Working Capital

CHAPTER I
INTRODUCTION
Working capital management is concerned with the problems arise in attempting to manage the
current assets, the current liabilities and the inter relationship that exist between them. The term
current assets refers to those assets which in ordinary course of business can be, or, will be,
turned in to cash within one year without undergoing a diminution in value and without
disrupting the operation of the firm. The major current assets are cash, marketable securities,
account receivable and inventory. Current liabilities ware those liabilities which intended at there
inception to be paid in ordinary course of business, within a year, out of the current assets or
earnings of the concern. The basic current liabilities are account payable, bill payable, bank over-
draft, and outstanding expenses.
The goal of working capital management is to manage the firm s current assets and current
liabilities in such way that the satisfactory level of working capital is mentioned. The current
assets should be large enough to cover its current liabilities in order to ensure a reasonable
margin of the safety.
1.1 DEFINITION OF WORKING CAPITAL
According to Guttmann & Dougall “Excess of current assets over current liabilities “. According
to Park & Gladson “The excess of current assets of a business (i.e. cash, accounts receivables,
inventories) over current items owned to employees and others (such as salaries & wages
payable, accounts payable, taxes owned to government) “ .
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1.2 NEED OF WORKING CAPITAL MANAGEMENT
The need for working capital gross or current assets cannot be over emphasized. As already
observed, the objective of financial decision making is to maximize the shareholders wealth. To
achieve this, it is necessary to generate sufficient profits can be earned will naturally depend
upon the magnitude of the sales among other things but sales can not convert into cash. There is
a need for working capital in the form of current assets to deal with the problem arising out of
lack of immediate realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity. Technically this is referred to operating or cash cycle. If the
company has certain amount of cash, it will be required for purchasing the raw material may be
available on credit basis. Then the company has to spend some amount for labour and factory
overhead to convert the raw material in work in progress, and ultimately finished goods. These
finished goods convert in to sales on credit basis in the form of sundry debtors. Sundry debtors
are converting into cash after expiry of credit period. Thus some amount of cash is blocked in
raw materials, WIP, finished goods, and sundry debtors and day to day cash requirements.
However some part of current assets may be financed by the current liabilities also. The amount
required to be invested in this current assets is always higher than the funds available from
current liabilities. This is the precise reason why the needs for working capital arise.
Study of the working capital management is important because unless the working capital is
managed effectively, monitored efficiently planed properly and reviewed periodically at regular
intervals to remove bottlenecks if any the company can not earn profits and increase its turnover.
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1.3 OBJECTIVES OF THE STUDY
1.3.1 PRIMARY OBJECTIVE OF THE STUDY
To study the working capital management of Light Roof limited.
1.3.2 SECONDARY OBJECTIVES OF THE STUDY
With this primary objective of the study that is study on working capital management of Light
Roof Private Limited, the following further objectives are framed for a depth analysis.
1. To study the optimum level of current assets and current liabilities of Light Roof Private
Limited.
2. To study the liquidity position through various working capital related ratios.
3. To study the working capital components such as receivables accounts, cash management,
Inventory position
4. To study the way and means of working capital finance of Light Roof Private Limited.
5. To estimate the working capital requirement of Light Roof Private Limited.
1.4 SCOPE OF THE STUDY
The scope of the study is identified after and during the study is conducted. The study of working
capital is based on tools like trend Analysis, Ratio Analysis, working capital leverage, operating
cycle etc. Further the study is based on last 5 years Annual Reports of Light Roof Private
Limited. And even factors like competitor s analysis, industry analysis were not considered while
preparing this project.
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1.5 DATA USED FOR THE STUDY
This Project on study on working capital management of Light Roof Private Limited is based on
the data collected from the following annual reports.
1. Annual report of Light Roof Private Limited 2005-06
1.6 LIMITATIONS OF THE STUDY
Following limitations were encountered while preparing this project:
1) Limited data: This project has completed with annual reports; it just constitutes one part of
data collection i.e. secondary. There were limitations for primary data collection because of
confidentiality.
2) Limited period: This project is based on five year annual reports. Conclusions and
recommendations are based on such limited data. The trend of last five year may or may not
reflect the real working capital position of the company
3) Limited scope: Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get as this project is based only on
the annual reports of Light Roof Private Limited.
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CHAPTER II
PROFILES OF THE STUDY
2.1 INDUSTRY PROFILE
Construction Industry is one of the most booming industries in the whole world. This industry is
mainly an urban based one which is concerned with preparation as well as construction of real
estate properties. The repairing of any existing building or making certain alterations in the same
also comes under Construction Industry. This industry can be categorized into three basic
categories namely:-
• Construction involving heavy and civil engineering the construction of large projects
such as bridge, road, etc comes under this category.
• General construction: The construction works that involve building of real estate ones
such as residential or commercial real estate assets, etc.
• Construction projects involving specialty trades Construction works that involve building
up of specialized items namely, electric related works, works on woods, etc.
It is generally being observed in the all round the globe in the Construction Industry that the
contractor individual or organization involved in the construction process specializes in any one
of the above mentioned categories. A contractor who is involved in building real estate does not
generally go for specialized trade or heavy engineering works. The same is also true for other
kind of contractors.
Construction Industry is a booming industry and remains so with the continuation of the
development process especially in the developing countries. With the process of development,
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the migration of people takes place from the rural to urban areas. This phenomenon is most
significantly observed in the "Asian Tiger" countries, China and India. Thus, the Construction
Industry is also on a rise in such countries.
Construction Industry Trends all over the world show a rise in its rate of growth. This industry is
composed of many components including construction of heavy and civil engineering (highways,
bridges, railway tracks, airports, etc.), real estate (both residential as well as commercial)
development, and specialized construction products (such as architectural products, electrical
connections, decorative items, etc.). All these segments cannot be expected to show similar
trends and in fact are showing differential growth pattern all over the world.
Facts about Construction Industry Trends
• Construction industry contributes a huge chunk to the world GDP amounting to 1/10th of
the same.
• This industry has immense potential in generating huge amount of employment. It has
been found out that construction industry offers employment to around 7% of the total
employed work force around the globe.
• Construction Industry is the largest sector in respect of consumption of energy. It
consumes around 2/5th of the total consumed energy through out the world.
• Resource utilization in case of construction industry amounts to half of the total resource
used all over the world.
The most significant aspect associated with the construction industry trends is increased use of
the latest IT technologies for pacing up the work. Cutting edge technology is being adopted by
world's one of the biggest industries for leveraging purposes and is mainly being used in raising
