INTRODUCTION

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 INTRODUCTION

Working capital is the lifeblood 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. In case adequate
working capital is not available the company will not be in a position to sustain to
continue production ( purchase the raw materials, components and spares, to pay
wages and salaries, to incur day –to- day expenses and overhead costs such as fuel ,
power and office expenses) to meet the selling costs as packaging , advertising , etc.
to provide credit facilities to the customers and to maintain the inventories of raw
material, work-in-progress . stores and spares and finished goods
of Working capital

ADVANTAGES OF WORKING CAPITAL :

The main advantages of maintaining adequate amount of working capital are as

follows:

 Solvency of the Business:

Adequate working capital helps in maintaining solvency of the business by

providing uninterrupted flow of production.

 Goodwill:
Sufficient working capital enables a business concerns to make prompt
payments and hence helps in creating and maintaining goodwill.

 Easy Loan:
A concern having adequate working capital, high solvency and good credit
standing can arrange loans from bank and other on easy and favourable terms.

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 Cash Discount:
Adequate working capital also enables a concerns to avail cash on the
purchase and hence it reduces costs.

 Regular Supply of Raw Material:

Sufficient working capital ensures regular supply of raw material and
constitutes production.

 Regular payment of Salaries Wages and Other Day –to- Day Commitments:

A company which has ample working capital can make regular payment of
salaries , w ages and other day-to-day commitments which raises the morale of its
employee’s , increases their efficiency, reduces wastages and costs and enhances
production and profit.

DISADVANTAGE OF EXCESS OR INADEQUATE WORKING

CAPITAL

Every business concern should have adequate working capital to run its
business operations. It should have neither excess working capital nor shortage of
working capital. Both excess as well as short working capital position 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.

The disadvantages suffered by a company with insufficient working capital

are as follows:
1) Unable to Adept Changes:
The company is unable to take advantages of new opportunity or to adapt to
changes. Since it does not have sufficient elbow room, it is unable to finance the
development of new products or the alteration to production to production techniques
needed when new opportunity occur.

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TRADE DISCOUNT ARE LOST :-
A company with ample working capital is able to finances large stocks and
can therefore places larger orders. The bigger the order the more generous the trade
discount offered by the supplier, who uses it as a method of reducing the price so that
the company is included to places an order. If a company is unable to places larger
orders it will find that prices it has to pay for raw material and components are higher
than those paid by its rivals, so it is at a competitive disadvantage in the market

CASH DISCOUNT ARE LOST:

Some companies will try to persuade their debtors to pay early by offering a
cash discount off the price owed. The advantage of being able to offer a credit line to
customers is forgone.

FINANCIAL REPUTATION IS LOST:

A company with ample working capital is able to pay its bill to suppliers and
other creditors in good time . Thus it achieves a reputation as beings a good payer and
this will enhances the goodwill a reputation of business. A company with a good
reputation can expect co-operation from trade creditors at times of financial difficulty.
Conversely, a company with a bad reputation can expect credit controller in trade to
be on their guard if it attempts to exceed the credit limits they have set . At such
times, a credit controller may cut-off supplies of raw material to a factory, thus
seriously disrupting production.
INSOLVENCY:
If working capital of a business is generously inadequate it will be forced to
finance its operation more and more by short-term borrowing such as overdraft and
trade credit. Eventually the point will be reached beyond which short-term lenders are
notwilling to extent credit and it is at this point that the policy and indeed the
continuation of the business, is dependent not on the wishes of the owners,
shareholders or directors, but on the action of the creditors. Even though the business
is a profitable one, in the absences of repayment, the creditors will apply to the court
to appoint a liquidator or force the company to commence a voluntary winding-up.

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OPERATING/WORKING CAPITAL CYCLE

The working capital requirement of a firm depends, to great extent upon the
operating cycle of the firm. The duration of time required to complete the sequences
of events right from purchase of raw materials/goods for cash to the realization of
sales in cash is called the operating cycle or working capital cycle as shown in the
figure.

Cash

Account
Raw Material
Receivables/Debtors

Finished Goods Work-in- Progress

OPERATING CYCLCLE

Operating cycle can be determined by adding the number of days required for each
stage in the cycle. In case of manufacturing concerns, working capital is required to
cater the following needs to the following needs of business in order:

 Raw materials are to be purchased for cash.

 Production process converts raw materials into work- in- process.
 Work- in -process is converted into finished goods, during courses of time through
production process.
 Finished goods ar3e converted into accounts receivables ( debtors and bills
receivables) th4rough sale.
 Accounts receivables are realized into cash in due course of time.

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 Working capital refers to the cash a business requires for day-to-day
operations or, more specifically, for financing the conversion of raw materials into
finished goods, which the company sells for payment. Among the most important
items of working capital are levels of inventory, accounts receivable, and accounts
payable. Analysts look at these items for signs of a company's efficiency and financial
strength.

The working capital is an important yardstick to measure the company’s

operational and financial efficiency. Any company should have a right amount of cash
and lines of credit for its business needs at all times.
Working capital management is concerned with the problem that arises in attempting
to manage the current assets, current liabilities. The basic goal of a firm is to manage
the current assets and current liabilities in such a ways that a satisfactory level of
working capital is maintained, i.e. it is neither adequate nor excessive as both the
situation are bad for any firm. There should be no shortage of funds and also no
working capital should be ideal.

WORKING CAPITAL MANAGEMENT POLICIES of a firm has a great effect

on its profitability, liquidity and structural health of the organization. So working
capital management is three dimensional in nature as

 It is concerned with the formulation of policies with regard to profitability ,

liquidity and risk.

 It is concerned with the decision about the composition and level of current
assets.

 It is concerned with the decision about the composition and level of current.
Liabilities.

