Académique Documents
Professionnel Documents
Culture Documents
AT
OILGEAR TOWLER POLYHYDRON PRIVATE LIMITED (OTPL)
Contents
Sl. No.
I Chapter 1
Titles
Page No.
Introduction
Literature Review
37
39
39
39
40
II Chapter 2
Organization Profile
41
Organization Chart
50
52
III Chapter 3
Results & discussion with Charts & graphs
53
Findings
77
Suggestions
78
Conclusions
79
IV Chapter 4
Appendix
80
Bibliography
80
Joining Report
81
Weekly Reports
82
Introduction: -
Ratio Analysis has been carried out using Financial Information for last three
accounting years i.e. from 2003 to 2005; Ratios like Current Ratio, Working Capital
Turnover Ratio, Inventory Turnover Ratio, Debtors Turnover Ratio have also been
analyzed. A Statement of Changes in Working Capital has also been analyzed and
attached Turnover & Performance of the Company for last three years has also been
analyzed.
Working capital in simple terms is the amount of funds, which a company, must
have to finance its day-to-day operation, it can be regarded as part/portion of capital,
which is, employed in short operation.
Every organization invests their funds in two terms of capital namely,
1. Fixed Capital.
2. Working Capital
The amount invested in the assets like Plant and Machinery, Building, Furniture
etc, blocked on permanent basis and is called Fixed Capital Organization not only
requires Fixed Capital, but also need of fund to meet day to day operations for short term
purpose, such funds is called Working Capital.
A Study of Working Capital is of major part of the external and internal analysis
because of its close relationship with the current day to day operation of business.
Working Capital consists broadly for that position/the assets of a business that are used at
related current operations and is represented by raw materials, stores, work in process and
finished goods merchandise, note/bill receivable.
Genestenberg: -
Working Capital means Current Assets of a company that are changed in the
ordinary course of business, from one to another, for ex, from cash to inventories,
inventories to receivable, receivable to cash.
Working capital refers to a term investment in short term assets cash, short term
securities accounts receivables and inventories.
J. Smith: -
The Sum of the current assets is the working capital of the business.
The upper portion of the diagram above shows in a simplified form the chain of
events in a manufacturing firm. Each of the boxes in the upper part of the diagram can be
seen as a tank through which funds flow. These tanks, which are concerned with day-today activities, have funds constantly flowing into and out of them.
The chain starts with the firm buying raw materials on credit.
In due course this stock will be used in production, work will be carried out on the
stock, and it will become part of the firms work in progress (WIP)
Work will continue on the WIP until it eventually emerges as the finished product
When the finished goods are sold on credit, debtors are increased
They will eventually pay, so that cash will be injected into the firm
Each of the areas stocks (raw materials, work in progress and finished goods), trade
debtors, cash (positive or negative) and trade creditors can be viewed as tanks into and
from which funds flow.
Working capital is clearly not the only aspect of a business that affects the amount
of cash:
cash
Long-term loan creditors (existing or new) may provide loan finance, loans
will need to be repaid from time to time, and
Interest obligations will have to be met by the business.
A. Current Assets
An asset is termed as current assets when it is acquired either for the purpose of
selling or disposing of after taking some required benefit through the process of
manufacturing of which constantly changes in form and contributes to transactions take
place with the operation of the business although such assets does continue for long in the
same form.
Components of Current Assets are as follows:
Cash & Bank Balance
Stock of Raw Material at cost- work in process and Finished Goods.
Advanced Recoverable in Cash or kind or kind or for value to be received.
Security deposits with electricity board-telephone department balances with
customers.
The working capital is in simple terms is the amount of funds which company
must have to finance its day-to-day operations. The interaction between current assets and
current liability is main theme of theory of working capital. In general terms working
capital means difference between current assets and current liabilities.
The current assets are main source of working capital. It refers to those assets,
which can be converted into cash within a year. The current assets are inventories, cash
and bank balance, sundry debtors, loans and advances etc
Current asset management is one the most important aspect of the overall
financial management. The efficient management of working capital can determine its
profitability skill of every financial manager lies in the efficient management requires
maintaining proper relationship between current asset and current liability. Therefore,
planning and control of current asset is he most important function of finance manager.
