A STUDY OF

WORKING CAPITAL
MANAGEMENT & PROFITABAILTY
OF NARNOLIA SECURITIES LIMITED

INSTITUTE OF MANAGEMENT STUDIES

RUN & GOVERNED BY RANCHI UNVERSITY, RANCHI

UNDER THE GUIDANCE OF MISS. PUJA KUMAR

SUBMITTED BY: PRATIK KUMAR SINGH

REGISTRATION NO : 1070235
EXAM ROLL NO : 16MBA01130
SESSION 2016-18
 CERTIFICATE

I had certify that the project work embodied in this dissertation entitled “A Study
of working capital Management & Profitability of Narnolia Securities Ltd.” Has
been under taken and completed by PRATIK KUMAR SINGH under the guidance
and supervision.

Signature

Date:
 TO WHOM IT MAY CONCERN

This is to certify that Mr. PRATIK KUMAR SINGH, a student of MBA- Finance at

Institute of Management Studies, Ranchi University, Ranchi has undergone training

in our organisation from 15 July2017 to 30 -08-2017.

He has successfully completed training and submitted a report titled –

“Study of working Capital Management & Profitability.”

In course of the training, he showed a very positive attitude towards attainment of

the training objective.

We wish him a bright and successful career.

Bikaram Wadekar

HOD ,HRD

CERTIFICATE OF APPROVAL
This is to certify that the dissertation entitled “ Working Capital Management” is
here by approved as creditable study of research topic and has been presented in
a satisfactory manner to warrant its acceptance as prerequisite for the award of
MBA Degree from INSTITUTE OF MANAGEMENT STUDIES, RANCHI UNIVERSITY,
RANCHI.

It is understood that by this approval, the undersigned do not necessarily

endorsed any conclusion drawn or opinion expressed there in but approve the
project for the purpose for which it is submitted.

Internal Examiner External Examiner

 DECLARATION

This summer project is on “Working capital management and profitability of

Narnolia Securities Ltd” is the original work done by me . This is the property of
the institute and use of this report without prior permission of the institute will be
considered illegal and actionable.

Date:

Place: Signature:
 ACKNOWLEDGEMENT

This study on “ Working capital management and profitability “is based on

practical work and means to improve its effectiveness in organization in
general .

I would be falling in my duty if I do not express my deep sense of gratitude to

those who have been kind enough to help me in preparation of this report.
First of all I would like to express my deep since gratitude to my guide
Mr.Dharmendra kumar Sinha words do not suffice to adequately express my
thanks to them for their inspiring guidance, help and constant encouragement
throughout the internship. Working with them has been a great learning
experience.

I am extremely grateful to Mr.Dharmendra kumar Sinha (HOD of Finance)

who gave me support whenever I needed during my internship. I would like to
thanks all the personnel of Narnolia securities Ltd, Ranchi for Their
Cooperation and for providing the relevant data required. Last but not the
least; I would also like to thanks my family and friends for their support and
encouragement throughout the project.
 CONTENTS

EXECUTIVE SUMMARY

1. INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 NEED & SIGNIFICANCE OF THE STUDY
1.3 OBJECTIVES OF THE STUDY
2. COMPANY PROFILE
2.1 ACHIEVEMENT
2.2 VISION
2.3 MISSION
2.4 AREA OF BUSINESS TRADE PROFILE
2.5 COMPETITORS
2.6 BOARD OF DIRECTOR
2.7 GOVT.POLICIES RELATED TO BUSINESS
2.8 SOCIAL COMMITMENT
3. RESEARCH METHDOLOGY
3.1 TYPE OF RESEARCH
3.2 INSTRMENTATION TECHNIQUES
3.3 ACTUAL DATA COLLECTION
3.4 TOOLS FOR ANALYSIS
3.5 OTHER SOFTWARE USED FOR DATA ANALYSIS
3.6 LIMITATION OF THE STUDY
4. PRESENTATION, ANALYSIS & INTERPRETATION OF DATA
4.1 GENERAL INDICATORS
4.2 LIQUIDITY ANALYSIS
4.3 ACTIVITY RATIO
4.4 LEVERAGE RATIO
 4.5 PROFITABILITY RATIO
4.6 INVENTORY MANAGEMENT
4.7 ACCOUNTS RECEIVABLE MANAGEMENT
5. SUMMARY
5.1 CONCLUSIONS FROM STUDY
5.2 SUGGESTIONS FOR FURTHER RESEARCH
6. SUPPLEMENTARY PAGES

LIST OF TABLE AND GRAPHS

4.1.1: COMPONENT OF CURRENT ASSETS

4.1.2: COMPONENT OF CURRENT LIABILITIES

4.1.3: NET WORKING CAPITAL

4.1.4: OPERATING CYCLE

4.2.1 CURRENT RATIO

4.2.2 QUICK RATIO

4.3.1 WORKING CAPITAL TURNOVER RATIO

4.3.2 DEBTOR TURN OVER RATIO

4.3.3 AVERAGE COLLECTION PERIOD

4.3.4 CREDITORS TURNOVER RATIO

4.3.5 AVERAGE PAYMENT PERIOD

4.3.6 CURRENT ASSET TURNOVER RATIO

4.3.7 FIXED ASSETS TURNOVER RATIO

4.4.1: DEBT EQUITY RATIO

4.4.2: DEBT TO CAPITAL EMPLOYED

4.4.3: INTEREST COVERAGE RATIO

4.5.6: RETURN ON CAPITAL EMPLOYED

4.6.2 : INVENTORY TURNOVER RATIO

4.6.3 : ABC ANALYSIS

4.6.4: REORDER POINT AND REORDER QUANTITY

4.7.1: TREND IN RECEIVABLE & PAYABLE PERIOD

Narnolia Securities Limited is a Public incorporated on 01 May 1997. It is

classified as Non-govt company and is registered at Registrar of Companies,
Kolkata. Its authorized share capital is Rs. 170,000,000 and its paid up capital is
Rs. 167,646,368.It is inolved in Activities auxiliary to financial intermediation,
except insurance and pension funding.[This Group includes activities involved
in or closely related to financial inter-mediation other than insurance and
pension funding but not themselves involving financial inter-mediation].

Narnolia Securities Limited's Annual General Meeting (AGM) was last held on
30 September 2015 and as per records from Ministry of Corporate Affairs
(MCA), its balance sheet was last filed on 31 March 2015.

Directors of Narnolia Securities Limited are Sanjay Kumar Sinha, Rajendra

Prasad Ritolia, Shailendra Kumar, Krishnanand Narnolia, Anand Harikishan
Garodia, Satya Narayan .

