WORKING CAPITAL AT A GLANCE

 INTRODUCTION
 TYPES
 FEATURES
 DETERMINANTS
 COMPONENTS
 WORKING CAPITAL CYCLE
 INTRODUCTION

A successful sales program is necessary for earning profits

by any business enterprise. Sales don’t convert into cash instantly.
There is a time lag between the sale of goods and receipt of cash.

Therefore, there is a need for working capital in the form of

current assets to deal with the problem arising out of the lack of
immediate realization of cash against goods sold. Therefore sufficient
working capital is necessary to sustain sales activity.
Defination of Working Capital:-
 According to C.W. Gestenbergh-

“Working capital is ordinarily defined as the excess of the

current assets over current liabilities”.

 According to Lawrence. J. Gitmen

“The most common defination of working capital is the difference

of the firm’s current assets and current
liabilities.”
Defination of working capital management:-
“Working capital management involves the relationship between a
firm's short-term assets and its short-term liabilities. The goal of
working capital management is to ensure that a firm is able to
continue its operations and that it has sufficient ability to satisfy
both maturing short-term debt and upcoming operational
expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.”
-From WWW.STUDYFINANCE.COM
 Management of working capital

Guided by the above criteria, management will use a combination of

policies and techniques for the management of working capital. These
require managing the current assets - generally cash and cash
equivalents, inventories and debtors. There are also a variety of short
term financing options which are considered.

• Cash management – identify the cash balance which allows for

the business to meet day to day expenses, but reduces cash
holding costs
• Inventory management - identify the level of inventory which
allows for uninterrupted production but reduces the investment in
raw materials and hence increases cash flow; see Just In Time
(JIT) and Economic order quantity (EOQ).
• Debtors management - identify the appropriate credit policy, i.e.
credit terms which will attract customers, such that any impact on
cash flows and the cash conversion cycle will be offset by
increased revenue and hence Return on Capital (or vice versa);
see Discounts and allowances.
• Short term financing - inventory is ideally financed by credit
granted by the supplier; dependent on the cash conversion cycle, it
may be necessary to utilize a bank loan (or overdraft), or to
"convert debtors to cash" through "factoring".
 TYPES

Working capital can be classified either on the basis of

concept or on the basis of periodicity of its requirement.

1) ON THE BASIS OF CONCEPT

On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by

the total Current assets.

Gross working capital = Total current assets

B) Net working capital - Net working capital is the excess of current

assets over current liabilities.

Net working capital = Current assets – Current

liabilities

2) ON THE BASIS OF REQUIREMENT

On the basis of requirement working capital is also of 2 types.
A) Permanent working capital - It is that amount of investment
which should always be there in the fixes or minimum current
assets like inventory, accounts receivables or cash balance etc. to
carry out business smoothly. Such an amount cant be reduced if
the firms wants to carry on business operations without
interruption.
B) Variable working capital - The excess the amount of working
capital over permanent working capital is known as variable
working capital. It may also be subdivided into two parts.

a) Seasonal working capital - Such capital is required to

meet out the seasonal demands of busy periods

occurring at stated intervals.

b) Special working capital - Such capital is required to meet

out the extra-ordinary needs for contingencies. Events like

strike, fire, unexpected competition, rising price tendencies,
or initiating a big advertisement campaign require such
capital.

FEATURES
1) Working capital is regarded as the excess of current assets over
current liabilities.

2) Working capital indicates circular flow of funds in the day-to-day

activities of business. That’s why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw

materials, work-in progress, finished goods, stores and spares,
accounts receivables and cash balance.

DETERMINANTS
1) Nature of business – The effect of the general nature of the

business on working capital requirements can’t be exaggerated.

Rail, roads and other public utility services have large fixes
investment so they have the lower requirements of current assets.
Industrial and manufacturing enterprises, on the other hand,
generally require a large amount of working capital.
2) Production policies – if the production is evenly spread over the

entire year, working capital requirements are greater, because the

inventories will be unnecessarily accumulated during of season
period. But if the production schedule favours a varying production
plan as per the seasonal requirements, working capital is required
to a greater extent during a specified season only. The production
policies are affected by so many factors availability of raw materials,
labour, stocking facility etc & therefore, whatever the productions
policies are, the firm has to arrange its working capital requirements
accordingly.
3) Proportion of the cost of raw materials to total cost - In those

