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C. Profitability Ratio:
The main objective of the company is to earn maximum profit. It is necessary to
have enough profit to meet different obligation of the firm. The position of the
profitability of the company is analyzed with the help of following ratio:
i) Gross Profit Margin (GPM):
The gross profit margin ratio expresses the relationship between gross profit and
sales. Gross profit is obtained by deducting cost of goods sold from net sales.
GPM =
ross rofit
ales
42
The gross profit margin ratio reflects the efficiency with which company produces
each unit of product. The higher percentage indicates the better efficiency of the
company.
ii) Net Profit Margin (NPM):
Net profit margin is calculated by dividing net profit by sales. Net profit is
obtained after deducting operating expenses and income tax from gross profit.
NPM =
et rofit after a
ales
his ratio is the overall measurement of the companys aility to earn net profit.
higher ratio is an indication of the higher overall efficiency of the business and
better utilization of total resources. Poor financial planning and low efficiency is
the indication of lower ratio.
iii) Operating Ratio (OR):
The operating ratio is an important ratio that explains the changes in the net profit
margin ratio. It shows the relationship between operating expenses and sales. It is
calculated by dividing the total operating expenses by sales.
OR =
ost of ood old petatin penses
ales
Higher ratio indicates the lower efficiency of the company and vice versa. Higher
operation ratio means small amount of operating income to meet interest,
dividends, etc.
iv) Return on Assets (ROA):
Return on assets is expressed as the relationship between net profit after taxes plus
interest and total assets. It measures the profitability of total fund of investment of
43
the firm. But it is not sufficient for the analysis as profitability of different sources
of fund for financing the total assets. It is computed by dividing net profit after tax
by total assets.
ROA =
et rofit after a
otal ssets
v) Return on Net Worth (RONW):
RONW is computed by dividing net profit after tax by net worth. It is also known
as capital employed.
RONW =
et rofit after a
et orth
It indicates the return to the shareholders, how well the firm has used the resources
of the owners. It judges whether the firm has earned of satisfactory return for its
shareholders or not. Higher the ratio higher the return to the shareholder will be
and vice-versa.
vi) Return on Working Capital (ROWC):
It is computed by dividing net profit after tax by current assets working capital. It
measures the profit width respect to current assets.
ROWC =
et rofit after a
urrent ssets
Higher the ratio, higher will be the utilization of current assets to earn profit and
vice-versa.
D. Turnover Ratio:
Turnover ratio indicates the relationship between sales and assets. It is also known
as activity, efficiency or assets utilization ratio. This ratio shows efficiency of
44
asset management, i.e. how efficient the asset management is? It means how
efficiently and rapidly firm can convert its assets into sales. The greater turnover
ratio indicates higher utilization of assets. Thus, it measures the degrees of
effectiveness in use of resources or fund by a firm. There are following turnover
ratios that can be calculated.
i) Working Capital Turnover (WCT):
It is computed by dividing sales by net working capital, i.e. different of
current assets and current liabilities.
WCT =
ales
et orin apital
More ratio show the utilization of net working capital and vice-versa.
ii) Inventory Turnover Ratio (ITR):
ITR measures how quickly inventory can be converted into sales. It is
the test of efficient inventory management. It is computed by
dividing sales by inventory. It is also computed by dividing cost of
goods sold by average inventory.
ITR =
ales
Inventory
or, ITR =
ost of oods old
verae Inventory
This ratio shows the number of time inventory is replaced during the
year. Higher inventory turnover indicates the good inventory
management and lower turnover suggests the management should
manage its inventory properly.
45
iii) Receivables Turnover Ratio (RTR):
RTR shows the relationship between credit sales and account
receivables of the company. It is also known as debtor turnover ratio. It
indicates the velocity of debt collection of the firm.
RTR =
redit ales
ccount eceivales
It indicates the number of times the receivables are turned over during
the year. It gives the general measure of the productivity of the
receivables investment. The higher ratio indicates the higher amount of
working capital and lower ratio vice-versa.
For the complimentary of this ratio, there is ratio called average
collection to collect amount receivables. It is computed by dividing
days in a year by receivables turnover. ACP is also known as Day Sales
Outstanding (DSO).
ACP =
ays in a ear
eceivale urnover
Or, ACP =
eceivales
verae ales per ay
=
eceivales
ales
iv) Cash and Bank Balance Turnover Ratio:
It shows the effectiveness of management on management in case of
application of cash in ordinary course of business. It measures how
rapidly cash can be converted into sales in the company. It is calculated
by dividing sales by cash and bank balance.
ash and an alance urnover atio
ales
ash and an alance
46
The higher ratio indicates, cash is rapidly converted in sales and good
cash management whereas low ratio indicates slow, weak cash
management.
E. Cash Conversion Cycle
ash flow concept is used for analyzin the effectiveness of a firms worin
capital management. The cash conversion cycle model reflects the length of time
between when the company makes payments and when it receives cash.
The following terms in this model:
1. Inventory Conversion Period
This period indicates the average length of time required to convert materials into
finished goods and then to sell those goods. It is calculated by divided inventory
on hand by cost of goods sold per day.