Narnolia Securities Limited's Corporate Identification Number is (CIN)

U67120WB1997PLC096496 and its registration number is 96496.Its Email
address is compliance@narnolia.com and its registered address is 201, 2nd
Floor, Marble Arch 236B A.J.C Bose Road Kolkata Kolkata WB 700020 IN.
 Chapter 1

BACKGROUND OF STUDY

Concept of Working Capital Management

The term working capital is used to mean that proportion of the total capital of
a business which is employed in short- term or current operations. This portion of
capital kept reserved & used for running the main activities of the concern, as the
name suggest that working capital required for carrying day to day operating
expenses of any business firm.

Definition:

Working capital may be defined as that part of the total capital of a firm which is
used to maintain its central operating activities by means of a continuous rotation
of the capital employed for this purpose.

There are two concept of working capital:

I. Gross Working capital and

II. Net Working capital.

1. Gross Working Capital :Gross Working capital is the sum totals of all
current assets of a firm . The concept of gross working capital is wider
than net working capital. The concept of gross working capital is
quantitative concept.

So, Gross Working Capital = Stock of Raw

material+Stock of Finished Goods +work in Progress+Debtors+Bills
Receivable+Prepaid Expenses+Accrued Incomes+Short Term
Advances+Cash in hand & at Bank.
 2. Net working Capital: Net working capital is the difference between
current assets & current Liabilities. This concept is narrower than the
gross concept. In other words net working capital may be defined as the
excess of total current assets over current liabilities. As per the concept if
the total current liabilities , the firm does not have any working capital.
The view of the short- term debt repayment capacity or the Qualitative
aspect.

Working capital always be a positive figure when the gross or

quantitative concept of working capital is used. Working capital may be
may however ,be positive working capital positive or negative or even nil
when the net or qualitative concept is used .A positive working capital
arises when current assets exceed current liabilities & negative working
capital occurs when current liabilities exceed current assets.

KINDS OF WORKING CAPITAL

KINDS OF WORKING CAPITAL MANAGEMENT

ON THE BASIS OF CONCEPT ON THE BASIS OF TIME

F.W CAPITAL T.W CAPITAL

GROSS W.CIPTAL NET W. CAPITAL

SEASONAL

W.CAPITAL

REGULAR WORKING CAPITAL WORK

SPECIAL
WORKING
RESERVE WORKING CAPITAL
CAPITAL
COPOSITION OF WORKING CAPITAL

CURRENT ASSETS CURRENT LIABILITIES

1. Stock of Inventory:
Raw Material, Work in progress
Finished Goods
2. Accounts Receivable:
Sundry debtors, Bills Receivable
3 Short Term Loan & advances
4 Short Term Investment
5 Prepaid Expenses
6 Accrued or outstanding Income
Employee
7 Cash in Hand & Cash at Bank
1. Accounts Payable:
Sundry Creditors, Bills Payable.
2 Short term Borrowings
3 outstanding Expenses
4 provision for Taxation or Tax
payable
5 Dividend payable
6 Short term dues due to
7 Bank overdraft , minority interest

Importance of Working Capital :

The importance of working capital in any business can hardly be over emphasized.
To run a business smoothly & Efficiently, it is essential to have an adequate
amount of working capital. Following are the advantage that a business firm gets
for having adequate amount of working capital or the working capital facilities a
business in the following way:

1. Constant supply of Raw Material.

2. Constant supply of saleable product.
3. Regular payment of operating expenses
4. Provide adequate solvency to the business.
5. Opportunity of getting loans
6. Increase in goodwill
7. Possibility of getting Cash discount.
8. Helps the business to solving the crisis situations.
9. Exploitation of favourable market conditions.
10.Increase in efficiency & Productivity.
11.Increase in profitability.
12.Regular payment of dividend
13.Research & Development
14.High morale of employee

It is also to be noted that excess of working capital is vice for a firm like
inadequacy of working capital. Excess working capital blocks huge amount
capital in a firm which remains idle for longer period & gives no return to the
business.
1.2: NEED & SIGNIFICANCE OF THE STUDY

The management of assets in any organization is an essential part of overall

management. The Enterprises, at the time of formation attach great
importance to fixed assets management ,after the initial investment, the
management gives more importance to managing working capital. if we look at
any financial statement it will be evident that the investment in fixed assets
remains more or less static but the working capital is constantly changing.

A healthy working capital position is the sine –qua-non of a successful

business. This is reflected in adequate inventories , lowest level of debtors,
minimum utilization of bank facilities for working capital management
occupies an important place in financial management.

Effective management of working capital compel finance managers to seek

interdepartmental coordination for inventories (Purchase supply planning,
manufacturing, marketing, logistics )debtors (marketing),creditors (purchase
and manufacturing), cash (Finance and other managers).The time lag between
the purchase of raw material and realization of cash from debtors forces the
company to find money to finance its operations during that period .working
capital management has dual objective , which are likely to pull in opposite
direction-liquidity and profitability.

The management has to strike a delicate balance between the two objectives
of liquidity and profitability .working capital should be maintained at a
satisfactory level, neither inadequate nor excessive. Current Assets should be
sufficiently in excess of current liabilities to constitute a margin or buffer for
maturing the obligations within the operating cycle of business.
An inadequacy of working capital may lead the firm to insolvency and
excessive of working capital take the cost of profitability . Short term creditors
wish the company to have more current assets than current liabilities . it is
conventional rule to maintain the level of current assets at twice the level of
current liabilities.

The level of working capital should be judiciously determined because any

shortage in working capital apart from threats of solvency leads to deprivation
of opportunities of learning that are open to an enterprises . on the other hand
excessive availability of working capital leads to higher cost operation in terms
of financing cost. Different strategies have to have be employed for inventory
management, credit management and cash management to maintain a
balance the twin objectives of working capital management.

The nature and size of business , the length of the manufacturing cycle and
marketing conditions would be largely influencing the working capital needs of
the concern. A hotel industry where material are where material are procure
on credit and the finished goods are sold in cash would require a low level of
working capital whereas an engineering industry under a competitive
atmosphere would require a higher level of working Capital management. A
concern, manufacturing consumer, non –durable products, having very short
manufacturing cycle. The product line , whether having a monopoly or facing
competition , extent of distribution network credits policy of the industries,
seasonality or otherwise of a product also leads to substantial changes in the
need for working capital. Apart from these, the management’ planned extent
of growth due to vast unexplored market etc also largely influence the
requirement of working capital.

