INTRODUCTION Finance is regarded as THE LIFE BLOOD OF BUSINESS ENTERPRISE.

Finance function has become so important that it has given birth to financial management as a separate subject. So, this subject is acquiring universal applicability. Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. As a separate activity or discipline is of recent origin it was a branch of economics till 1890. Still today it has no unique knowledge of its own, and it draws heavily on economy for its theoretical concepts. The subject of financial management is of immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing, and there are still certain areas where controversies exist for which no unanimous solutions have been reached as yet. Practicing Managers are interested in this subject because among the most crucial decisions of the firm are those which relate to finance and an understanding of the theory of financial management provides them with conceptual and analytical insights. Scope of Finance Function: Firms create manufacturing capacities of production for goods; some provide services to customers. They sell their goods or services to earn profits. They raise funds to acquire manufacturing and other facilities. Thus, the three most important activities of a business firm are: Production Marketing Finance A firm secures whatever capital it needs and employees it (finance activity) in activities that generate returns on invested capital (production and marketing activities). A business firm thus is an entity that engages in activities to perform the functions of finance, production and

marketing. The raising of capital funds and using them for generating returns to the supplies of funds is called the finance function of the firm. Objective of the Financial Decision Making The following two are often considered as the objectives of the financial management. The maximization of the profits of the firm, and The maximization of the shareholders wealth SIGNIFICANCE OF FINANCIAL MANAGEMENT : It assists in the assessment of financial needs of industry large or small and indicates the internal and external resources for meeting them. It assesses the efficiency and effectiveness of the financial institution in mobilizing individual or corporate science. It also prescribes various means for such mobilization of savings into desirable investment channels. It assists the management while investing the funds in profitable projects by analyzing the viability of that project through capital budgeting techniques. It permits the management to safeguard against the interest of shareholders by properly utilizing the funds procured from different sources and it also regulates and controls the funds to get maximize use.

NEED FOR THE STUDY Financial Ratios are most frequently and widely used in practice to assess the financial performance. The future plans of the firms should be laid down in view of the of the firms financial strengths and weaknesses. Ratio analysis is one of the important tools in the hands of management in the process of identifying the financial strengths and weaknesses of the firm. The information regarding to financial performance through ratio analysis is very useful to the management of the firms for the improvement of financial performance, owners, creditors, investors, and others from time to time.

SCOPE OF THE STUDY The present study focuses on analysis of Working Capital employed by NCC LIMITED (Formerely NAGARJUNA CONSTRUCTION COMPANY LIMITED), Hyderabad for a period of five years. The Working Capital is analyzed through financial ratios and the present study gives more information about the liquidity position, operating position, and also profitability position of NCC LIMITED. The study is especially needed to the following parties like creditors, management, government, investors, etc.

OBJECTIVES OF THE STUDY The present study in NCC has been under taken to evaluate the overall performance by establishing the following objectives :1. To know the working capital analysis through Ratio analysis. 2. To get an insight as to how a financial statement can be used to predict the future trend. 3. To study the ability of the firm to meet its current requirements. 4. To study the extent to which the firm has used its long-term solvency by borrowing funds. 5. To know about the overall operating efficiency in performance of Nagarjuna Constructions Company Limited, Hyderabad. 6. To identify the financial strength and weakness of the firm. 7. To test the liquidity position of the firm.

METHOLOGODY OF THE STUDY The required data for this study was collected through two sources i.e., 1. Primary Data: The primary data comprises information obtained by the candidate during discussions with Heads of Departments and from the meeting with officials and staff i.e., finance department, accounting department, HR department. 2.Secondary Data: The secondary data has been collected from information through Annual Reports, Public Report, and other Printed Materials supplied by the Company.

LIMITATIONS OF STUDY 1. The ratios are calculated on the basis of past data; these are not future indicators. 2. Most of the data is collected from secondary sources and there may be chances for bias in case of result obtained. 3. The study is done from academic point of view rather than practical approach. 4. Time period allowed for the study was not sufficient. 5. Confidentiality of the management does not permit to do an in depth study.

COMPANY PROFILE
The NCC Limited (Formerly Nagarjuna Construction Company Limited)
The year 1978 saw Dr AVS Raju take that single step along with like-minded people to establish Nagarjuna Construction Corporation as a partnership firm. It was the vision of this simple man who believes in human values, common sense and value of time. It has been journey of excellence since then. Starting off with the corporate office in Hyderabad, regional offices were opened to facilitate the geographical spread of new projects. The firm was converted as Nagarjuna Construction Company Limited and was listed on the BSE & NSE stock exchanges in 1992. The year 1995 saw NCC crossing a turnover of Rs. One billon. The Building Division was established in 1996 followed by the Transportation Division in 1998. The Water, Electrical, Power, Irrigation, Metals, Oil & Gas Divisions were established subsequently. The GDRs, of the Company are listed on the Luxembourg stock exchange. The enormous trust placed by foreign institutional investors is reflected by the investment of US $ 100 million as on date by the Blackstone group of USA. The Company has offices in Muscat (Oman),, Dubai (UAE) and Srilanka and has bagged projects in these countries. Today, NCC is the only construction company from India hailed as 'Best under a Billion' in Asia Pacific by Forbes Asia. It is ranked as the fastest growing construction company in the country by Construction World - NICMAR and also as the 2nd largest company in terms of turnover for the year 2006-07. It is also rated as one of India's most admired companies by Construction World and is the 4th fastest growing company in India across all sectors in a study conducted by Dalal Street Magazine. NCC has a super ranking of 103 among India's top 1000 companies. It

has also been ranked third on the basis of total income in construction and allied activities sector by Dun and Bradstreet in their acclaimed publication "India's Top 500 companies" in 2006. The Company's projects have been recognized as the "Outstanding Structure of the Year" by the Indian Concrete Institute two years in a row. NCC was awarded a bonus of Rupees 20 million for early completion of its projects. Its turnover for the financial year 2009-10 stood at Rs.48 billion.

