A PROJECT REPORT

ON

ANALYSIS OF WORKING CAPITAL MANAGEMENT UNDERTAKEN AT

HINDUSTAN NATIONAL GLASS & INDUSTRIES LTD.

VIRBHADRA, RISHIKESH (UTTARAKHAND)

SUBMITTED BY

AMIT AGARWAL
OF

NORTHERN INDA ENGINEERING COLLEGE,NEW DELHI

CONTENTS
CERTIFICATE 4 DECLARATION..5 ACKNOWLEDGEMENT6 COMPANY PROFILE.7 HISTORY OF THE COMPANY..8 HNGIL GROUP PROFILE..9 VISION.10-11 WELFARE ACTIVITIES12 SAFTEEY MEASURES..12 BOARD OF DIRECTORS13 EXECUTIVE SUMMARY13 PROBLEM STATEMENT.14 NEED OF THE STUDY.15 OBJECTIVE OF THE STUDY..15 RESEARCH DESIGN & DATA COLLECTION.16 METHODOLOGY.....17 LITERATURE REVIEW..17-19 WORKING CAPIAL20-24 RATIO ANALYSIS..25-40 MEANING STEPS IN RATIO ANALYSIS BASIS OR STANDARDS OF COMPARISON NATURE OF RATIO ANALYSIS GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS IMPORTANCE OF RATIO ANALYSIS

LIMITATIONS OF RATIO ANALYSIS CLASSIFICATIONS OF RATIOS

DATA ANALYSIS AND INTERPRETATION OF RATIOS....40-47 DATA ANALYSIS OF BALANCE SHEET47-48 OBSERVATIONS AND FINDINGS49 LIMITATIONS OF THE STUDY...50 SUGGESTIONS..50 CONCLUSION51 REFERENCES.52 ANNEXURE..53-55 BALANCESHEET OF THE COMPANY PROFIT AND LOSS A/C

CERTIFICATE

This is to certify that Mr. AMIT AGARWAL of NORTHERN INDIA ENGINEERING COLLEGE,NEW DELHI has successfully completed the project work titled ANALYSIS OF WORKING CAPITAL OF HNG Ltd. in partial fulfillment of requirement for the award of POST GRADUATION DEGREE IN BUSINESS MANAGEMENT prescribed by the GURU GOVIND SINGH UNIVERSITY. This project is the record of authentic work carried out during the academic year (2011 2013).

DECLARATION

I Mr. Amit Agarwal hereby declare that this project is the Record of authentic work carried out by me during the academic Year 2011 2013 and has not been submitted to any other University or Institute towards theaward of any degree.

Signature of the student (Amit Agarwal)

ACKNOWLEDGEMENT

At the very outset, I would like to give my heartiest thanks, to the Management & Staff of Hindustan National Glass & Industries Ltd. Virbhadra, Rishikeshfor giving me their Co-operation, support and guidance in my project. I am Greatly Indebted to Mr. V.K. Chitturi(Vice President), Mr. and Mr. B.D. Joshi(Officer Training & Placement Incharge)for guiding me and helping me out to complete this Dissertation.

COMPANY PROFILE -

The unit was originally incorporated by the name of M/S J/G glass limited in the year 1972 with a Furnace capacity of 60 MT a an ancillary to IDPL VIRBHADRA. Due to technical and other reasons the unit could not perform well and landed into financial crunch and as such was taken over by the THAPAR GROUP as subsidiary unit, however in the year 1994 the company was incorporated as a joint venture with ACI INTERNATIONAL a USA based MNC. It was named as OWENS BILTLTD. Later on in the year 1998, the share holding of THAPAR GROUP was taken over by OI INC an AMETICAN MND and it has OWENS BROCKWAY (I) LTD. on 7th January 2002, Hindustan national Glass & Industries along with its associate company Ceramic Decorators LTD. Has taken over the management and ownership of the company and the name of the company was changed to ACE GLASS CONTAINERS LIMITED. With the approval of Humble High Court the unit stands merged with patent company M/S HINDUSTAN NATIONAL GLASS & INDUSTRIES LIMITED, and is known accordingly.

HINDUSTAN NATIONAL GLASS & INDUSTRIES LIMITED is a manufacturer of all varieties of glass bottles/vials. Manufacturing facilities are strategically located at Rishra near Calcutta since (1952) and Bahadurgarh near Delhi since (1964), Rishikesh, Pondicherry and Nasik With state - of - art induction furnace for manufacturing of castings in its own foundary. HNGIL has incorporated its technology from the best suppliers in Europe and USA. HNIL Group operates 10 furnaces and 42 production lines with fully automatic IS (Individual Section) machines up to 12 Sections operating on Double and Triple Gob.

All the plants have thorough electronic inspection system right from the batch mixing till the final packing. Quality control and R&D Sections are well equipped with sophisticated instruments enabling production of international quality

glassware. Well equipped workshops to manufacture moulds for bottles of all designs & shapes, backed up by own Power Generating Plants. The farsighted and dynamic approach of Mr. CK SOMANY, the highly focused management strategies and the leadership qualities of his sons Mr. SANJAY SOMANY and Mr. MUKUL SOMANY have turned every challenge into a winning formula.

