process in India were dangerous to health. The Supreme Court had laid down certain guidelines and the implementations of the same are being monitored by the Chrysotitle Information Centre. After considering a strong case by the powerful Environment Protection Agency, the United States Court of Appeals has in asbestos cement and other asbestos based products in USA, again for lack of evidence to warrant such a prohibition.

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Most recently in June 2001, the Supreme Court in Brazil has also rejected a petition by some activists for ban of asbestos cement production. Brazil incidentally is one of the largest producers and users of asbestos. USAGE IN OTHER COUNTRIES There is no ban production or usage of asbestos cement sheets or pipes in USA and Canada and most of the other world nations. Less than dozen countries have regulations restricting use of asbestos based products most of which had, in any case, been phased out much earlier. ANY RISK DUE TO WHEATHERING OF ASBESTOS CEMENT PRODUCTS Asbestos cement sheets do not decay or not because of the inherent properties of asbestos fiber and cement. These do not crumble due to continued exposure to the elements or due to age. There is no evidence that people living under asbestos-cement roof or the general public living around asbestos cement-roofed buildings or factories producing asbestos cement products have been specifically affected in any manner. In fact studies have concluded that increase in asbestos dust concentration in the near vicinity of asbestos cement roofing is so insignificant that it cannot be detected even by a scanning electron microscope. Even the World Health Organization has approved the usage of AC pipes for drinking water. As stated earlier the most health conscious USA uses AC pipes for drinking water transportation.

BRIEF HISTORY OF THE COMPANY:6

The company was incorporated under the Indian Companies Act, 1956 on 18th June 1981 as Visaka Asbestos Cement Products Limited. With effect form 9th August 1990, the name of the Company was changed to Visaka Industries Limited. The company is a Rs.304 crore turnover, dividend paying engaged in the business if Building Products and Synthetic Blended Yarn.

PRESENT ACTIVITIES OF THE COMPANY:The company is a multi product/location establishment, presently engaged in the manufacture and marketing of Building Products, Synthetic Blended Yarn and Garments. The present production capacity f the company is as follows: INSTALLED PRODUCT CAPACITY 2004-05 2005-06 2006-07 PRODUCTION

Building Products Synthetic Blended Yarn

320000MT

170786MT

230943MT

359288MT

1816 Twin Air Jet Spinning Position 4198MT 5681MT 6619MT

Garments

230 Machines _ _ 21564 pieces

PROMOTERS:7

The Company was jointly promoted by APIDC and Dr. G. Vivekananda to manufacture Fibre Building Products, Dr. G. Vivekananda is a first generation entrepreneur. APIDC has since divested its entire stake. APIDC agreeing to invest readily in the share capital of the Company and APIIC allotting the land on time has helped the Company in the initial stage.

PROCESS AND TECHNOLOGY:The companys Spinning Unit employs the latest spinning machines based on the Air jet Spinning Technology procured form Murata of Japan and Visaka is the biggest leader of Air Jet Spinning in the World with highest productivity and efficiency. The Company five Asbestos Cement sheet Manufacture Units operating at above 100% of capacity utilization with ISI accreditation. These units employ a continuous technology.

LOCATIONThe Companys Building Product Plant are located Yelumala Village, R.C.Puram mandal, Medak District, near Hyderabad (Andhra Pradesh), at ManickanathamVillage, Paramati, Velur Taluk, Namkkal District, Tamilnadu, at ChangsolKrishnapur Village, Midnapore in the state of west Bengal, at Naganahalli Village,. Kora Hobli Taluq & district in the state of Karnataka and in Kannava in Rae Breily District of Uttar Pradesh. The Synthetic Blended Yarn factory is located at chiruva village, Moudha Taluk, Nagpur district, Maharashtra. The Companys Garment Unit is located in Chettipunyam Village, Chenglepet District within the city of Chennai.

RAW MATERIALS8

The main raw materials for Building Products are Asbestos Fibre and Cement. The former is imported amongst others form lab Crysotile INC., of Canada and Sama Fibres of Brazil, whereas the latter is manufactured indigenously and is procured amongst others form Orient Cement, Rajashree Cement and India Cement Ltd. The main raw material required for the Spinning Division are Polyester, Acrylic and Viscose Fibres. The Company procures the polyester Staple Fibre form reliance industries Ltd., IPL, and IOCL etc. the Viscose Staple Fibre is procured form Grasim Industries Ltd, and south India Viscose Ltd. The main raw materials required for the Garment unit are woven fabrics. The Company procures the woven fabrics form the domestic and foreign weaving mils.

POWERThe power required for the BUILDING products at Patancheru plant 650 KVA and is being drawn form AP State Electricity Board, for paramati 500KVA drawn form Tamilnadu State electricity Board and for Midnapur plant 500 KVA drawn form west Bengal State Electricity Board. The Company has installed stand-by generation facility for 100*requirement. In the Spinning Division, power requirement is 3500 KVA, which is met of supply form Maharashtra State Electricity Board and is satisfaction.

OBJECTIVE OF COMPANY9

The main objective of the company is to manufacturing, the Building products, Synthetic Yarn and Garments, and to marketing them.

MARKETING:The Company has establish, over the years, a vast and dependable dealership network of 35500 dealers for marketing of Building Products and has 26 own depots in all important centers in India. The Companys Spinning Division is manufacturing Plyester/Viscose/cotton blended yarn. The end uses of these Yarns are manifold, such as suiting, shirting and dress material. The Companys major clients include siyaram Silk MIllls, Grasim, Raymonds, Santogem Mills, Harrys Collection, and Pantaloon, Indian Rayon, Mikodo Mills etc. and the Bhilwara group. In the Spinning Division, the been making steady progress on the export front since inception. The Company enjoys Export House status. In the expansion unit, the Company has installed latest generation high speed Twin Air-Jet Spinning Machines which had better maneuverability to manufacture different varieties of Dyed Yarn, Harrow Shades, Harrow Melange and other Fancy Yarn

The Garment Division was established in the year 2005 in Chennai with a capacity of 230 machines. The commercial production in this division was commenced in the month of January 2006, Visakas Garment Unit got worldwide responsible Apparel production (WRAP) Certification. Out of 1200 garment Factories in Chennai, only 12 are WTAP Certified.

HUMAN RESOURCES/INDUSTRIAL RELATIONS10

The Company believes that human resource is its most valuable resource which has to be nurtured well and equipped to meet the challenges posed by the dynamics of business developments. The Company has a policy of continuous training of its employees both in-house as well as through reputed institutes like the ISB, IIMs, ASCI,XLRI etc. the staff is highly motivated due to good work culture, training, remuneration packages and the values, which the company maintains.