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the efficiency level of engineering and designing of construction industry. Construction Industry
Trends show that the utilization of information technology has helped the industry to save a lot
of fund which could be channelized in more fruitful directions. One of the latest technologies
used in construction industry is Building Information Model (BIM). This technology helps all the
factors of a project to work in a collaborative and concerted manner solely based on the platform
of Information Technology. BIM helps the different members of a project to communicate
information among themselves which consequently leverages the productivity and at the same
time minimizes the error along with cost.
2.2 COMPANY PROFILE
LIGHT ROOFINGS LIMITED, pioneers of the concept of Asphaltic Roofing Sheets is the proud
manufacturer of its wonder product, Literoof. The company enjoys a market share of 75% and
has established itself as a No. 1 manufacturer of Asphalt roofing material in Asia. Technological
brilliance and commitment to quality provide the winning edge to the company in meeting the
rising demand for high-quality, low cost roofing material.
M/s. Light Roofing’s Limited was the first Company to introduce the concept of Asphalted
Roofing Sheets in India. The Company was established in 1964, using Mexican technology. The
company’s current turnover is Rs. 11 crores. Lightproof brand roofing sheets have become so
popular that many people refer to these sheets as 'LITEROOF' sheets (our brand name) and not
as Asphalted Roofing Sheets.
The company was promoted by Mr. M. M. Rafi, who inititated the operations by manufacturing
corrugated Asphalted Roofing Sheets called as 'Literoof' brand with Mexican collaboration. The
Company has Depos in Delhi, Calcutta, Bombay, Madurai, Trichy, Coimbatore, Nagercoil,
Erode, Calicut, Ernakulam, Kottayyam, Vijayawada, Bangalore and has a dealer network
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numbering over 850 spread through out India.The product is also being exported to various
countries and the export turnover has been growing steadily over the years. The group also has
offices at Dubai and Singapore. Literoof is a World-class product developed with advanced
technology. Made from bitumen saturated organic fibres, the roofing material comes as a
lightweight low cost solution and can be used for all kinds of building and structures.
Literoof is available in a wide range as the TUF-10 series to suit specific needs. Because of its
high durability, it can also be considered as a competition to other roofing materials like Thatch
roof, Asbestos, RMP etc. LITEROOF sheets find applicability in Touring Talkies, Schools, Tea
Shops, and Garages etc. They are also presently being used to shelter industries.
Literoof is manufactured to strict world-class standards in a state -of-the-art plant with Mexican
collaboration. The roofing sheets are made from bitumen saturated organic fibres making it a
light - weight solution. The organic materials used for the production ensure that the product
does not pose any health hazard. The organic materials are made into fibre mats, that is later
wetted and corrugated. These corrugated sheets are then introduced into hot liquified Asphalt and
dried.
The sheets have been put through stringent Quality assurance tests such as:
• Accelerated weather and Ultra Violet radiation
• Strength and impact loading (to check the load bearing capacity)
• Water and Weather proofing
• Water absorption
• Heat deformation
• Thermal resistance
• Wind lift (to check for suitability in hurricane and earthquake conditions)
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Regular up gradation of the infrastructure and implementation of new technologies contribute to
the quality of the production.
2.3 PRODUCT PROFILE
The products available are:
Name of the variety Size in cms.
Single side Colour Painted Sheets
Literoof Tuf - 10 Litered 122 x 75
Literoof Tuf - 10 lite Grey / Terracotta 122 x 75
Single side Gulf Red Painted Sheets
Literoof Expodel 122 x 75
Single side Colour Painted Sheets
Literoof Expo 10 Blue/Grey 183 x 90
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Literoof Expo 10 Blue/Grey 122 x 90
Literoof Expo 10 Gray/Terracotta 183 x 75
Plain Roofing Sheets
Literoof Litered 122 x 75
Literoof Litered 122 x 45
Literoof Expodel Gulf Red 122 x 75
Literoof Expodel Gulf Red 122 x 45
The out standing features of LITEROOF products
Flexibility
Flexibility enables ease of handling and fixing and is the right choice for curved rooftops &
irregular surfaces.
Durability
Literoof has high stress-bearing capacity and resistance to extremes of weather. It is leak proof &
termite proof, which enhances its performance.
Safety & Hygiene
Literoof is very safe to handle and work with and possess no health hazards to humans.
Economy
Literoof is instrumental in cutting down the total structural cost due to its lightweight and low
unit cost. Further it also reduces the incidental costs on fixing and transport.
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CHAPTER III
REVIEW OF LITERATURE
3.1 WORKING CAPITAL MANAGEMENT
Working Capital Management is the process of planning and controlling the level and mix of
current assets of the firm as well as financing these assets. Specifically, Working Capital
Management requires financial managers to decide what quantities of cash, other liquid assets,
accounts receivables and inventories the firm will hold at any point of time. Working capital is
the capital you require for the working i.e. functioning of your business in the short run.
Gross working capital refers to the firm’s investment in the current assets and includes cash,
short term securities, debtors, bills receivables and inventories. It is necessary to concentrate on
the fact that the investment in the current assets should be neither excessive nor inadequate.
WORKING CAPITAL requirement of a firm keeps changing with the change in the business
activity and hence the firm must be in a position to strike a balance between them. The financial
manager should know where to source the funds from, in case the need arise and where to invest
in case of excess funds.
3.2 THE DANGERS OF EXCESSIVE WORKING CAPITAL
1. It results in unnecessary accumulation of inventories. Thus the chances of inventory
mishandling, waste, theft and losses increase
2. It is an indication of defective credit policy and slack collection period. Consequently
higher incidences of bad debts occur which adversely affects the profits.
3. It makes the management complacent which degenerates into managerial inefficiency
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4. Tendencies of accumulating inventories to make speculative profits grow. This may
tend to make the dividend policy liberal and difficult to copes with in future when the
firm is unable to make speculative profits.
3.3 THE DANGERS OF INADEQUATE WORKING CAPITAL
1. It stagnates growth .It becomes difficult for the firms to undertake profitable
projects for non-availability of the WORKING CAPITAL funds.
2. It becomes difficult to implement operating plans and achieve the firms profit
targets
3. Operating inefficiencies creep in when it becomes difficult even to meet day-to-day
commitments.
4. Fixed assets are not efficiently utilized. Thus the rate of return on investment
slumps.
5. It renders the firm unable to avail attractive credit opportunities etc.
6. The firm loses its reputation when it is not in position to honor its short-term
obligations. As a result the firm faces a tight credit terms.
Net working capital refers to the difference between the current assets and the current liabilities.
Current liabilities are those claims of outsiders, which are expected to mature for payment within
an accounting year and include creditors, bills payable, bank overdraft and outstanding expenses.
When current assets exceed current liabilities it is called Positive WORKING CAPITAL and
when current liabilities exceed current assets it is called Negative WORKING CAPITAL.
The Net WORKING CAPITAL being the difference between the current assets and current
liabilities is a qualitative concept. It indicates:
• The liquidity position of the firm
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• Suggests the extent to which the WORKING CAPITAL needs may be financed by
permanent sources of funds
It is a normal practice to maintain a current ratio of 2:1. Also, the quality of current assets is to be
considered while determining the current ratio. On the other hand a weak liquidity position poses
a threat to the solvency of the company and implies that it is unsafe and unsound. The Net
WORKING CAPITAL concept also covers the question of judicious mix of long term and short-
term funds for financing the current assets.
Permanent and variable working capital:
The minimum level of current assets required is referred to as permanent working capital and the
extra working capital needed to adapt to changing production and sales activity is called
temporary working capital.
3.4 NEED AND IMPORTANCE OF WORKING CAPITAL MANAGEMENT
The importance of working capital management stems from the following reasons:
1. Investment in current assets represents a substantial portion of the total investment.
2. Investments in current asset and the level of current liabilities have to be geared quickly
to change in sales, which helps to expand volume of business.
3. Gives a company the ability to meet its current liabilities
4. Take advantage of financial opportunities as they arise.
A firm needs WORKING CAPITAL because the production, sales and cash flows are not
instantaneous. The firm needs cash to purchase raw materials and pay expenses, as there may not
be perfect matching between cash inflows and outflows. Cash may also be held up to meet future
exigencies. The stocks of raw materials are kept in order to ensure smooth production and to
protect against the risk of non-availability of raw materials. Also stock of finished goods has to
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be maintained to meet the demand of customers on continuous basis and sudden demand of some
customers. Businessmen today try to keep minimum possible stock as it leads to blockage of
capital. Goods are sold on credit for competitive reasons. Thus, an adequate amount of funds has
to be invested in current assets for a smooth and uninterrupted production and sales process.
Because of the circulating nature of current assets it is sometimes called circulating capital.
3.5 FACTORS INFLUENCING THE WORKING CAPITAL REQUIREMENT
All firms do not have the same WORKING CAPITAL needs .The following are the factors that
affect the WORKING CAPITAL needs:
Nature and size of business
The WORKING CAPITAL requirement of a firm is closely related to the nature of the business.
We can say that trading and financial firms have very less investment in fixed assets but require
a large sum of money to be invested in WORKING CAPITAL. On the other hand Retail stores,
for example, have to carry large stock of variety of goods little investment in the fixed assets.
Also a firm with a large scale of operations will obviously require more WORKING CAPITAL
than the smaller firm.
Manufacturing cycle
It starts with the purchase and use of raw materials and completes with the production of finished
goods. Longer the manufacturing cycle larger will be the WORKING CAPITAL requirement;
this is seen mostly in the industrial products.
Business fluctuation
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When there is an upward swing in the economy, sales will increase also the firm’s investment in
inventories and book debts will also increase, thus it will increase the WORKING CAPITAL
requirement of the firm and vice-versa.
Production policy
To maintain an efficient level of production the firm’s may resort to normal production even
during the slack season. This will lead to excess production and hence the funds will be blocked
in form of inventories for a long time, hence provisions should be made accordingly. Since the
cost and risk of maintaining a constant production is high during the slack season some firm’s
may resort to producing various products to solve their capital problems. If they do not, then they
require high WORKING CAPITAL.
Firm’s Credit Policy
If the firm has a liberal credit policy its funds will remain blocked for a long time in form of
debtors and vice-versa. Normally industrial goods manufacturing will have a liberal credit
policy, whereas dealers of consumer goods will a tight credit policy.
Availability of Credit
If the firm gets credit on liberal terms it will require less WORKING CAPITAL since it can
always pay its creditors later and vice-versa.
Growth and Expansion Activities
It is difficult precisely to determine the relationship between volumes of sales and need for
WORKING CAPITAL. The need for WORKING CAPITAL does not follow the growth but
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precedes it. Hence, if the firm is planning to increase its business activities, it needs to plan its
WORKING CAPITAL requirements during the growth period.
Conditions of Supply of Raw Material
If the supply of raw material is scarce the firm may need to stock it in advance and hence need
more WORKING CAPITAL and vice-versa.
Profit Margin and Profit Appropriation
A high net profit margin contributes towards the WORKING CAPITAL pool. Also, tax liability
is unavoidable and hence provision for its payment must be made in the WORKING CAPITAL
plan, otherwise it may impose a strain on the WORKING CAPITAL.
After having discussed about working capital management in this chapter, in the next chapter
methodology of the study will be discussed.
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CHAPTER IV
RESEARCH METHODOLOGY
A research methodology consists of the collection of data and analyzing the data collected with
the purpose attain the standards set in objectives in the study. The analysis should be carried out
based on the nature of the problem outlined in the project study. In other words, Research
Methodology is simply the plan of action for a research which explains in detail how data is to be
collected analyzed and intrepreted.Datas becomes information only when a proper methodology
is adopted. Thus we can say Methodology is a tool which process the date to a reliable
information. The present chapter attempt to highlight the research methodology adopted in this
project. This is the research methodology in this study which has been designed in a conceptual
structure with through which research is undertaken by the researcher; so the research
methodology constitutes data collection, the sampling and the tools used for the purpose of
analysis.
4.1 Research design
The choice of the research approach is an important part of the research work, because it
determines how the information will be obtained, because the data also determines the output of
the report .A research design is the detailed outline of the study to attain the research purpose.
The outline of the study is not the end itself but also consists of other multiple decisions on the
requirements of the study. This being a case study based on the financial information of the
organization the quantitative type of research has been used.
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4.2 DATA COLLECTION
The primary data will not be useful for the researcher and hence only secondary data has been
used being a quantitative research and financial in nature in this research work. The secondary
sources of information were of high use in this study. Secondary source of data is nothing but the
data which has been collected already. In this research work the data was called from annual
financial reports of the company. The secondary data had been gathered from the available
records of the company. Although secondary data has lots of limitation in itself but also used by
the researcher to obtain the desired result. Some of the limitations of secondary data are its
historical nature, does not include price level changes and also subject to accounting methods of
the organization. But yet the sources of data are the five year financial statements of the
organization have been used in the best interest in the study. The secondary data had been
gathered from the available records of the company. In fact, all the available facts, figures and
data had been gathered. Incidentally, it ought to be noted that the Project Work of this nature is
subject to limitations. In the first place the Financial Statements fail to be perfect guides for
determining future, profitability, as they are subject to the vagaries of accounting processes and
fluctuations in the price line. Notwithstanding, a genuine attempt has been made to evaluate the
financial soundness of the company and its credit worthiness. The sources of data are the five
year financial statements of the organization from the financial year 2005 – 06 to 2009-10.
4.3 SAMPLING PROCEDURE
To generalize the results of the population through a sample, the sampling process technique has
been adopted, to represent the sample so that the findings of the stud may represent the sample.
The population in this research study is the financial statements of all the financial years
concerned, since the company is incepted, but it is not possible to analyze the entire data. The
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reason to apply the probability sampling in this method is to ensure that there is chance that
every sample represents the entire sample. Based on the sample study the findings of the study
will be applied for the entire company to represent the population.
4.4 STATISTICAL TOOLS FOR ANALYSIS