HISTORY

It was in 1952 that visionary entrepreneur Chandra Kumar Somany laid the foundations for the HNG Group, with the inauguration of Eastern Indias fully Automatic glass container manufacturing plant at Rishra, near Kolkata. Today, a family dynasty has been created that leads the way in the local market, catering to the needs of a diverse range of industries, of liquor and pharmaceuticals to soft drinks and cosmetics. The farsighted and dynamic approach of MR. So many, coupled with highly focused management strategies and leadership qualities of his sons Sanjay and Mukul have turned HNG into a recognized international player.

Hindustan National Glass & Industries Limited (HNGIL) in a rare breed in the international glass container community of the 21 st century, an extremely successful family-owned and run business, market leader and owner of four significant manufacturing plants. With the total melting capacity of 23000 tones\day, the company is constantly in search of improvements. In total, 38 highly productive lines are operated, from which pack efficiencies of better than 90% are now standard. Introduction of the latest automation practices has also led to reduce labour costs, workforce having dropped by two-thirds in the Performance Appraisal System 15 year to approximately 4000.

HNGIL GROUP PROFILE HNGIL, the largest and most prolific producer of glass containers, operating at present 10 furnaces at giver location (Rishra, Bhahadurgarh, Pondicherry, Nasik, &Rishikesh) and production lines, In addition HNG has acquired a glass container manufacturing unit of M/S Haryana sheet Glass Limited at Neemrana, Rajastan. A fully integrated group having its own foundary for casting, well equipped workshop for moulds and spare parts captive power plants and quarries for sand with fleet for finished goods movement has given competitive advantage to its customers.

RISHIKESH PLANT

2 furnaces; combined melting capacity of 340 MT per day. Furnace ii used for manufacturing of green glass. 6 lines of glass making IS machines. Off site printing facility with 3 decorating lines

VISION
To strive to be a major International producer of quality Containers glass by consistently following And adopting the most modern Methods and techniques in an environment Friendly manner with active involvement of its Employees to meet the needs of its Customers and stakeholders so as toachieve Sustainable development and long term growth.

MAIN CUSTOMERS OR CLIENTS OF THE COMPANY

The clientele includes leading companies like:

Pepsi Company Coca-Cola company Cadbury Company Nestle India Ltd. Raun Pollack Dabur India Ltd. Lakme Lever Glaxo Welcome Pfizer Reckitt & Coleman Shaw-Wallace Mith Kline Beecham UB Group HamdardWakf Laboratories Mount Shivalik Ltd. Albert David Ltd Mc- Dowell Group Kedia Group Bayer Group and Other leading companies.

WELFARE ACTIVITIES

HNG Industries limited provides various welfare facilities for the employees which are enumerated as follows:

Provide uniform and shoes to the employees according to their department as per the term of general agreement. Provide canteen and mess facility. Provide medical coverage to the employees. Club facility. Providing ambulance and first aid facility. Time to time various awards and rewards given to employees.

SAFETY MEASURES

HNG Industries Limited lays utmost care towards health and safety of all personnel. Central safety committee at the apex level and the department safety committee at the shop floor are formed to review and monitor the safety activity. Training on safety, fire fighting is given to all level of employees at the regular intervals. The company is generally providing Personal Productive Equipments like helmets, ear plugs, safety shoes, googles etc. to their employees.

BOARD OF DIRECTORS

1. Chairman : Mr. C.K Somany Mr. C.K Somany is acknowledged expert in a glass technology and is providing policy guidelines for the Management and administration for the company. He holds an F.B.I.MC (London) Degree and a degree in glass Plant Instrumentation from Honeywell brown, Minneapolis, U.S.A.

2. Managing Director: Mr. Sanjay Somany Mr. Sanjay Somany is a commerce graduate and he has obtained a Diploma in Diesel Engineering and vast knowledge of the glass manufacturing Technology. At the Present he is the Managing director of the company.

3. Joint Managing Director : Mr. MukulSomany Mr. Mukul Somany is commerce Graduate. He is a noted Industrialist in the glass manufacturing Industry. Finance / Accounts :

General Manger

Mr. ShammiThusi

Deputy Manager Assistant Manger Officers

Mr. Shiv Singh Kandari Mr. A.K Saxena Mr. Rakesh Joshi & Mr. Alam Singh Negi Mr. Ramesh Bisht Mr. VinaySaklani Mr. ManojSemwal Mr. Anil Negi

Clerical Assistant

Executive Summary

Cash is the lifeline of a company. Understanding a companys cash flow health is essential to making Investment decision. A Good way to judge a company cash flow prospects is to look at its working capital management. Working capital is also known as operating capital, it represents the day by day operating liquidity available to business. 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 expenses.

PROBLEM STATEMENT How to measure the financial position of the company with the help of ratio analysis?

NEED FOR THE STUDY 1. The study has great significance and provides benefits to various parties whom directly or indirectly interact with the company. 2. It is beneficial to management of the company by providing crystal clear picture regarding important aspects like liquidity, leverage, activity and profitability. 3. The study is also beneficial to employees and offers motivation by showing how actively they are contributing for companys growth. 4. The investors who are interested in investing in the companys shares will also get benefited by going through the study and can easily take a decision whether to invest or not to invest in the companys shares.