industries where cost of proportion is a large proportion of total cost

of the goods produced, reqirements of working capital will be
comparatively large.
4) Length of period of manufacturing – The time which elapses

between the commencement and end of the manufacturing process

has an important bearing upon the requirements of working capital.
The manufacturing cycle may be shorter for certain concerns &
longer for others- it depends on the type of the product to be
manufactured, work to be done through machine labour & hand
labour, degree of rationalization of manufacturing procedures
through times, motion & fatigue studies etc.
 5) Terms of purchase - If suppliers allow continuous credit, payment

can be postponed for some time and can be made out of the sale
proceeds of the goods produced. In such a case, the requirements
of working capital will be reduced.
6) Dynamic Attitudes – As a company grows, it is logical to expect

the large amount of working capital will be required.

7) Business cycles – Requirement of working capital also varies with

the business. When the price level is up due to boom conditions, the
inflationary conditions create demand for more working capital.
During depression also a heavy amount of working capital is
needed due to the inventories being locked unsold and book debts
uncollected.
8) Requirement of cash - The working capital requirements of a

company are also influenced by the amount of cash required by it

for various purposes. The greater the requirement of cash, the
higher will be the working capital needs of the company.
9) Dividend policy of concern – If the management follows a

conservative dividend policy the needs of working capital can be

met with the retained earnings. The relationship between dividend
policy and working capital is well established and mostly companies
declare dividend after a careful study of their cash requirements
10) Other Factors - Other factors, which affect the requirement of
working capital, are lack of co-operation in production and
distribution policies, transport and communication facilities, the
fiscal and tariff policies of the government etc.

COMPONENTS
 Main components of working capital are as follows:

1) Cash – Cash is the most liquid and important component of working

capital. Holding cash involves cash in the sense that the present
worth of cash held for a year is less than the value of cash on today.
During inflationary situations as exist today the cost of holding
includes the deterioration in the value of the cash due to inflation.
Cash, therefore, results in enhanced liquidity, but lower profitability.
Despite in the cost involved it is pertinent to hold cash because it
facilitates the attainment of some important motives.

2) Marketable Securities – Though marketable securities provides a

such lower yield that the firm’s operation assets. They serve two
useful functions. Firstly, they act as a substitute for cash, and
secondly, are used as temporary investment. Where these
securities are held in lieu of the cash balance, they act as a
substitute for transactional or precautionary balances. Normally,
these aren’t used as speculative balances, but only as a guard
against the possible shortage of bank credit.
Marketable securities (as temporary investment) may be held for
one of the following reasons:

• Seasonal or cyclical operations

• To meet known financial requirements. Construction of an
additional plant.
• Immediately after the sale of long-term securities.
3) Account Receivable - Though accounts receivable are a vital

investment of any business organization, little analytical work as

been done to determine credit policies. Maintaining account
receivable has its cost implications in that the firm’s monetary
resources are tied up. This is of greater significance in the
inflationary economy, because of the depreciation in the value of
money. Basically, this is a two-step account. When goods are
shipped, inventories are reduced and accounts receivable is
created. When payment is made, this account is reduced and the
cash level increases. Accounts receivables are, therefore a function
of the volume of credit sales and the average length of time
between sales and collections.

4) Inventory – Inventories represent a substantial amount of a firm’s

current assets. Management of inventories should be efficiently

carried out so that this investment doesn’t become too large, as it
would result in blocked capital which could put to productive use
elsewhere. On the other hand, having too small an inventory could
result in loss of sale or loss of customer goodwill. An optimum level
of inventory should therefore be maintained.

WORKING CAPITAL CYCLE

 Working capital cycle indicates the length of time between a
firm’s paying for materials entering into stock and receiving the cash
from sale of finished goods. In a manufacturing firm, the duration of time
required to complete the sequence of events is called operating cycle.

In case of a manufacturing company, the operating cycle is

the length of time necessary to complete the following cycle of events: -

1) Conversion of cash into raw materials

2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable
5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period
depending upon the nature of the business & type of product etc. the
duration of the operating cycle for the purpose of estimating working
capital is equal to the sum of duration allowed by the suppliers.
Working capital cycle can be expressed as:
R+W+F+D-C
Where R=Raw Material Storage Period = Avg. Stock of
Raw Material / Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in

Progress Inventory /Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of

Finished Goods / Avg. Cost of Goods Sold per day
 D=Debtors Collection Period = Avg. Book
Debts/ Avg. Credit
Sales per day

C=Credit Period Availed = Avg. Trade

Creditors/Avg. Credit Purchases per day

OPERATING CYCLE OF MANUFACTURING BUSINESS

 REALIZATION Accounts SALES
Receivables

Cash Finished
Goods

PURCHASES

PRODUCTION
PRODUCTION
PROCESS
Raw Materials Work-in-Process
PROCESS

THEORTICAL ASPECTS OF WORKING CAPITAL

MANAGEMANT
WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to

profitability, liquidity and risk.
2) It is concerned with the decisions about the composition and level of
current assets.