Working Capital Cycle:

Working capital cycle may be defined as a particular set of correlated activities

that starts from the procurement of Raw Material or trading goods & ends with
realisation of sales. The time span through which the operating process starting
from procurement of Raw Material or trading goods & ends with realisation of
sales get completed is known as working Capital cycle period.
 Investment in working capital is influenced by our keys events in the
production & sales cycle of the firm:

Account
Cash
receivable

WIP
sale
inventory

Finished
product

Operating cycle for a service concern:

Cash Accounts

Receivable
The factors which determine the working capital needs of the business are as
mentioned below:

1. Nature of the business.

2. Size of the business.
3. Operating process
4. Production policy
5. Business cycle fluctuation
6. Credit policy
7. Supply of raw material.
8. Extent of competition
9. Growth & expansion of business.
10.Rapidity of turnover
11.Use of Technology
12.Depreciation policy
13.Dividend policy
14.Rates of Taxes
15.Changes in Price Level.
 Different Sources of Financing Working Capital:

Source of W.C

Sources of Fixed Portion Sources of variable Portion

Of Working Capital of Working Capital

1. Disposal of investments
2. Issue of Debenture Internal sources External Sources
3. Taking long Term Loan
from Financial
Institution

1. Loan from Bank or

other Financial
1. Provision for Taxation Institution.
2. Provision for Depreciation 2. Trade Credits &
3. Ploughing back of profit Payables.
3. Commercial Papers
4. Advance from
Customer
5. Public deposit
6. Govt.Aid
Management of Working Capital:

By working capital management is meant the systematic process, plans

& techniques of managing the current assets & liabilities of the concern
& establishing an effective link between current assets & current
liabilities . it has the ultimate objectives of maintain the liquidity and
attaining the financial goal of increasing the net worth of the business.

Objectives :

1. To set up the required fund for running the operating activities of the
firm.
2. To forecast the required amount of gross and net working capital
with individual breakup of the components.
3. To fix up the optimum level of working capital and to change the
same according to the need of situation.
4. To take care for maintaining the liquidity position of the firm up to
the desired level.
5. To increase the profitability of the firm by striking a balance between
liquidity & profitability.

Importance :

1. Decision on optimum level of working capital.

2. Decision on source of financing .
3. Managing desired level of liquidity
4. Maintain profitability
5. Balancing liquidity & profitability.
 Issues relating to Working Capital Management

There are various aspects, which are directly related to working

capital management. There are:

1. Time lags.
2. Nature of the business.
3. Critically In the production process.
4. Investment pattern.
5. Growth & expansion of the firm.

There are mainly three issues directly related to working capital

management. These are:

1. Profitability
2. Liquidity
3. Risk

Policies regarding working capital Management:

I . Conservative Policy: Conservative policy includes large investment in

current Assets. This policy yields low rate of return but it also bears the
lowest amount of risk i.e there is very low rate of profitability of running
out of working capital.

II . Aggressive Policy: Aggressive policy includes small investment in current

Assets .This policy yields high rate of return but it also carries a huge
amount of risk interrupted production & sales because of frequent stock
out, inability to pay the creditors in time.

III . Average Policy : average policy is a middle way between conservative

way & aggressive policy . It yield a moderate rate of return with a
moderate amount of risk.
 It also to be noted that , under perfect certainty current Assets holding is
minimum.

OBJECTIVE OF THE STUDY:

The objective of the project is to study the different components of the

current assets and liabilities and the extent of fund tied up in the each the
trends of changes of each components to find out the relationship
between working capital and profitability to find out the impact of Working
capital on Economic value addition to the stake holder.

2: COMPANY PROFILE :

Narnolia Securities Limited is a Public incorporated on 01 May 1997. It is

classified as Non-govt company and is registered at Registrar of Companies,
Kolkata. Its authorized share capital is Rs. 170,000,000 and its paid up capital is
Rs. 167,646,368.It is inolved in Activities auxiliary to financial intermediation,
except insurance and pension funding.[This Group includes activities involved
in or closely related to financial inter-mediation other than insurance and
pension funding but not themselves involving financial inter-mediation].

Narnolia Securities Limited's Annual General Meeting (AGM) was last held on
30 September 2015 and as per records from Ministry of Corporate Affairs
(MCA), its balance sheet was last filed on 31 March 2015.

Directors of Narnolia Securities Limited are Sanjay Kumar Sinha, Rajendra

Prasad Ritolia, Shailendra Kumar, Krishnanand Narnolia, Anand Harikishan
Garodia, Satya Narayan .

Narnolia Securities Limited's Corporate Identification Number is (CIN)

U67120WB1997PLC096496 and its registration number is 96496.Its Email
address is compliance@narnolia.com and its registered address is 201, 2nd
Floor, Marble Arch 236B A.J.C Bose Road Kolkata Kolkata WB 700020 IN , - , .

Narnolia started over two decades ago. A lot has changed ever since, but has
not are out fundamental principles ,grounded in our core philosophy of
improving our customers in way in which is absolutely ethical and relatively
superior than the industries standard and also in a way that long term interest
of the company are taken care of automatically while believing and doing so.

Personalised and word class, we at Narnolia securities improves the health of

wealth. As a process led and professionally managed company we consistently
deliver superior return to our investors .

With the knowledge Is power approach , Narnolia hold our pulse on the
market.

2.1 ACHIEVEMENTS

Narnolia group has been bestowed with the trust of the client and
recognization by the industry.

A list of our credentials is given below

 Best investment advisor for east Nominated by CNBC TV 18-2008

 Prestigious GD Birla award – contribution to state of Jharkhand
 Best channel distribution for the country
 Best distribution house in the east- Frankiline Templation
 Leaders in IPO distribution – as high as 84% in select issue
 Jharkhand Gaurav Samman- Parbhat khabar-2014
 Best franchise network of the country -2004-2006-2007-2008
 Champion of the champion trophy-2004-2006-2008
 Financial advisor forum award-uti2015-2016
 Business leadership awards for industrial development-Indian
economic development & research association (IEDRA)
 Leader in grow green initiative winner –NSDL star performer 2016
  Top performer in account active-top DP -2nd position
 India 3t emerging as no-1
 Emerging portfolio manager of the country-BSE Telfa CEO award 2017

India most promising brand –broking and securities –by WCRC in Thailand

Narnolia has receved national & international award by various dignitaries and
word media for the launch and maintenance of shari’ah complaint ew islamic
index.

Also Thematic and co research studies with economic times on several topic
drew huge public /institutional relationship.

Vision

We will be the most trusted , most knowledgeable most understanding and

most concerned provider of value added and customer centric financial
service in our strategically chosen class and also mass market .

Mission

We commit ourselves in both in thought and action to raise ourselves in the

eyes of our true boss the investors from being a mere transaction broker to a
true family financial doctor and help them to protect and improve their
financial health.

We further resolve that not to sell Daru (gambling) in the bottle of

Dawa(Investment) and will dare to tell them the difference between the two
even if it result into low revenue in the short term.

We will investment most of our time , energy and resources to reduce gap at
each touch points with our existing investors, and shall see our growth in their
growth .Let us believe that the quantity follows quality.

Core Purpose
Like a Doctor whose primary duty is to save and improve the life of his
19-aNroyv-2d0u17ty of our company, as an investment and
patient, the prim
financial advisor, should be to help our customers protect and create wealth.
The profit of the organization should be seen as the secondary objective and
as the resultant of the primary duty .

