1.

1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working capital management has acquired great importance in recent times. The
brains in every organization is now days spending their previous time to resolve the
problems of working capital. Working capital is an integral part of the overall
financial management. The management of chart assets and chart team sources of
financing is working capital management.
Every business needs funds for two purposes.
For its establishment.
To carry out its day to day operation
Funds are required to create production facilities through purchase of fixed assets
such as plant, machinery, land, building, furniture etc. Investments in these assets
represent that part of firm's capital which is blocked on permanent basis and is called
fixed capital. Funds are also needed for short term purposes for the purchase of raw
materials, payment of wages and other day to day expenses. These funds are known as
gross capital. In layman language working capital refers to that part of firm's capital
that is required for financing short term assets such as cash, debtor, inventory and
marketable securities. The main aim of financial management is to maximize
shareholder's funds. It is possible only when company earn profit. The amount of such
profit depends upon magnitude of value.
There is always a time gap between value of goods and receipt of cash. Working
Capital is required for this period. The main aim of working capital management is to
manage the firm's current assets and current liabilities. This is because if firm can't
maintain the proper level of working capital it becomes insolvent and forced into
bankruptcy. The interaction between current assets and current liabilities is main
theme of theory of working capital. Working capital is life blood and controlling
nerve of business.
MEANING OF WORKING CAPITAL
The term' working capital' refers to the firms total current assets. It is also termed as
gross 'working capital' since the term' working capital' according to the surrounding
terminology is used for the difference of current assets and current liabilities. In case
the term working capital is used for current assets the term used for the excess of
current assets over current liberalities is networking capital.
2

1.1.1 CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital
(a) Balance sheet concept.
(b) Operating cycle or circular flow concept.
BALANCE SHEET CONCEPT
There are two interpretations of working capital under the balance sheet concept.
(a) Gross working capital
(b) 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. Thus, the gross working
capital is the capital invested in total current assets of the enterprise.
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. Examples
of current assets are:
Table 1.1 Constituents Of Current Assets
1

Cash in hand and bank balances

Bills Receivables

Sundry Debtors (less provision for bad debts).

Short-term loans and advances

Inventories of stocks, as
(a) Raw materials,
(b) Work-in-process
(c) Stores and spares
(d) Finished goods

Temporary Investments of surplus funds.

Prepaid Expenses.

Accrued Incomes.

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, or say:
Net Working Capital = Current Assets Current Liabilities
Net working capital may be positive or negative .when the current assets 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 included to be paid ordinary course of business within a
short period of normally one accounting year out of the current assets or the income
of the business examples of current liabilities are:
Table 1.2 Constituents Of Current Liabilities

1.

Bills Payable.

Sundry Creditors or Accounts Payable.

3.

Accrued or Outstanding Expenses

4.

Short-term loans, advances and deposits.

5.

Dividends Payable.

6.

Bank Overdraft.

7.

Provision for taxation, if it does not amount to appropriation of profits.

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. The gross
concept is sometimes preferred to the net concept of working capital for the following
reasons:
1. It enables the enterprise to provide correct amount, of working capital at the right
time.
4

2. Every management is more interested in the total current assets with which it has to
operate than the sources from where it is made available.
3. The gross concept takes into consideration the fact that every increase in the funds
of the enterprise would increase its working capital.
4. The gross concept of working capital is more useful in determining the rate of
return on investments in working capital.
The net working capital concept, however, is also important for the following reasons:
1. It is a qualitative concept which indicates the firm's ability to meet its operating
expenses and short-term liabilities.
2. It indicates the margin of protection available to the short-term creditors, i.e., the
excess of current assets over current liabilities.
3. It is an indicator of the financial soundness of an enterprise.
4. It suggests the need for financing a part of the working capital requirements out of
permanent sources of funds.
To conclude, it may be said that, both, gross and net, concepts of working capital are
important aspects of the working capital management. The net concept of working
capital may be suitable only for proprietary from of organizations such as sole-trader
or partnership firms. But the gross concept is very suitable to the company form of
organization where there is divorce between ownership, management and control.
However, it may be made clear that as per general practice, net working capital is
referred to simply as working capital. In the words of Hoagland, "Working capital is
descriptive of that capital which is not fixed. But the more common use of the
working capital is to consider. It is the difference between the book value of the
current assets and current liabilities.

1.1.2 CLASSIFICATION OR KINDS OF WORKING CAPITAL

Working capital may be classified in two ways
(a) On the basis of concept.
(b) On the basis of time
On the basis of concept, working capital is classified as gross, working capital and net
working capital as discussed earlier.
This classification is important from the point of view of the financial manager. On
the basis of time working capital may be classified as:
PERMANENT OR FIXED WORKING CAPITAL:-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; permanent or fixed working capital as
this part of capital is permanently blocked in current assets.
As the business grows, the requirements of permanent working capital also increase
due to the increase in current assets. The permanent working capital can further be
classified as regular working capital and reserve working capital required to ensure
circulation of current assets from; cash to inventories', from inventories to receivables
and from receivables to cash and so on. Reserve working capital is the excess amount
over the requirement for regular working capital; which may be provided for
contingencies that may arise at unstated periods such as strikes; rise in prices,
depression, etc.
TEMPORARY OR VARIABLE WORKING CAPITAL: Temporary or variable
working capital is the amount of working capital which is required to meet the
seasonal demands and some special exigencies. Variable working capital can be
further classified as seasonal working capital and special, working capital. Most of the
enterprises have to provide additional working capital to meet the seasonal and special
needs.
6

The capital required to meet the seasonal needs of the enterprise is called seasonal
working capital. Special working capital is that part of working capital which is
required to meet special exigencies such as launching of extensive marketing
campaigns for conducting research etc.
1.1.3 IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING
CAPITAL:
Working capital is the life blood and nerve centre of a 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 helps in creating and maintaining goodwill.

3. EASY LOANS: A concern having adequate working capital, high solvency and
good credit standing can arrange loans from banks and others on easy and
favorable terms.
4. CASH DISCOUNTS. Adequate working capital also enables a concern to avail
cash discounts on the purchases and hence it reduces costs.
5. REGULAR SUPPLY OF RAW MATERIAL: Sufficient working capital ensures
regular supply of raw materials and continuous production.
6. REGULAR PAYMENT OF SALARIES, WAGES AND OTHER DAY-TODAY COMMITMENTS. A company which has ample working capital can
make regular payment of salaries, wages mid other day-to-day commitments
which raises their morale of its employees, increases their efficiency, reduces
wastages and costs and enhances production and profits.
7.

EXPLOITATION OF FAVORABLE MARKET CONDITIONS. Only

concerns with adequate working capital can exploit favorable market conditions
7

such as purchasing its requirements in bulk when the prices are lower and by
holding its inventories for higher prices.
8. ABILITY TO LACE 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.
9. QUICK AND REGULAR RETURN ON INVESTMENTS. Every Investor
wants a quick and regular return on his investments. Sufficiency 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.
10. HIGH MORALE Adequacy of working capital creates an environment of
security confidence, high morale and creates overall efficiency in a business.
1.1.4 EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate
nor shortage of working capital. Both excess as well as short working capital positions
are bad for any business. However, out of the two, it is the inadequacy of working
capital which is more dangerous from the point of view of the firm.
DISADVANTAGES OR DANGERS OF INADEQUATE WORKING CAPITAL
1.