3) It is concerned with the decisions about the composition and level of

current liabilities.

Policies regarding to Profitability

Liquidity and Risk

Composition of
Composition of Level
Level of Current
of Current Assets
Liabilities

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems

that arise in attempting to manage the current assets, the current
liabilities and the interrelationship that exists between them.
 The term current assets refer to those assets which is the
ordinary course of business can be converted into cash within one year.
Major current assets are cash, marketable securities, accounts
receivable and inventory.

Current liabilities are those liabilities, which are intended, at

their inception, to be paid in the ordinary course of business within a
year, out of the current assets or earnings of the concern. Current
liabilities are accounts payable, bills payable, bank overdraft, and
outstanding expenses.Working capital is that portion of firm’s assets
which is financed by long-term funds.
Interaction between current assets and current liabilities is the main
theme
of the theory of working capital management.
Goal of working capital management is to manage the firm’s
current assets and liabilities in such a way so that a satisfactory
level of working capital is maintained.
The second important segment of working capital management is
deciding the optimum level of investment in various current assets.
There are three important current assets cash, accounts
receivables and inventory

RECEIVABLES MANAGEMENT

INTRODUCTION

The term receivable is defined as “debt owed to the firm by

customers arising from sale of goods or services in the ordinary course
of business”. When a firm makes an ordinary sale of goods or services
and doesn’t receive payment, the firm grants trade credit accounts
receivable, which could be collected in the future.
Receivables Management is also called trade credit management.

OBJECTIVE

The objective of receivables management is “to

promote sales and profits until that point is reached where the return on
investment in further funding receivables is less than the cost of funds
raised to finance that additional credit”.

BENEFITS

Investments in receivables involve both benefits and costs.

The extension of trade credit has a major impact on sales, costs and
profitability. Other things being equal, a relatively liberal policy and,
therefore, higher investments in receivables, will produce larger sales.
However, costs will be higher with liberal policies than with more
stringent measures.
Therefore, accounts receivables management should aim at
a trade-off between profit (benefit) and risk (cost).

CREDIT POLICY

The credit policy of a firm provides the framework to determine:

1) Credit standards
2) Credit terms
3) Credit Analysis
Credit Standard

The term credit standards represent the basic criteria for the
extension of credit to those customers to whom goods could be sold on
credit. If a firm has more slow-paying customers, its investment in
accounts receivables will increase. The firm will also be exposed to
higher risk of default.

Credit Terms
Credit terms specify duration of credit and terms of payment
by customers. Investment in accounts receivables will be high if
customers are allowed extended time period for making payments.

Credit Analysis
Credit analysis and investigation is an aspect of credit
policies of a firm. Two basic steps are involved in the credit investigation
process:
Obtaining credit information
B. Analysis of credit information
It is on the basis of credit analysis that the decisions to grant
credit to a customers as well as the quantum of credit would be taken.
INVENTORY MANAGEMENT
 INTRODUCTION

Inventories constitute the principal item in the working

capital of the majority of trading and industrial companies. In
inventory we include raw materials, finished goods, work-in-progress,
supplies and other accessories. To maintain the continuity in the
operations of business enterprises, a minimum stock of inventory is
required.

Management of inventory is designed to regulate the volume of

investment in goods on hand and the types of goods carried in stock to
meet the needs of production and sales while at the same time, the
investment in them is to be kept at a reasonable level.
 CONCEPT

The inventory management” is used in two ways- Unit

Control and Value Control. Production and purchase officials use this
word in term of unit control whereas in accounting this word is used in
term of value control .Investment in inventory is one the largest asset
item of business enterprises particularly those engaged in
manufacturing.