Quality Policy

Narnolia is committed to implementing appropriate quality management

system to ensure satisfaction of the client (core purpose) and other
interested parties by ensuring the planning and delivery of consistently high
level of services as per the predetermined high standard of system, process
,policies ,procedure and behaviour required for each of our financial
products throughout the extensive area of operation. We will share the
responsibility to ensure continual improvement and establish long term
relationship with each concerned party.

BUSINESS MODEL

The business model is concerned around the vision , mission and core
purpose of the organization . it was realised that the interest of the
investors and then we have distribution channel which can deliver such
products and service in the most personalised , localized and efficient way.

Fund Management

Creating superior risk adjusted returns consistently through our model Funds
in Fixed , Income and alternative Investment Funds , Commodity , Forex ,
Mutual fund and Equity (Mid Cap & Large Cap)

WEALTH MANAGEMENT
Creating management solutions suitable to ones individual goals , Risk
appetite and time to horizon

Broking

Helping trader beyond platform s with tools and ready made solutions

Distribution

Advisory and distribution of other financial product like real Estate, Primary
Markets, Insurance ,Advice based mutual fund , NBFC (Margin Funding LAS
etc)NPS.

Index management

There is nothing absolute in this world of relatively. The fund management

and advisory activities should be measured and compensated by their capacity
to generate higher return at given risk compared to the no brainer relevant
benchmarks.

In view of the non availability of relevant benchmark in the country , Narnolia

research only initiative Eastwind developed 69 objective indices including the
world famous and widely tracked all shares index (ASI),Indo Islamic index
launch with mandate from the PMO by Smt Shiela Dixit amidst an august
gathering of representative from various country , ministers and judiciary
.These indices are used by various corporate as well to measure and compare
their own performances. UTI became the first AMC to use this benchmark of
their fund.

Institutional Broking

Emerging as one of the fastest growing institutional brokerage firm , owing

largely to our proprietary process and data driven multi strategy research
framework . with over two decades of experience and expertise of Indian and
global market we offer trading and research solution to diverse segment of
institutional buyer including Insurance companies ,Pension fund , mutual fund
, foreign portfolio investors ,hedge fund treasuries of major banks.

 20+ highly skilled team of research analyst with proven track record of
delivering research that works on an absolute and relative basis.
 Widest quantitative fundamental research on 99.5% of Indian market
capitalization using our innovative tools such as earning momentum ,
earning quality and price scores.
 Market capitalization only being parameter for stock section makes it
true benchmark for.
 insightful , detailed and deep qualitative fundamental research with
financial models, management interaction an about 250 stocks.
 Regular research report on companies under coverage along with sector
comparative reports .
 State of the art technology and skilled sales team to provide complaint ,
personalised, customized and best in the class research and trading
solutions to our best institutional clients.

Our Esteem Clients:

HDFC Pension Fund , SBI Life , LIC Pension Fund , UTI , LIC Mutual Fund , UCO
Fund , Axis Bank , Andhra Bank , Union Bank , SBH , Allahabad bank, Central
bank of India J&K bank , canara Bank , Sriram Mutual Fund Bank of
Maharastra & Many More.

From the desk of our chairmen cum Managing Director

We at the Narnolia , are celebrating 20year of our existence .as we look back
we find this journey of two decades to be very satisfying as we grew from a
leading financial intermediaries of the eastern India to a name reckon with at
the national and global arena. But what is more satisfying is that it all happen
without compromising rather by further reinforcing on our ethical standards
our strong belief system that no business entity can grow over the years as
long as interest of all of its stake holder , employee , customer, shareholder,
Regulators and society at large are righteously balanced in the system .
Today we can develop the best of the products , system , process technology
and more so on we have the best of the people . but what differentiate us
from other is not the 100 years of combined National and global experience of
the promoters , rather our it is devotion to the relentless pursuit of generating
superior and consistent risk adjusted Return for our investors and provide
world class advise based trading experience for our traders with the use of our
innovative , disciplined , client focused and process driven multi assets , multi
strategy framework.

It feel good to have achieved these milestone . but for us this is just small
beginning of the long journey which will unfold alongside of the India Growth
Story , we at Narnolia always realise our fiduciary duty to our customers and
other stake holders and as such we resolve to keep learning innovative and
working harder and smarter towards this cherished dream

I on behalf of Narnolia, thanks to all our investors associates and all best
wisher for their continued trust and contribution during this whole journey.

BOARD OF DIRECTOR

MR. Krishnanad Narnolia Chairman cum Managing Director

Mr. sanjay sinha Director/Value Research

Mr.Mukul Nag Director

Mr kamal kasera Director

Mr. Saurav kasera Director

Mr.Shilendra kumar Director

Mr.Vikash ranjan sahay Director

Vineeta Sharma Director

Mr. Pankaj Harlalka Director

GOVERNMENT POLICIES

RELATED ACT:

Securities and Exchange Board of India Act,1992

It extend to whole of India

It shall deemed to have come into force on the 30th day of Januray 1992

Existing securities and exchange board of India means the Securities and
Exchange board of India constituted under the Resolution of the Government
of India in the department of Economic affair No 1. 44SE/86 dated the 12th day
of April, 1988

Function of the Board

Subject to the provision of the this Act, it shall be the duty of the Board to
protect the interest of investors in securities and to promote the development
of , and to regulate the securities market by such measures as it thinks fit.

Without prejudice to the generality of the foregoing provision, the measures

refers to therein may provide for –

Regulating the business in stock exchanges and any others securities markets.

Registering and regulating the working of stock broker, share transfer agent,
banker to an issue, merchant banker , underwriters, portfolio managers
,investment advisors and such others intermediaries who may be associated
with securities market in any manner.

EMPLOYEES PROVIDENT FUND ACT (1952)

The employee provident fund and provision fund and Miscellaneous Provision
Act,1952 provides for institution of compulsory provident fund for employee
in organization and others establishment. The purpose is to make some
provisions for the future of the industrial workers after he retires or for his
dependents in case of his early death. It applies to all factories and other
establishment of any other establishment of any other industry if the number
of the employee is 20 or more.

Under this scheme ,a stipulated amount (12%) is deducted from the employees
salary and contribution towards the fund .this amount is decided by the
government.

Employees state insurance Act (1948)

The government of India passed Employee state insurance Act , at April 1948.
It was designed to provide cash benefit in the case of sickness, maternity and
Employment injury, payment in the form of pension of dependent of workers
who dies , the family get employment injury and medical benefits.

Contribution periods and benefit periods:

Workers covered under the ESI Act , are required to pay contribution towards
the scheme on a monthly basis contribution period means six months time
span from 1 April to 30 September and 1 October to 31st March. Thus in a
financial years there are contribution period of six months duration. Cash
benefit under the scheme are generally linked with contribution paid. The
benefit period start their in month after the closer of contribution period .