A concern winch has inadequate working capital cannot pay its shun term
liabilities in tune. Thus, it will lose its reputation and shall not be able to gel good
credit facilities.

2. It cannot buy us requirements in bulk and annul avail of discounts, etc.

3.

It becomes difficult for the firm to exploit favorable market conditions and
undertake profitable projects due to lack of working capital.

4.

The firm cannot pay day-to-day expenses of its operations mid it creates
inefficiencies, increases costs and reduces the profits of the business.

5. It becomes impossible to utilize efficiently the fixed assets due to non- availability
of liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.
1.1.5 THE NEED OR OBJECTS OF WORKING CAPITAL
The need for working capital cannot be over emphasized. Every business needs some
amount of working capital. The need for working capital arises due to the time gap
between productions mid realization of, cash from sales. There is an operating cycle
involved in the sales band realization of cash. There are time gaps in purchase of raw
materials and production; production and sales; mid sales and realization of cash.
Thus, working capital is needed for the following purposes:
1.) For the purchase of raw materials, components and spares.
2.) To pay wages and salaries.
3.) To incur day-to-day expenses and overhead costs such as fuel, power and office,
expenses, etc.
4) To meet the selling costs as packing, advertising, etc.
5.) To provide credit facilities to the customers.
6.) To maintain the inventories of raw material, work-in-progress, stores mid spares
mid finished stock.
For studying the need of working capital in a business, one has to study the business
under varying circumstances such as a new concern, as a growing concern mid as one
which has attained maturity. A new concern requires a lot of liquid funds to meet
initial expenses like promotion, formation, etc. These expense's, are called
preliminary expenses mid are capitalized. The amount needed as working capital in a
new concern depends primarily" upon its size and the ambitions of its promoters.
Greater the size of the business unit, generally, larger will be the requirements of
working capital. The amount of working capital needed goes on increasing with the
growth and expansion of business till it attains maturity. At maturity, the amount of
working capital needed is called normal working capital. There are many other factors
which influence the use of working capital in the business. They are discussed later
on.
9

1.1.6 IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Following points emphasise the importance of working capital management:
(a) TIME INVOLVED. Financial manager has to devote the largest portion of his
time in day to day internal operations of the firm and hence the importance of
working capital management.
(b)

RELATIONSHIP WITH SALES GROWTH. The need to finance current

assets is closely and directly related to growth of sales. If sales increase, more
amounts are required to be invested in accounts receivable. Moreover, in
anticipation, greater stocks are to be kept for the increased sales.

(c) QUANTUM OF INVESTMENT. In most of the concerns which are not

manufacturing, current assets may be even more than half of the total assets of a
business. Large investment requires careful attention of the finance manager in
respect of the current assets management particularly since the investments lend
to be relatively volatile.
(d) IMPORTANCE FOR SMALL FIRMS. A small firm cannot avoid investments
in current assets and, therefore, for it the management of current assets assumes
special significance. It is so because of the difficulty in arranging long-term loans
also - the effect being increased current liabilities on account of short-term loans.
DETERMINANTS OF WORKING CAPITAL
Following are the factors which determine the requirements of working capital:
(1) MANUFACTURING CYCLE. The production process consumes time right
from the purchase and use of raw materials to the completion of finished goods.
The longer the duration, the greater is the requirement of working capital. The
manufacturing cycle may shorter for certain concerns and longer for others it
depends on the type of

10

the product to be manufactured, work to be done through machine labour and

hand Inborn, degree of rationalization of manufacturing procedure', through lime,
motion mid fatigue studies etc.
(2.) PRODUCTION POLICY: If the production is evenly spread over the entire
year, working capital requirements are greater, because the inventories will lie
unnecessarily accumulated during oil - season period. But if the production
schedule favors a varying production plan as per the seasonal requirements,
working capital is required to a greater extent during a specified season only.
The production policies are affected by so many factors-availability of raw
materials, labor, stocking facility etc. and therefore, whatever the production
policies are, the firm has to arrange its working capital requirements accordingly.
The decisions of management regarding automation also affect working capital
requirements. In a labor intensive process, the requirement of working capital
will be higher. In case of a highly automatic plant, the requirements of long-term
funds would be greater.
(3) NATURE AND SIZE OF BUSINESS: Manufacturing firms require less working
capital as compared to trading and financial firms. However, certain
manufacturing firms also require a heavy investment in working capital. Public
utility concerns require less capital. The needs of working capital for a large
business are more than those of a small business.
Also, shorter the manufacturing process, lower the requirement of working capital
because inventories are to be maintained at a lower level. Therefore, highly
capital intensive industries require large working capital to run their sophisticated
and long production process.
(4) SEASONAL AND CYCLICAL FLUCTUATIONS: On account of market
boom, sales increase and, as a consequence, the requirements of inventories and
debtors Increase. Slack seasons reduce the requirements of investment in working
capital.
11

(5) CREDIT POLICY: Liberal credit policy leads to higher sales and, therefore,
more working capital is required. Even if sales do not grow, liberal policy in
respect of credit period allowed will require more investment in debtors because
the collections would also be slower then. In the same way, an organization which
has a very efficient debt collection system and offers strict credit terms will
require lesser working capital as compared to organization where debt collection
system is not so efficient.
(6) CREDIT FACILITIES: If the credit period allowed to the company is more, the
requirements of working capital would be less for the company. If the company
does not enjoy liberal credit facilities from its suppliers, it will have to arrange for
greater funds for investment in current assets.
(7) INVENTORY POLICIES: This has also an impact on working capital
requirements since large amount of funds is normally locked up in inventories.
An efficient firm may stock raw material for smaller period and may require
lower working capital.
(8) EFFICIENCY OF OPERATIONS: If the operations of the company are
efficiently managed, the operating costs would be low and the resources would be
utilized in the best possible manner resulting in speeding up of the working
capital cycle and, thus, reducing the working capital requirements.
(9) DYNAMIC ATTITUDES: If the management of the firm is dynamic and is
thinking in terms of expanding the business or diversifying it, greater funds are
required by the business. The main reason why more funds are required early is
that advance planning is essential if the firm is to expand and grow.
10) PRICE FLUCTUATIONS: Price level changes, particularly inflation have a
great effect on the requirements of working capital in periods of rising prices
more funds are required to be invested in working capital. Same level of
operations can be conducted only with greater funds if the value of money falls.
12