Every business needs funds for two purposes for its establishment and to carry out
its day to day operations. Long terms funds are required to create production facilities
through purchase of fixed assets such as plant &machinery, land, building, furniture,

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etc. investments in these assets represents 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 material, payment of wages and other day-to-day
expenses.

Capital required for a business can be classified under two main categories via,

1. Fixed capital

2. Working capital

These funds are known as working capital. In simple words, working capital
refers to that part of the firm’s capital which is required for financing short –term or
current assets such as cash, marketable securities, debtors& inventories. Funds, thus,
invested in a current assets keep revolving fast and are being constantly converted in
to cash and this cash flows out again in exchange for other current asset. Hence, it is
also known as revolving or circulating capital or short term capital.

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CONCEPT OF WPRKING CAPITAL:

There are two major concepts of working capital:

Concept of Working Capital

Gross Working Capital

Net Working Capital

 Gross working capital:

It refers to firm's investment in current assets. Current assets are the assets,
Which can be converted into cash with in a financial year? The gross working
Capital points to the need of arranging funds to finance current assets.

 Net working capital:

It refers to the difference between current assets and current liabilities. Net
Working capital can be positive or negative. A positive net working capital will arise
Whencurrent assets exceed current liabilities and vice-versa for negative net Working
capital. Net working capital is a qualitative concept. It indicates the Liquidity position
of the firm and suggests the extent to which working capital needs may be financed
by permanent sources of funds. Net working capital also covers the question of
judicious mix of long-term and short-term funds for financing current assets.

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CONSTITUENTS OF CURRENT ASSETS

Current assets are those assets which in the ordinary course of business can be
converted into cash within a short period of normally one accounting year. Example
of current assets are :

1. Cash in hand and cash at bank

2. Bill receivables
3. Sundry debtors
4. Short term and advances
5. Inventories of stock:
a. Raw material
b. Work in process
c. Stores and spares
d. Finished goods
6. Temporary Investment of surplus funds,
7. Prepaid Expenses,
8. Accrued Income.

CONSTITUENT OF CURRENT LIABILITIES

Current liabilities are those which are intended to be paid in the 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:

1. Bills Payable’
2. Sundry Creditors or Account Payable,
3. Short- term loan, advances and deposits,
4. Dividend Payable,
5. Bank Overdraft,
6. Provision for taxation, if it does not amount to appropriate of Profits.

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SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT:

PAYMENT TO INCREASE
SUPPLIER DREBT
CAPACITY

DIVIDEND INCTREASE
DISTRIBUTION EFFICIENCY

SIGNIFICANCE
INCREASE EASY LOAN
OF WORKING
PRODUCTION FROM BANK
CAPITAL

The management of working capital is important for several reasons:

 For the purchase of raw material, consumption and spares.

 To pay Wages and Salaries.
 To incur day-to- day expenses and overhead costs such as fuel, power and office
expenses, etc.
 To maintain the inventories of raw material, work-in-progress, stores and spares
and finished stock.
 To meet selling costs as packing, advertising, etc.

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TYPES/CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:

 On the basis of time

 On the basis of concept

Types of
working
capital

On the basis of On the basis of

concept time

Petrmanant Temporary
Gross working Net working
working working
capital capital
capital capital

Regular Reserve Seasonal Special

working working Working Working
capital capital Capital Capital

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TYPES OF WORKING CAPITAL

On The Basis Of Concept

On the basis of concept, working capital is classified as groups as gross

working capital and net working capital. This classification is important from the
view point of financial managers.

Gross Working capital:The term working capital refers to the gross working capital
and represents the amount of funds invested in current assets.

Net Working capital : The term working capital refers to the net working capital .
Net working capital is the excess of current assets over current liabilities.

On The Basis Of Time:On the basis of time, working capital may be classified
as permanent of fixed working capital and temporary or variable working capital.

A) Permanent Or Fixed Working Capital:

Permanent of fixed working capital is the minimum amount which is required to

ensure effective utilization and for maintaining the circulation of current assets.
Theseis always a minimum level of current assets, which is continuously required.
i) Regular working Capital: This is the amount of working capital required for the
continuous operation of an enterprise. It refers to the excess of current assets over
current liabilities. Any organization has to maintain a minimum stock of material,
finished goods and cash to ensure its smooth working and to meet its immediate
obligations.
ii) Reserve Working Capital:
Reserve working capital is the excess amount over the requirement for regular
working capital which may be provide such as strikes, rise in prices, depression.

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B) Temporary or variables 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. Variables
working capital can be special working capital
i. Seasonal Working Capital:
Seasonal working capital is required to meet the seasonal needs of the enterprise such
as, a textile dealer would require larger amount of funds a few month before Diwali.
ii. Special Working Capital

Special working capital is that part of working capital which is required to meet
special emergencies such as launching of extensive marketing campaign research, etc.
Most of the enterprise have to provide additional working capital to meet the seasonal
and special needs.

DETERMINANTS WORKING CAPITAL REQUIREMENT

There are no set rules or formulas to determine the working capital

requirement of a firm. A number of factors influencing the need and quantum of
working capital of a firm. These are discussed below:

Nature of Industry- The composition of an assets is related to the size of a business

and the industry to which it belong. Small companies have smaller proportion of cash,
requirement and inventory than larger corporations. Need of working capital is thus
determined by the nature of an enterprise.

Business Cycle- Business expands during periods of prosperity and decline during a
period of depression. Consequently, more working capital is required during periods
of prosperity and less during the period of depression

Cash requirement-Cash is one of the current assets which are essential for the
successful operation of the production cycle. Cash should be adequate a properly
utilized. A minimum level of cash is always needed to keep the operation going.