Contribution period and corresponding benefit period :

1 April to 30 September 1 January to June of the following year.

1 October to 31st March 18 July to 31st December

 3. METHODOLOGY

TYPE OF RESEARCH

This project “A Study on working Capital Management & Profitability Analysis

of Narnolia securities Limited’’as an analytical Research in which ,researcher
has to use facts or information already available ,and analyze these to make a
critical evaluation of the facts ,figure, data or material.

The project includes finding of primary data of primary data and secondary
data. It includes survey and fact finding enquiring. So ,the project basically
covers description of affairs , as it exist at present. Here in this case ,the
researcher does not have control over the variables. Here the job done as a
researcher is to use the fact and information already available. The researcher
is done with the annual reports , the company database textbook and the
observation and interaction being the only source of primary data whatever is
used .the same set of information is analyzed to make the critical evaluation of
the material.

With the given nature of research of this is an analytical type of research

wherein the analysis of the existing set of affairs are used to arrive the effect of
working capital management of the return and profitability of the company.

INSTUMENTATION TECHNIQUES

The techniques used for the collection of the financial statement , data and
other information as follows. The primary data were collected by interaction
and observation. The secondary data were collected from the published annual
reports, budgeted manual and audited balance sheet and profit and loss
account , data base of the company.

Actual collection of data

The project makes use of the both primary and secondary data . primary data
were collected from observation and interaction . in the course of time , the
finance manager and his executive provided very appreciable co operation
during the interaction .
As for the secondary data the various published material were used along with
the database. The annual reports, fact sheets budgeted manuals and audited
balance sheet and profit and loss account , accounting and financial database
of the company.

TOOLS USED FOR ANALYSIS OF DATA

The data were analyzed using the following financial tools and techniques.

 Ratio Analysis
 ABC Analysis
 Statement of changing of Working Capital

OTHER SOFTWARE USED FOR DATA ANALYSIS

The application software used for the typing of the data , analysis of the
data, and presentation of different charts , tables graphs etc. is Microsoft
Word ,Excel . MS Excel made a very handy tools for the analysis of the data .
it was rigorously made use of during the calculation and comparisons
among the data, graphical and tabular presentation, calculation of various
ratios, there analysis etc

Limitation of the Study

The analysis Is just limited to 3 years. The study conduced deals only with the
impact of working capital on profitability without taking into consideration the
risk involved

The study conducted throws light only on the impact of working capital on a
minuscule part of strategic management namely EVA.

The figures and facts claimed in the annual reports and in and other form
are taken at face value.
CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) Bills receivables

3) Sundry debtors

4) Short term loans and advances.

5) Inventories of stock as:

a. Raw material

b. Work in process

c. Stores and spares

d. Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses

8. Accrued incomes.

9. Marketable securities.

In a narrow sense, the term working capital refers to the net working.
Net working capital is the excess of current assets over current liability,
or, say:

NET WORKING CAPITAL = CURRENT ASSETS – CURRENT LIABILITIES.

Net working capital can be positive or negative. When the current

assets exceeds the current liabilities are more than the current assets.
Current liabilities are those liabilities, which are intended to be paid in
the ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business
 CONSTITUENTS OF CURRENT LIABILITIES

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.

3. Dividends payable.

4. Bank overdraft.

5. Provision for taxation , if it does not amt. to app. Of profit.

6. Bills payable.

7. Sundry creditors.

The gross working capital concept is financial or going concern concept

whereas net working capital is an accounting concept of working capital. Both
the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for
the following reasons:

1. It enables the enterprise to provide correct amount of working capital

at correct time.

2. Every management is more interested in total current assets with

which it has to operate then the source from where it is made available.

3. It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.

4. This concept is also useful in determining the rate of return on

investments in working capital. The net working capital concept,
however, is also important for following reasons:

It is qualitative concept, which indicates the firm’s ability to meet to

its operating expenses and short-term liabilities.

IT indicates the margin of protection available to the short term

creditors.
 It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital

requirement out of the permanent sources of funds.

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as gross

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

Permanent or fixed working capital.

Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to

ensure effective utilization of fixed facilities and for maintaining the circulation
of current assets. Every firm has to maintain a minimum level of raw material,
work- in-process, finished goods and cash balance. This minimum level of
current assts is called permanent or fixed working capital as this part of
working is permanently blocked in current assets. As the business grow the
requirements of working capital also increases due to increase in current
assets.

TEMPORARY OR VARIABLE WORKING CAPITAL

Temporary or variable working capital is the amount of working capital which

is required to meet the seasonal demands and some special exigencies.
Variable working capital can further be classified as seasonal working capital
and special working capital. The capital required to meet the seasonal need of
the enterprise is called seasonal working capital. Special working capital is that
part of working capital which is required to meet special exigencies such as
launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense
that is required for short periods and cannot be permanently employed
gainfully in the business.

IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL

SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of
production.

Goodwill: Sufficient amount of working capital enables a firm to make

prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit
standing can arrange loans from banks and other on easy and favorable
terms.

Cash Discounts: Adequate working capital also enables a concern to

avail cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures

regular supply of raw material and continuous production.

Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises
the morale of its employees, increases their efficiency, reduces wastage
and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having

adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices
are lower and holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the
depression.
 Quick And Regular Return On Investments: Sufficient working capital
enables a concern to pay quick and regular of dividends to its investors
and gains confidence of the investors and can raise more funds in future.

High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in a
business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to

run its business operations. It should have neither redundant or excess
working capital nor inadequate nor shortages of working capital. Both
excess as well as short working capital positions are bad for any business.
However, it is the inadequate working capital which is more dangerous
from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE WORKING CAPITAL

1. Excessive working capital means ideal funds which earn no profit for
the firm and business cannot earn the required rate of return on its
investments.

2. Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3. Excessive working capital implies excessive debtors and defective

credit policy which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with

banks and other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may

also fall.

7. The redundant working capital gives rise to speculative transactions

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working
capital arises due to the time gap between production and realization of cash
from sales. There is an operating cycle involved in sales and realization of cash.
There are time gaps in purchase of raw material and production; production
and sales; and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office

expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

To maintain the inventories of the raw material, work-in-progress,

stores and spares and finished stock.

For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern requires a lot
of funds to meet its initial requirements such as promotion and formation
etc. These expenses are called preliminary expenses and are capitalized.
The amount needed for working capital depends upon the size of the
company and ambitions of its promoters. Greater the size of the business
unit, generally larger will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth
and expensing of the business till it gains maturity. At maturity the amount
of working capital required is called normal working capital.

There are others factors also influence the need of working capital in a
business.

FACTORS DETERMINING THE WORKING CAPITAL REQUIREMENTS

1. NATURE OF BUSINESS: The requirements of working is very limited in
public utility undertakings such as electricity, water supply and
railways because they offer cash sale only and supply services not
products, and no funds are tied up in inventories and receivables. On
the other hand the trading and financial firms requires less
investment in fixed assets but have to invest large amt. of working
capital along with fixed investments.

