A SUMMER TRAINING PROJECT REPORT

ON

“A Comparative Analysis on Working Capital

Management of RITES LTD.”
SUBMITTED IN THE PARTIAL FULFILLMENT FOR THE AWARD OF

DEGREE OF MASTER IN BUSINESS ADMINISTRATION 2017-19

UNDER THE GUIDANCE OF:

Dr. Pooja Bahl

Associate Professor, RDIAS

SUBMITTED BY:

Lokesh Aggarwal
Enrollment NO.03580303917 BATCH 2017-19

RUKMINI DEVI INSTITUTE OF ADVANCED STUDIES

An ISO 9001:2015 Certified Institute

NAAC Accredited: A+ Grade (2nd Cycle), Category A+ Institution (by SFRC, Govt of NCT of
Delhi)
(Approved by AICTE, HRD Ministry, Govt. of India)
Affiliated to Guru Gobind Singh Indraprastha University, Delhi
2A & 2B, Madhuban Chowk, Outer Ring Road, Phase-1, Delhi-110085
 Table of Contents
Student Declaration…………………………………………………………………… ………i
Certificate from Company.…………………...…………………………………....…..............ii

Certificate from Guide…….………………...…………………………………....…...............iii

Acknowledgement............................................................................................................iv

Executive Summary………………………………………………………………..……………..v

 A summary statement designed to provide a quick overview of the full length report on
which it is based.

List of Tables………………………………………………………………………………….vi

List of Graphs…………………………………………………………………………………vii

List of Charts………………………………………………………………………………viii

List of Abbreviations, if any………………………………………………ix

Page no.
CHAPTER- 1: INTRODUCTION
1.1 About the Industry
1.2 About Organization/Company Profile………………………………

CHAPTER – 2: LITERATURE REVIEW

2.1 Literature Review and Research Gap…………………………….. ……………

2. 2 About The Topic………………………………………………… ……………

CHAPTER – 3: RESEARCH METHODOLOGY

3.1 Purpose of the study……………………………………… ..………...…

3.2 Research Objectives of the study…………………………… …………..

3.3 Research Methodology of the study………………………… …… .

3. 3.1 Research Design…………… ……… …………… ……………......

 3.3.2 Method of data collection ……………………………… …

3.3.2.1 Drafting of a questionnaire

3.3.3 Sample design…………………………………………………… ………….

3.3.3.1 Population………………………………… …………………………..

3.3.3.2 Sample size……………………………… ……………………………

3.3.3.3 Sampling method…………………… ………………………………...

3.3.4 Duration of the Study…………………………………………………… ………….

3.3.5 Limitations…………………………………………………………… ………

CHAPTER – 4: ANALYSIS & INTERPRETATION

4.1 Analysis & Interpretation ………………………………………………….

CHAPTER- 5: FINDINGS & SUGGESTIONS

5.1 Findings …………………………………………………………………………..

5.2 Suggestions…………………..…………………..…………………..………………

CHAPTER- 6: CONCLUSION
6.1 Conclusion …………………………………………………………………………..

BIBLIOGRAPHY

Bibliography……..………………..…………………..…………………..……………

ANNEXURES (if any)

Annexures 1

Annexure 2

FEEDBACK FORM FROM THE INDUSTRY

PLAGIARISM REPORT
 STUDENT DECLARATION

This to certify that I have completed the project titled “A Comparative Analysis on
Working Capital Management of RITES LTD.” under the guidance of “Dr. Pooja Bahl”
in the partial fulfillment of the requirement for the award of the degree of “Master in
Business Administration” from “Rukmini Devi Institute of Advanced Studies, New Delhi.”
This is an original work and I have not submitted it earlier elsewhere.

Name: Lokesh Aggarwal

Enrollment No.03580303917
 CERTIFICATE FROM GUIDE

This is to certify that the summer training project titled “A Comparative Analysis on
Working Capital Management of RITES LTD.” is an academic work done by “Lokesh
Aggarwal” submitted in the partial fulfillment of the requirement for the award of the degree
of “Masters in Business Administration” from “Rukmini Devi Institute of Advanced
Studies, New Delhi” under my guidance and direction. To the best of my knowledge and
belief the data and information presented by him in the project has not been submitted earlier
elsewhere.

Dr. Pooja Bahl

Associate Professor
RDIAS
 ACKNOWLEDGEMENT
I offer my sincere thanks and humble regards to Rukmini Devi Institute Of Advanced
Studies, GGSIP University, New Delhi for imparting me valuable professional training in
MBA.

I pay my gratitude and sincere regards to Dr. Pooja Bahl my project Guide for giving me the
cream of his knowledge. I am thankful to her as she has been a constant source of advice,
motivation and inspiration. I am also thankful to him/her for giving her suggestions and
encouragement throughout the project work.

I take the opportunity to express my gratitude and thanks to our computer Lab staff and
library staff for providing me opportunity to utilize their resources for the completion of
the project.

I am also thankful to my family and friends for constantly motivating me to complete the
project and providing me an environment which enhanced my knowledge.

Name: Lokesh Aggarwal

Enrollment No.:- 03580303917
 EXECUTIVE SUMMARY

RITES Limited (earlier known as Rail India Technical and Economic Service) is an engineering
consultancy company , specializing in the field of transport infrastructure, Established in 1974
by the Government of India. The aim is to study the effect of Working Capital Management on
the management of the organisation. It focuses on various aspects of the company which directly
or indirectly affect the working capital of the company. The objective of the project is to make
comparative analysis of Working Capital Management for the past 2 years of the company.

My report is divided into four chapters. In the first chapter we have studied about the profile of
the company and an overview of industry. In the second chapter we have studied about the
Literature Review. The need to understand the importance of Working Capital for the
organisation. In the third chapter we have studied about the Research Methodology, Objectives
and sources of Data collection. Secondary Data has been used to find out the comparison for
Working Capital Management of the organisation. MS Excel is used for analysis and making
charts, diagrams etc. In chapter four secondary data has been analyzed and interpretation of the
results have been done with the help of charts and diagrams. The last chapter consists of the
findings, suggestions and conclusion of the study.

On the whole RITES Limited has a good positioning in the market as well as in economy as a
whole. Each customer is provided with the best of services. After analyzing the financial
statements given in Annual Report of RITES Limited 2017, it has been analyzed that RITED
Limited maintains sound position in terms of their working capital. The company has been
reaping full benefit’s of it’s Brand name. The company makes full utilization of it’s funds before
making payment to outsiders.
INTROUDUCTION
 INTRODUCTION OF THE CORPORATE

History of Rites Ltd.

RITES Limited (earlier known as Rail India Technical and Economic Service) is an engineering
consultancy company, specializing in the field of transport infrastructure. Established in 1974 by
the Government of India, the company's initial charter was to provide consultancy services in rail
transport management to operators in India and abroad. RITES has since diversified into
planning and consulting services for other infrastructure, including airports, ports, highways and
urban planning. On-shore WDS6 Diesel Loco Leasing service has been introduced. It was
awarded the status of MINIRATNA in 2002.