The proper management and control of the capital invested

in the inventory should be the prime responsibility of accounting
department because resources invested in inventory aren’t earning a
return for the company. Rather, on the other hand, they are costing the
firm money both in terms of capital costs being incurred and loss of
opportunity income that is being foregone.
 OBJECTIVES

The basic managerial objectives of inventory control are

two-
1) The avoidance of over-investment or under-investment in inventories.

2) To provide the right quantity of standard raw material to the

production department at the right time.
 TECHNIQUES OF INVENTORY CONTROL

1) The Selective Inventory Control or ABC System of Control

2) Maximum Stock Limit
3) Minimum Stock Limit
4) Re-ordering Level
5) Economic Order Quantity

ABC System of Control

The various inventory items are, according to this system, categorized

into three classes-
I. A
II. B
III. C

The item included in-group involve the largest investment.

Therefore, inventory control should be the most rigorous and
intensive and the most sophisticated inventory control techniques
should be applied to these items. The C group consists of items of
inventory which involve relatively small investments although the
numbers of items is fairly large. These items deserve minimum
attention. The B group stands midway. It deserves less attention than
A but more than C. It can be controlled by employing less
sophisticated techniques.
Maximum Stock Limit

This represents the quantity if inventory above which it should not be

allowed to be kept. The following formula may be applied to calculate the
maximum stock-

Maximum Stock = Reorder Level – Minimum Consumption

during Minimum Lead Time + Lot Size.

Minimum Stock Limit

This represents the quantity below which stock should not

be allowed to fall. The main purpose of this level is to ensure that
production isn’t held up due to storage of any material.

Minimum Stock Limit = Re-order Level – Normal storage during

Lead Time

Re- Ordering Level

It is the point at which if stock of the material in store

reaches, the storekeeper should initiate the purchase requisition for
fresh supplies of the material. This level is fixed somewhere between the
maximum and minimum levels in such a way that the difference of
quantity of the material between the reordering level and the minimum
level will be sufficient to meet requirements of production upto the time
of fresh supply of the material.

The reorder point = Lead time in days * Average daily usage of

inventory
Economic Order Quantity

It is the quantity of inventory, which can be reasonably

ordered at a time and purchased economically. It is also known as
Standard Order Quantity or Economic Lot Size. By definition “Economic
Order Quantity is that size or order at which the total cost of ordering
and holding are the minimum.

In determining the economic order quantity the problem is

one to set a balance between two opposing costs, namely, namely
ordering costs and carrying costs. The ordering costs are basically the
costs of getting an item into the firm’s inventory.

Carrying costs, sometimes also known as holding costs are

the costs of possessing the materials. These costs are combined known
as “Associated Costs”.

Hence, the management tries to reconcile them and this

reconciliation point is economic order quantity.
OBJECTIVES OF THE STUDY
 To study the various proportions of working capital of HCL
industries.

 To find out different ratios related with working capital.

 To check the impact of cash flows on working capital of HCL

industries.

 To know the current trend of Assets and Liabilities.

 RESEARCH METHODOLOGY

When we talk of research methodology, we not only talk of the research

methods but also the comparison of the logic behind the methods, we
used in this context of our research study and explain why we are using
a particular method or technique and why using the others. Research
methodology is a way to systematically solve the research problem. It
may be understood as a science of studying how research is done
systematically. In this, we study the various steps that are generally
adopted by researcher in studying his research problem along with the
logic behind them.
“The present study is based upon the case study method of research to
investigate procedures at micro level”.
As the study is analyzing probing in nature, thus, entirely based on the
secondary data gathered through the annual reports of the industry.
Therefore it provides a historical perspective of decisions.
ESEARCH

Research refers to search for knowledge. Research is an original

contribution to the existing stock of knowledge making for its
advancement. It is the pursuit of truth with the help of study, observation,
comparison and experiment. In short, the search for knowledge through
objective and systematic method of finding solution of the problem is
research. The advance learner’s dictionary of current English gives the
meaning of research “a careful investigation or inquiry especially through
search for new facts in any branch of knowledge”.