Inventory onversion eriod
Inventory
o
2. Receivable Collection Period
This period determines the average length of time required to convert receivables
into cash that is to collect cash following a sale. It is calculated by dividing
accounts receivable by the average credit sales per day.
eceivale ollection eriod
eceivale
ales
3. Payables Deferral Period
The payable deferral period is the average length of time between the purchase of
materials and labor and the payment of cash for them. This period is calculated as:
ayales eferral eriod
ayales
ost of oods old
47
4. Cash Conversion Cycle
The cash conversion cycle nets out the three periods just defined and thus equal
the lenth of time etween the firms actual cash ependitures for productive
resources and its own cash receipts from the sale of products. The cash conversion
cycle equals the average length of time cash is tied up in current assets. Cash
conversion cycle is calculated as:
Inventory onversion eriodeceivale onversion eriod
ayales eferral eriod
F. Leverage Ratio:
Leverage ratio or capital structure ratio are also known as long-term solvency
ratio. Leverage ratios are used to measure the financial risk and to know that how
the firm fares is using its debt for the benefits of shareholders. Leverage ratio also
reflects the proportion of debt in total financing. There are different leverage
ratios. Out of them, only two important ratios are given below:
i) Short-term Financing (STF) to Long-term Financing (LTF) Ratio:
This ratio is computed by dividing short-term financing amount by the
long-term financing. Fund raised from short-term financing can be used
to increase current asset, to meet daily expenses.
atio
ii) Short-term Financing (STF) to Total Financing (TF) Ratio:
This ratio shows the proportion of short-term financing out of total
financing amount. This ratio is computed by dividing short-term
financing by total financing. If a firm uses more short-term financing
then an aggressive policy is said to be followed by the firm.
atio
48
3.7.2 Statistical Tools:
The statistical tools are essential to measure the relationship of two or more
variables. The statistical tools are as follows:
i) Coefficient of Correlation or Covariance Method:
Coefficient of correlation is defined as the association between the dependent
variables and independent variables. It is a method of determining the relationship
between these two variables. If the two variables are so related the change in the
value of dependent variable, then it is said to have correlation coefficient. For this,
the method of Karl earsons coefficient of correlation is used:
r
ddy
d dy
[d
(d)
] [dy
(dy)
]
Where,
x = The First Variable,
y = The Second Variable,
N = Number of Years (Observations),
dx = Deviation of first variable from assumed mean,
dy = Deviation of second variable from assumed mean.
Assumption:
i) If r = 0, there is no relationship between the variables.
ii) If r < 0, there is negative relationship between the variables.
iii) If r > 0, there is positive relationship between the variables.
iv) If r = +1, the relationship is perfectly positive.
v) If r = -1, the relationship is perfectly negative.
49
ii) Probable Error (P.E.):
P.E. of r is very useful in interpreting the value of r and is worked out as under for
Karl earsons oefficient of orrelation.
...
(r
If r < P.E., it is not all significant, no evidence of correlation between variables.
If r > P.E., there is no correlation, but not significant.
If r > 6P.E. and greater than 0.5, it is considered significant at all.
Trend Analysis:
The trend line describes the average relationship between the two series. In fact,
there is no difference between the lines of the best fit and the regression lines
through the term line of the best fit is generally used when x series related to time
and y series to term line of the value of the variable. If both x and y series are
variable, the lines of best fit are known as line of regression. The equation
describing the regression lines is called regression equation.
a
Where,
Y = The estimated value of y for given value of x obtained from the line of
regression of y on x.
A = y intercept/or mean of y value
B = slope of trend line/ rate of change
x = the variable in time series analysis represent time
a
y
n
50
Where,
a= regression Constant
b= regression Coefficient of change
y = the total value of dependent variable
y =the total value of the product of items in the two series
) and two
independent variables are Current Assets (
) so that
the multiple regression equation for the observed data is given by:
1
ab
1
2
b
2
3
.i
88
Table 4. 34
Multiple Regression Analysis of NPAT on CA & CL
Variables Multiple Regression
Equation
Value of
Constant
a
Regression
Coefficient
b1
Regression
Coefficient
b2
NPAT(
1
)
ON CA(
2
)
and CL(
3
)
1
110.10.30
2
0.07
3
110.1 0.30 0.07
Source: Appendix IX
The intercept a = denotes when the amount of CA and CL are zero, the
expected change in NPAT is i.e. the NPAT is predicted to decrease by
million during the years, the slope b1 = represents that each increase
in CA of 1 million keeping CL as constant, we predict that the expected changing
NPAT is i.e. the NPAT is predicted to increase by million for each 1
million increase in CA. The slope b = represents that each increase in CL of
1 million keeping CA as constant, we predict that the expected changing NPAT is
i.e. the NPAT is predicted to decrease by million for each 1 million
increase in CL.