It has executed projects in over 62 countries on every major continent. As of 2011, it was
executing projects in over 30 countries.

RITES Limited
राइट् स लिलिटे ड

Type Public-sector undertaking

Industry Engineering, procurement and construction[1]

Founded 1974

Headquarters Gurgaon, India

Area served Worldwide

Key people Rajiv Mehrotra, Chairman

Products Infrastructure
 Operating income INR 12.46 Billion (2014)[2]

Net income INR 2.64 Billion (2014[3])

Number of employees 2000

Website www.rites.com

RITES LTD.

RITES Ltd., a Government of India Enterprise was established in 1974, under the aegis of Indian
Railways. RITES is incorporated in India as a Public Limited Company under the Companies
Act, 1956 and is governed by a Board of Directors which includes persons of eminence from
various sectors of engineering and management. RITES Ltd., an ISO 9001:2008 company, is a
multi-disciplinary consultancy organization in the fields of transport, infrastructure and related
technologies. It provides a comprehensive array of services under a single roof and believes n
transfer of technology to client organizations. In overseas projects, RITES actively pursues and
develops cooperative links with local consultants / firms, as means of maximum utilization of
local resources and as an effective instrument of sharing its expertise.

RITES is internationally recognized as a leading consultant with operational experience of over

55 countries in Asia, Africa, Latin America, South America and Middle East regions. We are the
only export arm of Indian Railways for providing rolling stock overseas (other than Thailand,
Malaysia and Indonesia).
 OUR RESOURCES

As of November 30, 2017, we have a total of 3,401 employees as follows:

Status No. of
employees
Regular 2,105
Deputation 161
Contract 841
Experts/ Consultants 294

We have an in – house team of expert engineers specializing in civil, mechanical, metallurgy,

chemical, electrical, signal and telecom engineering, and specialists in transport and economics,
quality assurance, environment engineering, information technology, finance and general
management. Our senior management has an average experience of about 33 years and we have a
pool of 1,423 skilled engineers/ professionals of executive cadre on our permanent roll. We also
source requisite manpower from the Indian Railways and other government ministries and
departments, both on deputation and permanent basis, according to requirements.

Board of Directors

Mr. Rajeev Mehrotra Chairman & Managing Director

Mr. Arbind Kumar
Mr. Ajay Kumar Gaur
Mr. Mukesh Rathore
Mr. Bhupendra Kr. Agarwal
Mr. A P Dwivedi
Mr. Anil Kr. Goel
Mr. Satish Sareen
Dr. Vidya Rajiv Yeravdekar
Dr. Pramod Kr. Anand
Director Projects
Director Finance
Director Technical
Govt. Nominee Director
Govt. Nominee Director
Independent Director
Independent Director
Independent Director
Independent Director
 RAILWAY PROJECT :

Various Railways that have /had project with RITES LTD. :-

 Luanda Railway (CFL), Angola, feasibility study for rehabilitation

 Bangladesh Railways, Bangladesh, consultation
 Botswana Railways, Botswana, management support and consultation
 Cambodian Railways, Cambodia, rehabilitation
 Ghana Railway Corporation, Ghana, consultation
 Kenya Railways, Kenya, locomotive operation, restructuring, planning
 Sri Lanka Railways, Sri Lanka, consulting and management assistance
 Sudan Railways, Sudan, consulting
 Zambian Railways, Zambia, improvement project
 National Railways of Zimbabwe, Zimbabwe, investment plan
 Bangalore Metro Rail Corporation, As a lead partner to General Consultants.
 Patna Metro, for preparing its DPR(Detailed Project Report).
 Gorakhpur Metro, for preparing its DPR(Detailed Project Report).
 Railways of Jamaica
 Nagpur Metro Rail Corporation Ltd, As a partner in the consortium of General Consultants.
 Metro-Link Express for Gandhinagar and Ahmedabad (MEGA), Ahmedabad (Gujarat).
 RITES OFFICES – INDIA

REGISTERED OFFICE

SCOPE MINAR, Core- 1

LAXMI NAGAR,
DELHI- 110092

PHONE : 011-23354800

CORPORATE OFFICE- I

RITES BHAWAN
NO. 1, SECTOR-29,
GURGAON-122001

PHONE : 0124-2571666
Email : info@rites.com

RITES OFFICE COMLEX-II

RITES BHAWAN
NO. 144, SECTOR-44,
GURGAON-122001

PHONE : 0124-2728299
 REGIONAL PROJECT OFFICES

RPO, LUCKNOW

13KM. Stone, Natioanl Highway-24,

Lucknow –Sitapur Road,
(Near Anil Dharamkanta)
LUCKNOW-227208

PHONE : 0522- 2771892/94

RPO, MUMBAI

VAT-741/742, 4TH FLOOR,

TOWER NO. 7,SECT-30-A
INTERNATIONAL INFOTECH PARK,
VASHI, NAVI MUMBAI-401703

PHONE: 022- 27812491/92/94/27814508

RPO, DELHI

RITES BHAWAN
Plot No-1, Sector-29,Gurgaon.122001(Haryana)
PHONE: 0124-2571625, 2818380
 RITES OFFICES – ABROAD

ARUN KUMAR SINGH, Project Director,Dreamton Park, A-15, Level-11, Sodnac, Quatre-Bornes,
MAURITIUS : Mauritius
PHONE : 00230-58480775(O), 00230-59652378(R)
Email : aksingh@rites.com

RAMKARAN MOTIRAM PASI, Chief Project Manager, RITES Ltd.

Room No.7, Second Floor, Rajshahi,Railway Station Building, Rajshahi, Bangladesh
BANGLADESH:
PHONE: 00880- 1752935543,
Email: rampi34@yahoo.com

H.No-29, Ward No-15, Murli Bageecha, Shreepur, Birgunj, Parsa-44300, Nepal.

NEPAL : PHONE-00977-9813141202
E-mail: i.kumar@yahoo.co.uk

D.K.PARASHAR, Sr.Expert, RITES Ltd., C/o. Workshop Manager,

MOZAMBIQUE:
CFM-SUL
P.O.Box 1291, Maputo, Mozambique.
E-mail: devendrakumarparashar@yahoo.co.in
PHONE: 00258-846971131(O),
SECTORS OF OPERATION

 Expotech
 Railways
 Railway Infratstructure
 Railway Equipment Services
 Airports
 Ports and Water Resources
 Highways
 Bridge and Tunnel Engineering
 Rolling Stock Design
 Quality Assurance
 Financial Management
 Electrical Engineering
 EXPOTECH DIVISION

Business Profile

The primary activity of the division is to export rolling stock produced in India to other railway
systems overseas. It offers integrated export packages, which include maintenance and spare part
support, for a wide variety of rolling stock of different gauges. In addition, the division renders
technical consultancy services for facility planning for rolling stock maintenance and for
workshop upgradation, training and technology transfer.

Services

1. Supply, commissioning and maintenance of locomotives, passenger coaches.

2. Supply & commissioning of workshop machinery and plant.
3. Training in railway technology.
4. Supply of spare parts for rolling stock.