4.4.1 Ratio analysis
A firm’s balance sheet contains many items that, taken by them, have no clear meaning.
Financial ratio analysis is a way of appraising their relative importance. The ratio of current
assets to current liabilities, for example, gives the analyst an idea of the extent to which the firm
can meet its current obligations.
4.4.2 Schedule of changes in working capital
The difference between the working capital for two given reporting periods is called the change
in working capital. Changes in working capital simply show the net affect on cash flows of this
adding and subtracting from current assets and current liabilities.
4.4.3 Working capital position

Gross working capital which is the Sum total of current assets Gross working capital is also
known as short-term assets or current assets. Current liabilities that finance working capital are
also known as short-term liabilities or working capital and Net working capital which are the
Difference between gross working capital and current liabilities. The working capital position
statement will clearly show the status of working capital of the company.
4.4.4 Working capital requirement
The working capital requirement is the minimum amount of resources that a company requires to
effectively cover the usual costs and expenses necessary to operate the business. Since the capital
needs of each company will be a little different, there is no ideal working capital requirement
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that is universally applicable to all businesses, or even to companies engaged in the same
industry. However, new companies can develop an idea of what type of working capital
requirement they will need to operate at given levels by researching the cost and expenses
associated with other corporations engaged in similar operations. The basic formula for
determining working capital involves only two factors. First, it is necessary to define the current
liquid assets in the possession of the company. This may be somewhat different from general
assets, since the focus is on those resources that can be converted into cash quickly and easily.
Liquid assets may be such resources as the outstanding current Accounts Receivable balance,
property that is not directly used in the operation of the business, and balances in various
operating accounts.
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CHAPTER V
DATA ANALYSIS AND INTERPRETATION
WORKING CAPITAL POSITION
TABLE NO 1 WORKING CAPITAL POSITION OF LITE ROOF

PRIVATE LIMITED
(In lakhs)
Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
1.Current assets
(A). Inventories 1,240.04 1,278.74 1,402.45 1,479.58 1,324.97
i. Raw 420.20 421.30 456.15 419.36 418.36
material
ii. Stock in 339.80 378.14 443.15 475.10 406.22
progress
iii. Finished 480.04 479.40 503.15 585.12 500.39
goods
(B). Account
424.78 367.85 470.85 489.27 522.83
receivable
(C). Short term 198 200 200 100 100
investment
(D). Loans and
1,000.41 1,029.16 999.10 903.91 798.84
advances
(E). Cash&Bank
913.16 942.63 806.48 698.05 355.03
balance
TOTAL 3,776.39 3,818.38 3,878.88 3,670.81 3,101.67
(In lakhs)
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Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
1).Sundry
2,513.55 2,582.72 2,669.14 2,730.64 3,077.97
creditors
2).Short term
18.34 11.92 6.15 0.00 0.00
bank loans
3).Other C.L 1,091.40 1,205.56 1,311.11 1,123.46 1,158.87
TOTAL 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84
(In lakhs)
Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
(A).C.A 3,776.39 3,818.38 3,878.88 3,670.81 3,101.67
(B).C.L 3,604.95 3,788.28 3,980.25 3,854.10 4,236.84
(C).Net W.C
171.44 30.10 -101.37 -183.29 -1,135.17
(A-B)
INTERPRETATION
From the above table it is clear that working capital has been coming down from 2005 to 2010
although in 2006 it is positive and also showed a positive trend in 2007, but after it has been
considerably coming down.
The major reason for the reducing working capital is because of consistent decline in the current
assets, which is come down by 20% in the last five financial years, majorly because of the
reduced cash balance, which has been reduced by 61%, At the same time current liability has
shown considerable increase in every year continuously and the overall increase is 18%, and this
reflected in the drop of net working capital by drifting towards the negative amount in the same
period.
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CHART NO 1 WORKING CAPITAL POSITION OF LITE ROOF
PRIVATE LIMITED
400
200 171.44
30.1
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
-101.37
-200
-183.29
-400
-600
-800
-1000
-1135.17
-1200
-1400
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WORKING CAPITAL MANAGEMENT THROUGH RATIO ANALYSIS.
Current assets
Current ratio = --------------------------
Current liabilities
(In lakhs)
Year Current assets Current liabilities
2005-2006 3,776.39 3,604.95
2006-2007 3,818.38 3,788.28
2007- 2008 3,878.88 3,980.25
2008–2009 3,670.81 3,854.10
2009-2010 3,101.67 4,236.84
TABLE NO. 2 CURRENT RATIO
Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010

Current
1.04 1.01 0.97 0.95 0.73
Ratio
INTERPRETATION
The ratio of current assets to current liabilities is called current ratio’. In order to measure the
short-term liquidity or solvency of a concern, comparison of current assets and current liabilities
is inevitable. Current ratio indicates the ability of a concern to meet its current obligation as and
when they are due for payment.
The current ratio is consistently below the industrial standards of 2: 1, indicating the
performance of current assets has to be improved; this is continuously decreasing every year
right from 1.04 in 2005-06 to 0.73 in 2009-10.
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CHART NO. 2 CURRENT RATIO
1.2
1.04
1.01
1 0.97
0.95
0.8
0.73
0.6
0.4
0.2
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
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QUICK RATIO
Current assets – stock

Quick Ratio = ---------------------------------------
Current liabilities
(In lakhs)
Years Quick Assets Current Liabilities
2005-2006 2535.99 3,604.95
2006-2007 2539.64 3,788.28
2007- 2008 2476.43 3,980.25
2008–2009 2191.23 3,854.10
2009-2010 1776.7 4,236.84
TABLE NO. 3 QUICK RATIO
Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010

Quick Ratio 0.70 0.67 0.62 0.56 0.41
INTERPRETATION
This ratio is also called ‘Quick’ or ‘Acid test’ ratio. It is calculated by comparing the quick assets
with current liabilities. The industry standards of 1 : 1 , but this also performing badly in the
latest financial year recording 0.41 where a continuous dip is seen from the year 2005-06 where
it was 0.70 , the highest recorded quick ratio in the last five years . This is attributed to
inefficient handling of current assets. The current assets are not maintained properly , which
results in higher current liabilities and has caused an dip in the quick ratio which has to come up
to 1:1 in the years to come.
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TABLE NO. 3 QUICK RATIO
0.8
0.7
0.7
0.67
0.62
0.6
0.56
0.5
0.41
0.4
0.3
0.2
0.1
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
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CASH POSITION RATIO:
Cash and Bank Balance + Marketable Securities

Cash position ratio = ----------------------------------------------------------------
Current Liabilities
(In lakhs)
Year Absolute liquid assets Current liabilities

2005-2006 913.16 3,604.95
2006-2007 942.63 3,788.28
2007- 2008 806.48 3,980.25
2008–2009 698.05 3,854.10
2009-2010 355.03 4,236.84
TABLE NO 4 CASH POSITION RATIO
Particular
2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
Cash position
0.25 0.24 0.20 0.18 0.08
ratio
INTERPRETATION
This ratio is also called ‘Absolute Liquidity Ratio’ or ‘super quick ratio’. This ratio measures
liquidity in terms of cash and near cash items like the short term investments and marketable
securities also known as tradable securities and short-term current liabilities which includes bank
overdraft. The cash position ratio has declined from 0.25 to 0.08 in the year 2005-2006 and
standing well below the standards of 0.30.This shows cash maintenance is highly inefficient in
the company. The consistent decline in cash balance and consistent increase in current liabilities
is the reason behind this.
CHART NO 4 CASH POSITION RATIO
29
0.3
0.25
0.25
0.24
0.2
0.2
0.18
0.15
0.1
0.08
0.05
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
30
NET WORKING CAPITAL RATIO:
Net Working capital

Net Working Capital Ratio = -------------------------------------------------------
Net Assets (Net W.C + Fixed assets)
(In lakhs)
Year Net Working capital Net assets