NCC's Vision Statement To be a world-class construction and infrastructure enterprise committed to quality, timely completion, customer satisfaction, continuous learning and enhancement of stakeholder's value. NCC's Mission Statement To build a strong future ensuring increased returns to shareholders and enhanced support to associates. To adopt latest technologies in the field of engineering, construction, operation & maintenance of infrastructure projects. To encourage innovation, professional integrity, up gradation of knowledge and skills of employees and a safe working environment. To be a responsible corporate citizen committed to the social cause. Values Statement of NCC 1. Openness and trust 2. Integrity & reliability 3. Teamwork & collaboration 4. Commitment 5. Creativity Quality Policy of NCC

NCC strives to achieve enhanced customer satisfaction by delivering the quality products through timely completion with safe working environment. We dedicate ourselves to continual improvement in all fields of our business. Corporate Social Responsibility An essential component to NCC's corporate social responsibility is to care for the community and to make a positive contribution towards social causes by supporting a wide range of socioeconomic and educational initiatives. NCCs commitment to address important societal needs extends throughout its philanthropic outreach programs driven by the NCC Foundation. NCC's Foundation The Company has set up a public charitable trust, "NCC Foundation" as part of its Corporate Social Responsibility. NCC has earmarked one percent of its net profit every year for the social and philanthropic activities of NCC Foundation. The Foundation will:

A. Create, maintain and support need-based and area-specific services to the poor and needy in the areas of: 1. Healthcare 2. Education 3. Training B. Undertake rural and community development projects. Corporate Governance The company aims at achieving transparency, accountability and equity in all facets of its operations, and in all interactions with the stakeholders, including the shareholders, employees, government, lenders and other constituents while fulfilling the role of a responsible corporate representative committed to good corporate practices. The company is committed to achieve the good standards of corporate governance.

The company believes that all its operations and actions must result in enhancement of the overall shareholder value in terms of maximization of shareholder's benefits etc. over a sustained period of time. Health, Safety and Environment NCC is strongly committed to safety and accident prevention on project sites and work places to ensure that accidents do not take place, employees morale and satisfaction is improved, and in turn, the performance of Company is enhanced. One of our priorities is to protect the environment and the health and safety of the people who work for us. The effective management of health and safety and protection of the environment are integral to our business success. Everyone at NCC is accountable for health, safety and environment (HS&E) and we work hard to foster a culture where these three factors are taken into account wherever we operate. NCC integrates HS&E into all areas of its operation, so that its sites are healthy and safe for all who work in them. NCC is committed to carrying out all its activities without detriment to the Environment.

BOARD OF DIRECTORS
Name Sri A Ranga Raju Sri A G K Raju Sri J V Ranga Raju Sri A S N Raju Sri A V N Raju Sri R N Raju Sri N R Alluri Sri Rakesh Jhunjhunwala Sri Akhil Gupta Sri Amit Dixit Sri P Abraham Sri S Venkatachalam Sri R V Shastri Sri P C Laha Sri A J Jaganathan Sri Utpal Sheth Managing Director Executive Director Wholetime Director Wholetime Director Wholetime Director Wholetime Director Director Director Director Alternate Director to Sri. Akhil Gupta Independent Director Independent Director Independent Director Independent Director Independent Director Alternate Director to Sri. Rakesh Jhunjhunwala Designation

AWARDS

Construction World - for being one of Indias Most Admired Construction Company for the year 2007. Construction World - NICMAR. 2nd Largest Construction Company in India in the year 2006 - 07 in terms of Turnover. Lifetime Achievement Award to Chairman from Hyderabad Management Association (HMA) Ranked 3rd on the basis of total income in construction and allied activities sector by Dun and Bradstreet in their acclaimed publication ' India's Top 500 Companies. 2006 ' Construction World - NICMAR. Fastest Growing Construction Company in 2006 Lifetime Achievement Award to Founder-Chairman from Builders' Association of India.2006 One of the 200 "Best Under a Billion" listed companies in the whole of Asia-Pacific by Forbes Asia.2005 Ranked India's 4th 'Most Admired Company' by Construction world.2005 Award for 'Excellent aesthetics matching with environment' for a project comprising a flyover, bridge, pedestrian subway and allied structures at Latur, Maharashtra.Awarded by Institute of Bridge Engineers.2004 Award for 'Outstanding Concrete Structure of the Year' in 2003 for Main Athletic Stadium, Gachibowli , Hyderabad and in 2002 for Shilpa Kala Vedika, a state-of-the-art auditorium at Hyderabad Awarded "Safety Certificate" for maintaining highest standards of safety while constructing factory at Damanjodi, Orissa. By National Aluminum Company.1999.

THEORITICAL FRAME WORK OF THE STUDY

Project Report - Working Capital Management WORKING CAPITAL - Meaning of Working Capital What Does Working Capital Mean? A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as:

Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its shortterm liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital or the working capital ratio. DIVISION OF CAPITAL Capital required for a business can be classified under two main categories via, 1) 2) Fixed Capital Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as plant machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and this cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital. CONCEPT OF WORKING CAPITAL There are two concepts of working capital 1. 2. Gross working capital Net working capital

The gross working capital is the capital invested in the total current assets of the enterprises current assets are those Assets which can convert in to cash within a short period normally one accounting year. CONSTITUENTS OF CURRENT ASSETS 1) Cash in hand and cash at bank

2) 3) 4) 5)

Bills receivables Sundry debtors Short term loans and advances. Inventories of stock as: a. b. c. d. Raw material Work in process Stores and spares Finished goods

6). Temporary investment of surplus funds. 7). Prepaid expenses 8). Accrued incomes. 9). Marketable securities. CONSTITUENTS OF CURRENT LIABILITIES 1. 2. 3. 4. 5. 6. 7. Accrued or outstanding expenses. Short term loans, advances and deposits. Dividends payable. Bank overdraft. Provision for taxation, if it does not amt. to app. of profit. Bills payable. Sundry creditors.