Current assets a life span, cash balance may be held idle for a week or two
accounts receivable may have life span of 32 to 60 days and inventories may be need for
2 to 60 days. It s depends upon time require in the activities of procurement of,
production, sales and collection, and the degree of synchronization among them.
Each Current Assets swiftly transform into other asset cash is used for requiring
raw materials: raw material are transform in to finished goods, finished goods are
generally sold on credit are convertible into account receivable and finally accounts
receivable on realization, generate cash.
Finished Goods
A\C Receivable
WIP
Wages / Factory
overhead
Cash
1.
Raw Materials
Suppliers
Working capital means assets of the company that are changed in the ordinary
capital of business term to another. For ex, from another as for as from cash to
inventories, inventories to debtors and again debtors in to cash where it is collected.
Working capital refers to a term investment in short term assets cash; short-term
securities account receivable and inventories. Current asset management that affects a
firm liquidity is at another important finance function. In addition to the management of
long-term assets, Current assets should be managed efficiently for safe guarding the firm
against the dangerous of liquidity and insolvency. Investment in Current Assets affects
the firm profitability, liquidity and risk.
Current Liabilities:
Components of Current Liabilities are as follows:
Non-Refundable non-interest bearing advances against subscription to shares.
Sundry Creditors for the goods and expenses.
Income tax deducted at sources from contractors.
Expenses Payable.
METHODS OF ESTIMATING WORKING CAPITAL: Conventional Method: According to the conventional method, cash inflows and outflows are matched
with each other. Greater emphasis is laid on liquidity and greater importance is attached
to current ratio, liquidity ratio, etc., which pertain to the liquidity of a business.
Current
Liabilities are those that are expected to mature within an accounting year and include
creditors, bills payable and outstanding expenses.
Investment is current assets represent a very significant portion of the total
investment in assets.
constitute around 60% of the total capital employed. Therefore the finance manager
should attention to working capital management.
Working Capital Management is no doubt significant for all firms, but its
significance is enhanced in cases of small firms. A small firm has more investment in
current assets than fixed assets and therefore current assets should be efficiently
managed.
The working capital needs increase as the firm grows. As sales grow, the firm
needs to invest more in debtors and inventories. The finance manager should be aware of
such needs and finance them quickly.
Current Assets can be finance through long-term and short-term sources. The
ratio of long-term to short-term source will depend on whether the firm is aggressive of
1. Long Term Sources of Working Capital: The following are the some important of the long
term sources of working capital.
A. Issue of Shares: Issuing shares can finance a part of long-term working capital.
B. Issue of Debenture: Long Term Working Capital can be collected by the way of
issuing the debentures.
C. Retained Profits: Accumulated large profit can also consider as a source of financing
the long-term capital.
D. Term Loans: - The mid and term loan above three year are also important source of
financing the long term working capital needs.
E. Reserves and Surplus: -These are also useful for financing long-term working
capital.
SHORT TERM SOURCES OF WORKING CAPITAL: Duration for this generally do not exceeds one year. Its sources are
1. Depreciation Funds: Depreciation Funds created out of the profit is good source for
short-term source of financing working capital.
2. Provision for Taxation: Provision made for the companies, can use taxation as a
source of working capital during the intermediate period.
3. Accrued Expenses:
expenditures due the date of finalization of account. These accrued expenses are useful as
working capital
1. Trade Credit: Trade Credits extended by one business unit to the other on the
purchase sale of goods and equipments are very important.
3. Credit Papers: - Bills Payable, promissory notes etc are usefully for working capital
requirements.
4. Customer Credit: Amount may also be obtained from customer and these amounts
can be used for purchasing raw materials, paying expenses etc.
5. Financial Corporation: The financial corporation likes IDBI, IFCI, ICICI, etc,
advances loans for various types of assistance.
6. Government Assistance: State and Central Government, of the country provide shortterm finance industries on easy terms.
7. Loan from Directors: - One enterprise can also obtain loan from its directors,
officers, M.D. etc
Well working capital management refers to the administration of all aspects of the
current assets and liabilities. It is necessary to get maximum benefit.
There is a direct relation between sale and working capital needs. As sale grows
the firm needs capital to invest in inventories and book debts.