FINANCIAL PERFORMANCE:Rs. In Crores Particulars Turnover Gross profit Net profit after tax Share Capital (incl. preference capital) Reserves Dividends (in %) Earning per share (in Rs.) The Companys shares are listed on Mumbai and National Exchanges. 48.99 25 9.18 59.36 30 13.12 74.62 30 17.72 74.62 8.46 2007-08 160.30 28.27 10.14 13.21 2008-09 213.40 36.63 14.35 13.21 2009-10 303.73 50.14 19.25 13.21 First quarter ended 30.6.07 120.4 19.71 9.19 11.46

CREDIT RATING11

The bankers of the company, i.e. state bank of India and of Hyderabad have according a credit rating of SB2 to the company. The company has been prompt in making payment of interest and repayment of installments to all the Financial institution, Banks and other Creditors, thereby enjoying a good rating with them.

DIVIDED RECORDSSL.NO. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1988 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 Years 12 12 12 10 17 15 16 12.5 12.5 6 16 18 18 22 25 % of Dividend

2005-06 (interim & final) 30 2006-07 2007-08 2008-09 30 30 30

Today, the company is the largest Air jet Yarn manufacturer in the world.

VISAKAS ACHIEVEMENTSAchieved 100% utilization in the poacher plant within one year of 12

commencement of operation. Diversified and implemented a totally new technology Air jet spinning in the year 1991 and became the worlds largest setup for manufacture of Twin Air jet Spun yarn. The quality product in this mill comes within the top 5% of the best quality of the yarn produced in the world. Diversified in to Garments Business in the year 2005 with a capacity of 230 machines. This unit has commenced commercial production in the January 2006. Steady Growth- Grown from a single product single location Company to multi product multi location Company. The turnover of the Company has grown from Rs. 5 crores to Rs. 304 crores over a period of 21 years. Consistent Dividend payment Record. Prompt repayment to the banks and financial institution. As social responsibility, Company established Charitable Trust to support initiatives that benefit the society at large.

VISAKA CHARITABLE TRUSTThe company, as a responsible corporate citizen established in the year2000 a charitable trust in the name and style of Visaka Charitable Trust as a non-profit 13

entity, to support initiatives that benefit the society at large. The trust supports programs devoted to the cause of destitute, rural poor and providing the basic necessities of life to the rural poor. This has helped to enhance the image of the Company.

AWARDSHighest productivity award form the Andhra Pradesh Federation of Chambers of Commerce and Industry in 1987. Best Management award form the government of Andhra Pradesh for the year 1987. Best Entrepreneur of the year award from the Council for Industrial and Trade Development for the year 1990-91. Highest Productivity award from the Council for Industrial and Trade Development for the year 1995. Best Industrialist award from the Government of Tamilnadu fir the year 2000. Best performance in Large and Medium Sector for the year 2001 awarded by All India Manufacturers Organization, Andhra Pradesh State Board. A.P.Distinguished Industrialist Award for the year 2003 awarded by Exhibition Society.

ORGANISATION STRUCTURE

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More businesses fail for lack of cash than for want of profitCash is the lifeline of a company, no matter how large or small the

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organization is. If this lifeline deteriorates so does the company's ability to fund operations, reinvest and meet capital requirements and payments. Understanding a company's cash flow health is essential to making investment decisions. A good way to judge a company's cash flow prospects is to look at its working capital Management.

Working capital management involves the relationship between a firm's current assets and its current liabilities. Current Assets are resources, which are in cash or will soon be converted into cash in "the ordinary course of business". Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business".

The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing shortterm debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash to pay current liabilities as they fall due. This implies a clearly designed risk policy to determine the required liquidity level.

Why Firms Hold Cash:The finance profession recognises the three primary reasons offered by

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Working Capital = Current Assets - Current Liabilities

economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the

portunities that if acted upon quickly will favour the firm. An example of this would be purchasing extra inventory at a disco

d cash held on a precautionary basis could be used to satisfy short-term obligations that the cash inflow may have been benc

the need for cash inflows and outflows. Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they h

CONCEPTS OF WORKING CAPITAL: There are two concepts of working capital: (I) Gross Working Capital. (ii) Net Working Capital. In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Net working capital may be positive or negative. When the current assets 17

exceed the current liabilities the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive; rather both have their own merits. Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the general practice net working capital is referred to simply as working capital

TYPES OF WORKING CAPITAL: Working Capital may be classified in two ways: (a) On the basis of concept. (b) On the basis of time. (a) On the basis of concept, working capital 1. Gross working capital. 2. Net working capital. (b) On the basis of time, working capital can be further classified into 1. Permanent or fixed working capital. 2. Temporary or variable working capital.

Permanent working capital:

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Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum Level of current assets, which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-process, finished goods and cash balance. This minimum level of current assets is called fixed working capital.

Temporary working capital:Any amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. This portion of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes.

Working Capital Cycle:Cash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables arising from credit terms extended to customers and as reflected in day sales outstanding (DSO - DSO provides a rough guide to the number of days that a company takes to collect payment after making a sale). The main sources of cash are Payables arising from trade terms adopted in 19

supply chain management (your creditors) and Equity and Loans.

Each component of working capital (namely inventory, receivables and payables) has two dimensions. TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit, you effectively create free finance to help fund future sales.

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If you ...

Then ... You release cash from the cycle Your receivables soak up cash You increase your cash resources You free up cash You consume more cash

Collect receivables (debtors) faster Collect receivables (debtors) slower Get better credit (in terms of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing down a plug hole, they remove liquidity from the business.

IMPORTANCE OF 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 to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows: 1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. 3. Easy loans: A concern hacking adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. 21

4.

Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs.

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Regular payment of salaries: wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits.

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Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production.

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Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods, generally, there is much pressure on working capital.

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Quick and Regular return on Investments: Every Investor wants a quick and regular return on investments. Sufficient of working capital enables a concern to pay quick and regular dividends to its investors, as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favorable market to raise additional funds in the future.

DISADVANTAGES OF EXCESSIVE WORKING CAPITALEvery business concern should have adequate working capital to run its business operations. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. Both excessive as well as short working capital positions are bad for any business.

1. Excessive working capital means idle funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. 2. When there is redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, 22

waste and losses. 3. Excessive working capital implies excessive debtors and defective credit Policy which may cause higher incidence of bad debts. 4. It may result into overall inefficiency in the organization.

5. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained.

6. Due to low rate of return on investments the value of shares may also fall.

DISADVANTAGES OF INADEQUATE WORKING CAPITAL1) A concern, which has inadequate working capital, cannot pay its short-term liabilities in time. Thus it will loose its reputation and shall not be able to get good credit facilities. 2) The firm cannot pay day-to-day expenses of its operations and it creates inefficiencies, increases costs and reduces the profits of the business. 3) It becomes impossible to utilize efficiently the fixed assets due to nonavailability of liquid funds. 4) The rate of return on investments also falls with the shortage of working capital.