(11) SUPPLY FLUCTUATIONS: Regular supply of raw materials and labor would
cause lesser working capital requirements, large quantities of raw material are
required to be stored because of fear of non-availability at a later date or on
account of increased prices, and more funds are needed for working capital.
(12) ABNORMAL FACTORS. Factors such as strikes and lockouts require additional
working capital. Recessionary conditions require more stock of finished goods
while inflationary conditions require more fund for working capital to maintain
same amount of current assets.
(13) TAX LIABILITY. Greater tax liability means greater requirements of working
capital. Tax liability can be reduced by proper tax planning and tax management
and thus the working capital requirements can also be reduced.
1.1.7 MANAGEMENT OF WORKING CAPITAL
Working capital management is really concerned with the administration of all the
current assets and current liabilities it is basically concerned with
(a) Determining the need for working capital.
(b) Determining the optimal levels of investment in various current assets, and
Examining the latest patients upgrading each element of working capital.
(c) It is obvious that given a constant level production higher the amount of working
capital, the lower will be the return on investment, since capital turnover ratio
will be less. On the other hand, lower the amount of working capital; the higher
would be the amount of the Risk since the company would not have adequate
liquidity to meet its term obligations.
In working capital management, therefore, we have to strike a balance between risk
and profitability. We have to find out that level of achievement in working capital
which gives a reasonable amount of liquidity to a good working capital turnover ratio.
1.1.8 FINANCING OF WORKING CAPITAL
A firm can adopt different financial policies to finance its current assets. There are
various types of sources for financing working capital. These are as follows:
13

Figure 1.3 Sources of Working Capital

Sources of Working Capital

Permanent or Long Term

1
2
3
4
5

Temporary or Short Term

Shares
Debentures
Public deposits
Ploughing back of profits
Loans from financial institutions

1. Commercial banks
2. Indigenous bankers
3. Trade creditors
4. Installment credit
5. Advances
6. Accounts receivable
7. Accrued expenses
8. Commercial paper

FINANCING OF LONG TERM WORKING CAPITAL

Permanent working capital should be financed in such a matter that the enterprise may
have its uninterrupted use for a long period. There are five sources of long term
working capital:
1.

SHARES: Issue of shares is the most important source for raising long term
capital. A company can issue various types of shares like equity shares,
preference shares and deferred shares. As\far as possible, a company should
raise the maximum amount of permanent capital by issue of shares.

2. DEBENTURES: A debentures is an instrument issued by the company

acknowledging to its debt to its holder. The debenture holders are the creditors
of the company. A fixed rate of interest is paid on the debentures. The
debentures may be of various kinds such as unsecured, secured, redeemable,
irredeemable, convertible debentures and non convertible debentures. The
debentures as a source of finance have a number of advantages both to investors
and company.
3. PUBLIC DEPOSITS: Public deposits are the fixed deposits accepted by a
business enterprise directly from the public. This source of raising short term
and medium term finance was very popular in absence of banking facilities.
Public deposits as a source of finance have a large number of advantages such a

14

convenient source of finance, taxation benefits, no need of securities and

inexpensive source of finance.
4. PLOUGHING BACK OF PROFITS: It means the reinvestment by the
concern of its surplus earning in its business. This method of finance has a large
number of advantages as it is the cheapest rather cost free source of finance,
there is no need to keep securities, it ensures stable dividend policy.
5. LOAN FROM FINANCIAL INSTITUTIONS: Financial institutions such as
commercial banks, insurance corporations, idbi etc also provides short term,
medium term and long term loans. This source of finance is more suitable to
meet the medium term demands of working capital.
FINANCING OF SHORT TERM WORKING CAPITAL
The main source of short term working capital is as follows:
1. INDIGENOUS BANKERS: Private money lenders and other country
bankers used to be the only source of finance prior to the establishment of
commercial banks. They used to charge very high rate of interest. Even today
some business houses have to depend upon indigenous bankers for obtaining
loans to meet their working capital requirements.
2.

TRADE CREDIT: Trade credit refers to the credit extended by the suppliers
of goods in the normal course of business. At present commerce is build upon
credit, trade credit arrangement of a firm with its suppliers is an important
source of finance. It may also take the form of bills payable whereby the buyer
signs a bills of exchange payable on a specified future date.

3.

INSTALLMENT CREDIT: This is another method by which the assets are

purchased and the possession of goods is taken immediately but the payment
is made in installments over a pre determined period of time. In this interest is
charged on the unpaid price or it may be adjusted in the price.

4.

COMMERCIAL PAPER: It is an important money market instrument for

raising short-term finances. Commercial papers represent the unsecured
promissory notes issued by firms to raise short term funds. Firms, banks,
insurance companies, individuals etc. With short-term surplus funds invest in

15

commercial papers. Investors would generally invest in commercial paper of a

financially sound and creditworthy
firm. In India, commercial papers of 91 to 180 days maturity are being floated.
The interest rate will be determined in the market.
5.

ADVANCES: Some business houses get advantages from their customers and
agents against orders and this source is a short term source of finance for
them. It is a cheap source of finance and in order to minimize their investment
in working capital.

6.

COMMERCIAL BANKS: Commercial banks are most important source of

short term capital. The major portion of working capital loans are provided by
commercial banks. They provide a large variety of loans to meet the specific
requirements of a firm. The different form in which the banks normally
provide loans and advances are as follows:

(a)
(b)
(c)
(d)

Loans
Cash credits
Overdrafts
Discounting of bills.
1.1.9 TECHNIQUES OF WORKING CAPITAL ANALYSIS
The importance of working capital management cannot be over emphasized in view
of the 3 times and energy spent by management on working capital decision .Working
capital firm is analyzed by outsiders like banks, trade creditors, financial institutions
etc.
The objective of analysis is to evaluate solvency, liquidity and the cost of financing. A
study of chances in the uses and the sources of working capital are necessary to
evaluate the efficiency with which the working capital is employed in business. This
involves the need of working capital analysis, which can be done through the
following techniques
RATIO ANALYSIS APPROACH:
Ratio analysis is a technique of analysis and interpretation of financial statements. It is
a process of establishing and interpreting various ratios for helping in making certain
decisions.

Leverage Ratios which show the extent that debt is used in a company's capital
structure.
16

Liquidity Ratios which give a picture of a company's short term financial

situation

or solvency.

Operational Ratios which use turnover measures to show how efficient a

company is in its operations and use of assets.

Profitability Ratios which use margin analysis and show the return on sales
and capital employed.

NEED OF RATIO ANALYSIS:

The need of ratio analysis due to following facts:
1) Business facts shown in financial statements do not carry any importance individually.
There importance lies in the fact that they are interpreted. Hence there is a need
for establishing relationship between various related items.
2) Ratio-analysis is a tool for interpretation of financial statements is also needed
because ratios have analyst to have a deep peep into the data given in the
financial statements.
Several ratios measure how effectively and efficiently working capital is being
used. (Key Working Capital Ratios : Stock Turnover(in days), Receivables
Ratio(in days) , Payables Ratio(in days) , Current Ratio, Quick Ratio, Working
Capital Ratio)
1.2 INTRODUCTION TO THE SPORTS GOODS INDUSTRY
Sports goods industry in India has witnessed a phenomenal growth over the past five
The decades and now occupies a place of prominence in the Indian economy in terms
of its massive potential for employment generation and export. There has been an
increasing emphasis on its planned development, aimed at optimal utilization of
resources for maximizing the returns, particularly from exports. Sports Goods sector
is one of the largest providers of widest avenues of employment opportunities. This
chapter discusses major Sports Goods manufacturing clusters across India.
Sports Goods Cluster of Jalandhar
The Sports Goods manufacturing cluster of Jalandhar is a unique example of
transplanted cluster, where a major segment of an existing cluster shifted lock stock
and barrel (the entrepreneurs, the workers and the raw material suppliers) to a new
location due to political division of the country in the year 1947). Jalandhar is an
important supplier of quality Sports goods to more than 130 countries including some
17