In a narrow sense, the term working capital refers to the networking. Net working capital is the excess of current assets over current liability, or, say NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES. Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assts or the income business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following reasons: 1. It enables the enterprise to provide correct amount of working capital at correct time. 2. Every management is more interested in total current assets with which it has to operate then the source from where it is made available. 3. It takes into consideration of the fact every increase in the funds of the enterprise would increase its working capital. 4. This concept is also useful in determining the rate of return on investments in working capital. The net working capital concept, however, is also important for following reasons: It is qualitative concept, which indicates the firms ability to meet to its operating expenses and short-term liabilities. It indicates the margin of protection available to the short term creditors. It is an indicator of the financial soundness of enterprises. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds CLASSIFICATION OF WORKING CAPITAL Working capital may be classified in two ways: On the basis of concept. On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as:

Permanent or fixed working capital. Temporary or variable working capital PERMANENT OR FIXED WORKING CAPITAL Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance.

This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets. TEMPORARY OR VARIABLE WORKING CAPITAL Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business. MANAGEMENT OF WORKING CAPITAL Management of working capital is concerned with the problem that arises in attempting to manage the current assets, current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither adequate nor excessive as both the situations are bad for any firm. There should be no shortage of funds and also no working capital should be ideal. WORKING CAPITAL MANAGEMENT POLICES of a firm has a great on its probability, liquidity and structural health of the organization. So working capital management is three dimensional in nature as 1. 2. 3. It concerned with the formulation of policies with regard to profitability, liquidity and risk. It is concerned with the decision about the composition and level of current assets. It is concerned with the decision about the composition and level of current liabilities

WORKING CAPITAL ANALYSIS: As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the

working capital is employed in a business. This involves the need of working capital analysis. The analysis of working capital can be conducted through a number of devices, such as: 1. RATIO ANALYSIS. 2. FUND FLOW ANALYSIS. 3. BUDGETING. 1. RATIO ANALYSIS: NATURE OF RATIOS: Ratio analysis is a widely used tool of finance analysis. Ratio analysis is the process determining and interpreting numerical relationships based on financial statements. The term ratio in it refers to the relationship expressed in mathematical terms between Individual figures and group of figures connected with each other in some logical manner. And are selected from financial statements of the concern. The ratio analysis is based on The fact that a single accounting figure by itself may not communicate any meaningful Information but when expressed as a relative to some other figure, it may definitely provide some significant information. The relation between two or more accounting Figures/groups are called a FINANCIAL RATIO. A financial ratio helps to express the relationship between two accounting figures in such a way that users can draw conclusions about the performance, strengths and weakness of a firm. It is used to focus on financial issues like liquidity, profitability, and solvency of a given firm.

STANDARDS OF COMPARISON: The ratio analysis involves comparison for a useful interpretation of the financial Statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standards of comparison may consist of: Past ratios, i.e. ratios calculated from the past financial statements of the same Firm.

 Competitors ratios i.e. ratios of some selected firms, especially the most Progressive and successful competitor, at the same point of time. Industry ratios i.e. ratios of the industry to which the firm belongs. Projected ratios i.e., ratios developed using the projected or Performa financial Statements of the same firm. ADVANTAGES OF RATIOS: Useful for evaluating performance in terms of profitability and financial stability. Useful for intra and inter firm comparison Useful forecasting and budgeting. It is just in a tabular form over a period of years indicates the trend of the Business. Simple to understand rather than the reading but the figures of financial statement. Key tool in the hands of modern financial management. Enables outside parties to assess the strength and weakness of the firm. Ratio analysis is very useful for taking management decision and also highlights The performance in the area of profitability, financial stability and operational efficiency.

LIMITATIONS OF FINANICIAL RATIOS: The ratio analysis is a widely used of technique to evaluate the financial position and performance of business. But there are certain problems in using ratios. The analyst should be aware of these problems. The following are some of the limitations of the ratio analysis: It is difficult to decide on the proper basis of comparison. The comparison is rendered difficult because of differences on situations of two companies or of one company over years. The price level changes make the interpretations of ratios invalid. The differences in the definitions of items in the balance sheet and profit and loss statement make the interpretation of ratios difficult. The ratios calculated at a point of time are less informative and defective as they suffer from short term changes.

 The ratios are generally calculated from past financial statements and, thus no indicators of future. Differences in accounting policies and accounting period make the accounting data of two firms non-comparable as also the accounting ratios. It is very difficult to generalize whether a particular ratio is good or bad. For example, low current ratio may be said BAD from the point of view of low liquidity, but a high current ratio may not be GOOD. As this may result from inefficient working capital management. Financial ratios provide clues but not conclusions. TYPES OF RATIOS Several ratios calculated from the accounting data, can be grouped into various Classes according to financial activity or function to be evaluated. As stated earlier, the Parties interested in financial analysis are short and long-term creditors, owners and Management. Short-term creditors main interest is in liquidity position or the short-term Solvency of the firm. Long-term creditors, on the other hand, are more interested in the long-term solvency and profitability of the firm. Similarly, owners concentrate on the firms profitability and financial condition. Management is interested on in evaluating every aspect of the firms performance. They have to protect the interests of all parties and see that the firm grows profitability. In view of the requirements of various users of ratios, we may classify them into the following four important categories: Liquidity ratios Activity ratios Profitability ratios

LIQUIDITY RATIOS The terms liquidity and short term solvency are used synonymously. It means ability of the firm to repay its short term liabilities. The liquidity refers to the maintenance of cash, bank balance and those assets, which are easily convertible into cash in order to meet the liabilities as and when arising. So, the liquidity ratios study the firms short-term solvency and its ability to pay off the liabilities.