RAILWAYS

Business Profile

RITES undertakes investigations and feasibility studies, integrated design services, institutional
management and technical support for new railway projects. With roots in Indian Railways, RITES shares
its vast experience and expertise with various developing railways of the world.
Conceptualization and design of rail based transportation systems for transportation of bulk
commodities like cement, fertilizers, coal etc. is RITES forte.

Services

1. Design for bulk solids and liquids handling

2. Design/sizing of rolling stock
3. Solution to special transport problems like over dimensional consignments
 AIRPORT DIVISION

Business Profile

RITES offers specialized consultancy services in the area of design, planning and
construction management of airports.

Services

1. Master planning, site selection and obstruction surveys

2. Air traffic surveys, demand assessment and forecasting
3. Project feasibility studies & Environment Impact Assessment studies

PORTS & WATER RESOURCES

Business Profile

Ports and Water Resources unit provides various consultancy services for ports and harbours,
water resources engineering and inland water transport. This unit has provided consultancy
services in the past to clients in international markets such as Sri Lanka, Myanmar, Nepal and
currently providing services in Mauritius.

Services : Ports & Harbours

 Harbour Planning
 Navigational Systems
 Breakwaters

Services : Water Resources

 Waterway Development
 River Engineering
 HIGHWAYS ENGINEERING

Business Profile

Highways unit provides various consultancy services for all aspects of roads and highways
including expressways, national highways, state highways, rural roads including bridges,
improvement and up gradation works and safety audits. The Highways unit has also provided
consultancy services in the past to clients in international markets such as Afghanistan,
Bangladesh, Botswana, Bhutan, Mozambique, Myanmar, Nepal, U.A.E and Zambia and currently
providing services in Botswana and Guyana (South America).

Services

 Advisory/technical assistance services

 Network improvement studies
 Detailed design & project preparation
 Quality assurance
 Transportation & traffic studies
 CLIENTS

RITES has a formidable record of being committed to its clients for the past three decades. Its
operational experience spans over 55 countries in Africa, South East Asia, Middle East and Latin
America. Most of RITES foreign assignments are for National Governments and other apex
organizations. The growing clientele of RITES is testimony of high professionalism of its
consultants and the satisfaction of its clients.

OUR CLIENTS

International

 National Governments
 Other Apex Organizations

Indian

 Central Government
 State Governments
 Public Sector Undertakings
 Corporations and industrial establishments
 Private Enterprises
 SWOT Analysis

STRENGTH AND WEAKNESS

RITES has establishes itself as a reputed organization providing services in the field of transport
infrastructure with an excellent record of performance in meeting the client’s needs, objectives
and expectations.
Customer satisfaction has often resulted into repeat orders.
The company has been able to earn loyality and trust of various clients in government and private
sector in India as well as abroad on the strength of inhouse availability highly qualified and
experienced technical personnel and access to the pool of technical experts and infrastructure
facilities of Indian Railway as well as thorough professional approach in handling the projects.

While RITES has explained it’s services over the years, it remains highly dependent on skilled
manpower. Hence it is vulnerable to attrition and other manpower issues in this category. With
the government initiatives to create an environment to achieve economic growth, more and more
organizations are now stepping in the market, which makes difficult for RITES to prevent staff
attrition and recruit desired competencies resulting in manpower resource constraints adversely
affecting the performance and development of divisions.

OPPORTUNITY AND THREATS

Major investment are expected to be made in the coming period in the infrastructure sector, both
in transport and non transport sector, offering scope to strengthen RITES position in exic=sting
areas and explore new areas of business.
Continuous focus of government for the development of excellent transport as well as
infrastructure provides greater business opportunities to the company to work towards achieving
higher milestones in terms of performance.

There is a threat from increasing competition from wide range of players viz. PSU ( Oof different
fields ) and Indian companies , International Consultants and small group of consultancy firms .
Scale of projects tendered, is becoming comprehensive and larger , attracting International and
large Indian companies putting a squeeze on RITES chances of securing consultancy business.
Loss of experienced personnel to multinational companies , foreign consultant and private sector
organizations who are offering attractive financial packages is also a threat to the company.
 INTRODUCTION TO THE TOPIC

WORKING CAPITAL MANAGEMENT

Working Capital management is the device of finance. It is related to management of current

assets and current liabilities. After studying about working capital management, students can use
this tool for fund flow analysis. Working capital is very essential for paying day to day expenses
and long term liabilities.

Meaning and Concept of working capital management

Working capital is that part of company’s capital which is used for purchasing raw material and it
also involves sundry debtors. We all are aware that current assets are very important for proper
working of fixed assets. We can also take one more liquid items of current assets that is cash. If
you don’t have cash in hand, then you cannot pay for different expenses of company, and at that
time, your many business works may get delayed for not paying certain expenses. If we explain
working capital in very simple style, then we can say that working capital is the excess of current
assets over current liabilities.

Types of working capital

(1) ON THE BASIS OF CONCEPT:

(a) Gross working capital

(b) Net working capital

(2) ON THE BASIS OF NEED:

(a) Permanent working capital

(b) Temporary working capital

On the basis of concept :

(A) GROSS WORKING CAPITAL:

Gross Working Capital is equal to total current assets only. It is identified with currents assets
only. It is the value of non-fixed assets of an enterprise and includes inventories (finished goods,
raw materials, work-in progress, stores and spare), receivables, short term investments, advances
to suppliers, loans, short term deposits,income receivable, prepaid expenses, etc.

Gross Working Capital indicates the amount of working capital available to meet current
liabilities.

Thus, Gross Working Capital = Current Assets

(B) NET WORKING CAPITAL = CA – CL:

Net Working Capital is the excess of current assets over current liabilities, i.e. current liabilities
subtracted from current assets.

This concept of working capital is generally preferred.

This approach, however, does not reflect the exact position of working capital due to the
following factors:

 Debtors include the profit element

 Debts outstanding for more than a year, likewise debtors which are insecure or not
provided for are included as asset and are also placed under the head ‘current assets’
 Non–moving and slow moving items of inventories are also included in inventories.

To assess the real strength of working capital position, it is essential to ignore the non-moving
and obsolete items from inventories etc. Working Capital thus arrived at is termed as “Tangible
Working Capital”
On the Basis of Need

(A) PERMANENT WORKING CAPITAL:

This refers to that minimum amount of investment in all current assets which is required at all
times to carry out minimum level of business activities. Every firm has to maintain a minimum
level of finished goods, work-in-progress, raw material and cash balance. This part of working is
permanently blocked in current assets. As the business multiplies the demands of working capital
also increases in current assets.

(B) VARIABLE OR TEMPORARY WORKING CAPITAL:

The amount of such working capital keeps on fluctuating from time to time on the basis of
business activities. It’s required to meet the seasonal demands and some special emergencies.
Variable working capital can in addition be classified as seasonal & special working capital. The
capital needed to meet the seasonal need of the enterprise is called seasonal working capital.
Special working capital is that element of working capital which is required to meet special
exigencies such as launching of extensive marketing for conduction of research, etc.