A) Cash Management: -
Cash is required to meet the firms transactions and precautionary needs. The firm
needs cash to make payments for acquisition of resources and services, for the normal
consist of the business. It keeps addition funds to meet any emergency situation.
Cash Management involves three things.
Managing cash flow in and out of the firm.
Managing cash flow within the firm.
Financing deficit or investing surplus cash. And thus controlling of cash balance at
the point of time.
B) Inventory Management: -
C) Management of Receivables: -
Business firm generally sell goods on credit to facilitate sales. When goods are
sold on credit finished goods are converted into receivable. Receivable when realized
generate cash for forecasting standard ratio of accounts receivables based on analysis of
part data of two years. Recessions analysis and making may be appeared.
D) Operating Cycle: Operating Cycle refers to length of time required to complete the series of events
as stated below in case of manufacturing enterprise, which is cyclical in nature.
For a manufacturing firm, cash is spent on acquiring raw materials, which are
transformed in to work in progress. The work in progress is then converted in to finished
Cash
Debtors / BR
Raw Materials
Sales of goods
Work in Progress
Finished Goods
DETERMINANTS OF WORKING CAPITAL: A firm should plan its operations in such a way that it should have neither too
much not too of little working capital. The working capital requirement is determined by
a wide variety of factors. These factors, however, affect different enterprise differently.
They also vary from time to time. In general, the following factors are involved in a
proper assessment of the quantum of working capital required.
The following are the some important determinants of working capital
2. Production Cycle
involved in the manufacture of goods. It covers the time-span between the procurement
of finished goods. Funds have to be necessarily tied up during the process of
manufacture, necessitating enhanced working capital. In other words, there is some time
gap before raw material becomes finished goods. To sustain such activities the need for
working capital is obvious. The longer the time span (i.e. Production Cycle), the larger
will be the tied up fund and, therefore, the larger is the working capital needed and viceversa.
3. Business Cycle
The working capital requirements are also determined by the nature of business
cycle. Business fluctuations lead to cyclical and seasonal changes, which, in turn, cause a
shift in the working capital position, particularly for temporary working capital
requirement. The variations in business condition may be in two directions,
1. Upward Phase: - When boom conditions prevail,
2. Downswing Phase: - When economic activity is marked by a decline.
During the upswing of business activity, the need for working capital is likely to
grow to cover the lag between increased sales and receipt of cash as well as to finance
purchase of additional material to cater to the expansion of the level of activity.
4. Production Policy
5. Credit Policy
The credit policy relating to sales and purchases, also affects the working capital.
The credit policy influences the requirements of working capital in two ways,
1. Through the credit terms granted by the firm to its customers/buyers of goods.
2. Credit Terms available to the firm from its creditors.
1. The credit terms granted to customers have a bearing on the magnitude of
working capital by determining the level of book debts. The credit sales result in higher
book debt (receivables). Higher book debts mean more working capital. On the other
hand, if liberal credit terms are available from the suppliers of goods (trade creditors), the
need of working capital is less. The working capital requirements of a business are, thus,
affected by the terms purchase and sale, and role given to credit by company in its
dealing with creditors and debtors.
2. Credit terms fixed by an enterprise are affected by the prevailing trade practices
as well as changing economic conditions. If, for example, competition were keen, there
would pressure to grant generous credit terms. Nevertheless, there is wide scope for
7. Profit Level
The level of profit earned differs from enterprise to enterprise. In general, the
nature of the product, hold on the market, quality of management and monopoly power
would by and large determine the profit earned by a firm. A priori, it can be generalized
that a firm dealing in a high quality product, having a good marketing arrangement and
enjoying monopoly power in the market, is likely to earn high profit and vice-versa.
Higher profit margin would improve the prospects of generating more internal funds
thereby contributing to the working capital pool.
8. Dividend Policy
9. Depreciation Policy
Depreciation Policy also exerts an influence on the quantum of working capital.