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CAPITAL MANAGEMENT APPROACHES TO WORKING

The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be "invested" in other assets or in reducing other liabilities. Though Working capital management takes place on two levels, component level and analysis level, the approach to WCM depends upon:

1. Natures or Character of Business 2. Size of Business/Scale of Operations 3. Production Policy 4. Manufacturing Process 5. Working Capital Cycle 6. Rate of Stock turnover 7. Credit Policy 8. Rate of Growth of Business 9. Earning Capacity and Dividend Policy 10. Price Level Changes

MANAGEMENT OF ACCOUNTS RECEIVABLESAccounts receivables represent an extension of credit to customers, allowing them a reasonable period of time, in which to pay for the goods / services which they have received. The receivables represent an important component of the current assets of a firm. Firms grant trade credit to customers, because they expect the investment in

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receivables to be profitable, either by expanding sales volume or by retaining sales that otherwise would be lost to competitors. A planned credit-policy can assist in increasing corporate profitability. When considering relaxing credit terms, management must weigh up the profits of increased sales with the cost of additional investment in debtors.

OBJECTIVE The objective of receivables management is to promote sales and profits until that point is reached where the return on investment in further funding of receivables is less than the cost of funds raised to finance that additional credit.

COSTS: The major categories of costs associated with the extension of credit and accounts receivables are: 1. COLLECTION COST These costs are administration costs incurred in collecting the receivables from the customers to whom credit sales have been made. 2. CAPITAL COST The increased level of accounts receivable is an investment in assets. They have to be financed thereby involving a cost. The cost on the use of additional capital to support, credit sales, which apparently could be profitably employed else where, are therefore a part of the cost of extending credit or receivables. 3. DELINQUENCY COST

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This is the cost, which arises out of the failure of the customer to meet their obligations when payment on credit sales becomes due after the expiry of the period of credit. 4. DEFAULT COST Sometimes the firm may not be in a position to recover the dues because of the inability of the customers, such debts are treated as bad debts and are written off as they cannot be realised, such costs are known as default costs associated with credit sales and accounts receivables. BENEFITS: The benefits are the increased sales and profits anticipated because of a more liberal policy. When the firm extends trade credit the impact of liberal policy is likely to have two forms. First, it is oriented to sales expansions. In other words, the increase in sales would be either from the existing customer or new customers. Secondly, the extension of credit may be to protect its current sales against emerging customers. As a result of increased sales the profits of the firm will be increased.

MANAGEMENT OF INVENTORYInventory is the third major component of current assets. Inventories are stock of the product a company is manufacturing for sale and components that make up the product. Every enterprise needs inventory for smooth running of its activities. It serves as a link between production and distribution process. The various forms in which inventories exist in a manufacturing company are raw materials, work-inprogress and finished goods. RAW MATERIALS: Raw materials inventories are those units, which have been purchased for converting into finished product through the manufacturing process. WORK-IN-PROGRESS: They are semi-manufactured products. They represent products that need more work before they become finished products for sale. It includes raw materials, subcontracting costs and various manufacturing costs.

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FINISHED GOODS: They are those inventories, which are completely manufactured products, ready for sale. TYPES OF INVENTORIES: The common types of inventories for most of the business firms may be classified as Finished Goods, Work in Progress and Raw Materials. Finished Goods: These are the goods, which are either being purchased by the firm or are being produced or processed in the firm. These are just ready for sale to customers. Inventory of finished goods arises because of the time involved in production process and the need to meet customers demand promptly. If the firms do not maintain a sufficient finished goods inventory, they run the risk of losing sales, as the customers who are unwilling to wait may turn to competitors. The purpose of finished goods inventory is to uncouple the production and sales function so that it is not necessary to produce the goods before sales can occur and therefore sales can be made directly out of inventory. Work in Progress: It refers to the raw materials engaged in various phases of production schedule. The degree of completion may be varying for different units. Some units might have been just introduced; while some others may be 40% completed, others may be 90% complete. The work in progress refers to partially produced goods. The value of work in progress includes the raw material costs, the direct wages, expenses already incurred, and the overheads, if any. So, the work in progress inventory contains partially produced / completed goods. Raw materials: The raw materials include the materials, which are used in production process, and every manufacturing firm has to carry certain stock of raw materials in stores. These units of raw materials are regularly issued/ transferred to production department. Inventories of raw materials are held to ensure that the production

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process is not interrupted by a shortage of these materials. The amount of raw materials to be kept by a firm expends on a number of factors, including the speed with which raw materials can be ordered and procured and uncertainly in the supply of these raw materials. Its purpose is to uncouple the production function from the purchasing function i.e., to make these two functions independent of each other so that delays and the firm can satisfy its need for raw materials out of the inventory lying in the stores. The classification of a particular item as a finished goods or raw material depends on the kind of business being discussed. For a coal-mining firm, coal is a finished goods but it is a raw material for a steel mill as the coal is used in the production of steel. Similarly, steel is a finished good for a steel mill but it is a raw material for an Automobile firm.

RATIOSTypes of ratio Several ratios calculating from the accounting data can be grouped into the various classes according to the financial activities or function to be evaluated. The various parties that are generally under taken financial analysis to measure solvency and profitability of the firm. Management is interested in evaluating every aspect of all parties and see that the firm grows profitability. In view of the requirements of the various users of ratios, we may classify them into the following four important categories. Liquidity ratios. Leverage ratios. Activity ratio Profitability ratios

28

Liquidity ratio Liquidity ratio measures the ability of the firm to meet its current obligations. Analysis of liquidity needs the preparation of cash, budgets and cash funds flow statements. But liquidity ratio s by establishing relation cash and other current assets to current obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer from lack of liquidity, and also that it is not too much highly liquid. The failure of a company to meets it obligations due to lack of sufficient liquidity will result in bad credit image. A very high degree of liquidity is also bad. Ideal assets earn nothing. The firm's funds will be unnessecerly tied up in current assets. Therefore it is nessacerly to strike proper balance between liquid and lack of liquidity. The most common ratios, which indicate the extent of liquidity or lack of it, are: Current ratio Quick ratio Absolute ratio

CURRENT RATIO Current ratio, most widely used measure of liquidity position of an enterprise, examines relationship between total current assets and total current liabilities. This ratio alternatively known as solvency ratio or working capital ratio as a norm of 2:1 and reflects the working capital adequacy or otherwise of an enterprise. Current Assets Current Ratio = ----------------------------Current Liabilities

QUICK RATIO / ACID TEST RATIO

29

This ratio is akin to current ratio with a notable valuation in its calculation where value of inventory is deducted from current assets. According to Lerner ..this ratio ignores inventories because inventory itself may shrink in value due to various factors like its being slow-moving, obsolete and unsaleable6. Alternatively this ratio is called solvency ratio, liquidity ratio or near money ratio. It is a measure of quick or instant liquidity position of a concern. Standard magnitude of the ratio is 1:1 Quick/liquid assets Quick Ratio = ----------------------------Quick/Liquid Liabilities Quick Assets = current assets inventrories Quick Liabilities = current liabilities bank over draft cash credit