Temporary working capital varies from permanent working capital in the sense that is required
for short periods and cannot be permanently employed gainfully in the business.
 FACTORS DETERMINING THE REQUIREMENTS OF WORKING
CAPITAL

1. NATURE OF BUSINESS: The demand of working capital is very limited in public

utility undertakings such as water supply, electricity and railways because they offer cash sale
only and supply services not products and no profits are tied up in inventories and receivables.
Besides this the trading and financial firms requires less investment in fixed assets but they have
to invest a lot of amount of working capital along with fixed investments.

2. SIZE OF BUSINESS: The requirement of working capital depends on the size of the
business. If a business is very big then the working capital amount required is also large and vice
versa.

3. PRODUCTION POLICY: The production policies pursued by the management have a

significant effect on the requirements of working capital of the business. The production agenda
has a lot of influence on the level of inventories. The decisions made by the management about
automation, etc., will also have its impact on working capital requirements. In case of labour-
intensive industries the working capital requirements will be more. While in case of a highly
automatic plant, the requirements of long-term funds will be more.

4. LENGTH OF THE MANUFACTURING CYCLE: Longer the manufacturing

mechanism, the higher would be the demands of working capital and vice versa. This is because
of the reason that highly capital-intensive industries require a large amount of working capital to
run their sophisticated and long production process. On the same principle, a trading concern
requires a much lower working capital than a manufacturing concern.

5. SEASONALS VARIATIONS: A number of industries manufacture and sell goods

during certain specific seasons. For example, a sugar industry will produce practically all the
sugar between December and April and hence the working capital requirements of this industry
will be higher during this period as compared to other period.
6. WORKING CAPITAL CYCLE: The speed with which the working cycle completes
one cycle determines the requirements of working capital. Lengthier the cycle bigger is the
requirement of working capital.

7. COST OF RAW MATERIAL: When the cost of raw materials is large in the total cost
of production, the working capital requirement will be comparatively large.

8. CREDIT POLICY: The working capital requirements can also be affected by the credit
facilities enjoyed by the company. A company relishing liberal credit facilities from its suppliers
will need lower amount of working capital as compared to a company which does not enjoy such
credit facilities.

9. BUSINESS CYCLE: In period of growth, when the business is booming, there is need for
more amount of working capital due to rise in prices, rise in sales, expansion of business, etc. On
the other hand in time of depression, the sales decline, the number of business contracts
decreases, problems are faced in collection from debtor and the firm may have a large amount of
working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we will require

large amount of working capital.

11. PRICE LEVEL CHANGES: If there is rise in prices then the price of raw material and
cost of labour will rise, it will result in an increase in working capital requirements.

But if company is able to increase the price of its own goods as well, then there will be less
problem of working capital. The effect of rise in price on working capital will be different for
different businessmen.

12. MARKET COMPETITION: If the market is competitive then the large requirements
of working capital is needed, whereas a business with less competition or with monopoly position
will require less working capital as it can dictate to its own requirements.
 IMPORTANCE OF ADEQUATE WORKING CAPITAL

 SOLVENCY OF THE BUSINESS: Sufficient working capital helps in

maintaining the solvency of the business by providing uninterrupted of production.

 GOODWILL: If the firm has sufficient working capital then they are able to clear their
debts on time, which helps in making and maintain the goodwill in the market.

 EASY LOAN: Adequate working capital results in high solvency and credit standing
can arrange loans from banks and other on easy and favorable terms.

 CASH DISCOUNTS: Adequate working capital also enables a concern to avail cash
discounts on the purchases because they are able to pay in cash and discounts generally
given on the cash payments which helps in reduces costs.

 REGULAR SUPPLY OF RAW MATERIAL: Enough working capital ensures

regular supply of raw material and continuous production.
 REGULAR PAYMENTS OF SALARIES, WAGES: If the company has
sufficient working capital then they can pay salaries, Wages & other commitments on
time which leads to the satisfaction of the employees and raise the morale of its
employees, increases their efficiency, reduces wastages and costs and enhances
production and profits.
 EXLPOITATION OF FAVORABLE MAKET CONDITIONS: : If a firm
is having adequate working capital then it can exploit the favorable market conditions
such as purchasing its requirements in bulk when the prices are lower and holdings its
inventories for higher prices.
 ABILITY TO FACE CRISIES: A concern can face the situation during the
depression.
 QUICK AND REGULAR RETURN ON BUSINESS: Sufficient working
capital enables a concern to pay quick and regular of dividends to its investors and gains
confidence of the investors and can raise more funds in future.
 MANAGAMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that arises in attempting to
manage the current liabilities and current assets. The fundamental goal of working capital
management is to manage the current assets and current liabilities of a firm in such a way that a
satisfactory level of working capital is kept, i.e. it is neither adequate nor excessive as both the
situations are bad for any organization. There should be no scarcity of funds and also no working
capital should be ideal.

FOLLOWING ARE THE MAIN OBJECTIVES OF WORKING CAPITAL

MANAGEMENT:

 To find out the satisfactory or optimum quantum of investment in working capital.

 To determine the constituents or structure of current assets.
 To maintain a proper level between liquidity and profitability.
 To establish the policy or means of finance for current assets.

COMPUTATION OF WORKING CAPITAL

Determination of working capital requirement is one of the major short-term planning which
plays very vital role for operating the business without any trouble. Following four methods can
be used to determine the amount of working capital.

1. Projected Balance Sheet Method

2. Operating Cycle Method

3. Cash Forecasting Method

4. Forecasting of Current Assets and Current Liabilities Method

1. PROJECTED BALANCE SHEET METHOD

It is the conventional method of calculating working capital. Entire current assets and current
liabilities are taken into account to calculating working capital. All the data given in balance
sheet concerning current assets and current liabilities are taken into consideration for estimating
the working capital. Total current liabilities are deducted from total current assets to obtain the
amount of net working capital under this method.
Net Working Capital = Total Current Assets - Total Current Liabilities

2. OPERATING CYCLE METHOD

Time which is needed to convert raw material into finished goods, and finished goods into sales
and account receivable into cash is called operating cycle. Under operating cycle method, the
time which is needed for different types of current assets and time lag needed for payment of
purchase and expenses are considered to compute requirement of working capital. The articles of
current assets and current liabilities are calculated as follows:

* RAW MATERIAL INVENTORY

= (Annual output * material cost per unit * inventory holding period)/Total Periods

* WORK-IN-PROGRESS INVENTORY
= (Annual output * Manufacturing cost per unit * Inventory holding period)/Total periods

* FINISHED GOODS INVENTORY

= (Annual output * total cost per unit * inventory holding period)/Total periods

* ACCOUNT RECEIVABLE (DEBTORS)

= ( Annual credit sales units * total cost per unit * credit period allowed)/Total periods

* PREPAID EXPENSES
= (Annual Expenses * Advance Period)/Total periods

* ACCOUNT PAYABLE (CREDITORS)

= (Annual output * raw material cost per unit * credit period)/Total periods
* OUTSTANDING WAGES
= (Annual output * labor cost per unit * time lag)/ Total periods

* OUTSTANDING OVERHEAD
= (Annual output * overhead per unit * time lag)/Total periods

* OUTSTANDING EXPENSES
(Annual expenses * Time lag)/ Total periods

3. CASH FORECASTING METHOD:

Under this method, an estimate is made of cash receipt and payments for the next period.
Anticipated cash receipts are added to the amount of working capital which exists at the
beginning of the year and calculated cash payments are deducted from this amount. The
difference obtained will be the amount of working capital.

