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CHAPTER-1 INTRODUCTION

INTRODUCTION
Working Capital is essential for the day-to-day operations of a business, and hence it is the life-blood of any business. The basic theme of working capital management is to provide adequate support for smooth and efficient functioning of normal day-to-day business operations by striking a trade-off between the three dimensions of working capital, i.e., liquidity, profitability and risk. In the present environment of cut-throat competition, business does not have any other option than cutting the cost of its operations in order to be competitive as well as financially healthy. It is in this connection that effective management of working capital plays a vital role. But a great deal of controversy exists over the issue as to whether the working capital of a firm, as determined by its financing and investment decisions, affects its profitability or not. They argue that inadequacy of working capital keeps fixed assets incorporative. Obviously, a large number of considerations play a vital role in the development of arguments and counter arguments in this regard. Against the backdrop of this academic debate, an attempt has been made in this study to evaluate this interrelationship between working capital management and profitability of 8 years data to analyze the Indian Construction Sector during the period from 2001-2008. The importance of working capital in any industry needs no special emphasis. Working capital refers to that portion of total fund, which finances the day-to-day working expenses during the operating cycle. Management of working is one of the most important functions of corporate management. The efficient working capital management is the most crucial factor in maintaining liquidity and profitability of the concerned business organization.

Profitability:Profitability has been defines as ability to earn profit. It is measured in relative terms of either size, past years. The most commonly used measure of profitability is in terms of size that is profit or loss divided by total assets. Sometimes profitability is measured by taking profit of two years to judge the more profitable year. In peer terms the profitability is measured by comparing the profits of two firms in the same industry. Profitability has been an important criterion to evaluate the overall efficiency of firm operations. Being a relative measure, it is devoid of the pitfalls associated with interpretation of term profit. Even if one ignores the past year or peer aspect of measuring profitability. It is still the best indicator of efficiency of banking operations. The concept of profitability is used and interpreted the same way both in a business firm and a banking company. Profitability in banking parlance denotes the efficiency with which a bank deploys its total resources to optimize its profit and thus serves an index of assets utilization and managerial effectiveness. The relationship of profitability with macro dimensions of solvency and liquidity has been that of risk return trade-off the more risk a bank is willing to take in terms of less solvency and/ or low liquidity. The more return it is able to earn. In other words, there is a direct inverse relationship between profitability and solvency/liquidity. An increased level of solvency means low leverage, low risk and consequently low profitability. In the same way high liquidity increases interest burden (if purchased) or decreases earning ability (if stored), reduces risk and profitability becomes low. The term total assets has been used instead of working fund. As working fund is equal to total assets/liabilities minus contra items, there is no difference between the two terms. Two important variables, viz working fund and total income which are indicative of size, have therefore been used to obtain relative values for these variables and also to purge the effect of size factor. Thus, spread, burden and their four components have been divided by working fund and total income respectively thereby giving 12 ratios for analysis.

The rationale behind using working fund and total income is that income is related to income generating capacity. Both the criteria are independent and are guided by deposit mix, loan portfolio, share of earning assets etc., for example, a large company may have small amount of total income in comparison to its size, that is working fund due to large proportion of no-performing assets and also vice versa. In spread divided by working fund is actually net interest margin while burden has been divided by working fund to indicate efficiency of non-banking activities. Alternatively, these two variables have also been divided by total income to measure their contribution to total revenue, in the last stage, these two variables have been factored into their sub-components and their relative contributions in terms of size and total revenue have been measured by calculating eight ratios. The multiplier, spread and burden variables are by nature independent, as they are guided by capital structure, interest rates on deposits and advances, non-banking activities and functional efficiency. While the multiplier, spread and burden ratios are the established old ratios and as such do not require elaborate explanation. Interest comprises of interest/discount on advance/bills/income on investments, interest on balances with RBI and others. It indicates interest earnings capacity of a bank and is directly related to quality and size of loan portfolio and investment. A part from these; it is also influenced by fund management policy, liquidity perception and reputation of bank. On the other hand, interest expended reflects the costs incurred by the bank keeping deposits and procuring borrowings. It includes interest paid on deposits, interest paid on RBI/ Inter-bank borrowings and others. followed (purchased or stored). The important liquidity practices

NEED FOR THE STUDY


Working capital management is about management of current assets and current liabilities in such a way that a satisfactory level of working capital, which maximizes the profits of the firm, is maintained. Inadequacy of working capital may lead the firm to insolvency, whereas excessive working capital implies idle funds which earn no profits. Therefore efficient management of working capital is an integral part of the overall corporate strategy to improve corporate profitability. But in reality, controversy persists on the issue whether the working capital of the firm affects its profitability or not. The issue has been tackled using relevant statistical tools and techniques.