RESEARCH METHODS
Research methods may be understood as those methods/techniques
that are used for conduction of research. All those methods which are
used by the researcher during the course of studying his research
problem, are termed as research methods . Keeping in view, the
research methods can be put into following three groups:
 In the first group we include those methods which are
concerned with the collection of data. These methods will be
used where the data already available are sufficient to arrive
at the required solution.
 The second group consists of those statistical techniques
which are used to establish relationships between the data
and the unknown.
 The third group consists of those methods which are used to
evaluate the accuracy of the obtained results.
COLLECTION OF DATA
There are several ways of collecting the appropriate data which differ
considerably in context of money, cost, time and other sources at the
disposable of the researcher.
There are two types of data:
• Primary data
• Secondary data

Primary data
Primary data are those which are collected afresh and for the first time,
and thus happen to be original in character. In case of descriptive
research, researcher performs survey whether sample survey or census
survey, thus we obtain primary data either through
• Observation
• Direct communication with respondent
• Personal interview

Secondary data
Secondary data are those which have already been collected by
someone else and have already been passed through statistical
process.

In this project report, both types of data have been used. Mainly,
secondary data is used such as annual reports of last two years of HCL
industries.
 METHODS OF WORKING CAPITAL ANALYSIS

There are so many methods for analysis of financial statements but HCL
used the following techniques:-

 Comparative size statements

 Trend analysis
 Cash flow statement
 Ratio analysis
A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:-

When two or more than two years figures are compared to each other
than we called comparative size statements in order to estimate the
future progress of the business,it is necessary to look the past
performance of the company.These statements show the absolute
figures and also show the change from one year to another .

Benefits of this method to the HCL:-

 To indicate the trends,these statements show the change in
production, sales, and expenses.
 To make the data simple and more understandable.

TREND ANALYSIS:-
To analyse many years financial statements HCL uses this method.This
indicates the direction on movement over the long time and help in the
financial statements.
Procedure for calculating trends:-

1. Previous year is taken as a base year.

2. Figures of the base year are taken 100.
3. Trend % are calculated in relation to base year.

Benefits :-

 It is beneficial to find out the long run changes .

 It is helpful in future forecasting.

CASH FLOW STATEMENT:-

Cash flow statements are the statements of changes in the financial

position prepared on the basis of funds defined in cash or cash
equivalents. In short cash flow statement summaries the cash inflows
and outflows of the firm during a particular period of time.

Benefits for the HCL:-

 To prepare the cash budget.

 To compare the cash budgets .
 To show the position of the cash and cash equivalents.

RATIO ANALYSIS:-

Ratio analysis is the process of the determining and presenting the

relationship of the items and group of items in the statements .According
to Batty j. management
accounting “Ratio can assists management in its basics functions of
forecasting ,planning,coordination,control and communication”.

Benefits of ratio analysis to HCL:-

1. Helpful in analysis of financial statements.
2. Helpful in comparitive study.
3. Helpful in locating the weak spots of the HCL.

4. Helpful in forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal standards.
7. Effective control.
8. Study of financial soundness.

Types of ratio:-

 Liquidity ratio: They indicates the firms ability to meet its

current obligation out of current resources.

• Current ratio:- Current assets / Current liabilities

• Quick ratio:- Liquid assets / Current liabilities
Liquid assets =Current assets – Stock -Prepaid expenses

 Leverage or Capital structure ratio: This ratio discloses the

firms ability to meet the interest costs regularly and long term
solvency of the firm.
 • Debt equity ratio:- Long term loans / Shareholders
funds or net
Worth

• Debt to total fund ratio:- Long terms loans/ share holder

funds
+long
term loan

• Proprietary ratio:- Shareholders fund/ shareholders

fund+long
term loan

 Activity ratio or Turnover ratio:- They indicate the rapidity

with which the resources available to the concern are being

used to produce sales.

• Stock turnover ratio:- Cost of good sold/Average stock

( cost of good sold= Net sales/ Gross profit,
Average stock=Opening stock+closing stock/2)

• Debtors turnover ratio:- Net credit sales/ Average

debtors
+Average
B/R

• Average collection period:- Debtors+B/R /Credit sales

perday
 ( Credit sales per day=Net credit sales of the year/365)

• Creditors Turnover Ratio:- Net credit purchases/

Average
Creditors +
Average B/P
• Average Payment Period :- Creditors + B/P/ Credit
purchase
er day

• Fixed Assets Turnover ratio:- Cost of goods sold/Net

fixed

Assets

( Net Fixed Assets = Fixed Assets – depreciation)

• Working Capital Turnover Ratio:- Cost of goods sold/
king Capital
(working capital= current assets – current liability)
Profitability Ratios or Income ratios:- The main objective of
every business concern is to earn profits. A business must be able to
earn adequate profit in relation to the risk and capital invested in it.