Depreciation charges do not involve any cash outflows. The affect of depreciation policy
on working capital is, therefore, indirect. In the first place, depreciation affects the tax
liability and retention of profits. Depreciation is allowable expenditure in calculating net
profits. Enhanced rates of depreciation lower the profits and, therefore, the tax liability
and, thus, more cash profits. Higher depreciation also means lower disposable profits and,
therefore, a smaller dividend payment. Thus, cash is preserved. In the second place, the
selection of method of depreciation has important financial implication.
Techniques of Working Capital Management: Working Capital management involves deciding upon the amount and
composition of current asset and how to finance the asset. This decision involves trade off
between risk and profitability.
Working Capital Balances are measured from the financial dates of the companys
balance sheet. A study of the causes for changes of working capital that take place in the
balance from time to time is necessary. These changes can be measured in rupee amount
and also in percentage by comparing current assets, current liabilities and working capital
over the given period.
The importance tools of Working Capital are,
3. Working Capital Budget: The working capital budget is an important phase of overall financing budgeting.
This budgeting should be distinguished from a cash budget that is designed to measure all
the financial repayment of loans, term loan and similar item. On the other hand working
capital repayment and assure that they are duly provided for. The objective of that budget
is to secure an effective utility of investment.
4. Trend Analysis: A trend analysis indicates the change, which has been taking place from time to
time of an individual item of current assets. Assets and utility and net working capital on
the basis of some standards year and its effect on working capital portion. It enables
creative the upward and down ward trend of current assets and current liabilities. These
are usage measured from review of comprehensive balance sheet of a concern at the end
of account year and result is drawn on the basis of trend shown by them.
Literature Review: -
According to Genestenberg: -
Working Capital means Current Assets of a company that are changed in the
ordinary course of business, from one to another, for ex, from cash to inventories,
inventories to receivable, receivable to cash.
Management Problem
The Company wants to study its working capital efficiency where current
assets are main constituents of working capital management. The company wants to
avoid two dangerous points i.e excessive and inadequate investment in current
assets. Investment in Inventories and Debtors should be minimized so that it can
maximize its cash and bank balance.
Research Problem: -
Statement of the Problem: The study has been undertaken in the organization for the purpose to know the
companys working capital management through the study of Impact of Current Assets
on Working Capital.
Purpose of the Study:The Purpose of the Study of working capital in Oilgear Towler Polyhydron
Private Limited is to analyze the working capital with the help of financial ratios and to
check how the company is maintaining the working capital.
The study should be made on the basis of the followings,
1. Financial Statements.
2. Financial Ratios.
Scope of the Study: The working capital is spread to some important departments in Oilgear Towler
Polyhydron Private Limited. The departments are,
Objective of the Study: The following are the some importance objective of the study of working capital
management.
1. To analyze the working capital of the organization.
2. To analyze the effect of current assets on working capital.
3. To study financial performance of organization with the help of ratios.
4. To study the working capital and recommend the suitable working capital of the
year to the organization.
1. INTRODUCTION: -
From its inspection has been manufacturing OIL HYDRAULIC SYSTEMS &
HYDRAULIC ACTUATORS & has later added PISTION type accumulators to its range
of products.
1. COLLABORATION
The company entered into a joint venture collaboration agreement with the
OILGEAR COMPANY, OILGEAR TOWLER INTERNATIONAL DIVISION, USA in
Dec 1993.
THE OILGEAR COMPANY is a world famous for its Electro-Hydraulic and
Hydraulics products such as sophisticated pumps, valves and systems and especially
known in the technology of world for its contribution to the technology of Metal
Extrusion and Metal forming systems. The company also has its subsidiaries in Australia,
Canada, France, Germany, Great Britain, Italy, Japan, and Korea & Spain.
Participated in following Business Areas
Market Oilgear products in the Indian market. Include products like piston, pumps,
solenoid valves, prefil valves and cartridge valves.