OBJECTIVES OF THE STUDY


To determine the working capital requirements of the Tecumseh Products India Ltd. To know the liquidity and profitability position of the company. To assess the influence of the working capital on profitability by computing Karl Pearson's simple correlation coefficient.

SCOPE OF THE STUDY


The study in an attempt to make appraisal of working capital of the company. The study of the company has been undertaken certain objectives by lighting the features, functions, and working capital as well as statuary regulations governing the company. To access the impact of working capital and profitability of the company. To combined effect of the ratios relating to working capital management of the company. To know the working capital requirements, to compare the profitability position of the company.

LIMITATIONS OF THE STUDY


The information used is taken from historical annual reports available. The secondary data is used for calculations.

Chapter-2

Research Methodology
Definition:
Procedures used in making systematic observations or otherwise obtaining data, evidence, or information as part of a research project or study 1. Is being undertaken within a framework of a set of philosophies (approaches); 2. Uses procedures, methods and techniques that have been tested for their Validity and reliability; 3. Is designed to be unbiased and objective. Philosophies means approaches e.g. qualitative, quantitative and the academic Discipline in which you have been trained. Validity means that correct procedures have been applied to find answers to a Question. Reliability refers to the quality of a measurement procedure that provides Repeatability and accuracy. Unbiased and objective means that you have taken each step in an unbiased Manner and drawn each conclusion to the best of your ability and without Introducing your own vested interest.

Meaning:
The basic concept of research methodology refers to the way in which companies conduct their research and how they collect the data they need. Whenever a company or organization needs to investigate a particular area of their business dealings, they need to adapt the most suitable research methodology for thejob. Research methodology typically involves a full breakdown of all the options that have been chosen by a company in order to investigate
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something. This would include the procedures and techniques used to perform the research; as well as any of the terminology and explanations of how these methods will be appliedeffectively.

A company may need to decide what format of research they want to use before the investigation begins. For example, if a company that sells a particular product needs to launch research to find out how effective or desirable a new product is, they will need to conduct what is known as primary research. This method means that the company will collect data and information themselves first hand.

Primary data:
Primary data is gathered for a specific purpose. for example a company might a specific own customers directly to find out more about their buying habits, Primary data means data you get by yourself through experiment or other ways. Primary data is collect information.

Secondary data
The data collected by someone other than the user. Common sources of secondary data for social science include censuses, surveys, organizational records and data collected through qualitative methodologies or qualitative research. Primary data, by contrast, are collected by the investigator conducting the research. Secondary data analysis saves time that would otherwise be spent collecting data and, particularly in the case of quantitative data, provides larger and higher-quality databases than would be unfeasible for any individual researcher to collect on their own. In addition to that, analysts of social and economic change consider secondary data essential, since it is
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impossible to conduct a new survey that can adequately capture past change and/or developments.

Hypothesis
Hypothesis testing means subjecting a hypothesis to an appropriate empirical scrutiny and statistical test to determine its validity. A researcher has to do a number of things as pre requirements for testing a hypothesis. Hypothesis testing is two types that are

1)

Null hypothesis (Ho): A type of hypothesis used in statistics that proposes that no statistical significance exists in a set of given observations. The null hypothesis attempts to show that no variation exists between variables, or that a single variable is no different than zero. It is presumed to be true until statistical evidence nullifies it for an alternative hypothesis.

2)

Alternative hypothesis (Ha): Alternative hypothesis is the "hypothesis that the restriction or set of restrictions to be tested does NOT hold." Often denoted H1. Epidemiology A hypothesis to be adopted if a null hypothesis proves implausible, where exposure is linked to disease. See Hypothesis testing.

The null hypothesis is specifically formulated for testing for possible rejection or nullification. Hence the name null hypothesis. It is accompanied by an alternative hypothesis.

Tools of analysis
T test:
The t-test was developed by W.S. Gosset around 1915. Since he published his finding under a pen name student,it is known as students ttest. It is suitable for testing the significance of a sample mean or for judging the significance of difference between the means of two samples, when the samples are less than 30 in number and when the population variance is not known. When two samples are related, the paired t-test is used. The t-test can also be used for testing the significance of the coefficients of simple and partial correlations. Formula :

chi-square test :
It is used to make comparisons between two or more nominal variables. Unlike the other tests of significance, the chi-square is used to make comparisons between frequencies rather than between mean scores. Formula