4. FORECASTING OF CURRENT ASSETS AND CURRENT LIABILITIES

METHOD:

According to this method an estimate is made of forthcoming periods’ current assets and current
liabilities on the basis of factor like past experience, stock policy, credit policy and payment
policy of the previous years. First of all, such an estimation is made for each current asset on the
basis of each month and then monthly requirements are converted into yearly requirements of
currents assets. The estimate amount of current liabilities is deducted from this amount in order to
estimate the requirements of working capital. A certain percentage for contingencies may also be
added to this amount.
 ANALYSIS OF WORKING CAPITAL

Working capital position of enterprises is analyzed by various internal and external parties. The
aims of these parties in analyzing the working capital are to assess the liquidity of the business.
To know about whether the firm will have sufficient current assets and cash to pay their debts
when they fall due. They also want to know whether the working capital is adequate or
inadequate and whether it is being used in an efficient manner or not.

METHODS TO EXAMINE THE WORKING CAPITAL ARE:

 SCHEDULE OF CHANGES IN WORKING CAPITAL

 RATIO ANALYSIS

RATIO ANALYSIS:

A ratio is a simple arithmetical expression of one number to another. The method of ratio analysis
can be employed for measuring short-term liquidity or working capital position of a firm.

CLASSIFICATION OF RATIO:

1. LIQUIDITY RATIO
 CURRENT RATIO OR WORKING CAPITAL RATIO
 QUICK RATIO
2. ACTIVITY RATIO
 STOCK TURNOVER RATIO
 DEBTOR TURNOVER RATIO
 AVERAGE COLLECTION PERIOD
 CREDITORS TURNOVER RATIO
 AVERAGE PAYMENT PERIOD
 WORKING CAPITAL TURNOVER RATIO
 1. LIQUIDITY RATIOS:

Liquidity refers to the ability of a firm to meet its current obligations and when these become
due. The short-term requirements are met by realizing amounts from floating, current or
circulating assets. The current assets must either be liquid or near to liquidity. These should be
changeable in cash for paying obligations of short-term nature. The insufficiency or sufficiency
of current assets should be assessed by comparing them with the short-term liabilities. If current
assets are able to pay off the current liabilities then the liquidity position is acceptable. While on
the other hand, if the current liabilities cannot be met out of the current assets then the liquidity
position is not good. To calculate the liquidity of any firm, the following ratios can be calculated:

1. CURRENT RATIO
2. QUICK RATIO

1. CURRENT RATIO:

Current Ratio, also known as working capital ratio is a measure of general liquidity and its most
widely used to make the analysis of short-term financial position or liquidity of any firm. It is
described as the relation between current assets and current liabilities. Thus,

CURRENT ASSETS = CURRENT ASSETS

CURRENT LIABILITIES

Current assets: Include sundry debtors, cash&bank balance, loan&advances, inventories, bills
receivable.

Current liabilities: Include sundry creditors, provisions, taxes&expenses payable and other
liabilities
2. QUICK RATIO:

Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be described as
the relationship between quick/liquid assets and current or liquid liabilities. An asset is assumed
to be liquid if it can be converted into cash within a short period without any loss of value. It
determines the firms’ capacity to pay off current obligations immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITIES

Quick assets include: current assets, prepaid expenses, stock

Current liabilities: Provisions, sundry creditors, taxes & expenses payable and other liabilities

2. ACTIVITY RATIOS:

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

1. Stock Turnover Ratio

2. Debtors Turnover Ratio

3. Average Collection Period

4. Creditors Turnover Ratio

5. Average Payment Period

6. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount of
debtors due to slow credit collections and moreover if the assets include high amount of slow
moving inventories. Because both the ratios ignore the movement of current assets, it is vital to
calculate the turnover ratio.

1. STOCK TURNOVER RATIO:

Every firm has to maintain a certain amount of inventory of finished goods so as to meet the
requirements of the business. But the measure of inventory should neither be too high nor too
low. As it is unsafe to hold more inventory as some amount of capital is blocked in it. It will
therefore be advisable to dispose the inventory as soon as possible.

INVENTORY TURNOVER RATIO = COST OF GOODSOLD

AVERAGE STOCK

Inventory turnover ratio measures the speed with which the stock is converted into sales.
Generally a high inventory ratio indicates an efficient management of inventory because more
frequently the stocks are sold; the lesser amount of money is required to finance the inventory.
While a low inventory turnover ratio indicates the inefficient management of inventory. A low
inventory turnover implies over investment in inventories, poor quality of goods, and low profits
as compared to total investment.

COST OF GOODS SOLD = SALES- GROSS PROFIT

AVERAGE STOCK = OPENING STOCK+CLOSING STOCK

2
2. DEBTORS TURNOVER RATIO:

A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit
policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade
debtors are anticipated to be converted into cash within a short period and are included in current
assets. So the liquidity position of a concerned organization also depends upon the quality of
trade debtors. Two types of ratio can be determined to evaluate the quality of debtors.

a) Debtors Turnover Ratio

b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS+ AVERAGE B/R

Debtor’s velocity indicates the number of times the debtors are turned over during a year. Usually
higher the value of debtor’s turnover ratio the more efficient is the management of debtors/sales
or more liquid are the debtors, whereas a low debtor’s turnover ratio indicates poor management
of debtors/sales and less liquid debtors. This ratio should be judged against the ratios of other
firms doing the same business and a trend may be found to make a better interpretation of the
ratio.

AVERAGE DEBTORS = OPENING DEBTOR + CLOSING DEBTOR

AVERAGE B/R = OPENING B/R + CLOSING B/R

2
3. AVERAGE COLLECTION PERIOD:

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

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 helps in calculating the quality of debtors.
Usually, 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.

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

4. CREDITORS TURNOVER RATIOS :

This ratio indicates the relationship between credit purchases and average creditors and average
B/P during the year. .Two types of ratio can be calculated to evaluate the quality of creditors.

a) Creditors Turnover Ratio

b) Average payment Period

CREDITORS TURNOVER RATIO = NET CREDIT PURCHASES

AVERAGE CREDITORS + AVERAGE B/P

AVERAGE CREDITORS = OPENING CREDITOR +CLOSING CREDITOR

2
5. AVERAGE PAYMENT PERIOD:

Average payment Period = No. of Working Days

Creditors Turnover Ratio

The average payment period ratio represents the average number of days for which a firm has to
make payment to its creditors. Generally, shorter the average payment period is better because a
shorter payment period implies that the creditors are being paid rapidly and vice-versa.