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General nature of business- The general nature of business is an important
determinant of the level of the working capital. Working capital requirement depends
upon the general nature and its activity on work. They are relatively low in public
utility concerns in which inventories and receivables are rapidly converted into cash.
Manufacturing organizations, however, face problems of slow turn-over of
inventories and receivables, and invest larger amount in working capital.

Time- The level of working capital depends upon the time required to manufacture
goods. If the time is longer, the amount of working capital required is greater and
vice- versa Moreover, the amount of working capital depends upon inventory turnover
and the unit cost of goods that are sold. The greater this cost , the larger is the amount
of working capital.

Volume of sales- This is the most important factor affecting the size and component
of working capital. A firm maintains current assets because they are needed to support
the operation activities which results in sales. The volume of sales and the size of the
working capital are directly related to each other. As the volume of sales increases in
the investments of working capital in the cost of operation, in inventories and in
receivables.

Terms of purchase and sales - If the credit terms of purchases are more favorable
and those of sales less liberal, less cash will be invested in inventory. With more
favorable credit terms, working capital requirement can be reduced as a firm gets
time for payment to creditors or suppliers.

Production Cycle- The time taken to convert raw material into finished products is
referred to as production cycle. The longer the duration of production cycle, the
greater is the requirement of working capital. Utmost care should be taken to shorten
the period of the production cycle in order to minimize working capital requirement.

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COMPANY PROFILE

15
 COMPANY PROFILE

HP Lubricants caters to a wide array of industries, with a diverse range of Industrial

Oils. It is due to several inherent strengths that HP Lubricants has the largest
Industrial Oil market share in India. Trusted by all our customers for Consistent
quality, Timely Delivery and a robust Technical Services backup, HP Lubricants
continues its growth in this segment by offering newer and advanced products as
required by the market. HP lubricants brands such as Enklo, Parthan, Hycom,
Numatic, Yantrol etc. find usages in all applications such as hydraulic systems,
enclosed gear boxes, compressors, pumps, pneumatic tools, general purpose
machinery applications etc.

AUTOMOTIVE OILS
HP Lubricants manufactures and markets a wide range of Lubricants catering to all
automotive applications. With stringent quality control, robust manufacturing
processes and a highly qualified team of Technical Services Engineers, HP Lubricants
meets the requirements of all customers. HP Lubricants has created household brand
names such as HP Milcy, HP Racer, HP Neosynth range of oils, and have tied up with
several Auto OEMs for marketing OEM approved co-branded and Genuine Oils.
HPCL owns & operates 2 major refineries producing a wide variety of petroleum
fuels & specialties, one in Mumbai (West Coast) of 6.5 Million Metric Tonnes Per
Annum (MMTPA) capacity and the other in Visakhapatnam, (East Coast) with a
capacity of 8.3 MMTPA. HPCL also owns and operates the largest Lube Refinery in
the country producing Lube Base Oils of international standards, with a capacity of
428 TMT. This Lube Refinery accounts for over 40% of the India's total Lube Base
Oil production. Presently HPCL produces over 300+ grades of Lubes, Specialities and
Greases. HPCL in collaboration with M/s Mittal Energy Investments Pvt. Ltd. is
operating a 9 MMTPA capacity Refinery at Bathinda with 49% equity in Punjab and
also holds an equity of about 16.95% in the 15 MMTPA Mangalore Refinery and
Petrochemicals Ltd. (MRPL).
HPCL has the second largest share of product pipelines in India with a pipeline
network of more than 3015 kms for transportation of petroleum products and a vast
marketing network consisting of 13 Zonal offices in major cities and 106 Regional
Offices facilitated by a Supply & Distribution infrastructure comprising Terminals,

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Pipeline networks, Aviation Service Stations, LPG Bottling Plants, Inland Relay
Depots & Retail Outlets, Lube and LPG Distributorships.
Consistent excellent performance has been made possible by highly motivated
workforce of over 11,000 employees working all over India at its various refining and
marketing locations.
HPCL is committed to achieve the economic, ecological & social responsibility
objectives of sustainable development consistently through varied operations and
activities. HPCL’s focus areas are in the fields of Child Care, Education, Health Care,
Skill Development & Community. Development, touching lives of weaker section of
society.

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OBJECTIVES OF THE STUDY

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 OBJECTIVES OF THE STUDY

 To study the Working Capital Management undertaken by the company for

the 5 years.
 To study the behaviour of each elements of the Working Capital Management.
 To understand the month to month variation in the Working Capital.
 To study the measures taken by the company to meet the gap between needs
and sources of. Working Capital Management.

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SCOPE OF STUDY

20
 SCOPE OF STUDY

The study has been taken in the organization for the purpose to know the ‘Working
Capital of the company for the five years. The study is based on secondary data.
H.P. INDUSTRIES is spreading its wings and wings its business horizon to reach and
serve customers at new centers in the year ahead.
The company products are backed by a highly motivated and technology driven team
to achieve customers needs, product expertise and geographic reach.
The study is oriented towards the concept of difference branch offered by H.P.
INDUSTRIES and its competitors to its customers. The company has endeavored to
move fast in providing market solution. Which maximize customer needs and
convenience, using multiple delivery channels in composing the agency network.
Wholesalers and retailers.

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RESAERCH METHODOLOGY

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 RESAERCH METHODOLOGY

What is research?
Research a scientific and systematic search for pertinent information on a
specific topic. In fact, research is an art of scientific investigation. It is an
academic activity and as such the term should be used in a technical sense.
Research is, thus an original contribution to the existing stock of knowledge
making for its advancement. It is a per suit of truth with the help of study,
observation, comparison and experiment. In short, the search for knowledge
through objective & systematic method of finding solution to a problem is
“research”.