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CHAPTER-3 COMPANY PROFILE

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COMPANY PROFILE TECUMSEH INDIA PRODUCTS COMPANY


Tecumseh Products Company started in 1930 when Ray W. Herrick opened the Hillsdale machine and tool company of Hillsdale Michigan. A farmer employee of ford motor company, Ray Herrick initially produced parts for automobiles as well as electric refrigerator components, small towns 60 miles south west of Detroit, and Ray Herrick renamed is company after his home town. In 1937 the company went public with an offering of 25000 shares. Tecumseh means crouching panther derived from chief of the Shawnee Tribe (1768-1813), it was not in the automobile, industry, but in the burgeoning new refrigeration industry. By 1939, Tecumseh turned out 1,60,000 compressors a year for mechanical refrigerators. After world war 2nd Tecumseh resumed manufacturing compressors, expanding its products base to include compressors for window air conditioners in 1847. In the 1950s the company acquired two Wisconsin based small engine manufactures. Lauson engine and power products. The addition of these two companies made Tecumseh an important presence in the expanding outdoor power equipment industry. Today Tecumseh has over 30 principal location producing compressors, engines and pumps worldwide, with facilities in Brazil, Canada, Czech Republic, France, India and U.S. The company sells compressors in four major segments: Household refrigerators and freezers Room air conditioners Commercial and residential unitary freezers, dehumidifiers, water coolers

and welding machines.

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The company sells compressors to original equipment manufacturers and cool products distributors in the United States, as well as distributors around the globe. Tecumseh Products Company continues to invite money and resources in order to develop new improved products. The head quarters engineering department plays an important role as the technology center of the Tecumseh group companies and entails various testing and facilities for the purpose. The test facilities include calorimeter, locked rotor, application testing, endurance testing, development/production sample, sound testing, etc. In the room of development/production samples, they work on sample of new production compressors net yet released for production, such as scroll and advanced reciprocating design.

FORMATION OF TPIPL IN INDIA


Tecumseh India Products Limited (TIPL) or the company was incorporated in New Delhi, India with limited Liability on January 30, 1997. TPIL is principally promoted on behalf of Tecumseh produce company, USA (TPC) and its nominees hold its share. Tecumseh products India limited (TIPL0, another wholly owned subsidiary of TPC (through its subsidiary TPC, Mauritius), incorporated on January 29,1996 in New Delhi, India and engaged in the manufacture of compressors for air conditioning equipment was amalgamated with TPIPL with effect from april1,1998.In accordance with the scheme of amalgamation, these name of the amalgamation company was changed to Tecumseh products India private ltd (TPIPL). Subsequently, on an application made by TPIPL, a fresh certificate of incorporation changing its name to Tecumseh product India ltd, was, effective october21, 1999.

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MANIFACTURING UNITS LOCATED IN INDIA

In Andhra Pradesh AT Hyderabad, In Haryana at ballabgarh.

REGIONAL SALES OFFICES


Delhi Mumbai Kolkata Chennai

BRANCH OFFICES
Balanagar Ahmadabad

Tecumseh India is a part of the us$2 billion cooling giant, Tecumseh product company (TPC), and the worlds largest independent compressor manufacturer. TPC has 29 manufacturing locations in 4 continents and its products are available in over 100 countries. Tecumseh India came into existence in July 1997 with the acquisition of Siel compressors ltd at Hyderabad. Today, just after coming into its own, Tecumseh India has established its presence as the NO 1 compressor manufacturer in the country.

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Tecumseh caters to the entire spectrum of cooling needs, with a range of high performance compressors used in all air conditioners, refrigerators, bottle coolers etc. The products port folio of the company can be broadly categorized. Compressor for air conditioners. Compressor for refrigerators. Commercial compressors for refrigeration appliances Commercial compressors for air conditioners.

History of the Hyderabad unit of tpipl


Usha refrigeration industry ltd started in 1963. Uril manufactured compressors for water cooler, air conditioners and air coolers. Lala charath ramji who was from a renowned industrial family of DCM and coromandal group of companies started URIL. In 1970 the URIL was changed to shriram refrigerators ltd., and the business was diversified towards manufacturing of diesel engines and water coolers. Shriram industries played a great role in the field and captured more than 50%of the market share in India. Shriram industries also kept its hand in international trade and were successful in exporting their products to the neighboring countries, Nepal and Bangladesh. Siel compressors were the first Indian company to manufacture compressors. We sting house stopped manufacturing compressors and siel went into technological collaboration with Tecumseh products company usa in 1988. Tecumseh means crouching panther derived from chief of the Shawnee tribe (1768-1813), it started its operations to offer new state of mi aw series to Indian customers. Subsequently Tecumseh Products Company took over siel group in a997 and siel group became 100%subsudiary of Tecumseh Products Company. As doom as Tecumseh too over the company it stopped manufacturing water cooler. And restricted its production to CFC/hermetically sealed compressors.

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Tecumseh products company invested $80 billion in Indian operation known as Tecumseh products India products private ltd(TPIPL). TPIPL has two stated of art manufacturing facilities at Hyderabad. Andhra Pradesh, and ballabgarh, Haryana, with a CADAM center. At the Hyderabad plant to meet global engineering needs. TPIPL has gained core expertise in research and development, AW assembly and AW machine shops such that it acquires a lions share of Indian compressor markets by gaining a50% share.

