CHAPTER -01

1.1 Research Methodology

RESEARCH PROBLEM

Analyze the Working Capital of ITI Ltd. in Last 5 Years to measure the working capital
performance of company with respect to other firms and overall industry.

SITUTATION ANALYSIS

MODEL DEVELOPMENT

VARIABLES involved in the Research:

1) Name of company involved in ResearchITI NAINI, ITI CORPORATION

2) FINANCIAL VARIABLES:
Current Assets, Current Liabilities, Net Working Capital, Sales, Working Capital Turnover
Ratio, Current Ratio, Quick Ratio, Debtors turnover days Ratio, Creditors Turnover Days
Ratio, Inventory turnover days Ratio, Cash to Current Assets Ratio.

RESEARCH TYPE

Exploratory Research- The research is concerned with discovering the general nature of
Working Capital and the various variables related to it.

OBJECTIVE OF THE RESEARCH

To Study and analyze the working capital of the ITI Ltd

To determine the efficiency of working capital used in the organization through various ratios.

To apply analytical tools and techniques to financial statements to obtain useful information to
aid decision making.

DATA COLLECTION APPROACH

1) Secondary Data
A) Internal Secondary Data- Annual Reports, Files and office documents.
B) External Secondary Data- Various books, Reports and Internet.
2) Primary Data- Interview and discussion with concerned persons.

TOOLS & TECHNIQUES

Time-Trend Analysis- Used to see how the firms performance is changing through time
Benchmark Analysis.
Financial Ratio Analysis
Financial Statements

1.2 Relationship Among Variables

Working Capital Analysis

Ratio Analysis

Net Working Capital

Current Assets

Current Liabilities

Sales

Other relevant liquidity and

Activity Ratio

Working Capital Turnover

Ratio

1.3

POPULATION
Selected Telecommunication Companies of India.

SAMPLE FRMAE
Research Company- ITI Ltd.

SAMPLING UNIT
The Research included 1 national company with its other units

SAMPLING METHOD
Judge mental Sampling

SAMPLE SIZE
One company

ETHICS OF RESEARCH
The research includes only those data and information which are either non- confidential in
nature or used by taking prior information to respective organization.
No malpractices and incorrect use of any tool and techniques have been done by the researcher.

LIMITATION OF RESEARCH

1) The Data has been restricted to available data from secondary data (annual reports, various
journals, Data Sheets, publications etc.)
2) The authenticity of data is subject to errors and omissions.
3) The number of telecommunication companies involved is among top companies of the world,
which might not be a fair indicator of the total sector as a whole.
4) The Results are not on a standalone basis as it includes the various subsidiaries which the
company has.

Limitation of Ratio Analysis:

Do Not Resolve Problems Only Indicate That There May Be a Problem.

Window dressing techniques can make statements and ratios look better.

Different operating and accounting practices can distort comparisons.

There is no underlying theory, so there is no way to know which ratios are most relevant.

Globalization and international competition makes comparison more difficult because of

differences in accounting regulations.
Sometimes it is difficult to tell if a ratio value is good or bad.

Often, different ratios give different signals, so it is difficult to tell, on balance, whether a
company is in a strong or weak financial condition.

CHAPTER-02

2.1 INDIAN TELEPHONE INDUSTRY

Indias first Public Sector Unit (PSU) - ITI Ltd was established in 1948. Ever since, as a
pioneering venture in the field of telecommunications, it has contributed to 50% of the present
national telecom network. With state-of-the-art manufacturing facilities spread across six
locations and a countrywide network of marketing/service outlets, the company offers a
complete range of telecom products and total solutions covering the whole spectrum of
Switching,
Transmission,
Access
and
Subscriber
Premise
equipment.
ITI joined the league of world class vendors of Global System for Mobile (GSM) technology
with the inauguration of mobile equipment manufacturing facilities at its Mankapur and Rae
Bareli Plants in 2005-06. This ushered in a new era of indigenous mobile equipment
productionin the country. These two facilities supply more than nine million lines per annum to
both
domestic
as
well
as
export
markets.
The company is consolidating its diversification into Information and Communication
Technology (ICT) to hone its competitive edge in the convergence market by deploying its rich
telecom expertise and vast infrastructure. Network Management Systems, Encryption and
Networking Solutions for Internet Connectivity are some of the major initiatives taken by the
company.
Secure communications is the company's forte with a proven record of engineering strategic
communication networks for India's Defence forces. Extensive in-house R&D work is devoted
towards specialized areas of Encryption, NMS, IT and Access products to provide complete
customized
solutions
to
various
customers.