Name
Constitution
Location
Works
91831-2441157, 2441459
otplbgm@sanchearnet.com
Works
Board of Directors: -
Chairman
Managing Director
Director Production
Director Commercial
Director Finance
Director
4.2)
Laths
Horizontal Bore
CNC Machine Center
CNC Vertical Machine Center
Drilling Machine
Milling Machine
Surface Machine
Honing Machine
Hack Saws
TIG Welding Set
Flame Cutting Equipments
Arc Welding Set
4.3) OFFICE AND EQUIPMENT
3 No s
3 No s
1 No s
1 No s
3 No s
1 No s
2 No s
1 No s
2 No s
1 No s
1 Set
2 No s
Painting Equipment
Electro Static Cleaner
Cleaning Machine
Pallet Trucks
Air Compressors
Prgauge Calibrator
Hardness Tester
Pumps Test Stands
Valve Test Stands
Generating Stands
Over head Cranes
6 Nos.
Fax lines
1 No
1 No
2 Sets
1 No s
2 No s
2 No s
3 No s
1 No s
1 No s
3 No s
1 No s
3 No s
3 No s
6 Nos.
Fax line
1 No.
1 No
4.4)
DATA PROCESSING
For
Design
Accountancy
Inventory
Planning
Sales
Purchase
Administration.
5)
STAFF: -
Sales
7 Engineers + 4 Support
Purchase
2 Officers + 3 Support
Planning
1 Engineer
6)
Design
9 Engineers + 1 Support
6 Officers + 3 Supports
Manufacturing
3 Engineers + 40 Supports
Servicing
3 Engineers + 4 Support
Quality Assurance
1 Engineers + 1 Support
FACILITIES: -
6.1)
In House
Design - Designing of mechanical and electro hydraulic
systems Auto card 2000 solid works 2001 + Cosmos works.
Welding
TIG Welding.
ARC Welding
The nature of the study was collection analysis and interpretation of working
capital management in OTPL The information about this was gathered through
following sources.
Primary Data: -
Primary Data are those, which are collected fresh and for the first time, and thus it
happens to be original in character.
The primary sources of data are collected from the financial executives through
personal discussion in the light of the set objectives. Along with this, informal discussion
with other, member of the finance.
Secondary Data: -
Secondary Data are those have already been collected by someone else and while
already been passed through statistical process.
2002
2003
Increase
Decrease
1. Inventories.
1,43,29,584
1,82,87,763
39,58,179
---------
2. S. Debtors
1,47,19,225
1,62,67,703
15,48,478
---------
96,70,212
99,24,482
2,54,270
---------
5,04,462
6,83,065
1,78,603
---------
23,58,269
18,000,63
---------
5,52,206
4,15,81,752
4,69,69,076
1. Current Liabilities
88,76,844
1,27,30,292
--------
39,53,448
2. Provision
56,67,201
47,89,238
8,77,963
------------
1,45,44,045
1,76,19,530
2,70,37,707
2,93,49,456
68,17,493
45,05,654
A) Current Assets
TOTAL
Working Capital
(A-B)
Net Increase in
Working Capital
GRAND TOTAL
23,11,839
2,93,49,456
23,11,839
2,93,49,456
68,17,493
68,17,493
As we can see in the above year 2002-03, there is an increase in the working
capital by Rs. 23,11,839. This is because:
1. As we can see that there is a great increase in Current Assets as the company is
looking to invest more in the inventory of raw material in this year, because of the
shortage of raw material in the market, so overall there is increase in the current
assets. But in current assets loans and advance are decreased.
2. As we can see there is decrease of Rs. 39,53,448 in the liabilities of the company,
which is good for the company. But Rs. 8,77,963 increases provisions.
3. So from all the above calculation we can see that there is good increase in the
working capital.
(Rs. In Thousand)
2003
2004
Increase
Decrease
A) Current Assets
1. Inventories
18,288
34,600
16,312
-------
2. S. Debtors
16,298
32,122
15,854
-------
9,924
12,492
2,568
-------
6,83
9,45
2,62
-------
1,806
1,939
1,33
-------
46,969
82,098
12,830
28,541
----------
15,711
4,789
7,664
----------
2,875
17,619
36,205
29,350
45,893
35,129
18,586
B) Current Liabilities
1. Current Liabilities
2. Provision
TOTAL
Working Capital
(A-B)
Net Increase in Working
Capital
16,543,
GRAND TOTAL
45,893
16,543
45,893
35,129
35,129
In the above table it is seen that, there is an increased in the working capital by
Rs.16, 543 in the year 2003-04, this is because: -
1. As we can see in the above table that in the Current assets are increased, because of
increase in inventories, debtors, cash and bank balance, loans and advance and also
increase in other current assets.