4.12 Major Findings:
The major findings of the study during the period of five years in NDCL from the
analysis of secondary sources are summarized below:
i) The major components of current assets of NDCL are cash and bank,
sundry debtors, inventory and advance deposits. During the study years
inventory holds the minor portions of NDCLs current assets i.e. 1.45%
average. The average percentage of cash and bank, sundry debtors and
advance deposits are 56.05%, 11.26% and 31.16%. Because in many
company not any terms are constitute as a current assets.
89
ii) The proportion of current assets to total assets is fluctuating during the
study period. It has been fluctuated from 50.28% to 66.69%. The fiscal
year 2066/67 has the highest proportion of current assets to total asset of
66.69% during the fine study period. And fiscal year 2068/69 has the
lowest proportion of 50.28%. Because it changes with activity levels.
iii) Higher the proportion of current assets to fixed assets higher the risk
and return will be. So, in fiscal year 2066/67, the proportion of current
assets to fixed assets is highest with 3.34 times, it means that during this
year, risk and return is more than in other study years. And in fiscal year
2067/68, it has proportion of 0.84 times which is lowest with low risk
and return than in other study year. Because management follows
consistence investment.
iv) The proportion of cash and bank balance to current assets is decreasing
during the study period except in 2068/68. It has 64.54%, 63.08%,
61.72%, 43.57% and 47.36% proportion of cash and bank balance to
current assets from fiscal year 2064/65 to 2068/69 respectively.
v) The average proportion of cash and bank balance to total assets is
33.61% during the study period. Higher the proportion of cash and bank
balance to total assets, lower the risk and return and vice-versa. In fiscal
year 2065/66, the company has highest ratio among the study period, it
means it has low risk and return. And in fiscal year 2067/68, it has
lowest ratio 22.06% with high risk and return. Overall, the company has
followed the conservative working capital policy.
vi) The proportion of inventory to total assets is fluctuating during the
study period. The company has 1.08%, 0.39%, 0.33%, 1.26% and
0.99% of proportion of inventory to total assets respectively from fiscal
year 2064/65 to 2068/69. The firm has highest ratio in fiscal year
2067/68 and lowest in fiscal year 2066/67.
90
vii) The average proportion of inventory to current assets is 1.45% during
the study period. The proportion has been fluctuated from 0.49% to
2.49% during the study year. In fiscal year 2067/68 it has highest
proportion and lowest in fiscal year 2066/67. Because only 1.45% parts
is taken over by inventory so that result is obtained
viii) The average proportion of receivable to total assets is 6% during the
five study year. Higher degree of receivable result unnecessary hold up
of working capital and lower degree of receivable may cause negative
result in Revenue level. it depends upon the total assets.
ix) The proportion of receivable to current assets is decreasing during the
study period. In fiscal year 2064/65, it has highest ratio of 13.27% and
in fiscal year 2068/69 it has lowest of 8.15%. Picture is different in case
of service organization like NDCL, receivables is increasing in lower
rate than current assets over the year
x) The average current ratio of NDCL is 4.61 times during the study
period. This ratio is quite high to the standard current ratio of 2 times. It
means that the firm has enough current assets to pay current obligations.
In fiscal year 2067/68, the firm has best ratio i.e. 5.05 times among the
five study years. Because current assets & current liabilities are directly
proportional to the standard current ratio i.e. 2 times.
xi) The average quick ratio is 4.34 times during the study period, which is
higher than the standard of 1 time. In fiscal year 2066/67, it has highest
ratio among the other studied year which is 5.03 times. And in fiscal
year 2067/68, it has lowest ratio of 3.74 times which is also higher than
standard ratio. Because the proportional of inventory is comparatively
lower in every year than other current assets.
xii) The cash ratio is not so fluctuating during the study period. The average
cash ratio is 2.56% during the study period. The company has highest
cash ratio during the fiscal year 2066/67 and lowest during the fiscal
91
year 2067/68. Because it depends upon the current liabilities & value of
itself .thus its value is affected in accordance with its fluctuation.
xiii) The average working capital to current assets ratio is 78% during the
study period. It has highest ratio in fiscal year 2067/68 and lower in
fiscal year 2064/65. Because working capital to current ratio is directly
proportional to current assets & inversely proportional to current
liabilities.
xiv) Profitability is the measure of efficiency. The profitability position is
analyzed from various angles. The gross profit margin of NDCL is
fluctuating over study period. The highest gross profit margin of
66.09% in fiscal year 2065/66 and lowest of 47.62% in fiscal year
2068/69.
xv) Turnover ratio measures the degree of effectiveness in use of resource
or fund by a company. The turnover position is analyzed from various
angles. The average working capital turnover is 0.87 times during the
study period. The average inventory turnover ratio is 71.78 times during
the five study years. The average receivable turnover ratio is 59 days.
xvi) The average short-term financing to long-term financing ratio is 0.15
times during the study period. The short-term financing to total
financing ratio is fluctuated from 0.10 times to 0.17 times.
xvii) The trend analysis of Revenue of NDCL is increasing trend and actual
value of Revenue is also increasing. Same Inventory & current assets
actual value is increasing trend and trend value is also increasing trend.