of the most developed nations of the world. The Jalandhar based industry is rapidly
embracing new technology and adapting its products to keep up with the changing
global trends so as to emerge as the most important centre for the manufacture of
Sports Goods. According to the Sports Goods Manufacturers and Exporters
Association, total number of persons working in the industry is about 1,70,000 . A
report by Christian Aid, however, gives a figure of around 3,00,000 persons working
in the industry in Jalandhar, either in the 1,500factories and smaller manufacturing
units or as subcontract home-workers. It is not clear how this large difference can be
explained, but it may be noted that the former figure does not include the large
number of home-based workers who are working for the manufacturers/exporters via
the contractors. The number of home-based workers can only be roughly estimated as
there are no reliable data about them yet. If the figure of 3,00,000 is correct this would
mean that two out of three workers in the sports goods industry are in the informal,
unorganized sector. The Sports Goods Industry was founded by Sardar Bahadur,
Sardar Ganda Singh Oberoi in the year 1883 at Sialkot and Sports Equipment became
the first Indian Industrial Product to be exported in 1885. The items taken up for
manufacturing in the beginning were tennis, footballs, cricket bats, balls and field
hockey. With the passage of time new items were added and industry at Sialkot
progressed and people flourished beyond imagination until the division of the country
checked the boom. The sports Goods manufacturing units are located at two localities
in the city Basti Nau and Basti Daneshmandan. Now with the growth of the Industry it
has spread to adjoining areas of Nakodar Road, Basti Sheikh Road, Industrial Area,
and Sports Complex on Kapurthala road and G.T Road towards Amritsar. Skilled
workers engaged in this industry are the most important parts elements in the
production and are settled in Bhargav Camp, Gandi Camp, Basti Guzan, Basti Sheikh
and Basti Daneshmandan, adjacent to the manufacturing unit. The entrepreneurs
setting up modern units with mechanized production systems are shifting to open
space with more area to achieve better results and are away from crowded localities.
However, the network of the traditional business process is so strong that almost all
these units have either their offices or some production facilities in Basti Nau, Basti
Daneshmandan in order to remain in physical touch with the traditional locations.
About the Cluster Details:
18

Table 1.1: Jalandhar sports goods cluster details

1
2
3
4
5
6
7
8

Name of the Cluster

Place
District
State
No of firms (by type)
No. of workers
Turnover
Associations in cluster

Jalandhar Sports Goods

Jalandhar
Jalandhar
Punjab
1235
8782
Rs. 400 Million
1. Association of Indian Sports Goods
Industries (AISGI)
2. Sports

Goods

Manufacturer

and

Exporters Association (SGMEA)

9

3. Sports Good Foundation of India (SGFI)

Wood : Hockey Sticks, Cricket Bats and

Major products

Cricket Wickets, Carom Boards

Synthetic fabrics: Volleyball, Football

and Covers, Rugby Balls and all types of
protective

equipment,

Leather: Cricket and Hockey Balls,

Boxing Gloves and other Soft Leather
goods.

Rubber: Bladders and Tennis Balls

Basket Ball and other Inflated Covers.

Metal : Badminton & Tennis Rackets,

Fitness

equipments,

Weight

Lifting

equipments, Trophies, Medals

Cotton: Sports Nets, Sports Hosiery and

other sports wear.

10

Specific and relevant technical

Feather: Shuttle Cocks.

District Industries Centre

institutions (R&D, Testing Lab

Labor Welfare Office

accredited)

Sports Goods Export Promotion Council

(SGEPC)

19

Small

Industries

Service

Institute,

Ludhiana, (SISI)

Central Institute for Promotion of Plastic

Engineering and Technology (CIPET)

Sports Authority of India (SAI)

Quality Marking Centre for Sports Goods

Branch office of the State Trading

Corporation (STC)

Dr. B.R Ambedkar National Institute of

Technology ( NIT)

Regional Centre of Central Leather

Research Institute (RECLRI)

Training Centre on leather garments of

Khadi

11
12

Major markets
Major problems/prospects

and

Village

Industries

Commission (KVIC)
Domestic
There are serious gaps in the technology
required for making competitive products
both for the domestic as well as the
export markets.

Quality Assurance and product testing

are the other weak areas

of the

manufacturing process.

Need of Common Testing Facility

CE certification for protective gears

Besides, testing of the finished products,

the testing of raw materials and boughtout components is an important but
hidden need of the Industry.

Apart from the lack of awareness among

a majority of the cluster based units
about the facilities available, the other
problem is that no standard specifications
are available for the materials to be used

20

13

in sports goods.
Diagnostic study report of Sports Goods Cluster,

Data source and updated on

Jalandhar, Punjab by UNIDO CDP, New Delhi,

prepared under the aegis of the UNIDO Project:
Support to country effort to promote SME
Cluster Development in India, 2002-2005 in
Year 2001
Major Products and Services Provided:

Athletic Equipments

Australian Rules Footballs

Badminton

Bags & Badges

Base Bats & Balls

Basket Balls

Beach Volley Balls

Boxing Equipment

Boxing Protective Equipments

Carrom Boards

Chessman & Chess Boards

Chest Guard

Children Playing Games & Toys

Club Equipment

Cricket Equipment

Footballs

Golf Balls

Gymnastic Equipments

Hand Balls

Hand Gloves

Head Guard Protective Equipment

Health & Fitness Equipment

21

Helmets

Hockey Equipments

Lawn Equipment

Metal Trophies Medals

Net Balls

Playground Equipment

Protective Equipment Arm & Leg Guards

Punch Balls

Rolling Skates

Rugby Balls

Shin Guard Protective Gears

Shuttle Cocks

Skipping Ropes

Soccer Balls

Sports Nets

Sports Shoes

Sports Wear Shirts

Sports Wear Ties

Sports Wear Trousers

Table Tennis Equipment

Tennis & Squash Rackets

Tennis Balls

Volley Balls

Water Polo Balls

Weight Lifting Equipment

1.3 INTRODUCTION TO RANSON SPORTS INDUSTRY

Ranson Sports Industry is a Sporting Goods manufacturing company located at 387389, Leather Complex, Kapurthala Road, Jalandhar. Ranson began in 1982 with the
manufacture and supply of sports goods. This company was visioned and
22

conceptualized by our Managing Partner and Founder Mr. Raghunath S. Rana. In

these over 25 years of existence, this company grew strength to strength with sheer
hardwork and dedication. And now we are considered as market leaders and trend
setters in our field.
Products