Profile of the Hyderabad unit of TIPIPL


Tecumseh products India private ltd is an ISO 14001 and 9001 certified, American based multi-national company, which has core expertise in manufacturing hermetically, sealed compressors. Tecumseh India is a 100% subsidiary to Tecumseh products company (TPC) USA, which is the world only full line, independence manufacturing locations in 4 continents. In India the company has 20 sales officers and executive network or over 200 dealers and more than 600 registered small scale manufacturers. Tecumseh India is the preferred supplier to whos of the AC&R industry in India and in the Middle East, SAARC countries. The company was originally established and registered in 1963 under the name of usha refrigeration industries ltd (URIL). The Hyderabad plant is on a sprawling 54-acre land at the balanagar industries belt 151m away from Hyderabad city on the high way line going towards HMT ltd narsapur road. At Hyderabad plant TPIL manufactures air conditioners, from 1200 BTU and compressors for deep freezers, bottle coolers and water coolers which are considered to be worlds no:1in the 150 million compressors market a year. Hyderabad plant has a capacity of manufacturing more than 3000 units per day. The Hyderabad plant has six regional offices among which four offices are the metro cities. Mumbai, Kolkata, Ahmadabad and Chennai and the remaining two are at Ahmadabad and secunderabad. Beside these there are office and depots located in prime cities across the country.

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The Hyderabad plant also has network of about 177 dealer across the nation and are preferred supplier to key original equipments manufacturers (OEMs) like LG, Voltas blue star, godrej, Videocon, feeders, matrix Hitachi etc. TPIPL Hyderabad plant was successful in the ISO 9001certification for manufacturing quality of the compressors in 1994. For the eco friendly environment maintenance the company has got ISO 14001certification.

BALLABGARH PLANT
At Ballagarh, Haryana TPIPL has invested Rs 200 corers for manufacturing of non -cfc compressors. The Ballagarh plant is one of the best compressors manufacturing unit in Asia. The plant is extended on 21-acres land on the Delhi Mathura national high way. The plant has a capacity to manufacture 25000 units per month. Compressors for registration applications came from our most advanced, ozone friendly plant at BALLAGARH, HARYANA. The management has started development activities in the following areas:
Effluent treatment of plant.

Tree plantation Rain water harvesting is to increase the ground water level and TPIPL has the distinction of being the first organization in the record. Vermin culture is the process of utilizing the canteen food wastage for converting into natural manner.

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PHILOSOPHIES:
Tecumseh encourages its employees to following these philosophies, which is the Japanese way of working.

1. SERIES (sorting out):

Look around your work area and ask your self is it really necessary for all items

to bee there?
Separate item OK re-workable and rejected items. Re work the re-workable items and dispose of the rejected items.

2. SEITION (systematic arrangement):

Item must be placed in pre fixed locations so that they are accessible and can be easily. Used.
Item should be clearly identified by labeling them properly.

3. SEISO (spic and span):

Clean the work place yourself.

Clean all the equipment including tables etc. yourself.

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4. SEIKETSO (serene atmosphere):


A clean work place properly selected and with proper arrangement will soon become. Dirty if SEIRI, SEITON and SEISO are not practiced regularly.
To achieve serene atmosphere the three steps of SEIRI, SEITON and SEISO

should be continuously repeated. We should keep our area of work neat and clean including your own attire.

5. SHITSHUKE (stick to self discipline):

Follow rules and regulation strict

Adhere to timing and respect time Conform to standards while working Follow the prescribed operational standards
The company pays an incentive of Rs 75 per month to its employee for following

these.

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ADVANTAGES OF 5S:
By thoroughly enforcing 5-8 in each work area.
Operations can be performed without error proceeding in, well regulated fashion,

resulting in fewer defective items. There by increasing the overall quality of the product.
Operations can be performed safely and comfortably, reducing the chance of

accidents.
Machinery and equipment can be carefully maintained, reducing the no of

breakdowns.
Operations can be performed efficiently, eliminating waste there by increasing the

efficiency and productivity.

HOW TO ACHIEVE 5S:

Every employee can achieve5-s easily by having a close look at his work place. He is to ensure that. No rejected/unwanted items are lying at his work place. All items are kept in proper locations/order. Everybody should co-operative in keeping his and others area and the work. Machines clean. Follow the rules and regulations and maintain required standards.

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VISION AND MISION: VISION

It is our goal to be the global leader in all of the markets in which we choose to participate. We will peruse disruptive technologies to re-define our products.

MISSION

We will leverage our global expertise in mechanical, electrical fluid handling,

related components and services to provide comprehensive solutions for our costumers needs-compressors, engines, electric motors, pumps, electronics, and controls. We will be best in class and most effective producer by utilizing the principles of TQM, 6sigma and lean. Our organization will modify itself in response to change in environment at a pace and amount of change that can be made without eliminating or impending our ongoing effectiveness.
Inclusive, continues strategy thinking will communicated and shared by the

organization.