DEFINITION:
1. According to Advanced Learner’s Dictionary,” A research is a careful
investigation or inquiry especially through search for new facts in any branch of
knowledge”.
2. According to Clifford woody,” Research comprises defining and redefining
problems, formulating hypothesis or suggested solution; collecting, organizing and
evaluating data; making deductions and reaching conclusions; and at last carefully
testing the conclusions to determine whether they fit the formulating hypothesis”.
Research methodology
Research methodology is a way to systematically solve the research problem.
It may be understood as a science of studying how research is done scientifically.
In it we study the various steps that are the generally adopted by researcher in
studying his research problem along with the logic behind them. It is necessary for
the researcher to know not only the research methods / technique but also
methodology.
A researcher has to design his methodology that is in addition to the
knowledge of methods / techniques he has to apply the methodology as well the
methodology may research may differ from problem to problem. Thus the scope
of research methodology is wider the research methods. In a way, research
methodology deals with the research methods and takes into consideration the
logic behind the methods we use.

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RESEARCH TECHNIQUES:
1. Descriptive Vs. Analytical
2. Applied Vs. Fundamental
3. Quantitative Vs. Qualitative
4. Conceptual Vs. Empirical
5. Some Other Types of research.
1. Descriptive vs. Analytical:
Descriptive research includes surveys and fact-finding enquiries of different
kinds. The major purpose of descriptive research is description of the state of
affairs as it exits of present. The main feature of this method is that the researcher
has no control over the variables; he can only report what has happened or what is
happening.
2. Applied vs. Fundamental:
Applied research or fundamental research aims are finding a solution for at
immediate problem facing a society or an industrial or business organization. For
example: - Research studies, concerning human behaviour carried on with a view
to make generalizations about human behaviour.
3. Quantitative vs. Qualitative:
Quantitative research is based on the measurement of quantity and amount. It is
applicable to phenomena that can be expressed in terms of quantity. Qualitative
research, on the other hand, is concerned with qualitative phenomenon (Involve
with quality and kind).
4. Conceptual vs. Empirical:
Conceptual research is that related to some abstract idea or theory. It is
generally used by philosophers and thinkers to develop new concepts. On the
other hand, empirical research relies on experience or observation alone. It is
data-based research.
5. Some other Types of Research: -
1.One-time research or long term research
2.Field-setting research or laboratory research
3. Clinical or Diagnostic research
4. Historical research
5. Conclusion-oriented research
6. Decision oriented research

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RESEARCH PROCESS:
Following are the steps which are guideline regarding the research
a) Formulating the research problem
b) Extensive literature survey
c) Developing working hypotheses
d) Preparing the Research Design
e) Determining Sample Design
f)Execution of the project
g)Analysis of data
h)Hypothesis-testing
Research design
A research design is a logical and systematic plan prepared for directing a
research study. It specifies the objective of study, the methodology and techniques
to be adopted for achieving the objectives. Research design is like a blue-print
which an architect prepares for the building. Its like a root map for a journey.

Definition
According to Kerlinger, “Research design is a plan, structure and strategy of
investigation conceived so as to obtain answer to research questions and to control
variance.”
Types of Research design
Exploratory Research design
Conclusive Research design
Exploratory research design
It is diagnostic in nature. This is best characterized by its lack of structure and
flexibility. It is generally used for the development of hypothesis regarding potential
problems and opportunities. This type of research provides insight and understanding
of the problems.
Conclusive research design
This type of research is generally more formal and structure as compared to
exploratory. Conclusive research is used to provide the information for the evaluation
of alternative courses of action. This type of research can be classified into –
Descriptive research andCasual or experimental research.

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Collection of data

Data can be defined as the quantitative or qualitative values of a variable. Data

can be in numbers, images, words, figures, facts and ideas. Data in itself cannot be
understood and to get information from the data one must interpret in into
meaningful information.

The investigator faces with one of the most difficult problems of obtaining and
gathering the desired data. It is a technical job which requires specialized
knowledge and skill. Utmost cases must be taken while collecting data because
data constitute the foundation on which the entire structure of statistical analysis is
built. the result obtained from the statistical analysis and properly interpreted and
policy decision are taken. Hence if the data collected is inadequate the whole
statistical analysis may be faulty and the decision taken may be misleading.

Types of data

Primary data

Secondary data

Primary Data

Primary data are those which are collected for the first time and they are
original in character. For ex if an individual or an office collects the data to study
a particular problem, the data is primary data.

Importance of Primary data

Primary data has got its own importance and cannot be neglected. A research
can be conducted without secondary data but a research based on only secondary
data is least reliable because secondary data has already been manipulated by
human beings.

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Sources of primary data

Experiments:

It requires an artificial or natural setting in which one can be perform logical study
to collect data.

Survey:

Survey can be conducts in different methods

 Questionnaire
 Interview
 Observation

Secondary data

Secondary data are those which are already collected by someone for some
purpose and are available for the present study. Primary data once collected and
published becomes secondary data for other investigator. For instance, data
obtained during population census by the office of the Registrar general, census
commissioner, and minister of home affairs are termed as primary data. And the
same data, if used by a research worker for some study becomes a secondary data.

Importance of secondary data

Secondary data can be less valid but its importance is still there. Sometimes it
is difficult to obtain primary data ; in this cases getting information from
secondary sources is very useful. Sometimes primary data does not exist in such
situation. One has to confine the research on secondary data.

Sources of secondary data

Published printed sources

 Books
 Journals

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  Newspapers
 E-journals
 Weblogs
 Diaries
 Letters

Secondary data are those which are already collected by someone for some
purpose & are available for the present study. Research is based on past financial
data so researcher used secondary data.
a) PRIMARY SOURCE:

The primary data will be collected from the books of financial management and
various other reference materials
b) SECONDARY SOURCE:

The secondary data required for the study will be collected from annual reports of
the company of the respective years and also with the various tools and techniques for
evaluate company performance.