Current liabilities show same behavior i.e., trend value is increasing
trend over the study period.
xviii) In NDCL the regression equation of NPAT on Inventory or Current
Assets shows if independent variables (Inventory or CA) are zero the
dependent variables (NPAT) must be positive and increase in
92
independent variables, the dependent variables must be increase by
large amount.
xix) The regression equation of CL on CA shows that if CA is zero the CL
must be positive on other hands if each increase in CA, the CL must be
increase by 0.156 millions.
xx) The multiple regression equation of NPAT on CA & CL shows that if
CA and CL are zero the NPAT must be negative and if per rupees of CA
increase (keeping CL as constant) the NPAT is increases. If per rupees
of CL increase (keeping CA as constant) the NPAT is decreases.
93
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary:
The first chapter describes the brief introduction of the study, history of
telecommunication services and establishment of Nepal Doorsanchar Company
Limited. This chapter includes background, statement of problem, objectives of
the study, and significances of the study and organization of the study as a whole.
The second chapter is review of literature. This chapter deals with the general
concept of the writer and thesis towards the working capital management. This
includes the opinion of different writers regarding with the thesis topic. It also
includes review of pervious related research studies and previous student. The
third chapter is research methodology. It has included the research design. It
present the nature and sources of data, data collection and processing technique
and financial and statistical tools used. This chapter gives the knowledge about
various ratios and Karl Pearsons Correlation Coefficient and Probable Error. The
fourth chapter is presentation and analysis of data. An attempt to analyze the
working capital policy and trade off between liquidity and profitability of NDCL
during five fiscal years (2064/65 to 2068/69) has been done. For the purpose of the
analysis of composition of current assets and current liabilities, proportion of
current assets to total assets and fixed assets, proportion of cash and bank balance
to total assets and current assets, proportion of inventory to total assets and current
assets, proportion of receivable to total assets and current assets have been
analyzed. It has also analyzed the current ratio, profitability ratio, turnover ratio
and leverage ratio in this chapter with the major finding from the result of
calculation. And in the last chapter an attempt has been made to present summary,
some suggestion for NDCL as recommendation and lastly conclusions about the
study.
94
The basic objective of this study is to examine the management of working capital
of NDCL. To accomplish these objectives set earlier in first chapter, the necessary
data as from secondary source are collected from financial statements of the
NDCL. The secondary data has been analyzed through ratio analysis as a financial
tools and correlation coefficient as a statistical tool. The major ratio analysis
consists of composition of working capital position, liquidity position, turnover
position, profitability position and leverage position. In order to test the
relationship between the various variable of working capital, Karl Pearsons
Correlation Coefficient (r) is calculated and analyzed.
5.2 Conclusion:
In conclusion, it can be said safely that the working capital management cannot be
neglected by NDCL Otherwise; it can seriously erode its financial viability in long
run. Thus, managers must understand the factors determining working capital
needs because surplus of working capital has no earning and do not increase the
value of the company. The proportion of current assets with respect to total assets
and net fixed assets in NDCL shows that current assets absorb high percentage of
those total assets, as the higher ratio indicates the greater amount of working
capital which will decrease risk and profitability. It is due to higher proportion of
cash and cash equivalent and receivables. There is positive correlation between
current assets and total assets as well as statically significant and there is
significant difference between two variables which could adversely affect in the
firms wealth maximization goal is the long run.
Inventory management is in low priority of Service Company. It absorbs lower
percentage of total current assets which means less funds tie-up of in it. So far as
liquidity is concerned, it is a lease liquid current asset in itself. There is the
positive correlation in between current asset and inventory. But the management
of inventory is unsound.
95
Cash constitute an important part of assets of the firm. The profitability position of
the NDCL during the study period is satisfactory. Although it followed
conservative working capital which reduces risk but hamper in profitability in long
run. So, the firm can improve it by following appropriate working capital policy
which could maximize its profitability.
5.3 Recommendation:
Based on the finding of the study the following recommendations are forwarded
for the improvement of the working capital management of NDCL
i) Effective Working Capital Management:
Financial situation is sound. But they must follow appropriate working capital
policy not only conservative. Beside this, there should be policy to prevent the
holding of excessive and inadequate current assets in the firm. In NDCL the most
important current assets are cash and cash equivalent, loan, advance and others
which are given below:
ii) Effective Management of Cash:
The function of investment in money assets is to meet operational requirements in
day to day business, to provide a reserve of liquidity for major schedule outflows
of cash, to exploit opportunities, to avoid unexpected drains of cash and so on.
There are many ways to effective management of excess cash in NDCL such as:
investment in marketable securities, new technological projects etc. If cash
appears more than requirement, the company showed invests such ideal fund in
different service area such as hydropower plant, software develop company, spare
parts production company for portfolio diversification to minimize risk of
uncompetitive in the market.