OBJECTIVES OF STUDY

The major objectives of the resent study are to know about financial strengths and weakness of HNG Ltd through FINANCIAL RATIOANALYSIS.

The main objectives of recent study aimed as: 1. To study the present financial system at HNG Ltd 2. To know the financial condition of the company. 3. Throw light on a long term solvency of a firm. 4. To analyze the liquidity position of the company. 5. Interpret the financial statement so that the strength and weakness of a firm Historical performance and current financial condition can be determined.

RESEARCH DESIGN A research design is the specification of method and procedure for accruing the information needed. It is overall operational pattern of frame work of project that stipulates what information is to be collected for source by that procedures Descriptive Research design is appropriate for this study. Descriptive study is used to study the situation. This study helps to describe the situation. A detail descriptive about present and past situation can be found out by the descriptive study. In this involves the analysis of the situation using the secondary data.

DATA COLLECTION

This research study is based on secondary data, means data that are already available i.e. the data which have been already collected and analyzed by someone else. Secondary data are used for the study of Ratio analysis of this company. To collect the data I have refer Company annual report, annual magazine, last 5 year balance sheet, and cash flow statements.

METHODOLOGY The information is collected through secondary sources during the project. That information was utilized for calculating performance evaluation and based on that, interpretations were made. Sources of secondary data: 1. Most of the calculations are made on the financial statements of the company provided statements. 2. Referring standard texts and referred books collected some of the information regarding theoretical aspects. 3. Method- to assess the performance of the company method of observation of the work in finance department in followed.

LITERATURE REVIEW -

Many researchers have studied financial ratios as a part of working capital Management; however, very few of them have discussed the working capital Policies in specific. Some earlier work by Gupta and Heffner (1972) examined the differences in financial ratio averages between industries. TheConclusion of both the studies was that differences do exist in mean profitability, Activity, leverage and liquidity ratios amongst industry groups . Pinches et al. (1973) used factor analysis to develop seven classifications of ratios, and found that the classifications were stable over the 1951-1969 time periods. In a regional study, Pandey and Parera (1997) provided an empirical evidence of working capital management policies and practices of the private sector manufacturing companies in Sri Lanka. The information and data for the study were gathered through questionnaires and interviews with chief financial officers of a sample of manufacturing companies listed on the Colombo Stock Exchange. They found that most companies in Sri Lanka have informal working capital policy and company

size has an influence on the overall working capital policy (formal or informal) and approach (conservative, moderate or aggressive). Moreover, company profitability has an influence on the methods of working capital planning and control. Chu et al. (1991) analyzed the hospital sectors to observe the differences of financial ratios groups between hospital sectors and industrial firms sectors. Their study concluded that financial ratios groups were significantly different from those of industrial firms ratios as well these ratios were relatively stable over the five years period. A significance relationship for about half of industries studied indicated that results might vary from industry to industry. Another aspect of working capital management has been analyzed by Lamberson (1995) who studied how small firms respond to changes in economic activities by changing their working capital positions and level of current assets and liabilities. Current ratio, current assets to total assets ratio and inventory to total assets ratio were used as measure of working capital while index of annual average coincident economic indicator was used as a measure of economic activity. Contrary to the expectations, the study found that there is very small relationship between charges in economic conditions and changes in working capital. However, Weinraub and Visscher (1998) have discussed the issue of aggressive and conservative working capital management policies by using quarterly data for a period of 1984 to 1993 of US firms. Their study looked at ten diverse industry groups to examine the relative relationship between their aggressive/conservative working capital policies. The authors have concluded that the industries had distinctive and significantly different working capital management policies. Moreover, the relative nature of the working capital management policies exhibited remarkable stability over the ten-year study period. The study also showed a high and significant negative correlation between industry asset and liability policies and found that when relatively aggressive working capital asset policies are followed they are balanced by relatively conservative working capital financial policies. Sathyamoorthi (2002) focused on good corporate governance and in turn effective management of business assets. He observed that more emphasis is given to investment in fixed assets both in management area and research. However, effective management working capital has been receiving little attention and yielding more significant results. He analyzed selected Co-operatives in Botswana

for a period of 1993-1997 and concluded that an aggressive approach has been followed by these firms during all the four years of study. Filbeck and Krueger (2005) highlighted the importance of efficient working capital management by analyzing the working capital management policies of 32 non-financial industries in USA. According to their findings significant differences exist between industries in working capital practices over time.

WORKING CAPITAL It measures how much in liquid assets a company has available to build its business. A short term loan which provides money to buy earning assets. Allows to avail of unexpected opportunities. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds 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. An increase in working capital indicates that the business has either increased current assets (that is received cash, or other current assets) or has decreased current liabilities, for example has paid off some short-term credit.

Working Capital Management Decisions relating to working capital and short term financing are referred to as working capital management. Short term financial management concerned with decisions regarding to CA and CL. Management of Working capital refers to management of CA as well as CL. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. These involve managing the relationship between a firm's short-term assets and its short-term liabilities. Decisions relating to working capital and short term financing are referred to as working capital management. Short term financial management concerned with decisions regarding to CA and CL. Management of Working capital refers to management of CA as well as CL. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. These involve managing the relationship between a firm's short-term assets and its short-term liabilities.

