Summer Training Research Project Report

On
Working Capital
IN
( Escorts Construction Equipment)
or the partial !ul!illment o! the requirement o!
MASTER OF BUSINESS ADMINISTRATION
"!!iliate# to $ahama%a Technical &ni'ersit%( Noi#a (&)P))
(*+,,-*+,.)
Under The Guidance of: Submitted by
Dr A!i"it Dey Mi## Anami$a %haudhary
Ro&& No'()*+,--''
/NIT $anagement School
0-C( 1no2le#ge Park-II( /reater Noi#a ( /) 3) Nagar)
1
To .hom It May %oncern
This is to certi!% that $r) 4$s) 55555555Anami$a %haudhary555555 stu#ent o!
$)3)") course (*+,+-,*) at GNIT Mana/ement Schoo& 2ith #ual speciali6ation in
555555555Finance555555 7 5550R55 has satis!actoril% complete# the summer
Research project on ______Working Capital______.
This stu#% is #one un#er the gui#ance o! the un#ersigne# 8% partial !ul!illment !or the a2ar#
o!
$)3)") I 2ish him4her all the 8est !or 8right !uture ahea#)
Facu&ty Su1er!i#or
Director
2
A%2NO.3EDGEMENT
I would like to record our thanks to Mrs. Dr. Savita Mohan,
(Director), GNIOT- Management School, Mahamaya technical University
for encouraging and supporting me in doing this project successfully.
I owe my personal debt of gratitude to our guide Dr. Avijit Dey for
his valuable ideas, creative support, timely advice, keen interest and the
encouragement shown in successful completion of this project.
I am deeply indebted to Mr. Snil !mar Sharma (Deputy General
Manager under whose guidance the project was carried out, and for
valuable support, motivation, and assistance which served as the forces that
helped me to bring this project to its present shapes.
!nd all other faculty members, students, friends and all those who are
directly and indirectly involved in this endeavor.
Anami"a cha#hary
3
DE%3ARATION
I, !"!MI#! $%!UD%!&' to declare that the project report entitled
()*UD' &+,-&* -" .-&#I"G $!,I*!/ being submitted to the
M!%!M!'! *+$%"I$!/ U"I0+&)I*' for the partial fulfillment of the
re1uirement for the degree of Master of business !dministration is my
own endeavor2s and it has not been submitted earlier to any
institution3university for any degree.
,lace4
Date4
5!namika chaudhary




4
INDE4
S&no To1ic# 5a/e
Number
From To


,)Intro#uction
"8out the topic
O8jecti'e o! the stu#%
Research $etho#olog%
Pro8lem statement

( In#ustr% Pro!ile
6) Compan% Pro!ile
+ inancial anal%sis o! the compan%
7 9ata Interpretation
) in#ings
5
, Conclusion
* Suggestion
8 :imitation o! the stu#%
'- 3i8liograph%
6

INTRODU%TION
7
.OR2ING %A5ITA3

I! a !irm 2ants to increase its pro!ita8ilit%( it must also increase its risk) I! it is to #ecrease risk( it
must #ecrease its pro!ita8ilit%) The tra#e o!! 8et2een these 'aria8les is that regar#less o! ho2
the !irm increases its pro!ita8ilit% through the manipulation o! 2orking capital) The consequence
is a correspon#ing increase in risk as measure# 8% the le'el o! 2orking capital)
Working capital in simple terms is the amount o! !un#s 2hich 8usiness concerns ha'e to !inance
its #a%-to-#a% operations) It can also 8e regar#e# as that proportion o! compan%;s total capital
2hich is emplo%e# in short-term operations.
%once1t# of 9or$in/ ca1ita&:
Working capital can 8e #e!ine# through its t2o concepts( namel%<
(a) /ross 2orking capital (8) Net 2orking capital)
Gro## 9or$in/ ca1ita&:
/ross 2orking capital re!ers to the !irm;s in'estment in current assets) Current assets
are the assets 2hich can 8e con'erte# into cash 2ithin an accounting %ear an# inclu#e cash(
short term securities( #e8tors( (accounts recei'a8le or 8ook #e8ts) 8ills recei'a8le an# stock
(in'entor%))
Net 2orking capital<
Net 2orking capital re!ers to the #i!!erence 8et2een current assets an# current lia8ilities are
those claims o! outsi#ers 2hich are e=pecte# to mature !or pa%ment 2ithin an accounting %ear
an# inclu#e cre#itors (accounts pa%a8le)( 8ills pa%a8le( an# outstan#ing e=penses) Net 2orking
capital can 8e positi'e or negati'e) " positi'e net 2orking capital 2ill arise 2hen current assets
e=cee# current lia8ilities)
" negati'e net 2orking capital occurs 2hen current lia8ilities are in e=cess o! current assets)
8
Importance o! Working Capital<
,) In'estment is !i=e# assets onl% is not su!!icient to run the 8usiness) There!ore 2orking capital
or in'estment in current assets is a must !or the purchase o! ra2 materials an# !or meeting the
#a%-to-#a% e=pen#iture on salaries( 2ages( rents etc) The main a#'antages o! a#equate 2orking
capital are as !ollo2s < I! proper cash 8alance is maintaine# a Compan% can a'ail the a#'antage
o! cash #iscounts 8% pa%ing cash !or the purchase o! ra2 materials in the #iscount perio#( 2hich
results in re#ucing the cost o! pro#uction)
*)"#equate 2orking capital creates a sense o! securit%( con!i#ence an# lo%alt% not onl% through
out the 8usiness itsel! 8ut also its customers( cre#itors an# 8usiness associates)
.)" !irm can raise !un#s !rom the market( purchase o! goo#s on cre#it an# 8orro2 short-term
!un#s !rom 8anks etc) I! in'estors an# 8orro2ers are con!i#ent that the% 2ill get their #ue
interest an# pa%ment o! principle in time)
>)Certain contingencies like !inancial crises #ue to hea'% losses? 8usiness oscillation etc) can 8e
easil% o'ercome( i! the compan% maintains a#equate 2orking capital)
" continuous suppl% o! ra2 material( research programs( inno'ation an# technical #e'elopments
an# e=pansion programs can success!ull% 8e carrie# out i! 2orking capital is maintaine# in the
8usiness) It 2ill increase the pro#uction e!!icienc%( 2hich in turn increase the e!!icienc% an#
morale o! the emplo%ees( lo2er the cost an# create image in the communit%)
9eterminants o! Working Capital<
" large num8er o! !actors( each ha'ing a #i!!erent importance( in!luence 2orking capital
nee#s o! !irms) "lso( the importance o! !actors changes !or a !irm o'er time) There!ore( an
anal%sis o! rele'ant !actors shoul# 8e ma#e in or#er to #etermine total in'estment in 2orking
capital) The !ollo2ing are the !actors 2hich generall% in!luence the 2orking capital
requirements o! the !irm)
Nature o! the 3usiness
Sales an# 9eman# Con#itions
Technolog% an# $anu!acturing Polic%
9
Cre#it Polic%
"'aila8ilit% o! Cre#it
Operating E!!icienc%
Price :e'el Changes
O1eratin/ cyc&e:
Operating c%cle is the time #uration require# to con'ert sales( a!ter the con'ersion o! resources
into in'entories( into cash) The operating c%cle o! a manu!acturing compan% in'ol'es three
phases)
"cquisition o! resources such as ra2 material( la8our( po2er an# !uel etc)
$anu!acture o! the pro#uct 2hich inclu#es con'ersion o! ra2 material
into 2ork-in-progress into !inishe# goo#s
Sale o! the pro#uct either !or cash or on cre#it) Cre#it sales create account
recei'a8le !or collection)
The !irm is require# to in'est in current assets !or smooth( uninterrupte# !unctioning) It
nee#s to maintain liqui#it% to purchase ra2 materials an# pa% e=penses such as 2ages( salaries
an# other manu!acturing( a#ministrating an# selling e=penses as there is har#l% a matching
8et2een cash in!lo2s an# out!lo2s)
Stocks o! ra2 material an# 2ork-in-process are kept to ensure smooth pro#uction an# to
guar# against non-a'aila8ilit% o! ra2 material an# other components) The !irm hol#s stock o!
!inishe# goo#s to meet the #eman#s o! customers on continuous 8asis an# su##en #eman# !rom
some customers) 9e8tors are crate# 8ecause goo#s are sol# on cre#it !or marketing an#
competiti'e reasons)
The operating c%cle can 8e measure# as !ollo2s<
10
R$CP @ Ra2 material Con'ersion Perio#
WIPCP @ Work-in-progress Con'ersion Perio#
/P @ inishe# /oo#s Con'ersion Perio#
S9CPA Sun#r% 9e8tors Con'ersion Perio#
SCCPA Sun#r% Cre#itors Con'ersion Perio#
Operating C%cleAR$CPBWIPCPB/CPBS9CP-SCPP
Purchases Payment Credt Sae Coecton
RMCP+WIPCP+FGCP
Inventory Converson Perod Recevabe Converson Perod
Payabes Net Operatng Cyce
Gross Operaton Cyce
Permanent an# Caria8le Working Capital<
The minimum le'el o! current assets 2hich is continuousl% require# 8% the !irm to carr%
on its 8usiness operations is re!erre# to as permanent or !i=e# 2orking capital) 9epen#ing upon
the changes in pro#uction an# sales( the nee# !or 2orking capital o'er an# a8o'e permanent
2orking capital 2ill !luctuate)
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The e=tra 2orking capital nee#e# to support the changing pro#uction an# sales acti'ities
is calle# !luctuating( or 'aria8le 2orking capital) 3oth are necessar% to !acilitate pro#uction an#
sale through operating c%cle( 8ut temporar% 2orking capital is create# 8% the !irm to meet
liqui#it% requirements that 2ill last onl% temporaril%.
rom the a8o'e t2o graphs it is sho2n that permanent 2orking capital is sta8le o'er
time( 2hile temporar% 2orking capital is !luctuating) The permanent 2orking capital is
increasing o'er a perio# i! the !irm;s requirement !or 2orking capital is increasing)
Operating c%cle<
Operating c%cleAR$CPBWIPCPB/CPBS9CP-SCPP
R$CPARa2 $aterial Con'ersion Perio#
WIPCPAWork-in-progress Con'ersion Perio#
/CPAinishe# /oo#s Con'ersion Perio#
S9CPASun#r% 9e8tors Con'ersion Perio#
SCCPASun#r% Cre#itors Con'ersion Perio#
12
Working capital c%cle4operating c%cle
Ra2 $aterial Working progress
Cash
inishe#
/oo#s
"ccounts recei'a8les Sales
Capital require# !or a 8usiness can 8e classi!ie# un#er t2o main categories 'ia(
,) i=e# Capital
*) Working Capital
E'er% 8usiness nee#s !un#s !or t2o purposes !or its esta8lishment an# to carr% out its #a%- to-
#a% operations) :ong terms !un#s are require# to create pro#uction !acilities through purchase o!
!i=e# assets such as p7m( lan#( 8uil#ing( !urniture( etc) In'estments in these assets represent
that part o! !irm;s capital 2hich is 8locke# on permanent or !i=e# 8asis an# is calle# !i=e#
capital) un#s are also nee#e# !or short-term purposes !or the purchase o! ra2 material( pa%ment
o! 2
ages an# other #a% @ to- #a% e=penses etc)
These !un#s are kno2n as 2orking capital) In simple 2or#s( 2orking capital re!ers to that part
o! the !irm;s capital 2hich is require# !or !inancing short- term or current assets such as cash(
13
marketa8le securities( #e8tors 7 in'entories) un#s( thus( in'este# in current assts keep
re'ol'ing !ast an# are 8eing constantl% con'erte# in to cash an# this cash !lo2s out again in
e=change !or other current assets) Dence( it is also kno2n as re'ol'ing or circulating capital or
short term capital)
%ON%E5T OF .OR2ING %A5ITA3:
There are t2o concepts o! 2orking capital<
,) /ross 2orking capital
*) Net 2orking capital
The gross 2orking capital is the capital in'este# in the total current assets o! the enterprises
current assets are those
"ssets 2hich can con'ert in to cash 2ithin a short perio# normall% one accounting %ear)
%ONSTITUENTS OF %URRENT ASSETS:
,) Cash in han# an# cash at 8ank
*) 3ills recei'a8les
.) Sun#r% #e8tors
>) Short term loans an# a#'ances)
E) In'entories o! stock as<
a) Ra2 material
8) Work in process
c) Stores an# spares
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#) inishe# goo#s
0) Temporar% in'estment o! surplus !un#s)
F) Prepai# e=penses
G) "ccrue# incomes)
H) $arketa8le securities)
In a narro2 sense( the term 2orking capital re!ers to the net 2orking)Net 2orking capital is the
e=cess o! current assets o'er current lia8ilit%( or( sa%<
NET WOR1IN/ C"PIT": A C&RRENT "SSETS @ C&RRENT :I"3I:ITIES)
Net 2orking capital can 8e positi'e or negati'e) When the current assets e=cee#s the current
lia8ilities are more than the current assets) Current lia8ilities are those lia8ilities( 2hich are
inten#e# to 8e pai# in the or#inar% course o! 8usiness 2ithin a short perio# o! normall% one
accounting %ear out o! the current assts or the income 8usiness)
%ONSTITUENTS OF %URRENT 3IABI3ITIES:
,) "ccrue# or outstan#ing e=penses)
*) Short term loans( a#'ances an# #eposits)
.) 9i'i#en#s pa%a8le)
>) 3ank o'er#ra!t)
E) Pro'ision !or ta=ation ( i! it #oes not amt) to app) O! pro!it)
0) 3ills pa%a8le)
F) Sun#r% cre#itors)
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The gross 2orking capital concept is !inancial or going concern concept 2hereas net 2orking
capital is an accounting concept o! 2orking capital) 3oth the concepts ha'e their o2n merits)
The gross concept is sometimes pre!erre# to the concept o! 2orking capital !or the !ollo2ing
reasons<
,) It ena8les the enterprise to pro'i#e correct amount o! 2orking capital at correct time)
*) E'er% management is more intereste# in total current assets 2ith 2hich it has to operate
then the source !rom 2here it is ma#e a'aila8le)
.) It take into consi#eration o! the !act e'er% increase in the !un#s o! the enterprise 2oul#
increase its 2orking capital)
>) This concept is also use!ul in #etermining the rate o! return on in'estments in 2orking
capital) The net 2orking capital concept( ho2e'er( is also important !or !ollo2ing
reasons<
It is qualitati'e concept( 2hich in#icates the !irm;s a8ilit% to meet to its operating
e=penses an# short-term lia8ilities)
IT in#icates the margin o! protection a'aila8le to the short term cre#itors)
It is an in#icator o! the !inancial soun#ness o! enterprises)
It suggests the nee# o! !inancing a part o! 2orking capital requirement out o! the
permanent sources o! !un#s)
%3ASSIFI%ATION OF .OR2ING %A5ITA3:
Working capital ma% 8e classi!ie# in to 2a%s<
On the 8asis o! concept)
On the 8asis o! time)
On the 8asis o! concept 2orking capital can 8e classi!ie# as gross 2orking capital an# net
2orking capital) On the 8asis o! time( 2orking capital ma% 8e classi!ie# as<
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Permanent or !i=e# 2orking capital)
Temporar% or 'aria8le 2orking capital
5ERMANENT OR FI4ED .OR2ING %A5ITA3:
Permanent or !i=e# 2orking capital is minimum amount 2hich is require# to ensure e!!ecti'e
utili6ation o! !i=e# !acilities an# !or maintaining the circulation o! current assets) E'er% !irm has
to maintain a minimum le'el o! ra2 material( 2ork- in-process( !inishe# goo#s an# cash
8alance) This minimum le'el o! current assets is calle# permanent or !i=e# 2orking capital as
this part o! 2orking is permanentl% 8locke# in current assets) "s the 8usiness gro2 the
requirements o! 2orking capital also increases #ue to increase in current assets)
TEM5ORAR: OR ;ARIAB3E .OR2ING %A5ITA3:
Temporar% or 'aria8le 2orking capital is the amount o! 2orking capital 2hich is require# to
meet the seasonal #eman#s an# some special e=igencies) Caria8le 2orking capital can !urther 8e
classi!ie# as seasonal 2orking capital an# special 2orking capital) The capital require# to meet
the seasonal nee# o! the enterprise is calle# seasonal 2orking capital) Special 2orking capital is
that part o! 2orking capital 2hich is require# to meet special e=igencies such as launching o!
e=tensi'e marketing !or con#ucting research( etc)
Temporar% 2orking capital #i!!ers !rom permanent 2orking capital in the sense that is require#
!or short perio#s an# cannot 8e permanentl% emplo%e# gain!ull% in the 8usiness)
IM5ORTAN%E OR AD;ANTAGE OF ADE<UATE .OR2ING %A5ITA3
SO3;EN%: OF T0E BUSINESS: "#equate 2orking capital helps in
maintaining the sol'enc% o! the 8usiness 8% pro'i#ing uninterrupte# o! pro#uction)
Good9i&&: Su!!icient amount o! 2orking capital ena8les a !irm to make prompt
pa%ments an# makes an# maintain the goo#2ill)
Ea#y &oan#: "#equate 2orking capital lea#s to high sol'enc% an# cre#it stan#ing can
arrange loans !rom 8anks an# other on eas% an# !a'oura8le terms)
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%a#h Di#count#: "#equate 2orking capital also ena8les a concern to a'ail cash
#iscounts on the purchases an# hence re#uces cost)
Re/u&ar Su11&y of Ra9 Materia&: Su!!icient 2orking capital ensures regular
suppl% o! ra2 material an# continuous pro#uction)
Re/u&ar 5ayment Of Sa&arie#= .a/e# And Other Day TO Day
%ommitment#: It lea#s to the satis!action o! the emplo%ees an# raises the morale o!
its emplo%ees( increases their e!!icienc%( re#uces 2astage an# costs an# enhances
pro#uction an# pro!its)
E>1&oitation Of Fa!orab&e Mar$et %ondition#: I! a !irm is ha'ing a#equate
2orking capital then it can e=ploit the !a'ora8le market con#itions such as purchasing its
requirements in 8ulk 2hen the prices are lo2er an# hol#ings its in'entories !or higher
prices)
Abi&ity To Face %ri#e#: " concern can !ace the situation #uring the #epression)
<uic$ And Re/u&ar Return On In!e#tment#: Su!!icient 2orking capital
ena8les a concern to pa% quick an# regular o! #i'i#en#s to its in'estors an# gains
con!i#ence o! the in'estors an# can raise more !un#s in !uture)
0i/h Mora&e: "#equate 2orking capital 8rings an en'ironment o! securities(
con!i#ence( high morale 2hich results in o'erall e!!icienc% in a 8usiness)
E4%ESS OR INADE<UATE .OR2ING %A5ITA3:
E'er% 8usiness concern shoul# ha'e a#equate amount o! 2orking capital to run its 8usiness
operations) It shoul# ha'e neither re#un#ant or e=cess 2orking capital nor ina#equate nor
shortages o! 2orking capital) 3oth e=cess as 2ell as short 2orking capital positions are 8a# !or
an% 8usiness) Do2e'er( it is the ina#equate 2orking capital 2hich is more #angerous !rom the
point o! 'ie2 o! the !irm)
DISAD;ANTAGES OF REDUNDANT OR E4%ESSI;E .OR2ING
%A5ITA3:
18
,) E=cessi'e 2orking capital means i#eal !un#s 2hich earn no pro!it !or the !irm an#
8usiness cannot earn the require# rate o! return on its in'estments)
*) Re#un#ant 2orking capital lea#s to unnecessar% purchasing an# accumulation o!
in'entories)
.) E=cessi'e 2orking capital implies e=cessi'e #e8tors an# #e!ecti'e cre#it polic% 2hich
causes higher inci#ence o! 8a# #e8ts)
>) It ma% re#uce the o'erall e!!icienc% o! the 8usiness)
E) I! a !irm is ha'ing e=cessi'e 2orking capital then the relations 2ith 8anks an# other
!inancial institution ma% not 8e maintaine#)
0) 9ue to lo2er rate o! return n in'estments( the 'alues o! shares ma% also !all)
F) The re#un#ant 2orking capital gi'es rise to speculati'e transactions
DISAD;ANTAGES OF INADE<UATE .OR2ING %A5ITA:
E'er% 8usiness nee#s some amounts o! 2orking capital) The nee# !or 2orking capital arises #ue
to the time gap 8et2een pro#uction an# reali6ation o! cash !rom sales) There is an operating
c%cle in'ol'e# in sales an# reali6ation o! cash) There are time gaps in purchase o! ra2 material
an# pro#uction? pro#uction an# sales? an# reali6ation o! cash)
Thus 2orking capital is nee#e# !or the !ollo2ing purposes<
or the purpose o! ra2 material( components an# spares)
To pa% 2ages an# salaries
To incur #a%-to-#a% e=penses an# o'erloa# costs such as o!!ice e=penses)
To meet the selling costs as packing( a#'ertising( etc)
To pro'i#e cre#it !acilities to the customer)
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To maintain the in'entories o! the ra2 material( 2ork-in-progress( stores an# spares an#
!inishe# stock)
or stu#%ing the nee# o! 2orking capital in a 8usiness( one has to stu#% the 8usiness un#er
'ar%ing circumstances such as a ne2 concern requires a lot o! !un#s to meet its initial
requirements such as promotion an# !ormation etc) These e=penses are calle# preliminar%
e=penses an# are capitali6e#) The amount nee#e# !or 2orking capital #epen#s upon the si6e o!
the compan% an# am8itions o! its promoters) /reater the si6e o! the 8usiness unit( generall%
larger 2ill 8e the requirements o! the 2orking capital)
The requirement o! the 2orking capital goes on increasing 2ith the gro2th an# e=pensing o! the
8usiness till it gains maturit%) "t maturit% the amount o! 2orking capital require# is calle#
normal 2orking capital)
There are others !actors also in!luence the nee# o! 2orking capital in a 8usiness)
FA%TORS DETERMINING T0E .OR2ING %A5ITA3
RE<UIREMENTS:
'NATURE OF BUSINESS: The requirements o! 2orking is 'er% limite# in pu8lic utilit%
un#ertakings such as electricit%( 2ater suppl% an# rail2a%s 8ecause the% o!!er cash sale onl% an#
suppl% ser'ices not pro#ucts( an# no !un#s are tie# up in in'entories an# recei'a8les) On the
other han# the tra#ing an# !inancial !irms requires less in'estment in !i=e# assets 8ut ha'e to
in'est large amt) o! 2orking capital along 2ith !i=e# in'estments)
( SI?E OF T0E BUSINESS: /reater the si6e o! the 8usiness( greater is the requirement
o! 2orking capital)
65RODU%TION 5O3I%:: I! the polic% is to keep pro#uction stea#% 8% accumulating
in'entories it 2ill require higher 2orking capital)
+ 3ENT0 OF 5RDU%TION %:%3E : The longer the manu!acturing time the ra2
material an# other supplies ha'e to 8e carrie# !or a longer in the process 2ith progressi'e
increment o! la8or an# ser'ice costs 8e!ore the !inal pro#uct is o8taine#) So 2orking capital is
#irectl% proportional to the length o! the manu!acturing process)
20
7SEASONA3S ;ARIATIONS: /enerall%( #uring the 8us% season( a !irm requires
larger 2orking capital than in slack season)
).OR2ING %A5ITA3 %:%3E: The spee# 2ith 2hich the 2orking c%cle completes
one c%cle #etermines the requirements o! 2orking capital) :onger the c%cle larger is the
requirement o! 2orking capital)
,RATE OF STO%2 TURNO;ER: There is an in'erse co-relationship 8et2een the
question o! 2orking capital an# the 'elocit% or spee# 2ith 2hich the sales are a!!ecte#) " !irm
ha'ing a high rate o! stock turno'er 2ill nee#s lo2er amt) o! 2orking capital as compare# to a
!irm ha'ing a lo2 rate o! turno'er)
* %REDIT 5O3I%:: " concern that purchases its requirements on cre#it an# sales its
pro#uct 4 ser'ices on cash requires lesser amt) o! 2orking capital an# 'ice-'ersa)
8BUSINESS %:%3E: In perio# o! 8oom( 2hen the 8usiness is prosperous( there is nee#
!or larger amt) o! 2orking capital #ue to rise in sales( rise in prices( optimistic e=pansion o!
8usiness( etc) On the contrar% in time o! #epression( the 8usiness contracts( sales #ecline(
#i!!iculties are !ace# in collection !rom #e8tor an# the !irm ma% ha'e a large amt) o! 2orking
capital)
'- RATE OF GRO.T0 OF BUSINESS: In !aster gro2ing concern( 2e shall require
large amt) o! 2orking capital)
'' EARNING %A5A%IT: AND DI;IDEND 5O3I%: : Some !irms ha'e more
earning capacit% than other #ue to qualit% o! their pro#ucts( monopol% con#itions( etc) Such
!irms ma% generate cash pro!its !rom operations an# contri8ute to their 2orking capital) The
#i'i#en# polic% also a!!ects the requirement o! 2orking capital) " !irm maintaining a stea#%
high rate o! cash #i'i#en# irrespecti'e o! its pro!its nee#s 2orking capital than the !irm that
retains larger part o! its pro!its an# #oes not pa% so high rate o! cash #i'i#en#)
'( 5RI%E 3E;E3 %0ANGES: Changes in the price le'el also a!!ect the 2orking
capital requirements) /enerall% rise in prices lea#s to increase in 2orking capital)
Other# FA%TORS: These are<
21
Operating e!!icienc%)
$anagement a8ilit%)
Irregularities o! suppl%)
Import polic%)
"sset structure)
Importance o! la8our)
3anking !acilities( etc)