CASH RATIO / ABSOLUTE LIQUIDITY RATIO In this ratio cash and its equivalent, marketable securities, are related to current liabilities. As this ratio is an indicator of instant solvency of a firm. A norm of 0.5:1 is its momentous liquidity position to meet current payment obligations. Cash + Marketable Securities cash ratio / absolute liquidity ratio = ------------------------------------current liabilities CURRENT ASSETS TURNOVER RATIO This ratio is an indicator of efficiency with which current assets are

30

used in an enterprise. Guthmann observes that current assets turnover is to give an overall impression of how rapidly the total investment in current assets is being turned8. Thus, ratio relates current assets to operating revenue. Sales Current assets turnover ratio = ------------------------------------Current Assets INVENTORY TURN OVER RATIO This ratio also known as stock turn over ratio. It

establishes the relationship between the cost of goods sold during the year and average inventory held during the year. It is calculated as follows: Sales Inventory turn over ratio = ------------------------------------Average Inventory Average Inventory = Opening stock + closing stock/2

WORKING CAPITAL TURNOVER RATIO In this ratio numerator is sales and denominator is net working capital. It shows how many times net working capital goes into sales. Higher the ratio, the lower the investment tied in working capital and vice versa. Very high working capital turnover is not desirable, since it pushes the enterprise into financial stracts. Lower magnitude of the ratio is a reflection of low utilization of working capital. Hence both the Sales Working capital turnover ratio = ------------------------------------Working Capital

DEBTORS TURNOVER RATIO

31

Firms liquidity and working capital positions are considered as efficiently managed when the ratio is high and numbers of days of outstanding credit are fewer. In attaining efficiency of the firm, there should be trade-off between excess profits received from the debtors outstanding and the amount of interest incurred on the blocked funds in outstanding debtors. Eugene Lerner defined the ratio succinctly : the ratio of total sales to outstanding receivables11. Put in formula form Debtors Turnover Ratio = Operating revenue / Debtors Higher magnitudes of the ratio are preferred. Sales Debtors turnover ratio = ------------------------------------Average Debtors Average Debtors = Opening Balance of Debtors+Closing Balance of ebtors/2

MEASUREMENT OF PROFITABILITY

Profitability, a result of operational and financial efficiency, is the outcome of all business activities. It is a relative measure which expresses profits in relation to some other variables such as sales and investment. An enterprise should be able to make more profits on each rupee of sales or capital invested. An appraisal of the financial position of a firm is incomplete, unless its overall profitability is measured relating profits to sales, assets, capital employed, net worth and earnings per share. In what follows the main profitability ratios are presented and analysed.

32

GROSS PROFIT RATIO To Choudary, gross profit margin ratio is of vital importance for gauging the business results12. It expresses the relationship of gross profits to sales in percentage terms. Other names of the ratio are turnover ratio or gross profit turnover ratio. Thus ratio can be mathematically stated in the following formula Gross Profit Ratio = Gross Profit / Operating Income X 100 Higher magnitudes of the ratio are preferred position.

Gross Profit Gross profit ratio = ------------------------------------- X 100 Sales

OPERATING RATIO This ratio is measured by dividing operating expenses by operating revenues and multiplying by 100. Kennedy and McMullen defined it the term operating ratio refers to the ratio of all operating expenses including cost of merchandise sold, selling, general and administrative expenses to operating net revenue13. It is an index of operating efficiency of the firm, although its magnitude varies according to changes in operating expenses and revenues. Biermann Jr. and Drebin stated that by comparing the operating ratios, we may observe significant difference in managerial deficiency14. Lower is its magnitude, lower the efficiency of its operations and vice versa. As a norm its

33

magnitude should not exceed 100. Ratio over and above 100 indicates that operating income is hardly sufficient to cover operating expenses. Mathematical expression of the ratio takes the following form: Operating Profit Operating profit ratio = ------------------------------------- X 100 Sales Operating Profit = Sales - cost of Sales

NET PROFIT RATIO It is a good indicator of the efficiency of a firm. To Van Horne, this ratio tells us the relative efficiency of the firm after taking into account all expenses and income minus taxes, but not extraordinary charges15. Net profit margin ratio is determined by relating net income after taxes to net sales. Said in other words, it measures net profit per rupee of sales. This ratio usually expressed in percentage terms is calculated by dividing the amount of net surplus by the amount of operating revenue and multiplying by 100. Mathematical formula for calculating the ratio is: Net profit Net profit ratio = ------------------------------------- X 100 Sales RETURN ON OWNERS EQUITY

34

This ratio is a valuable measure to judge the profitability of a firm with reference to return on owners equity. As stated by Anthony and Reace, it reflects how much the firm has earned on the funds invested by the shareholders both directly through equity capital and indirectly through retained earnings17. Said in other words, the return on equity relates net income to stockholders equity. Using the following formula the ratio is calculated: Net profit after taxes Return on Owners Equity or Net worth = ------------------------------------- X 100 Owners equity or net worth Lower the volume of the ratio, lower the profitability or efficiency and vice versa.

Need for the studyWorking capital is the life blood of the organization. The working capital is having great influence on the development and progress of any organization. The efficient management of working capital is a smooth functioning of day to day operation of Visaka Industries Ltd. Hence, there is a need to study the importance of working capital management in the Visaka Industry Ltd. There fore the present study has been undertaken in this direction.

Objectives of the study To study short term liquidity position of the company. To study the operating cycle analysis of the company. To analysis the effectiveness of working capital management of the company.

35

Research MethodologyResearch design Analytical tools Data Sources Period of study Analytical Ratio analysis, schedule of change in Working capital, operating cycle analysis. Secondary data has been collected from Company records, annual reports 2005-06 to 2009-10.

Source of data1. The data required for the study is mainly based on secondary data. 2. The required information is collected from the annual report of the VISAKA INDUSTIES LIMITED comprising of balance sheets, P&L accounts. 3. The related data is obtained from the printed and published journals and financial statement of the corporation.

Tools for data analysis:Financial tools such as, Financial ratio analysis, Working capital statements and

36

.

Operating cycle analysis

Period of study:Data for a period of 5 years has been taken for the study i.e. starting from 2006-2010.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31ST MARCH 2006(Rs. in Lakhs)PARTICULARS Previous Year 2005 Current Year 2006 efficiency on Working Capital Increase Decrease

CURRENT ASSETS

Inventory Sundry Debtors Loans &Advances Cash & Bank BalanceTOTAL CURRENT ASSETS (A)

1952.62 1447.98 1849.55 461.68 5711.83

2075.17 1239.48 2232.60 675.33 6222.58

122.55

208.