96
iii) Effective Management of Receivable:
In NDCL there is lower investment in receivable. But there should be neither over
investment nor lower investment in receivable. These policies involving receivable
management involves trade-off between risk and return. The main determinants of
the size of investment are terms of sale, the selection of customers to give credit,
efficiency in collecting receivables and so on. Collection of excess bill of
customer who left the service and take new number or line should be cross
checked.
iv) Effective Inventory Management:
Inventory absorbs very low percentage of current assets. Spare parts of equipment,
service equipment although in low portion are important for service organization
should be kept properly according to sales plans. For this company should make
effective sales plan which helps for immediate marketability. The management
must minimize the wastage, scarps, there should be good store-keeping system
better material handling system and timely inspection system. Moreover the
useful, the non-moving and absolute items should be discarded to avoid
unnecessary blockage up of inventory.
v) Improvement of Turnover Position:
It is found that net working capital turnover is very low which indicates that
utilization of net working capital higher level of current assets with sales have
contributed for lower turnover. If the company will manage working capital
properly, the net working capital will be higher.
vi) Minimizing the Operating Cost:
During the period of study, the NDCL is having high cost of maintenance and
operation expenses. The management should give attention towards the
maintenance practice, unnecessary expenses, misuse of facilities, heavy expenses
on overheads which are the major causes for high operating cost.
97
vii) Prepare Effective Sales Plan:
Sales directly affect the need of current assets. As the sales increase the working
capital level will also increase. In the absence of sales forecast the level of current
assets cannot be forecasted. But for its market competition and service delivery
should also be analyzed.
viii) Positive Attitude towards Risk:
Since, the risk is the opportunity for company to make profit; that management
should not consider it is dangerous. It is the ability to manage the current assets
properly and efficiently. NDCL is not in risk now but it cannot be said it is free
from risk in long run because of adoption of conservative working capital policy.
98
BIBLIOGRAPHY
Books:
Acharya, K. (2008). Problems and Impediment in the Management of Working
Capital in Nepalese Enterprises, New Delhi: National Book Organization.
Gitman, L. J. (2006). Principles of Management Finance, New York: Harper &
Raw.
Khan, M. Y., Jain, P. K. (2006). Financial Management Text & Problems, New
Delhi: Tata McGraw Hill.
Kuchhal, S. C. (2005). Corporate Finance, New Delhi: Chaitanya Publishing
House.
Muny, D. B. (1996). Industrial Development Guide, Accelerating Economic
Growth, New York: Mc Grew hill Book Company.
Pandey, I. M. (2009). Financial Management, New Delhi: Vikash Publishing
House Pvt. Ltd.
Pradhan, R. S. (2006). Management of Working Capital, New Delhi: National
Book Organization.
Srivastav, R. M. (2006). Financial Decision Making, text, Problem & Cases, New
Delhi: Sterling Publishers Pvt. Ltd.
Weston, J. F., Brigham, E. (2008). Managerial Finance, New York: The Dryden
Press Hinsdale.
Journals:
Acharya, K., (1985). The Management of Working Capital in the Public
Enterprises of Nepal, Nepalese Development Studies.
Altman, E. I. (2000). Zeta Analysis: A New Model to Identity Bankruptcy Risk
Corporations, Journal of Banking and Finance.
Pradhan, R. S. (1986). The Demand for Working Capital by Nepalese Corporation,
The Nepalese Management Review, Vol. 8.
99
Shrestha, M. K. (1983). Working Capital Management: A Case Study on Financial
Results and Constraints, Economical Bulletin, Vol. 8, Kathmandu.
Ven Horne, J. C. (2005). A Risk Return analysis of a Firm's Working Capital
position, Engineering Economist.
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Dissertation:
Gyawali, K. (2013). Working Capital Management of Sumi Distillery Private
Limited, An Unpublished Dissertation, MBS, T.U.
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An Unpublished Dissertation, MBS, T.U.
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(NLL), An Unpublished Dissertation, MBS, T.U.
101
Appendix-1
Examine the relationship between Current Assets and Total Assets