MANAGEMENT OF .OR2ING %A5ITA3:
$anagement o! 2orking capital is concerne# 2ith the pro8lem that arises in attempting to
manage the current assets( current lia8ilities) The 8asic goal o! 2orking capital management is
to manage the current assets an# current lia8ilities o! a !irm in such a 2a% that a satis!actor%
le'el o! 2orking capital is maintaine#( i)e) it is neither a#equate nor e=cessi'e as 8oth the
situations are 8a# !or an% !irm) There shoul# 8e no shortage o! !un#s an# also no 2orking
capital shoul# 8e i#eal) WOR1IN/ C"PIT": $"N"/E$ENT PO:ICES o! a !irm has a
great on its pro8a8ilit%( liqui#it% an# structural health o! the organi6ation) So 2orking capital
management is three #imensional in nature as
,)It concerne# 2ith the !ormulation o! policies 2ith regar# to pro!ita8ilit%( liqui#it% an# risk)
*)It is concerne# 2ith the #ecision a8out the composition an# le'el o! current assets)
.)It is concerne# 2ith the #ecision a8out the composition an# le'el o! current lia8ilities)
.OR2ING %A5ITA3 ANA3:SIS:
"s 2e kno2 2orking capital is the li!e 8loo# an# the centre o! a 8usiness) "#equate amount o!
2orking capital is 'er% much essential !or the smooth running o! the 8usiness) "n# the most
important part is the e!!icient management o! 2orking capital in right time) The liqui#it%
22
position o! the !irm is totall% e!!ecte# 8% the management o! 2orking capital) So( a stu#% o!
changes in the uses an# sources o! 2orking capital is necessar% to e'aluate the e!!icienc% 2ith
2hich the 2orking capital is emplo%e# in a 8usiness) This in'ol'es the nee# o! 2orking capital
anal%sis)
The anal%sis o! 2orking capital can 8e con#ucte# through a num8er o! #e'ices( such as<
,) Ratio anal%sis)
*)un# !lo2 anal%sis)
.)3u#geting)

'RATIO ANA3:SIS
" ratio is a simple arithmetical e=pression one num8er to another) The technique o! ratio
anal%sis can 8e emplo%e# !or measuring short-term liqui#it% or 2orking capital position o! a
!irm) The !ollo2ing ratios can 8e calculate# !or these purposes<
,)Current ratio)
*)Iuick ratio
.)"8solute liqui# ratio
>)In'entor% turno'er)
E)Recei'a8les turno'er)
23
0)Pa%a8le turno'er ratio)
F)Working capital turno'er ratio)
G)Working capital le'erage
H)Ratio o! current lia8ilities to tangi8le net 2orth)

(FUND F3O. ANA3:SIS:
un# !lo2 anal%sis is a technical #e'ice #esignate# to the stu#% the source !rom 2hich
a##itional !un#s 2ere #eri'e# an# the use to 2hich these sources 2ere put) The !un# !lo2
anal%sis consists o!<

a) Preparing sche#ule o! changes o! 2orking capital
8) Statement o! sources an# application o! !un#s)
It is an e!!ecti'e management tool to stu#% the changes in !inancial position (2orking capital)
8usiness enterprise 8et2een 8eginning an# en#ing o! the !inancial #ates)
6.OR2ING %A5ITA3 BUDGET
" 8u#get is a !inancial an# 4 or quantitati'e e=pression o! 8usiness plans an# polices to 8e
pursue# in the !uture perio# time) Working capital 8u#get as a part o! the total 8u#ge ting
process o! a 8usiness is prepare# estimating !uture long term an# short term 2orking capital
nee#s an# sources to !inance them( an# then comparing the 8u#gete# !igures 2ith actual
per!ormance !or calculating the 'ariances( i! an%( so that correcti'e actions ma% 8e taken in
!uture) De o8jecti'e 2orking capital 8u#get is to ensure a'aila8ilit% o! !un#s as an# nee#e#( an#
to ensure e!!ecti'e utili6ation o! these resources) The success!ul implementation o! 2orking
capital 8u#get in'ol'es the preparing o! separate 8u#get !or each element o! 2orking capital(
such as( cash( in'entories an# recei'a8les etc)
24
BA%2GROUND OF STUD::
Whate'er ma% 8e the organi6ation( 2orking capital pla%s an important role( as the compan%
nee#s capital !or its #a% to #a% e=pen#iture) Thousan#s o! companies !ail each %ear #ue to poor
2orking capital management practices) Entrepreneurs o!ten #onJt account !or short term
#isruptions to cash !lo2 an# are !orce# to close their operations)
In simple term( 2orking capital is an e=cess o! current assets o'er the current lia8ilities) /oo#
2orking capital management re'eals higher returns o! current assets than the current lia8ilities
to maintain a stea#% liqui#it% position o! a compan%) Other2ise( 2orking capital is a
requirement o! !un#s to meet the #a% to #a% 2orking e=penses)So a proper 2a% o! management
25
o! 2orking capital is highl% essential to ensure a #%namic sta8ilit% o! the !inancial position o! an
organi6ation)
ECE: is one o! the largest agricultural pro#uct organi6ations in the countr%( 2hich pla%s the
'ital role o! in the entire state) Seeing the goo# opportunit% to stu#% !inancial s%stems an#
practices o! ECE:( it is relati'el% important take up internship assignment on KWOR1IN/
C"PIT": $"N"/E$ENT IN ECE:;) 9uring the project 2ork( it is 8eing anal%6e# the
2orking capital position o! this organi6ation) 9ecisions relating to 2orking capital an# short
term !inancing are re!erre# to as 2orking capital management) These in'ol'e managing the
relationship 8et2een a !irmJs short-term assets an# its short-term lia8ilities) The goal o!
Working capital management is to ensure that the !irm is a8le to continue its operations an# that
it has su!!icient mone% !lo2 to satis!% 8oth maturing short-term #e8t an# upcoming operational
e=penses)
Working capital management #eals 2ith maintaining the le'els o! 2orking capital to optimum(
8ecause i! a concern has ina#equate opportunities an# i! the 2orking capital is more than
require# then the concern 2ill lose mone% in the !orm o! interest on the 8locke# !un#s)
There!ore 2orking capital management pla%s a 'er% important role in the pro!ita8ilit% o! a
compan%) "n# also #ue to hea'% competitions among #i!!erent organi6ation;s it is no2
compulsor% to look a!ter 2orking capital
RE3E;AN%E OF STUD::
"t ECE: a su8stantial part o! the total assets are co'ere# 8% current assets) Current assets !orm
aroun# .+L- >+L o! the total assets) Do2e'er this coul# 8e less pro!ita8le on the assumption
that current assets generate lesser returns as compare# to !i=e# assets)
3ut in to#a%;s competition it 8ecomes man#ator% to keep large current assets in !orm o!
in'entories so as to ensure smooth pro#uction an e=cellent management o! these in'entories has
to 8e maintaine# to strike a 8alance 8et2een all the in'entories require# !or the pro#uction)
26
So( in or#er to manage all these in'entories an# #etermine the in'estments in each in'entories(
the s%stem call !or an e=cellent management o! current assets 2hich is reall% a tough jo8 as the
amount o! in'entories require# are large in num8er)
Dere comes the nee# o! 2orking capital management or managing the in'estments in current
assets) Thus in 8ig companies like ECE: it is not eas% at all to implement a goo# 2orking
capital management as it #eman#s in#i'i#ual attention on its #i!!erent components)
The stu#% o! 2orking capital management is 'er% help!ul !or the organi6ation to kno2 its
liqui#it% position) The stu#% is rele'ant to the organi6ation to kno2 the #a% to #a% e=pen#iture)
This stu#% is rele'ant to gi'e an i#ea to utili6e the current assets)
This stu#% is also rele'ant to the stu#ent as the% can use it as a re!erence) This report 2ill help in
con#ucting !urther research) Other researcher can use this project as secon#ar% #ata)


27


OB@E%TI;E OF T0E STUD:
E'er%thing in li!e hol#s some kin#s o! o8jecti'es to 8e !ul!ille#) This stu#% is not an e=ception
to it) The !ollo2ing are a !e2 straight !or2ar# goals 2hich i ha'e trie# to !ul!ill in m% project<
,) To stu#% the 'arious components o! 2orking capital)
*) To anal%6e the liqui#it% tren#)
.) To anal%6e the 2orking capital tren#)
28
>) To appraise the utili6ation o! current asset an# current lia8ilities an# !in# out short-comings i!
an%)
E) To suggest measure !or e!!ecti'e management o! 2orking capital)
29