Shares distribution
Government of India-92.7%
Public-7.3%

Corporate Office
ITI DOORWANI BHAWAN NAGAR
BANGLORE-560016
INDIA
PH: 080-25614466
FAX: 080-25617525
QUALITY SYSTEM
ISO 9001:2000
ISO 14001:2004

Manufacturing Units
Bangalore (Karnataka)
Naini (UP)
Rae Bareli (UP)
Mankapur (UP)
Palakkad (Kerala)
Srinagar (J&K)

Regional Offices
New Delhi
Bangalore
Kolkata
Lucknow
Mumbai
Chennai
Hyderabad
Bhubaneswar
Bhopal
Ahmadabad
Kochi

10

2.2 ORGANIGATION CHART

11

2.3 Collaboration

TECHNICAL COLLABORATIONS/ STRATEGIC ALLIANCES

In order to meet the emerging needs of the customers as well as to develop cutting
edge capabilities . ITI Limited has select strategic alliance with leading companies
from around the world.
Alcatel Lucent,
ZTE,

France
China

GSM Infrastructure
CDM Infrastructure,

Alphion,

USA

G-PON

SemIndia,

India

ADSL-CPEs

Huawei,

China

NGN (IP TAX)

Tekelec Inc,

USA

SSTP

Midas Communications,

India

EDWASEqpt

Arasor Technologies Pvt Ltd ,

India

IFWT

Tejas Networks

India

SDH Optical

Xalted,

India

STM-64

Mobi,

China

Antenna for GSM

12

2.4 MAIN COMPETITORS

Ericson
Modi-alcatel
Lucent Technologies
Punwire
BPL
ZTE
FIBCOM
Seimens Nokia
Tezas
BEL
PUNCOM
XALTED
ICOM

13

2.5 DIVISION IN ITI LIMITED NAINI

Transmission Equipment Division (TED)
Multiplexing Equipment:

60 CHL Composite Bay

Digital Mux equipment:

PCM skip, Mux& DDF

Radio Equipment

Optical Equipment

: Multi Access Rural Radio ,

Single CHL, VHF/UHF
OLTU, Oreg 2GHz, Microwave
2/140 OPTI Mux SDH System
STM-1/4 ,/16/64&DWDM

TERMINAL INSTRUMENT DEVISION (TID)

Telephone Instrument
EPBT, NAVODAYA, SLEEK, CLIP
Solar Power System

RESEARCH & DEVELOPMENT

The division continuously works for the development of new product and technical approvals
of the products and components. The main objectives of R&D department are;

Assimilation of latest technology

Evaluation of new technology for the benefit of the nation
Undertaking indigenous development works at appropriate technological level
Progress towards the ultimate goal of self reliance

14

CHAPTER -03

Working capital management is the functional area of finance that is

concerned with the administration of all the current assets and current liabilities . it is the
process of planning and controlling the level and mix of the current assets of the firm as well
as financing these assets.

3.1 WORKING CAPITAL:

Working capital refers to the funds invested in current assets i.e., investment in stocks, sundry
debtors, cash and other current assets.

GROSS WORKING CAPITAL:

It refers to the firms investment in current assets. Current assets are the assets which can be
converted into cash within one accounting year and include cash, short term securities ,
debtors , bills receivables and stocks.

NET WORKING CAPITAL:

The term networking capital refers to excess of total current assets over total
liabilities.

NETWORKING CAPITAL= TOTAL CURRENT ASSETS TOTAL

LIABILITIES

15

PERMANENT WORKING CAPITAL:

It is the minimum level of investment in the current assets that is carried by the business at all
time to carry out minimum level of its activities.

TEMPORARY WORKING CAPITAL:

It refers to the total working capital which to required by a business
over the above permanent working capital. It keeps on fluctuating from time to time. It may be
financed from short term sources.

Factors Affecting the Requirement of working capital:

Nature of business

Production policy

Credit Policy

Inventories Policy

Market Condition

Policy of supply

16

3.2 Characteristics of Current Assets

CORPORATE ASSET MANAGEMENT

CAPITAL ASSETS

CURRENT ASSETS

CASH

ACCOUNTS
RECEIVABLE

WORKING CAPITAL
MANAGEMENT

INVENTORY

PLANT, PROPERTY &

EQUIPMENT

CAPIATL BUDGETING

17

In the Management of Working Capital, two characteristics of Current Assets must be

borne in mind-

1) Short Life Span- Current Assets have a short life span. Cash balance may be held idle for a
week or two, Accounts Receivable may have a life span of 30 to 60 days, and inventories may
be held for 30 to 100 days. The life span of current assets depends upon the time required in
the activities of procurement, production, sales, and collection and the degree of
synchronization among them.
2) Swift Transformation into other Assets- Each current asset is swiftly transformed into other
asset forms: Cash is used for acquiring raw materials, Raw Materials are transformed into
finished goods, Finished goods generally sold on credit, are converted into Accounts
Receivable and finally accounts on realization generate cash.