1. CURRENT RATIO: Current ratio is the ratio of current assets and current liabilities. Current assets are those assets which can be converted into cash within one year and includes cash in hand and at bank, bills receivable, net sundry debtors, stock of raw materials, finished goods, work in progress, prepaid expenses, outstanding and accrued incomes, and short term or temporary investments. Current liabilities are liabilities, which are to be repaid within period of 1 year and include bills payable, sundry creditors, bank overdraft, outstanding expenses, income received in advance, proposed dividend, provision for taxation, unclaimed dividend and short term loans and advances repayable within 1 year. Current ratio = current assets/current liabilities A current ratio of 2:1 is considered as ideal. Significance: The current ratio represents a margin of safety to its creditors. The higher the ratio, the greater the margin of safety; the larger the amount of current assets in relation to current liabilities, the more the firms liability to meet its current obligations. 2. QUICK RATIO: Quick ratio is the ratio of quick assets to quick liabilities. Quick assets are those assets, which can be converted into cash very quickly without much loss. Quick liabilities are liabilities, which have to be necessarily paid within 1 year. Quick ratio = quick assets/quick liabilities Quick assets = current assets inventories Quick liabilities = current liabilities bank overdraft A quick ratio of 1:1 is considered as ideal. Significance: A quick ratio of less than 1 is indicative of inadequate liquidity of the business. A very high quick ratio is also not available, as funds can be more profitably employed. 3. ABSOLUTE LIQUID RATIO:

It is the ratio of absolute liquid assets to quick liabilities. However, for calculation purposes, it is taken as ratio of absolute liquid assets to current liabilities. Trade investments or marketable securities are equivalent to cash therefore they may be included in the computation of absolute liquid ratio. Absolute quick ratio = absolute liquid assets/current liabilities Absolute liquid assets = cash in hand + cash at bank + short term investments. The ideal absolute ratio is taken as 1:2 or 0.5. ACTIVITY RATIOS Activity ratio measures the efficiency or effectiveness with which a firm manages its resources or assets. The better the management of these assets, the larger the amount of sales. Activity ratios are employed to evaluate the efficiency with which the firm manages and utilizes its assets .these ratios are called turn over ratios because they indicate the speed with which various assets, in which funds are blocked up, being converted or turned over into sales. A proper balance between sales and assets generally reflects that assets are managed well. Several ratios can be calculated to judge the effectiveness of asset utilization. 1. TOTAL ASSETS TURNOVER RATIO: The assets turnover ratio, measures the efficiency of a firm in managing and utilizing its assets. This ratio shows the firms ability in generating sales from all the financial resources committed to total assets. The total assets turnover ratio is computed by dividing sales by total assets Total assets turnover ratio= sales/total asset

Significance: Higher the turnover ratio, the more efficiency the management in the utilization of the assets while low turnover ratio is indicative of under-utilization of available resources and presence of idle capacity.

2. WORKING CAPTIAL TURNOVER RATIO: This ratio is defined as ratio of sales to working capital. The quantum of sales generated from each rupee of working capital into business can be known. Working capital turnover ratio = Cost of goods sold / working capital If cost of goods sold is not known then Net sales can be taken in the numerator. Working capital = Current Assets - Current Liabilities. Significance: A high working capital turnover ratio indicates efficient utilization of the firms funds i.e., converting available working capital into sales. However, it should not result in overtrading. 3. DEBTORS TURNOVER RATIO: Debtors turnover ratio expresses the relationship between average debtors and credit sales, if average debtors cant found, closing balance of debtors should be taken in the denominator. Significance: A high debtors turnover ratio or a low debt collection period is indicative of a sound credit management policy. Lower ratio signifies its inefficiency A debtors turnover collection period of 60 days is considered ideal. 4. DEBTORS COLLECTION PERIOD: The average no. of days for which debtors remain outstanding is called debt collection period or average collection period. It refers to the time taken to collect the debts. The debt collection period measures the quality of debtors since it indicates the speed of the collection. Debtors collection period = No of days in year / Debtors Turnover Ratio Significance: An exclusively long collection period implies very liberal and inefficient credit and collection performance. This certainly delays the collection of debt and impairs the firms liquidity.

The shorter the average collection period, the better the quality of debtors. Since a short collection period implies the prompt payment by debtors. 5. CREDITORS TURNOVER RATIO: Creditors turnover ratio expresses the relationship between creditors and purchases. This ratio reveals that number of times the average creditors are paid during a given accounting period. It shows how promptly the firm is in a position to pay its creditors. Creditors turnover Ratio = Net credit purchase / average creditors In case information on credit purchases is not available net purchases may be taken in the numerator. Creditors include bills payable. In case average creditors cant be found, closing balance of creditors should be taken in the denominator. Significance: The idle creditors turnover ratio is 12 or more. However, very less creditors turnover ratio, or high debt payment period, may indicate the firms inability in meeting its obligations in time. 6. PAYMENT PERIOD RATIO: Credit turnover can also be expressed in terms of number of days taken by the business to pay off its debts, it is termed as debt payment period which is calculated as: Payment period Ratio = No. of days in a year/creditors turnover ratio Significance: If the firm is not in a position to pay its creditors it will affect the good will or further supplies may be cut off. Low debt payment period indicates the firms ability in meeting its obligations in time. 7. FIXED ASSETS TURNOVER RATIO:

It is defined as the ratio of net sales to fixed assets. It is used to measure the efficiency with which the firm has utilized its investment in fixed assets and in its overall activities. It indicates generation of sales for rupee invested in fixed assets. Fixed assets turnover ratio = Net sales / Fixed Assets Significance: Fixed assets imply net fixed assets i.e. after deprecation. A high fixed assets turnover ratio indicates better utilization of the firms fixed assets in generating sales. A low ratio indicates inefficient managerial ability in utilization of fixed assets because it reveals that use of more fixed assets resulted in lower generation of sales. A ratio around 5 is considered ideal. 8. INVENTORY TURNOVER RATIO: Stock turnover ratio indicates the number of times the stock has turned over into sales in a year. It indicates the efficiency of the firm in producing and selling its products. Inventory turnover ratio = Cost of goods sold / Average Inventory Cost of goods sold = sales gross profit Average stock = (opening stock +closing stock)/2 In case, information regarding cost of goods sold is not known sales may be taken in the numerator. Similarly, if average stock can't be calculated, closing stock should be taken in the denominator. Significance: A stock turnover ratio of 8 is considered ideal. A high stock turnover ratio indicates that the stocks are fast moving and get converted into sales quickly. It is an indicative of good inventory management. A low inventory turnover ratio implies excessive inventory levels than warranted by production and sales activities

9. INVENTORY CONVERSON PERIOD Inventory or stock turnover ratio can also be expressed in terms of number of days taken for the stock to get converted into sales. It is called stock inventory conversion into period. Inventory conversion period = No of days a year / Inventory turnover ratio

PROFITABILTY RATIOS The profitability ratios measure the profitability or the operational efficiency of the firm. These ratios reflect the final results of business operations. The results of the firm can be evaluated in terms of its earnings with reference to a given level of assets or sales or owners interest etc. Besides management of the company creditors and owners are also interested in the profitability of the firm. Creditors want to get interest and repayment of principal regularly .Owners want to get a required rate of return on their investment. This is possible when the company earns enough profits. Generally two types of profitability ratios are calculated Profitability in relation to sales Profitability in relation to investment 1. NET PROFIT RATIO: The net profit establishes relation between Net profit and sales. It indicates managements efficiency in manufacturing administrating and selling the products. This ratio is the overall measure of the firms ability to turn each rupee of sales into net profit. If the net profit margin is inadequate, the firm will fail to achieve satisfactory return to shareholders funds. Net profit s obtained when operating expenses, interest, and taxes are subtracted from the gross profit. Net profit ratio = Profit After Tax / Net Sales Significance:

A firm with high net profit margin ratio would be in a advantageous position to survive in the face of falling selling prices, rising costs of production or declining demand for the product. Such a firm will be able to accelerate the profits at a faster rate than a firm with a low net profit margin. This ratio also indicates the firm capacity to withstand adverse economic conditions. 2. RETURN ON NET WORTH RATIO: It indicates the return, which the shareholders are earning on their resources invested in the business. Return on net worth ratio = Profit After Tax / Net Worth NET WORTH = Shareholders funds = Equity share capital + Preference share capital + Reserves Fictitious assets. Significance: The higher ratio, the better it is for the shareholders. However, inter firm comparisons should be made to ascertain if the returns from the company are adequate. A trend analysis of the ratio over the past few years must be done to find out the growth or deterioration in the profitability of the business. 3. RETURN ON ASSETS RATIO: It is the ratio of profit after tax to total assets. It is calculated as: Return on Assets ratio = profit after tax / Total Assets Total assets do not include fictitious assets. The higher the ratio, better it is. 4. EARNINGS PER SHARE RATIO: Earnings per share are the net profits after tax and preference dividends, which is earned on the capital representative of one equity share. It is calculated as: EPS ratio = profit after tax available to equity shareholders/no. of ordinary share

Significance:

The higher the EPS, the better is the performance of the company. The EPS is one of the driving factors in investment analysis and perhaps the most widely calculated ratios amongst all other ratios used for financial analysis. 2. FUND FLOW ANALYSIS Fund flow analysis is a technical device designated to the study the source from which additional funds were derived and the use to which these sources were put. The fund flow analysis consists of: a. b. Preparing schedule of changes of working capital Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates. 3. WORKING CAPITAL BUDGET A budget is a financial and / or quantitative expression of business plans and polices to be pursued in the future period time. Working capital budget as a part of the total budge ting process of a business is prepared estimating future long term and short term working capital needs and sources to finance them, and then comparing the budgeted figures with actual performance for calculating the variances, if any, so that corrective actions may be taken in future. He objective working capital budget is to ensure availability of funds as and needed, and to ensure effective utilization of these resources. The successful implementation of working capital budget involves the preparing of separate budget for each element of working capital, such as, cash, inventories and receivables etc Working Capital Cycle Working capital is vital to a business. They have to have funds available to pay their day to day bills, wages and so on. The working capital is made up of the current assets net of the current liabilities. It is very important to a company to manage its working capital carefully. This is particularly true where there is a substantial time lag between making the product and receiving

the money for it. In this situation the company has paid out all the costs associated with making the product (labor, raw materials and so on) but not yet got any money for it. They must therefore ensure they have enough cash to do this. The way working capital moves around the business is modeled by the working capital cycle. This shows the cash coming into the business, what happens to it while the business has it and then where it goes. A simple working capital cycle may look something like:-