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Products and services:


With a widely used of reciprocating, rotary and scroll compressors for varied applications, Tecumseh caters to the entire spectrum of cooling needs for airconditioning, refrigerators, and commercial refrigeration applications. The superior technology build into compressors ensures that they operate with energy efficiency and at low noise levels. Compressors manufactured in India are trivialized to suit the exacting Indian conditions. Which means that they with stand voltage fluctuations and perform well even under extreme weather conditions. The range includes the energy efficient AW series, super silent AWQ series and the study, reliable and eco-friendly MLA series of compressors.

PRODUCT RANGE:

1. Refrigerators compressors. 2. Commercial refrigeration compressors. 3. Commercial air-conditioning compressors.


4. Air-conditioning compressors.

5. Condensing units.

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TECUNSEH
IMPORTANT EVENTS:

1998

TECUMSEH FULLY ACQUIRED


SRIRAM, HYDERABAD WHIRLPOOLS COMPRESSOR
Facility at Faridabad, ballabgarh.

1999 Development of plant in ballabgarh. 2000


Amalgamation with TIPL.

2001
Voluntary retirement scheme.

Industrial unrest and lock out in the first half of the year.
Export obligations not met during the year & high foreign outgo.

Obligations met towards customers by importing finished goods and selling loss. 2002
Setting up of the CADAM center.

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2003
Setting up of a 100% EOU for export of compressors and its parts. Expansion in installed capacity at the Hyderabad plant. Total foreign outgo reduced drastically. Improvement in the market for compressor as a result of an improvement in

market for air conditioners and refrigerators. 2004

This year exports showed a growth of three times over previous years in volumes.
AW capacity expansion program.

Company has launched two new commercial models of MLA sense country wide competition among the engineering industries.
Won the GREENTECH environment excellence silver award in the

countrywide competition among the engineering industries. 2005

Tecumseh compressors for chain.

Tecumseh posts 84% raise in the exports earnings.


Tecumseh India to set up rotary compressors unit.

2006
Won the GREENTECH environment award in the countrywide competition

among the engineering industry. 24

AWARDS AND RECOGNITION

HYDERABAD plant was awarded the commendation in safety, health & SHE

conducted by CII Chennai.


Hyderabad plant achieves the GREENTECH ENVIRONMENT EXCELLENCE

GOLD AWARD in the countrywide competition among the engineering achievement in environment management.

DEPARTMENTS
Human resource department. Accounts departments.
Attendance and pay office (A&PO). Export oriented unit (EOU).

Research and development(R&D)


Maintenance and engineering department. Quality development Aw assembly. AW press shop. Aw machine shop.

Service center. Dispensary. Chemical and technological laboratories.


TPIPL Hyderabad has a total of 766 permanent employees.

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TPIPLS KEY BUSINESS OBJECTIVE:

Set the world industry standards of excellence of customer. Satisfaction achieves total quality. To attain and surpass global quality and reliability standards for our products. Maintain clear technology leadership. Market share leadership with focus on customer needs. Meet business and financial commitments.

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COMPETITOR ANALYSIS

In India TPIPL has four main competitors viz., Kirloskar, Voltas, blue star and carrier air conditions ltd. TPIPL is the market leader with an overall 50% market share impressed in terms of value. In these segments of air condition compressor, it has still competitions with kirloskar Copeland. The other manufacturers i.e. carrier air con blue star and Voltas are manufacturing compressor mostly for their indigenous use as they are in their air condition markers and refrigerators market. Carrier air con is looking for divestment of their compressor division as of their comeback strategy they have been on downslides since 1999 it has also listed its shares during their period. Tecumseh refrigerators and air condition products have concerned a large chunk of the Indian markets as its clients includes most of the OEMs Tecumseh has a 40% of markets share of the domestic and 30% of the refrigerator compressor markets. Kirloskar is 51:49 joint ventures between kirloskar brother and US based Copeland Corporation, global competitors of TPIPL, USA. Joint Venture Company was incorporation, on 19 march 1993. The joint venture company took over the compressors manufacturing and sells business of hermetic compressor division at karad and atilt of kirloskar brother ltd from 1 April 1993. Kirloskar brother ltd started production of hermetic compressor way back in 1996, at kirloskar wadi. It was then with a technical collaboration with TPC USA, which had not yet entered India. Kirloskar Copeland as a part of their strategy to increase their sales have started manufacturing of condensers, which are mainly used in dairies, cold storage, industrial chillers and water coolers. The estimated market size is India being Rs 25 crores.