Cricket Equipment,

Boxing and Martial Arts (MMA) Equipment,

Gaelic Equipment,

Field/Agility Training Equipment,

And some bespoke equipments

1.4 INTRODUCTION TO A.P.G. SPORTS INDUSTRY
A.P.G. Sports Industry is a Sporting Goods manufacturing company located at 261,
Dilbg Nagar, Basti Gujan, Jalandhar. For the past 27 years, A.P.G. have
been Manufacturing, Exporting and Supplying an impeccable range of Sports Balls,
Badminton Equipments, Cricket Equipments and other Sports Equipments. Our range
comprises Footballs, Volleyballs, Hockey Balls, APG Purple Cricket Ball, Cricket
Ball, Sports Wear, Cricket Ball, Leather Cricket Ball, Red Leather Cricket Ball,
Leather Cricket Balls, English Leather Cricket Ball, Cricket Leather Ball (Pampa),
Cricket Ball-Grade A, Purple Cricket Ball, Red And White Cricket Ball, Orange
Leather Cricket Ball, White Leather Cricket Ball, Yellow Leather Cricket Ball, Pink
Leather Cricket Ball, Hockey Ball, Turf Hockey Ball, Orange Hockey Ball, Leather
Hockey Ball, Indoor Ball, Indoor Cricket Balls, Indoor Leather Cricket Ball, Indoor
Cricket Ball, Cricket Equipment, Cricket Batting Helmet, Batting Gloves, Cricket
Ball Mallet, Star Soccer Ball, Pro Star Soccer Ball, Mini Soccer Ball, White Black
Soccer Ball, White And Red Soccer Ball, Light Green Soccer Ball, Volleyball, Beach
Volleyball, PU Volleyball, Net Ball, PVC Volley Ball, Rubber Volley Ball, Tennis
Ball, Sports Equipments, Quoit Ring, Weightlifting Belt, Skipping Rope, Whistles,
Plastic Whistles, Rope Whistles, Sports Shoes, Men's Sports Shoes, Athletic Sports
Shoes, Football Shoes, Handballs, Cricket Bat, Leather Cricket Ball and many
more. These balls are made of hard wearing materials such as leather and rubber that

23

provides them a long service life. Our production experts ensure that these sports
products are durable, dimensionally accurate and cost-effective.

A.P.G. have a dedicated team of professionals that work round the clock to present a
commendable range of products. Our ability to manufacture sports balls, badminton
equipments, Cricket equipments and other sports equipments for various sports has
enabled us to establish strong ties with leading sport associations of the country. In
addition, company have widespread distribution channel that allows us to serve the
sports sector in an efficient manner.

1.5 INTRODUCTION TO ANAND SPORTS INDUSTRIES

Anand Sports Industry is a Sporting Goods manufacturing company located at 1,
Khanna Market, Basti Nau, Near Football Chowk, Jalandhar.
Companys mentor, Mr. Kuldeep Kumar is highly experienced in the Sports Industry
and has played an integral part in the success of this company. His valuable insights
and creative approach have enabled us to constantly innovate and become a renowned
name in this domain. Mr. Kuldeep Kumar has highly experience of 40 years in
manufacturing of Cricket and Hockey Balls, Badminton Equipments, Footballs and
many other sports goods.
Based on our encompassing knowledge of product and industry expertise, Anand
Sports Industry have been able to offer advanced products that are as per changing
trends of the global market. Their Sports goods find huge acceptance and usage by
sports enthusiasts, sportsmen, beginners, children and every one exhibiting the
passion for the sports.

24

Review

25

2. REVIEW OF LITERATURE
Various studies on Working Capital Management had been conducted in foreign
countries. However, in Indian context, the number is quite few. Depending on the
various issues of working capital management, the review has been discussed in brief
as follows:
Adams (2007) conducted a research and examined that the systematic assessment of
working capital requirement in construction projects deals with the analysis of various
quantitative and qualitative factors in which information is subjective and based on
uncertainty. There exists an inherent difficulty in the classical approach to evaluate the
impact of qualitative factors for the assessment of working capital requirement.
Rafuse (2007) conducted a research and examined that working capital can be
improved by delaying payment to creditors is counter-productive to individuals and
to the economy as a whole. Claims that altering debtor and creditor levels for
individual tiers within a value system will rarely produce any net benefit. Proposes
that stock reduction generates system wide financial improvements and other
important benefits. Urges those organizations seeking concentrated working capital
reduction strategies to focus on stock management strategies based on lean supplychain techniques.
Anand (2008) states that most of the chief financial officer's (CFO) time is devoted
to working capital management. Still, a large number of business failures have been
attributed to an inability of financial managers to plan and control properly the current
assets

and

current

liabilities

of

their

respective

firms.

The

objective

of working capital management of any firm is to mange the firm's inventory,

receivables and payables in order to achieve a balance between risk and return and
thereby contribute positively to the creation of a firm value. The present empirical
survey has been designed to identify some quantitative working capital benchmarks in
order to help Corporate India to manage its working capital more efficiently.
Iqbal (2009) conducted a study and examined that for increasing shareholder's wealth
a firm has to analyze the effect of fixed assets and current assets on its return and risk.
Working Capital Management is related with the Management of current assets. The
26

Management of current assets is different from fixed assets on the basis of the
following points i.e. Current assets are for short period while fixed assets are for more
than one Year.
Deloof (2010) investigated the relationship between working capital management and
corporate profitability on a sample of 1009 large Belgian non-financial firms for the
1992-1996 period. Trade credit policy and inventory policy are measured by number
of days accounts receivable, accounts payable and inventories, and the cash
conversion cycle is used as a comprehensive measure of working capital management.
The results suggest that managers can increase corporate profitability by reducing the
number of days accounts receivable and inventories. Less profitable firms wait longer
to pay their bills.
Howorth (2010) examined that Working capital management routines of a large
random simple of small companies in the UK are examined. Considerable variability
in the take-up of 11 working capitalmanagement routines was detected. Principal
components analysis and cluster analysis confirm the identification of four district
'types' of companies with regard to patterns of working capital management.
Malhotra (2010) conducted a study to develop quantitative benchmarks at the firm
and the industry level, so as to evaluate the working capital management performance
of Corporate India from time to time. An earlier attempt was made by Anand (2001)
based on the methodology designed by the CFO Europe and REL Consultancy Group
for the year 1996-97. In another attempt, Anand and Gupta (2003) experimented with
a number of parameters and different weights in the overall score to have a better
picture of working capital management performance of Corporate India.
Solano (2011) conducted research for the object of the research presented in this
paper is to provide empirical evidence on the effects of working capital management
on the profitability of a sample of small and medium-sized Spanish firms. The results,
which are robust to the presence of endogeneity, demonstrate that managers can create
value by reducing their inventories and the number of days for which their accounts
are outstanding. Moreover, shortening the cash conversion cycle also improves the
firms profitability. The aim is to ensure that the relationships found in the analysis
carried out are due to the effects of the cash conversion cycle on corporate
profitability and not vice versa.
27

Singh (2011) empirically analyzed that a firms working capital consists of its
investments in current assets, which includes short-term assetscash and bank
balance, inventories, receivable and marketable securities. Therefore, the working
capital management refers to the management of the levels of all these individual
current assets. On the other hand, inventory, which is one of the important elements of
current assets, reflects the investment of a firms fund. Hence, it is necessary to
efficiently manage inventories in order to avoid unnecessary investments.

Nazir (2012) conducted the study and investigated the traditional relationship
between working capital management policies and a firms profitability. Using the
panel

data

set

for

the

period

1998-2005,

the

impact

of

aggressive working capital investment and financing policies has been evaluated
using return on assets as well as Tobins q. Many studies had been undertaken in
regards to working capital management but proper calculation and the effects were
not properly considered in a single research.