Research $etho#olog%
The metho#olog%( I ha'e a#opte# !or m% stu#% is the 'arious tools( 2hich 8asicall% anal%6e
criticall% !inancial position o! to the organi6ation<
%OMMONASI?E 5B3 AB%
%OMMONASI?E BA3AN%E S0EET
%OM5ARTI;E 5B3 AB%
30
%OM5ARTI;E BA3AN%E S0EET
TREND ANA3:SIS
RATIO ANA3:SIS

The a8o'e parameters are use# !or critical anal%sis o! !inancial position) With the e'aluation o!
each component( the !inancial position !rom #i!!erent angles is trie# to 8e presente# in 2ell an#
s%stematic manner) 3% critical anal%sis 2ith the help o! #i!!erent tools( it 8ecomes clear ho2 the
!inancial manager han#les the !inance matters in pro!ita8le manner in the critical challenging
atmosphere( the recommen#ation are ma#e 2hich 2oul# suggest the organi6ation in !ormulation
o! a health% an# strong position !inanciall% 2ith proper management s%stem)
I sincerel% hope( through the e'aluation o! 'arious percentage( ratios an# comparati'e anal%sis(
the organi6ation 2oul# 8e a8le to conquer itJs in e!!iciencies an# makes the #esire# changes)

RESEAR%0 MET0ODO3OG: :
Research metho#olog% is a s%stematic approach in management research to achie'e pre-#e!ine#
o8jecti'es) It helps a researcher to gui#e #uring the course o! research 2ork) Rules an#
techniques state# in research metho#olog% sa'e time an# la8our o! the researcher as researcher
kno2 ho2 to procee# to con#uct the stu#% as per the o8jecti'e)
SE3E%TION OF TO5I%< The selection o! topic is a crucial !actor in an% research stu#%)
There shoul# 8e ne2ness an# it shoul# gi'e ma=imum scope to e=plore the i#eas !rom #i!!erent
angles)
In present #a% #ue to increase in competition( 2orking capital is 8ecoming necessar% !or the
organi6ation) It is that part o! capital 2hich is necessar% to un#ertake #a% to #a% e=pen#iture o!
the 8usiness organi6ation) Whate'er ma% 8e the organi6ation( 2orking capital pla%s an
important role( as the compan% nee#s capital !or its #a% to #a% e=pen#iture) Thousan#s o!
companies !ail each %ear #ue to poor 2orking capital management practices) Entrepreneurs
o!ten #onJt account !or short term #isruptions to cash !lo2 an# are !orce# to close their
operations) Working capital is the !un# in'este# 8% a !irm in current assets) No2 in a cut throat
31
competiti'e era 2here each !irm competes 2ith each other to increase their pro#uction an#
sales( hol#ing o! su!!icient current assets ha'e 8ecome man#ator% as current assets inclu#e
in'entories an# ra2 materials 2hich are require# !or smooth pro#uction runs) Dol#ing o!
su!!icient current assets 2ill ensure smooth an# un interrupte# pro#uction 8ut at the same time(
it 2ill consume a lot o! 2orking capital) Dere creeps the importance an# nee# o! e!!icient
2orking capital management) "!ter #ue to consultation 2ith the e=ternal gui#e 4internal gui#e(
the topic 2as !inali6e# an# title# as-CA STUD: ON .OR2ING %A5ITA3
MANAGEMENT IN E%E3D
SE3E%TION OF 3O%ATION FOR T0E STUD:: The location !or stu#% 2as selecte# as
the corporate o!!ice o! ECE:( ari#a8a#)
RESEAR%0 DESIGN: C" Research #esign is the arrangement o! con#itions !or collection
an# anal%sis o! #ata in a manner that aims to com8ine rele'ance to the research purpose 2ith
econom% in proce#ureM The research #esign !ollo2e# to stu#% the 2orking capital management
in Escorts Construction Equipment :imite# (ECE:) is 9escripti'e an# "nal%tical Research
9esign)
SOUR%ES OF DATA %O33E%TION:
,) Secon#ar% #ata collection
Secondary data co&&ection:
The secon#ar% #ata are those 2hich ha'e alrea#% collecte# an# store#) Secon#ar% #ata easil% get
those secon#ar% #ata !rom recor#s( journals( annual reports o! the compan% etc) It 2ill sa'e the
time( mone% an# e!!orts to collect the #ata) Secon#ar% #ata also ma#e a'aila8le through tra#e
maga6ines( annual reports( 8ooks etc)
This project is 8ase# secon#ar% #ata collecte# through annual reports o! the organi6ation) The
#ata collection 2as aime# at stu#% o! 2orking capital management o! the compan%)
5ro"ect i# ba#ed on:
32
,) "nnual report o! ECE:) *++G-*++H
*) "nnual report o! ECE: *++H-*+,+
.) "nnual report o! ECE:) *+,+-*+,,
>) "nnual report o! ECE:) *+,,-*+,*
5ROB3EM STATEMENT:
Working capital management or simpl% the management o! capital in'este# in current assets is
the !ocus o! stu#%) So topic is to stu#% 2orking capital management o! ECE:)
33
Working capital is the !un# in'este# 8% a !irm in current assets) No2 in a cut throat competiti'e
era 2here each !irm competes 2ith each other to increase their pro#uction an# sales( hol#ing o!
su!!icient current assets ha'e 8ecome man#ator% as current assets inclu#e in'entories an# ra2
materials 2hich are require# !or smooth pro#uction runs) Dol#ing o! su!!icient current assets
2ill ensure smooth an# un interrupte# pro#uction 8ut at the same time( it 2ill consume a lot o!
2orking capital) Dere creeps the importance an# nee# o! e!!icient 2orking capital management)
Working capital management aims at managing capital assets at optimum le'el( the le'el at
2hich it 2ill ai# smooth running o! pro#uction an# also it 2ill in'ol'e in'estment o! nominal
2orking capital in capital assets)
NThe pro8lem generall% e=plains that( less attention has 8een pai# to the area o! short-term
!inance( in particular that o! 2orking capital management) Such neglect might 8e accepta8le
2ere 2orking capital consi#erations o! relati'el% little importance to the !irm( 8ut e!!ecti'e
2orking capital management has a crucial role to pla% in enhancing the pro!ita8ilit% an# gro2th
o! the !irm) In#ee#( e=perience sho2s that ina#equate planning an# control o! 2orking capital is
one o! the more common causes o! 8usiness !ailure)M

34
Indu#try 5rofi&e
About E#cort Grou1:
The Grou1:
35
The Escorts /roup( is among In#iaJs lea#ing engineering conglomerates operating in the high
gro2th sectors o! agri-machiner%( construction 7 material han#ling equipment( rail2a%
equipment an# auto components)
Da'ing pioneere# !arm mechani6ation in the countr%( Escorts has pla%e# a pi'otal role in the
agricultural gro2th o! In#ia !or o'er !i'e #eca#es) One o! the lea#ing tractor manu!acturers o!
the countr%( Escorts o!!ers a comprehensi'e range o! tractors( more than >E 'ariants starting
!rom *E to G+ DP) Escort( armtrac an# Po2ertrac are the 2i#el% accepte# an# pre!erre# 8ran#s
o! tractors !rom the house o! Escorts)
" lea#ing material han#ling an# construction equipment manu!acturer( 2e manu!acture an#
market a #i'erse range o! equipment like cranes( loa#ers( 'i8rator% rollers an# !orkli!ts) Escorts
to#a% is the 2orl#Js largest Pick JnJ Carr% D%#raulic $o8ile Crane manu!acturer)
Escorts has 8een a major pla%er in the rail2a% equipment 8usiness in In#ia !or nearl% !i'e
#eca#es) Our pro#uct o!!ering inclu#es 8rakes( couplers( shock a8sor8ers( rail !astening s%stems(
composite 8rake 8locks an# 'ulcani6e# ru88er parts)
In the auto components segment( Escorts is a lea#ing manu!acturer o! auto suspension pro#ucts
inclu#ing shock a8sor8ers an# telescopic !ront !orks) O'er the %ears( 2ith continuous
#e'elopment an# impro'ement in manu!acturing technolog% an# #esign( ne2 relia8le pro#ucts
ha'e 8een intro#uce#)
Throughout the e'olution o! Escorts( technolog% has al2a%s 8een its greatest all% !or gro2th) In
the o'er si= #eca#es o! our inception( Escorts has 8een much more than just 8eing one o! In#iaJs
largest engineering companies) It has 8een a har8inger o! ne2 technolog%( a prime mo'er on the
in#ustrial !ront( at e'er% stage intro#ucing pro#ucts an# technologies that helpe# take the
countr% !or2ar# in ke% gro2th areas) O'er a million tractors an# o'er ,0(+++ construction an#
material han#ling equipment that ha'e rolle# out !rom the !acilities o! Escorts( complemente#
8% a highl% satis!ie# customer 8ase( are testimon% to the manu!acturing e=cellence o! Escorts)
ollo2ing the glo8all% accepte# 8est manu!acturing practices 2ith relentless !ocus on research
an# #e'elopment( Escorts is to#a% in the league o! premier corporate entities in In#ia)
36
Technological an# 8usiness colla8oration 2ith 2orl# lea#ers o'er the %ears( /lo8all%
competiti'e in#igenous engineering capa8ilities( o'er ,0++ sales an# ser'ice outlets an#
!ootprints in o'er >+ countries ha'e 8een instrumental in making Escorts the In#ian
multinational) "t a time 2hen the 2orl# is looking at In#ia as an outsourcing #estination(
Escorts is rightl% place# to 8e the #epen#a8le outsourcing partner o! 2orl#Js lea#ing engineering
corporations looking at outsourcing manu!acture o! engines( transmissions( gears( h%#raulics(
implements an# attachments to tractors( an# shock a8sor8ers !or hea'% trailers)
In to#a%Js /lo8al $arket Place( Escorts is !ast on the path o! an internal trans!ormation( 2hich
2ill help it to 8e a ke% #ri'er o! manu!acturing e=cellence in the glo8al arena) or this 2e are
going 8e%on# just a#hering to pre'ailing norms( 2e are setting our o2n stan#ar#s an#
relentlessl% pursuing them to achie'e our #esire# 8enchmarks o! e=cellence)
The 0i#tory Of E#cort#:
The genesis o! Escorts goes 8ack to ,H>> 2hen t2o 8rothers( $r) D) P) Nan#a an# $r) Ou#i
Nan#a( launche# a small agenc% house( Escorts "gents :t#) in :ahore) O'er the %ears( Escorts
has surge# ahea# an# e'ol'e# into one o! In#iaJs largest conglomerates) In this journe% o! si=
#eca#es( Escorts has ha# the pri'ilege o! 8eing associate# 2ith some o! the 2orl# lea#ers in the
engineering manu!acturing space like $inneapolis $oline( $asse% erguson( /oet6e( $ahle(
&RS&S( CE1OP( or# $otor Compan%( P C 3am!or# E=ca'ators( Oamaha( Claas( Carraro(
:uck% /ol#star( irst Paci!ic Compan%( Dughes Communications( Peumont Schnei#er( 9%napac
These 'alue# relationships 8e it technological or marketing( are our highl% cherishe#
e=periences treasures( 2hich ha'e helpe# us inculcate 8est in class manu!acturing practices an#
to emerge as a technologicall% in#epen#ent 2orl# class engineering organi6ation)
(--'A(-'-:
37
(--+ -9i'este# Escotel $o8ile Telecommunications to I#ea Cellular
TS,0H>H certi!ication !or "gri $achiner% /roup
(--7 @ 9i'este# Escorts Deart Institute an# Research Centre (EDIRC) to ortis Dealthcare
(--) - 9i'este# in Carraro In#ia :t#)
(--* - ECE: launches ull% D%#raulic Cra2ler Cranes
(--8 - ECE: commissions state-o!-art manu!acturing plant !or pick-n-carr% cranes an#
'i8rator% compactors
'88-A(---:
'88-A8' - irst Pu8lic Issue in e8ruar% ,HH,( o'er-su8scri8e# !our times) Shares liste# on
9elhi an# 3om8a% Stock E=changes)
'886 - OR9 .0*+ tractor launche#)
'88) - 9isengagement o! joint 'enture colla8oration 2ith Ne2 Dollan# an# launch o!
"R$TR"C Tractor)
'88, - Point Centure 2ith Carraro o! Ital% !or manu!acturing an# marketing o! transmission an#
a=les) Point Centure 2ith irst Paci!ic Compan% o! Dong 1ong - Escotel $o8ile
Communications)
'88* - POWERTR"C series o! tractors launche#) $o& 2as signe# 2ith :ong $anu!acturing
Compan%( &S" !or setting up a Point Centure in &S")
'888 - $o& !or Point Centure 2ith a Polish Compan% PO:-$OT 2as signe# !or assem8l%(
manu!acturing an# marketing o! arm $achiner%)
'8*'A'88-:
'8*6 - Escorts Tractors :imite# (ET:) esta8lishe# a state-o!-the-art research an# #e'elopment
centre to spearhea# ne2er 8reakthroughs in arm $echanisation an# to maintain in#ustr%
38
lea#ership) :ine concept intro#uce# !or engine 8lock machining) ,,(+++ ton !loating #r%-#ock
Escorts I launche#)
'8*+ - PC Escorts - Oamaha to manu!acture motorc%cles
'8*+ - Signing o! agreement 2ith the Papanese 8ike giant Oamaha to manu!acture motorc%cles
2ith Oamaha technolog%) Colla8oration 2ith Peumont Schnei#er o! rance to manu!acture
EP"3Q s%stems Colla8oration 2ith 9%napac o! S2e#en to manu!acture 'i8rator% roa#
compactors)
'8*7 - Escorts Tractors :imite# (ET:) o!!ere# its !irst 3onus Issue (,<,))
'8** - Escorts Deart Institute an# Research Centre (EDIRC)( a 2orl# class car#iac care !acilit%
launche# in Ne2 9elhi)
'8*8 - Point Centure 2ith Claas o! /erman% to manu!acture har'ester com8ines)
'8,'A'8*-:
'8,' - ,st e8ruar%( the !irst tractor OR9 .+++ rolle# out o! the !actor%)
Escorts #i'ersi!ies an# starts manu!acturing construction equipment
'8,+ - Crossing national 8oun#aries( Escorts e=ports !or the !irst time) "!ter 2inning a glo8al
ten#er( >++ tractors 2ere e=porte# to "!ghanistan( 2hich 2as perhaps the 2orl#Js largest e'er
airli!t o! tractors)
'8,, - Escorts enters the 2orl# o! sel!-#e'elope# technolog% 8% setting up its !irst in#epen#ent
R79 Center) Escorts Scienti!ic Research Centre marke# its 8eginning at ari#a8a# 8%
#e'eloping its o2n Engines !or E-*F an# E-.F) 9ue to constant technolog% a8sorption(
in#igenisation le'el touche# F*L !or OR9 tractors) *n# plant at 3angalore !or manu!acturing
piston assem8lies 2as set up)
'8,8 - Colla8oration 2ith PC3 E=ca'ators :t#)( &1 !or manu!acture o! e=ca'ators)
'8*- - ora% into healthcare( Escorts Dospital an# Research Center set up in ari#a8a#)
39
'8)'A'8,-:
'8)' - Setting up o! manu!acturing 8ase at ari#a8a# !or manu!acture o! tractors in
colla8oration 2ith &RS&S o! Polan# an# E+L in#igenous components) :aunch o! Escort 8ran#
o! tractors) Colla8oration 2ith CE1OP o! Polan# !or manu!acture o! motorc%cles an# scooters)
Escorts mo'es into high gear 8% nurturing the t2o 2heeler culture) The !irst Raj#oot motorc%cle
rolls o!! the assem8l% line)
'8)8 - Escorts Tractors :imite# 2as 8orn) " technical an# !inancial joint 'enture 2ith the
glo8al giant or# $otor Compan%( &S"( to manu!acture or# tractors in In#ia) The %ears ahea#
sa2 Escorts gro2 as the largest tractor manu!acturer in In#ia)
Escorts Institute o! arm $echanisation (EI$) esta8lishe# at 3angalore)
Escorts Emplo%ees "ncillaries :t#) (EE":)( a unique 'enture in in#ustrial #emocrac%
comes into 8eing)
'87'A'8)-:
'87' - Escorts esta8lishe# In#iaJs !irst pri'ate Institute o! arm $echanisation at 9elhi)
'876 - Escorts ("gents) :t#) an# Escorts ("griculture an# $achines) :t#) merge# to !orm
Escorts "gents P't) :t#)
'87+ - ,st in#ustrial 'enture o! Escorts to manu!acture piston rings in colla8oration 2ith /oet6e
o! /erman%( in an era 2hen joint 'entures o! In#ian !irms 2ith !oreign companies 2ere 'irtuall%
unhear# o!)
'87* - Starte# importing $asse% erguson tractors !rom Ougosla'ia !or marketing the same in
In#ia)
'878 - Colla8oration 2ith $ahle o! /erman% to manu!acture pistons) Soon( Escorts 8ecame the
largest pro#ucer o! piston assem8lies in In#ia)
'8)- - Set up o! Escorts :imite#
40
'8+'A'87-:
'8++ - :aunch o! Escorts ("gents) :t#)
'8+* - Pioneere# !arm mechani6ation in the countr% 8% launching Escorts "gricultural
$achines :imite#( 2ith a !ranchise !rom the &)S) 8ase# $inneapolis $oline( !or marketing
tractors( implements( engines 7 other !arm equipment) :aunch o! Escorts ("griculture an#
$achines) :t#)
'8+8 - ranchise o! $asse% erguson tractors !or northern In#ia)
41
%om1any 5rofi&e
42
Escorts Construction Equipment manu!acturers an# markets a #i'erse range o! construction an#
material han#ling equipment like cranes( loa#ers( 'i8rator% rollers an# !orkli!ts) The compan%
2as a pioneer in intro#ucing the concept o! Pick JnJ Carr% h%#raulic mo8ile cranes in the F+s in
In#ia an# continues to 8e the 2orl#Js largest manu!acturer o! these cranes)
" nation2i#e net2ork o! o'er ,,+ strategicall% locate# support locations( o'er E++ compan%
traine# #ealers( ser'ice engineers( gi'es it the 8est market reach in In#ia !or the Sales 7 Ser'ice
o! material han#ling an# construction equipment)
Company Campus in Faridabad
With o'er .+ %ears e=perience in Construction Equipment In#ustr%( Escorts has a pro'en track
recor# in<
D%#raulic $o8ile Cranes
:oa#ers
orkli!ts
Ci8rator% Compactors
43
To#a%( it not onl% continues to 8e the largest mo8ile crane manu!acturer in the countr%( 8ut also
the largest Pick JnJ Carr% D%#raulic $o8ile Crane manu!acturer in the 2orl#)
While recor#ing a rapi# gro2th in Crane In#ustr% 2eJ'e also 8een a8le to stea#il% increase our
presence in the !iel# o! Ci8rator%( Soil 7 Tan#em Compactors) Escorts 2as the !irst to 8ring the
concept o! Ci8rator% Compactors in In#ia in a 8ig 2a%( 8ack in G+Js) Su8sequentl% more mo#els
in Tan#em Ci8rator% Compactors an# hea'% #ut% Soil Compactor range 2ere a##e# in technical
colla8oration 2ith D"$$ /erman%) Recentl%( 2eJ'e !urther strengthene# the range 2ith a .T
Shoul#er Compactor) To#a% our range o! compaction equipments is one o! the most pre!erre# in
the market( an# is 8eing 'ie2e# as the most e!!icient an# e!!ecti'e compaction solutions
a'aila8le in the countr%)
"long 2ith Cranes an# Compactors( 2e also manu!acture ronten# loa#ers 2ith pa%loa#
capacit% o! F++kgs) Suita8le !or narro2 lanes an# con!ine# spaces( these loa#ers are compact in
#esign an# are i#eal !or gar8age han#ling( han#ing o! chemicals( san#s( small chips( etc)
Escorts also o!!ers other material han#ing solutions like orkli!ts !rom 9ae2oo 9oosan
In!racore :t#)( 1orea an# "rticulate# 8oom cranes !rom assi( Ital%) In :P/ orkli!t categor%(
the compan% enjo%s a market share in e=cess o! GEL)
This single-min#e# pursuit o! precision an# customer satis!action has ma#e us the .r# largest in
terms o! Construction Equipment Sales unit per annum)
%om1anyE# Some 5roduct#<
' 0ydrau&ic Mobi&e %raneFMode& No:% *---G:
Detai&#:
Simpson S->.. ( > c%lin#er ( 2ater coole# #iesel engine ( rate# po2er >H 3DPR**++
rpm or equi'alent)
Transmission
Dea'% #ut% transmission !or crane application 2ith 0 !or2ar# an# * re'erse spee#s 2ith
high lo2 selector s2itch Tra'el Spee# @ *E km4hr ( restricte# as per sa!et% norms )
44
Model No:C 8000
( Bac$hoe 3oaderFMode&:Di/ma>G:
Detai&#:
uel e!!icient 1irloskar >R,++TC ( 2ater coole# #iesel engine
/ross Po2er @ E0 1W ( F0 DP ) at **++ rpm
$eets 8harat stage @III emission norms
45
Digmax
46
Financia& Ana&y#i# of
%om1any
47
ANA3:SIS OF FINAN%IA3 STATEMENTS:

FINAN%IA3 STATEMENTS:
inancial statement is a collection o! #ata organi6e# accor#ing to logical an# consistent
accounting proce#ure to con'e% an un#er-stan#ing o! some !inancial aspects o! a 8usiness !irm)
It ma% sho2 position at a moment in time( as in the case o! 8alance sheet or ma% re'eal a series
o! acti'ities o'er a gi'en perio# o! time( as in the case o! an income statement) Thus( the term
K!inancial statements; generall% re!ers to the t2o statements
,)The position statement or 3alance sheet)
*)The income statement or the pro!it an# loss "ccount)
OB@E%TI;ES OF FINAN%IA3 STATEMENTS:
"ccor#ing to accounting Principal 3oar# o! "merica ("P3) states
The !ollo2ing o8jecti'es o! !inancial statements< -
,) To pro'i#e relia8le !inancial in!ormation a8out economic resources an# o8ligation o! a
8usiness !irm)
*) To pro'i#e other nee#e# in!ormation a8out charges in such economic resources an#
o8ligation)
.) To pro'i#e relia8le in!ormation a8out change in net resources (recourses less o8ligations)
missing out o! 8usiness acti'ities)
>) To pro'i#e !inancial in!ormation that assets in estimating the learning potential o! the
8usiness)
3IMITATIONS OF FINAN%IA3 STATEMENTS:
Though !inancial statements are rele'ant an# use!ul !or a concern( still the% #o not present a
!inal picture a !inal picture o! a concern) The utilit% o! these statements is #epen#ent upon a
num8er o! !actors) The anal%sis an# interpretation o! these statements must 8e #one care!ull%
other2ise mislea#ing conclusion ma% 8e #ra2n)
inancial statements su!!er !rom the !ollo2ing limitations< -
48
,)inancial statements #o not gi'en a !inal picture o! the concern) The #ata gi'en in these
statements is onl% appro=imate) The actual 'alue can onl% 8e #etermine# 2hen the 8usiness is
sol# or liqui#ate#)
*)inancial statements ha'e 8een prepare# !or #i!!erent accounting perio#s( generall% one %ear(
#uring the li!e o! a concern) The costs an# incomes are apportione# to #i!!erent perio#s 2ith a
'ie2 to #etermine pro!its etc) The allocation o! e=penses an# income #epen#s upon the personal
ju#gment o! the accountant) The e=istence o! contingent assets an# lia8ilities also make the
statements imprecise) So !inancial statement are at the most interim reports rather than the !inal
picture o! the !irm)
.)The !inancial statements are e=presse# in monetar% 'alue( so the% appear to gi'e !inal an#
accurate position) The 'alue o! !i=e# assets in the 8alance sheet neither represent the 'alue !or
2hich !i=e# assets can 8e sol# nor the amount 2hich 2ill 8e require# to replace these assets)
The 8alance sheet is prepare# on the presumption o! a going concern) The concern is e=pecte#
to continue in !uture) So !i=e# assets are sho2n at cost less accumulate# #epreciation) $oreo'er(
there are certain assets in the 8alance sheet 2hich 2ill reali6e nothing at the time o! liqui#ation
8ut the% are sho2n in the 8alance sheets)
>)The !inancial statements are prepare# on the 8asis o! historical costs Or original costs) The
'alue o! assets #ecreases 2ith the passage o! time current price changes are not taken into
account) The statement are not prepare# 2ith the keeping in 'ie2 the economic con#itions) the
8alance sheet loses the signi!icance o! 8eing an in#e= o! current economic realities) Similarl%(
the pro!ita8ilit% sho2n 8% the income statements ma% 8e represent the earning capacit% o! the
concern)
E)There are certain !actors 2hich ha'e a 8earing on the !inancial position an# operating result o!
the 8usiness 8ut the% #o not 8ecome a part o! these statements 8ecause the% cannot 8e measure#
in monetar% terms) The 8asic limitation o! the tra#itional !inancial statements comprising the
8alance sheet( pro!it 7 loss "4c is that the% #o not gi'e all the in!ormation regar#ing the
!inancial operation o! the !irm) Ne'ertheless( the% pro'i#e some e=tremel% use!ul in!ormation to
the e=tent the 8alance sheet mirrors the !inancial position on a particular #ata in lines o! the
structure o! assets( lia8ilities etc) an# the pro!it 7 loss "4c sho2s the result o! operation #uring a
certain perio# in terms re'enue o8taine# an# cost incurre# #uring the %ear) Thus( the !inancial
position an# operation o! the !irm)

FINAN%IA3 STATEMENT ANA3:SIS:
It is the process o! i#enti!%ing the !inancial strength an# 2eakness o! a !irm !rom the a'aila8le
accounting #ata an# !inancial statements) The anal%sis is #one
%A3%U3ATIONS OF RATIOS:
49
Ratios are relationship e=presse# in mathematical terms 8et2een !igures( 2hich are connecte#
2ith each other in some manner)
%3ASSIFI%ATION OF RATIOS:
Ratios can 8e classi!ie# in to #i!!erent categories #epen#ing upon the 8asis o! classi!ication
The tra#itional classi!ication has 8een on the 8asis o! the !inancial statement to 2hich the
#etermination o! ratios 8elongs)
These are:A
Pro!it 7 :oss account ratios
3alance Sheet ratios
Composite ratios
50

Data Inter1retation
51
The short @term cre#itors o! a compan% such as suppliers o! goo#s o! cre#it an# commercial
8anks short-term loans are primaril% intereste# to kno2 the a8ilit% o! a !irm to meet its
o8ligations in time) The short term o8ligations o! a !irm can 8e met in time onl% 2hen it is
ha'ing su!!icient liqui# assets) So to 2ith the con!i#ence o! in'estors( cre#itors( the smooth
!unctioning o! the !irm an# the e!!icient use o! !i=e# assets the liqui# position o! the !irm must
8e strong) 3ut a 'er% high #egree o! liqui#it% o! the !irm 8eing tie# @ up in current assets)
There!ore( it is important proper 8alance in regar# to the liqui#it% o! the !irm) T2o t%pes o!
ratios can 8e calculate# !or measuring short-term !inancial position or short-term sol'enc%
position o! the !irm)
,):iqui#it% ratios)
*)Current assets mo'ements Kratios)
'G 3I<UIDIT: RATIOS:
:iqui#it% re!ers to the a8ilit% o! a !irm to meet its current o8ligations as an# 2hen these 8ecome
#ue) The short-term o8ligations are met 8% reali6ing amounts !rom current( !loating or
circulating assts) The current assets shoul# either 8e liqui# or near a8out liqui#it%) These shoul#
8e con'erti8le in cash !or pa%ing o8ligations o! short-term nature) The su!!icienc% or
insu!!icienc% o! current assets shoul# 8e assesse# 8% comparing them 2ith short-term lia8ilities)
I! current assets can pa% o!! the current lia8ilities then the liqui#it% position is satis!actor%) On
the other han#( i! the current lia8ilities cannot 8e met out o! the current assets then the liqui#it%
position is 8a#) To measure the liqui#it% o! a !irm( the !ollo2ing ratios can 8e calculate#<
,)C&RRENT R"TIO
*)I&IC1 R"TIO
.)"3SO:&TE :II&I9 R"TIO

52
'%URRENT RATIO
Current Ratio( also kno2n as 2orking capital ratio is a measure o! general liqui#it% an# its most
2i#el% use# to make the anal%sis o! short-term !inancial position or liqui#it% o! a !irm) It is
#e!ine# as the relation 8et2een current assets an# current lia8ilities) Thus(
C&RRENT R"TIO A C&RRENT "SSETS B C&RRENT :I"3I:ITES
The t2o components o! this ratio are<
,) C&RRENT "SSETS
*) C&RRENT :I"3I:ITES
Current assets inclu#e cash( marketa8le securities( 8ill recei'a8les( sun#r% #e8tors( in'entories
an# 2ork-in-progresses) Current lia8ilities inclu#e outstan#ing e=penses( 8ill pa%a8le( #i'i#en#
pa%a8le etc)
" relati'el% high current ratio is an in#ication that the !irm is liqui# an# has the a8ilit% to pa% its
current o8ligations in time) On the han# a lo2 current ratio represents that the liqui#it% position
o! the !irm is not goo# an# the !irm shall not 8e a8le to pa% its current lia8ilities in time) " ratio
equal or near to the rule o! thum8 o! *<, i)e) current assets #ou8le the current lia8ilities is
consi#ere# to 8e satis!actor%)
53
%A3%U3ATION OF %URRENT RATIO:

Inter1retation:
"s 2e kno2 that i#eal current ratio !or an% !irm is *<,) I! 2e see the current ratio o! the
compan% !or last three %ears it has increase# !rom *+,* to *+,,) The current ratio o! compan% is
more than the i#eal ratio) This #epicts that compan%;s liqui#it% position is soun#) Its current
assets are more than its current lia8ilities)
(<UI%2 RATIO
Iuick ratio is a more rigorous test o! liqui#it% than current ratio) Iuick ratio ma% 8e #e!ine# as
the relationship 8et2een quick4liqui# assets an# current or liqui# lia8ilities) "n asset is sai# to
8e liqui# i! it can 8e con'erte# into cash 2ith a short perio# 2ithout loss o! 'alue) It measures
the !irms; capacit% to pa% o!! current o8ligations imme#iatel%)
I&IC1 R"TIO A I&IC1 "SSETS B C&RRENT :I"3I:ITES
Where Iuick "ssets are<
,) $arketa8le Securities
54
Oear (-'- (-'' (-'(
Current "ssets G,)*H G.),* ,.(0)EF
Current :ia8ilities *F)>* *+)EG ..)>G
Current Ratio *)H0<, >)+.<, >)+G<,
*) Cash in han# an# Cash at 8ank)
.) 9e8tors)
" high ratio is an in#ication that the !irm is liqui# an# has the a8ilit% to meet its current
lia8ilities in time an# on the other han# a lo2 quick ratio represents that the !irms; liqui#it%
position is not goo#)
"s a rule o! thum8 ratio o! ,<, is consi#ere# satis!actor%) It is generall% thought that i! quick
assets are equal to the current lia8ilities then the concern ma% 8e a8le to meet its short-term
o8ligations) Do2e'er( a !irm ha'ing high quick ratio ma% not ha'e a satis!actor% liqui#it%
position i! it has slo2 pa%ing #e8tors) On the other han#( a !irm ha'ing a lo2 liqui#it% position
i! it has !ast mo'ing in'entories)
%A3%U3ATION OF <UI%2 RATIO:
:ear (-'- (-'' (-'(
Iuick "ssets >>),> >F)>. 0,)EE
Current :ia8ilities *F)>* *+)EG ..)>G
Iuick Ratio ,)0 < , *). < , ,)G < ,
Inter1retation :
" quick ratio is an in#ication that the !irm is liqui# an# has the a8ilit% to meet its current
lia8ilities in time) The i#eal quick ratio is ,<,) Compan%;s quick ratio is more than i#eal ratio)
This sho2s compan% has no liqui#it% pro8lem)
6 ABSO3UTE 3I<UID RATIO
"lthough recei'a8les( #e8tors an# 8ills recei'a8le are generall% more liqui# than in'entories( %et
there ma% 8e #ou8ts regar#ing their reali6ation into cash imme#iatel% or in time) So a8solute
liqui# ratio shoul# 8e calculate# together 2ith current ratio an# aci# test ratio so as to e=clu#e
55
e'en recei'a8les !rom the current assets an# !in# out the a8solute liqui# assets) "8solute :iqui#
"ssets inclu#es <
"3SO:&TE :II&I9 R"TIO A"3SO:&TE :II&I9 "SSETS 4 C&RRENT
:I"3I:ITES
"3SO:&TE :II&I9 "SSETS A C"SD 7 3"N1 3":"NCES)
:ear (-'- (-'' (-'(
"8solute :iqui# "ssets >)0H ,)FH E)+0
Current :ia8ilities *F)>* *+)EG ..)>G
"8solute :iqui# Ratio ),F < , )+H < , ),E < ,
Inter1retation :
These ratio sho2s that compan% carries a small amount o! cash) 3ut there is nothing to 8e
2orrie# a8out the lack o! cash 8ecause compan% has reser'e( 8orro2ing po2er 7 long term
in'estment) In In#ia( !irms ha'e cre#it limits sanctione# !rom 8anks an# can easil% #ra2 cash)
BG %URRENT ASSETS MO;EMENT RATIOS:
un#s are in'este# in 'arious assets in 8usiness to make sales an# earn pro!its) The e!!icienc%
2ith 2hich assets are manage# #irectl% a!!ects the 'olume o! sales) The 8etter the management
o! assets( large is the amount o! sales an# pro!its) Current assets mo'ement ratios measure the
e!!icienc% 2ith 2hich a !irm manages its resources) These ratios are calle# turno'er ratios
8ecause the% in#icate the spee# 2ith 2hich assets are con'erte# or turne# o'er into sales)
9epen#ing upon the purpose( a num8er o! turno'er ratios can 8e calculate#) These are <
,) In'entor% Turno'er Ratio
*) 9e8tors Turno'er Ratio
.) Cre#itors Turno'er Ratio
56
>) Working Capital Turno'er Ratio
The current ratio an# quick ratio gi'e mislea#ing results i! current assets inclu#e high amount o!
#e8tors #ue to slo2 cre#it collections an# moreo'er i! the assets inclu#e high amount o! slo2
mo'ing in'entories) "s 8oth the ratios ignore the mo'ement o! current assets( it is important to
calculate the turno'er ratio)