383.05 213.65

-

37

CURRENT LIABILITIES & PROVISIONS

Sundry Creditors ProvisionsTOTAL CURRENT LIABILITIES & PROVISIONS (B) WORKING CAPITAL = (A-B) NET DECREASE IN WORKING CAPITAL TOTAL

944.03 581.00 1525.03 4186.8

1356.59 920.36 2276.63 3945.63 241.7

-

412.56 339.36

241.17 960.42 960.42

4186.80

4186.80

Interpretation: In the Visaka` Industry Ltd, in the year 2005-06 the working capital was deceased due to slash down in maintenance of debtors and increase in Creditors which leads to decease in the current assets and rise in current liabilities. Finally the liquidity position of the company was poor.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31ST MARCH 2007(Rs. in Lakhs)PARTICULARS Previous Year 2006 Current Year 2007 Efficiency on Working Capital Increase Decrease

CURRENT ASSETS


2075.17 1239.48 2232.60 675.33 6222.58

2730.07 1694.83 2222.71 1115.78 7763.39

654.9 455.35

9.89

440.45

38


Sundry Creditors ProvisionsTOTAL CURRENT LIABILITIES & PROVISIONS (B) WORKING CAPITAL = (A-B) NET INCREASE IN WORKING CAPITAL

1356.59 920.36 2276.95 3945.68 1020.41 4966.04

1346.82 1450.53 2797.35 4966.04

9.77

530.17

-

1020.41 4966.04 1560.47 1560.47

Interpretation: During the year 2006-07 the working capital was increased from 3945.68lakhs to 4966.04 lakhs when compared with its previous year. It shows that the company is trying to increase its working capital.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31ST MARCH 2008Previous Year 2007 Current Year 2008

(Rs. in Lakhs)Efficiency on Working Capital Increase Decrease

PARTICULARS

CURRENT ASSETS


2730.07 1694.83 2222.71 1115.78 7763.39

4595.95 1773.29 2663.08 1219.41 10251.73

1865.88 78.46 440.37 103.63

-

39


Sundry Creditors ProvisionsTOTAL CURRENT LIABILITIES & PROVISIONS (B) WORKING CAPITAL = (A-B) NET INCREASE IN WORKING CAPITAL

1346.82 1450.53 2797.35 4966.04 1418.35 6384.39

2140.34 1727 3867.34 6384.39

-

793.52 276.47

1418.35 6384.39 2488.34 2488.34

Interpretation: From the above analysis the working capital was doubled when compared to previous year. It was mainly due to rapid increase in inventory and Loans & Advances. From this we conclude that the working capital was good.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEARENDING 31ST MARCH 2009(Rs. in Lakhs)PARTICULARS Previous Year 2008 Current Year 2009 Efficiency on Working Capital Increase Decrease

CURRENT ASSETS

Inventory Sundry Debtors Loans &Advances

4595.95 1773.29 2663.08

7224.66 3152.54 3488.35

2628.71 1379.25 825.27

-

40

Cash & Bank BalanceTOTAL CURRENT ASSETS (A)

1219.41 10251.73

1926.49 15792.04

707.08

-


Sundry Creditors ProvisionsTOTAL CURRENT LIABILITIES & PROVISIONS (B) WORKING CAPITAL = (A-B) NET INCREASE IN WORKING CAPITAL TOTEL

2140.34 1727 3867.34 6384.39 2676.39 9060.78

4576.56 2154.70 6731.26 9060.78

-

2436.22 427.7

9060.78 5540.31

2676.39 5540.31

Interpretation: In the year 2008-09 the net increase in working capital was 2676.39 lakhs. It was due to increase in current assets. As a result it leads to net increase in working capital.

STATEMENT SHOWING CHANGES IN WORKING CAPITAL FOR THE YEAR ENDING 31ST MARCH 2010(Rs. in Lakhs)PARTICULARS Previous Year 2009 Current Year 2010 Efficiency on Working Capital Increase Decrease 76.44

CURRENT ASSETS

Inventory Sundry Debtors

7224.66 3152.54

7148.22 4339.01

1186.47

-

41

Loans &Advances Cash & Bank BalanceTOTAL CURRENT ASSETS (A)

3488.35 1926.49 15792.04

5810.93 3905.73 21203.89

2322.58 1979.24

-


Sundry Creditors ProvisionsTOTAL CURRENT LIABILITIES & PROVISIONS (B) WORKING CAPITAL = (A-B) NET INCREASE IN WORKING CAPITAL TOTEL

4576.56 2154.70 6731.26 9060.78 6393.53 15454.31

2913.71 2835.87 5749.58 15454.31

1499.85

518.17

-

6393.53 15454.31 6988.14 6988.14

Interpretation: During this year 2009-10, the net increase in working capital was 6393.53 lacks. It was mainly due to increase in all current assets except inventory and decrease in creditors. It indicates that the company is maintaining working capital at satisfactory level.

NET WORKING CAPITAL Years 2005-06 2006-07 2007-08 2008-09 Current assets 6222.58 7763.39 10251.73 15792.04 Current liabilities 2276.95 2797.35 3867.34 6731.26 (Lacks) Working capital 3945.63 4966.04 6348.39 9060.78

42

2009-10

21203.89

5749.58

15454.31

0100090000032a0200000200a20100000000a201000026060f003a03574d4643010000 0000000100c2d50000000001000000180300000000000018030000010000006c00000 000000000000000001a000000370000000000000000000000d1310000f91d00002045 4d4600000100180300001200000002000000000000000000000000000000f6090000e 40c0000d8000000170100000000000000000000000000005c4b030068430400160000 000c000000180000000a0000001000000000000000000000000900000010000000e20 500008a030000250000000c0000000e000080250000000c0000000e00008012000000 0c00000001000000520000007001000001000000d2ffffff00000000000000000000000 0900100000000000004400022430061006c0069006200720069000000000000000000 000000000000000000000000000000000000000000000000000000000000000000000 00000000000000000001100b0b311001000000014b7110094b411005251603214b711 000cb41100100000007cb51100f8b611002451603214b711000cb4110020000000496 42f310cb4110014b7110020000000ffffffffec45f000d0642f31ffffffffffff0180ffff0180ef ff0180ffffffff0000030000080000000800004300000001000000000000002c01000025 000000372e90010000020f0502020204030204ef0200a07b2000400000000000000000 9f00000000000000430061006c00690062007200000000002003df0470a0603203b0c9 5ecc45f000e064e40040b411009c3827310d000000010000007cb411007cb41100e878 25310d000000a4b41100ec45f0006476000800000000250000000c0000000100000025 0000000c00000001000000250000000c00000001000000180000000c0000000000000 2540000005400000000000000000000001a000000370000000100000088870741d145 0741000000002c000000010000004c000000040000000000000000000000e20500008 a0300005000000020001a001b00000046000000280000001c00000047444943020000 00ffffffffffffffffe30500008b0300000000000046000000140000000800000047444943 03000000250000000c0000000e000080250000000c0000000e0000800e00000014000 0000000000010000000140000000400000003010800050000000b0200000000050000 000c02f6009801040000002e0118001c000000fb020400020000000000bc0200000000 0102022253797374656d0000000000000000000000000000000000000000000000000 000040000002d010000040000002d01000004000000020101001c000000fb02f4ff000 0000000009001000000000440002243616c6962726900000000000000000000000000 000000000000000000000000040000002d010100040000002d010100040000002d010 100050000000902000000020d000000320a0c00000001000400000000009801f50020 590700040000002d010000040000002d010000030000000000