28

need

29

NEED OF THE STUDY

As it is mentioned earlier that the working capital management is important in all the
organization. Many studies had been done in this respect but proper calculation and
there effects are not properly considered. In this study various ratio`s (current ratio,
liquidity ratio, turnover ratio`s etc) has been calculated to find out the position of the
organization in respect to their current position. So, need of the study is to know the
current financial position of the organization.

3.2 SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The study
of working capital is based on tools like trend Analysis, Ratio Analysis, working
capital leverage, operating cycle etc. Further the study is based on last 5 years Annual
Reports of Ranson, A.P.G. and Anand Sports Industries. And even factors like
competitors analysis, industry analysis were not considered while preparing this
project.
The scope of study conducted i.e. Working Capital Management at Ranson, A.P.G.
and Anand Sports Industries in Jalandhar for the year ended 2008, 2009, 2010, 2011
and 2012.

3.3 OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless the working
capital is managed effectively, monitored efficiently planed properly and reviewed
periodically at regular intervals to remove bottlenecks if any the company can not
earn profits and increase its turnover. With this primary objective of the study, the
following further objectives are framed for a depth analysis.
The study has been undertaken to achieve the following objectives.

30

1. Maintenance of working capital at appropriate level and availability of ample

funds as and when they are needed.
2. To know the efficiency of Ranson, A.P.G. and Anand Sports Industries in
3.
4.
5.
6.
7.
8.

managing working capital.

To know the level and composition of current assets and current liabilities.
To calculate the liquidity position of the organization.
To know about the stock turnover ratio of the organization
To measure the debtor turnover ratio of the organization.
To know the working capital turnover ratio of the organization.
To study the optimum level of current assets and current liabilities of the

company.
9. To study the liquidity position through various working capital related ratios.
10. To study the working capital components such as receivables accounts, cash
management, Inventory position
11. To study the way and means of working capital finance of the company
12. To study the operating and cash cycle of the company.

Research Methodology
31

32

4.1 RESEARCH METHODOLOGY

Introduction and meaning
Research is a careful investigation or inquiry especially through for new facts in
branch of knowledge. Market research specifies the information. Required to address
these issue design the method for collecting informations manage and implements the
data collection process analysis and communicate the findings and their implications
Research Problem is one which requires a researcher to find out their best solution for
giving problems that is to find out the course of action, the action, the objectives can
be obtained optimally in the context of given environment

4.2 RESEARCH DESIGN

The current study was descriptive in nature.
DESCRIPTIVE RESEARCH:
The Research was a descriptive research as it was concerned with specific predictions,
with narration of facts and characteristics concerning individuals, groups or situations.
4.3 DATA COLLECTION
Primary & Secondary data has been used for the study.
PRIMARY DATA
Raw data is a term for data collected on source which has not been subjected to
processing or any other manipulation. (Primary data), it is also known as primary
data.
PRIMARY SOURCES
In this project various sources was used in order to get the data . for this purpose p
1) Initial Permanent Working Capital
2) Net Income - Increased Profit
3) Temporary Working Capital - Short Term loan / OD, Delayed Payments to
Creditors and Increased Cash Collection
33

SECONDARY DATA
The secondary data are those data which have already been collected by someone else
and which have already been passed through the statistical process. Magazines,
journals are used as source of secondary data.
SECONDARY SOURCES
In this project various sources was used in order to get the data. For this purpose
previous years annual reports, reports on working capital for research, analysis and
comparison of the data gathered was done. While doing this project, the data relating
to working capital, cash management, receivables management, inventory
management and short term financing was collected. A detailed study on the actual
working processes of the company is also done by timely studying the happenings at
the company.

4.4 LIMITATION OF THE STUDY

Due to constraints of time and resources, the study is likely to suffer from certain
limitations. Some of these are mentioned here under so that the findings of the study
may be understood in a proper perspective.
The limitations of the study were:
The research was carried out in a short period. Therefore the parameters were selected
accordingly so as to finish the work within the given time frame.
The information given by the organization might be biased they might not be
interested to give correct information.
The data given by the organization can be incorrect. Some personal mistakes can be
there while finding the ratio as human errors.
The data has been processed and analyzed so that findings can be communicated and
can be understood. The findings are presented in the best possible way.
Data analysis & interpretation

34

ANALYSIS AND ITS INTERPRETATION

5.1 CURRENT RATIO:

35

Current ratio is the relationship between the current assets and current liabilities. This
ratio is also known as working capital ratio. It is a measure of general liquidity and is
most widely used to make the analysis of a short-term financial position.
Current Ratio

Current Assets
Current Liabilities

Years

2008

2009

2010

2011

2012

3.10

3.13

3.33

3.33

2.72

Current ratio
Table 5.1 Current Ratio of Ranson

Years

2008

2009

2010

2011

2012

3.47

3.15

3.30

3.13

3.06

Current ratio
Table 5.2 Current Ration of A.P.G.

Years

2008

2009

2010

2011

2012

1.25

1.28

1.28

1.38

1.63

Current ratio
Table 5.3 Current Ration of Anand

36

Figure 5.1 Current Ratio of Ranson

3.5
3
2.5
2

current ratio

1.5
1
0.5
0
2008

2009

2010

2011

2012

Figure 5.2 Current Ratio of A.P.G.

3.5
3.4
3.3
3.2

current ratio

3.1
3
2.9
2.8
2008

2009

2010

2011

Figure 5.3 Current Ratio of Anand

37

2012

1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

current ratio

2008

2009

2010

38

2011

2012

Analysis :
In current ratio:- rule of thumb is 2:1
Ranson
In 2008:- current ratio is 3.10:1. It is more than the expected rule of
thumb. So the position of the company is good.
In 2009:- current ratio is 3.13:1. There is lit bit rise in comparison to
2008 in 2009.
In 2010 :- current ratio is 3.33:1. There is continousely rising in the
value of current ratio.
In 2011:- current ratio is 3.33:1. As compare to 2010 there is
uniformity the ratio it means there is no chamge in the value of C.R
In 2012 :- current ratio is 2.72:1 . There is decline in the ratio of
company but company still in the position. i.e above the rule of
thumb. Company in good position.

A.P.G.
In 2008:- current ratio is 3.47:1. It is more than the expected rule of
thumb. So the position of the company is good.
In 2009:- current ratio is 3.15:1. There is lit bit decline in comparison
to 2008 in 2009.
In 2010 :- current ratio is 3.30:1. There is continousely rising in the
value of current ratio.
In 2011:- current ratio is 3.13:1. As compare to 2010 there is
uniformity the ratio it means there is no chamge in the value of C.R
39

In 2012 :- current ratio is 3.06:1 . There is decline in the ratio of

company but company still in the position. i.e above the rule of
thumb. Company in good position.