(Rs. In Millions)
Year(N)
Current
Assets(X)
Total
Assets(Y)
2064/65 25000.47 38675.47 -11119.29 123638655.79 -25204.65 635274522.54 280257895.56
2065/66 28837.30 46280.63 -7282.47 53034379.00 -17599.50 309742417.34 128167846.02
2066/67 35015.36 52504.65 -1104.40 1219703.30 -11375.48 129401539.55 12563100.12
2067/68 38489.55 76021.56 2369.78 5615853.33 12141.43 147414375.88 28772513.16
2068/69 53256.15 105918.33 17136.39 293655702.21 42038.20 1767210329.07 720382808.05
dx=
0.00
dx
2
477164293.62
dy
0.00
dy
2
2989043184.38
dx.dy
1170144162.91
102
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
1170144162.91
477164293.622989043184.38
=0.98
Then, P.E.0.6745
1-r
2
N
0.6745
1-0.98
2
5
0.01
103
Examine the relationship between Current Assets and Fixed Assets
(Rs. In Millions)
Year(N)
Current
Assets(X)
Fixed
Assets(Y)
2064/65 25000.47 25193.71 -11119.296 123638743.5 -11705.9174 137028502 130161560.5
2065/66 28837.3 29849.39 -7282.466 53034311.04 -7050.23653 49705835.15 51343107.83
2066/67 35015.36 31150.35 -1104.406 1219712.613 -5749.28426 33054269.51 6349544.033
2067/68 38489.55 45642.52 2369.784 5615876.207 8742.89247 76438168.8 20718766.7
2068/69 53256.15 52662.18 17136.384 293655656.6 15762.5457 248457847.4 270113036.2
dx0
dx
2
477164300
dy0
dy
2
544684622.9
dx.dy
478686015.2
104
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
478686015.2
477164300544684622.9
=0.94
Then, P.E.0.6745
1-r
2
N
0.04
105
Examine the relationship between Current Assets and Cash and Bank Balance
(Rs. In Millions)
Year(N) CBB(X)
Current
Assets(Y)
2064/65 16,135 25000.47 -3450.87 11908511.53 -11119.29 123638655.79 38371243.90
2065/66 18,191 28837.30 -1394.33 1944155.57 -7282.47 53034379.00 10154165.82
2066/67 21,612 35015.36 2026.15 4105278.02 -1104.40 1219703.30 -2237682.09
2067/68 16,769 38489.55 -2816.18 7930886.64 2369.78 5615853.33 -6673731.80
2068/69 25,221 53256.15 5635.24 31755877.40 17136.39 293655702.21 96567564.31
dx
0.00
dx
2
57644709.16
dy
0.00
dy
2
477164293.62
dx.dy
136181560.14
106
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
136181560.14
57644709.16477164293.62
=0.82
Then, P.E.0.6745
1-r
2
N
0.6745
1-0.82
2
5
0.10
107
Examine the relationship between Inventory and Total Assets
(Rs. In Millions)
Year(N) CBB(X)
Current
Assets(Y)
2064/65 416.42 38675.47 -138.89 19290.35 -25204.65 635274522.54 3500666.60
2065/66 180.13 46280.63 -375.18 140761.72 -17599.50 309742417.34 6603020.09
2066/67 172.27 52504.65 -383.04 146721.12 -11375.48 129401539.55 4357285.67
2067/68 958.05 76021.56 402.74 162198.48 12141.43 147414375.88 4889824.85
2068/69 1049.69 105918.33 494.38 244406.79 42038.20 1767210329.07 20782641.78
dx
0.00
dx
2
713378.44
dy
0.00
dy
2
2989043184.38
dx.dy
40133438.99
108
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
40133438.99
713378.442989043184.38
=0.87
Then, P.E.0.6745
1-r
2
N
0.6745
1-0.87
2
5
0.07
109
Examine the relationship between Inventory and Current Assets
(Rs. In Millions)
Year(N)
Inventory
(X)
Current
Assets(Y)
2064/65 416.42 25000.47 -138.89 19290.35 -11119.29 123638655.79 1544355.11
2065/66 180.13 28837.30 -375.18 140761.72 -7282.47 53034379.00 2732253.69
2066/67 172.27 35015.36 -383.04 146721.12 -1104.40 1219703.30 423032.19
2067/68 958.05 38489.55 402.74 162198.48 2369.78 5615853.33 954401.83
2068/69 1049.69 53256.15 494.38 244406.79 17136.39 293655702.21 8471803.04
dx
0.00
dx
2
713378.44
dy
0.00
dy
2
477164293.62
dx.dy
14125845.86
110
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
14125845.86
713378.44477164293.62
=0.77
Then, P.E.0.6745
1-r
2
N
0.6745
1-0.77
2
5
0.12
111
Examine the relationship between Inventory and Current Assets
(Rs. In Millions)
Year(N)
Current Assets
(X)
Current
Liabilities
(Y)
2064/65 25000.47 6478.04 -11119.29 123638655.79 -1270.22 1613450.08 14123908.75
2065/66 28837.30 6718.05 -7282.47 53034379.00 -1030.21 1061326.14 7502451.10
2066/67 35015.36 6929.34 -1104.40 1219703.30 -818.93 670639.95 904423.44
2067/68 38489.55 7858.02 2369.78 5615853.33 109.76 12046.79 260101.89
2068/69 53256.15 10757.85 17136.39 293655702.21 3009.59 9057641.73 51573521.73
dx
0.00
dx
2
477164293.62
dy
0.00
dy
2
12415104.68
dx.dy
74364406.91
112
Now, Correlation(r)
dxdy-
dx dy
N
[dx
2
-
(dx)
2
N
] [dy
2
-
(dy)
2
N
]
74364406.91
477164293.6212415104.68
=0.97
Then, P.E.0.6745
1-r
2
N
0.6745
1-0.77
2
5
0.02
113
Appendix-1
Trend Analysis of Sales of NDCL
Fiscal Year
Sales()
2064/65 1 -2 16694.26 4 -33388.52
2065/66 2 -1 20628.95 1 -20628.95
2066/67 3 0 25058.30 0 0.00
2067/68 4 1 26406.99 1 26406.99