2. SIZE OF THE BUSINESS: Greater the size of the business, greater is the
requirement of working capital.

3. PRODUCTION POLICY: If the policy is to keep production steady by

accumulating inventories it will require higher working capital.

4. LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the

raw material and other supplies have to be carried for a longer in the
process with progressive increment of labor and service costs before
the final product is obtained. So working capital is directly
proportional to the length of the manufacturing process.

5. SEASONALS VARIATIONS: Generally, during the busy season, a firm

requires larger working capital than in slack season.

6. WORKING CAPITAL CYCLE: The speed with which the working cycle
completes one cycle determines the requirements of working capital.
Longer the cycle larger is the requirement of working capital.

DEBTORS

CASH FINISHED GOODS

RAW MATERIAL WORK IN PROGRESS

7. RATE OF STOCK TURNOVER: There is an inverse co-relationship
between the question of working capital and the velocity or speed
with which the sales are affected. A firm having a high rate of stock
turnover wuill needs lower amt. of working capital as compared to a
firm having a low rate of turnover.

8. CREDIT POLICY: A concern that purchases its requirements on credit

and sales its product / services on cash requires lesser amt. of
working capital and vice-versa.

9. BUSINESS CYCLE: In period of boom, when the business is

prosperous, there is need for larger amt. of working capital due to
rise in sales, rise in prices, optimistic expansion of business, etc. On
the contrary in time of depression, the business contracts, sales
decline, difficulties are faced in collection from debtor and the firm
may have a large amt. of working capital.

10. RATE OF GROWTH OF BUSINESS: In faster growing concern, we shall

require large amt. of working capital.

11. EARNING CAPACITY AND DIVIDEND POLICY: Some firms have more
earning capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may generate cash profits from
operations and contribute to their working capital. The dividend
policy also affects the requirement of working capital. A firm
maintaining a steady high rate of cash dividend irrespective of its
profits needs working capital than the firm that retains larger part of
its profits and does not pay so high rate of cash dividend.

12. PRICE LEVEL CHANGES: Changes in the price level also affect the
working capital requirements. Generally rise in prices leads to
increase in working capital.
Others FACTORS: These are:

Operating efficiency.

Management ability.

Irregularities of supply.

Import policy.

Asset structure.

Importance of labor.

Banking facilities, etc.

MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problem that

arises in attempting to manage the current assets, current liabilities. The
basic goal of working capital management is to manage the current
assets and current liabilities of a firm in such a way that a satisfactory
level of working capital is maintained, i.e. it is neither adequate nor
excessive as both the situations are bad for any firm. There should be no
shortage of funds and also no working capital should be ideal. WORKING
CAPITAL MANAGEMENT POLICES of a firm has a great on its probability,
liquidity and structural health of the organization. So working capital
management is three dimensional in nature as

1. It concerned with the formulation of policies with regard to

profitability, liquidity and risk.

2. It is concerned with the decision about the composition and level of

current assets.

3. It is concerned with the decision about the composition and level of

current liabilities.
 WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a

business. Adequate amount of working capital is very much essential for
the smooth running of the business. And the most important part is the
efficient management of working capital in right time. The liquidity
position of the firm is totally effected by the management of working
capital. So, a study of changes in the uses and sources of working capital
is necessary to evaluate the efficiency with which the working capital is
employed in a business. This involves the need of working capital
analysis.

The analysis of working capital can be conducted through a number of

devices, such as:

1. Ratio analysis.

2. Fund flow analysis.

3. Budgeting.

1. RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The

technique of ratio analysis can be employed for measuring short-term
liquidity or working capital position of a firm. The following ratios can be
calculated for these purposes:

1. Current ratio.

2. Quick ratio

3. Absolute liquid ratio

4. Inventory turnover.

5. Receivables turnover.

6. Payable turnover ratio.

7. Working capital turnover ratio.

8. Working capital leverage

9. Ratio of current liabilities to tangible net worth.

2. FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the

source from which additional funds were derived and the use to which
these sources were put. The fund flow analysis consists of:

a. Preparing schedule of changes of working capital

b. Statement of sources and application of funds.

It is an effective management tool to study the changes in financial

position (working capital) business enterprise between beginning and
ending of the financial dates.

3. WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans

and polices to be pursued in the future period time. Working capital
budget as a part of the total budge ting process of a business is prepared
estimating future long term and short term working capital needs and
sources to finance them, and then comparing the budgeted figures with
actual performance for calculating the variances, if any, so that
corrective actions may be taken in future. He objective working capital
budget is to ensure availability of funds as and needed, and to ensure
effective utilization of these resources. The successful implementation of
working capital budget involves the preparing of separate budget for
each element of working capital, such as, cash, inventories and
receivables etc.
ANALYSIS OF SHORT – TERM FINANCIAL POSITION OR TEST OF LIQUIDITY

The short –term creditors of a company such as suppliers of goods of

credit and commercial banks short-term loans are primarily interested
to know the ability of a firm to meet its obligations in time. The short
term obligations of a firm can be met in time only when it is having
sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of
fixed assets the liquid position of the firm must be strong. But a very
high degree of liquidity of the firm being tied – up in current assets.
Therefore, it is important proper balance in regard to the liquidity of
the firm. Two types of ratios can be calculated for measuring short-
term financial position or short-term solvency position of the firm.

1. Liquidity ratios.

2. Current assets movements ‘ratios.

A) LIQUIDITY RATIOS

Liquidity refers to the ability of a firm to meet its current obligations as

and when these become due. The short-term obligations are met by
realizing amounts from current, floating or circulating assts. The
current assets should either be liquid or near about liquidity. These
should be convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets should be
assessed by comparing them with short-term liabilities. If current
assets can pay off the current liabilities then the liquidity position is
satisfactory. On the other hand, if the current liabilities cannot be met
out of the current assets then the liquidity position is bad. To measure
the liquidity of a firm, the following ratios can be calculated:

1. CURRENT RATIO

2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO

1. CURRENT RATIO

Current Ratio, also known as working capital ratio is a measure of

general liquidity and its most widely used to make the analysis of
short-term financial position or liquidity of a firm. It is defined as the
relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

The two components of this ratio are:

1) CURRENT ASSETS

2) CURRENT LIABILITES

Current assets include cash, marketable securities, bill receivables,

sundry debtors, inventories and work-in-progresses. Current liabilities
include outstanding expenses, bill payable, dividend payable etc.

A relatively high current ratio is an indication that the firm is liquid and
has the ability to pay its current obligations in time. On the hand a low
current ratio represents that the liquidity position of the firm is not
good and the firm shall not be able to pay its current liabilities in time.
A ratio equal or near to the rule of thumb of 2:1 i.e. current assets
double the current liabilities is considered to be satisfactory.
 CALCULATION OF CURRENT RATIO

(Rupees in crore)

e.g.