3. So as the liabilities have decreased this year and there is increase in current assets, so
there is increase in working capital.
2004
2005
Increase
Decrease
A) Current Assets
1. Inventories
34,600
28,042
--------
6,558
2. S. Debtors
32,122
47,790
15,668
-------
12,492
10,084
--------
2,408
9,45
6,056
5,111
-------
5. Advance to Suppliers
-------
1,215
1,215
-------
1,930
1,771
--------
1,59
82,098
94,958
21,994
9,125
1. Current Liabilities
28,541
26,531
2,210
--------
---------
9,082
------
9,082
7,664
6,778
8,86
-------
TOTAL
36,205
42,191
3,096
9,082
45,896
52,767
25,090
18,207
6,874
4. Other C. Assets
TOTAL
B) Current Liabilities
3. Provision
GRAND TOTAL
INTERPRETATION
52,767
6,883
52,767
25,090
25,090
1. As we can see of the Current Assets side there is decrease in Inventories, cash and
bank balance and loans and advances. There is an increased in sundry debtors, other
current assets and company also given the advance to supplies by Rs. 1,215. This
decrease in Inventory because there is unavailability of their main raw material.
Because of the shortage of it in the market.
2. Current Liabilities side there has been increased in current liabilities and provisions of
Rs. 2,210 and Rs. 8,86 respectively and also company has taken the advance from
customers of Rs. 9,082.
3. So, looking above calculation we see that working capital of the company is
increased, because current assets are more than current liability. Working Capital is
increased from Rs. 6,874 to Rs. 6,883. Because in this year company has taken the
advance from customer and given advance to suppliers.
RATIO ANALYSIS
Meaning: -
Proportion of numbers (the relationship between net profit and sales is 1:4), these
alternative methods of expressing items which are related to each other are, for the
purpose of financial analysis, referred to as ration analysis.
Types of Ratios
Ratio can be classified into following categories,
1. Current Ratios.
2. Net Working Capital Ratios.
3. Total Assets Turnover Ratios.
4. Inventory Turnover Ratios.
5. Fixed Assets Turnover Ratios.
6. Creditors Turnover Ratios.
7. Creditors Collection Period.
8. Debtors Turnover Ratios.
9. Debtors Collection Period.
10. Gross Profit Margin Ratios.
Demerits of the Ratio: The following are the some important demerits of the ratio.
1. The striking aspect of ratio analysis is the absence of an explicit theoretical
structure; different methods of collection are adopted by different concerns.
2. For concert analysis inside information must be known by the analyst since most
concern report to portray of easy picture of the financial attachments.
3. Change in the basis of accounting may pose difficulty in analysis ratios between
one period
1. Current Ratios: -
Particulars
Current Assets
Current Liabilities
Current Ratio
2002-2003
4,69,69,000
1,76,19,000
2.66
2003-2004
8,20,98,000
3,62,05,000
2.26
2004-2005
9,49,58,000
4,21,91,000
2.25
Current Ratio
Ratios
2.8
2.6
2.4
Current Ratio
2.2
2
2002-2003 2003-2004 2004-2005
Years
Interpretation: -
2. Quick Ratio
It establishes a relationship between quick or liquid, assets and current liabilities.
An asset is liquid if it can be converted in to cash immediately or reasonably soon
without a loss of value. Cash is most liquid assets. Other assets, which are considered to
be relatively liquid and included in the quick assets, are debtors, and bills receivable and
marketable securities. Inventories are considered to be less liquid, inventories normally
requires some time for realizing in to cash; their value also has a tendency to fluctuate.