Interpretation:The above table and graph shows that the trend of working capital was continuously increasing. It registered a peak level in 2009-10. In other words, it was increased from 3945.63 Lakhs in 2005-06 to 15454.31 Lakhs in 2009-10.From this it was clear that, the overall working capital position of the company was satisfactory.

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Table: 1

CURENT RATIO OF VISAKA INDUSRIES LIMITEDYEARS 2005-06 2006-07 2007-08 2008-09 2009-10 CURRET ASSETS (In. lakhs) 6222.58 7763.39 10251.73 15792.04 21203.89 CURRET LIABILITIES (In. lakhs) 2276.95 2797.35 3867.39 6731.26 5749.58 Average Ratio CURRET RATIO (In times) 2.73 2.77 2.65 2.34 3.69 2.8

4 3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2.73 2.77

Current Ratio2.65 2.34

3.69

2006-07

2007-08years

2008-09

2009-10

Interpretation:The average current ratio of the company was 2.8 times, which was more than the ideal ratio. Further, the ratio was more than the standard norm of 2:1 throughout the study period. It indicates that the company is maintaining a safe

44

Quick RatioInTimes

3 2.5 2 1.5 1 0.5 0

margin of solvency.1.82 1.8 1.46 1.27

2.45

Table:2

QUICK RATIO OF VISAKA INDUSRIES LIMITEDYEARS QUICK ASSETSYea rs

2005-06

2006-07 (In. lakhs) 2007-08

2005-06 2006-07 2007-08 2008-09 2009-10

4147.43 5033.32 5655.78 8567.38 14055.67

CURRET QUICK RATIO 2008-09 2009-10 LIABILITIES (In. lakhs) (In times) 2276.95 1.82 2797..35 3867.34 6731.26 5749.58 Average 1.80 1.46 1.27 2.45 1.7

Interpretation:A quick ratio of 1:1 is considered satisfaction. From the above analysis we ca say that the average quick ratio of Visaka Industries Ltd was 1.7 times which was more than standard ratio (1:1). The ratio was in fluctuating trend, but it reached to 2.45 times in 2009-10 from 1.87 times in 2005-06. Table:3

CASH RATIO OF VISAKA INDUSRIES LIMITEDYEARS 2005-06 2006-07 2007-08 2008-09 2009-10 CASH (In. lakhs) 675.33 1115.78 1219.41 1926.49 3905.73 CURRET LIABILITIES (In. lakhs) 2276.95 2797.35 3867.34 6731.26 5749.58 CASH RATIO (In times) 03 0.40 0.32 0.28 0.67

45

Average

0.40


Interpretation:Cash is the most liquid asset for any organization. From the above table in Visaka Industries Ltd the average cash ratio was 0.40 times which was below the standard ratio, it was due to rapid increase in current liabilities when compared to cash balance. In all the years the ratio was below the ideal ratio except in the concluding year of the study. In this year it was 0.67 times, indicting the company is trying to maintain minimum cash balance to meet its day-to-day operations.

46

Table:4 INVENTOR TURNOVER RATIO OF VISAKA INDUSRIES LIMITED: INVENTORY TURNOVER (In times)

YEARS 2005-06 2006-07 2007-08 2008-09 2009-10

SALES (In. lakhs) 12910.29 15511.87 20808.05 29575.57 37920.38 Average

AVERAGE INVENTORY (In. lakhs)

1226.46 2017.93 2872.37 3384.2 8.88 times

12.64 10.31 10.29 11.20

0100090000032a0200000200a20100000000a201000026060f003a03574d4643010000 0000000100c2d50000000001000000180300000000000018030000010000006c00000 000000000000000001a000000370000000000000000000000d1310000f91d00002045 4d4600000100180300001200000002000000000000000000000000000000f6090000e 40c0000d8000000170100000000000000000000000000005c4b030068430400160000 000c000000180000000a0000001000000000000000000000000900000010000000e20 500008a030000250000000c0000000e000080250000000c0000000e00008012000000 0c00000001000000520000007001000001000000d2ffffff00000000000000000000000 0900100000000000004400022430061006c0069006200720069000000000000000000 000000000000000000000000000000000000000000000000000000000000000000000 00000000000000000001100b0b311001000000014b7110094b411005251603214b711 000cb41100100000007cb51100f8b611002451603214b711000cb4110020000000496 42f310cb4110014b7110020000000ffffffffec45f000d0642f31ffffffffffff0180ffff0180ef ff0180ffffffff0000030000080000000800004300000001000000000000002c01000025 000000372e90010000020f0502020204030204ef0200a07b2000400000000000000000 9f00000000000000430061006c00690062007200000000002003df0470a0603203b0c9 5ecc45f000e064e40040b411009c3827310d000000010000007cb411007cb41100e878 25310d000000a4b41100ec45f0006476000800000000250000000c0000000100000025 0000000c00000001000000250000000c00000001000000180000000c0000000000000 2540000005400000000000000000000001a000000370000000100000088870741d145 0741000000002c000000010000004c000000040000000000000000000000e20500008 a0300005000000020001a001b00000046000000280000001c00000047444943020000 00ffffffffffffffffe30500008b0300000000000046000000140000000800000047444943 03000000250000000c0000000e000080250000000c0000000e0000800e00000014000 0000000000010000000140000000400000003010800050000000b0200000000050000 000c02f6009801040000002e0118001c000000fb020400020000000000bc0200000000 0102022253797374656d0000000000000000000000000000000000000000000000000 000040000002d010000040000002d01000004000000020101001c000000fb02f4ff000 0000000009001000000000440002243616c6962726900000000000000000000000000 000000000000000000000000040000002d010100040000002d010100040000002d010 100050000000902000000020d000000320a0c00000001000400000000009801f50020 47