57
' IN;ENTOR: TURNO;ER OR STO%2 TURNO;ER RATIO :
E'er% !irm has to maintain a certain amount o! in'entor% o! !inishe# goo#s so as to meet the
requirements o! the 8usiness) 3ut the le'el o! in'entor% shoul# neither 8e too high nor too lo2)
3ecause it is harm!ul to hol# more in'entor% as some amount o! capital is 8locke# in it an#
some cost is in'ol'e# in it) It 2ill there!ore 8e a#'isa8le to #ispose the in'entor% as soon as
possi8le)
INCENTORO T&RNOCER R"TIO ACOST O /OO9 SO:9 B "CER"/E
INCENTORO
In'entor% turno'er ratio measures the spee# 2ith 2hich the stock is con'erte# into sales)
&suall% a high in'entor% ratio in#icates an e!!icient management o! in'entor% 8ecause more
!requentl% the stocks are sol# ? the lesser amount o! mone% is require# to !inance the in'entor%)
Where as lo2 in'entor% turno'er ratio in#icates the ine!!icient management o! in'entor%) " lo2
in'entor% turno'er implies o'er in'estment in in'entories( #ull 8usiness( poor qualit% o! goo#s(
stock accumulations an# slo2 mo'ing goo#s an# lo2 pro!its as compare# to total in'estment)
"CER"/E STOC1 A(OPENIN/ STOC1 B C:OSIN/ STOC1) B *

:ear (-'- (-'' (-'(
Cost o! /oo#s sol# ,,+)0 ,+.)* H0)G
"'erage Stock F.)EH .0)>* EE).E
In'entor% Turno'er Ratio ,)E times *)G times ,)FE times
58
Inter1retation :
These ratio sho2s ho2 rapi#l% the in'entor% is turning into recei'a8le through sales) In *+,+ the
compan% has high in'entor% turno'er ratio 8ut in *+,, it has re#uce# to ,)FE times) This sho2s
that the compan%;s in'entor% management technique is less e!!icient as compare to last %ear)
(IN;ENTOR: %ON;ERSION 5ERIOD:
INCENTORO CONCERSION PERIO9 A(.0E (net 2orking #a%s)) 4 INCENTORO
T&RNOCER R"TIO
Inter1retation :
In'entor% con'ersion perio# sho2s that ho2 man% #a%s in'entories takes to con'ert !rom ra2
material to !inishe# goo#s) In the compan% in'entor% con'ersion perio# is #ecreasing) This
sho2s the e!!icienc% o! management to con'ert the in'entor% into cash)
6 DEBTORS TURNO;ER RATIO :
" concern ma% sell its goo#s on cash as 2ell as on cre#it to increase its sales an# a li8eral cre#it
polic% ma% result in t%ing up su8stantial !un#s o! a !irm in the !orm o! tra#e #e8tors) Tra#e
#e8tors are e=pecte# to 8e con'erte# into cash 2ithin a short perio# an# are inclu#e# in current
assets) So liqui#it% position o! a concern also #epen#s upon the qualit% o! tra#e #e8tors) T2o
t%pes o! ratio can 8e calculate# to e'aluate the qualit% o! #e8tors)
a) 9e8tors Turno'er Ratio
8) "'erage Collection Perio#
59
:ear (-'- (-'' (-'(
9a%s .0E .0E .0E
In'entor% Turno'er Ratio ,)E *)G ,)G
In'entor% Con'ersion Perio# *>. #a%s ,.+ #a%s *+* #a%s
9E3TORS T&RNOCER R"TIO A TOT": S":ES (CRE9IT) 4"CER"/E
9E3TORS
9e8tor;s 'elocit% in#icates the num8er o! times the #e8tors are turne# o'er #uring a
%ear) /enerall% higher the 'alue o! #e8tor;s turno'er ratio the more e!!icient is the management
o! #e8tors4sales or more liqui# are the #e8tors) Whereas a lo2 #e8tors turno'er ratio in#icates
poor management o! #e8tors4sales an# less liqui# #e8tors) This ratio shoul# 8e compare# 2ith
ratios o! other !irms #oing the same 8usiness an# a tren# ma% 8e !oun# to make a 8etter
interpretation o! the ratio)
"CER"/E 9E3TORSA (OPENIN/ 9E3TORBC:OSIN/ 9E3TOR) 4*
:ear (-'- (-'' (-'(
Sales ,00)+ ,E,)E ,0H)E
"'erage 9e8tors ,F).. ,G),H **)E+
9e8tor Turno'er Ratio H)0 times G). times F)E times
Inter1retation :
This ratio in#icates the spee# 2ith 2hich #e8tors are 8eing con'erte# or turno'er into sales) The
higher the 'alues or turno'er into sales) The higher the 'alues o! #e8tors turno'er( the more
e!!icient is the management o! cre#it) 3ut in the compan% the #e8tor turno'er ratio is #ecreasing
%ear to %ear) This sho2s that compan% is not utili6ing its #e8tors e!!icienc%) No2 their cre#it
polic% 8ecome li8eral as compare to pre'ious %ear)
+ A;ERAGE %O33E%TION 5ERIOD :
"'erage Collection Perio# A No) o! Working 9a%49e8tors Turno'er Ratio
The a'erage collection perio# ratio represents the a'erage num8er o! #a%s !or 2hich a !irm
has to 2ait 8e!ore its recei'a8les are con'erte# into cash) It measures the qualit% o! #e8tors)
60
/enerall%( shorter the a'erage collection perio# the 8etter is the qualit% o! #e8tors as a short
collection perio# implies quick pa%ment 8% #e8tors an# 'ice-'ersa)
"'erage Collection Perio# A .0E (Net Working 9a%s)49e8tors Turno'er Ratio
:ear (-'- (-'' (-'(
9a%s .0E .0E .0E
9e8tor Turno'er Ratio H)0 G). F)E
"'erage Collection Perio# .G #a%s >> #a%s >H #a%s
Inter1retation :
The a'erage collection perio# measures the qualit% o! #e8tors an# it helps in anal%6ing the
e!!icienc% o! collection e!!orts) It also helps to anal%sis the cre#it polic% a#opte# 8% compan%) In
the !irm a'erage collection perio# increasing %ear to %ear) It sho2s that the !irm has :i8eral
Cre#it polic%) These changes in polic% are #ue to competitor;s cre#it polic%)
E) .OR2ING %A5ITA3 TURNO;ER RATIO :
Working capital turno'er ratio in#icates the 'elocit% o! utili6ation o! net 2orking capital) This
ratio in#icates the num8er o! times the 2orking capital is turne# o'er in the course o! the %ear)
This ratio measures the e!!icienc% 2ith 2hich the 2orking capital is use# 8% the !irm) " higher
ratio in#icates e!!icient utili6ation o! 2orking capital an# a lo2 ratio in#icates other2ise) 3ut a
'er% high 2orking capital turno'er is not a goo# situation !or an% !irm)
Working Capital Turno'er Ratio A Cost o! Sales 4 Net Working Capital
61
Working Capital Turno'er A Sales 4 Net2orking Capital

(-'- (-'' (-'(
Sales ,00)+ ,E,)E ,0H)E
Net2orking Capital E.)GF 0*)E* ,+.)+H
Working Capital Turno'er .)+G *)> ,)0>
Inter1retation :
This ratio in#icates lo2 much net 2orking capital requires !or sales) In *+,,( the reciprocal o!
this ratio (,4,)0> A )0+H) sho2s that !or sales o! Rs) , the compan% requires 0+ paisa as 2orking
capital) Thus this ratio is help!ul to !orecast the 2orking capital requirement on the 8asis o! sale)
IN;ENTORIES:
:ear (--8-(-'- (-'-A(-'' (-''A(-'(
In'entories .F),E .E)0H FE)+,
Inter1retation :
In'entories is a major part o! current assets) I! an% compan% 2ants to manage its 2orking
capital e!!icienc%( it has to manage its in'entories e!!icientl%) The graph sho2s that in'entor% in
*++H-*+,+ is >EL( in *+,+-*+,, is >.L an# in *+,,-*+,* is E>L o! their current assets) The
compan% shoul# tr% to re#uce the in'entor% upto ,+L or *+L o! current assets)
%AS0 BAN2 BA3AN%E:
:ear (--8A(-'- (-'-A(-'' (-''A(-'(
Cash 3ank 3alance >)0H ,)FH E)+E
62
Inter1retation :
Cash is 8asic input or component o! 2orking capital) Cash is nee#e# to keep the 8usiness
running on a continuous 8asis) So the organi6ation shoul# ha'e su!!icient cash to meet 'arious
requirements) The a8o'e graph is in#icate that in *+,* the cash is >)0H crores 8ut in *+,+ it has
#ecrease to ,)FH) The result o! that it #istur8 the !irms manu!acturing operations) In *+,,( it is
increase# upto appro=) E),L cash 8alance) So in *+,,( the compan% has no pro8lem !or meeting
its requirement as compare to *+,+)
DEBTORS:
Inter1retation:
9e8tors constitute a su8stantial portion o! total current assets) In In#ia it constitute one thir# o!
current assets) The a8o'e graph is #epict that there is increase in #e8tors) It represents an
e=tension o! cre#it to customers) The reason !or increasing cre#it is competition an# compan%
li8eral cre#it polic%)
%URRENT ASSETS:
Inter1retation :
This graph sho2s that there is 0>L increase in current assets in *+,,) This increase is arise
8ecause there is appro=) E+L increase in in'entories) Increase in current assets sho2s the
liqui#it% soun#ness o! compan%)
63
:ear (--8A(-'- (-'-A(-'' (-''A(-'(
9e8tors ,F).. ,H)+E *E)H>
:ear (--8A(-'- (-'-A(-'' (-''A(-'(
Current "ssets G,)*H G.),E ,.0)EF

%URRENT 3IABI3IT::
:ear (--8A(-'- (-'-A(-'' (-''A(-'(
Current :ia8ilit% *F)>* *+)EG ..)>G
Inter1retation :
Current lia8ilities sho2s compan% short term #e8ts pa% to outsi#ers) In *+,, the current
lia8ilities o! the compan% increase#) 3ut still increase in current assets are more than its current
lia8ilities)
NET .O2RING %A5ITA3 :
:ear (--8A(-'- (-'-A(-'' (-''A(-'(
Net Working Capital E.)GF 0*)E. ,+.)+H
Inter1retation:
Working capital is require# to !inance #a% to #a% operations o! a !irm) There shoul# 8e an
optimum le'el o! 2orking capital) It shoul# not 8e too less or not too e=cess) In the compan%
there is increase in 2orking capital) The increase in 2orking capital arises 8ecause the compan%
has e=pan#e# its 8usiness
64
FORMULAS OF RATIO ANALYSIS & DEFINITION
RATIO:
Ratio anal%sis is the po2er!ul tool o! !inancial statements anal%sis) " ratio is #e!ine as Nthe
in#icate# quotient o! t2o mathematical e=pressionsM an# as Nthe relationship 8et2een t2o or
more thingsM) The a8solute !igures reporte# in the !inancial statement #o not pro'i#e meaning!ul
un#erstan#ing o! the per!ormance an# !inancial position o! the !irm) Ratio helps to summaries
large quantities o! !inancial #ata an# to make qualitati'e ju#gment o! the !irm;s !inancial
per!ormance)
RO3E OF RATIO ANA3:SIS :
Ratio anal%sis helps to appraise the !irms in the term o! there pro!ita8ilit% an# e!!icienc% o!
per!ormance( either in#i'i#uall% or in relation to other !irms in same in#ustr%) Ratio anal%sis is
one o! the 8est possi8le techniques a'aila8le to management to impart the 8asic !unctions like
planning an# control) "s !uture is closel% relate# to the imme#iatel% past( ratio calculate# on the
8asis historical !inancial #ata ma% 8e o! goo# assistance to pre#ict the !uture) E)g) On the 8asis
o! in'entor% turno'er ratio or #e8tor;s turno'er ratio in the past( the le'el o! in'entor% an#
#e8tors can 8e easil% ascertaine# !or an% gi'en amount o! sales) Similarl%( the ratio anal%sis ma%
8e a8le to locate the point out the 'arious arias 2hich nee# the management attention in or#er to
impro'e the situation) E)g) Current ratio 2hich sho2s a constant #ecline tren# ma% 8e in#icate
the nee# !or !urther intro#uction o! long term !inance in or#er to increase the liqui#it% position)
"s the ratio anal%sis is concerne# 2ith all the aspect o! the !irm;s !inancial anal%sis liqui#it%(
sol'enc%( acti'it%( pro!ita8ilit% an# o'erall per!ormance( it ena8les the intereste# persons to
kno2 the !inancial an# operational characteristics o! an organi6ation an# take suita8le #ecisions)
65
3I<UDIT: RATIO:
:iqui#it% re!ers to a8ilit% o! a concern to meet its current o8ligations as an# 2hen these 8ecome
#ue) The short-term o8ligations are met 8% realising amounts !rom current( !loating or
circulating asset) The current asset either 8e liqui# or near liqui#it%) These shoul# 8e con'erti8le
into cash !or pa%ing o8ligation o! short-term nature) To measure the liqui#it% o! a !irm(
!ollo2ing ratios can 8e calculate#<
AG %URRENT RATIO:
Current assets inclu#e cash an# those assets 2hich can 8e con'erte# in to cash 2ithin a %ear(
such marketa8le securities( #e8tors an# in'entories) "ll o8ligations 2ithin a %ear are inclu#e in
current lia8ilities) Current lia8ilities inclu#e cre#itors( 8ills pa%a8le accrue# e=penses( short term
8ank loan income ta= lia8ilities an# long term #e8t maturing in the current %ear) Current ratio
in#icates the a'aila8ilit% o! current assets in rupees !or e'er% rupee o! current lia8ilit%)