CASH

ACCOUNTS
RECEIVABLE

RAW MATERIAL

CURRENT ASSETS CYCLE

FINISHED GOODS

WORK IN PROCESS

18

The short life span of working capital components and their swift transformation from one
form into another has certain implications:

Decision regarding to working Capital management are repetitive and frequent.

The difference between profit and present value is insignificant.
The close interaction among working capital components implies that efficient management of
one component cannot be undertaken without simultaneous consideration of other component.
For example, if the firm has a large accumulation of finished goods inventory, it may have to
provide more liberal credit terms or show laxity in credit collection.

3.3 OBJECTIVE OF WORKING CAPITAL

MANAGEMENT
The firms policies for managing its working capital should be designed to achieve
three goals.

1) ADEQUATE LIQUIDITY- If a firm lacks sufficient cash to pay its bill when due, it will
experience continuous problem. The most important goal is to achieve adequate liquidity for
conducting day-to-day operations.

2) MINIMIZATION OF RISK- In selecting its sources of finance, payable and other short term
liabilities may involve relatively low costs. The firm must ensure that these near term
obligations do not become excessive compared to the current assets on the hand to pay them.
The matching of assets and liabilities among current accounts is a task of minimizing the risk
of being unable to pay bills and other obligations.
3) CONTRIBUTION IN MAXIMIZING FIRMS VALUE- The firm holds working capital for the
same purpose as it holds any other assets, that is to maximize its present value of common
stock and value of the firm. The investment of excess cash, minimization of inventories,
speedy collection of receivables, and elimination of unnecessary and costly short term
financing all contribute to maximization of the value of the firm.

19

3.4 FACTORS INFLUENCING WORKING CAPITAL

REQUIREMENT

1) NATURE OF BUSINESS:
The working capital requirement of a firm is closely related to the nature of its business. A
service firm like an electricity undertaking or a transport corporation, which has a short
operating cycle and which sells predominantly on cash basis, has a modest working capital
requirement. On the other hand, a manufacturing concerns like a Steel producing company,
which has a long operating cycle and which sells largely on credit, has a very substantial
working capital requirement.

2) SEASONILITY OF OPERATIONS:
Firms which have marked seasonality in their operations usually have highly fluctuating
working capital requirements. For example, consider a firm manufacturing ceiling fans. The
sale of ceiling fans reaches a peak during the summer months and drops sharply during the
winter period. The working capital need of such a firm is likely to increase considerably in
summer months and decrease significantly during the winter period. On the other hand firm
manufacturing a product like lamps, which have fairly even sale round the year, tends to have
stable working capital requirements.

3) MARTKET CONDITIONS
The degree of competition prevailing in the market place has an important bearing on working
capital needs. When competition is high, a large inventory of finished goods is required to
promptly serve customers who may not be inclined to wait because other manufacturer are
ready to meet their needs.

20

4) PRODUCTION POLICY
A Firm marked by pronounced by seasonal fluctuation in its sales may pursue a production
policy which may reduce the sharp variation in working capital requirements. For example a
manufacturer of ceiling fans may maintain a steady production throughout the year rather than
intensify the production activity during the peak business season. Such a policy may dampen
the fluctuation in working capital requirements.
5) CONDITIONS OF SUPPLY
The inventory of Raw materials, spares, and stores depends on the conditions of supply. If the
supply is prompt and adequate, the firm can manage with small inventory. However, if the
supply is unpredictable and scant then the firm to ensure continuity of production, would have
to acquire stocks as and when they are available and carry larger inventory on an average.

21

CHAPTER -04

22

4.1 SECTION-1

WORKING CAPITAL, CURRENT ASSETS & CURRENT

LIABILITIES, WITH ANALYSIS (All the data are in Rs. Crore)

WORKING CAPITAL

Working capital refers to the excess of current assets over current liabilities .Working capital
also known as fluctuating capital because it is used for meeting the day to day expenses of the
business .Inadequacy of working capital lead to temporary insolvency.

Working capital =Current Assets Current liabilities

Current Assets includes following items
Cash
Inventories
Sundry Debtors
Banks & receivables

23

Working Capital Rs.(in crore)

Table 1.1
Years

ITI NAINI

ITI Ltd.

2003-04

738

97

2004-05

840

122

2005-06

750

118

2006-07

106

44

2007-08

-44

145

1000
800
600
ITI NAINI

400

ITI Ltd.

200
0
-200

2003-04

2004-05

2005-06

2006-07

2007-08

Figure 1.1

24

Observation:
From the above table and graph it has been found that the working capital of the company
decreases year by year .
In the year 2004-05 working capital was maximum for ITI Naini.
The main reason of decreasing working capital was the terms and conditions imposed by the
top management to regulate the company.
ITI is a govt. organization this was the main reason in the low working capital.
In the year 2007-08 working capital was in (-ve ) value because all the sundry debtors has been
revaluated and its account has been closed in the balance sheet of this year.