Concepts of Working Capital

Gross Working Capital Net working Capital Total Current assets Where Current assets are the assets that can be converted into cash with in an accounting year & include cash , debtors etc. Refered as Economics Concept since assets are employed to derive a rate of return. NET WORKING CAPIAL CA CL Referred as point of view of an Accountant. It indicates liquidity position of a firm & suggests the extent to which working capital needs may be financed by permanent sources of funds. CONSTITUENTS OF WORKING CAPITAL CURRENT ASSETS Inventory Sundry Debtors Cash and Bank Balances Loans and advances

CURRENT LIABILITIES Sundry creditors Short term loans Provisions

Matching Principle

If a firm finances a long term asset(like machinery) with a S-T Debt then it will have to be periodically finance the asset which will be risky as well as inconvenient. i.e. maturity of sources of financing should be properly matched with maturity of assets being financed. Thus Fixed Assets & permanent CA should be supported with L-T sources of finance & fluctuating CA by S-T sources.

MATCHING PRINCIPLE

Types of Working Capital

PERMANENT WORKING CAPITAL VARIABLE WORKING CAPITAL

PERAMANENT WORKING CAPITAL THERE IS ALWAYS A MINIMUM LEVEL OF CA WHICH IS CONTINOUSLY REQUIRED BY A FIRM TO CARRY ON ITS BUSINESS OPERATIONS. THUS , THE MINIMUM LEVEL OF INVESTMENT IN CURRENT ASSETS THAT IS REQUIRED TO CONTINUE THE BUSINESS WITHOUT INTERRUPTION IS REFERRED AS PERMANENT WORKING CAPITAL VARIABLE WORKING CAPITAL THIS IS THE AMOUNT OF INVESTMENT REQUIRED TO TAKE CARE OF FLUCTUATIONS IN BUSINESS ACTIVITY OR NEEDED TO MEET FLUCTUATIONS IN DEMAND CONSEQUENT UPON CHANGES IN PRODUCTION & SALES AS A RESULT OF SEASONAL CHANGES

RATIO ANALYSIS The term Ratio refers to the numerical and quantitative relationship between two items . This relationship can be exposed as Percentages Fractions Proportion of numbers Ratio analysis is defined as the systematic use of the ratio to interpret the financial statements. So that the strengths and weaknesses of a firm, as well as its historical performance and current financial condition can be determined Ratio reflects a quantitative relationship helps to form a quantitative judgment. STEPS IN RATIO ANALYSIS The first task of the financial analysis is to select the information relevant to the decision under consideration from the statements and calculates appropriate ratios. To compare the calculated ratios with the ratios of the same firm relating to the past or with the industry ratios. It facilitates in assessing success or failure of the firm. Third step is to interpretation, drawing of inferences and report writing conclusions are drawn after comparison in the shape of reporter recommended courses of action.

BASIS OR STANDARDS OF COMPARISON Ratios are relative figures reflecting the relation between variables. They enable analyst to draw conclusions regarding financial operations. They use of ratios as a tool of financial analysis involves the comparison with related facts. This is the basis of ratio analysis. The basis of ratio analysis is of four types. Past ratios, calculated from past financial statements of the firm. Competitors ratio, of the sum most progressive and successful competitor firm at the same point of time.

 Industry ratio, the industry ratios to which the firm belongs to Projected ratios, ratios of the future developed from the projected or pro forma financial statements NATURE OF RATIO ANALYSIS Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. It is only a means of understanding of financial strengths and weaknesses of a firm. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios. The following are the four steps involved in the ratio analysis. Selection of relevant data from the financial statements depending upon the objective of the analysis. Calculation of appropriate ratios from the above data. Comparison of the calculated ratios with the ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with ratios of the industry to which the firm belongs. INTERPRETATION OF THE RATIOS The interpretation of ratios is an important factor. The inherent limitations of ratio analysis should be kept in mind while interpreting them .The impact of factors such as price level changes, change in accounting policies, window dressing etc., should also be kept in mind when attempting to interpret ratios. The interpretation of ratios can be made in the following ways. Single absolute ratio Group of ratios Historical comparison Projected ratios Inter-firm comparison

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS The calculation of ratios may not be a difficult task but their use is not easy. Following guidelines or factors may be kept in mind while interpreting various ratios is Accuracy of financial statements Objective or purpose of analysis Selection of ratios Use of standards Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS Aid to measure general efficiency Aid to measure financial solvency Aid in forecasting and planning Facilitate decision making Aid in corrective action Aid in intra-firm comparison Act as a good communication Evaluation of efficiency Effective tool

LIMITATIONS OF RATIO ANALYSIS Differences in definitions Limitations of accounting records Lack of proper standards No allowances for price level changes Changes in accounting procedures Quantitative factors are ignored Limited use of single ratio Background is over looked Limited use Personal bias