Formula
Quick Ratio = Current Assets Inventories
Current Liabilities
2002-2003
4,69,69,000
1,82,88,000
2,86,81,000
1,76,19,000
1.62
2003-2004
8,20,98,000
3,46,00,000
4,74,98,000
3,62,05,000
1.31
2004-2005
9,49,58,000
2,80,42,000
6,69,16,000
4,21,91,000
1.58
Quick Ratio
Ratios
2
1.5
1
Quick Ratio
0.5
0
2002-2003
2003-2004
2004-2005
Years
3. Total Assets Turnover Ratio: The Total assets turnover ratio in addition to, or instead the net current assets, This
ratio shows the firms ability in generating sale from all the financial resource committed
to total assets
Formula,
Total Assets Turnover Ratio = Net Sales
Total Assets
Particulars
Net Sales
Total Assets
Total Assets Turnover Ratio
2002-2003
5,73,73,000
2,69,95,000
2.12
2003-2004
2004-2005
10,86,60,000 10,70,00,000
2,57,87,000 2,52,21,000
4.21
4.24
Ratios
Total Assets
Turnover Ratio
Interpretation: There has been increased in the year 2004-05, when compared to 2002-2003 and
2003-2004. And high ratio indicates that in the year 2004-05, that ratio shows the firms
ability in generating sales from all financial resources.
It indicate the efficiently of the firm in producing the selling its product. The ratio
indicates how fast inventory is sold. A high ratio is good from viewpoint of liquidity and
vice versa. A low ratio would signify that inventory does not sell and stay on the shelf or
in warehouse for a long time.
Inventory Turnover Ratio = Net Sales
Inventory
Particulars
Net Sales
Inventory
Inventory Turnover Ratio
2002-2003
5,73,73,000
1,82,88,000
3.13
2003-2004
2004-2005
10,86,60,000 10,70,00,000
3,46,00,000 2,80,42,000
3.14
3.81
Particulars
Net Sales
Fixed Assets
Fixed Assets Turnover Ratio
2002-2003
5,73,73,000
3,69,41,000
1.55
2003-2004
2004-2005
10,86,60,000 10,70,00,000
3,72,38,000 3,83,06,000
2.91
2.79
Ratios
4
3
Fixed Assets
Turnover Ratio
2
1
0
2002-2003 2003-2004 2004-2005
Years
Interpretation: There has been increased in the ratio during 2002-2003 and 2004-2005, when
compared with 2003-2004. A low ratio in the year 2002-2003 indicates in efficiency use
of assets, and the next two years (2003-2004 and 2004-2005) shows high ratio, which
means that increasing efficiency of fixed assets employed in the organization. One of the
cautions to be kept in the mind is when fixed assets are old and substantially depreciated
the ratio tenders to be high, because, the denominator of the ratio will be low.
Particulars
Net Sales
Creditors
Creditors Turnover Ratio
2002-2003
2003-2004
5,73,73,000
1,28,30,000
4.47
10,86,60,000
2,85,41,000
3.80
2004-2005
10,70,00,000
2,63,31,000
4.06
Ratios
5
4.5
4
3.5
3
2002-2003
2003-2004
Years
2004-2005
6. Creditors Collection Period: This ratio is the difference between Days and Creditors turnover ratios.
Formula,
Creditors Collection Period = Days
Creditors Turnover Ratio
Particulars
Days
Creditors Turnover Ratio
Creditors Collection Period
2002-2003
365
4.47
81.65
2003-2004
365
3.80
96.05
2004-2005
365
4.06
89.90
Ratios
150
100
Creditors Collection
Period
50
0
2002-2003
2003-2004
2004-2005
Years
Interpretation: In the year 2002-2003, there was increase when compared to 2003-2004 and
2004-2005. The high ratio of 2002-2003 indicates that the sales of the year is very low as
compared to 2003-2004 and 2004-2005, and also creditors are low as compared to as
compared to 2003-2004 and 2004-2005. While low ratio in the year 2003-2004 indicates
that creditors are high as compared to other year.
7. Debtors Turnover Ratio: It indicate the how many times debtors turnover each year. Generally, the higher
the ratio of debtors turnover, the more efficient is the management of credit. The ratio
measured how will reveal the days of debts to be colleted.
Debtors Turnover Ratio= Net Sales
Debtors
Particulars
2002-2003
Net Sales
Debtors
Debtors Turnover Ratio
2003-2004
5,73,73,000
1,62,68,000
3.52
10,86,60,000
3,21,22,000
3.38
2004-2005
10,70,00,000
4,77,90,000
2.23
Ratios
4
3
Debtors Turnover
Ratio
2
1
0
2002-2003
2003-2004
2004-2005
Years
Interpretations: There has been increased debtor in the year 2002-2003 as compared to 2003-204
and 2004-2005, high ratio indicates of shorter time gap between credit sales and cash
collation. A low ratio shows that debts are not being colleted rapidly. So, the standard
norms this high ratio reveals that company has quite efficient management of debtors. In
the year 2000 & 2003 are showing equal turnover ratio.