25

CURRENT ASSETS
Current assets is balance sheet account that represents the value of assets that are personally
expected to be converted in to cash within one year in the normal course of business and other
liquid assets that can be readily converted into cash.
In current assets we have taken only the three points they are as follows.

Inventory
Debtors
Cash, bank & others

26

SALES, CURRENT ASSETS, INVENTORY, DEBTORS AND CASH &BANK OF

ITI Ltd, Naini (in Rs.crore)
Table 1.2

Years

Sales

Current
Assets

Inventories

Debtors

Cash Bank

2003-04

116

222

92

128

1.3

2004-05

73

186

77

108

.92

2005-06

139

195

43

150

1.90

2006-07

91

169

44

125

.38

2007-08

117

108

34

45

0.30

SALES, CURRENT ASSETS, INVENTORY, DEBTORS AND CASH & BANK OF

ITI Ltd, Ltd. (in Rs.crore)
Table 1.3

Years

Sales

Current
Assets

Inventories

Debtors

Cash Bank

2003-04

1257

2094

638

1189

267

2004-05

1389

2421

553

1420

448

2005-06

1749

2596

412

1662

219

2006-07

1818

2531

425

1708

37

2007-08

1039

2550

370

1825

14

27

INVENTORY
We can see the trend of inventory by the help of the financial data. With the help of inventory
we can analyze the working of the organization.
Table 1. 4

YEARS

CONTRIBUTION
OFINVENTORY IN THE
CURRENT ASSETS OF
ITI NAINI

CONTRIBUTION
OFINVENTORY IN THE
CURRENT ASSETS OF
ITI Ltd.

2003-0

41%

13%

2004-05

40%

19%

2005-06

22%

20%

2006-07

19.8%

19.6%

2007-08

31.5%

14.50%

50%
40%

CONTRIBUTION
OFINVENTORY IN THE
CURRENT ASSETS OF ITI
NAINI

30%
20%

CONTRIBUTION
OFINVENTORY IN THE
CURRENT ASSETS OF ITI
Ltd.

10%
0%
2003-04 2004-05

2005-06

2006-07

2007-08

Figure1. 2

28

Observation:
If we look at the contribution of inventory in the current assets then it is not satisfactory. It is
very high than idle conditions. There are basic reasons which are responsible for this position
of inventory in ITI Ltd., they are as follows.

Unwanted and excessive purchase of raw materials

Storage of raw materials which are obsolete now

Inventory of work in progress which is for next financial year

29

CONTRIBUTION OF DEBTORS IN CURRENT ASSETS

Table 1. 5

YEARS

CONTRIBUTION
OF
DEBTORS
IN THE
CURRENT ASSETS OF
ITI NAINI

CONTRIBUTION
OF
DEBTORS
IN THE
CURRENT ASSETS OF
ITI Ltd.

2003-04

58%

57%

2004-05

59%

59%

2005-06

77%

73%

2006-07

73.5%

79%

2007-08

41.6%

71.5%

80%
60%
40%

CONTRIBUTION OF DEBTORS IN
THE CURRENT ASSETS OF ITI NAINI

20%

CONTRIBUTION OF DEBTORS IN
THE CURRENT ASSETS OF ITI Ltd.

0%
2003-04 2004-05

2005-06

2006-07

2007-08

Figure1. 3

Observation:
As it has said that ITI is a govt. organization and its main customer is B.S.N.L.& MTNL and
both are also public sectors due to which there is not any hard and fast rule for the payment of
the money, thats why the contribution of debtors is high in the current assets.

30

CONTRIBUTION OF CASH & BANKAND OTHER ASSETS IN THE

CURRENT ASSETS
Table 1.6

YEARS

CONTRIBUTION
OF
CASH & BANKAND
OTHER ASSETS IN THE
CURRENT ASSETS OF
ITI NAINI

CONTRIBUTION
OF
CASH &BANK AND
OTHER ASSETS IN THE
CURRENT ASSETS OF
ITI Ltd.

2003-04

1%

30%

2004-05

1%

22%

2005-06

0.97%

10%

2006-07

0.22%

1.7%

2007-08

1%

0.55%

31

CURRENT LIABILITIES
Current liabilities are company debts or obligation that are due within one year .Current
liabilities appear on the companys balance sheet and include short term , account payable ,
accrued liabilities and other debts.
Essentially, these are bills that are due to creditors and suppliers within a short period of time.
Normally, companies withdraw or cash current assets in order to pay their liabilities.