Between each stage of this working capital cycle there is a time delay. For some businesses this will be very long where it takes them a long time to make and sell the product. They will need a substantial amount of working capital to survive. Others though may receive their cash very quickly after paying out for raw materials etc... (Perhaps even before they've paid their bills?) They will need less working capital. For all businesses though they need to plan how much cash they are going to have. The best way of doing this is a CASH FLOW FORECAST Cash Management Cash is common purchasing power or medium of exchange. As such, it forms the most important component of working capital. The term cash with reference to cash management is used in two senses, in narrow sense it is used broadly to cover cash and generally accepted equivalent of cash such as cheques, draft and demand deposits in banks. The broader view of cash also induce hearcash assets, such as marketable sense as marketable securities and time deposits in banks. The

main characteristics of this deposits that they can be really sold and convert in to cash in short term. They also provide short term investment outlet for excess and are also useful for meeting planned outflow of funds. We employ the term cash management in the broader sense. Irrespective of the form in which it is held, a distinguishing feature of cash as assets is that it was no earning power. Company have to always maintain the cash balance to fulfill the dally requirement of expenses. There are four primary motive for maintain the cash as follow motive of holding cash There are four motives for holding cash as follow 1. Transaction motive 2. Precautionary motive 3. Speculative motive 4. Compensating motive Transaction motive Cash balance is necessary to meet day-to-day transaction for carrying on with the operation of firms. Ordinarily, these transactions include payment for material, wages, expenses, dividends, taxation etc. there is a regular inflow of cash from operating sources, thus in case of JISL there will be two-way flow of cash- receipts and payments. But since they do not perfectly synchronize, a minimum cash balance is necessary to uphold the operations for the firm if cash payments exceed receipts. Always a major part of transaction balances is held in cash, a part may be held In the Form of marketable securities whose maturity conforms to the timing of Anticipated payments of certain items, such as taxation, dividend etc. Cash flows are somewhat unpredictable, with the degree of predictability varying among firms and industries. Unexpected cash needs at short notice may also be the result of following: 1. Uncontrollable circumstances such as strike and natural calamities. 2. Unexpected delay in collection of trade dues. 3. Cancellation of some order for goods due unsatisfactory quality. 4. Increase in cost of raw material, rise in wages, etc. The higher the predictability of firm s cash flows; the lower will be the necessity of holding this balance and vice versa. The need for holding the precautionary cash balance is also influenced by

the firm s capacity to have short term borrowed funds and also to convert short term marketable securities into cash. Speculative motive: Speculative cash balances may be defined as cash balances that are held to enable the firm to take advantages of any bargain purchases that might arise. While the precautionary motive is defensive in nature, the speculative motive is aggressive in approach. However, as with precautionary balances, firms today are more likely to rely on reserve borrowing power and on marketable securities portfolios than on actual cash holdings for speculative purposes. Advantages of cash management Cash does not enter in to the profit and loss account of an enterprise, hence cash is neither profit nor losses but without cash, profit remains meaningless for an enterprise owner. 1. A sufficient of cash can keep an unsuccessful firm going despite losses 2. An efficient cash management through a relevant and timely cash budget may enable a firm to obtain optimum working capital and ease the strains of cash shortage, fascinating temporary investment of cash and providing funds normal growth. 3. Cash management involves balance sheet changes and other cash flow that do not appear in the profit and loss account such as capital expenditure Cash cycle:One of the distinguishing features of the fund employed as working capital is that constantly changes its form to drive business wheel. It is also known as circulating capital which means current assets of the company, which are changed in ordinary course of business from one to another, as for example, from cash to inventories, inventories to receivables and receivables to cash. Basically cash management strategies are essentially related to the cash cycle together with the cash turnover. The cash cycle refers to the process by which cash is used to purchase the row material from which are produced goods, which are then send to the customer, who later pay bills. The cash turnover means the number of time firms cash is used during each year. Inventory Management

In financial view, inventory defined as the sum of the value of raw material and supplies, including spares, semi-processed material or work in progress and finished goods. The nature of inventory is largely depending upon the type of operation carried on. For instance, in the case of a manufacturing concern, the inventory will generally comprise all three groups mentioned above while in the case of a trading concern, it will simply be by stock- in- trade or finished goods. In company there should be an optimum level of investment for any asset, whether it is plant, cash or inventories. Again inadequate disrupts production and causes losses in sales. Efficient management of inventory should ultimately result in wealth maximization of owner s wealth. It implies that while the management should try to pursue financial objective of turning inventory as quickly as possible, it should at the same time ensure sufficient inventories to satisfy production and sales demand. The objectives of inventory management consist of two counterbalancing parts: 1. To minimize the firms investment in inventory 2. To meet a demand for the product by efficiently organizing the firms production and sales operation. This two conflicting objective of inventory management can also be expressed in term of cost and benefits associated with inventory. That the firm should minimize the investment in inventory implies that maintaining an inventory cost, such that smaller the inventory, the better the view point .obviously, the financial manager should aim at a level of inventory which will reconcile these conflicting elements. Some objective as follow 1. To have stock available as and when they are required. 2. To utilize available storage space but prevents stock levels from exceeding space available. 3. To maintain adequate accountability of inventories assets. 4. To provide, on item by- item basis, for re-order point and order such quantity as would ensure that the aggregate result confirm with the constraint and objective of inventory control. To keep low investment in inventories carrying cost an obsolesce losses to the minimum. Inventory components

The manufacturing firm s inventory consist following components I) Raw material ii) Work- in-progress iii) Finished goods To analyze the level of raw material inventory and work in progress inventory held by the firm on an average it is necessary to examine the efficiency with which the firm converts raw material inventory and work in progress into finished goods. Receivables Management Receivables or debtors are the one of the most important parts of the current assets which is created if the company sells the finished goods to the customer but not receive the cash for the same immediately. Trade credit arises when firm sells its products and services on credit and does not receive cash immediately. It is essential marketing tool, acting as bridge for the movement of goods through production and distribution stages to customers. Trade credit creates receivables or book debts which the firm is expected to collect in the near future. The receivables include three characteristics 1) It involve element of risk which should be carefully analysis. 2) It is based on economic value. To the buyer, the economic value in goods or services passes immediately at the time of sale, while seller expects an equivalent value to be received later on 3) It implies futurity. The cash payment for goods or serves received by the Buyer will be made by him in a future period. Objective of receivable management The sales of goods on credit basis are an essential part of the modern competitive economic system. The credit sales are generally made up on account in the sense that there are formal acknowledgements of debt obligation through a financial instrument. As a marketing tool, they are intended to promote sales and there by profit. However extension of credit involves risk and cost, management should weigh the benefit as well as cost to determine the goal of receivable management. Thus the objective of receivable management is to promote sales and profit until that point is reached where the return on investment in further funding of receivables is less .than the cost of funds raised to finance that additional credit