Average Payment Period = 365 (Net Working Days)

Creditors Turnover Ratio

6. WORKING CAPITAL TURNOVER RATIO:

Working capital turnover ratio indicates the velocity of utilization of net working capital. This
ratio signifies the number of times the working capital is turned over in the course of the year.
This ratio computes the efficiency with which the working capital is utilized by the firm. A
higher ratio indicates adequate utilization of working capital and a low ratio indicates the
opposite. But a very high working capital turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Cost of Goods Sales

Net Working Capital

LITERATURE REVIEW
1.
2. Gurumurthy N. and Reddy Jayachandra K. (2014) have conducted a study on the working
capital management of four pharmaceutical companies APSPDCL, APEPDCL,
APNPDCL and APCPDCL and have come to the conclusion that the existing system of
working capital management was not up to the mark and needed to be improved.

3. Madhavi K. (2014) makes an empirical study of the co-relation between liquidity position
and profitability of the paper mills in Andhra Pradesh. It has been observed that
inefficient working capital management makes a negative impact on profitability and
liquidity position of the paper mills.

4. Joseph Jisha (2014) closely examines the study of working capital management in Ashok
Leyland and points out that the liquidity and profitability position of the company is not
satisfactory, and needed to be strengthened in order to be able to meet its obligations in
time.

5. Kaur Harsh V. and Singh Sukhdev (2013) analyse empirically BSE 200 manufacturing
companies spread over 19 industries for the period 2000 to 2010. The study explores
scope to increase the efficiency and profitability of 145 companies by improving the
parameters of analysis. The study tests the relationship between the working capital score
and profitability measured by income to current assets and income to average total assets.
This article concentrates on cash conversion efficiency and planning the operating cycle
days. At the end, the study emphasizes that efficient management of working capital
significantly affects profitability.

6. Joshi Lalitkumar and Ghosh Sudipta (2012) study the working capital performance of
Cipla Ltd during the period 2004-05 to 2008-09. Financial ratios have been applied in
measuring the working capital performance, and statistical as well as econometric
techniques have been used. It was observed that the selected ratios show satisfactory
performance, and significant negative relationship between liquidity and profitability is
found to exist
7. Ray Sarbapriya (2012) studies the relationship between liquidity and profitability in the
manufacturing industry. The writer has taken as a sample 311 manufacturing firms for a
period of 14 years, and studied the effect of different variables of working capital
management. In this study strong adverse relationship between measures of working
capital management and corporate profitability have been observed. In the end
insignificant negative relationship between firm size and its net operating profit ratio was
detected.

8. Dr Panigrahi Ashok Kumar (2012) studies the relationship between working capital
management and profitability of ACC Cement Company, the leading cement
manufacturer of the country for assessing the impact of working capital management on
profitability during the period 1999-2000 to 2009-10. The study is based on secondary
data. The main objective of the study was to find whether the working capital
management affects the performance of the firm. It can be deduced that there is a
moderate relationship between working capital management and the firm‟s profitability.

9. Bagchi B. and Khamrul B. (2012) investigate the relationship between working capital
management and the companies‟ profitability, and identify the variables that most affect
profitability. It is also an empirical study where the authors have investigated the effect of
working capital management on the companies‟ profitability by using a sample of Indian
FMCG companies. The study concludes with the observation that both CCC and debt
used by the firm are negatively associated with the companies‟ profitability. This result
can be further strengthened if the companies manage their working capital in more
efficient ways which will ultimately increase their profitability.

10. Sunday Kehinde James (2011) focuses on effective working capital management within
small and medium scale enterprises (SMEs). Most of the SMEs have little regard for their
working capital position and they don‟t even have standard credit policy. They have very
weak financial position, and rely on credit facility to finance their operations. This credit
facility is available from accounts payable most of the time. In conclusion the authors
recommend that for SMEs to survive within the Nigeria economy they must design a
standard credit policy and ensure good financial report and control system. Besides, they
must give adequate cognizance to the management of working capital. All this requires
 systematic planning for the management of working capital to ensure continuity, growth
and solvency.

11. Rahman Mohammad M. (2011) focuses on the co-relation between working capital and
profitability. An effective working capital management has a positive impact on
profitability of firms. From the study it is seen that in the textile industry profitability and
working capital management position are found to be up to the mark.

12. Dinesh M. (2008) explicates the concepts of working capital, the different challenges
being faced by the business firms in managing working capital and the strategies to be
adopted for its prudent management. The author concludes with the view that most of the
businesses failed not for want of profit but for lack of cash. The fast growth in production
and sales may cause the business to utilize all of the financial resources seeking growth
and making assets such as inventories, accounts receivable and other assets as more
illiquid

13. Thappa Sankar (2007) focuses on the importance of proper working capital management
of Sun Pharmaceutical Company. The paper throws light on the concepts of working
capital, working capital policy, components of working capital and factors affecting
working capital in the Sun Pharma Industries Ltd during the last five years, and identifies
certain factors which are responsible for the improvement of working capital of the
company. The article concludes with a warning to the Company that if satisfactory level
of working capital is not maintained, the company would become bankrupt.
OBJECTIVES :-
 Objective of Research Study

The present study “A STUDY ON WORKING CAPITAL MANAGEMENT OF RITES LTD.”,

has been designed to achieve the following objectives:-

 To study the concept and importance of Working Capital Management.

 To understand Working Capital Management Of Rites Limited.
 To calculate 2 years Working Capital Management of Rites Limited.
 To analyze gaps and provide suggestion for the same.
Research Methodology
 Research Methodology

Research Methodology is a systematic approach in management research to

achieve pre determined objectives. It helps a researcher to guide the course of
research work. Rules and techniques stated in research methodology save time and
labour of the researcher as researcher know how to proceed to conduct the study as
per the objective.

SELECTION OF THE TOPIC :

The selection of the topic is a crucial factor in any research study. There should be
newness and it should give maximum scope to explore the ideas from different
angles.

In present day due to increase in competition, Working capital is becoming

necessary for the organization. It is that part of capital which is necessary to
undertake day to day expenditure of business organization. Whatever may be the
organization, Working capital plays an important role, as the company needs
capital for it’s day to day expenditure. Thousands of companies fails every year due
to poor working capital management practices. Working capital id the funds
invested by a firm in Current Assets. Holding in sufficient Current Assets will
ensure smooth and uninterrupted production but at the same time it will consume a
lot of working capital. Here creeps the importance and need of efficient Working
Capital Management. After consulting with the guide, the topic was finalized and
titled as “A Comparative Study of Working Capital Management of Rites
Limited.”

SELECTION OF LOCATION FOR THE STUDY :

The location for the study was selected as the corporate office of Rites Limited,
Gurugram.
 Research Design

Here under this project, it focussed on management of working capital in a firm. Various
techniques will be used to understand the concept of the working capital management. The
research type used is applied and empirical. Applied and empirical Research:

 Applied research aims at finding a solution for an immediate problem facing a

society or an industrial/ business organization.
 Applied research examines a specific set of circumstances, and its ultimate goal is
relating the results to a particular situation. That is, applied research uses the data
directly for real world application.
 Empirical research relies on experience or observation.
 Empirical evidence can be analyzed quantitatively or qualitatively.