Particulars
2002-2003
Days
Debtors Turnover Ratio
Debtors Collection Period
2003-2004
365
3.52
103.69
2004-2005
365
3.38
107.98
365
2.23
163.67
Ratios
Debtors Collection
Period
20022003
20032004
20042005
Years
Interpretation: The shorter the collection period is better quality of debtors. Since, a short
collection period implies that prompt payment by debtors. In collection period having
some increase and decrease. So, we can find out that there is no uniformity in the debtors
collection period of the year.
Particulars
Gross Profit
Net Sales
Gross Profit Margin Ratio
2002-2003
7,26,000
5,73,73,000
1.26
2003-2004
1,42,88,000
10,86,60,000
13.14
2004-2005
1,86,54,000
10,70,00,000
17.43
Ratios
20
15
10
5
0
2002-2003
2003-2004
Years
2004-2005
Sl. No
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Particulars
Current Ratio
Quick Ratio
Total Assets Turnover Ratio
Inventory Turnover Ratio
Fixed Assets Turnover Ratio
Creditors Turnover Ratio
Creditors Collection Period
Debtors Turnover Ratio
Debtors Collection Period
Gross Profit Margin Ratio
2002-2003
2.66
1.62
2.12
3.13
1.55
4.47
81.65
3.52
103.69
1.265
2003-2004
2.26
1.31
4.21
3.14
2.91
3.80
96.05
3.38
107.98
13.14
2004-2005
2.25
1.58
4.24
3.81
2.79
4.06
89.90
2.23
163.67
17.43
Debtors
Collection
Period
Debtors
Turnover Ratio
20022003
20032004
20042005
Years
Creditors
Collection
Period
Creditors
Turnover Ratio
Fixed Assets
Turnover Ratio
Findings: -
Inventory
Turnover Ratio
Total Assets
Turnover Ratio
Quick Ratio
1. Current Ratio of OTPL Company shows the solvency of the firm ability to repay its
liabilities. As ratio is decline to 2.66. It shows that company is inCurrent
solvency
Ratio
state.
Current assets are should always be twice of current liabilities.
3. Total assets turnover ratio shows the ability to convert all its assets incurring fixed
assets to sales. As per the ratio calculated in the year 2002-2003 it was 2.12, which
was low ratio means firm is able to convert its total assets quickly into funds as per
4. Inventory Turnover Ratio is increased from 3.13 to 3.81 in the year 2002-2003 and
2004-2005 respectively. It shows company has maintained good inventory policy.
5. Gross profit margin ratio shows that increasing year to year. It shows that company
should earn a sufficient profit on each rupee of cash.
Suggestions: -
The working capital including all its related aspects is managed quite well by
OTPL. The finance department is carrying out its responsibilities efficiently. The entire
departments are collectively working hard for the progress of OTPL.
1. In a comparative Balance Sheet Debtors are increased from year to year (1,47,19,000
to 4,77,90,00). Even though debtors are increased which is favorable enough for the
company. But should take care while dealing against the loss due to doubtful and bad
debt.
3. The Current Ratio of the company is decreased from 2.66 to 2.55 in the last threeyear (2003 to 2005). So, the current ratio should be maintained by the company in
such a way that the ratio does not follow below 2:1.
4. Company should give minimum payment time to get prompt payment by debtors.
Conclusion
2. According to my calculation Current Assets main part of, the working capital of the
business. According to all Ratios, It shows that company maintains its ratio is very
well. So, In the year 2004-2005 company showing better position in the working
capital.
BIBLOGRAPHY
Financial Management by books used from which I have taken help for the theory
part of the study:
I.M. Pandey
I have meet with the different people at the Administrative Department at Oilgear
Towler Polyhydron Private Limited (OTPL). As also took their views and information
for my Study.
I have also took the help form the company site www.oilgear.co.in