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CHAPTER-4 DATA ANALYSIS & INTERPERTATIO N


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4.1. TOOLS OF ANALYSIS


WORKING CAPITAL MANAGEMENT: Current Ratio: - current ratio is the ratio b/w current assets and current liabilities. The firm is said to the comfortable in its liquidity position if the current ratio is 2:1. Current assets Current Ratio = Current liabilities Inventory turnover ratio: -It is also called stock turnover ratio. It indicates the number of times the average stock is being sold during a given accounting period. Cost of goods sold Inventory turnover ratio = Average inventory Debtors Turnover Ratio: - Debtors turnover ratio reveals the no. of times the average debtors are collected during a given accounting period. In other words, it shows how quickly the firm is in a position to collects its debts. Credit sales Debtors Turnover Ratio = Average debtors Net Working Capital Ratio: - It refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to

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mature for payment with in an accounting year and include creditors (account payable), bills payable and outstanding expenses. Working Capital Ratio = Current Assets Current Liabilities

Working Capital Turnover Ratio: - Working capital turnover ratio establishes a relationship between net sales and working capital. This ratio measures the efficiency of utilization of working capital. Cost of goods sold Working Capital Turnover Ratio =-------------------------------Net Working Capital

PROFITABILITY RATIO: Return on Capital Employed: -This is widely used ratio. It shows whether the funds entrusted to the management have been properly used or not. ROCE is calculated as given below. PAT Return on Capital Employed = ------------------------x100 Capital employed

Profit before Interest & Tax Margin: Profit before interest and tax margin ratio is the ratio between PBIT and Sales. PBIT Profit before Interest & Tax Margin =--------------X100 Sales

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CORRELATION: Coefficient of correlation is independent of change of scale and origin of the variable X and Y. By change of origin we mean subtracting some constant from every given value of x and y by change of scale. We can divide or multiply every value of x and y by some constant.
r = ( x x) ( y y ) ( ( x x) y y )
2

TREND ANALYSIS: The method of least squares may be used either to fit a straight line trend is represented by the equation Yc = a+bx In order to determine the values of the constants a and b the following to normal equations are to be solved. Y = Na+bX XY = aX +b X2

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4.2. WORKING CAPITAL MANAGEMENT


4.2.1.1. CURRENT RATIO (CR): Current Assets Current Ratio = ----------------------------Current Liabilities Table 4.2.1.1: Calculation of CR

(Rs. In thousands) Current Liabilities 1155154 1359165 1472238 1586074 1335586 1615990 Current Ratio 1.99: 1 1.58: 1 1.36: 1 1.39: 1 1.50: 1 1.30: 1

Current Assets Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.1.1:

2307604 2150110 2013225 2209580 2009419 2110729

2.5 2 RATIOS 1.5 1 0.5 0 2003


Interpretation:

CURRENT RATIO

1.99 1.58 1.36 1.39 1.5 1.3

2004

2005 YEARS 2006

2007

2008

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From the above table no: 4.2.1.1, it was observed that Current Ratio of Tecumseh India Ltd was showing continuously decreased during the study period 2003-2006. This is due to the continuous fluctuation in current assets and current liabilities. Standard Ratio is 2:1 so that the company is cant maintain the Liquidity position.
4.2.1.2. INVENTORY TURNOVER RATIO (ITR): Cost of Goods Sold Inventory Turnover Ratio = ----------------------------------Average Inventory Table: 4.2.1.2: Calculation of ITR

(Rs. In thousands) Inventory Ratio(Times) 5.51 4.34 5.28 5.42 5.93 6.19 Turnover

Cost Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.1.2:

of

goods Average Inventory 1008066 1197500 1035446 934170 853264 811703

sold 5555963 5197833 5472012 5072476 5060105 5025701

7 6 5 TIMES 4 3 2 1 0 2003 Interpretation: 5.51

INVENTORY TURNOVER RATIO 5.28 4.34 5.42 5.93 6.19

2004

2005 YEARS 2006

2007

2008

From the above table no: 4.2.1.2, it was observed that Inventory Turnover Ratio of Tecumseh India Ltd was showing continuously increased during the study period 2005-

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2008. This is due to the fluctuation in cost of goods sold and average inventory. In the year 2008-09, ITR was high (6.19) when compared to the other years, because of high level decreased in average inventory compared to cost of goods sold.
4.2.1.3. DEBTORS TURNOVER RATIO (DTR):

Credit Sales Debtors Turnover Ratio = ----------------------------Average Debtors Table 4.2.1.3: Calculation of DTR (Rs. In thousands)

Credit Sales Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.1.3:

Average Debtors 612590 442498 419824 588575 666639 596667

Debtors Turnover Ratio(Times) 6.41 8.17 10.52 7.75 7.45 6.92

3925325 3614471 4417676 4563812 4964463 4127203

12 10 TIMES 8 6 4 2 0 2003 6.41 8.17

DEBTORS TURNOVER RATIO

10.52 7.75 7.45 6.92

2004

2005 YEARS 2006

2007

2008

Interpretation: From the above table no: 4.2.1.3, it was observed that Debtors Turnover Ratio of Tecumseh India Ltd was showing continues decreased during the study period 20052008. Because of increased in average debtors and decreased in credit sales. From the