CLASSIFICATIONS OF RATIOS The use of ratio analysis is not confined to financial manager only. There are different parties interested in the ratio analysis for knowing the financial position of a firm for different purposes. Various accounting ratios can be classified as follows: 1. Traditional Classification 2. Functional Classification 3. Significance ratios 1. Traditional Classification It includes the following. Balance sheet (or) position statement ratio: They deal with the relationship between two balance sheet items, e.g. the ratio of current assets to current liabilities etc., both the items must, however, pertain to the same balance sheet. Profit & loss account (or) revenue statement ratios: These ratios deal with the relationship between two profit & loss account items, e.g. the ratio of gross profit to sales etc., Composite (or) inter statement ratios: These ratios exhibit the relation between a profit & loss account or income statement item and a balance sheet items, e.g. stock turnover ratio, or the ratio of total assets to sales. 2. Functional Classification These include liquidity ratios, long term solvency and leverage ratios, activity ratios and profitability ratios. 3. Significance ratios Some ratios are important than others and the firm may classify them as primary and secondary ratios. The primary ratio is one, which is of the prime importance to a concern. The other ratios that support the primary ratio are called secondary ratios.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS ANALYSES ARE: Liquidity ratio Leverage ratio Activity ratio Profitability ratio

1. LIQUIDITY RATIOS Liquidity refers to the ability of a concern to meet its current obligations as & when there becomes due. The short term obligations of a firm can be met only when there are sufficient liquid assets. The short term obligations are met by realizing amounts from current, floating (or)circulating assets The current assets should either be calculated liquid (or)near liquidity. They should be convertible into cash for paying obligations of short term nature. The sufficiency (or) insufficiency of current assets should be assessed by comparing them with shortterm current liabilities. If current assets can pay off current liabilities, then liquidity position will be satisfactory. To measure the liquidity of a firm the following ratios can be calculated Current ratio Quick (or) Acid-test (or) Liquid ratio Absolute liquid ratio (or) Cash position ratio

(a) CURRENT RATIO: Current ratio may be defined as the relationship between current assets and current liabilities. This ratio also known as Working capital ratio is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position (or) liquidity of a firm. Current Assets Current Liabilities

Current Ratio =

Components of Current Ratio

CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses

CURRENT LIABILITITES Outstanding or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

(b) QUICK RATIO Quick ratio is a test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short-term obligations as &when they become due. Quick ratio may be defined as the relationship between quick or liquid assets and current liabilities. An asset is said to be liquid if it is converted into cash within a short period without loss of value.

Quick Ratio =

Quick Assets Current Liabilities- Bank OD

Components of Quick or Liquid Ratio QUICK ASSETS Cash in hand Cash at bank Bills receivable Sundry debtors Marketable securities Temporary Investments CURRENT LIABILITITES Outstanding or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

(c) ABSOLUTE LIQUID RATIO Although receivable, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence, absolute liquid ratio should also be calculated together with current ratio and quick ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets.

Quick Ratio =

Quick Assets Current Liabilities- Bank OD

Absolute liquid assets include cash in hand etc. The acceptable forms for this ratio is 50% (or) 0.5:1 (or) 1:2 i.e., Rs.1 worth absolute liquid assets are considered to pay Rs.2 worth current liabilities in time as all the creditors are nor accepted to demand cash at the same time and then cash may also be realized from debtors and inventories.

Components of Absolute Liquid Ratio ABSOLUTE LIQUID ASSETS Cash in hand Cash at bank Interest on Fixed Deposit CURRENT LIABILITITES Outstanding or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

2. LEVERAGE RATIOS The leverage or solvency ratio refers to the ability of a concern to meet its long term obligations. Accordingly, long term solvency ratios indicate firms ability to meet the fixed interest and costs and repayment schedules associated with its long term borrowings. The following ratio serves the purpose of determining the solvency of the concern.

(a) PROPRIETORY RATIO A variant to the debt-equity ratio is the proprietary ratio which is also known as equity ratio. This ratio establishes relationship between share holders funds to total assets of the firm.

Proprietory ratio=

Shareholders fund Total Assets

Components of Proprietory Ratio SHARE HOLDERS FUND Share Capital Reserves & Surplus TOTAL ASSETS Fixed Assets

Current Assets Cash in hand & at bank Bills receivable Inventories Marketable securities Short-term investments Sundry debtors Prepaid Expenses

3. ACTIVITY RATIOS Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affect the volume of sales. Activity ratios measure the efficiency (or) effectiveness with which a firm manages its resources (or) assets. These ratios are also called Turn over ratios because they indicate the speed with which assets are converted or turned over into sales. Working capital turnover ratio Fixed assets turnover ratio Capital turnover ratio Current assets to fixed assets ratio

(a) WORKING CAPITAL TURNOVER RATIO Working capital of a concern is directly related to sales.

Working capital = Current assets - Current liabilities

It indicates the velocity of the utilization of net working capital. This indicates the no. of times the working capital is turned over in the course of a year. A higher ratio indicates efficient utilization of working capital and a lower ratio indicates inefficient utilization. Working capital turnover ratio=cost of goods sold/working Capital. Components of Working Capital Ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses CURRENT LIABILITITES Outstanding or accrued expenses Bank over draft Bills payable Short-term advances Sundry creditors Dividend payable Income-tax payable

(b) FIXED ASSETS TURNOVER RATIO It is also known as sales to fixed assets ratio. This ratio measures the efficiency and profit earning capacity of the firm. Higher the ratio, greater is the intensive utilization of fixed assets. Lower ratio means under-utilization of fixed assets. Cost of Sales Net fixed assets

Fixed assets turnover ratio =

Cost of Sales = Income from Services Net Fixed Assets = Fixed Assets Depreciation