Anand
In 2008:- current ratio is 1.25:1. It is less than the expected rule of
thumb. So the position of the company is not good.
In 2009:- current ratio is 1.28:1. There is lit bit rise in comparison to
2008 in 2009.
In 2010 :- current ratio is 1.28:1. As compare to 2009 there is
uniformity the ratio it means there is no chamge in the value of C.R
In 2011:- current ratio is 1.38:1. Again little bit rise in comparision to
2010.
In 2012 :- current ratio is 1.63:1 . There is small rise in the ratio of
company.. Company is in average position.

Interpretation :
From the table and figure it is quite clear that Ranson and A.P.G. have financial
soundness and better capacity to meet their current obligations.

40

5.2 INVENTORY TURNOVER RATIO

Inventory turnover ratio also known as stock velocity is normally calculated as
sales/average inventory or cost of goods sold/average inventory. It indicates whether
inventory has been efficiently used or not. It indicates no. of times the stock has been
turned over during the period.

Inventory turnover ratio

Total Net Sales

Average Inventory

Table 5.4 Inventory Turnover Ratio of Ranson

YEAR

2008

2009

2010

2011

2012

INVENTORY TURNOVER

1.55

1.67

1.88

2.19

2.32

RATIO

Table 5.5 Inventory Turnover Ratio of A.P.G.

YEAR

2008

2009

2010

2011

2012

INVENTORY TURNOVER

3.98

2.93

3.52

2.93

3.83

RATIO

Table 5.6 Inventory Turnover Ratio of Anand

YEAR

2008

2009

2010

2011

2012

INVENTORY TURNOVER

2.71

2.86

3.07

3.40

3.91

RATIO

41

Figure 5.4 Inventory Turnover ratio of Ranson

2.5
2
1.5
inventory turnover ratio

1
0.5
0
2008

2009

2010

2011

2012

Figure 5.5 Inventory Turnover ratio of A.P.G.

4
3.5
3
2.5
2
1.5
1
0.5
0

inventory turnover ratio

2008

2009

2010

2011

2012

Figure 5.6 Inventory Turnover ratio of Anand

42

4
3.5
3
2.5
2
1.5
1
0.5
0

inventory turnover ratio

2008

2009

2010

2011

2012

Analysis:
Ranson
As in 2008 I.T.R is 1.55 and comparison to next year i.e it goes to 1.67 it means it
increase and in 2010-2011 , 2012 the I.T.R is increasing 1.88, 2.19, 2.32.
As a whole we can say that I.T.R is increasing.

A.P.G.
As in 2008 I.T.R is 3.98 and comparison to next year i.e it goes to 3.84 it means it
decrease and in 2010-2011 , the I.T.R is decreasing 3.52, 2.93 and in 2012 I.T.R
slightly increase.
As a whole we can say that I.T.R is not increasing.
Anand
As in 2008 I.T.R is 2.71 and comparison to next year i.e it goes to 2.86 it means it
increase and in 2010-2011 , 2012 the I.T.R is increasing 3.07, 3.40, 3.91.
As a whole we can say that I.T.R is increasing.

Interpretation:

43

From the above table and figure it is quite clear that Ranson and Anand are good in
inventory turnover ratio which means that they have efficient management of
inventory as compared to A.P.G..

44

5.3 DEBTORS TURNOVER RATIO:

Debtors turnover ratio indicates the velocity of debt collection of firm. In simple
words, it indicates the number of times average debtors are turned over during a year.

Debtor turnover ratio

Total Net Sales

Average Debtors

Table 5.7 Debtors Turnover Ratio of Ranson

YEAR

2008

2009

2010

2011

2012

4.03

4.29

4.86

6.00

7.48

DEBTORS
TURNOVER
RATIO

Table 5.8 Debtors Turnover Ratio of A.P.G.

YEAR

2008

2009

2010

2011

2012

3.75

3.38

3.44

3.69

4.29

DEBTORS
TURNOVER
RATIO

Table 5.9 Debtors Turnover Ratio of Anand

YEAR

2008

2009

2010

2011

2012

19.33

32.08

40.06

41.54

43.57

DEBTORS
TURNOVER
RATIO

Figure 5.7 Debtors Turnover Ratio of Ranson

45

8
7
6
5
4
3
2
1
0

debtor turnover ratio

2008

2009

2010

2011

2012

Figure 5.8 Debtors Turnover Ratio of A.P.G.

8
7
6
5
4
3
2
1
0

debtor turnover ratio

2008

2009

2010

2011

2012

Figure 5.9 Debtors Turnover Ratio of Anand

50
40
30
debtor turnover ratio

20
10
0
2008

2009

2010

46

2011

2012

Analysis and Interpretation:

Ranson
As in 2008 D.T.R is 4.03 but in year 2009 it goes to 4.29 and in 2010, 2011, 2012 the
D.T.R is 4.86 , 6.00, 7.48 respectively. There is increase in debtors turnover ratio this
indicates there is efficient management of debtors or in their other words, there are
more liquid debtors of company.
A.P.G.
As in 2008 D.T.R is 3.75 but in year 2009 it goes to 3.38, it means decrease and in
2010, 2011, 2012 the D.T.R is 3.44 , 3.69, 4.29 respectively. There is increase in
debtors turnover ratio after 2009, this indicates there is efficient management of
debtors or in their other words, ther are more liquid debtors of company.
Anand
As in 2008 D.T.R is 19.3 than it goes to 32.08, 40.06, 41.54, 43.57 in 2009, 2010,
2011, 2012 the D.T.R is 4.86 , 6.00, 7.48 respectively. There is increase in debtors
turnover ratio this indicates there is efficient management of debtors or in their other
words, there are more liquid debtors of company.

Interpretation:
From the above table and figure it is quite clear that in all the three organisation
debtors turnover ratio is increasing which means that they have more liquid debtors
and there is efficient management of debtors and debts are being collected more
quickly.

47

5.4 WORKING CAPITAL TURNOVER RATIO:

Working capital is directly related with the sales of the firm. Working capital
turnover ratio indicates the velocity of the utilization of the net working capital. This
ratio indicates the number of time the working capital is turned over in the course of a
year.
Working Capital Turnover Ratio =

Cost of Sales
Net Working Capital

Table 5.10 Working Capital Turnover Ratio of Ranson

YEAR

2008

2009

2010

2011

2012

1.35

1.48

1.69

1.87

2.09

Working Capital
Turnover Ratio

Table 5.11 Working Capital Turnover Ratio of A.P.G.

YEAR

2008

2009

2.08

1.99

2010

2011

1.83

1.99

2012

Working Capital
Turnover Ratio

1.88

Table 5.12 Working Capital Turnover Ratio of Anand

YEAR

2008

2009

2010

2011

2012

1.69

1.48

1.69

1.87

2.09

Working Capital
Turnover Ratio

48

Figure 5.10 Working Capital Turnover Ratio of Ranson

2.5
2
1.5
working capital turnover ratio

1
0.5
0
2008

2009

2010

2011

2012

Figure 5.11 Working Capital Turnover Ratio of A.P.G.

2.1
2.05
2
1.95
1.9
1.85
1.8
1.75
1.7

working capital turnover ratio

2008

2009

2010

2011

2012

Figure 5.12 Working Capital Turnover Ratio of Anand

49

2.5
2
1.5
working capital turnover ratio

1
0.5
0
2008

2009

2010

50

2011

2012

Analysis and interpretation:Ranson

In 2008 :- company working capital is 1.35 . It means in this year
company working capital is used 1.35 times in a year.
In 2009 :- company working capital is 1.48 . It means in this year
company working capital is used 1.48 times which shows lit bit
increases in working capital this indicate good sign
In 2010 :- In comparison to last

two year i,e 2008,2009 in 2010

working capital is increases 1.69 times .