2005-2006 171.44 3127.43
2006-2007 30.10 3717.17
2007- 2008 - 101.37 3843.03
2008–2009 -183.29 3563.83
2009-2010 -1,135.17 2362.56
TABLE NO. 5 NET WORKING CAPITAL RATIO
Particular
2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
Net W.C
0.05 0.01 -0.02 -0.05 -0.48
Ratio
INTERPRETATION
The mix of the assets shows the efficiency of the usage of the assets proportionately. The mix of
fixed assets and current assets is not at all healthy, not complying with the industry standards of
0. 30. In the last three financial years, it is negative, the mix was badly in shape standing at .05,
exhibiting 5 – 95 mix which is not healthy for the company but has turned out even more worse
in 2006 – 2007 indicating the fact that there is inefficient handling of the current assets and fixed
assets from the year 2006 – 07 to the latest financial year because this ratio has turned out be in
negative in the last 3 financial years.
31
CHART NO. 5 NET WORKING CAPITAL RATIO
0.5
0.05
0.01
0
2005-2006 2006-2007 2007- 2008 2008–2009
-0.05 2009-2010
-0.5
-0.48
-1
-1.5
-2
-2
-2.5
32
INVENTORY OR STOCK TURNOVER RATIO:
Net Sales
Inventory turnover ratio = ------------------------------
Average stock
Where
Opening stock + closing stock
Average stock = -----------------------------------------
2
(In lakhs)
Particular Net sales Average stock
2005-2006 10,633.70 480.04
2006-2007 9,952.18 479.72
2007- 2008 10,108.37 491.28
2008–2009 9,931.51 544.13
2009-2010 11,080.31 542.75
TABLE NO 6 INVENTORY TURNOVER RATIO
Particular
2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
Inventory
turnover 22.15 20.77 20.58 18.25 20.44
ratio
INTERPRETATION
This ratio is also called stock velocity ratio. It is calculated to ascertain the efficiency of
inventory management in terms of capital investment. It shows the relationship between the cost
of goods sold and the amount of average inventory. Stock turnover ratio is obtained by dividing
the cost of sales by average stock. This ratio is always on an decrease trend throughout the last 4
financial year increase by one time it is increase in 2009-10, clearly showing the fact that the
company has excellent sales record in the last five financial years and thereby exhibits a healthy
stock turnover ratio.
33
CHART NO 6 INVENTORY TURNOVER RATIO
25
22.15
20.77 20.58 20.44

20
18.25
15
10
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
34
STOCK TURNOVER PERIOD:
365
Stock turnover period = ------------------------------
Stock turnover ratio
TABLE NO 7 STOCK TURNOVER PERIOD
INVENTORY TURNOVER
YEAR PERIOD
(IN DAYS)
2005-2006 17
2006-2007 18
2007- 2008 18
2008–2009 20
2009-2010 18
INTERPRETATION
Stock turnover ratio or inventory turnover ratio can be related to ‘time’. The ratio can be
expressed in terms of days or months or years. This ratio substantiates the fact that the company
has an excellent stock rotation which has been consistently recorded improvement by recording
20 days in the financial year 2008 – 09 while in the financial year 2009 – 10 it came back to 18
days again, indicating the excellence in the performance of the sales division of the organization.
The sales performance is improving every year, because of the rising demand of the company’s
products.
35
CHART NO 7 STOCK TURNOVER PERIOD
20.5
20
20
19.5
19
18.5
18 18 18
18
17.5
17
17
16.5
16
15.5
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
36
DEBTORS TURNOVER RATIO:
Net Sales
Debtors turnover ratio = ----------------------------
Average receivables
Opening receivables + Closing receivables

Average Receivables = -------------------------------------------------------
2
(In lakhs)
Particulars Net Sales Average Receivables
2005-2006 10,633.70 424.78
2006-2007 9,952.18 396.31
2007- 2008 10,108.37 419.35
2008–2009 9,931.51 480.06
2009-2010 11,080.31 506.05
TABLE NO 8 DEBTOR’S TURNOVER RATIO
Particular 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010

Debtors
turnover 25.22 25.13 24.10 20.68 21.89
ratio
INTERPRETATION
Debtor’s turnover ratio is also called as receivables turnover ratio or debtors velocity. The
customers who purchase on credit are called trade debtors or book debts. Debtors and bills
receivables together are called ‘Accounts receivables’. Debtor’s turnover ratio measures the
number of times the receivables are rotated in a year in terms of sales. The ratio is helpful in
determining the operational efficiency of a business concern and the effectiveness of its credit
policy. This ratio had been decreasing over the years showing only marginally showing the
consistent receivables management policy although has recorded an impressive performance in
the first financial year standing at 25.22 times , although this decreased over the years , the
company has been able to recover it and has recorded 21.89 in 2009-10.
37
CHART NO 8 DEBTOR’S TURNOVER RATIO
30
25.22 25.13
25
24.1
21.89
20.68
20
15
10
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
38
AVERAGE COLLECTION PERIOD:
365
Average Collection Period = ---------------------------------
Debtor’s turnover ratio
TABLE NO 9 AVERAGE COLLECTION PERIOD
DEBTORS TURNOVER PERIOD

YEAR
( IN DAYS)
2005-2006 15
2006-2007 15
2007- 2008 15
2008–2009 18
2009-2010 17
Interpretation
It is to be noted that the first approach to the computation of the debtor’s turnover is superior. In
case of the second approach the effect is that debtor’s turnover ratio is inflated. Another
approach for measuring the liquidity of firm’s debtors is the average collection period. It is
important to maintain a reasonable quantitative relationship between receivables and sales. This
ratio also indicates the efficiency of credit collection and efficiency of credit policy. This ratio is
inter related to and depends on the debtors turnover ratio. In this industry 30 – 45 day period of
collection is the standard, and the company is able to excel in performance in every financial
year recording 15 days respectively for 2005 -2006, 2006- 2007 and 2007 – 2008, while this was
around 18 days in the financial year 2008-2009 but again the company had a turnaround in the
year 2009-10.
39
TABLE NO 9 AVERAGE COLLECTION PERIOD
18.5
18
18
17.5
17
17
16.5
16
15.5
15 15 15
15
14.5
14
13.5
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
40
CREDITORS TURNOVER RATIO:
Net credit purchase

Creditors turnover ratio = --------------------------------------
Average account payable
365
Average payment period = -----------------------------------
Creditors’ turnover ratio
(In lakhs)
Particular Credit purchase Average payables

2005-2006 5398.23 2513.55
2006-2007 4533.42 2548.14
2007- 2008 4652.62 2625.93
2008–2009 4598.97 2699.89
2009-2010 5168.67 2904.30
TABLE NO 10 CREDITORS TURNOVER RATIO
Particulars
2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010
C. T. R 2.14 1.77 1.77 1.70 1.77
INTERPRETATION
This ratio is also known as accounts payables or creditors velocity. Longer the period of payables
outstanding lesser is the problem of working capital of the firm. But if the firm does not pay off
its creditors with in time, it will adversely affect goodwill of the business. From the above table
is an inferred that this ratio is almost same throughout the five financial years moving around
1.77. Only in 2005-06 it was 2.14 and in 2008-09, it was 1.70, recording an decrease indicating
late settlement of funds for the suppliers.
41
TABLE NO 10 CREDITORS TURNOVER RATIO
2.5
2.14
1.77 1.77 1.77