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DATA ANALYSIS & INTERPRETATION

29
 DATA ANALYSIS& INTERPRETATION

1. CURRENT RATIO:

The current ratio is balance-sheet financial performances measure of company

liquidity. The current ratio indicates a company’s ability to meet short-term debt obligations.
The current ratio measures whether or not a firm has enough resources to pay its debts over
the next 12 months. Potential creditors use this ratio in determining whether or not to make
short- term loans. The current ratio can also give a sense of the efficiency of a company’s
operation cycle or its ability to turn its product into cash. The current ratio is also known as
the working capital ratio
𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐀𝐬𝐬𝐞𝐭𝐬
𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐑𝐚𝐭𝐢𝐨 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
Year 2015 2016 2017 2018
Current Assets 3,856 6,926.40 8,022.70 7,868.30
Current
3788.40 4387.40 6036.50 6719.90
Liabilities
Current Ratio 1.02 1.58 1.33 1.17

Current Ratio
1.58
1.6
1.4 1.33
1.2 1.02 1.17
1
0.8
0.6 Current Ratio
0.4
0.2
0
2015
2016
2017
2018

INTERPRETATION:
The higher the ratio the more liquid the company is. Commonly acceptable current
ratio is 2; it’s a comfortable financials position for most enterprises. As the current ratio is
below ideal ratio it indicates the firm facing liquidity problems.

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2. QUICK RATIO

The Quick Ratio is a measure of a company’s ability to meet its short-term obligation
using its most liquid assets (near cash or quick assets). Quick assets include those current
assets that presumably can be quickly converted to cash at close to their book values. Quick
ratio is viewed as a sign of a company’s financial strength or weakness; it gives information
about a company’s short term liquidity. The ratio tells creditors how much of the company’s
short term debt can be met by selling all the company’s liquid assets at very short notice.
The Quick ratio is also known as the acid-test ratio or quick assets ratio.

𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐀𝐬𝐬𝐞𝐭𝐬 − 𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐢𝐞𝐬
𝐐𝐮𝐢𝐜𝐤𝐑𝐚𝐭𝐢𝐨 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
Year 2015 2016 2017 2018
Current Assets- Inventories 2647.2 5511.4 6226.2 6027.6
Current Liabilities 3788.40 4387.40 6036.50 6719.90
Quick Ratio 0.70 1.26 1.03 0.90

Quick Ratio
1.4 1.26
1.2
1.03
1
0.7 0.9
0.8
0.6
Quick Ratio
0.4
0.2
0
2015
2016
2017
2018

INTERPRETATION:

A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is 1:1. In the year 2015 the quick ratio is less
than the ideal quick ratio and In the year 2016 the quick ratio is more than the ideal ratio this
shows company has no liquidity problem. But there is decrease in Quick ratio in the year
2017 & 2018 this indicates company is facing liquidity problem.

31
3. ABSOLUTE RATIO

Although receivables, debtors and bill receivables are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately or in
time. So absolute liquid ratio should be calculated together with current ratio and acid test
ratio so as exclude even receivables from the current assets and find out the absolute liquid
assets.
Absolute Liquid Assets includes:
𝐀𝐁𝐒𝐎𝐋𝐔𝐓𝐄𝐋𝐈𝐐𝐔𝐈𝐃𝐀𝐒𝐒𝐄𝐓𝐒
𝐀𝐁𝐒𝐎𝐋𝐔𝐓𝐄𝐋𝐈𝐐𝐔𝐈𝐃𝐑𝐀𝐓𝐈𝐎 =
𝐂𝐔𝐑𝐑𝐄𝐍𝐓𝐋𝐈𝐀𝐁𝐈𝐋𝐈𝐓𝐈𝐄𝐒

Year 2015 2016 2017 2018

Absolute Liquid
98.20 2,508.50 2,436.10 775
Assets
Current Liabilities 3788.40 4387.40 6036.50 6719.90
Absolute Liquid
0.03 0.57 0.40 0.12
Ratio

Absolute Ratio
0.6 0.57

0.5
0.4 0.4
0.3
0.2 Absolute Ratio
0.1 0.03 0.12
0
2015
2016
2017
2018

INTERPRETATION:
An absolute liquid ratio of 0:5:1 is considered ideal for most of the firm. As we see
the above ratio it is more than the ideal ratio in the year2016 .But in the year 2017& 2018 the
absolute ratio is below the ideal ratio which indicate the policy of credit sales and advances
payments should be change to improve cash liquidity.

32
A) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and earn profits. The
efficiency with which assets are managed directly affects the volume of sales. The better the
management of assets, larger is the amount of sales and profits. Current assets movement
ratios measure the efficiency with which a firm manages its resources. These ratios are called
turnover ratios because they indicate the speed with which assets are converted and turned
over into sales. Depending upon the purpose, a number of turnover ratios can be calculated
these are:

1) Inventory Turnover Ratio

2) Debtors / Receivables Turnover Ratio
3) Creditors/ payables Turnover Ratio
4) Working Capital Turnover Ratio

1) INVENTORY TURNOVER RATIO

Every firm has to maintain a certain amount of inventory of finished goods so as to

meet the requirement of the business. But the level of inventory should neither be too high nor
too low. Because it is harmful to hold more inventory at some amount of capital is blocked in
it and some cost is involved in it. It will therefore be advisable to dispose the inventory as
soon as possible.
𝐂𝐨𝐬𝐭𝐎𝐟𝐆𝐨𝐨𝐝𝐬𝐒𝐨𝐥𝐝
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐑𝐚𝐭𝐢𝐨 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
Inventory turnover ratio measures the speed with which the stock is converted into
sales. Usually a high inventory ratio indicates an efficient management of inventory because
more frequently the stocks are sold: the lesser amount of money is required finance the
inventory. Whereas, low inventory turnover ratio indicates the inefficient management of
inventory. A low inventory turnover implies over investments in inventories, dull business,
poor quality of goods, stock accumulation and slow moving goods and low profits as
compared to total investments.

