A Study on Working Capital Management at Jindal Aluminium ltd

Submitted by:
Navya P
1SI17MBA30

Under the guidance of:

Internal guide: External guide:
Dr.M.Ajoy Kumar Mr.Sahoo
Associate Professor HR Manager
Siddaganga Institute of Technology Jindal Aluminium
Tumkur Limited
Jindal Nagar,
Bangalore
 Research Design
Title of the Project
A Study on Working Capital Management of Jindal Aluminium Limited, Bangalore.

Statement of the problem

This study has been conducted to know the procedure involved in the working
capital management at Jindal Aluminum Limited and to analyses the efficiency
of the Working capital.

Objectives of the study

• To analyses the different sources of working capital.
• To determine performance of the company in the financial position and in
working capital.
• To analyze liquidity position of the company.
• To analyses the efficiency of the working capital management.

Methodology

Period of study
2013-14 to 2017-18 data are taken for the study of working capital
management.
 Data source
The data collected for the study is the Secondary data. The data was taken
from the following company records.
• Balance sheet
• Income statement
• Company records
Website- www.jindalaluminium.com

Tools of analysis
• Ratios
• Tables

Limitations of study
• Many facts and data are not disclosed by the company because of
confidentiality in nature for example credit sales, credit purchase, creditors
and debtors.
• It is used only for short term decision making.
• The study is restricted to five years.
 DATA ANALYSIS AND INTERPRETATION

Sources of Working Capital

Composition of Current Assets (%)

Current Assets 2013 2014 2015 2016 2017 Average
Inventory 37.74 31.45 26.83 24.20 46.30 33.30
Sundry Debtors 22.04 32.66 28.48 35.28 29.84 29.66
Cash and Bank 4.67 1.21 2.46 0.35 0.40 1.82
Loans and 35.55 34.68 42.23 40.17 23.46 35.22
advances
Total Current 100% 100% 100% 100% 100% 100%
Assets

Current Assets

Inventory
35% 33%
Sundry Debtors
Cash and Bank
Loans and advances
2% 30%
Composition of Current Liabilities

Current Liabilities 2013 2014 2015 2016 2017 Averag

e
Sundry Creditors 36.31 11.32 30.79 28.73 34.28 28.29
Advances 17.04 0.00 0 41.90 21.32 16.05
Trade and other 12.28 5.19 0 0 0 3.49
deposits
Other Liabilities 34.37 83.49 69.2 29.36 44.40 52.16
Total Current 100% 100% 100% 100% 100% 100%
Liabilities

Current Liabilities

Sundry Creditors
28%
Advances

52% Trade and other

deposits
16% Other Liabilities

4%
 Current Ratio

Current Ratio
Year Current Current Current 700 6.00
Assets Liabilities Ratio 600
5.37
5.00
2013 306.85 74.53 4.12 4.73
500
4.12 4.00
2014 394.2 156.55 2.52 400 Current assets
3.00
Current liabilities
2015 617.31 300.16 2.06 300 2.52
2.06 2.00 Current Ratio
200
2016 501.68 106.01 4.73
100 1.00
2017 597 111.08 5.37
0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

This Ratio reflects the financial stability of the company. Due to increase
in the current assets from the past two years leads to increase in the
current ratio. The increase in current ratio indicates that the company
has ability to pay off its short term liabilities with its current assets.
 Quick Ratio

Quick Ratio
500 3.59 4.00
Year Quick Current Quick 450 3.50
2.89
Assets Liability Ratio 400
2.56 3.00
350 Current assets less
2013 191.05 74.53 2.56 2.50
300 stocks
1.73
2014 270.21 156.55 1.73 250 1.50 2.00 Current liability
200 1.50
2015 451.66 300.16 1.50 150 Acid test ratio
1.00
100
2016 380.28 106.01 3.59 50 0.50
0 0.00
2017 320.6 111.08 2.89 2013 2014 2015 2016 2017