Interpretation:From the table we can say that, the average inventory turnover ratio of Visaka Industries Ltd was 8.8 times. That it registered a high ratio of 12.64 times in 2006-07, which shows that the company converted its inventory into cash within a minimal span of time. Table:5 DAYS OF INVENTIRY HOLDING OF VISAKA INDUSRIES LIMITED: YEARS DAYS INVENTORY TURNOVER RATIO (In. lakhs) _ 12.64 10.31 10.29 11.20 DAYS OF INVENTORY HOLDING (Days) _ 28.48 34.91 34.98 32.14

2005-06 2006-07 2007-08 2008-09 2009-10

360 360 360 360 360

0100090000032a0200000200a20100000000a201000026060f003a03574d4643010000 0000000100c2d50000000001000000180300000000000018030000010000006c00000 000000000000000001a000000370000000000000000000000d1310000f91d00002045 4d4600000100180300001200000002000000000000000000000000000000f6090000e 40c0000d8000000170100000000000000000000000000005c4b030068430400160000 000c000000180000000a0000001000000000000000000000000900000010000000e20 500008a030000250000000c0000000e000080250000000c0000000e00008012000000 0c00000001000000520000007001000001000000d2ffffff00000000000000000000000 0900100000000000004400022430061006c0069006200720069000000000000000000 000000000000000000000000000000000000000000000000000000000000000000000 00000000000000000001100b0b311001000000014b7110094b411005251603214b711 000cb41100100000007cb51100f8b611002451603214b711000cb4110020000000496 42f310cb4110014b7110020000000ffffffffec45f000d0642f31ffffffffffff0180ffff0180ef ff0180ffffffff0000030000080000000800004300000001000000000000002c01000025 000000372e90010000020f0502020204030204ef0200a07b2000400000000000000000 48

Interpretation:Form the above table and graph shows that the days of inventory holding was fluctuating. It was lowest of 28 days in 2006-07 and highest of 35 days in 2006-07. It reveals that inventory holding days are not properly regulated.

Table:6

DEBTORS LIMITED:YEARS 2005-06 2006-07 2007-08 2008-09 2009-10

TURNOVER

RATIO

OF

VISAKA

INDUSRIES

SALES (In. lakhs) 12910.29 15511.87 20808.05 29878.57 37920.38 Average

AVERAGE DEBTORS (In. lakhs) _ 1467.15 1734.06 2462.96 3745.78 8.9 times

DEBTORS TURNOVER RATIO(In times) _ 10.57 11.79 12.00 10.12

49


Interpretation:The average debtors turnover ratio of the company is 8.9 times. The ratio was increased from 10.57 times in 2006-07 to 12.00 times in 2008-09 and it declined to 10.12 times in 2009-10. It indicates inefficient management of sales.

Table:7

50

AVERAGE COLLECTION PERIOD OF VISAKA INDUSRIES LIMITED: Years 2005-06 2006-07 2007-08 2008-09 2009-10 Days 360 360 360 360 360 Debtors turnover ratio (In. lakhs) _ 10.57 11.79 12.00 10.12 Average collection period (Days) _ 34.05 30.53 30.00 35.5


51

Interpretation:The average collection period was low at 30 days in 2008-09 and higest of 35 days in 2009-10. It reveals that the company was inefficient in the collection of debtors. Table:8 CURRENT LIMITED: Years 2005-06 2006-07 2007-08 2008-09 2009-10 Sales (In. lakhs) 12910.29 15511.87 20808.05 29575.57 37920.38 Average 1.95 times 0100090000032a0200000200a20100000000a201000026060f003a03574d4643010000 0000000100c2d50000000001000000180300000000000018030000010000006c00000 000000000000000001a000000370000000000000000000000d1310000f91d00002045 4d4600000100180300001200000002000000000000000000000000000000f6090000e 40c0000d8000000170100000000000000000000000000005c4b030068430400160000 000c000000180000000a0000001000000000000000000000000900000010000000e20 500008a030000250000000c0000000e000080250000000c0000000e00008012000000 0c00000001000000520000007001000001000000d2ffffff00000000000000000000000 0900100000000000004400022430061006c0069006200720069000000000000000000 000000000000000000000000000000000000000000000000000000000000000000000 00000000000000000001100b0b311001000000014b7110094b411005251603214b711 000cb41100100000007cb51100f8b611002451603214b711000cb4110020000000496 42f310cb4110014b7110020000000ffffffffec45f000d0642f31ffffffffffff0180ffff0180ef ff0180ffffffff0000030000080000000800004300000001000000000000002c01000025 000000372e90010000020f0502020204030204ef0200a07b2000400000000000000000 9f00000000000000430061006c00690062007200000000002003df0470a0603203b0c9 5ecc45f000e064e40040b411009c3827310d000000010000007cb411007cb41100e878 Current assets (In. lakhs) 6222.58 7763.39 10251.73 15792.04 21203.89 Current assets turnover ratio (In times) 2.07 1.99 2.02 1.87 1.78 ASSETS TURNOVER RATIO OF VISAKA INDUSRIES

52

Interpretation:From the above, it is clear that the current asset turnover ratio has been continuously deteriorated from 2.07 times in 2005-06 to 1.78 times in 2009-10. It means that the companys utilization of current assets contributing sales is poor.

Table:9 WORKING CAPITAL TURNOVER RATIO OF VISAKA INDUSRIES LIMITED: Years 2005-06 2006-07 2007-08 2008-09 2009-10 Sales (In. lakhs) 12910.29 15511.87 20808.05 29575.57 37920.38 Average Net current assets (In. lakhs) 3945.63 4966.04 6384.39 9060.78 15454.31 3.07 times Working capital turnover ratio (In times) 3.27 3.12 3.25 3.26 2.45

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Working Capital Turnover Ratio3.5 3 2.5 3.27 3.12 3.25 3.26 2.45

s e m i T n I

2

1.5 1 0.5 0 2005-06 2006-07 2007-08 yea rs 2008-09 2009-10

Interpretation:The working capital turnover ratio was in fluctuating trend. It has registered 3.27 times in 2005-06 and starts declined to 2.45 tomes in 2009-10. It indicates that the working capital has not been effectively utilized in making sales.