C&RRENT R"TIO A C&RRENT "SSET4 C&RRENT :I"3I:ITIES
BG <UI%2 RATIO OR A%ID TEST:
Iuick ratios esta8lish the relationship 8et2een quick or liqui# assets an# lia8ilities) "n asset is
liqui# i! it can 8e con'erting in to cash imme#iatel% or reasona8l% soon 2ithout a loss o! 'alue)
Cash is the most liqui# asset )other assets 2hich are consi#er to 8e relati'el% liqui# an# inclu#e
66
in quick assets are #e8tors an# 8ills recei'a8le an# marketa8le securities) In'entories are
consi#ere# as less liqui#) In'entor% normall% require# some time !or reali6ing into cash) Their
'alue also 8e ten#enc% to !luctuate) The quick ratio is !oun# out 8% #i'i#ing quick assets 8%
current lia8ilities)
I&IC1 R"TIO A total liqui# asset4 total current lia8ilities
%G ABSO3UTE 3I<UID ASSET: E'en though #e8tors an# 8ills recei'a8les are consi#ere# as
more liqui# then in'entories( it cannot 8e con'erte# in to cash imme#iatel% or in time) There!ore
2hile calculation o! a8solute liqui# ratio onl% the a8solute liqui# assets as like cash in han# cash
at 8ank( short term marketa8le securities are taken in to consi#eration to measure the a8ilit% o!
the compan% in meeting short term !inancial o8ligation) It calculates 8% a8solute assets #i'i#ing
8% current lia8ilities)
"3SO:&TE :II&I9 R"TIOAa8solute liqui# asset4 total current lia8ilities
EFFI%IEN%: RATIO: un#s are in'este# in 'arious assets in 8usiness to make sales an#
earn pro!its) The e!!icienc% 2ith 2hich assets are manage# #irectl% a!!ects the 'olume o! sale)
"cti'it% ratios measure the e!!icienc% an# e!!ecti'eness 2ith 2hich a !irm manages its resources
or assets) These ratios are also calle# turno'er ratios)
AG DEBTORS TURNO;ER RATIO: Recei'a8le turno'er ratio pro'i#es relationship 8et2een
cre#it sales an# recei'a8les o! a !irm) It in#icates ho2 quickl% recei'a8les are con'erte# into
sales)
9E3TORS T&RNOCER R"TIOA S":ES4 "CER"/E "CCO&NT RECEIC"3:ES)
"CER"/E "4C RECEIC"3:ESA opening tra#e #e8torB Closing tra#e #e8tor4*
"CER"/E CO::ECTION PERIO9A (.0E49TR) #a%s
67
Or RECEIC"3:ES S .0E4 sale
BG .OR2ING %A5ITA3 TURNO;ER RATIO: It signi!ies that !or an amount o! sales( a
relati'e amount o! 2orking capital is nee#e#) I! an% increase in sales contemplate# 2orking
capital shoul# 8e a#equate an# thus this ratio helps management to maintain the a#equate le'el
o! 2orking capital) The ratio measures the e!!icienc% 2ith 2hich the 2orking capital is 8eing
use# 8% a !irm) It ma% thus compute net 2orking capital turno'er 8% #i'i#ing sales 8% net
2orking capital)
WOR1IN/ C"PIT":T&RNOCER R"TIOAcost o! sales4 net 2orking capital
%URRENT ASSET TURNO;ER RATIO:
C&RRENT "SSET T&RNOCER R"TIOA sales 4 current asset
STATISTI%A3 TOO3S USED FOR DATA ANA:3SIS:
The 'arious statistical tools use# !or #ata anal%sis is as !ollo2s<
a) Ta8les<
8) 3ar-chart
c) /raphs
#) Correlation
68
ANA3:TI%A3 TOO3S USED:
The anal%tical tools use# !or #ata anal%sis is as !ollo2s<
a) Ratio anal%sis
8) Sche#ule o! change in 2orking capital
c) Cash !lo2 statements
RESU3TS AND FINDINGS:
The result an# #iscussion o! the stu#% is presente# in !i'e #i!!erent sections) The !irst sections
e=plain a8out the 'arious components o! 2orking capital( 'aria8le o! 2orking capital) The
secon# section e=plains a8out the liqui#it% tren# o! the organi6ation) The thir# section e=plains
a8out the 2orking capital tren# )The !ourth section e=plains the utili6ation o! current assets an#
current lia8ilities) The !i!th section e=plains the measure to e!!ecti'e management o! 2orking
capital)
The !irst section e=plains a8out the 'arious components o! 2orking capital an# 'aria8les o!
2orking capital) The components o! 2orking capital are presente# in Ta8le E),)
69
FTAB3E 7': %OM5ONENTS OF .OR2ING %A5ITA3G
Tab&e '' (--*A
(--8FR#G
(--8A(-'-FR#G (-'-A(-''FR#G (-''A(-'(FR#G
Cash 0>G(*F0(G,* >H+(GG,(,G. H+F(+,H(FE+ F*F(,+0(,*H
9e8tors
FHG,H0*+, ,(+E(*>(FH(HG* ,(+E(E+(HF(>F. ,(+E(E0(.,(0HG
In'entories
FE,+0>0H+ F0(0G(0E(*0* G+(GE(,H(*FG H0(H+(E0(>0+
sun#r% Cre#itors 0,(+.(**(>H0 00(E,(0F(HG+ 0G(HE(*0(EHF F*(>+(E,(>E0
Pro'isions G.(+G(0E(G,H ,(.+(>E(,F(F>> >(G,(F+(+*(0+. E(0H(E0(0F(>FE
"n insight into the ta8le re'eals that<
a) Cash an# 8ank 8alances in *++G-*++H 2ere Rs 0>G*F0G,*) It is #ecrease# to Rs >H+(GG,,G.)
With a-*>)*FL gro2th) In *+,+-*+,, it increase# to Rs H+F(+,H(FE+) "n# then it su##enl%
#ecrease# to Rs F*F(,+0(,*H)
8) 9e8tors increases 2hich 2as not a goo# sign) In *++G-*++H #e8tors 2ere Rs FH(G,(H0(*+,
an# it increase# Rs ,+E(*>(FH(HG* a total increase in Rs *E>*G.FG,) In *+,+-*+,, it 2as Rs
,(+E(E+(HF(>F.) "n# in *+,,-*+,* it again increase# to Rs ,(+E(E0(.,(0HG)
c) In'entories 2ere increase# at a goo# spee#) The in'entories 2ere Rs FH(G,(H0(*+, in *++G-
*++H) In *++H-*+,+ it increase# to Rs F0(0G(0E(*0*( ultimatel% increase in Rs ,EG++EF*( 2ith
70
the percentage gro2th *),+L) In *+,+-*+,, it increase# to Rs G+(GE(,H(*FG 2ith the increase in
F)FL ) in *+,,-*+,* it again increase# to H0(H+(E0(>0+ 2ith a increase in *HL)
#) Sun#r% cre#itors also increase# a lot) In *++G-*++H it 2as Rs 0,( +.( **(>H0) Then it
increase# 8% Rs E(> G(>E(>G> 2hich ultimatel% amounte# to Rs 00(E,(0F(HG+ 2ith a increase o!
G)HHL) in the %ear *++H-*+,+) In *+,+-*+,, it increase# to Rs 0G(HE(*0(EHF 2ith a percentage
increase o! ,*)HGL) in *+,,-*+,* it again increase to Rs F*(>+(E,(>E0)
e) Pro'isions also increase# throughout this >%ears) In *++G-*++H it 2as RsG.(+G(0E(G,H) Then
it increase# to Rs ,(.+(>E(,F(F>> 2ith a percentage increase o! EFL) In *+,+-*+,, it again
increase# to Rs>(G,(F+(+*(0+. 2ith a percentage increase in >FHL) In *+,,-*+,* it again
increase# to Rs E(0H(E0(0F(>FE)
71
FTab&e 7(: ;ariab&e# of .or$in/ %a1ita& Mana/ementG
;ARIAB3ES :EARS
*++G-*++H *++H-*+,+ *+,+-*+,, *+,,-*+,*
ROT" (Return on
Total "ssets)
+),E +),0 +)** +),+
OP$ (operating
pro!it margin)
0,)EEL E0)>+L *F)FGL .>)0EL
/E"R (/earing
Ratio i)e) !inancial
#e8t 4 total assets)
+)0><, +)EE<, +)>.<, +)..<,
CR (Current
Ratio)
,)*G<, +)H><, +)G0<, +)0*<,
I"R (Iuick
"ssets Ratio)
+)EG<, +)>0<, +)*F<, +)**
C"4T" (Current
"ssets to Total
"ssets)
+),. +),* +)*, +),0
C:4T" (Current
:ia8ilities to Total
"ssets)
+),, +),. +)*> +)*0
72
S14C" (Stocks to
Current "ssets)
+)*. +)*E +),. +),H
T94C" (Tra#e
9e8tors to Current
"ssets)
+)*E +).> +),F +)*,
C"5T&RN
(Current "ssets
Turno'er is
Sales4Current
"ssets)
,),+ ,)*H ,)+G +)0+
The 'arious 'aria8les o! 2orking capital is presente# in ta8le E)*) "n anal%sis o! #ata presente#
in the ta8le re'eals the !ollo2ing !in#ings?
") Return on total asset came +),E in *++G-*++H( +),0 in *++H-*+,+( +)** in *+,+-*+,, an#
+),+ in *+,,-*+,*)
3) Operating pro!it margin 2as 0,)EEL in *++G-*++H then it re#uce# to E0)>+L( *F)FGL( an#
.>)0EL in *++H-*+,+( *+,+-*+,,( an# *+,,-*+,* respecti'el%) "n%thing 8et2een 0EL to GEL
is kno2n as a goo# operating margin) "n# !or OPTC: is a sign o! alarm)
C) /earing ratio came +)0><, in *++G-*++H an# in *++H-*+,+ it is +)EE<, an# +)>.<, an# +)..<,
in *+,+-*+,, an# *+,,-*+,*)
9) Current ratio generall% re#uce# !or the organi6ation( in *++G-*++H it 2as ,<*G an# it re#uce#
to +)H><, in *++H-*+,+ an# then it again re#uce# to to+)G0<, an# +)0* in *+,+-*+,, an# *+,,-
*+,* respecti'el%)
E) Iuick asset ratio in *++G-*++H as it 2as +)EG<,( in *++H-*+,+ it 8ecame +)>0<, an# in *+,+-
*+,, an# in *+,,-*+,* it 8ecame +)*F<, an# +)**<,)
) Current asset to total asset ratio came +),.( +),*( +)*, an# +),0 in the %ear *++G-*++H( *++H-
*+,+( *+,+-*+,,( an# *+,,-*+,*)
73
/) Current lia8ilit% to total asset ratio came +),, in *++G-*++H( in *++H-*+,+ it came +),.( an#
in *+,+-*+,, an# *+,,-*+,* it came +)*><, an# +)*0<, respecti'el%)
D) Stock to current asset is +)*.( +)*E( +),.( an# +),H in respecti'e %ears)
I) Tra#e #e8tors in *++G-*++H is +)*E( in *++H-*+,+ is +).>( in *+,+-*+,, is +),F an# in *+,,-
*+,* is +)*,)
P) Current asset turno'er is ,),+ in *++G-*++H( ,)*H in *++H-*+,+( ,)+G in *+,+-*+,, an#
8ecome +)0+ in *+,,-*+,*
Tab&e 76: %om1onent# of %urrent ratio= Huic$ ratio and Ab#o&ute 3iHuid Ratio#
(--*A(--8 (--8A(-'- (-'-A(-'' (-''A(-'(
Current
ratio ,)*G<, +)H><, +)G0<, +)0*<,
Iuick ratio +)EG<, +)>0<, +)*F<, +)**
"8solute
liqui# ratio
+)*E<, +),E<, +),*<, +)+G<,
S14C" +)*. +)*E +),. +),H
T94C" +)*E +).> +),F +)*,
C"4T" +),. +),* +)*, +),0
C:4T" +),, +),. +)*> +)*0
%%%F ca#h con!er#ion cyc&eG
In'entor%
#a%s
FF #a%s F+ #a%s >. #a%s ,,E#a%s
9e8tor
turno'er
,*E#a%s GE#a%s EF#a%s ,*0#a%s
74
#a%s
Cre#itors
turno'er
#a%s
0. #a%s 0,#a%s .F #a%s G0#a%s