(c) CAPITAL TURNOVER RATIOS Sometimes the efficiency and effectiveness of the operation share judged by comparing the cost of sales or sales with amount of capital invested in the business and not with assets held in the business, though in both cases the same result is expected. Capital invested in the business maybe classified as long-term and short-term capital or as fixed capital and working capital or Owned Capital and Loaned Capital. All Capital Turnovers are calculated to study the uses of various types of capital. Cost of goods sold Capital employed

Capital turnover ratio =

Cost of Goods Sold = Income from Services Capital Employed = Capital + Reserves & Surplus

(d) CURRENT ASSETS TO FIXED ASSETS RATIO This ratio differs from industry to industry. The increase in the ratio means that trading is slack or mechanization has been used. A decline in the ratio means that debtors and stocks are increased too much or fixed assets are more intensively used. If current assets increase with the corresponding increase in profit, it will show that the business is expanding.

Current Assets to Fixed Assets Ratio =

Current Assets Fixed Assets

Component of Current Assets to Fixed Assets Ratio CURRENT ASSETS Cash in hand Cash at bank Bills receivable Inventories Work-in-progress Marketable securities Short-term investments Sundry debtors Prepaid expenses FIXED ASSETS Machinery Buildings Plant Vehicles

4. PROFITABILITY RATIOS The primary objectives of business undertaking are to earn profits. Because profit is the engine, that drives the business enterprise. Net profit ratio Return on total assets Reserves and surplus to capital ratio Earnings per share Operating profit ratio Price earnings ratio

(a) NET PROFIT RATIO Net profit ratio establishes a relationship between net profit(after tax) and sales and indicates the efficiency of the management in manufacturing, selling administrative and other activities of the firm.

Net profit ratio=

Net profit after tax Net sales

Net Profit after Tax = Net Profit () Depreciation () Interest () Income Tax

Net Sales = Income from Services It also indicates the firms capacity to face adverse economic conditions such as price competitors, low demand etc. Obviously higher the ratio, the better is the profitability. (b) RETURN ON TOTAL ASSETS Profitability can be measured in terms of relationship between net profit and assets. This ratio is also known as profit-to-assets ratio. It measures the profitability of investments. The overall profitability can be known. Net profit Total assets

Return on assets =

Net Profit = Earnings before Interest and Tax Total Assets = Fixed Assets + Current Assets

(c) RESERVES AND SURPLUS TO CAPITAL RATIO It reveals the policy pursued by the company with regard to growth shares. A very high ratio indicates a conservative dividend policy and increased ploughing back to profit. Higher the ratio better will be the position. Reserves& surplus Capital

Reserves & surplus to capital =

(d) EARNINGS PER SHARE Earnings per share is a small verification of return of equity and is calculated by dividing the net profits earned by the company and those profits after taxes and preference dividend by total no. of equity shares. Net profit after tax Number of Equity shares

Earnings per share =

The Earnings per share is a good measure of profitability when compared with EPS of similar other components (or) companies, it gives a view of the comparative earnings of a firm.

(e) OPERATING PROFIT RATIO Operating ratio establishes the relationship between cost ofgoods sold and other operating expenses on the one hand and the sales onthe other. Operating cost Net sales

Operating ratio =

However 75 to 85% may be considered to be a good ratio incase of a manufacturing under taking. Operating profit ratio is calculated by dividing operating profit by sales.

Operating profit = Net sales - Operating cost

Operating Profit ratio =

Operating Profit sales

(f) PRICE - EARNING RATIO Price earnings ratio is the ratio between market price per equity share and earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether (or) not to buy shares in a particular company. Generally, higher the price-earnings ratio, the better it is. If the price earnings ratio falls, the management should look into the causes that have resulted into the fall of the ratio. Price Earnings Ratio = Market Price per Share Earnings per Share

Market Price per Share =

Capital + Reserves & Surplus Number of Equity Shares

Earnings per Share =

Earnings before Interest and Tax Number of Equity Shares

(g) RETURN ON INVESTMENTS Return on share holders investment, popularly known asReturn on investments (or) return on share holders or proprietors funds isthe relationship between net profit (after interest and tax) and theproprietors funds. Return on shareholders investment = Net profit (after interest and tax) Shareholders funds

The ratio is generally calculated as percentages by multiplying the above with 100.

DATA ANALYSIS AND INTERPRETATION

LIQUIDITY RATIO 1. CURRENT RATIO (Amount in Cr...) For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 0.65 : 1 0.84 : 1 1.17 : 1 0.95 : 1 1.71 : 1

Current Ratios
1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 2010 2011

Current Ratios

Interpretation: The ideal level of current ratio is 2:1.we shown too much higher ratio its good for the company. Higher the current ratio, the larger is the amount of rupees available per rupees of current liabilities, the more is the firms ability to meet current obligation and greater is safety of fund of short term creditors. Companys current ratio is not better than its ideal level. But i f w e s e e t h e current ratio of the company for last five years it has decreased from 2006-07 to 2009-10. The current ratio of company is near the ideal ratio. This depicts that

companys liquidity position is much better in previous years. Its current assets are more than its current liabilities in 2010-11. 2. QUICK RATIO (Amount in Cr...)