LIQUIDITY RATIOS
Liquidity ratio measures the firms ability to meet current obligations. 1. CURRENT RATIO: Rs. In Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 Current Assets 14965.19 19593.28 26719.66 30219.15 36554.19 Current Liabilities 7217.00 13094.56 17642.31 16408.32 18537.60 Ratio 2.07 1.50 1.51 1.84 1.97

INTERPRETATION: Higher Current Ratio represents a cushion to short term creditors. However from management point of view higher current ratio is an indication of poor planning since an excessive amount of funds are invested in current assets. The standard of 2:1 cannot be used indiscriminately. A satisfactory ratio differs depending upon the development of capital market and the availability of long-term funds to finance current assets and the nature of business etc. From the above table it is observed that the current ratio is decreased from 2.07 in the year 200506 to 1.50 in the year 2006-07 and it is also observed that the current liabilities position is increasing from 7217 million to 13094.56 million up to 2006-07 and from the year 2006-07 to 2009-10 the ratio is increased gradually from 1.50 to 1.97.

2. QUICK RATIO: Quick ratio establishes a relationship between quick or liquid assets and current liabilities. Rs in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 Quick assets 11072.60 15552.74 21226.92 22723.69 29014.74 Current liabilities 7217.00 13094.56 17642.31 16408.32 18537.60 Ratios 1.53 1.19 1.20 1.38 1.57

INTERPRETATION: The quick ratio of the company is above ideal norm i.e., 1:1 This ratio is decreasing trend. There is a tremendous decreased in quick ratio from the year 200506 to 2006-07. And the ratio is gradually increased from 2006-07 to 2009-2010. The quick ratio increased from 1.19 to 1.57. There is no stability in maintaining quick assets and quick liabilities. It is an indication of inadequate liquidity. Even though the company is maintaining ideal norm and it is in a good position to meet its obligations.

3. ABSOLUTE LIQUID RATIO: Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Rs in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The ideal absolute liquidity ratio of absolute liquid assets and current liabilities is 0.5. The company maintains 0.39 absolute liquidity ratio in the year 2005-06 there is a declining trend in the absolute liquid ratio in the year 2006-07 to 2009-2010. It has been a down fall trend because of increase in current liabilities. The company is in a position to meet its obligations by maintaining the ideal norm. The company maintains little amount of cash reserve. Cash in Millions 2809.06 2434.00 2329.84 1345.05 1996.76 Current liabilities 7217.00 13094.56 17642.31 16408.32 18537.60 Ratios 0.39 0.19 0.13 0.08 0.11

ACTIVITY RATIOS

1. TOTAL ASSETS TURNOVER RATIO: The assets turnover ratio show the firms efficiency of utilizing firms assets to maximize its sales. Rs in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 INTERPRETATION: The increase in total assets may not be an indicator of high total assets turnover ratio. But sales help to increase the financial conditions of the organization. The assets turnover ratio shows the firms efficiency in utilizing the firms assets to maximize its sales. There is an increase in the assets turnover ratio from the years 2005-06 to 2008-09. It shows the effective utilization of the assets according to requirement. Sales 15803.37 24572.27 28952.45 34971.93 40133.12 Total assets 17534.59 24599.95 33340.03 36451.93 44115.11 Total assets turnover ratio 0.90 1.00 0.87 0.96 0.91

2. WORKING CAPITAL TURNOVER RATIO:

Working capital determines the liquidity position of the firm and measures the ability of the firm to meet its current obligations. Rs in Millions Years Sales Working capital Working capital turnover ratio 2.04 3.61 2.82 2.53 2.23

2005-06 2006-07 2007-08 2008-09 2009-10

15803.37 24572.27 28952.45 34971.93 40133.12

7748.19 6798.72 10275.51 13810.83 18016.6

INTERPRETATION: From the years 2005-06 to 2006-07 there is an increase in the working capital margin but the ratio is declined from 3.61 to 2.23 from the year 2006-07 to 2009-10. This ratio is good and as per the standard norms. The trend indicates that the company is able to generate its finances without outside borrowings.

3. DEBTORS TURNOVER RATIO:

Debtors turnover ratio indicates the number of times debtors turn-over each year with relating to sales. The liquidity of company depends on quality of debtors to a great extent. Rs. in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 Current sales 18404.40 28710.52 34729.38 41514.08 47778.22 Debtors 3016.56 5816.84 8677.41 10260.34 12994.55 Debtors turnover ratio 6.10 4.94 4.00 4.05 3.68

INTERPRETATION: The debtors turnover ratio shows increasing trend from the years 2005-06 to 2009-10. It reflects on efficiency of the firm in managing credit of the organization, even though the company is in a better position to meets its obligations. The company maintains consistency in collections and credit policy.

4. DEBT COLLECTION PERIOD:

The average number of days for which debtors remain outstanding is the average collection period. Rs in Million Years Number of Days Debtors Turnover Ratio Debit collection period ratio in days

2005-06 2006-07 2007-08 2008-09 2009-10

365 365 365 365 365

6.10 4.94 4.00 4.05 3.68

60 74 91 90 99

INTERPRETATION: The debtor collection period indicates the inefficiency of trade credit management. A debtor collection of period 60 days is considered as ideal. The debtors collections period ratio in days was seen unfavorable during the year 2005-06 to 2009-10. The long collection period implies liberal, inefficient credit and collection performance.