CURRENT LIABILITES AND PROVISION OF ITI Ltd., NAINI

(in Rs.crore)
Table1. 7

YEARS

CURRENT
LIABILITIES

PROVISION

TOTAL

2003-04

162

11

173

2004-05

99

14

113

2005-06

82

43

125

2006-07

128

53

181

2007-08

120

32

152

200
150
100
Total Liabilityof ITI NAINI
50
0
2003-04 2004-05

2005-06 2006-07

2007-08

32

Figure 1. 4

CURRENT LIABILITIES OF ITI Ltd. (In Rs.Crore)

Table 1.8

Years

Liabilities

2003-04

1356

2004-05

1581

2005-06

1846

2006-07

2425

2007-08

2305

Current Liabilities Of ITI Ltd.

2500
2000
1500
Current Liabilities Of ITI Ltd.
1000
500
0
2003-04

2004-05

2005-06

2006-07

2007-08

Figure1.5

33

4.2
RATIO ANALYSIS

34

RATIO ANALYSIS
In this summer project all the ratios are not calculated because ITI not a profit making
company. Due to which the calculation of some ratios is not reasonable.
By the calculation of the entire ratio we can analyze the present financial situation of any
company. Thats why the ratios are major tool in the determination of financial analysis of any
company.

2.1) CURRENT RATIO

Current ratio is a liquidity ratio that measures a companys ability to pay short term obligations
calculated by dividing current assets by current liabilities. This also helps to give an idea as to
the efficiency of the companys operating cycle. Also known as Liquidity ratio and Cash
ratio.
The ratio is mainly used to give an idea about the companys ability to pay back their short
term liabilities (debts &payable) with their short term assets (cash, inventories receivables).
The higher the current ratio higher the capability to discharging its obligations.
A ratio below 1 suggests that the company is unable to discharge its obligation at the particular
point if time. Which shows the weakness of the company?

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

35

CURRENT RATIO OF ITI Ltd. NAINI

Table 2.1

YEARS

CURRENT
ASSETS

CURRENT
LIABILITIES

CURRENT RATIO

2003-04

222

173

1.28

2004-05

186

113

1.65

2005-06

195

125

1.56

2006-07

169

181

0.53

2007-08

108

152

0.71

CURRENT RATIO
1.8
1.6
1.4
1.2
1

CURRENT RATIO

0.8
0.6
0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

2007-08

Figure 2.1

36

CURRENT RATIO OF ITI Ltd.( in Rs. crore)

Table 2.2

YEARS

CURRENT
ASSETS

CURRENT
LIABILITIES

CURRENT
RATIO

2003-04

2094

1356

1.55

2004-05

2421

1581

1.53

2005-06

2596

1846

1.41

2006-07

2531

2425

1.04

2007-08

2550

2304

0.97

CURRENT RATIO
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0

CURRENT RATIO

2003-04

2004-05

2005-06

2006-07

2007-08

Figure 2.2

37

Observation of current ratio:

It is clear from the above graph and data that the Naini unit as well as ITI Ltd has not get the
idle current ratio i.e. 2:1 since last five years.
It indicates that the companys current assets are not enough to meet current liabilities
And it affects the financial health of the business

38

2.QUICK RATIO OR ACID TEST RATIO

Quick ratio is a stringent test that indicates whether a firm has enough short term assets to
cover its immediate liabilities without selling inventories. The acid test ratio is far more
strenuous than the working capital ratio, primarily because the working capital allows for the
inclusion of inventory and other assets.
Quick ratio = (cash + receivable +short term investments)/current liabilities
The companies with ratio less than 1 cant pay their current liabilities and should be looked at
with extreme caution. Furthermore if the quick ratio is much lower than working capital ratio
then it means there is large amount of inventories in the working capital of the company as in
the case of retail stores.

39

QUICK RATIO OF ITI Ltd. NAINI

(figures in crore)
Table 2.3

Years

Debtors

Cash
Bank

2003-04

128

1.3

2004-05

108

2005-06

& Quick
Assets

Current
Liabilities

QUICK
RATIO

129

173

0.75

0.92

109

113

0.965

150

1.91

152

125

1.2

2006-07

125

0.31

125.38

181

0.69

2007-08

45

0.30

75

152

0.50

QUICK RATIO OF ITI Ltd

1.2
1
0.8
0.6

QUICK RATIO

0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

2007-08

Figure2.3

40

QUICK RATIO OF ITI Ltd. NAINI .( in crore)

Table 2.4

Years

Debtors

Cash
Bank

2003-04

1189

267

2004-05

1420

2005-06

& Quick
Assets

Current
Liabilities

Quick
Ratio

1456

1356

1.07

448

1868

1581

1.18

1662

522

2184

1846

1.18

2006-07

1708

37

1745

2425

0.72

2007-08

1825

14

0.48

Quick Ratio
1.2
1
0.8
0.6

Quick Ratio

0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

Figure2.4

41

Observation of Quick Ratio:

In ideal situation quick ratio should be equal to 1 . But in the case of ITI, Naini it has been only
thrice since last five years that the quick ratio was equal to one.
The reason is change in management policy of the company. This change is made due to
internal reason of the company. the change is that now in the entire cases the amount collected
by all the units is directly sent to corporate office. Again this amount is allocated to the units
on the basis of individual requirement of the units.