Tab&eA76 re!e&# the com1onent# of current ratio= Huic$ ratio and ab#o&ute Huic$ ratio
From the tab&e fo&&o9in/ thin/# can be deri!ed:
a) In *++G-*++H it is !oun# that the current ratio is ,)*G<, 2hich is just 8elo2 the stan#ar# o!
*<,) In *++H-*+,+( it is !oun# that the current ratio o! ECE: is ,+)H><,) It is 8elo2 the stan#ar#
o! *<, an# it is #ue to a #ecrease in total current assets !rom pre'ious %ear an# an increase in
current lia8ilit% this %ear) The cash an# 8ank 8alance is !oun# to 8e #ecrease# this %ear in
comparison to that o! pre'ious %ear 2here as the current lia8ilities an# pro'isions 8oth ha'e
increase# this %ear) In *+,+-*+,,( it is !oun# that the current ratio o! ECE: is +)G0<,)It is a not
goo# in#ication accor#ing to the rule o! thum8) 3ecause the !irm has more current lia8ilities
than current assets) The !irm ma% not 8e a8le to meet its short term o8ligations in time) In *+,,-
*+,*( it is !oun# that the current ratio o! ECE: 2as +)0*<, it 2as not a goo# in#ication
accor#ing to rule o! thum8)
8) Iuick ratio in *++G-*++H it 2as +)EG<, an# +)>0<,( +)*F<, an# +)**<, in *++H-*+,+( *+,+-*+,,( an#
*+,,-*+,* respecti'el%)
c) In the %ear *++G-*++H the "8solute :iqui# Ratio is !oun# to 8e +)*E<,) In the %ear *++H-*+,+
the "8solute :iqui# Ratio o! ECE: is !oun# to 8e +),E<,) The "8solute :iqui# Ratio o! the !irm
!or the !inancial %ear *+,+-*+,, is !oun# to 8e +),*<, 2hich is 8elo2 the normal stan#ar# o! ,<*
or +)E<,) This is #ue to less cash an# 8ank 8alances o! the organi6ation in comparison to the
Current :ia8ilities) In the %ear *+,,-*+,*( the a8solute liqui# ratio !oun# to 8e +)+G<,)
#) Stock to current asset is +)*.( +)*E( +),.( an# +),H in respecti'e %ears)
e) Tra#e #e8tor to current asset ratio come +)*E( +).>( +),F an# +)*, respecti'el%)
75
!) Current asset to total asset ratio came +),.( +),*( +)*, an# +),0 in the %ear *++G-*++H( *++H-
*+,+( *+,+-*+,,( an# *+,,-*+,*)
Current lia8ilities to total asset came +),, in *++G-*++H an# in *++H-*+,+ it came +),. ( in
*+,+-*+,, it came +)*><, an# in *+,,-*+,* it came +)*0<,)
h) Cash con'ersion ratio !or in'entor% came FF#a%s( F+ #a%s( >. #a%s an# ,,E #a%s)
Cash con'ersion !or #e8tor comes ,*E #a%s in *++G-*++H( an# it re#uce# to GE an# EF #a%s in
*++H-*+,+( *+,+-*+,, respecti'el%) 3ut in *+,,-*+,* it increases to ,*0 #a%s) Cash con'ersion
ratio came 0.#a%s( 0,#a%s( .F#a%s an# G0#a%s respecti'el%)
T0E SE%OND SE%TION E453AINS ABOUT T0E 3I<UIDIT: TREND
OF T0E ORGANI?ATION :
3I<UIDIT: RATIO
%URRENT RATIO
Tab&e7+
%URRENT RATIOA F%URRENT ASSETSB%URRENT 3IABI3IT:G
:EAR %URRENT ASSET
FIN RU5EESG
%URRENT 3IABI3IT:
FIN RU5EESG
RATIO
(--*A
(--8
6=('=7-=()=+(8 (=7-=*-='(=7') '(*:'
(--8A
(-'-
6='-=)'='8=6-6 6=67=8)=*)=7-* -8+:'
(-'-A
(-''
)=6-=)6='6=6'8 ,=(8=6+=**=)+8 -*):'
(-''A
(-'(
7=-,=86=,7=6,* *=('=6)=)+=(,+ -)(:'
76
rom the ta8le E)> an# #iagram o! Current Ratios o! #i!!erent !inancial %ears o! ECE:( 'arious
results can 8e ma#e)
") *++G-*++H it 2as !oun# that the current ratio 2as ,)*G<, 2hich is 8elo2 the stan#ar# o! *<,)
It is #ue to a #ecrease o! total current assets !rom the pre'ious %ear to current %ear) Still it is
managea8le an# also the con#ition 2as un#er the control)
3) In *++H-*+,+( it 2as !oun# that the current ratio o! ECE: 2as +)H><,) It 2as 8elo2 the
stan#ar# o! *<, an# it is #ecrease in total current assets !rom pre'ious %ear an# an increase in
current lia8ilit% this %ear) The cash an# 8ank 8alance is !oun# to 8e #ecrease# this %ear in
comparison to that o! pre'ious %ear 2here as the current lia8ilities an# pro'isions 8oth ha'e
increase# this %ear)
C) In *+,+-*+,,( it 2as !oun# that the current ratio o! ECE: 2as +)G0<,) ) It is a not goo#
in#ication accor#ing to the rule o! thum8) 3ecause the !irm has more current assets than current
lia8ilities) The !irm ma% 8e a8le to meet its short term o8ligations in time)
9) In *+,,-*+,*( it 2as !oun# that the current ratio o! ECE: 2as +)0*<,) It 2as not a goo#
in#ication accor#ing to rule o! thum8) 3ecause the !irm has more current assets than current
lia8ilities) The !irm 2as not a8le to meet its short term o8ligation in time)
77
E) 3ecause o! increase in a#ministrati'e o'erhea# e=penses( super annuit% 8ene!its an# pa%ment
o! past loan etc) are the major !actor !or increasing o! current lia8ilities)
) Situation can 8e controlle#) So more emphasis can 8e gi'en on these areas to re#uce current
lia8ilities an# to increase current assets so that the actual stan#ar# o! *<, can 8e achie'e#)
In a##ition to( compan% shoul# make clear cut strategic planning to sell electricit% to major
in#ustries at in#ustrial rate to achie'e higher re'enue
78
TAB3E77 <uic$ Ratio A F3iHuid A##etB %urrent 3iabi&ityG
:EAR 3I<UID ASSET %URRENT 3IABI3IT: RATIO
(-'-A(-'' '=++=)+=,6=-'6 (=7-=*-='(=7') -7*:'
(-''A(-'( '=7+=66=)'=')7 6=67=8)=*)=7-* -+):'
(-'-A(-'' '=8)=('=',=((6 ,=(8=6+=**=)+8 -(,:'
(-''A(-'( '=,*=(,=6,=*(, *=('=6)=)+=(,+ -((:'
FROM T0E TAB3E (( FO33O.ING T0INGS ARE DERI;ED:
") The Iuick Ratio or the "ci# Test Ratio o! ECE: !or the !inancial %ear *++G-*++H 2as !oun#
to 8e +)EG<, an# the normal stan#ar# !or is ,<,) So it is a managea8le situation)
3) In the %ear *++H-*+,+ it 2as !oun# that the Iuick Ratio o! ECE: 2as +)>0<, 2hich 2as
8elo2 the normal stan#ar#) It 2as #ue to a little 8it increase in current lia8ilities in comparison
to that o! pre'ious %ear) Still it 2as also in a managea8le position an# 8% gi'ing a small e!!ort
the normal stan#ar# o! ,<, can 8e achie'e#)
79
C) In the %ear *+,+-*+,, it Is !oun# that the I&IC1 ratio o! ECE: IS +)*F<,( 2hich is just
normal stan#ar#) It is #ue to a little 8it increase in current lia8ilities)
9) In the %ear *+,,-*+,* it is !oun# that the Iuick ratio 2as +)**<,) Which is 8elo2 stan#ar# o!
,<,T $anagement shoul# ha'e an e%e on to that)
80
TAB3E 7)
ABSO3UTE 3I<UID RATIOA FABSO3UTE 3I<UID ASSETB%URRENT 3IABI3IT:G:
:EAR Ab#o&ute 3iHuid A##et %urrent 3iabi&ity Ratio
(-'-A(-'' )+=*(=,)=*'( (=7-=*-='(=7') -(7:'
(-''A(-'( +8=-*=*'='*6 6=67=8)=*)=7-* -'7:'
(-'-A(-'' 8-=,-='8=,7- ,=(8=6+=**=)+8 -'(:'
(-''A(-'( ,(=,'=-)='(8 *=('=6)=)+=(,+ --*:'
3% going through the ta8le E)0 7 #iagram o! "8solute :iqui# Ratio( 8alance sheet o! ECE: the
!ollo2ing results can 8e #ra2n)
81
") In the %ear *++G-*++H the "8solute :iqui# Ratio 2as !oun# to 8e +)*E<,) Though it is 8elo2
the normal stan#ar# still it is in a managea8le con#ition)
3) In the %ear *++H-*+,+ the "8solute :iqui# Ratio o! ECE: 2as !oun# to 8e +),E<, 2hich is
8elo2 !rom the pre'ious %ear) It is #ue to a #ecrease in cash an# 8ank 8alances an# also a
slightl% increase in Current :ia8ilities)
C) The "8solute :iqui# Ratio o! the !irm !or the !inancial %ear *+,+-*+,, is !oun# to 8e +),*<,
2hich is 8elo2 the normal stan#ar# o! ,<* or +)E<,) This is #ue to less cash an# 8ank 8alances o!
the organi6ation in comparison to the Current :ia8ilities)
9) In the %ear *+,,-*+,*( the a8solute liqui# ratio !oun# to 8e +)+G<,) This is #ue to less cash
an# 8ank 8alances o! the organi6ation in comparison to the Current lia8ilities)
82
FTab&e 7,G
%AS0 F3O. STATEMENTS
83
84
F(--8A(-'-G F(-'-A(-''G F(-''A(-'(G
amount in FR#G amount in FR#G amount in FR#G
pro!it4loss 8e!ore ta= 7 e=traor#inar% items A,'=6,=',=)++ A'*=6-=(8=**6 A6=)+=88=6*6
a#justment !or<
appropriation to reser'es an# surpluses ,(,G(.0(.H(+>> 0(..(GF(.G. ,,(,E(E0(G,G
interest an# !inance charges E>(,0(+,(,HG HF(*>(E>(0,F ,(,+(0E(E>(.,G
9epreciation ,(+G(**(+.(EH* ,(+H(F>(.F(GFH ,(+H(H+(EG(HH+
preliminar% e=penses W4O .+(*0(>*. .+(*0(>*. .+(*0(>*.
e=cess pro'ision 2ritten 8ack -,(+>(++(GF(E,+ ->F(EF> -*+H
interest income ->(EE(,.(.,+ -0(H+(+H(++G -E(+.(0+(.G.
pro'isions !or 2ealth ta= *F(G>0 >0(.,G >0(.+E
pro'ision42rite o!! against the!t materials ,E(**(0+. *H(E+(.,* *G(0E(*H*
pro'isions !or o8solete stock-store etc ,(,,(H0(G+,
8a# an# #ou8t!ul #e8t >(>F(0G(0E* ,,(0.(E*E H*(GH(*FG
pro'isions !or !ringe 8ene!it ta= -------------------- -*.(H0(H,E -*,(,.(*E0
O5ERATING 5ROFIT BEFORE
.OR2ING %A5ITA3 %0ANGE FAG
'=-7=,+=,-=*86 '=**=78=*6=-,* (=(7=+)=(-=88+
.OR2ING %A5ITA3 %0ANGE
stores an# spares -,0(*+(EH(FGE ->(>0(+>(.*G -*(HG(0*(00>
sun#r% #e8tors ->(E.(+*(GFF -.F(G,(+,0 -*0(.E(F.(+EH
other current assets -EH(>.(EG, -,(>.(HG(.*E -*(>>(F,(.,F
loan an# a#'ances ,(*+(.>(F,(+GF -*(F*(E.(GE(0,G *>(0+(0F(,0F
current lia8ilities >(H.(EH(+.F >*(GG(+.(H*G >*(+,(*F(>+,
Pro'isions ,(H,(GF(E*(.G* .(E*(.,(++(0E0 >F(.0(E*(,.>
NET .OR2ING %A5ITA3 %0ANGES
FBG
(=87=*(=,)=()6 '=')=6,=67=(8) *(='8=68=))(
%AS0 GENERATED FROM T0E
O5ERATION FAGIFBG
+=-'=7,=+,='7) 6=-+=8,='*=6,+ 6=-,=)7=)-=)7)
%AS0 F3O. FROM IN;ESTING
A%TI;ITIES:
capital e=pen#iture (C"PEQ) -H.(>,(EF(0>, -H,(0G(.F(>.* -,(+.(H,(+G(0H>
Interest recei'e# re'enue >(EE(,.(.,+ 0(H+(+H(++G E(+.(0+(.G.
%AS0 GENERATED FROM
IN;ESTING A%TI;ITIES F % G
A**=*)=++=66' A*+=,*=(*=+(+ A8*=*,=+*=6''
%AS0 F3O. FROM FINAN%ING
A%TI;ITIES:
procee#s !rom secure# loan -,(+0(>,(*>(>F> -,(+E(H0(..(0G. -,(+*(00(HE(.*G
procee#s !rom unsecure# loan .*(.H(,+(,0E -0(HE(G*(H>G -.0(G0(+,(.H.
interest pai# -*(0,(0G(+*(,.F -GG(F+(GH(FE* -G.(,H(,,(*E*
procee# !rom share capital E(++(++(+++ *.(+E(EE(+++ -----------------
%AS0 F3O. FROM FINAN%ING
A%TI;ITIES FDG
A6=6-=,-=')=++) A'=,*=7,=7'=6*6 A(=(+=7(=-,=8,6
NET %AS0 GENERATED FROM A33
A%I;ITIES FAIBI%IDG
A',=88='6=)(' +'=)'=6*=7), -,E(F.(HE(0*G
Cash an# cash equi'alent at the 8eginning
o! the %ear
H+(F+(,H(FE+ >H(+G(G,(,G. 0>(G*(F0(G,*
cash equi'alent at the en# o! the perio# ,(=,'=-)='(8 8-=,-='8=,7- +8=-*=*'='*+
Tab&e 7, define# the fo&&o9in/:
a) Cash generate# !rom in'esting acti'ities( Rs-GG(G0(>>(.., ( Rs-G>(FG(*G(>*> an#
Rs-HG( GF( >G(.,, in the %ear *++H-*+,+( *+,+-*+,, an# *+,,-*+,* respecti'el%)
8)Dence( there is a generation o! Rs)>(+,(EF(>F(,E0 cash !lo2 !rom its operating acti'ities !or
the %ear *++H-*+,+( 2here as in *+,+-*+,,( it 2as Rs).(+>(HF(,G(.F>) "n# in *+,,-*+,* it 2as
.(+F(0E(0+(0E0)
c) The net cash !lo2 o! Rs-.(.+F(+,0(>>0 !rom !inancing acti'ities in *++H-,+) 2here it 2as
-,(FG(EF(E,(.G. an# -*(*>(E*(+F(HF. in *+,+-*+,, an# *+,,-*+,+ respecti'el%)
#)That( the net cash !lo2 !rom its operating( in'esting an# !inancing acti'ities !or the %ear *++H-
*+,+ is a negati'e !igure o! Rs)-,F(HH(,.(0*,) It 8ecame positi'e in the %ear *+,+-*+,,( 2hich
2as Rs >,( 0,( .G(E0F) "n# in *+,,-*+,* it 8ecameRs-,EF.( HE(0*G)
The third #ection e>1&ain# about the 9or$in/ ca1ita& trend
Tab&eA7*
SiJe of .or$in/ %a1ita&:
%URRENT
ASSETSF%AG
(--8Fru1ee#G (-'-Fru1ee#G (-''Fru1ee#G (-'(Fru1ee#G
Stores an# spares 751064690 76,68,65,26
2
80,85,19,27
8
96,90,56,460
Sun#r% #e8tors 798196201 1,05,24,79,9
82
1,05,50,97,
473
1,05,56,31,69
8
85
("mount) In Rs))
Cash an# 8ank 8alances 648276812 49,08,81,18
3
90,70,19,75
0
72,71,06,129
Other current assets 628081987 65,25,53,30
4
66,69,51,62
9
74,48,94,758
:oan an# a#'ances 389406739 14,33,39,57
2
2,86,87,25,
189
1,58,26,86,33
3
Total 3,21,50,26,
429
3,10,61,19,
303
6,30,63,13
,319
5,07,93,75,
378
:ess< %URRENT
3IABI3ITIESF%3G
(-'-Fru1ee#G (-''Fru1ee#G (-'(Fru1ee#G (-'-Fru1ee#G
Sun#r% cre#itors 61,03,22,496 66,51,67,98
0
68,95,26,59
7
72,40,51,456
9eposits an# retention
!rom
suppliers4contractors
12,50,63,350 13,71,54,49
7
14,91,29,26
9
12,89,91,075
Interest accrue# 8ut not
#ue on loans
6,27,33,789 2,05,82,149 1,30,49,185 51,73,055
:ia8ilities !or 2ealth
ta=
37,299 47,240 47,253 28,781
Electricit% #ut% pa%a8le 2,12,903 49,092 1,82,269 1,56,113
:ia8ilities !or !ringe
8ene!it ta=
23,41,534 44,54,790 68,51,705 68,51,705
Other lia8ilities 87,64,35,326 1,22,77,13,0
16
1,61,76,99,
768
1,65,27,44,61
4
Total 1,67,71,46,6
97
2,05,51,68,7
64
2,47,64,86,
046
2,51,79,96,79
9
Pro'isions 83,08,65,819 1,30,45,17,7
44
4,81,70,02,
603
5,69,56,67,47
5
Total 2,50,80,12,
516
3,35,96,86,
508
7,29,34,88
,649
8,21,36,64,
274
9or$in/ ca1ita&F %AA
%3G
70,70,13,91
3
-
25,35,67,2
05
-
98,71,75,3
30
-
3,13,42,88,
896
From the tab&e A7* fo&&o9in/ thin/# are deri!ed:
In *++H-*+,+( 2orking capital 2as RsF+(F+(,.(H,. 8ecause current asset 2as more than current
lia8ilities) In *+,+-*+,, 2orking 2as 8ecame negati'e #ue to the !act that current lia8ilities
e=cee#s current assets) In *+,,-*+,* it 8ecame Rs -HG(F,(FE(..+ #ue to e=cessi'e o!
86
pro'isions) In that %ear current lia8ilities e=cee#s current assets) In *+,,-*+,*( 2orking capital
again 8ecame negati'e)
.OR2ING %A5ITA3 TREND ANA3:SIS: In 2orking capital anal%sis the
#irection at changes o'er a perio# o! time is o! crucial importance) Working capital is one o! the
important !iel#s o! management) It is there!ore 'er% essential !or an anal%st to make a stu#%
a8out the tren# an# #irection o! 2orking capital o'er a perio# o! time) Such anal%sis ena8les as
to stu#% the up2ar# an# #o2n2ar# tren# in current assets an# current lia8ilities an# its e!!ect on
the 2orking capital position) NThe term tren# is 'er% commonl% use# in #a%-to#a% con'ersion
tren#( also calle# secular or long term nee# is the 8asic ten#enc% o! population( sales( income(
current assets( an# current lia8ilities to gro2 or #ecline o'er a perio# o! timeM NThe tren# is
#e!ine# as smooth irre'ersi8le mo'ement in the series) It can 8e increasing or #ecreasing)M
Emphasi6ing the importance o! 2orking capital tren#s( Nanal%sis o! 2orking capital tren#s
pro'i#e as 8ase to ju#ge 2hether the practice an# pri'ilege polic% o! the management 2ith
regar# to 2orking capital is goo# enough or an important is to 8e ma#e in managing the 2orking
capital !un#s)
TAB3EA78
.or$in/ %a1ita& SiJe trend
:ear# (--*A(--8 (--8A(-'- (-'-A(-'' (-''A(-'(
87
("mount) In Rs))
Net .% FAABG ,-=,-='6=8'
6
(7=67=),=(-
7
A8*=,'=,7=66- A6='6=+(=**=*8)
.% Indice# '-- 67*) A'68)( A++66'
From the tab&e 78 fo&&o9in/# thin/# are deri!ed: It is o8ser'e# that in *++G-*++H( 2orking
capital in#ices 2as 'er% high #ue to current assets e=cee#e# current lia8ilities) In *++H-*+,+
in#ices 2as also high 8ecause current asset 2ere more than current lia8ilities) In *+,+-*+,, the
compan% 2as a8le to manage their 2orking capital e!!icientl%) 3ut in *+,+-*+,, an# *+,,-*+,*
it 8ecame negati'e) Dere in the %ear *+,+-*+,, an# *+,,-*+,* current lia8ilities e=cee#e#
current assets)
TAB3EA7'-
.OR2ING %A5ITA3 TURN O;ER RATIOA FSA3ESBNET .OR2ING %A5ITA3G
88
.or$in/ ca1ita& turno!er ratio
:EAR %o#t of Sa&e# Net 9or$in/ ca1ita& Ratio
(-'- 6776+8++-' ,-,-'68'6 7-6time#
(-'' 688,77*,8* -(7=67=),=(-7 A'7,time#
(-'( ),*8(87+(, A8*=,'=,7=66- A)**time#
(-'- 6-7')(,7)* A6='6=+(=**=*8) A-8, time#
From the tab&e 7'- fo&&o9in/ thin/# deri!ed:
") In the %ear *++G-*++H( there 2as an increase# in 2orking capital turno'er ratio to E)+.)
3) Do2e'er( in the %ear *++H-*+,+( it 2as -,E)F 2hich in#icates there 2as a #ecrease in net
current assets #ue to increase in current lia8ilities)
C) In the %ear *+,+-*+,,( it 2as -0)GG 2hich is 8etter than the pre'ious %ear)
9) 3ut in *+,,-*+,*( 2orking capital turno'er 2as -+)HF( 2hich in#icates there 2as #ecrease in
net current assets #ue to increase in current lia8ilities)
89
TAB3E 7''
STATEMENT S0O.ING %0ANGES IN .OR2ING %A5ITA3
F(-'- and (-''G
90
F(-'-A(-''G
FR#G
F(-''A(-'(G
FR#G
Increa#e in
9or$in/
ca1ita&
FR#G
Decrea#e in
9or$in/ ca1ita&
FR#G
%urrent a##et#
Store# and
#1are#
FE,+0>0H+ F00G0E*0* ,EG++EF* -
Sundry
debtor#
FHG,H0*+, ,+E*>FHHG* *E>*G.FG, -
%a#h K ban$
ba&ance#
0>G*F0G,* >H+GG,,G. - ,EF.HE0*H
Other current
a##et#
0*G+G,HGF 0E*EE..+> *>>F,.,F -
3oan# K
ad!ance#
.GH>+0F.H ,>...HEF* - *>0+0F,0F
Tota& 6('7-()+(8 6'-)''86-6
%urrent
&iabi&itie#
%urrent
&iabi&itie#
,0FF,>00HF *+EE,0GF0> - .FG+**+0F
5ro!i#ion# G.+G0EG,H ,.+>E,FF>> - >F.0E,H*E
Tota& (7-*-'(7') 6678)*)7-*
H0+EG,,,G
.or$in/
ca1ita&
Fcurrenta##et#A
current
&iabi&itie#G
,-,-'68'6 A(767),(-7
Net decrea#e
in 9or$in/
ca1ita&
A8)-7*'''*
A(767),(-7 A(767),(-7 '(77'6),** '(77'6),**
From the tab&e 7'' fo&&o9in/ thin/# are deri!ed:
91
3% going through the statement sho2ing changes in 2orking capital the !ollo2ing results can
8e ma#e)
") that( the total current asset o! the %ear *+,,-*+,* is #ecrease# to Rs) .(,+(0,(,H(.+. !rom a
pre'ious %ear;s !igure o! Rs) .*,E+*0>*H)
3) The total 'alue o! stores an# spare is increase# !rom the pre'ious %ear;s !igure an# the 'alue
o! sun#r% #e8tors is also increase# !rom the pre'ious %ear;s !igure)
C) The cash an# 8ank 8alances o! the organi6ation ha'e a #ecrease o! Rs) ,EF.HE0*H !rom the
pre'ious %ear;s !igure) Similarl% the !igure !or loans an# a#'ances is also #ecrease# to Rs)
,>...HEF* !rom the pre'ious %ear;s !igure o! Rs) .GH>+0F.H)
9) The other current assets like prepai# e=penses an# sun#r% recei'a8les ha'e also increase#
!rom the pre'ious %ear;s !igure)
E) The total current lia8ilities o! the %ear *+,,-*+,* are increase# to Rs)..EH0G0E+G !rom a
pre'ious %ear;s !igure o! Rs)*E+G+,*E,0)
)That( the increase !or current lia8ilities is #ue to increase in the !igure o! sun#r% cre#itors(
#eposits an# retention !rom suppliers4contractors( lia8ilities !or 2ealth ta=( lia8ilities !or !ringe
8ene!it ta= an# other lia8ilities !rom the pre'ious %ear;s !igure)
/) 9ue to increase in the 'alue o! stores an# spares( sun#r% #e8tors( an# other current assets(
there is a sign o! increase in 2orking capital) Do2e'er( #ue to a #ecrease in the !igure o! cash(
8ank 8alances( loan an# a#'ances etc( there is a clear sign o! #ecrease in the 2orking capital)
D) 9ue to increase in current lia8ilities an# pro'isions !or pension an# gratuit% an# retrospecti'e
re'ision o! pa%( there is a sign o! #ecrease in 2orking capital)
I)"s per the anal%sis( it is o8ser'e# that( the ratio o! increase o! 2orking capital is #rasticall%
re#uce# than the pre'ious %ear;s an# the #ecrease sign o! 2orking capital is
Rs)H0+EG,,,G(*+,,-*+,*)( 2hich has impacte# the stea#% increase o! current 2orking capital
7 negati'el% a!!ecte# the pro!ita8ilit% o! the organi6ation)
92
P) It is !oun# that the current asset;s !igure is #ecrease# !rom the pre'ious %ear;s !igure 7 the
current lia8ilities !igure is increase# !rom the pre'ious %ear) "s a result o! 2hich( there is a net
#ecrease (negati'e !igure) in 2orking capital this !inancial %ear (*+,,-*+,*))
1) That( some more emphasis can 8e gi'en on current assets to increase its !igure an# to
#ecrease current lia8ilities; !igure as a result o! 2hich the !igure !or 2orking capital can 8e
increase#)
93
TAB3EA7'(
STATEMENT S0O.ING %0ANGES IN .OR2ING %A5ITA3
((-'( TO (-'-G
F(-'-A(-''G
FR#G
F(-''A(-'(G
FR#G
Increa#e in
9or$in/
ca1ita&
FR#G
Decrea#e in
9or$in/
ca1ita&
FR#G
%urrent a##et#
Store# and
#1are#
G+G(E,H(*FG H0(H+(E0(>0+ ,0+E.F,G* -
Sundry
debtor#
,(+EE(+HF(>F. ,(+E(E0(.,(0HG E.>**E -
%a#h K ban$
ba&ance#
H+F(+,H(FE+ F*(F,(+0(,*H ,FHH,.0*,
Other current
a##et#
00(0H(E,(0*H F>(>G(H>(FEG FFH>.,*H -
3oan# K
ad!ance#
*(G0(GF(*E(,GH ,(EG(*0(G0(... - ,(*G(0+(.G(GE0
Tota& )=6-=)6='6=6'8 7=-,=86=,7=6,*
%urrent
&iabi&itie#
%urrent
&iabi&itie#
*(>F(0>(G0(+>0 *(E,(FH(H0(FHH - >(,E(,+(FE.
5ro!i#ion# >(G,(F+(+*(0+. E(0H(E0(0F(>FE - GF(G0(0>(GF*
Tota& ,=(8=6+=**=)+8 *=('=6)=)+=(,+
*,>F,,.E00
.or$in/
ca1ita&
Fcurrent
a##et#Acurrent
&iabi&itie#G
A8*=,'=,7=66- A6='6=+(=**=*8)
Net decrea#e
in 9or$in/
ca1ita&
A('+,''67))
A6='6=+(=**=*8) A6='6=+(=**=*8) (6*)'(*'-( (6*)'(*'-(
By /oin/ throu/h the tab&e7'( #ho9in/ chan/e# in 9or$in/ ca1ita& the fo&&o9in/ re#u&t#
can be made:
94
a) That( the total current asset o! the %ear *+,,-*+,* is #ecrease# to Rs) E(+F(H.(FE(.FG
rom a pre'ious %ear;s !igure o! Rs) 0(.+(0.(,.(.,H )
8) The total 'alue o! stores an# spare is increase# !rom the pre'ious %ear;s !igure an# the 'alue
o! sun#r% #e8tors is also increase# !rom the pre'ious %ear;s !igure)
c) The cash an# 8ank 8alances o! the organi6ation ha'e a #ecrease o! Rs),F(HH(,.(0*,!rom the
pre'ious %ear;s !igure) Similarl% the !igure !or loans an# a#'ances is also #ecrease# to
Rs),(EG(*0(G0(... !rom the pre'ious %ear;s !igure o! Rs) *(G0(GF(*E(,GH)
#) The other current assets like prepai# e=penses an# sun#r% recei'a8les ha'e also increase#
!rom the pre'ious %ear;s !igure)
e) The total current lia8ilities o! the %ear *+,,-*+,* are increase# to RsG( *,(.0(0>(*F>
From a prevous years fgure of Rs. 7,29,34,88,649.
!)That( the increase !or current lia8ilities is #ue to increase in the !igure o! sun#r% cre#itors(
#eposits an# retention !rom suppliers4contractors( lia8ilities !or 2ealth ta=( lia8ilities !or !ringe
8ene!it ta= an# other lia8ilities !rom the pre'ious %ear;s !igure)
g)9ue to increase in the 'alue o! stores an# spares( sun#r% #e8tors( an# other current assets(
there is a sign o! increase in 2orking capital) Do2e'er( #ue to a #ecrease in the !igure o! cash(
8ank 8alances( loan an# a#'ances etc( there is a clear sign o! #ecrease in the 2orking capital)
h)9ue to increase in current lia8ilities an# pro'isions !or pension an# gratuit% o! pa%( there is a
sign o! #ecrease in 2orking capital)
i)"s per the anal%sis( it is o8ser'e# that( the ratio o! increase o! 2orking capital is #rasticall%
re#uce# than the pre'ious %ear;s an# the #ecrease sign o! 2orking capital is Rs) -*,>F,,.E00
(*+,,-*+,*)( 2hich has impacte# the stea#% increase o! current 2orking capital 7 negati'el%
a!!ecte# the pro!ita8ilit% o! the organi6ation)
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j)It is !oun# that the current asset;s !igure is #ecrease# !rom the pre'ious %ear;s !igure 7 the
current lia8ilities !igure is increase# !rom the pre'ious %ear) "s a result o! 2hich( there is a net
#ecrease (negati'e !igure) in 2orking capital this !inancial %ear (*+,,-*+,*))
k)That( some more emphasis can 8e gi'en on current assets to increase its !igure an# to #ecrease
current lia8ilities; !igure as a result o! 2hich the !igure !or 2orking capital can 8e increase#)
96
FINDINGS OF T0E STUD:
97
Fo&&o9in/ are the findin/# of the #tudy:
a) Working capital o! three %ears i)e)( (*++H-*+,+( *+,+-*+,,( *+,,-*+,*) is in negati'e !igure)
The reason is that the compan%;s current lia8ilities e=cee#s current assets !rom *+,+-*+,, to
*+,,-*+,*) The compan% create# more pro'isions throughout this . %ears) Sun#r% cre#itors
increase# at a spee# in these . %ears) It is an alarm sign !or the compan%) 3esi#es these sun#r%
cre#itors( other current lia8ilities also increase# like #eposits an# retention !rom supplies(
lia8ilit% !or 2ealth ta=( electricit% #ut% pa%a8le)