• Gross profit ratio:- Gross profit / Net Sales * 100

(Net sales= Sales – Sales return)

• Net profit Ratio:- Net profit / Net sales * 100

 (Operating Net Profit= operating net profit/ Net Sales
*100 or operating Net profit= gross profit – operating
expenses)

• Operating Ratio :- Cost of goods sold + Operating

expenses/
Net Sales *
100
(Cost of goods sold = Net Sales – Gross profit ,
Operating expenses = office & administration expenses +
Selling
& distribution expenses + discount + bad debts + interest
on short
term loans)

• Earning per share(E.P.S.) :- Net Profit – dividend on

preference share / No. of equity shares
• Dividend per share(D.P.S.) :- Dividend paid to equity
share
Holders / No. of equity shares *100.

• Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100

ANALYSIS FOR HCL INDUSTRY

 Current ratio
2009
C.R.=1321.22/969.15=1.36
2010
C.R=1517.69/1266.86=1.20
Comment:
As compared to previous year, current ratio has decreased in
current year because of increase in current liabilities.

 Quick ratio
2009
Q.R.=570.49/969.15=0.59
2010
Q.R.=693.55/1266.86=0.55

Comment:
As compared to previous year, quick ratio has slightly
decreased in current year.
DEBT EQUITY RATIO:-
2009
D.E.R = 1979.67/4982.08
= 0.40
2010
D.E.R = 2951.56/6230.04
= 0.47
 Interest coverage ratio
2009
I.C.R.=1201.90/103.38=11.67 times
2010
I.C.R.=2189.26/111.84=19.57 times

Comment:
Interest coverage ratio is increasing as compared to previous
year. This indicates that the firm will be able to pay the interest on
long term loans regularly.

 Fixed assets turnover ratio

2009
F.A.T.R.=5159/3004.63=1.72 times
2010
F.A.T.R.=6097/3390.44=1.80 times
 Comment:
• This ratio reveals how efficiently the fixed assets are
being utilized. As compared to previous year, this ratio is
increasing which indicates that there is better utilization of
fixed assets.
• DEBT TO TOTAL FUND RATIO:-
2009
D.T.F.R. =1979.67/6961.75
= 0.28 or 28.0%
2010
D.T.F.R.= 2951.56/9181.60
= .32 or32.0%
• PROPRIETARY RATIO:-
2009
P.R.= 4982.08/6961.75
= 0.71 or 71.0%
2010
P.R.= 6230.04/9181.60
= 0.67 or 67.0%
 Capital turnover ratio
2009
C.T.R.=5159/3356.70=1.54 times
2010
C.T.R.=6097/3641.27=1.67 times

Comment:
This ratio reveals how efficiently capital employed is being
used. As compared to previous year, this ratio is increasing which
indicates that there is better use of capital employed.
 Working capital turnover ratio
2009
W.C.T.R.=5159/352.07=14.65 times
2010
W.C.T.R.=6097/250.83=24.3 times
Comment:
 This ratio reveals how efficiently working capital has been
utilized in making sales. As compared to previous year, this ratio is
increasing which indicates the efficient use of working capital.

 Stock turnover ratio

2009
S.T.R.=5159/715=7.22 times
2010
S.T.R.=6097/784.44=7.77 times
Comment:
This ratio indicates whether stock has been efficiently used or not.
As compared to previous year, there is a slight increase in this ratio
• GROSS PROFIT RATIO:-
2009
G.P.R.= 1494/6621*100
= 22.56%
2010
G.P.R.=2507/8604*100
= 29.14%
• NET PROFIT RATIO:-
2009
N.P.R.=1202/6621*100
= 18.15%
2010
N.P.R.=2189/8604*100
= 25.44%
• OPERATING NET PROFIT RATIO:-
2009
O.N.P.R.= 1590.9/6621*100
= 24.02%
2010
O.N.P.R.=2619/8604*100
 = 30.44%
• EARNING PER SHARE:-
2009
E.P.S.= 8630000000/91808510
= RS. 94
2010
E.P.S.= 15360000000/91428571
= RS.168
• DIVIDEND PER SHARE:-
2009
D.P.S.=1836176200/91808510
= RS.20
2010
D.P.S.=2514285703/91428571
=RS.27.5
• DIVIDEND PAYOUT RATIO:-
2009
D.P.R.=20/94*100
= 22.0%
2010
D.P.R.=27.5/168*100
=17.0%

Proportion of various sources of working capital in

percentage:

Current assests, loans and advances:

  Interest accured on investments
2009
1.46/2026.76*100=0.07%
2010
0.70/2342.39*100=0.02%

 Inventories
2009
750.73/2026.76*100=37.04%
2010
824.14/2342.39*100=35.18%

 Sundry debtors
2009
413.45/2026.76*100=20.39%
2010
576.48/2342.39*100=24.64%

 Cash and bank balances

2009
155.58/2026.76*100=7.67%
2010
116.38/2342.39*100=4.96%

 Loans and advances

2009
705.54/2026.76*100=34.83%
2010
824.69/2342.39*100=35.20%

Current liabilities and provisions:

 Current liabilities
2009
969.15/1273.37*100=76.10%
2010
1266/1450.06*100=87.36%

 Provisions
 2009
304.22/1273.37*100=23.90%
2010
183.20/1450.06*100=12.63%

COMPARATIVE P&L ACCOUNT

(For the year 2009-10)

(Rs. in
Crores)
 FY010 FY07 %change
Net turnover 14,095.2 10,224.0 38
Other income 317.7 267.9 19
Total expenditure 10,122.8 8,155.3 24
Operating 4,290.1 2336.6 84
profit(PBIDT)
Interest 228.6 218.3 5
Depreciation 610.0 563.1 8
Exceptional Items - 4.1 -

Profit before tax 3,451.5 1,559.3 121

Total tax expenses 1,092.1 402.7 171
Net Profit after Total 2,359.4 1,156.6 104
Tax
Minority share 391.9 116.0 238
Net profit 1,967.5 1,040.6 89

Trend Analysis
(For liability side of 2009-10)
(Rs. in
Crores)
Particulars 2010 2009 Base Current
Trend % Trend %

Current Liability
Liability 1,266.86 969.15 100 130.73
 Provisions 183.20 304.22 100 60.21
Total(A) 1,450.06 1,273.37 100 113.87

Fixed Liability
Share Capital 91.69 91.69 100 100
Reserves & 6,138.35 4,890.39 100 125.5
surplus
Loans 2,951.56 1,979.67 100 149.09
Def. Tax liability 582.55 584.38 100 99.68
Total(B) 9,764.15 7,546.13 100 129.39

Total 11,214.21 8,819.50 100 127.15

liability(A+B)

TREND ANALYSIS
(For assets side of 2009-10)

(Rs. in
Crores)
Particulars 2010 2009 Base Current
Trend Trend %
%
 Fixed Assets
Fixed Assets 4,582.79 3,298.27 100 138.94
Fixed assets held 14.33 12.76 100 112.30
for disposable
Investments 4,274.70 3,481.71 100 122.79
Total(A) 8,871.82 6,792.74 100 130.60

Current Assets
Stock 824.14 750.7 100 109.77
3
Interest Accrued .70 1.46 100 47.94
Debtors 576.48 413.45 100 139.43
Cash 116.38 155.58 100 74.80
Loans 824.69 705.54 100 116.88
Total(B) 2,342.39 2,026.76 100 115.59

Total 11,214.21 8,819.50 100 127.15

Assets(A+B)

CASH FLOW ANALYSIS

(For 2009-10)
(
Rs in Crores)
FY07 FY06
SOURCES OF CASH
Cash from operations(net of taxes) 1816.0 1077.1
Increase in debts 947.6 --
Non operating cash flow 114.0 67.1
Decrease in cash and cash equivalent 39.2 --
Decrease in working capital -- 205.2
2916.8 1349.4
Uses of cash
Net increase in investments 647.1 549.2
Net capital expenditure 1598.2 399.5
Decrease in debts -- 53.3
Increase in working capital 83.3 --
Interest 109.4 112.7
Dividend 478.8 165.8
Increase in cash and cash equivalent -- 68.9
2916.8 1349.4

CASH FLOW STATEMENT

(For year 2009-10)
Interest received (322.8) (255.21)
Net Cash from / (used (301.75) (231.24)
in) investing activities
Cash flow from 19.71 5.65
financing activities
Proceeds from (75.41) (792.83)
borrowings
Repayments of 666.13 53.64
borrowings
Interest paid (1294.15) 24.74
Dividends paid 3.37 1.79
Corporate dividend tax 74.29 55.28
Dividend received 39.37 86.32
Net cash from / (used (868.44) (796.65)
in) financing activities
net increase/decrease (140.78) 117.37
in cash & cash
equivalent
At Beginning of year 227.48 110.11
At end of year 86.7 227.48
Dividend received(Net)