𝑨𝐯𝐞𝐫𝐚𝐠𝐞𝐒𝐭𝐨𝐜𝐤 = 𝐎𝐩𝐞𝐧𝐢𝐧𝐠𝐒𝐭𝐨𝐜𝐤 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠𝐒𝐭𝐨𝐜𝐤 ÷ 𝟐

33
CALCULATION OF INVENTORY TURNOVER RATIO

Year 2015 2016 2017 2018

Cost of Goods sold 23713.6 28644.3 28428.9 33238.9
Average Stock 1208.80 1,311.90 1,605.75 1,818.60
Inventory Turnover Ratio 19.62 21.83 17.70 18.28

Inventory Turnover Ration

25
21.83
19.42
20
17.7 18.28
15

10 Inventory Turnover Ration

0
2015
2016
2017
2018

INTERPRETATION:

Inventory turnover ratio is a measure of how efficiently a company can control

its merchandise, so it is important to have a high turn. The Inventory turnover ratio
show fluctuation for the year 2015to 2018.As the ratio in the year 2018increases as
compare to the previous year this shows positive improvement in the management of
inventories.

34
2) INVENTORY CONVERSION PERIOD:

Inventory conversion period reports us about the average time to convert our total
inventory into sales. It is relationship between total days in year and inventory turnover ratio.
In other words, it measures the length of time on average between the acquisitions and sales
of merchandise. We can calculate it with following formula.

𝟑𝟔𝟓(𝐍𝐞𝐭𝐰𝐨𝐫𝐤𝐢𝐧𝐠𝐝𝐚𝐲𝐬)
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲𝐂𝐨𝐧𝐯𝐞𝐫𝐬𝐢𝐨𝐧𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐑𝐚𝐭𝐢𝐨

Year 2015 2016 2017 2018

Days 365 365 365 365
Inventory Turnover Ratio 19.62 21.83 17.70 18.28
Inventory Conversion Period 18.60 Days 16.72 Days 20.62 Days 19.97 Days

Inventory Conversion Period

25
18.6 20.62
20 19.97
16.72
15

10 Inventory Conversion Period

0
2015
2016
2017
2018

INTERPRETATION:
Less inventory conversion period is better because more fastly, we will convert our
inventory into sales, there will be less chance of obsolescence and paying of over- stocking.
The ratio shows fluctuation for the year 2015to 2018.which indicates the conversion period
fluctuating every year which is not a good sign for the firm.

35
3) DEBTORS TURNOVER RATIO

A concern may sell its goods on cash to increase its sales and a liberal credit policy
may result in trying up substantial funds of a firm in the form of trade debtors . Trade in
current assets. So liquidity position of a firm concerns also depends upon the quality of trade
debtors. Two types of ratio can be calculated to evaluate the quality of debtors.
a) Debtors Turnover Ratio
b) Average Collection Period
𝐓𝐨𝐭𝐚𝐥𝐒𝐚𝐥𝐞𝐬(𝐂𝐫𝐞𝐝𝐢𝐭)
𝐃𝐞𝐛𝐭𝐨𝐫𝐬𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐑𝐚𝐭𝐢𝐨 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐃𝐞𝐛𝐭𝐨𝐫𝐬
Debtor’s velocity indicates the number of times the debtors are turned over during a
year. Generally higher the value of debtor’s turnover ratio the management of debtors/ sales
or more liquid is the debtors.
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐃𝐞𝐛𝐭𝐨𝐫𝐬 = 𝐎𝐩𝐞𝐧𝐢𝐧𝐠𝐃𝐞𝐛𝐭𝐨𝐫 + 𝐂𝐥𝐨𝐬𝐢𝐧𝐠𝐃𝐞𝐛𝐭𝐨𝐫 ÷ 𝟐
Year 2015 2016 2017 2018
Total Sales(credit) 29317.70 36618.40 35587.10 43587.90
Average Debtors 809.90 817.20 881.05 1,180.65
Debtor Turnover Ratio 36.20 times 44.81 times 40.39 times 36.92 times

Debtor Turnover Ratio

50 44.81
36.2 40.39
40 36.92
30
20
Debtor Turnover Ratio
10
0
2015
2016
2017
2018

INTERPRETATION:
Since the receivables turnover ratio measures a business ability to efficiently collect
its receivables, it only makes sense that a higher ratio would be favourable. As we see the
Debtor Turnover ratio for the year 2017& 2018 it is decreasing this show the inefficiency of
the company in collecting its receivables.

36
4) AVERAGE COLLECTION PERIOD

The average collection period ratio represents the average number of days for which a
firm has to wait before its receivables are converted into cash. It measures the quality of
debtors generally; shorter the average collection period the better is the quality of debtors as a
short collection period implies quick payment by debtors and vice – versa.
𝟑𝟔𝟓( 𝐍𝐞𝐭𝐖𝐨𝐫𝐤𝐢𝐧𝐠𝐂𝐚𝐩𝐢𝐭𝐚𝐥)
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐃𝐞𝐛𝐭𝐨𝐫𝐬𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐫𝐚𝐭𝐢𝐨

Years 2015 2016 2017 2018

Days 365 365 365 365

Debtors Turnover Ratio 36.20 44.81 40.39 36.92

Average Collection Period 10.08 Days 8.15 Days 9.04 Days 9.89 Days

Average Collection Period

12
10.08
10 9.89
9.04
8.15
8
6
4 Average Collection Period

2
0
2015
2016
2017
2018

INTERPRETATION:
Shorter the average collection period the better is the quality of debtors as a short
collection period implies quick payment by debtors. The ratio during year 2015-2016 show
the quality of average collection period is better one year to year basis. Whereas, in the year
2017-2018 the ratio is increasing this shows the quality of average collection period decline
as compare to the previous year.