Analysis and Interpretation

In 2013 the quick ratio of the company was 2.56 it means company
maintains satisfactory quick ratio. But in the year 2015 it decreases it
shows that it does not meet with the standard. In the year 2016 it gone up
to 3.59, it shows that the liquidity position the company is satisfactory but
it is again decrease in the year 2017. Therefore it can be said that its
liquidity position is not good and stable.
 Cash ratio

Cash Ratio
Year Cash and Current Cash Ratio 350 0.250
bank liability 300
0.200
balance 250
0.192
Cash and bank
2013 14.32 74.53 0.192 0.150 balance
200
2014 4.78 156.55 0.031 Current liability
150 0.100
2015 15.16 300.16 0.051 100 Cash Ratio
2016 1.76 106.01 0.017 50
0.051 0.050
0.031
0.017 0.021
2017 2.37 111.08 0.021 0 0.000
2013 2014 2015 2016 2017

Analysis and Interpretation

The cash ratio of the company in the year 2013 was 0.192 and it
decreased to 0.021 during the year 2017. The company’s cash ratio is less
than 1 it indicates that there is more current liabilities than cash and cash
equivalents.
 Inventory Turnover Ratio

Inventory turnover ratio

2500 12.00
Year Sales Average Inventory 11.02
inventory Turnover Ratio 2000 10.00
9.50 9.09
2013 997.98 90.59 11.02 8.64 Sales
7.90 8.00
1500
2014 1404.57 177.79 7.90 6.00 Average inventory
1000
2015 1786.45 206.81 8.64 4.00
Inventory turnover
500 ratio
2.00
2016 2149.52 226.35 9.50
0 0.00
2017 2359.81 259.6 9.09 2013 2014 2015 2016 2017

Analysis and Interpretation

The inventory turnover ratio of the company in the year 2013 was
11.02 and it decreased to 9.09 in the year 2017. Lower the ratio means
sales are decreasing below expected level and it indicates that
company is holding too much inventory compared to its sales.
 Inventory Holding Period

Inventory Holding Period

Year No. of Inventory Inventory
12.00 50
Days turnover Holding Period 46 45
10.00 42
ratio 38 40 40
35
2013 365 11.02 33 8.00 33
30 Inventory Turnover
6.00 25 ratio
2014 365 7.90 46
20 Inventory Holding
4.00 15
2015 365 8.64 42 Period
2.00 10
2016 365 9.50 38 5
0.00 0
2017 365 9.09 40 2013 2014 2015 2016 2017

Analysis and Interpretation

The lower period is good sign for company because inventories
converted into sales faster. The company inventory holding period is 33
days in the year 2013 and it increased to 40 days in the year 2017. But
in 2017 it higher compare to 2013 it shows that company is slower to
converted inventory to sales.
 Debtor’s Turnover Ratio

Debtors turnover ratio

Year Sales Average Debtors
2500 14.00
Debtors turnover ratio 12.56 12.00
2000
10.64
2013 997.98 79.46 12.56 10.00
1500 8.87
8.25 8.13 8.00 Sales
2014 1404.57 132 10.64 Average Debtors
1000 6.00
2015 1786.45 216.65 8.25 4.00 Debtors turnover ratio
500
2016 2149.52 264.32 8.13 2.00
0 0.00
2017 2359.81 266.08 8.87 2013 2014 2015 2016 2017

Analysis and Interpretation

The debtor’s turnover ratio of the company in the year 2013 was
12.56 and it decreased to 8.87 in the year 2017 it shows how
effective a company is in extending credit as well as collecting
debts.
 Average Collection Period

Year No. of Debtors Average

Average Collection Period
14.00 50
days turnover Collection
44 45 45
ratio Period 12.00
41 40
2013 365 12.56 29 10.00 34 35

8.00 29 30 Debtors turnover ratio

2014 365 10.64 34 25
6.00 20 Average Collection
2015 365 8.25 44 15 Period
4.00
10
2016 365 8.13 45 2.00
5
0.00 0
2017 365 8.87 41
2013 2014 2015 2016 2017