2068/69 5 2 32798.05 4 65596.11
N=5 X15
Y
121586.56
(x)
2
10
x.Y 37985.63
Let Trend line be
Yabx......(I)
Where x X - Middle year
a
Y
N
121586.56
5
24317.31
b
x.Y
x
2
37985.63
10
3798.56
Substituting the values oI a and b, the equation oI the trend line is
Y24317.31(24317.31)x
114
For trend values,
Fiscal Year(N) Trend Values
2064/65 -2 Yabx
1
16720.19
2065/66 -1 Yabx
2
20518.75
2066/67 0 Yabx
3
24317.31
2067/68 1 Yabx
4
28115.88
2068/69 2 Yabx
5
31914.44
2069/70 3 Yabx
6
35713
2070/71 4 Yabx
7
39511.57
2071/72 5 Yabx
8
43310.13
2072/73 6 Yabx
9
47108.69
2073/74 7 Yabx
10
50907.26
Appendix-III
Trend Analysis of Inventory of NDCL
Fiscal
Year
Inventory()
2064/65 1 -2 416.42 4 -832.85
2065/66 2 -1 180.13 1 -180.13
2066/67 3 0 172.27 0 0.00
2067/68 4 1 958.05 1 958.05
2068/69 5 2 1049.69 4 2099.38
N=5 X15
Y2776.57
(x)
2
10
x.Y
2044.45
115
Let Trend line be
Yabx......(I)
Where x X - Middle year
a
Y
N
2776.57
5
555.31
b
x.Y
x
2
2044.45
10
204.44
Substituting the values oI a and b, the equation of the trend line is
Y555.31(204.44)x
For trend values,
Fiscal Year(N) Trend Values
2064/65 -2 Yabx
1
146.42
2065/66 -1 Yabx
2
350.87
2066/67 0 Yabx
3
555.31
2067/68 1 Yabx
4
759.76
2068/69 2 Yabx
5
964.20
2069/70 3 Yabx
6
1168.65
2070/71 4 Yabx
7
1373.09
2071/72 5 Yabx
8
1577.54
2072/73 6 Yabx
9
1781.98
2073/74 7 Yabx
10
1986.43
116
Appendix-IV
Trend Analysis of Current Assets of NDCL
Fiscal
Year
Current
Assets()
2064/65 1 -2 25000.47 4 -50000.95
2065/66 2 -1 28837.30 1 -28837.30
2066/67 3 0 35015.36 0 0.00
2067/68 4 1 38489.55 1 38489.55
2068/69 5 2 53256.15 4 106512.30
N=5 X15
Y180598.83 (x)
2
10
x.Y
66163.60
Let Trend line be
Yabx......(I)
Where x X - Middle year
a
Y
N
180598.83
5
36119.76
b
x.Y
x
2
66163.60
10
6616.36
Substituting the values oI a and b, the equation oI the trend line is
Y36119.76(6616.36)x
117
For trend values,
Fiscal Year(N) Trend Values
2064/65 -2 Yabx
1
22887.04
2065/66 -1 Yabx
2
29503.41
2066/67 0 Yabx
3
36119.77
2067/68 1 Yabx
4
42736.13
2068/69 2 Yabx
5
49352.49
2069/70 3 Yabx
6
55968.85
2070/71 4 Yabx
7
62585.21
2071/72 5 Yabx
8
69201.57
2072/73 6 Yabx
9
75817.93
2073/74 7 Yabx
10
82434.29
Appendix-V
Trend Analysis of Current Liabilities of NDCL
Fiscal
Year
Current
Liabilities()
2064/65 1 -2 6478.04 4 -12956.09
2065/66 2 -1 6718.05 1 -6718.05
2066/67 3 0 6929.34 0 0.00
2067/68 4 1 7858.02 1 7858.02
2068/69 5 2 10757.85 4 21515.71
N=5 X15
Y38741.31 (x)
2
10
x.Y9699.58
Let Trend line be
Yabx......(I)
118
Where x X - Middle year
a
Y
N
38741.31
5
7748.26
b
x.Y
x
2
9699.58
10
969.95
Substituting the values oI a and b, the equation oI the trend line is
Y7748.26(969.95)x
For trend values,
Fiscal Year(N) Trend Values
2064/65 -2 Yabx
1
5808.35
2065/66 -1 Yabx
2
6778.30
2066/67 0 Yabx
3
7748.26
2067/68 1 Yabx
4
8718.22
2068/69 2 Yabx
5
9688.18
2069/70 3 Yabx
6
10658.14
2070/71 4 Yabx
7
11628.09
2071/72 5 Yabx
8
12598.05
2072/73 6 Yabx
9
13568.01
2073/74 7 Yabx
10
14537.97
119
Appendix VI
Regression of NDCL
Let Inventory (X) and NPAT (Y)
Computation of Regression Equations
416.42 7778.75 3239261.37 173409.1 60509026.92
180.13 10178.02 1833383.91 32447.39 103592187.2
172.27 10775.15 1856256.57 29677.62 116103953.7
958.05 12120.30 11611883.36 917864.7 146901642.9
1049.69 11605.27 12181923.78 1101847 134682282.1
X
2776.57
Y
52457.50
XY
30722708.99
X
2
2255246
Y
2
561789092.7
Let the regression equation NPAT (Y) on Inventory (X) be
Y a bx----------------------- (i)
To find the values of a and b we have the following two normal equations
_Y na b _X ---------------- (ii)
_XY a _X b _X -------- (iii)
Substituting the values of n, _X, _Y, _XY, _X in equation (ii) & (iii)
we have,
52457.50 5a 2776.57b --------------- (iv)
30722708.99 2776.57a 2255246b --------------- (v)
Solving (ii) & (iii),a 9251.99, b 2.23
Substituting the values of a & b in equation (i), the regression equation
NPAT (Y) on Inventory (X) is Y 9251.99 2.23 X
120
Appendix VII
Regression of NDCL
Let CA (X) and NPAT (Y)
Computation of Regression Equations
25000.47 7778.75 194472556.79 625023691 60509026.92
28837.30 10178.02 293506703.38 831589594.6 103592187.2
35015.36 10775.15 377295956.64 1226075722 116103953.7
38489.55 12120.30 466504786.35 1481445078 146901642.9
53256.15 11605.27 618051991.58 2836217641 134682282.1
X
180598.83
Y
52457.50
XY
1949831994.74
X
2
7000351726
Y
2
561789092.7
Let the regression equation NPAT (Y) on Current Assets (X) be
Y a bx----------------------- (i)
To find the values of a and b we have the following two normal equations.