1.7
1.5
0.5
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
42
AVERAGE PAYMENT PERIOD
365
Average payment period = ----------------------------------
Creditor’s turnover ratio
TABLE NO 11 AVERAGE PAYMENT PERIOD
CREDITORS TURNOVER
YEAR PERIOD
( IN DAYS )
2005-2006 170
2006-2007 206
2007- 2008 206
2008–2009 215
2009-2010 206
INTERPRETATION
Another approach for measuring the liquidity of firm’s creditors is the average payment period.
This ratio also indicates the efficiency of payment and efficiency of payment policy. As per the
industry standards the company was standing at much below the par in all the financial years
2005 – 2006 at 170 days, although the company has improved in the payment schedule too
which is indicated by recording 206 days in the year 2009-10 , because in the previous year it
was 215 days . Late settlement of cash indicates an increase the operating cycle of the cash
which is not a good sign of a healthy payment policy which will reflect in higher quick ratio.
43
TABLE NO 11 AVERAGE PAYMENT PERIOD
250
215
206 206 206
200
170
150
100
50
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
44
CURRENT ASSETS TO TOTAL ASSETS RATIO:
Current assets
Current assets to total assets ratio = ----------------------

Total assets
(In lakhs)
Particulars Current assets Total assets

2005-2006 3,776.39 6731.78
2006-2007 3,818.38 7505.45
2007- 2008 3,878.88 7823.28
2008–2009 3,670.81 7417.93
2009-2010 3,101.67 6599.40
TABLE NO 12 CURRENT ASSETS TO TOTAL ASSETS RATIO
Particulars 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010

C. A. T.A. R 0.56 0.50 0.49 0.49 0.47
INTERPRETATION
The company’s current to the total assets ratio is very consistent , it is always around 0.50 in the
last 4 financial years , although it was very high in the year 2005-2006 at 0.56 which represents
56% of the total assets are current assets but it has come down to 0.47 in the year 2009-10 .
45
TABLE NO 12 CURRENT ASSETS TO TOTAL ASSETS RATIO
0.58
0.56
0.56
0.54
0.52
0.5
0.5
0.49 0.49
0.48
0.47
0.46
0.44
0.42
2005-2006 2006-2007 462007- 2008 2008–2009 2009-2010
CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO:
Current liabilities
Current liabilities to total liabilities ratio = ----------------------

Total liabilities
(In lakhs)
Particulars Current liabilities Total liabilities

2005-2006 3,604.95 6732.38
2006-2007 3,788.28 7505.45
2007- 2008 3,980.25 7823.28
2008–2009 3,854.10 7417.93
2009-2010 4,236.84 6599.40
TABLE NO 13 CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO
Particulars 2005 – 2006 2006-2007 2007 – 2008 2008 - 2009 2009-2010

C. A. T. L.R 0.53 0.50 0.50 0.52 0.64
INTERPRETATION
The company’s current to the total liabilities ratio is very inconsistent, fluctuating from 0.53 in
the financial year 2005-06 to 0.64 in the financial year 2009-10, while in between three financial
years it was very consistent around 0.50.
47
TABLE NO 13 CURRENT LIABILITIES TO TOTAL LIABILITIES RATIO
0.7
0.64
0.6
0.53
0.52
0.5 0.5
0.5
0.4
0.3
0.2
0.1
0
2005-2006 2006-2007 2007- 2008 2008–2009 2009-2010
48
SCHEDULE OF CHANGES IN WORKING CAPITAL
TABLE NO 14 CHANGES IN WORKING CAPITAL (2005-2006 AND 2006-2007)
Particulars 2005 – 2006 2006-2007
CURRENT ASSET
1,240.04 1,278.74
Inventories
Accounts receivable 424.78 367.85
Loans and Advances 1,198.41 1,229.16
Cash Balance 913.16 942.63
Total current assets 3,776.39 3,818.38
CURRENT LIABILITY
2,513.55 2,582.72
Sundry creditors
Short term bank Loans 18.34 11.92
provisions 1,091.40 1,205.56
Total current liabilities 3,604.95 3,788.28
CA – CL 171.44 30.10
Decrease in Working Capital 141.34
INTERPRETATION:
The decrease in working capital 141.34 in 2005 – 06 to 2006-07 was mainly due to reason of
decreased debtor’s collection, where the stock was rotated fast and cash was used to make
immediate payments.
49
Particulars 2006 – 2007 2007-2008
CURRENT ASSET
1,278.74 1,402.45
Inventories
CURRENT LIABILITY
2,582.72 2,669.14
Sundry creditors
Short term bank Loans 11.92 6.15
Provisions 1,205.56 1,311.11
CA – CL 30.10 -101.37
INTERPRETATION:
decreased cash balance, where the creditors and provisions are heavy and increased payments.
50
Particulars 2007 – 2008 2008-2009
CURRENT ASSET
1,402.45 1,479.58
Inventories
CURRENT LIABILITY
2,669.14 2,730.64
Sundry creditors
Short term bank Loans 6.15 -
Provisions 1,311.11 1,123.46
CA – CL -101.37 -183.29
INTERPRETATION:
decreased cash balance and loan and provisions account, where the creditors have increased in
the last two years .
Particulars 2008 – 2009 2009-2010
CURRENT ASSET
1,479.58 1,324.97
Inventories
Loans and Advances 1,003.91 898.84
51
CURRENT LIABILITY
2,730.64 3,077.97
Sundry creditors
Short term bank Loans - -
Provisions 1,123.46 1,158.87
CA – CL -183.29 -1,135.17
INTERPRETATION:
decreased cash balance and inventory account, where the creditors and provisions have both
increased in the last two years.
52
CHART NO 14 SCHEDULE OF CHANGES IN WORKING CAPITAL
0
2006-2007 2007- 2008 2008–2009 2009-2010
-100 -81.92
-131.47
-141.34
-200
-300
-400
-500
-600
-700
-800
-900
-951.88
-1000
53
ESTIMATION OF WORKING CAPITAL REQUIREMENT (2010-2011)
AVERAGE PERIOD OF ESTIMATE FOR
ELEMENTS
CREDIT COMING YEAR (in lacs)
Purchase of materials 6 weeks 2,60,000
Wages 1.5 weeks 1,95,000
Admin.o/h
Rent 2 months 48,000
Salaries 1 month 36,000
Office expense 2 weeks 45,500
Factory o/h (Includes
2 months 60,000
depreciation 20%)
Sales
Cash 14,000
Credit 7 weeks 6,50,000
• Raw materials are in stock for 4 weeks

