RESEARCH METHODOLOGY-3

Research methodology is a systematic approach in management research to achieve pre-

defined objectives. It helps a researcher to guide during the course of research work. The study is
descriptive in nature. The study is based on secondary data and it has been collected from the
published annual reports of the company, books, journals, magazines, newspapers and websites.
Research methodology is used to collect information and data for the purpose of making business
decisions. The methodology may include publication research, interviews, surveys and other
research techniques and could include both present and historical information.

Proper management of working capital is very important for the success of an enterprise.
It aims at protecting the purchasing power of assets and maximizing the retune on investment.
The importance of working capital management is those financial managers spend a great deal of
time in managing current assets and current liabilities. Arranging short term financing,
negotiating favorable credit terms, controlling the movement of cash, administering accounts
receivables and monitoring the investment in inventories consume a great deal of time of
financial managers.

3.1 RESEARCH DESIGN

Research design is the conceptual structure within which research was conducted. The
main function of research design is to collection of relevant information with minimum
expenditure of effort, time and money. Research design is one of the most important tasks in
carrying out the survey. Descriptive and Analytical research design was adopted in this study to
investigate the impact of working capital management on profitability of BRAMSCO
GARMENTS PVT LTD. Research design allow researcher to analyze the relationship between
working capital management and profitability.

In this research, secondary data collected from annual reports of companies has been used
to test the hypothesis. It is a formal study where relationship with profitability is explained with
the components of working capital management through the extensive use of logistic regression.
3.2 SOURCES OF DATA

There are two sources of data collection. They are primary data and secondary data.

3.2.1 PRIMARY DATA

Primary data has been obtained through personal discussions with finance managers and
senior officers of the company.

3.2.2 SECONDARY DATA

This project is based on secondary data collected through annual reports of the
BRAMSCO. The data collection was aimed at study of working capital management of the
company.

Project is based on

1. Annual report of BRAMSCO .2015-2016

2. Annual report of BRAMSCO .2016-2017
3. Annual report of BRAMSCO .2017-2018
4. Annual report of BRAMSCO .2018-2019
5. Annual report of BRAMSCO .2019-2020

Secondary data’s has been obtained from published reports like the annual reports of the
company, balance sheets and profit and loss account, booklets, records such as files, reports
maintained by the company. Mainly the annual report consists of two parts;

 Profit and loss account

 Balance sheet

Profit and loss account reveals the income and expenditure of the company. Balance
sheet reveals the financial position of the organization. Those two statements are prepared by the
highly qualified and experts with the help of available information or data.
3.3 SAMPLING DESIGN

A definite plan is needed to obtaining a sample from a given population. I t refers to the
technique or the procedure the researcher would adopt in selecting items for the sample.

Generally sample designs are two types

 Probability sample design

 Non probability sample design

3.4 DATA ANALYSIS TOOLS

Accounting techniques and statistical techniques have been used in the present study. For
the analysis the accounting technique Ratio analysis is used. Ratio analysis is considered as the
best tool for performance evaluation of an organization. Ratio is quotient of two numbers and the
relation expressed between two figures. The ratio analysis concentrates on the inter relationship
among the figures appearing in the financial statement of profit & loss account and Balance
sheet. The strengths and weakness can be measured properly by the ratio analysis.

By using appropriate and revenant statistical techniques, the collected data is edited and
tabulated. For that purpose of testing hypothesis framed during the course of research, the
researcher used parametric and non-parametric tests. With the help of average, percentage, co-
variance, the data has been presented. Hypotheses have been tested by 5% level of significance
by using An nova test requirement of the study.

RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is used as a
device to analyze and interpret the financial position of an enterprise. Ratio analysis helps to
appraise the firms in the term of their profitability and efficiency of performance, either
individually or in relation to other firms in same industry. Ratio analysis is one of the best
possible techniques available to management to impart the basic functions like planning and
control. As future is closely related to the immediately past, ratio calculated on the basis
historical financial data may be of good assistance to predict the future. E.g. On the basis of
inventory turnover ratio or debtor’s turnover ratio in the past, the level of inventory and debtors
can be easily ascertained for any given amount of sales.

LIQUDITY RATIO:

Liquidity refers to ability of a concern to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current, floating or
circulating asset. The current asset either be liquid or near liquidity. These should be convertible
into cash for paying obligation of short-term nature. To measure the liquidity of a firm, following
ratios can be calculated:

A) CURRENT RATIO:

Current assets include cash and those assets which can be converted in to cash within a
year, such marketable securities, debtors and inventories. All obligations within a year are
include in current liabilities. Current liabilities include creditors, bills payable accrued expenses,
short term bank loan income tax liabilities and long term debt maturing in the current year.
Current ratio indicates the availability of current assets in rupees for every rupee of current
liability.

CURRENT RATIO = CURRENT ASSET/ CURRENT LIABILITIES

B) QUICK RATIO OR ACID TEST:

Quick ratios establish the relationship between quick or liquid assets and liabilities. An
asset is liquid if it can be converting in to cash immediately or reasonably soon without a loss of
value. Cash is the most liquid asset .other assets which are consider to be relatively liquid and
include in quick assets are debtors and bills receivable and marketable securities. Inventories are
considered as less liquid. Inventory normally required some time for realizing into cash. Their
value also be tendency to fluctuate. The quick ratio is found out by dividing quick assets by
current liabilities.

QUICK RATIO = total liquid asset/ total current liabilities

C) ABSOLUTE LIQUID ASSET:

 Even though debtors and bills receivables are considered as more liquid then inventories,
it cannot be converted in to cash immediately or in time. Therefore while calculation of absolute
liquid ratio only the absolute liquid assets as like cash in hand cash at bank, short term
marketable securities are taken in to consideration to measure the ability of the company in
meeting short term financial obligation. It calculates by absolute assets dividing by current
liabilities.

ABSOLUTE LIQUID RATIO=absolute liquid asset/ total current liabilities

EFFICIENCY RATIO:

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 sale. Activity ratios
measure the efficiency and effectiveness with which a firm manages its resources or assets.
These ratios are also called turnover ratios.

A. DEBTORS TURNOVER RATIO:

Receivable turnover ratio provides relationship between credit sales and receivables of a
firm. It indicates how quickly receivables are converted into sales.

DEBTORS TURNOVER RATIO= SALES/ AVERAGE ACCOUNT RECEIVABLES.

AVERAGE A/C RECEIVABLES= opening trade debtor+ Closing trade debtor/2

AVERAGE COLLECTION PERIOD= (365/DTR) days

Or RECEIVABLES * 365/ sale

B. WORKING CAPITAL TURNOVER RATIO:

It signifies that for an amount of sales, a relative amount of working capital is needed. If
any increase in sales contemplated working capital should be adequate and thus this ratio helps
management to maintain the adequate level of working capital. The ratio measures the efficiency
with which the working capital is being used by a firm. It may thus compute net working capital
turnover by dividing sales by net working capital.
 WORKING CAPITALTURNOVER RATIO=cost of sales/ net working capital

CURRENT ASSET TURNOVER RATIO:

CURRENT ASSET TURNOVER RATIO= sales / current asset

3.5 LIMITATIONS OF THE STUDY

The main limitations of the study are as follows:

 The reliability and findings are largely depending on the data publishes in annual reports
 The calculation of working capital has many practical difficulties; there are different
methods to calculate the working capital of an industry.
 The analysis is limited to just five years of data study (from year 2015 to 2020) for
financial analysis.
 Limited interaction with the concerned heads due to their busy schedule.