_Y na b _X ---------------- (ii)
_XY a _X b _X -------- (iii)
Substituting the values of n, _X, _Y, _XY, _X in equation (ii) & (iii)
we have,
52457.50 5a 180598.83b --------------- (ii)
1949831994.74 180598.82a 7000351726b --------------- (iii)
Solving (ii) & (iii),a 6332.168, b 0.115
Substituting the values of a & b in equation (i), the regression equation
NPAT (Y) on Current Assets (X) is Y 6332.168 0.115X
121
Appendix VIII
Regression of NDCL
Let CA (X) and CL (Y)
Computation of Regression Equations
25000.47 6478.04 161954193.44 625023691 41965066.53
28837.30 6718.05 193730525.62 831589594.6 45132258.51
35015.36 6929.34 242633202.47 1226075722 48015689.31
38489.55 7858.02 302451590.37 1481445078 61748468.37
53256.15 10757.85 572921852.93 2836217641 115731404
X
180598.83
Y
38741.31
XY
1473691364.83
X
2
7000351726
Y
2
312592886.7
Let the regression equation Current Liabilities (Y) on Current Assets (X) be
Y a bx----------------------- (i)
To find the values of a and b we have the following two normal equations.
_Y na b _X ---------------- (ii)
_XY a _X b _X -------- (iii)
Substituting the values of n,_X, _Y, _XY, _X in equation (ii) & (iii) we
have,
38741.31 5a 180598.83b --------------- (ii)
1473691364.83 180598.83a 7000351726b --------------- (iii)
Solving (ii) & (iii),a 2119.126, b 0.156
Substituting the values of a & b in equation (i), the regression equation Current
Liabilities (Y) on Current Assets (X) is Y 2119.126 0.156 X
122
Appendix IX
Multiple Regression of NDCL
Let NPAT (X1) on CA (X2) and CL (X3)
Computation of Regression Equations
NPAT(X
1
) CA(X
2
) CL(X
3
) X
1
X
2
X
2
X
3
X
1
X
3
X
1
2
X
2
2
X
3
2
7778.75 25000.47 6478.04 194472556.8 161954193.4 50391123.63 60509026.92 625023691 41965066.53
10178.02 28837.30 6718.05 293506703.4 193730525.6 68376526.46 103592187.2 831589594.6 45132258.51
10775.15 35015.36 6929.34 377295956.6 242633202.5 74664659.44 116103953.7 1226075722 48015689.31
12120.30 38489.55 7858.02 466504786.4 302451590.4 95241542.66 146901642.9 1481445078 61748468.37
11605.27 53256.15 10757.85 618051991.6 572921852.9 124847785.7 134682282.1 2836217641 115731404
X
1
52457.50
X
2
180598.8
X
3
8741.31
X
1
X
2
1949831995
X
2
X
3
1473691365
X
1
X
3
413521637.9
X
1
2
561789092.7
X
2
2
7000351726
X
3
2
312592886.7
Let the multiple regression equation Net Profit after Tax(X1) on Current Assets(X2) and Current Liabilities(X3)
X
1
ab
1
X
2
b
2
X
3
.......(i)
The value of constant a, b1 and b2 can be determined by solving following three normal equation simultaneously.
_X
1
na b
1
_X
2
b
2
X
3
.......(ii)
_X
1
X
2
a_X
2
b
1
_X
2
2
b
2
X
2
X
3
..(iii)
_X
1
X
3
a_X
3
b
1
X
2
X
3
b
2
_X
3
2
..(iv)
Substituting the values of normal equation we get:
52457.50 5a 180598.8b
1
8741.31b
2
..(v)
1949831995 180598.8a 7000351726b
1
1473691365b
2
...(vi)
413521637.9 8741.31a 1473691365b
1
312592886.7b
2
.....(vii)
a-110.18 , b
1
0.30, b
2
-0.07
Now substituting the value of a,
and