Methods of Data Collection

In this report, the source through which data got collected is :

 Secondary Data

Secondary Data Collection.-

The secondary data are those which have already collected and store. Secondary data easily get
those secondary data from records, Journals, Annual Reports of the company etc. It will save the
time, money and efforts to collect the data. Secondary data also made available through trade
magazines, annual reports, books etc.

This project is based on Secondary data collected through annual reports of the organization. The
data collection was aimed at study of Working Capital Management of the company.

Project is based on :

 Annual Report of Rites Limited 2016-2017.

 Annual Report of Rites Limited 2015-2016.
LIMITATIONS :-
 Limitation of the Project

To know the extent to which the study is reliable it is necessary to note the limitations under
which the study has been completed. The following important limitations have been noted
while conducting the present study:-

 The annual reports mostly contain quantitative and financial information and as
regards to qualitative aspect of financial performance, my source was limited due to
far away location of head offices of the selected units.

 The financial performance covering a large period say 20 years or 30 years can give a
much clear picture of management practices of financial performance. Our study
covering a period of 2 years can touch only a part of the problem.

 The main source of information is annual reports. They represent financial

information/position on particular date. What happened between such two dates
cannot easily be presumed or predicated.
.

 There may be some errors in the tabulation & calculation of the data gathered during the
analysis part of the project.

 The study is limitation to the scope of data provided publically.

ANALYSIS AND INTERPRETATION
 1.) SCHEDULE OF CHANGES IN WORKING CAPITAL:

Particulars 2016-17 2015-16 Change in current

assets & liabilities

CURRENT ASSETS

Cash & Bank balance 2843.14 2512.65 330.49

Inventories 46.59 11.41 45.18

Sundry Debtors 457.58 529.90 (72.32)

Investment 193.04 56.01 137.03

Loans & Advances 11.42 7.17 4.25

Other current assets(amount 49.91 82.45 (32.54)

recoverable)

Current Tax Asset ( NET ) 10.35 38.66 (28.31)

Other Financial Assets 177.13 188.13 (11.00)

Total Current Assets (A) 3789.16 3426.38 362.78

CURRENT LIABILITIES

Other Financial Liabilities 1915.20 1884.68 30.52

Sundry creditors 82.95 88.52 (5.57)

Provision 150.50 104.61 45.89

Other liabilities 245.56 105.23 140.33

Total Current Liabilities (B) 2394.21 2183.04 211.17

Net Working Capital (A-B) 1394.95 1243.34 151.61

 CURRENT ASSETS OF RITES LTD.

CURRENT ASSETS CHANGE IN C.A.

2016-17 2015-16

SUNDRY DEBTORS
457.58 529.90 (72.32)

CASH & BANK BALANCE

2843.14 2512.65 330.49

LOAN & ADV.

11.42 7.17 4.25

INVENTORIES 46.59 11.41 35.18

Investment 193.04 56.01 137.03

Other Financial Assets

177.13 188.13 (11.00)

Current Tax Asset ( NET ) 10.35 38.66 (28.31)

Total Current Assets 3789.16 3426.38 362.78

3900

3800

3700

3600

3500 CURRENT ASSETS

3400

3300

3200
2016 2017

(Source : Compile personally from Annual Report, Graph.1)

INTERPRETATION :-From the above table and graph it is clear that the level of Current
Assets in RITES LTD. has been increased in current year from the previous year from 3426.38
Cr. to 3789.16 Cr. with an increase of 362.78 Cr.
 CURRENT LIABILITIES OF RITES LTD.

CURRENT LIAB. 2016-17 2015-16 CHANGE IN C.L.

SUNDRY CREDITORS 82.95 88.52 (5.57)

PROVISIONS 150.50 104.61 45.89

Financial Liabilities 1915.20 1884.68 30.52

OTHER LIAB. 245.56 105.23 140.33

Total Current Liabilities 2394.21 2183.04 211.17

CURRENT LIABILITIES
3000

2500

2000

1500
CURRENT LIABILITIES
1000

500

0
2016-2017 2015-16

(Source : Compile personally from Annual Report, Graph : 2)

Interpretation :-

From the above table and graph it is clear that the level of Current Liabilities in RITES LTD. has
been increased in current year from the previous year from 2183.04 Cr. to 2394.21 Cr. with an
increase of 211.17 Cr. Current Liabilities showing increasing trend during the period of the study.
WORKING CAPITAL OF RITES LTD.

WORKING CAPITAL = CURRENT ASSETS- CURRENT LIAB.

2016-17 2015-16 CHANGE IN W.C.

CURRENT ASSETS 3789.16 3426.38 362.78

CURRENT LIAB. 2394.21 2183.04 211.17

WORKING CAP. 1394.95 1243.34 151.61

Net Working Capital

1450

1400

1350

1300
Net Wokring Capital

1250

1200

1150
2015-16 2016-2017

(Source : Compile personally from Annual Report, Graph : 3)

 CALCULATION OF CURRENT RATIO

Particulars 2016-17 2015-16

Current assets 3789.16 3426.38

Current liabilities 2394.21 2183.04

Current ratio 1.58 1.56

Current Ratio
1.585

1.58

1.575

1.57

Current Ratio
1.565

1.56

1.555

1.55
2017 2016

(Source : Compile personally from Annual Report, Graph : 4)

INTERPRETATION:

As we know that ideal current ratio for any firm is 2:1. If we look at the current ratio of the
company for last two years has decreased from 2016 to 2017. The current ratio of company is
near to the ideal ratio. This portrays that company’s liquidity position is good, this shows
company is capable to pay its current liability timely. This ratio goes up because company is able
to increase it’s Cash and Bank balances from the previous year.
 CALCULATION OF STOCK TURNOVER RATIO

YEAR 2016-17 2015-16

Cost of Goods sold 225.75 148.29

Average Stock 29 8.98
Inventory Turnover Ratio 7.78 16.51

Stock Turnover Ratio

18

16

14

12

10

8 Stock Turnover Ratio

0
2016 2017

(Source : Compile personally from Annual Report, Graph : 6)

INTERPRETATION:

This ratio shows how rapidly the inventory is turning into receivable through sales. In 2016
the company has high inventory turnover ratio but in 2017 it has reduced to 8.73 times. This
shows that the company’s inventory management technique is less efficient as compare to last
year.
 CALCULATION OF DEBTOR TURNOVER RATIO

PARTICULARS 2016-17 2015-16

Sales 323.95 193.05

Average Debtors 492.74 448.75

Debtor Turnover Ratio 0.65 0.43

Debtors Turnover Ratio

0.7

0.6

0.5

0.4

Debtors Turnover Ratio

0.3

0.2

0.1

0
2016 2017

(Source : Compile personally from Annual Report, Graph :7)

INTERPRETATION:

This ratio indicates the speed with which debtors are being converted into cash. The ideal ratio is
6 times. In both the years the ratio is less than the ideal ratio. This shows that company is not
utilizing it debtor’s efficiency i.e. we are not able to convert the debtors into cash on a timely
basis. As we compare between two years, their credit policy turns out to be liberal as compared to
previous year.
 CALCULATION OF AVERAGE COLLECTION PERIOD