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year 2003and 04, DTR was decreased because of high percentage increased in average debtors compare to credit sales.
4.2.1.4 WORKING CAPITAL:

Working Capital = Current Asset Current Liabilities

Table 4.2.1.4: Calculation of Working Capital

(Rs. In thousands) Current Liabilities 1155154 1359165 1472238 1586074 1335586 1615990 Working Capital 1152450 790945 540987 623506 673833 494739

Current Assets Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.1.4:

2307604 2150110 2013225 2209580 2009419 2110729

1400000 1200000 VALUE ( Rs 000) 1000000 800000 600000 400000 200000 0


Interpretation:

WORKING CAPITAL 1152450 790945 540987 623506

673833 494739

2003

2004

2005YEARS 2006

2007

2008

From the above table no: 4.2.1.4, it was observed that Working Capital of Tecumseh India Ltd was fluctuated during the study period 2003-2008. Because of fluctuated the current assets and current liabilities.

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4.2.1.5. WORKING CAPITAL TURNOVER RATIO (WCTR):

Cost of goods sold Working Capital Turnover Ratio = ----------------------------Net Working Capital
Table 4.2.1.5: Calculation of WCTR

(Rs. In thousands) Net Working Capital Working Capital Turnover Ratio (Times) 4.82 6.57 10.11 8.14 7.51 10.16

Cost of goods sold Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009
Graph 4.2.1.5:

5555963 5197833 5472012 5072476 5060105 5025701

1152450 790945 540987 623506 673833 494739

WORKING CAPITAL TURNOVER RATIO


12 10 TIMES 8 6 4 2 0 2003 2004 2005 2006 2007 2008 YEARS 4.82 6.57 10.11 8.14 7.51 10.16

Interpretation:

From the above table no: 3.2.1.5, it was observed that Working Capital Turnover Ratio of Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. This is due continues fluctuation in sales and in net working capital.

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4.2.2. PROFITABILITY
4.2.2.1. PROFIT BEFORE INTEREST & TAX MARGIN (PBITM): PBIT PBITM = --------------- *100 Sales Table 4.2.2.1: Calculation of PBITM

(Rs. In thousands) Sales 3925325 3614471 4417676 4563812 4964463 4127203 PBITM (%) -0.17 -5.83 -9.94 -7.65 4.96 -8.91

Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.2.1:

PBIT -6558 -210703 -439277 -349100 246197 -367892

RETURNS (%)

6 4 2 0 -2 -4 -6 -8 -10 -12 -0.17 2003 2004

PROFIT MARGIN

4.96

2005

2006

2007

2008

-5.83 -7.65 -9.94 YEARS -8.91

Interpretation: From the above table no: 4.2.2.1, it was observed that PBITM of Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. From the year 2007 it shows positive it means company can earn profits. But in the year 2003-06 and 2008 company can earning loss because of operating expenses is more when compare to operating income.
4.2.2.2RETURN ON CAPITAL EMPLOYED (ROCE):

37

PBIT Return on Capital Employed = ----------------------------- * 100 Capital Employed


Table 4.2.2.2: Calculation of ROCE

(Rs. In thousands) Capital Employed 3000055 3375515 3360395 3321109 3084670 3221817 Return on Capital Employed (%) -0.21 -6.24 -13.07 -10.51 7.98 -11.41

PBIT Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009


Graph 4.2.2.2:

-6558 -210703 -439277 -349100 246197 -367892

RETURN ON CAPITAL EMPLOYED


10 5 0 -0.21 -5 -6.24 -10 -10.51 -15 -13.07 YEARS -11.41 7.98

Interpretation:

From the above table no: 4.2.2.2, it was observed that Return on Capital Employed of Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. The company return on capital employed is negative because of company can earning continuously loss.

4.2.3 COEFFICENT OF CORRELATION

RETURNS (%)

38

Coefficient of correlation is independent of change of scale and origin of the variable X and Y. By change of origin we mean subtracting some constant from every given value of x and y by change of scale. We can divide or multiply every value of x and y by some constant.
r =

( x x) ( y y ) ( x x) ( y y )
2

Impact of Current Ratio, Inventory Turnover Ratio, and Debtors Turnover Ratio & Working Capital Turnover Ratio on Return on capital employed (PBITM). Table 4.2.3.1, Calculations Current Ratio Years 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 Co-efficient of Correlation Inventory Turnover Ratio 1.99 1.58 1.36 1.39 1.50 1.30 0.549873 5.51 4.34 5.28 5.42 5.93 6.19 0.216919 Debtors Turnover Ratio 6.41 8.17 10.52 7.75 7.45 6.92 -0.49159 Working Capital Turnover Ratio 4.82 6.57 10.11 8.14 7.51 10.16 -0.63137 PBITM (ROCE) -0.17 -5.83 -9.94 -7.65 4.96 -8.91

Interpretation:
It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Current Ratio and PBITM is +0.549873. Therefore there is a positive relationship between Current Ratio and PBITM. Because of 100% change in Current Ratio that must be lead to 54% change in PBITM. 39

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Inventory Turnover Ratio and PBITM is +0.216919. Because of 100% change in Inventory Turnover Ratio that must be lead to 21% change in PBITM. It shows positive relationship between Inventory Turnover Ratio and PBITM.