• FG are in stock for 1 month
• Process time 15 days
• Factory overheads and wages accrue evenly
• FG are valued at cost of production
• Minimum cash balance required is 40,000
Assumptions:
1) Production and sales are evenly distributed throughout the year
2) Raw materials are issued to production right in the beginning, whereas wages and
overheads are incurred evenly.
3) 15 days is taken as 2 weeks AND 1year = 52 weeks
54
TABLE NO 18 CALCULATION OF WORKING CAPITAL REQUIREMENT
CURRENT ASSETS RS. RS.
(A) Stock
Raw Material (2,60,000/52 *4) 20,000
Finished Goods (515,000/52*4) 39,616 59,616
(B) WIP
Raw Material (2,60,000/52*2) 10,000
Wages (1,95,000/52*2*0.5) 3,750
Overheads (60,000/52 *2*0.5) 1,154 14904
(C) Debtors (6,50,000/52*7) 87,500
(D) Cash 40,000
TOTAL C.A. 2,02,020
(-)CURRENT LIABILITIES
(A) Creditors
Raw materials(2,60,000/52*6) 30,000
(B)Wages(1,95,000/52*1.5) 5,625
(C) Administration overheads
Rent (48,000/52*8) 7,385
Salary (36,000/52*4) 2,769
Office expense (45,500/52*2) 1,780 11,904
(D) Factory overheads ( 60,00/52*8) 9,235
TOTAL C.L. 56,570
WC reqd.(CA-CL) 1,45,260
The estimated working capital requirement for the year 2010-2011 shows Rs 1452.60 lakhs.
CHAPTER VI
55
SUMMARY OF FINDINGS, SUGGESTIONS AND
CONCLUSIONS OF THE STUDY
Based on the analysis in the previous chapter, following findings have been arrived.
6.1 FINDINGS OF THE STUDY
1. The inventory has been increased by 3% in 2006-07, 10% in 2007-08, 5% in 2008-09 and
decreased by 10% in 2009-10.
2. The receivable of the organsiation has been decreased by 13% in 2006-07, an then
increased by 28% in 2007-08, 4% in 2008-09 and by 7% in 2009-10.
3. The cash balance has been increased by 3% in 2006-07, and decreased by 14% in 2007-
08, 15% in 2008-09 and decreased by 49% in 2009-10.
4. The payables have increased by 3% in 2006-07, by 3% in 2007-08, 2% in 2008-09 and by
10% in 2009-10.
5. The current assets have increased by 1% in 2006-07, by 2% in 2007-08, decreased by 3%
in 2008-09 and further decreased by 15% in 2009-10.
6. The working capital has decreased by 24% in 2006-07, by 436% in 2007-08, 81% in
2008-09 and by 520% in 2009-10.
7. The current ratio is 1.04 in 2005-06, 1.01 in 2006-07, 0.97 in 2007-08, 0.95 in 2008-09
and 0.73 in 2009-10.
56
8. The quick ratio is 0.70 in 2005-06, 0.67 in 2006-07, 0.62 in 2007-08, 0.56 in 2008-09 and
0.41 in 2009-10.
9. The cash position ratio is 0.25 in 2005-06, 0.24 in 2006-07, 0.20 in 2007-08, 0.18 in
2008-09 and 0.08 in 2009-10.
10. The inventory turnover ratio is 22.15 in 2005-06, 20.77 in 2006-07, 20.58 in 2007-08,
18.25 in 2008-09 and 20.44 in 2009-10.
11. The inventory turnover period is 17 days in 2005-06, 18 days in 2006-07, 18 days in
2007-08, 20 days in 2008-09 and 18 days in 2009-10.
12. The debtor’s turnover ratio is 25.22 in 2005-06, 25.13 in 2006-07, 24.10 in 2007-08,
20.68 in 2008-09 and 21.89 in 2009-10.
13. The debtor turnover period is 15 days in 2005-06, 15 days in 2006-07, 15 days in 2007-
08, 18 days in 2008-09 and 17 days in 2009-10.
14. The creditor’s turnover ratio is 2.14 in 2005-06, 1.77 in 2006-07, 1.77 in 2007-08, 1.70 in
2008-09 and 1.77 in 2009-10.
15. The creditor turnover period is 170 days in 2005-06, 206 days in 2006-07, 206 days in
2007-08, 215 days in 2008-09 and 206 days in 2009-10.
16. The current assets to total assets ratio is 0.56 in 2005-06, 0.50 in 2006-07, 0.49 in 2007-
08, 0.49 in 2008-09 and 0.47 in 2009-10.
17. The current liabilities to total liabilities ratio is 0.53 in 2005-06, 0.50 in 2006-07, 0.50 in
2007-08, 0.52 in 2008-09 and 0.64 in 2009-10.
57
18. The decrease in working capital 141.34 in 2005 – 06 to 2006-07 was mainly due to
reason of decreased debtor’s collection, where the stock was rotated fast and cash was
used to make immediate payments.
reason of decreased cash balance, where the creditors and provisions are heavy and
increased payments.
20.The decrease in working capital 81.92 in 2006 – 07 to 2007-08 was mainly due to reason of
decreased cash balance and loan and provisions account, where the creditors have increased in the
last two years.
reason of decreased cash balance and inventory account, where the creditors and
provisions have both increased in the last two years.
22. The estimated working capital requirement for the year 2010-2011 shows Rs 1452.60
lakhs.
58
6.2 SUGGESTIONS OF THE STUDY
Following suggestions are made to the management to meet the working capital requirements for
the following year.
1. The cash position ratio is too low indicating a very less amount of cash is maintained.
The organization should take efforts to increase the cash balance, this can be done by
liquidating the loans and advances of the organsiation.
2. The company has no short term investments. The organsiation should plan to invest in
tradable securities, marketable securities as a short term investments which offers high
amount of liquidity.
3. The current ratio is too low; the organsiation should work towards doubling it. The
current assets should be increased by the organsiation or the organsiation should actively
work towards reducing current liability. This can be done by settling creditors quickly, as
creditor’s turnover period is very high.
59
4. Since the net working capital has comedown largely during the last five financial year
company should take efforts in increasing Current asset by all means. This could be done
through investing in short term investment and by increasing its collection period days.
6.3 CONCLUSIONS TO THE STUDY
Financial Management is that managerial activity which is concerned with the planning and
controlling of the firms financial resources. Financial management focuses on finance manager
performing various tasks as Budgeting, Financial Forecasting, Cash Management, Credit
Administration, Investment Analysis, Funds Management, etc. which help in the process of
decision making. Financial management includes management of assets and liabilities in the long
run and the short run. Working Capital Management is the process of planning and controlling
the level and mix of current assets of the firm as well as financing these assets. Specifically,
Working Capital Management requires financial managers to decide what quantities of cash,
other liquid assets, accounts receivables and inventories the firm will hold at any point of time.
In this organsiation while analyzing it is found that there is poor cash management. Cash balance
is maintained for transaction purposes and an additional amount may be maintained as a buffer
or safety stock. It involves a trade off between the costs and the risk. If a firm maintains a small
cash balance, it has to sell its marketable securities and probably buy them later more often, than
if it holds a large cash balance. The excess amount of cash held by the firm to meet its variable
cash requirements and future contingencies should be temporarily invested in marketable
60
securities for earning returns. If the organsiation does this it can have a better cash position ratio
and the current ratio will go up . The firms are required to maintain enough inventories for
smooth production and selling process, also at the same time they need to keep the investment in
them minimum. The investment in the inventories should be justified at the optimum level. Since
it was a matter relating to finance, not everybody revealed all the aspects of working capital
management. However an effort was put in to get the maximum out of them.
61
FINANCIAL STATEMENTS (LITE ROOF LIMITED)
BALANCESHEET (2005 – 06)
PARTICULARS AMOUNT ( in lakhs Rupees)
Sources Of Funds
Total Share Capital 220.12
Equity Share Capital 220.12
Preference Share Capital 0.00
Reserves 2,822.90
Revaluation Reserves 0.67
Net worth 3,043.69
Secured Loans 43.04
Unsecured Loans 40.70
Total Debt 83.74
Total Funds Available 3,127.43
Application Of Funds
Gross Block 1,935.88
Less: Accumulated Depreciation 726.34
Net Block 1,209.54
Capital Work in Progress 110.52
62
Total Fixed Assets 1320.06
Investments 1,635.93
Inventories 1,240.04
Sundry Debtors 424.78
Cash and Bank Balance 913.16
Total Current Assets 2,577.98
Loans and Advances 1,198.41
Total CA, Loans & Advances 3,776.39
Short term bank loans 18.34
Current Liabilities 2,513.55
Provisions 1,091.40
Total CL & Provisions 3,604.95
Net Current Assets 171.44
Miscellaneous Expenses 0.00
Total Funds Applied 3,127.43
Sources Of Funds
63
Reserves 3,438.08
Net worth 3,658.87
Secured Loans 19.62
Total Debt 58.30
Net Block 1,215.46
64
Provisions 1,205.56
Net Current Assets 30.10
65
Sources Of Funds
Reserves 1,917.93
Net worth 2,138.72
Secured Loans 1,603.70
Total Debt 1,704.31
Net Block 1,295.63
66
Provisions 1,311.11
Net Current Assets -101.37
67
Sources Of Funds
Reserves 1,871.92
Net worth 2,092.71
Secured Loans 1,453.06
Total Debt 1,471.12
Net Block 1,423.14
68
Provisions 1,123.46
Net Current Assets -183.29
69
Sources Of Funds
Reserves 2,084.83
Net worth 2,305.62
Secured Loans 24.50
Total Debt 56.94
Net Block 1,385.50
70
Loans and Advances 898.84
Provisions 1,158.87
Net Current Assets -1,135.17
INCOME STATEMENT (2005 – 06)
PARTICULARS AMOUNT ( in lakhs rupees)
Income
Sales Turnover 11,755.04
Excise Duty 1,121.34
71
Net Sales 10,633.70
Other Income 522.52
Stock Adjustments -4.63
Total Income 11,151.59
Expenditure
Raw Materials 5,398.23
Power & Fuel Cost 152.77
Employee Cost 585.55
Other Manufacturing Expenses 895.40
Selling and Admin Expenses 1,646.75
Total Expenses 8,955.46
Operating Profit 1,673.61
PBDIT 2,196.13
Interest 7.74
PBDT 2188.39
Depreciation 144.66
Profit Before Tax 2043.73
Extra-ordinary items -1.01
PBT (Post Extra-ord. Items) 2044.74
Tax 402.42
Net Profit 1,641.31
72
Total Value Addition 3,557.23
Preference Dividend 0.00
Equity Dividend 1,100.62
Corporate Dividend Tax 57.69
Per share data (annualized)
Shares in issue (lacs) 22,012.00
Earning Per Share (Rs) 7.19
Equity Dividend (%) 500.00
Book Value (Rs) 13.82
Income
Excise Duty 976.18
Net Sales 9,952.18
Other Income 475.69
Stock Adjustments 3.84
Expenditure
73
PBDIT 2,378.82
Interest 9.18
PBDT 2369.64
Depreciation 134.10
Extra-ordinary items 56.13
Tax 465.80
Net Profit 1,769.74