Analysis and Interpretation

The Average Collection Period of the company 2013 was 29 days which has
been increased to 45 days during the year 2016. The higher the average
collection period is lower efficiency in any firm. A longer collection period
may negatively affect the short term debt paying ability of the business. It
is not good sign for the company but in 2017 it decreased to 41 days.
 Operating Cycle

Year Inventory Average Operating Operating Cycle

Holding Collection Cycle 50 100
Period Period 45 90
86 83
2013 33 29 62 40 80 81 80
35 70 Inventory Holding
2014 46 34 80 30 62 60 Period
25 50 Average Collection
2015 42 44 86 20 40 Period
15 30 Operating Cycle
2016 38 45 83 10 20
5 10
2017 40 41 81 0 0
2013 2014 2015 2016 2017

Analysis and Interpretation

The operating cycle in the year2013 was 62 days and it increased to 86 days
in the year 2015 it indicates that longer operating cycle is not good for the
company it leads to decrease in operating profit. But in 2016 it decrease to
83 days and in 2017 also it decreases to 81 days it shows that good sign for
the company.
 Working Capital Turnover Ratio

Working Capital Turnover Ratio

Year Sales Working Working 2500 7.00
capital Capital
6.00
Turnover Ratio 2000
5.91
5.63
5.43
2013 997.98 232.32 4.30 5.00
4.86
Sales
1500 4.30
2014 1404.57 237.65 5.91 4.00
Working capital
3.00
2015 1786.45 317.15 5.63 1000
Working Capital
2.00 Turnover Ratio
2016 2149.52 395.67 5.43 500
1.00
2017 2359.81 485.92 4.86
0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

The working capital turnover ratio of the company in the year 2013 was
4.30and there is a fluctuations year by year and it increased to 4.86 in the
year 2017 it indicates that the company is being extremely efficient in
using a firm’s short-term assets and liabilities to support to sales.
 Return on Investment

Year Net Total Return on

Return on Investment
1800 12.00
Profit Assets Investment
1600 10.37
2013 63.99 1207.46 5.30 10.00
1400
1200 8.00
2014 21.57 1243.02 1.74
1000 Net Profit
6.00
2015 48.96 1376.02 3.56 800 5.30 Total Assets
4.64
600 4.00 Return on Investment
3.56
2016 70.36 1514.89 4.64 400
1.74 2.00
200
2017 167.56 1615.08 10.37
0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

The Return on Investment in the year 2013 was 5.30 and it increased to
10.37 during the year 2017 it indicates that company generates more
returns it shows good sign for a company.
 Net Profit Ratio

Year Net Sales Net Profit

Net profit ratio
2500 8.00
Profit ratio
7.107.00
2013 63.99 997.98 6.41 2000 6.41
6.00
2014 21.57 1404.57 1.54 5.00
1500
Net profit
4.00
2015 48.96 1786.45 2.74 Sales
1000 3.27
3.00 Net profit ratio
2.74
2016 70.36 2149.52 3.27 2.00
500 1.54
2017 167.56 2359.81 7.10 1.00

0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

The Net Profit ratio of the company in the year 2013 was 6.41% and it
decreased to 1.54% in the year 2014 and increases in the year 2015, 2016,
2017 it shows the higher net profit margin means that a company is more
efficient at converting sales into actual profit.
 Operating Ratio

Operating Profit Ratio

Year Operating Sales Operating
2500 14.00
profit profit ratio 13.32

2013 116.29 997.98 11.65 2000

11.65 12.00

10.21 10.00
2014 125.21 1404.57 8.91 8.91
1500 8.28 8.00 Operating profit
2015 147.87 1786.45 8.28 Sales
6.00
1000
Operating Profit Ratio
2016 219.57 2149.52 10.21 4.00
500
2.00
2017 314.28 2359.81 13.32
0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

The operating profit ratio of the company in the year 2013 was 11.65% and
it increased to 13.32% in the year 2017 it indicates how much profit a
company makes after paying for variable costs of production.
 Debt-Equity Ratio