It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Debtors Turnover Ratio and PBITM is -049159. Because of 100% change in Debtors Turnover Ratio that must be lead to -49% change in PBITM. It shows negative relationship between Debtors Turnover Ratio and PBITM.
It is evident from the table no: 4.2.3.1 that the co-efficient of correlation between

Working capital turnover ratio and PBITM is -0.63137. Because of 100% change in Working capital that must be lead to -63% change in PBITM. It shows negative relationship between Working capital turnover ratio and PBITM.

4.2.4 TREND ANALYSIS


Estimation of Sales using Exponential Curve
y= +x a b

Y = Na+bX XY = aX +b X2

Table 3.2.4.1: Calculations

(Rs. In thousands)

40

Years (x) 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010* 2010-2011*

Sales (y) 3925325 3614471 4417676 4563812 4964463 4127203 4789375 4938104

* Indicates the estimated value


Graph 4.2.4.1:

SALES VALUE
6000000 5000000 4000000 3000000 2000000 1000000 0 2003 2004 2005 2006 2007 2008 2009 2010 YEARS 3925325 4417676 4563812 3614471 4127203 4964463 4789375 4938104

Interpretation

From the above table no: 4.2.4.1, it is observe that the forecast value of Sales for the year 2009 is Rs 4789375 and for the year 2010 is Rs 4938104. Estimation of ROCE using Exponential Curve

y = +x a b

Y = Na+bX XY = aX +b X2 41

Table 4.2.4.2: Calculations

( Rs. In thousands) ROCE (y) -6558 -210703 -439277 -349100 246197 -367892 -222468 -232348

Years (x) 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010* 2010-2011*

* Indicates the estimated values


Graph 4.2.4.2: RETURNS 400000 200000 0 -200000 -400000 -600000 -6558 2003 2004 -210703 -439277 2005 2006 -349100 YEARS 2007 2008 -367892 2009 2010 -222468 -232348

246197

Interpretation

From the above table no: 4.2.4.2, it is observe that the forecast value of ROCE for the year 2009 is -222468 and for the year 2010 is -232348.

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CHAPTER-5

FINDINGS:

43

Current Ratio of Tecumseh India Ltd was showing continuously decreased during the study period 2003-2006. This is due to the continuous increase in current assets and fluctuation in current liabilities. Standard Ratio is 2:1 so that the company is maintaining the Liquidity position. Inventory Turnover Ratio of Tecumseh India Ltd was high in the year 2008-09 because percentage increase in Average Inventory is more when compare to percentage increase in Cost of Goods Sold. Debtors Turnover Ratio of Tecumseh India Ltd was showing fluctuations during the study period. From the year 2005-06 it was high because of increase in credit sales and in the year 2003-04 it was low because of high increase in Average debtors. PBITM of Tecumseh India Ltd was showing fluctuations during the study period 2003-2008. From the year 2007 it shows positive it means company can earn profits. But in the year 2003-06 and 2008 company can earning loss because of operating expenses is more when compare to operating income. Working Capital of Tecumseh India Ltd was decreased during the study period 2003-05. Because of increasing current liability and decreased in current assets. In the year 2003 it was high because of company can maintain high level current assets. ROCE of Tecumseh India Ltd was showing fluctuations during the study period. This is due to the continuous decreased in sales and fluctuations in PBIT (negative/loss). The co-efficient of correlation between Current Ratio and Profitability showing positive association i.e., both current ratio & profitability are moving in the same direction positively that means a 100% change in CR would cause only a +54% change in PBITM. 44

The co-efficient of correlation between Inventory Turnover Ratio and Profitability showing positive association i.e., both ITR & profitability are moving in the same direction positively that means a 100% change in ITR would cause only a +21% change in ROCE. The co-efficient of correlation between Debtors Turnover Ratio and Profitability showing negatively that means a 100% change in DTR -49% change in opposite direction of PBITM.

The co-efficient of correlation between Working capital turnover ratio and PBITM is -63%. It means 100% change in Working capital that must be lead to -63% changes in PBITM. It shows negative relationship between Working capital turnover ratio and PBITM.

BIBILOGRAPHY

45

Financial Management Financial Management Research Methodology


Annual Reports Financial Management

S.N.MAHESWARI M.Y. KHAN C.R.KOTHARI www.Tecumseh.com I.M.PANDEY

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