Table:10

GROSS PROFIT RATIO OF VISAKA INDUSRIES LIMITED:Years 2005-06 2006-07 2007-08 2008-09 2009-10 Gross profit (In. lakhs) 3806.43 4703.48 6466.26 9160.83 10088.74 Average Sales (In. lakhs) 12910.29 15511.87 20808.05 29575.57 37920.38 29.2 Gross profit ratio (In. percent ) 29 30 31 30 26

0100090000032a0200000200a20100000000a201000026060f003a03574d4643010000

54

Interpretation:The average Gross Profit ratio was 29.2 percent. During the first three consecutive years, it has been continuously increased from 29.00percent to 31.00 percent, later it starts declined to 30 percent and 26 percent in 2008-09 and 2009-10 respectively. It indicates that the company was not able to produce products at relatively lower cost. Table:11

NET PROFIT RATIO OF VISAKA INDUSRIES LIMITED:

55

Years 2005-06 2006-07 2007-08 2008-09 2009-10

Net profit (In. lakhs) 901.39 1031.59 1435.06 1925.74 2373.73

Sales (In. lakhs) 12910.29 15511.87 20808.05 29575.57 37920.38 Average

Net profit ratio (In. percent ) 6.98 6.50 6.89 6.51 6.25 6.62 percent

0100090000032a0200000200a20100000000a201000026060f00 3a03574d46430100000000000100c2d50000000001000000180 300000000000018030000010000006c000000000000000000000 01a000000370000000000000000000000d1310000f91d0000204 54d460000010018030000120000000200000000000000000000 0000000000f6090000e40c0000d8000000170100000000000000 000000000000005c4b030068430400160000000c000000180000 000a0000001000000000000000000000000900000010000000e2 0500008a030000250000000c0000000e000080250000000c0000 000e000080120000000c00000001000000520000007001000001 000000d2ffffff000000000000000000000000900100000000000 004400022430061006c006900620072006900000000000000000 000000000000000000000000000000000000000000000000000 000000000000000000000000000000000000001100b0b311001 000000014b7110094b411005251603214b711000cb411001000 00007cb51100f8b611002451603214b711000cb4110020000000 49642f310cb4110014b7110020000000ffffffffec45f000d0642f3 1ffffffffffff0180ffff0180efff0180ffffffff00000300000800000008 00004300000001000000000000002c01000025000000372e9001 0000020f0502020204030204ef0200a07b200040000000000000 00009f00000000000000430061006c0069006200720000000000 2003df0470a0603203b0c95ecc45f000e064e40040b411009c382 7310d000000010000007cb411007cb41100e87825310d000000 a4b41100ec45f0006476000800000000250000000c0000000100 0000250000000c00000001000000250000000c00000001000000 180000000c000000000000025400000054000000000000000000 00001a000000370000000100000088870741d1450741000000056

Interpretation:

The average net profit ratio was 6.2 percent. It has registered a highest percent of 6.9 percent in 2005-06 and lowest of 6.2 percent in 2009-10. it is due to increase in operating expenses.

Table:12 OPERATING

CYCLE

ANALYSIS

OF

VISAKA

INDUSRIES(In. days) 2009-10 34.5

LIMITED:Particulars Raw material conversion period Work in process 12 12 15 20 15.5 2005-06 2006-07 2007-08 39.5 34 40 2008-09 59

57

Finished goods conversion period Debtors conversion period Bills payable Operating cycle

39

50

65

57

47

33.5 37 87

38.5 11 123.5

30 17 133

38 28 146

39.5 9.5 127


Interpretation:In Visaka Industries Ltd; the operating cycle was low at 87 days in 2005-06 and highest of 146 in 2008-09 and it was reached to 127 days in 2009-10. It was due to increase the raw material conversion period that leads to decrease the 58

operating cycles. Table: 13

NO. OF O.C IN A YEAR OF VISAKA INDUSRIES LIMITED:Years Days Operating cycles (Days) 2005-06 2006-07 2007-08 2008-09 2009-10 360 360 360 360 360 87 123.5 133 146 127 No. of operating cycles in (Days) 4.13 2.91 2.7 2.4 2.8 a years


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Interpretation:Visaka Industries Ltd; had maintained 4.19 operating cycles in the year 200506. I.e. the company has converted the inventory into sales four times in a year. And it was decreased to 2.5 operating cycles in 2008-09, which means the company is maintaining low operating cycles.

1. From the analysis of schedule of changes in working capital, it is observed that the net working capital is increased from 3945.63 lakhs in 2004-05 to 15454.31 lakhs in 2008-09, which indicates efficient management of working capital. 2. The Current ratio of the company is above the standard (2:1) ratio through out the study period. It is increased from 2.73 times in 2004-05 to 3.69 times in 2008-09, which indicates that the company is able to meet its short-term obligations. 3. The average Quick ratio of the company is 1.7 times which is higher than the ideal ratio (1:1). The ratio has been increasing from 1.82 times in 2004-05 to 1.27 times in 2007-08 and reached to 2.45 times in 2008-09, which indicates that the liquidity position is high. 4. The average cash ratio of the company is 0.40 times which is lower than the standard norm (0.5:1). The company has been maintaining 15% of cash balance in current assets. There is nothing to worry about lack of cash if they have credit borrowing power.

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5. The average inventory turnover ratio of Visaka Industries Ltd is 8.8 times. The ratio has been decreasing from 12.64 times in 2005-06 to 10.29 times in 200708 and reached to 11.20 times in 2008-09. it reveals that inventory is turned over into sales is satisfactory. 6. The average debtor turnover ratio of the company is 8.9 times. The ratio is increased from 10.57 times in 2005-06 to 12 times in 2007-08, which indicates that the Company is in efficient in collections from the debtors. 7. The average Working Capital turnover ratio of the company is 3.07 times. The ratio is decreased from 3.27 times in 2004-05 to 2.45 times in 2008-09, which shows that the company is unable utilize the working capital to contribute to sales. 8. The average Gross profit ratio of the company is 29.2%.The ratio is increased from 29% in 2005 to 31% in 2007 and then it declined to 26% in 2008-09, which means the company was not able to produce the products at relatively lower cost. 9. The average Net profit ratio of the company is 6.62%.The ratio is decreased form 6.98% in 2004-05 to 6.62% in 2008-09 it is due to increase in the operating expenses. 10. In the Visaka Industries Ltd, the operating cycle was low at 87 days during 2004-05 and it is increased in the year 2007-08 at a maximum of 146 days. It is due to rapid increase in raw material conversion period. 11. Visaka Industries Ltd has maintained 4.19 operating cycles in the year 200405 i.e. the company has converted the inventories in to sales 4 times in a year. 61

And it is decreased to 2.5 operating cycles in 2007-08, which means the company is maintaining low operating cycles.

1. The Net Working Capital of Visaka Industries Ltd is good, but thecompanys working capital turnover ratio shows the utilization of working capital is not satisfactory. Therefore, it is suggested that the company should concentrate on the management of working capital to contribute to the sales.

2. The company must concentrate on Inventory holding period, becausein 2003-04, it was 28.5 days but it was increased to 34.5 days in 200708, which need to be decreased.

3. The company should control operating, general and administrationexpenses, which leads increase the profitability of the company.

4. The company must properly utilize its current assets, as thatprofitability can be improved as idle current assets would not earn any thing.

5. The company must adopt cost control techniques to produce productsat relatively lower cost, so that profitability can be improved.

6. The company should invest its surplus cash in short- term deposits forbetter returns.

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7. The company must adopt inventory management techniques like ABCAnalysis, JIT and EOQ analysis to reduce level of inventories of raw materials.

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wcm visaka

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