74
Income
Excise Duty 973.73
Net Sales 10,108.37
Other Income 519.09
Stock Adjustments 120.20
Expenditure
PBDIT 2,403.94
75
Interest 66.76
PBDT 2337.18
Depreciation 124.78
Tax 440.61
Net Profit 1,771.79

Income
76
Excise Duty 939.61
Net Sales 9,931.51
Other Income 440.24
Expenditure
Other Manufacturing Expenses 1,031.04
PBDIT 1,754.26
Interest 129.98
PBDT 1624.28
Depreciation 120.90
Tax 306.04
77
Net Profit 1,197.34
Income
Excise Duty 882.23
Net Sales 11,080.31
Other Income 389.77
Expenditure
78
Other Manufacturing Expenses 1,211.53
PBDIT 1,801.71
Interest 19.20
PBDT 1782.51
Depreciation 124.45
Tax 249.96
Net Profit 1,408.10

79
BIBLIOGRAPHY
Books
1. I M Pandey, “Financial Management “, Vikas publications, 2005
2. Khan and Jain, “Financial management”, Tata McGraw Hill Publications, 2001
JOURNALS
“Working capital management: Coordinating Investment and Financing Policies” - Journal of
Finance, June (1993) - M.B.Fordy.
WEBSITE
www.literoofings.com
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CHAPTER I

draft, and outstanding expenses.

margin of the safety.

1.1 DEFINITION OF WORKING CAPITAL

payable, accounts payable, taxes owned to government) “ .

1.3.1 PRIMARY OBJECTIVE OF THE STUDY

To study the working capital management of Light Roof limited.

1.3.2 SECONDARY OBJECTIVES OF THE STUDY

5. To estimate the working capital requirement of Light Roof Private Limited.

1.4 SCOPE OF THE STUDY

preparing this project.

the data collected from the following annual reports.

1. Annual report of Light Roof Private Limited 2005-06

2. Annual report of Light Roof Private Limited 2006-07

3. Annual report of Light Roof Private Limited 2007-08

4. Annual report of Light Roof Private Limited 2008-09

5. Annual report of Light Roof Private Limited 2009-10

1.6 LIMITATIONS OF THE STUDY

Following limitations were encountered while preparing this project:

reflect the real working capital position of the company

the annual reports of Light Roof Private Limited.

PROFILES OF THE STUDY

2.1 INDUSTRY PROFILE

such as bridge, road, etc comes under this category.

such as residential or commercial real estate assets, etc.

up of specialized items namely, electric related works, works on woods, etc.

Industry is also on a rise in such countries.

development, and specialized construction products (such as architectural products, electrical

Facts about Construction Industry Trends

employed work force around the globe.

• Construction Industry is the largest sector in respect of consumption of energy. It

used all over the world.

of Information Technology. BIM helps the different members of a project to communicate

time minimizes the error along with cost.

2.2 COMPANY PROFILE

rising demand for high-quality, low cost roofing material.

as Asphalted Roofing Sheets.

• Accelerated weather and Ultra Violet radiation

• Water and Weather proofing

the quality of the production.

2.3 PRODUCT PROFILE

The products available are:

Name of the variety Size in cms.

Single side Colour Painted Sheets

Literoof Tuf - 10 Litered 122 x 75

Literoof Tuf - 10 lite Grey / Terracotta 122 x 75

Single side Gulf Red Painted Sheets

Literoof Expodel 122 x 75

Literoof Expodel 183 x 75

Literoof Expodel 122 x 90

Literoof Expodel 183 x 90

Literoof Expodel 200 x 90

Single side Colour Painted Sheets

Literoof Expo 10 Blue/Grey 183 x 90

Literoof Expo 10 Gray/Terracotta 183 x 75

Plain Roofing Sheets

Literoof Litered 122 x 75

Literoof Litered 122 x 45

Literoof Expodel Gulf Red 122 x 75

Literoof Expodel Gulf Red 122 x 45

The out standing features of LITEROOF products

termite proof, which enhances its performance.