(PROFIT & LOSS A/C)

(For 2009-10)
 (Rs. in Crores)
2010 2009

INCOME
Gross sales 9,607.97 7,638.41
Less: Excise duty 986.29 985.80
Net sales 8,603.59 6,652.61
Interest & dividend 113.27 67.53
Income
Other income 168.49 152.41
Increase/Decrease in (16.44) (43.48)
stock
8,868.91 6,829.07
EXPENDITURE
Raw material 2,219.32 1,822.69
consumed
Manufacturing 1,744.33 1,580.34
expenses
Purchases of finished 321.16 240.15
&other products
Payments to 459.40 407.64
&provisions for
employees
Selling, distribution, 1,505.69 1,181.33
administration &other
expenses
Interest 111.84 103.38
Depreciation 317.91 291.64
6,679.65 5,627.17
Profit before tax and 2,189.26 1,201.90
exceptional items
Surplus on pre- - 4.13
payment of sales tax
loan
Write back of 37.10 -
provision for
diminution
Profit before tax 2,226.36 1,206.03
Provision for current (692.38) (369.82)
tax
Deferred tax 1.83 27.00
Profit after tax 1,535.81 863.21
Debenture redemption 38.56 8.62
reserve no longer
required
0.05 0.25
Investment allowance
reserve no longer
required
Balance brought
forward from previous 878.37 815.35
year

2,452.79 1,687.43
Profit available for
appropriation
Appropriations:

Interim dividend 252.10 -

Proposed dividend - 183.35
Corporate dividend 35.36 25.41
tax
General reserve 1200.00 600.00
Balance carried to 965.33 878.37
balance sheet
2,452.79 1,687.43
 ALANCE SHEET
(For year 2009-10)
(Rs Crore) FY (2009-10) FY (2008-09)

SOURCES OF FUNDS
SHARE HOLDERS
FUND
share capital 91.69 91.69
Reserves and Surplus 6,138.35 4,890.39
Loan funds
Secured Loans 2,291.00 1,386.12
Unsecured Loans 660.56 593.55
2,951.56 1,979.67
Deferred tax liabilities 582.55 584.38
TOTAL 9,764.15 7,546.13
APPLICATIONS OF
FUNDS
Fixed assets
Gross Block 6,770.97 6,114.12
Less: Depreciation 3,380.53 3,109.49
Net Block 3,390.44 3,004.63
Capital Work-in- 1,192.35 293.64
Progress
4,582.79 3,298.27
Fixed Assets held for 14.33 12.76
disposal
Investments 4,274.70 3,481.71
Current assets, loans
& advances
Interest accrued on 0.70 1.46
Investments
Inventories 824.14 750.73
Sundry Debtors 576.48 413.45
Cash and Bank 116.38 155.58
Balances
Loans and Advances 824.69 705.54
2,342.39 2,026.76
Less:

Current liabilities &

provisions
Liabilities 1,266.86 969.15
Provisions 183.20 304.22
1,450.06 1,273.37
Net Current Assets 892.33 753.39
TOTAL 9,764.15 7,546.13
 CONCLUSIONS

• In 2010 there is increase in current assets by 24%

than 2009 and there is increase in current liability
by 17%, because of greater increase in current
assets than in current liabilities, the position of
Working capital has improved.
• The % of Fixed Assets has come down in 2010
from 2009.
• As per current ratio firm is able to pay its current
liability.
• Quick ratio presents a better test of short term
financial position, which shows better working capital
position of firm.
• Debt equity ratio and debt to total fund ratio
presents protection to long term lenders and shows
sufficient working capital in the firm.
• G.P. and N.P. have increased from previous year.
• Cash flow statement indicates outflow of cash in
comparison to past year.
• Due to better long term and short term financial
condition firm’s working capital position is better than that
of previous year.
 LIMITATIONS

• Based on financial statements these statements suffer

from certain limitations.
• Affected by window dressing.
• Company provides only secondary data, so certain type of
bias is in study.
• Unsuitable for forecasting.
 BIBLIOGRAPHY

 Financial Management
By M.Y. Khan & P.K. Jain
 Financial Management
By D. K. Goyal
 Annual Reports of HCL Industries Ltd.
2008-09
2009-10
 www.hcl.com
 www.google.co.in