The other reason is debtors the unit is very high. Debtors are not in the form of bills
receivables . Unit has debtors older than one year . these are the reason for current and cash
ratio of ITI is being low.

42

 PROFITABILITY RATIO

1. Return on Assets
The profitability ratio is measured in terms of relationship between net profits and assets
employed to earn that profit . The ratio measures the profitability of the firm in terms of assets
employed in the firm.

Net profit after taxes / Average total fixed assets

ITI Ltd. NAINI
Table 2.5

Years

Profit after tax

Avg.Total
Assets

fixed Return on Assets

2003-04

(13637)

162

(84)

2004-05

(11165)

172

(65)

2005-06

(12583)

137

(91.9)

2006-07

(9921)

88

(113)

2007-08

(16131)

127

(127)

43

2.NET PROFIT RATIO

It measures the overall profitability of the business.

PROFIT % ON SALES OF ITI Ltd. ,NAINI

Table 2.6

Years

Profit % on sales

2003-04

(116.85)

2004-05

(152.6)

2005-06

(90.07)

2006-07

(107.56)

2007-08

(136.22)

Profit % on sales
0
-20

2003-04

2004-05

2005-06

2006-07

2007-08

-40
-60

Profit % on sales

-80
-100
-120
-140
-160

Figure2.6

44

Observation of Profit on Sales

From the profit ratio it is clear that the sales have not generated enough revenue so as to give
birth to profit.
The reason for this situation is that sometimes the company has to supply to BSNL at low or
no margins due to fixed quota.
Another reason is that the company is unable to produce enough to meet its orders due to
insufficiency and paucity of funds.

45

3.RETURN ON INVESTMENTS
RETURN ON INVESTMENTS OF ITI Ltd. NAINI
Table 2.7

Years

RETURN ON INVESTMENT

2003-04

(117.38)

2004-05

(79.25)

2005-06

(44.51)

2006-07

(53.58)

2007-08

(171.53)

RETURN ON INVESTMENT
0
-20

2003-04

2004-05

2005-06

2006-07

2007-08

-40
-60
-80

RETURN ON INVESTMENT

-100
-120
-140
-160
-180

Figure2.7

46

Observation of ROI

As the company is running into losses so, it has negative return on investment.
The return on investment was increasing till the year 2003-04 and after that it started
decreasing. But still it is running
It is clearly visible that the company is unable to have income on the investments. This in a
way makes the investments a useless venture which never bears profits.

47

4. PROFIT BEFORE INTEREST AND TAXES

Table 2.8

Years

PBITof ITI Ltd. Naini

PBIT of ITI Ltd.

2003-04

(103.14)

(684)

2004-05

(72.24)

(296)

2005-06

(101.63)

(426)

2006-07

(66.46)

(364)

2007-08

(58.06)

(296)

0
2003-04 2004-05 2005-06 2006-07 2007-08
-100
-200
-300

Profit before interest and tax

of ITI Ltd. Naini

-400

Profit before interest and tax

of ITI Ltd.

-500
-600
-700

Figure2.8

48

1. CAPITAL TURNOVER
This ratio measures the firms ability of generating sales per rupee of long term investment .
The higher the ratio , the more efficient the utilization of owners and long term creditors
funds.
Table 2.9

Years

Capital Turnover

2003-04

2004-05

.52

2005-06

.49

2006-07

0.56

2007-08

1.26

Capital Turnover
1.4
1.2
1
0.8
Capital Turnover

0.6
0.4
0.2
0
2003-04

2004-05

2005-06

2006-07

2007-08

Figure2.9

49

Observation:

In the initial years the capital turnover of the ITI Naini unit depicts that the company was
generating sales revenues equivalent to the amount of capital and long term borrowings
But in the latter year it is clear that ITI Naini unit is being unable to generate as much sales
revenue as is the owners and long term funds invested in the company\
And it can be said that revenue generating capacity of the ITI Naini unit is declining gradually
year by year.