8) The stan#ar# current ratio is *<,) "n# !or ECE: it is not satis!actor%) The reason 8ehin# such
result is that the current lia8ilities e=cee# current assets) The stan#ar# current ratio !or *+,+-
*+,, is satis!actor% 8ut in the %ear *++H-*+,+( *+,+-*+,,( *+,,-*+,* situations 8ecomes 2orst)
The reason 8ehin# the increase in current lia8ilities an# pro'isions) It is not a goo# sign !or the
compan%)
c) The stan#ar# quick ratio is ,<,) "n# !or ECE: it is not satis!actor%) The reason 8ehin# ECE:
#i# not achie'e the rule o! thum8) The current lia8ilities e=cee# the liqui# assets) There is an
increase in current lia8ilities like sun#r% cre#itor( interest accrue# 8ut not #ue on loans( lia8ilit%
!or 2ealth ta= an# lia8ilities !or !ringe 8ene!it ta= than o! liqui# assets)

#) "8solute liqui# test ratio is 8elo2 ,<*( 2hich are 2orries !or ECE:) The reason is that liqui#
assets !all 'er% short than current lia8ilities) The current lia8ilities again e=cee# the a8solute
liqui# assets) There is not signi!icant increase in a8solute current assets like cash an# 8ank
8alances !rom *+,+-*+,, to *+,,-*+,*) 3ut there is a rapi# increase in case o! current lia8ilities
like sun#r% cre#itors( #eposits an# retention !rom suppliers( lia8ilities !or !ringe 8ene!it ta= an#
pro'isions)
e) 9e8tors o! the compan% 2ere high? the% 2ere increasing %ear 8% %ear( so more !un#s 2ere
8locke# in #e8tor) "s the compan% is selling electricit% to the sun#r% #e8tors an# the cash is not
imme#iatel% recei'e# so some amount o! cash is 8locke# in that matter)
!) The current asset tren# increase# !rom *+,+ to *+,*( 8ut in *+,+ it #eclines) The current
assets like stores an# spare increase# in *+,+-*+,, to *+,,-*+,* 8ut in *+,+-*+,, it #ecline#
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an# then it is increase# in *+,,-*+,*) Sun#r% #e8tors increase# !rom *+,+-*+,, to *+,,-*+,*
8ut it #ecline# in *+,+-*+,, 8ut again it is increase# in *+,,-*+,*)
g) The current lia8ilities tren# increasing at a spee# 2hich is 2orrie# thing !or compan%)
Current lia8ilities like sun#r% cre#itors( #eposits an# retention !rom suppliers( interest accure#
8ut not #ue on loans( lia8ilities !or 2ealth ta=( electricit% #ut% pa%a8le( lia8ilities !or !ringe
8ene!it ta= increase# !rom *+,+-*+,, to *+,,-*+,*)
h) 9e8tor;s turno'er ratio impro'e# !rom *+,+ to *+,* an# so num8er o! collection perio#
#ecreases) 3ut in *+,+ #e8tor;s turno'er ratio #ecreases an# collection perio# increases) In
*+,+-*+,, it 2as ,*0 #a%s) Then it is re#uce# to GE an# EF #a%s in *+,,-*+,* an# *+,+-*+,,
respecti'el%) 3ut in *+,,-*+,* it again increase# to ,*E #a%s)
j) Current asset ratio #ecrease throughout the %ear) It 2as ,),+ in *+,+-*+,, then it increase# to
,)*H then a !all #o2n occurre# as it 2as ,)+G in *+,+-*+,, an# +)0+ in *+,,-*+,*)
k) Working capital turno'er ratio 2as positi'e in *+,+-*+,,? it 8ecame negati'e in *+,,-*+,*(
*+,+-*+,, an# *+,*- *+,+) It 2as E)+. times in *+,+-*+,, then is slope# #o2n2ar# an# it 2as
-,E)F( -0)GG( -+)HF in *++H-*+,+( *+,+-*+,,( *+,,-*+,* respecti'el%)
99
%ON%3USION AND
RE%OMMENDATION
100
%ON%3USION:
On the 8asis o! #ata anal%sis on 2orking capital management in ECE:( the !ollo2ing
conclusions arri'e#)
a) The compan% has gross pro!it !or the past !our %ears (*++G-+H( *++H-,+( *+,+-,,( an# *+,,-
,*) in negati'es an# the current lia8ilities are increasing( in comparison to current assets
position) Dence( it is an alarming sign !or the smooth 2orking capital management)
8) The ECE: #i#n;t manage the liqui#it% position o! the compan%) The liqui#it% position 2as in
a goo# con#ition an# in *++G-+H( it 2as also satis!actor%) 3ut( in the %ear *++H-,+( *+,+-*+,,(
*+,,-,* the situation o! liqui#it% position 2as alarming #ue to increase in total current lia8ilities
an# #ecrease in total current assets 2hich le# to the #ecrease in the net 2orking capital o! the
compan%)
c) 9uring the %ear *++G-+H( *++H-,+( *+,+-*+,, an# *+,,-*+,* the compan%;s liqui# assets
2ere not satis!actor%)
#) The a'erage collection perio# o! the compan% #uring the %ear *++G--*++H is ,*E #a%s( it is
re#uce# to GE #a%s in *++H-*+,+ an# again it re#uce# to EF#a%s in *+,+-*+,,( 8ut the a'erage
collection perio# again increases to ,*0 #a%s in *+,,-*+,*)
e) There is also satis!actor% net cash !lo2 !rom the operating( in'esting an# !inancing acti'ities
o! the organi6ation)
!)Though the net 2orking capital o! the compan% is #ecrease#( still the compan% is in a 8etter
managea8le position an# the compan%;s present status o! maintaining current assets an# current
lia8ilities are satis!actor%)
g) The% are una8le to manage their cash( !un#s an# #e8ts)
3% a#apting 8etter management practices( the compan% ma% attain a soun# !inancial position in
!uture an# a8le to manage its 2orking capital e!!icientl%)
101
SUGGESTIONS
102
It is suggeste# to the compan% to maintain sta8le 2orking capital) 3ecause the
pro!ita8ilit% o! the organi6ation is on soun# 2orking capital)
It is suggeste# to compan% to proper utili6ation o! !un#s in current assets)
It is suggeste# to compan% to maintain require# in han# an# 8ank) Other2ise it
#i!!icult to meet short term o8ligations
103
3IMITATIONS OF T0E
STUD:
104
ollo2ing are the limitations o! the stu#%<
,) The topic 2orking capital management is itsel! a 'er% 'ast topic %et 'er% important also) 9ue
to time restraints it 2as not possi8le to stu#% in #epth in get kno2le#ge 2hat practices are
!ollo2e# at ECE:)
*) $an% !acts an# #ata are such that the% are not to 8e #isclose# 8ecause o! the con!i#ential
nature o! the same)
.) Since the !inancial matters are sensiti'e in nature the same coul# not acquire# easil%)
>) The stu#% is restricte# to onl% the our Oear #ata o! ECE:)
105
IM53I%ATION FOR FUTURE RESEAR%0:
This stu#% is the !oun#ation stone !or carr%ing out !urther research in the !iel# o! 2orking
capital management) urther research can 8e also 8e carrie# out the stu#% o! 2orking capital
management) This one o! such preliminar% research 2ork an# !urther re'ie2 o! this research
2ork can open up man% #imensions !or researchers) "lthough the o8jecti'e taken in research
stu#% is #i'erse( %et a tren# can 8e o8ser'e# !rom the !in#ings !or !uture research 2ork)
One o! the major #ra28acks o! the stu#% is the lack o! time) Working capital management is a
'er% 'ast topic an# hence in a limite# time it is impossi8le to kno2 e'er% aspects o! 2orking
capital management) "n# also it 2as stu#% that #epen#e# on >%ears o! #ata) There is !uture
scope !or stu#%ing these things)
DIS%3AIMER:
The present stu#% o! 2orking capital management in ECE: is purel% aca#emic in nature) The
anal%sis o! the #ata an# interpretation o! the matters in the project report are purel% aca#emic
purpose an# no8o#% shoul# take it as a !act !in#ing conclusion !or lo#ging an% claim or
su8mission o! a8o'e !acts !or their personal 8ene!its !or 2hich the un#ersigne# 2ill not 8e hel#
responsi8le) The 'ie2s suggestions( conclusions etc) are the 8on!ie# 2ork o! mine an# no8o#%
shoul# claim or cop% it !or their 8ene!it 2ithout permission)
106

BIB3IOGRA50:
107
TE4T BOO2S:
,) $ahes2ari 9r S)n Ninancial managementM( Ninth e#ition( *+,* sultan chan# 7 sons( Ne2
9elhi
*) Pan#e% I)$)( Ninancial $anagementM( Cikas Pu8lishing Douse P't):t#) G
th
E#ition ,HHH)
.) Prasanna Chan#ra( Ninancial managementM( ourth e#ition ,HHH( Tata $c)gra2 hill
pu8lishing compan% lt#( Ne2 9elhi)
>) /upta( sashi)( N!inancial managementM( >
th
e#ition(*+,+( kal%ani pu8lisher( ne2 #elhi
E) 1othari C)R) NResearch $etho#olog%M( Wish'a prakashan( Ne2 9elhi( *++,)
ARTI%3ES:
"n o'er'ie2 o! 2orking capital management an# corporate !inancing)
Working capital management)
Working Capital $anagement $anages lo2 o! un#sM (Oear *+,*)
NWorking Capital $anagement-an E!!ecti'e Tool !or Organisational SuccessM Oear (*+,,)
.eb#ite:
http://www.escortsece.com/
222)In'estope#ia)com
222)mone%control)com
108