Quick Ratio
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 2010 2011 Quick Ratio

For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11

0.98 : 1 1.35 : 1 1.37 : 1 1.31 : 1 1.12 : 1

Interpretation: Quick assets are those assets which can be converted into cash within a short period of time, say to six months. So, here the sundry debtors which are with the long period does not include in the quick assets. A quick ratio is an Indication that the firm is liquid and the ability to meet its current liabilities in time. The Ideal quick ration is 1:1, Company Quick ratio is more than the ideal ratio. So, The Quick ratio is increased because the sundry debtors are increased due to the increase in the corporate tax and for that the provision created is also increased. So, the ratio is also increased from 2007-08 and the ration is more than ideal ration from 2007-08 to 2010-11. This shows Company has strong liquidity position.

3. DEBT EQUITY RATIO (Amount in Cr...) For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 1.27 0.55 0.61 0.60 0.55

Debt Equity Ratio

1.5 1 0.5 0 2007 2008 2009 2010 2011 Debt Equity Ratio

Interpretation: The ratio suggests the claims of creditors and owners over the assets of the company. Suppose the ratio comes to be 1:2 or 0.5:1, it says that for every Rs 1 financed by debts, there is Rs 2 being brought in by the equity shareholders . The debt-to-equity ratio shows the best pictures (growth) of a company's leverage. The higher the figure, the higher is the leverage the company enjoys. The calculate figure is 0.55 in 2010-11 which means that the company has been constructive in the growth of their financial control in Previous Years but as compare with 200910 the company DER is 0.60 which is lesser than previous year so the company focus on this ratio to improve its market position but overall the company leverage is good. This means that the company growing is in fluctuation every year. On the other hand, at a lower D/E ratio, the lenders enjoy a better margin of safety. If the ratio is higher, the lenders will have interference in the management as they havehigher stake in the business. By taking into consideration the debt equity

ratio in 2008-09 to 2010-11 is more than the ideal Ratio, so the company leverage is good.

4. ABSOLUTE LIQUIDITY RATIO (Amount in Cr...) For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 0.011 0.053 0.082 0.043 0.018

Absolute Liquidity Ratio

0.1 0.08 0.06 0.04 0.02 0 2007 2008 2009 2010 2011 Absolute Liquidity Ratio

Interpretation: According to the rule of thumb the absolute liquid assets is 0.5/1. But when we calculate the figure is less 0.011 in 2007-08, 0.082 in 2009-10 and 0.018 in 201011 that means the company was not able to satisfy its primary cash requirement with cash generation by operation. Because of in both years the company Liquidity ratio is extremely lower in each year for that company has not sufficient Assets to meet the requirement of its liabilities. According to the balance sheet the company has less cash and its assets were increase but in other side its liability was also increases due to the credit purchase and credit sales. So the company must focus on its Debtor and its cash transaction and also minimize its liability. These ratio shows that company carries a small amount of cash. But there is

nothing to be worried about the lack of cash because company has reserve, borrowing power & long term investment. In India, firms have credit limits sanctioned from banks and can easily draw cash. PROFITABILITY RATIOS 5. NET PROFIT RATIO (Amount in Cr.) For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 6.58 15.60 8.11 11.25 -

Net Profit Ratio

18 16 14 12 10 8 6 4 2 0 2007 2008 2009 2010 2011

Net Profit Ratio

Interpretation: The net profit ratio is the overall measure of the firms ability to turn each rupee of income from services in net profit. If the net margin is inadequate the firm will fail to achieve return on shareholders funds. High net profit ratio will help the firm service in the fall of income from services, rise in cost of production or declining demand. This ratio shows whether the company has good gross profit or not. So the figure 8.11 % in 2008-09 and 11.25 in 2009-10 which shows that is quiet unimpressive

and the company is not making good profit. Here the gross profit increase in 2010-11 but still the company has not enough gross profit and HNG Ltd profit margin increase every year because of its inventory turnover ratio but it is not enough.

6. GROSS PROFIT RATIO (Amount in Cr.)

For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11

16.02% 13.44% 12.50% 14.41% 9.90%

Gross Profit Ratio

18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2007 2008 2009 2010 2011

Gross Profit Ratio

Interpretation: Gross profit is the result of the relationship between prices, sales volume and costs. A change in the gross margin can be brought about by changes in any of these factors. The gross margin represents the limit beyond which fall in sales prices are outside the tolerance limit. In this company in 2006-07 gross profit margin is 16.02%, its good for the every company, but after one year it was fallen down to 9.90%. In 2010-11 margin was very low compare to previous year. So the figure 16.02 % in 2007-08, 12.50% in

2008-09 and 14.41% in 2009-10 which shows that is quiet unimpressive and the company is not making good profit.

7. OPERATING PROFIT RATIO (Amount in Cr.)

For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 Interpretation:

18.96% 20.30% 18.20% 20.76% 16.36%

This ratio shows that effectiveness of a company's management by comparing operating expense to net sales. Here the operating Ratio is 18.96 % in 2006-07 and 18.20% in 2008-09 which is less. In compare the operating ratio is decrease in 2010-11 that means decrease in operating cost that increase total productivity. This means that the company has not able to generate more margin as it expense in operating sector. Using this ratio the invertors not interested in investing more in money in the company if its operating Ratio low because they believe that return is not being debt.