50

FIXED ASSETS TURNOVER RATIO

A high fixed asset turnover ratio indicates efficient utilization of fixed assets in generating
sales . A firm whose plant and machinery are old may show a higher fixed assets turnover ratio
than the firm which has purchased them recently.
Table 2.10

Years

Sales

Fixed Assets

Ratio

2003-04

116

54

2.15

2004-05

73

109

0.67

2005-06

139

155

0.90

2006-07

91

131

0.70

2007-08

118

131

0.90

Ratio
2.5
2
1.5
Ratio
1
0.5
0
2003-04

2004-05

2005-06

2006-07

2007-08

Figure2.10

51

Observation

In the initial three years till the year 2004 it can be said that the fixed assets were utilized as to
obtain sufficient sales revenue.

But in the later year, the fixed assets were either underutilized or they were not sufficient
enough to generate adequate sales revenue.
From the above data ITI is not increasing its fixed assets due to joint venture process between

Alcatel and ITI.

Sometimes it also tries to make profit by selling its extra fixed assets which has good scrap

values.

52

WORKING CAPITAL TURNOVER RATIO

Working capital turnover is a measurement comparing depletion of working capital to the
generation of sales over a given period. This provides some useful information as to how
effectively a company is using its working capital to generate sales.
Working Capital Turnover = Sales / Working Capital
A company uses working capital (current assets current liabilities) to fund operations and
inventory are then converted into sales revenue for the company .The working capital ratio is
used to analyze the relationship between the money used to fund operations and the sales
generated from these operations.

W.C.Turnover Ratio
Table 2.11

Years

W.C.Turnover Ratio W. C. Turnover Ratio Of

Of ITI Ltd. Naini
ITI Ltd.

2003-04

1.1951

1.7125

2004-05

0.5966

1.6397

2005-06

1.1746

2.3562

2006-07

0.583

0.00488

2007-08

-0.373

1.208

53

2.5
2
1.5

Working Capital Turnover Ratio

Of ITI Ltd. Naini

Working Capital Turnover Ratio

Of ITI Ltd.

0.5
0
2003-04 2004-05 2005-06 2006-07 2007-08
-0.5

Figure2.11

Observation

In the year 2003-04 the working capital turnover ratio of the plant decreased . This decrease
occurred due to the large decrease in sales and small decrease in the amount of working capital
of the plant.
In the year 2004-05 the working capital turnover ratio of the plant decreased again but
sharply..
This working capital again decreased in next years and years.

54

CHAPTER-05

FINDINGS AND SUGGESTIONS

55

5.1Findings of Project
After deep analysis and observation it is concluded that considering the future prospect of ITI
Ltd., today is a market driven , customer obtain company which is maintaining its technology
leadership . The company is moving towards 21st century bracing itself to face the challenge of
the future. The company has to sustain its position in the increasingly competitive environment
. As a large telechom company aspiring to be global leader it has to stand on its own in a
market strongly influenced by WTO agreement. The national task force on IT has made path
breaking recommendation in the recent report. With this view companies new thrust areas will
be IT products/ solutions and internet products /solutions.

The ratio of the company indicates that ITIs liquidity position is not sufficient.

According to the rule of thumb i.e. 2:1 , the currency ratio of ITI is low which reflects
their inability to pay short term liabilities which thereby affects the credibility of the company.
A continous default on its part may create hindrances in its day to day operations.

Leverage ratio of the company reflects that the loans of the company are sufficient in
terms of total assets , due to which equity is also sufficient.

Turnover ratios are reflecting lower inventory turnover , it is ratio of cost of goods
sold to average inventory . lower ratio is the indicator of inefficient inventory management. It
is suggested that efforts should be made in reducing the average collection period however the
company has a task force in respect of reducing its account recievables.

Profitability ratios give some yardsticks to measure profits in relative terms, either
with reference to sales or assets or capital employed.
The time analysis and inter unit comparison reflects that the Naini unit is undergoing
through losses, but the unit is trying to recover the losses and is taking preventive steps
through various schemes such as VRS that is voluntary retirement sheme for reducing the
excessive man power which is successful to a great extent.

56

5.2PROBLEMS IN ITI NAINI

1 .Materials

Procurement process is low

Lengthy processing

Inadequate foreign exchange management

Inadequate materials management

High inventory

2. Labors

Lack of specialization among workers

Fixed and labor cost

Absenteeism rate is very high

No proper allocation of work

Large workforce

Lack of co-ordination

57

Overheads:

Overhead absorption rate was calculated was in 1988-89 many years back and being
revised yet .

Overhead percentage is applied on single factor i.e. direct labour for computing the
overhead allocation which is in many cases imprecise, incorrect and arbitrary .

Generally overheads cost is not covered in the price quoted in the tendor .

Hefty amount of overheads.

4. Other problems

Marginal costing is not in regular practice.

Maachine hour rate is not used even though it is essential for the machines which are
expensive like CNC machine .