In 2011 :- working capital increases 1.87 times . It shows there is
consistently rises in working capital year by year.
In 2012 :- working capital is 2.09 times . It shows rises in working
capital.

A.P.G.
In 2008 :- company working capital is 2.08 . it means in this year
company working capital is used 2.08 times in a year.
In 2009 :- company working capital is 1.99 . it means in this year
company working capital is used 1.99 times which shows lit bit
decrease in working capital this indicate bad sign
In 2010 :- In comparison to last

year i.e. 2008 in 2009 working

capital is deceases to1.83 times .

In 2011 :- working capital increases 1.99 times . it shows there is
rise in working capital this year.
51

In 2012 :- working capital decreases 1.88 times . It shows fall in

working capital .

Anand
In 2008 :- company working capital is 1.69 . It means in this year
company working capital is used 1.69 times in a year.
In 2009 :- company working capital is 1.48 . it means in this year
company working capital is used 1.48 times which shows lit bit
decrease in working capital as compared to 2008.
In 2010 :- In comparison to last

year i.e. 2008 in 2009 working

capital is increases to 1.69 times .

In 2011 :- working capital increases 1.87 times . It shows there is
consistently rises in working capital year by year.
In 2012 :- working capital is 2.09 times . It shows rises in working
capital.

Interpretation:
From the above table and figure it is quite clear that Ranson and Anand have better
efficiency in the utilization of working capital.

52

Findings

53

FINDINGS

After conducting the study on Working Capital Management the findings of the
study were:
Ranson

They are financing fixed working capital from long term sources and
temporary working capital from short term sources.

The liquid ratio has been increased.

The inventory turnover ratio has increased.

There is increase in debtors turnover ratio.

There is increase (2.09) in working capital turnover ratio in year 2012.

A.P.G.

The optimum current ratio is 2:1 but A.P.G. is achieving 3.06

The liquid ratio has been increased.

The inventory turnover ratio has increased.

There is increase in debtors turnover ratio.

There is decrease (1.88) in working capital turnover ratio in year 2012.

Anand

The optimum current ratio is 2:1 but Anand is achieving 1.63

The liquid ratio has been increased.

The inventory turnover ratio has increased.

There is increase in debtors turnover ratio.

There is increase (2.09) in working capital turnover ratio in year 2012.

54

 It is quite clear that Ranson and A.P.G. have financial soundness and better
capacity to meet their current obligations.
It is quite clear that Ranson and Anand are good in inventory turnover ratio which
means that they have efficient management of inventory as compared to A.P.G..
It is quite clear that in all the three organisation debtors turnover ratio is increasing
which means that they have more liquid debtors and there is efficient management
of debtors and debts are being collected more quickly.
It is quite clear that Ranson and Anand have better efficiency in the utilization of
working capital.

55

Conclusion & recommendations

7.1 CONCLUSION
56

Working capital management is important aspect of financial management. The study

of working capital management of A.P.G., Anand and Ranson has revealed that the
current ration was as per the standard industrial practice but the liquidity position of
the company showed an increasing trend. The study has been conducted on working
capital ratio analysis, working capital leverage, working capital components which
helped the company to manage its working capital efficiency and affectively.

After the in depth study of working capital management in A.P.G., Anand and Ranson,
it was concluded that a good working capital management is that where the firm has
efficient funds to meet the requirements. There must not be inadequate or excessive
working capital because working capital management policies of a firm have a great
effect on its profitability, liquidity and structural health of the organization.
Inadequacy of working capital may lead a firm to insolvency and working capital
implies idle funds, which earns no profits to the business.

There were few researches which were conducted earlier on working capital
management and the research concluded that these research examined the systematic
assessment of working capital in constructing projects deals with the analysis of
various quantitative factors which are based on uncertainty. The scope of the study
was limited within the organisation as the objective was to know the efficiency of
A.P.G., Anand and Ranson in managing their working capital.

The working capital of the company was very efficiently utilised as the company was
able to meet their current obligations out of the current assets of the organisation as
they made the payment to the concerned parties well on time. This showed that the
company was having ample amount of working capital and that showed that the
liquidity position of the company was very strong.

Working capital management is important aspect of financial management. The study

of working capital management of A.P.G., Anand and Ranson. has revealed that the
57

current ration was as per the standard industrial practice but the liquidity position of
the company showed an increasing trend. The study has been conducted on working
capital ratio analysis, working capital leverage, working capital components which
helped the company to manage its working capital efficiency and affectively.

58

7.2 RECOMMENDATIONS

The company has to consider the composition of current

assets pool. The working capital position sets the various policies in the
business with respect to general operations like purchasing, financing,
expansion and dividend etc
Management should make the proper use of inventory control

techniques like fixation of minimum, maximum and ordering levels for all the
items for less blockage of money.
The company should keep more cash for the liquidity position of the company.
Company makes very quick payment to the creditors.But it is not required to
make payment so early. So, it should make use of credit given by its creditors
by extending its payment period.
Its working capital turnover ratio is satisfactory and up to the mark. So, the
company needs to maintain that by making efficient utilization of working
capital.
The company is also required to reduce down the inventory conversion period
which helps the unit in reducing the cost also.
The investments of surplus funds are made by the corporate office and the unit
is not generally involved while taking decisions with regard to structure of
investment of surplus funds. The corporate office should involve the units so
as to better ascertain the future requirements of funds and accordingly the
investments are made in different securities.

Company should raise funds through short term sources for short term
requirement of funds, which comparatively economical as compare to long

term funds.

Company should take control on debtors collection period which is

major part of current assets.

Company has to take control on cash balance because cash is non

earning assets and increasing cost of funds.

Company should reduce the inventory holding period with use of zero
inventory concepts.
59

References

60

REFERENCES

Adams, G (2007). Analysis of various quantitative and qualitative factors

affecting working capital available at http://ssrn.com/abstract=931591.

Anand, M. (2008). Working Capital Performance of Corporate India available at

http://ssrn.com/abstract =958669.

Deloof, M. (2010). Does Working Capital Management Affect Profitability of

Belgian Firms available at http://ssrn.com/abstract=415364.

Haworth, C. (2010). The Focus of Working Capital Management in UK Small

Firms available at http://ssrn.com/abstract=414820.

Iqbal, M. (2009). Effect of fixed assets and current assets on the return and risk
available at http://ssrn.com/abstract=481584.

Malhotra, K. (2010). Development of quantitative benchmarks at firms and

industry level available at http://ssrn.com/abstract=1006891.

Rafuse, I.M. (2007). Financial Management. New Delhi. Vikas Publishing

House Pvt. Ltd.

Solano, A. (2011). Effect of working capital management on the profitability of

small and medium sized firms available at http://ssrn.com/abstract = 1542847.

www.apgindustries.com

www.ransonindustries.com

www.Anandindustries.com

61