Debt-Equity Ratio
Year Total Shareholder’s Debt-Equity
1200 0.80
Debt Fund Ratio 0.73 0.71 0.70
1000
0.63
2013 390.32 815.52 0.48 0.60
800 0.52 0.50
2014 425.9 815.66 0.52 0.48 Total Debt
600 0.40
2015 577.37 796.26 0.73 Share holder's Fund
0.30
400 Debt-Equity Ratio
2016 612.01 857.85 0.71 0.20
200
2017 598.81 954.62 0.63 0.10
0 0.00
2013 2014 2015 2016 2017

Analysis and Interpretation

The Debt-Equity Ratio of the company in 2013 was 0.48 which has been
increased to 0.73 during the year 2015 it indicates that a company may
not able to generate enough cash to satisfy its debt obligations. In the
year 2017 it reduced to 0.63 it indicates that company is using less
leverage and has a stronger equity position.
 Cash Flow Analysis
Year 2013 2014 2015 2016 2017

Cash and Cash 61.28 14.32 4.78 15.16 1.76

Equivalents at Beginning
of the year

Net Cash Flow from 11.32 -6.15 94.87 214.95 144.82

Operating Activities

Net Cash Flow from -235.14 -81.85 -205.45 -78.31 -99.7

Investing Activities

Net Cash Flow from 176.87 78.46 120.97 -150.05 -44.5

Financing Activities

Net Inc/(Dec) in Cash -46.95 -9.54 10.39 -13.41 0.62

and Cash Equivalent

Cash and Cash 14.33 4.78 15.16 1.76 2.37

Equivalents at End of
the year
Findings

• There is an increase in current ratio it indicates that the company has ability
to pay off its short term liabilities with its current assets.
• There is a decrease of quick ratio in the year 2017 it shows that liquidity
position is not good and stable.
• The company’s cash ratio is less than 1 it indicates that there is more
current liabilities than cash and cash equivalents.
• The company’s Inventory turnover ratio is lower it indicates that sales are
decreasing below expected level.
• The Inventory holding period of the company is higher it shows that company
is slower to converted inventory to sales.
• The Debtors turnover ratio shows that company is less effective in extending
credit as well as collecting debts.
• Operating cycle is higher it indicates that the company takes longer time to
convert inventory into sales.
• The Working capital turnover ratio of the company is being extremely
efficient in using a firm’s short-term assets and liabilities to support to sales.
• The Fixed assets turnover ratio is higher it indicates that more efficiency and
utilization of assets.
• The Return on investment of company generates more returns it shows good
sign for a company.
• The Net profit margin is higher it means that a company is more efficient at
converting sales into actual profit.
• The Operating profit ratio of the company is 13.32% it indicates how much
profit a company makes after paying for variable costs of production.
• The Debt equity ratio of the company indicates that a company may not able
to generate enough cash to satisfy its debt obligations.
Suggestions

• Company has to take corrective measures to increase and maintain cash

position.
• Liquidity position of the company is low so the company has to improve its
short term liquidity position either by reducing current liabilities or by
increasing highly liquid current asset to meet their current obligations.
• The company must concentrate on its debtor’s turnover ratio because it is
low, if sales increases the ratio also increases if it is not increases then the
problem in collection of debtors.
• The company has to reduce its operating cycle because a shorter operating
cycle is good as it tells that the company’s cash is tied up for a shorter period.
Conclusion

From the above study we should observe that how working capital
management for a firm is important. Efficient working capital management
shows the firm’s conditions.
By analysis of last five years annual report of Jindal Aluminium Ltd the current
ratio is decreases for first three years and for next two years it is increases.

The higher operating cycle indicates the operating effectiveness is not good
for the company. If the operating cycle is more it indicates that operating
profit coming down but from last two years the operating cycle is decreases it
shows that the company is under good position.

From the last three years the working capital turnover ratio is reducing it
indicates that the company is not efficient utilization of working capital in
generating sales. It is not good for the company.
Usefulness of the study

• To get know about the concepts of working capital management

• It helps know about the debtors collection period as well as creditors
settlement period
• It helps to know how to check the performance of the company through
ratios