Execessive paper work

Mismanagement

Weak co-ordination

Late response to clients

Least control over cost

Lack of dedication to organigation

Lack of customers orientation

Lack of funds

Lack of team spirit

58

Prices of products are high in comparison to products of its competitors

No fixed target for production

Lack of R&d support for cast effective products

Lack of proper delegation of authority

5. Lack of commercial approach

Being a government company it has a fixed quota for supplying material to BSNL &MTNL
and because of it , the company has to supply at lower rate than quoted by it and thereby
increasing the losses. It should opt for a pure commercial approach.

5.3 SCOPE AND AREAS TO INCREASE PROFITABILITY

The scope of cost reduction is so vast that it is wide spread among all the parts of the
organization. More precisely, cost reduction may be implemented in the following areas.

DESIGN

Design of method of production

Design of tools , equipments and machinery

Standardization of methods

Layout of building , machinery , transport equipment

59

FACTORY ORGANIZATION AND PRODUCTION METHODS

Material purchasing, inspection, receiving , storage, handling, stock etc.

Recruitment ,training , promotion , work study , method of remuneration in connection

with the labor

Overheads

Production, planning and control

Tool storage, maintenance, and control.

Use of maintainer of transport equipments.

Suitable working condition

System analysis

MARKETING

Market research

Advertising

Sales

AFTER PRODUCTION WORKS

Ware housing

Packing

Distribution

60

5.4 SUGGESTIONS

Based on the various findings that are mentioned earlier the following recommendation are
suggested.

1.

Need Of Cost Reduction :

Profit is the resultant of two varying factors viz . sales and cost . The larger the gap between
the two factors the larger is the profit .The profit can be maximized either by increasing the
sales or by reducing and cost cutting down the cost. Avenues have therefore to explored and
methods are to be devised to cut down the expenditure and therby reduce the cost of the
products.
Reduction in cost /unit may be effective in manyways
By reducing the expenditure when the volume of output remains constant
By increasing the production viz. increasing the output and maintaining the same level of
expenditure

2. ADMINISTRATION
Rearranging 2the office scrutinizing the effectiveness of the existing staff.
Reasonability of certain expenses, for ex . telephone overtime wages use of company car
travelling etc.
Checking possible misuse and corruption by appointing vigilance inspector

61

3.FINANCE
Better utilization of fixed assets employed
Disposal of fixed assets which can not be economically employed and reinvestment of the said
funds in a more profitable channel
No acquisition of fixed assets of doubtful use or where chances of obsolescences are high
Better inventory control through the use of techniques like ABC analysis.
Better credit control
Increase productivity employing fully existing fixed and working capital

4) COST CONTROL

CONTROL OF MATERIAL COST: Control on use of direct material is exercised by

issuing only the standard quality of material required for a production order as per the lay out
insured by the planning department.

CONTROL OF LABOUR COST: this is kept constant under control by keeping a constant
watch on the utilization efficiency of direct labour

CONTROL OF OVERHEADS: Costing system collects different items of overheads and

allocates or apportion ate them to different cost centre.

5) USE OF INTRENET & EXTRANET

Although there is facility of free intercall in all the section of ITI . But there is need of new
technolog y like intranet , extranet, Wi-Fi . so that all the information can be accessed at any
point and time. It increases the effectiveness of the workers.

62

6) PROPER CO-ORDINATION
There is very low proper co-ordination between the employees of ITI, for this there should be
proper arrangement for motivational programmed like games , cultural programme etc.

7) TRAINING & DEVELOPMENT

There is not any proper set procedure of employees training and development this is reason
they dont get any proper guidance. So there is a strong need of proper training for the
employees of ITI.

8) PROPER ADVERTISING
Because it is an government organization thats why it does not give weight to advertising
.Due to which customers are not more aware of its products. And its competitors get benefit
of this point .So the top management must be concerned about the advertising of ITI.

63

CHAPTER-06
Conclusion
From the analysis of working capital we have find that the working capital is not enough to
meet its daily requirement. All the ratios show a negative result. This was the reason that
Indian government has tried many times to disinvestment it. Although it is the first PSU after
independence, earlier it has given very good result but from last ten years it is not giving
satisfactory results. There are many reasons behind it. Some government policies are against
it. Employees are not so much active; due to loss making company intellectual professionals
dont want to work there. For the regular working government of India always give grants to
the company, despite that it is not covering the loss due to its poor management. Indian
government is also thinking about the joint venture of the company with Alcatel
telecommunications which is a France based company.

Finally we can hope that it will make profit and make vital role in Indian
telecommunication industry.

64

CHAPTER-07

BIBILIOGRAPHY

Annual Report of ITI Ltd.

Balance Sheets provided by ITI
Financial Management by Khan and Jain
Financial Management by Prasanna Chandra

References
www.iti.com
www.projectparadise.com
www.google.com

65