Particulars 2016-17 2015-16

Days 365 365

Debtor Turnover Ratio 0.65 0.43
Average Collection Period (days) 562 849

Average Collection Period (in days)

900

800

700

600

500
Average Collection Period (in
400 days)
300

200

100

0
2016 2017

(Source : Compile personally from Annual Report,Graph :8)

INTERPRETATION:

The average collection period measures the quality of debtors and it helps in analyzing the
efficiency of collection efforts. It also helps out in analyzing the credit policy implemented by
company. In the firm average collection period is increasing from year to year. It demonstrates
that the firm has Liberal Credit policy. These modifications in policy are due to competitor’s
credit policy. But as per this case firm is able to maintain good collection period as it has been
decreased from previous year.
 CALCULATION OF CREDITORS TURNOVER RATIO

Particulars 2016-17 2015-16

Purchases 260.92 153.04

Average creditors 85.73 86.94

Creditors Turnover Ratio 3 1.76

Creditors Turnover Ratio

3.5

2.5

Creditors Turnover Ratio

1.5

0.5

0
2016 2017

(Source : Compile personally from Annual Report, Graph :9)

INTERPRETATION:

This ratio indicates the speed with which the company is paying to its creditors. The ideal ratio is
6times. In both the years the ratio is less than the ideal ratio this means that the company is not
paying off its creditors on time. But as we make a comparison between the two years the ratio is
increasing from the last year which shows that the company is having the non liberal credit policy
which in turn decreases the working capital from the previous year.
 CALCULATION OF AVERAGE PAYMENT PERIOD

Particulars 2016-17 2015-16

Days 365 365

Creditor Turnover Ratio 3 1.75
Average payment Period (days) 122 209

Average Payment Peirod ( In Days)

250

200

150
Aerage Payment Peirod ( In
Days)
100

50

0
2016 2017

(Source : Compile personally from Annual Report, Graph :10)

INTERPRETATION:

As the payment period is decreasing as compared to the previous year. This shows that the
company is paying efficiently on time to its creditors. This is a very good sign as company’s
paying on time which will increase its goodwill along with the ease of taking goods on credit in
future.
 CALCULATION OF WORKING CAPITAL TURNOVER RATIO :-

Particulars 2016-17 2015-16

Current Assets 3789.16 3426.38

Current Liabilities 2394.21 2183.04

Net Working Capital 1394.95 1243.34

Cost of Goods Sold 225.75 148.29

Working Capital Turnover
Ratio 0.16 0.11

Working Capital Turnover Ratio

0.18
0.16
0.14
0.12
0.1
0.08 Working Capital Turnover Ratio
0.06
0.04
0.02
0
2016 2017

(Source : Compile personally from Annual Report, Graph :11)

INTERPRETATION:

The working capital ratio is more in 2016-17 which is a good sign for the company. An effective
working capital management system helps businesses not only cover their financial obligations
but also boost their earnings. As working capital turnover ratio increases from past year it’s a
good sign for firm ability to manage it’s Current Assets over it’s Current Liabilities.
FINDINGS AND SUGGESTIONS
 FINDINGS

 The ideal Current Ration is 2:1. RITES LTD. has been improved from the past year as
now Current Ratio is 1.58 as of 1.56 from the previous year. It is able to meet the
standard.

 The ideal Quick Ratio is 1:1 . In the current year 2016-2017 the ratio has decreased from
the previous year which clearly shows that the company keeps a lot of buffer stock with
itself since the production process is very long and also clear off its expenses in advance.

 The profit has been increasing over the years and for current year also it has been
increased.

 The Inventory Turnover ratio is decreasing from 16.51 times to 7.78 times which shows
better inventory management.

 Also Working Capital Turnover Ratio is good as it shows that company is having good
credit worthiness.

 The work culture at RITES LTD. is very friendly. The people at RITES LTD. believe in
doing fun along with work.

 New agents are provided with proper training which helps them in understanding the
policies of the company and know what is expected from them.

 At RITES LTD. women employees are given equal opportunity for future growth.

 At RITES LTD., change is considered as a challenge and an opportunity rather than a

threat.

 The top level management is open to the ideas and suggestions from employees at all
level of the organization.

 There is willingness among the employees at all level of the organization to fix a problem
whenever it emerges.
 SUGGESTIONS

 Maintenance of Cash and Bank balances has been improving to a large extent, hence net
working capital is also increasing from previous. It should be maintained like this only.

 Reimbursement of expenses to the employees should be confined to a particular limit so that

it should be saved and can be used at appropriate place.

 The employee’s works are been recognized by the management and is duly appreciated. It can
be maintained in such a way that the employee morale will be improved and he will be
motivated.

 Employees seek high trust in management. It can be maintained in such a way that
employee’s involvement and commitment will increase.

 Employees are often willing to give suggestions for the development of the organization. The
suggestions given by the employees must be duly responded and respected.

 The employees should be rewarded according to the work done by them regularly.
 CONCLUSION

The success of organization primarily depends upon to sustain it’s comparative advantage
irrespective of the strategy it adopts. The project studies the Working Capital Management of
RITES LTD. which is one of the most important part of any organization, as it deals in managing
entire Current Assets and Current Liabilities of the firm. After analyzing financial statement
having in depth Working Capital, RITES LTD. maintains sound position working capital. The
company has been reaping full benefits of it’s Brand Name. The company makes full utilization
of it’s funds before making payment to outsiders.

In the past years, the company has successively gained profits and has proved to be a good
technical and engineering company named RITES LTD. India.. The accounting ratios show that
the company is capable to pay its Current Liabilities on time, it does not have any liquidity
problem and it is paying off its creditors on time. The debtor’s turnover ratio of the company in
the year 2016-2017 was 0.65 times which mean that the company is not able to convert the
debtors into cash on a timely basis.

In the end we can conclude that Working Capital Management has a great effect on the
profitability of the company and the managers can create value for it’s shareholders decreasing
receivables accounts and inventory. Hence the company has a good future ahead as it is
managing all its funds effectively along with appropriate investment. And by planning out
properly it can also reduce the discrepancies.
BIBLIOGRAPHY
Books:

 Kothari, C.R. (1997). Research methodology, 3rd edition, 1997, Vikas

Publishing House Pvt. Ltd, New Delhi

 Jagadish R. Raiyani (2011), Financial Ratios & Financial Statement

Analysis. 2011,

 Grewal’s , T.S (2017), Double Entry Book Keeping for Companies, 2017
Edition,(2017),Volume II, SCS Sultan Chand.

Journals:

 RITES LTD., Annual Report (2016-2017), (A govt of India Enterprises), Pg.

58-121.
 RITES LTD., Annual Report (2015-2016), (A govt of India Enterprises), Pg.
56-119.
 Kaur Harsh V. and Singh Sukhdev (2013), Review of Literature.
 Joshi LalitKumar and Ghosh Sudipta (2012), Review of Literature.
 Sunday Kchinde James (2011), Review of Literature.

Webliography:

 http://ritesltd.com/
 https://www.moneycontrol.com/india/stockpricequote/diversified/rites/R02