5. FIXED ASSETS TURNOVER RATIO:

It is used to measure the managerial efficiency in which the firm has utilized its investments in fixed assets and its overall activities. It indicates the generation of the sales per rupee investment in fixed assets. Rs in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 Sales 15803.37 24572.27 28952.45 34971.93 40133.12 Net fixed assets 1849.41 4043.17 5196.90 4592.16 5538.17 Fixed assets turnover ratio 8.55 6.08 5.57 7.62 7.25

INTERPRETATION: A fixed assets turnover ratio around 5 is considered ideal. The fixed assets turnover ratio of the company is above the ideal norm. From the year 2005-06 to 2009-10 the fixed turnover ratio is up to ideal norm level. A high assets turnover ratio indicates better utilization of fixed assets.

6. INVENTORY TURNOVER RATIO: Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product

Rs in Millions Years Cost of goods sold Average inventory Inventory turnover ratio

2005-06 2006-07 2007-08 2008-09 2009-10

18404.40 28710.52 34729.38 41514.08 47778.22

2708.00 3966.57 4766.64 6494.10 7517.46

6.80 7.24 7.29 6.39 6.36

INTERPRETATON: In the year 2005-06 the inventory turnover ratio is 6.80 and there is an increasing inventory turnover ratio in the years 2006-07 & 2007-08. The ratio are 7.24 and 7.29 after that the ratio is gradually declined from 6.39 to 6.36 in the years 2008-09 to 2009-10. The ideal ratio is 8.00

7. INVENTORY CONVERSION PERIOD:

Inventory conversion period indicates the number of days the company holds inventory.

No of days Years

Inventory turnover ratio

Inventory conversion period (ratio in days)

2005-06 2006-07 2007-08 2008-09 2009-10

365 365 365 365 365

6.80 7.24 7.29 6.39 6.36

54 50 50 57 57

INTERPRETATION: The inventory conversion period is fluctuating year by year. From the year 2005-06 to 2009-10 the ratio shows an increasing trend. Initially the inventory conversion ratio is 54 and it is declined to up to 50 in the years 2005-06 to 2006-07. Thereafter the period has been increased to 57. A low conversion period is good for the organization.

PROFITABILITY RATIO 1. GROSS PROFIT RATIO:

This is calculated by dividing gross profit by net sales and is usually express as a percentage. Net sales mean sales less ratios. Rs in Millions Years Profit Before Tax Sales Gross profit ratio in %

2005-06 2006-07 2007-08 2008-09 2009-10

1262.38 2186.45 2451.94 2281.73 3530.36

18424.65 29002.31 34784.94 41555.71 48321.99

6.85% 7.54% 7.05% 5.49% 7.31%

INTERPRETATION: While going through the above gross profit margins, it was observed that the margin is decreasing stage during the year 2007-08 to 2008-09. But the ratio is in increasing trend from the years 2009-10. There is decreasing ratio in the years 2007-08 to 2008-09 and the ratio is declined from 7.05% to 5.49%

2. NET PROFIT RATIO: Net profit ratio indicates the overall measure of firms ability to turn each rupee sales into net profit.

Rs in Millions Years 2005-06 2006-07 2007-08 2008-09 2009-10 Profit After Tax 1039.04 1156.61 1619.47 1538.59 2326.15 Sales 18424.65 29002.31 34784.94 41555.71 48321.99 Net profit ratio in % 5.64% 3.99% 4.66% 3.70% 4.81%

INTERPREATION: The higher ratio is more profitable. In the business a high net profit margin would ensure adequate return to the owners of an organization. There is a high profit margin in the year 2005-06 .It has improved from the previous years

3. RETURN ON NETWORTH RATIO:

Return on net worth ratio measures the profitability of equity funds invested in the firm. The return on net worth indicates how well the firm has used the resource of owners. Rs in Millions Years Profit After tax Net worth Return on net worth ratio (in %) 11.00% 11.00% 10.00% 9.00% 10.00%

2005-06 2006-07 2007-08 2008-09 2009-10

1039.04 1156.61 1619.47 1538.59 2326.15

9451.42 10390.34 15712.77 16855.51 22456.56

INTEPRETATION: Return on shareholders ratio gives an idea about net profit on shareholders funds. Low ratio indicates the low profits available to shareholders; high profit indicates high profits available to share holders. This ratio is high in the years 2005-06 and 2006-07. There is slightly decline in the ratio from 11% to 9% in the years 2006-07 to 2008-09.

4. RETURN ON ASSETS RATIO:

The return on assets ratio is used to measure the profitability of the firm in terms of assets employed in the firm. It is also like a yardstick measuring a managerial efficiency in relation to the utilization of assets. Rs in Millions Year Net profit after tax 1039.04 1156.61 1619.47 1538.59 2326.15 Total assets Return on assets (in %)

2005-06 2006-07 2007-08 2008-09 2009-10

17527.23 25006.55 35482.60 38206.86 46705.04

6.00% 5.00% 5.00% 4.00% 5.00%

INTERPRETATION: The return on assets ratio reveals the relationship between profit after tax and total assets. The total assets dont include fictitious assets. The higher the ratio, better it is. From the year 2005-06 the return on assets has decreased from 6% to 4% in 2008-09. From the year 2009-10 there is a slight increase in the ratio.

5. EARNINGS PER SHARE:

The probability of the common shareholders investment can also be measured in many other ways. Earnings per share show the profitability of the company per share basis. It measures the profitable available to the equity shareholders on share basis, the amount that they can get on every share held in the company. Rs in Million Years 2005-06 2006-07 2007-08 2008-09 2009-10 Profit after tax 1039.04 1156.61 1619.47 1538.59 2326.15 Number of Equity shares 103.31 208.51 228.83 228.85 256.58 Earnings per share ratio 10.06 5.55 7.05 6.72 9.07

INTERPRETATION: It is calculated as follows. E P S = Net profit available to equity shareholders / number of Equity shares. There is a decrease in the earnings per share ratio from the year 2005-06 to 2009-10.