37
5. CREDITORS /PAYABLE TURNOVER RATIO

This ratio is similar to the debtor’s turnover ratio. It compares creditors with
the total credit purchases. It signifies the credit period enjoyed by the organization in
paying creditors. Accounts payable include both sundry creditors and bills payable.
Same as debtor’s turnover ratio, creditors turnover ratio can be calculated as,

𝐂𝐫𝐞𝐝𝐢𝐭𝐏𝐮𝐫𝐜𝐡𝐚𝐬𝐞
𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐑𝐚𝐭𝐢𝐨 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞𝐓𝐫𝐚𝐝𝐞𝐂𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬

Year 2015 2016 2017 2018

Credit Purchase 22435.40 28434.10 28199.40 32745.20
Average Trade Creditor 3160 3510.8 4599.8 5591.9
Creditor Turnover Ratio 7.10 times 8.10 times 6.13 times 5.86 times

Credtitors turnover Ratio

9
8.1
8 7.1
7
6.13
6 5.86
5
4
Credtitors turnover Ratio
3
2
1
0
2015
2016
2017
2018

INTERPRETATION:

Since the accounts payables turnover ratio indicates how quickly a company pays off
its vendors, it is used by suppliers and creditors to help whether or not to grant credit to a
business. As the Creditor turnover ratio is increasing during the year 2015-2016 which shows
the firm is not paying its creditors regularly. But there is a positive improvement in the ratio
as it is decreases during the year 2017-2018. which means a company is paying its creditors
regularly.

38
6. WORKING CAPITAL TURNOVER RATIO

Working capital turnover ratio indicates the velocity of utilization of net

working capital. The ratio indicates the number of times the working capital is turned
over in the course of the year. This ratio measures the efficiency with which the
working capital is used by the firm.

𝐂𝐨𝐬𝐭𝐨𝐟𝐒𝐚𝐥𝐞
𝐖𝐨𝐫𝐤𝐢𝐧𝐠𝐂𝐚𝐩𝐢𝐭𝐚𝐥𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫𝐑𝐚𝐭𝐢𝐨 =
𝐍𝐞𝐭𝐖𝐨𝐫𝐤𝐢𝐧𝐠𝐂𝐚𝐩𝐢𝐭𝐚𝐥

𝐍𝐞𝐭𝐖𝐨𝐫𝐤𝐢𝐧𝐠𝐂𝐚𝐩𝐢𝐭𝐚𝐥 = 𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐀𝐬𝐬𝐞𝐭𝐬 − 𝐂𝐮𝐫𝐫𝐞𝐧𝐭𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬

Year 2015 2016 2017 2018

Cost of Sales 23713.6 28644.3 28428.9 33238.9
Net working Capital 696 3,064.80 2,684.70 2,022.50
Working Capital 34.07 9.35 10.59 16.43
Turnover Ratio

Working Capital Turnover Ratio

34.07
35

30

25

20
15 16.43 Working Capital Turnover
9.35 10.59 Ratio
10
5
0
2015
2016
2017
2018

INTERPRETATION:

The higher working capital turnover ratios lower the investment in working
capital and higher ratio would be profitable for the Organization. As we see the above
ratio in the year 2015 it is too high it means there is low investment in working capital
and it is not a good sign for the firm. .But the ratio show a positive improvement as
there is a constant increase in the ratio during the year2017-2018 which is a good sign
for the firm and a constant increase in working capital turnover ratio indicate that it is
profitable for the Organization.

39
7. NET PROFIT RATIO

𝐍𝐞𝐭 𝐒𝐚𝐥𝐞
𝐍𝐞𝐭 𝐏𝐫𝐨𝐟𝐢𝐭𝐑𝐚𝐭𝐢𝐨 =
𝐓𝐨𝐭𝐚𝐥 𝐈𝐧𝐜𝐨𝐦𝐞

Year 2015 2016 2017 2018

Net Sale 8175.31 9223.80 10009.60 111292.27
Total Income 7772.59 9321.83 10175.36 11557.20
1.05 0.98 0.98 0.97

1.06 1.05

1.04

1.02

1
0.98
0.98 0.98
Net Profit Ratio
0.97
0.96

0.94

0.92
2015
2016
2017
2018

INTERPRETATION:

The ratio show a positive improvement as there is a constant Decreases in the

ratio during the year 2015-2018 which is a good sign for the firm and a constant
Decreases in Net Profit Ratio indicate that it is profitable for the Organization.

40
CONCLUSION

41
 CONCLUSION

 The current ratio is below the ideal ratio which means the short-term position in
not sound.
 There is decrease in Quick ratio in the year 2017 & 2018 this indicates company
has liquidity problem.
 In the year 2017 there is decrease in an inventory conversion period which
shows there is a positive improvement as compare to the previous year.
 The Debtor Turnover ratio for the year 2017 & 2018 it is decreasing this show
the inefficiency of the company in collecting its receivables.
 There is a positive improvement in the Creditor turnover ratio as it is decreases
during the year 2017 & 2018.
 The working capital turnover ratio shows a good sign as there is an increase in
ratio every year which profitable for the organization.
 Hence hypothesis is There is positive relationship between the Liquidity and
Profitability of H.P. INDUSTRIES Company is Accepted.