Operating Profit Ratio

25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2007 2008 2009 2010 2011 Operating Profit Ratio

DATA ANALYSIS OF BALANCE SHEET (HNG Ltd) -

8. INVENTORIES (Amount in Cr...) Year Current Assets Current Liabilities Ratio For Year 2006-07 101.29 For Year 2007-08 93.33 For Year 2008-09 164.15 For Year 2009-10 215.78 For Year 2010-11 209.95 Interpretation: Inventories are a major part of current assets. If any company wants to manage its working capital efficiency, it has to manage its inventories efficiently. The Table shows that inventory in 2006-07 is 101.29 Cr. in 2008-09 is 164.15 Cr. and in 2010-11 is 209.95 Cr. of their current assets. The company should try to reduce the inventory upto 10% or 20% of current assets.

9. DEBTORS -

(Amount in Cr...)

For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 Interpretation:

92.17 89.77 164.50 227.19 220.10

Debtors constitute a substantial portion of total current assets. In India it constitute one third of current assets. The above Table is depicting that there is increase in debtors. It represents an extension of credit to customers. The reason for increasing credit is competition and company liberal credit policy.

10. CURRENT ASSETS (Amount in Cr...) Absolute Cash Ratio Year Absolute Liquid Assets Current Liabilities Ratio For Year 2006-07 194.83 For Year 2007-08 183.74 For Year 2008-09 344.86 For Year 2009-10 454.15 For Year 2010-11 434.61 Interpretation: This Table shows that there is increase in current assets in 2007-08 to 2009-10. This increase is arising because there is approx. 50% increase in inventories. Increase in current assets shows the liquidity soundness of company. 11. CURRENT LIABLITITES (Amount in Cr.)

Net For Year 2006-07 For Year 2007-08 For Year 2008-09 For Year 2009-10 For Year 2010-11 Ratio Interpretation:

118.44 118.83 195.93 258.53 246.31

Current liabilities shows company short term debts pay to outsiders. In 2007 to 2010 the current liabilities of the company increased. But still increase in current assets is more than its current liabilities. OBSERVATIONS AND FINDINGS -

As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the company for last three years it has increased from 2008 to 2010... This depicts that companys liquidity position is sound. Its current assets are more than its current liabilities. A quick ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. The ideal quick ratio is 1:1. Companys quick ratio is more than ideal ratio. This shows company has no liquidity problem. Inventory conversion period shows that how many days inventories take to convert from raw material to finished goods. In the company inventory conversion period is decreasing. This shows the efficiency of management to convert the inventory into cash. Current liabilities shows company short term debts pay to outsiders. In 2010 the current liabilities of the company increased. But still increase in current assets is more than its current liabilities.

 Working capital is required to finance day to day operations of a firm. There should be an optimum level of working capital. It should not be too less or not too excess. In the company there is increase in working capital. The increase in working capital arises because the company has expanded its business.

LIMITATIONS OF THE STUDY

Non monetary aspects are not considered making the results unreliable. Different accounting procedures may make results misleading. In spite of precautions taken there are certain procedural and technical limitations. Accounting concepts and conventions cause serious limitation to financial analysis. Lack of sufficient time to exhaust the detail study of the above topic became a hindering factor in my research.

SUGGESTIONS -

After interpretation and analysis, I am giving certain suggestions to the company which I hope may be helpful for the company.

The company should utilize its stock more efficiently.

 The company should pay attention towards the proper and efficient utilization of working capital. The company can reduce the time for purchase order. The buffer should be maintained in case of emergency. Insurance should be covered especially fire in case of transit journey also.

CONCLUSION -

In the present study I have analyzed the working management of Hindustan National Glass and Industries Ltd. I found that inventory is increasing which shows that company has sufficient stocks to meet up out production of the company. Inventory Turnover Ratio measures the velocity of conversion of stock into sales. Usually, a high inventory turnover indicates efficient management of inventory because more frequently the stocks are sold; the lesser amount of money is required to finance the inventory. The Inventory Turnover Ratio is decreasing which is not a good sign for the company. The business firm has adequate internal control procedure commensurate with the size of the firm and nature of its business for the purchase of stores, machinery, equipment and other assets and with regards to sale of goods. From the comparative study of inventory turnover it is clear that stock velocity indicates inefficient management of inventory during the year 2009. So the companys performance outlook continues to be positive and optimistic. The company remains confident of delivering of strong operating and financial performance. Efficient stock velocity indicates efficient management of inventory of the firm and no slow movement of the stock due to damaged goods.

REFERENCES Pandey IM and KLW Parera (1997), Determinants of Effective Working Capital Management - A Discriminant Analysis Approach, IIMA Working Paper # 1349, Research and Publication Department Indian Institute of Management Ahmedabad India. Lamberson M (1995), Changes in Working Capital of Small Firms in Relation to Changes in Economic Activity. Mid-American Journal of Business 10(2): 45-50. Weinraub HJ and S Visscher (1998), Industry Practice Relating To Aggressive Conservative Working Capital Policies. Journal of Financial and Strategic Decision 11(2): 11-18. Sathamoorthi CR (2002), The Management of Working Capital in selected cooperatives in Botswana. Finance India Dehli16(3 Filbeck G and T Krueger (2005), Industry Related Differences in Working Capital Management. Mid-American Journal of Business .