42
BIBLIOGRAPHY

43
 BIBLIOGRAPHY

BOOKS:-

1. FINANCIAL MANAGEMENT

BY.KHAN & JAIN

2. MANAGEMENT ACCOUNTING : 6TH EDITION

By M. Y. KHAN, P. K. JAIN

3. FINANCIAL ACCOUNTING FOR MANAGERS

By SANJAY DHAMIJA

 Financial Management- G. Sudarshan Reddy

 Management accounting- R. S. N. Pillai AND Bagavathi

 Financial management- Rustogi

WEBSITES:-

 www.H.P. INDUSTRIES.com
 www.wikipedia.org
 www.google.com
 www.moneycontrol.com

44
 ANNEXURE

Balance Sheet ------------------- in Rs. Cr. -------------------

Dec '18 Dec '17 Dec '16 Dec '15 Dec '14

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share Capital 96.42 96.42 96.42 96.42 96.42

Equity Share Capital 96.42 96.42 96.42 96.42 96.42

Reserves 3,577.32 3,324.17 2,917.28 2,721.42 2,740.79

Networth 3,673.74 3,420.59 3,013.70 2,817.84 2,837.21

Secured Loans 35.14 984.64 0.00 0.90 4.11

Unsecured Loans 0.00 35.14 33.15 16.83 15.46

Total Debt 35.14 1,019.78 33.15 17.73 19.57

Total Liabilities 3,708.88 4,440.37 3,046.85 2,835.57 2,856.78

Dec '18 Dec '17 Dec '16 Dec '15 Dec '14

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 2,505.82 3,358.43 5,201.10 5,058.48 4,950.10

Less: Accum. Depreciation 0.00 742.25 2,471.64 2,160.63 1,773.46

Net Block 2,505.82 2,616.18 2,729.46 2,897.85 3,176.64

45
Capital Work in Progress 0.00 94.16 188.17 230.79 244.78

Investments 2,658.49 1,978.87 1,749.35 1,324.92 811.82

Inventories 965.55 902.47 943.18 820.81 844.10

Sundry Debtors 124.59 88.97 97.93 78.42 99.10

Cash and Bank Balance 1,610.06 1,457.42 880.00 499.55 445.82

Total Current Assets 2,700.20 2,448.86 1,921.11 1,398.78 1,389.02

Loans and Advances 223.57 224.52 217.88 228.12 197.24

Total CA, Loans &

2,923.77 2,673.38 2,138.99 1,626.90 1,586.26
Advances

Current Liabilities 1,757.02 543.17 1,466.21 1,382.40 1,361.00

Provisions 2,622.18 2,379.05 2,292.91 1,862.49 1,601.72

Total CL & Provisions 4,379.20 2,922.22 3,759.12 3,244.89 2,962.72

Net Current Assets -1,455.43 -248.84 -1,620.13 -1,617.99 -1,376.46

Total Assets 3,708.88 4,440.37 3,046.85 2,835.57 2,856.78

Contingent Liabilities 0.00 32.24 81.44 111.92 43.53

Book Value (Rs) 381.01 354.78 312.57 292.26 294.27

46
Standalone Profit & Loss
------------------- in Rs. Cr. -------------------
account

Dec '18 Dec '17 Dec '16 Dec '15 Dec '14

12 mths 12 mths 12 mths 12 mths 12 mths

Income

Sales Turnover 11,292.27 10,192.18 9,556.24 8,482.48 10,178.07

Excise Duty 0.00 182.58 332.44 307.17 323.23

Net Sales 11,292.27 10,009.60 9,223.80 8,175.31 9,854.84

Other Income 258.92 86.20 87.25 -390.75 94.32

Stock Adjustments 6.01 79.56 10.78 -11.97 67.43

Total Income 11,557.20 10,175.36 9,321.83 7,772.59 10,016.59

Expenditure

Raw Materials 4,596.24 4,456.80 3,935.73 3,498.21 4,640.46

Power & Fuel Cost 0.00 288.44 232.79 221.99 384.33

Employee Cost 1,124.15 1,017.45 1,073.36 912.75 837.05

Selling and Admin Expenses 62.17 506.00 0.00 0.00 0.00

Miscellaneous Expenses 2,898.07 1,723.94 2,281.28 1,975.46 2,028.63

Total Expenses 8,680.63 7,992.63 7,523.16 6,608.41 7,890.47

Dec '18 Dec '17 Dec '16 Dec '15 Dec '14

47
 12 mths 12 mths 12 mths 12 mths 12 mths

Operating Profit 2,617.65 2,096.53 1,711.42 1,554.93 2,031.80

PBDIT 2,876.57 2,182.73 1,798.67 1,164.18 2,126.12

Interest 111.95 91.90 3.51 3.29 14.23

PBDT 2,764.62 2,090.83 1,795.16 1,160.89 2,111.89

Depreciation 335.67 342.25 353.62 347.26 337.54

Profit Before Tax 2,428.95 1,748.58 1,441.54 813.63 1,774.35

PBT (Post Extra-ord Items) 2,428.95 1,748.58 1,441.54 813.63 1,774.35

Tax 822.02 614.11 515.00 250.36 589.66

Reported Net Profit 1,606.93 1,225.19 926.54 563.27 1,184.69

Total Value Addition 4,084.39 3,535.83 3,587.43 3,110.20 3,250.01

Equity Dividend 0.00 829.18 607.42 467.62 607.42

Corporate Dividend Tax 0.00 168.77 123.66 95.63 109.16

Per share data (annualised)

Shares in issue (lakhs) 964.20 964.16 964.16 964.16 964.16

Earning Per Share (Rs) 166.66 127.07 96.10 58.42 122.87

Equity Dividend (%) 1,150.00 710.00 780.00 485.00 630.00

Book Value (Rs) 381.01 354.78 312.57 292.26 294.27

48