Year 2014 2015 2016

Current Assets 81.29 83.12 13,6.57
Current 27.42 20.58 33.48
Liabilities
Current Ratio 2.96:1 4.03:1 4.08:1

Interpretation:-

As we know that ideal current ratio for any firm is 2:1. If we see the
current ratio of the company for last three years it has increased from
2011 to 2013. The current ratio of company is more than the ideal
ratio. This depicts that company’s liquidity position is sound. Its current
assets are more than its current liabilities.

2. QUICK RATIO

Quick ratio is a more rigorous test of liquidity than current ratio. Quick
ratio may be defined as the relationship between quick/liquid assets
and current or liquid liabilities. An asset is said to be liquid if it can be
converted into cash with a short period without loss of value. It
measures the firms’ capacity to pay off current obligations
immediately.

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

Where Quick Assets are:

1) Marketable Securities

2) Cash in hand and Cash at bank.

3) Debtors.
 A high ratio is an indication that the firm is liquid and has the ability to
meet its current liabilities in time and on the other hand a low quick
ratio represents that the firms’ liquidity position is not good.

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally

thought that if quick assets are equal to the current liabilities then the
concern may be able to meet its short-term obligations. However, a
firm having high quick ratio may not have a satisfactory liquidity
position if it has slow paying debtors. On the other hand, a firm having
a low liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

e.g. (Rupees in Crore)

Year 2014 2015 2016

Quick Assets 44.14 47.43 61.55
Current Liabilities 27.42 20.58 33.48
Quick Ratio 1.6 : 1 2.3 : 1 1.8 : 1

Interpretation :

A quick ratio is an indication that the firm is liquid and has the
ability to meet its current liabilities in time. The ideal quick ratio is 1:1.
Company’s quick ratio is more than ideal ratio. This shows company
has no liquidity problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more

liquid than inventories, yet there may be doubts regarding their
realization into cash immediately or in time. So absolute liquid ratio
should be calculated together with current ratio and acid test ratio so
as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes :

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES
 ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

e.g. (Rupees in Crore)

Year 2014 2015 2016

Absolute Liquid Assets 4.69 1.79 5.06
Current Liabilities 27.42 20.58 33.48
Absolute Liquid Ratio .17 : 1 .09 : 1 .15 : 1

Interpretation :

These ratio shows that company carries a small amount of cash.

But there is nothing to be worried about the lack of cash because
company has reserve, borrowing power & long term investment. In
India, firms have credit limits sanctioned from banks and can easily
draw cash.

B) CURRENT ASSETS MOVEMENT RATIOS

Funds are invested in various assets in business to make sales and

earn profits. The efficiency with which assets are managed directly
affects the volume of sales. The better the management of assets,
large is the amount of sales and profits. Current assets movement
ratios measure the efficiency with which a firm manages its resources.
These ratios are called turnover ratios because they indicate the speed
with which assets are converted or turned over into sales. Depending
upon the purpose, a number of turnover ratios can be calculated.
These are :

1. Inventory Turnover Ratio

2. Debtors Turnover Ratio

3. Creditors Turnover Ratio

4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets
include high amount of debtors due to slow credit collections and
 moreover if the assets include high amount of slow moving inventories.
As both the ratios ignore the movement of current assets, it is important
to calculate the turnover ratio.

1. INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of

finished goods so as to meet the requirements of the business.
But the level of inventory should neither be too high nor too low.
Because it is harmful to hold more inventory as some amount of
capital is blocked in it and some cost is involved in it. It will
therefore be advisable to dispose the inventory as soon as
possible.

INVENTORY TURNOVER RATIO = COST OF GOOD SOLD

AVERAGE INVENTORY

Inventory turnover ratio measures the speed with which the stock
is converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the
stocks are sold ; the lesser amount of money is required to finance
the inventory. Where as low inventory turnover ratio indicates the
inefficient management of inventory. A low inventory turnover
implies over investment in inventories, dull business, poor quality
of goods, stock accumulations and slow moving goods and low
profits as compared to total investment.

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

(Rupees in Crore)

Year 2014 2015 2016

Cost of Goods sold 110.6 103.2 96.8
Average Stock 73.59 36.42 55.35
Inventory Turnover Ratio 1.5 times 2.8 times 1.75 times
 Interpretation :

These ratio shows how rapidly the inventory is turning into

receivable through sales. In 2015 the company has high inventory
turnover ratio but in 2016 it has reduced to 1.75 times. This shows that
the company’s inventory management technique is less efficient as
compare to last year.

2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

e.g.

Year 2014 2015 2016

Days 365 365 365
Inventory Turnover Ratio 1.5 2.8 1.8
Inventory Conversion Period 243 days 130 days 202 days

Interpretation :

Inventory conversion period shows that how many days

inventories takes to convert from raw material to finished goods. In the
company inventory conversion period is decreasing. This shows the
efficiency of management to convert the inventory into cash.

3. DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to

increase its sales and a liberal credit policy may result in tying up
substantial funds of a firm in the form of trade debtors. Trade debtors
are expected to be converted into cash within a short period and are
included in current assets. So liquidity position of a concern also
depends upon the quality of trade debtors. Two types of ratio can be
calculated to evaluate the quality of debtors.

a) Debtors Turnover Ratio

 b) Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)

AVERAGE DEBTORS

Debtor’s velocity indicates the number of times the debtors are

turned over during a year. Generally higher the value of debtor’s
turnover ratio the more efficient is the management of debtors/sales
or more liquid are the debtors. Whereas a low debtors turnover ratio
indicates poor management of debtors/sales and less liquid debtors.
This ratio should be compared with ratios of other firms doing the
same business and a trend may be found to make a better
interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

Year 2014 2015 2016

Sales 166.0 151.5 169.5
Average Debtors 17.33 18.19 22.50
Debtor Turnover Ratio 9.6 times 8.3 times 7.5 times

Interpretation :

This ratio indicates the speed with which debtors are being
converted or turnover into sales. The higher the values or turnover into
sales. The higher the values of debtors turnover, the more efficient is
the management of credit. But in the company the debtor turnover
ratio is decreasing year to year. This shows that company is not
utilizing its debtors efficiency. Now their credit policy become liberal as
compare to previous year.

4. AVERAGE COLLECTION PERIOD :

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

 The average collection period ratio represents the average
number of days for which a firm has to wait before its receivables are
converted into cash. It measures the quality of debtors. Generally,
shorter the average collection period the better is the quality of
debtors as a short collection period implies quick payment by debtors
and vice-versa.

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

Year 2014 2015 2016

Days 365 365 365
Debtor Turnover Ratio 9.6 8.3 7.5
Average Collection Period 38 days 44 days 49 days

Interpretation :

The average collection period measures the quality of

debtors and it helps in analyzing the efficiency of collection efforts. It
also helps to analysis the credit policy adopted by company. In the firm
average collection period increasing year to year. It shows that the firm
has Liberal Credit policy. These changes in policy are due to
competitor’s credit policy.

5. WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of utilization

of net working capital. This ratio indicates the number of times
the working capital is turned over in the course of the year. This
ratio measures the efficiency with which the working capital is
used by the firm. A higher ratio indicates efficient utilization of
working capital and a low ratio indicates otherwise. But a very
high working capital turnover is not a good situation for any
firm.

Working Capital Turnover Ratio = Cost of Sales

 Net Working Capital

Working Capital Turnover = Sales

Networking Capital

e.g.

Year 2014 2015 2016

Sales 166.0 151.5 169.5
Networking Capital 53.87 62.52 103.09
Working Capital Turnover 3.08 2.4 1.64

Interpretation :

This ratio indicates low much net working capital requires

for sales. In 2014, the reciprocal of this ratio (1/1.64 = .609) shows that
for sales of Rs. 1 the company requires 60 paisa as working capital.
Thus this ratio is helpful to forecast the working capital requirement on
the basis of sale.

INVENTORIES

(Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Inventories 37.15 35.69 75.01

Interpretation :

Inventories is a major part of current assets. If any company wants

to manage its working capital efficiency, it has to manage its
inventories efficiently. The graph shows that inventory in 2013-2014 is
45%, in 2014-2015 is 43% and in 2015-2016 is 54% of their current
 assets. The company should try to reduce the inventory upto 10% or
20% of current assets.

CASH BNAK BALANCE :

(Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Cash Bank Balance 4.69 1.79 5.05

Interpretation :

Cash is basic input or component of working capital. Cash is

needed to keep the business running on a continuous basis. So the
organization should have sufficient cash to meet various requirements.
The above graph is indicate that in 2011 the cash is 4.69 crores but in
2012 it has decrease to 1.79. The result of that it disturb the firms
manufacturing operations. In 2013, it is increased upto approx. 5.1%
cash balance. So in 2013, the company has no problem for meeting its
requirement as compare to 2012.

DEBTORS :

(Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Debtors 17.33 19.05 25.94

Interpretation :

Debtors constitute a substantial portion of total current assets. In

India it constitute one third of current assets. The above graph is depict
that there is increase in debtors. It represents an extension of credit to
customers. The reason for increasing credit is competition and
company liberal credit policy.

CURRENT ASSETS :
 (Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Current Assets 81.29 83.15 136.57

Interpretation :

This graph shows that there is 64% increase in current assets in

2013. This increase is arise because there is approx. 50% increase in
inventories. Increase in current assets shows the liquidity soundness of
company.

CURRENT LIABILITY :

(Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Current Liability 27.42 20.58 33.48

Interpretation :

Current liabilities shows company short term debts pay to

outsiders. In 2013 the current liabilities of the company increased. But
still increase in current assets are more than its current liabilities.

NET WOKRING CAPITAL :

(Rs. in Crores)

Year 2013-2014 2014-2015 2015-2016

Net Working Capital 53.87 62.53 103.09

Interpretation :

Working capital is required to finance day to day operations of a

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

RESEARCH METHODOLOGY

The methodology, I have adopted for my study is the various tools, which
basically analyze critically financial position of to the organization:

I. COMMON-SIZE P/L A/C

II. COMMON-SIZE BALANCE SHEET

III. COMPARTIVE P/L A/C

IV. COMPARTIVE BALANCE SHEET

V. TREND ANALYSIS

VI. RATIO ANALYSIS

The above parameters are used for critical analysis of financial position. With
the evaluation of each component, the financial position from different angles
is tried to be presented in well and systematic manner. By critical analysis with
the help of different tools, it becomes clear how the financial manager handles
the finance matters in profitable manner in the critical challenging
atmosphere, the recommendation are made which would suggest the
organization in formulation of a healthy and strong position financially with
proper management system.

I sincerely hope, through the evaluation of various percentage, ratios and

comparative analysis, the organization would be able to conquer its in
efficiencies and makes the desired changes.
ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:

Financial statement is a collection of data organized according to logical and

consistent accounting procedure to convey an under-standing of some
financial aspects of a business firm. It may show position at a moment in time,
as in the case of balance sheet or may reveal a series of activities over a given
period of time, as in the case of an income statement. Thus, the term ‘financial
statements’ generally refers to the two statements

(1) The position statement or Balance sheet.

(2) The income statement or the profit and loss Account.

OBJECTIVES OF FINANCIAL STATEMENTS:

According to accounting Principal Board of America (APB) states

The following objectives of financial statements: -

1. To provide reliable financial information about economic resources and

obligation of a business firm.

2. To provide other needed information about charges in such economic

resources and obligation.

3. To provide reliable information about change in net resources (recourses

less obligations) missing out of business activities.

4. To provide financial information that assets in estimating the learning

potential of the business.
LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do
not present a final picture a final picture of a concern. The utility of these
statements is dependent upon a number of factors. The analysis and
interpretation of these statements must be done carefully otherwise
misleading conclusion may be drawn.

Financial statements suffer from the following limitations: -

1. Financial statements do not given a final picture of the concern. The data
given in these statements is only approximate. The actual value can only be
determined when the business is sold or liquidated.

2. Financial statements have been prepared for different accounting periods,

generally one year, during the life of a concern. The costs and incomes are
apportioned to different periods with a view to determine profits etc. The
allocation of expenses and income depends upon the personal judgment of the
accountant. The existence of contingent assets and liabilities also make the
statements imprecise. So financial statement are at the most interim reports
rather than the final picture of the firm.

3. The financial statements are expressed in monetary value, so they appear to

give final and accurate position. The value of fixed assets in the balance sheet
neither represent the value for which fixed assets can be sold nor the amount
which will be required to replace these assets. The balance sheet is prepared
on the presumption of a going concern. The concern is expected to continue in
future. So fixed assets are shown at cost less accumulated deprecation.
Moreover, there are certain assets in the balance sheet which will realize
nothing at the time of liquidation but they are shown in the balance sheets.

4. The financial statements are prepared on the basis of historical costs Or

original costs. The value of assets decreases with the passage of time current
price changes are not taken into account. The statement are not prepared with
the keeping in view the economic conditions. the balance sheet loses the
significance of being an index of current economics realities. Similarly, the
profitability shown by the income statements may be represent the earning
capacity of the concern.

5. There are certain factors which have a bearing on the financial position and
operating result of the business but they do not become a part of these
statements because they cannot be measured in monetary terms. The basic
limitation of the traditional financial statements comprising the balance sheet,
profit & loss A/c is that they do not give all the information regarding the
financial operation of the firm. Nevertheless, they provide some extremely
useful information to the extent the balance sheet mirrors the financial
position on a particular data in lines of the structure of assets, liabilities etc.
and the profit & loss A/c shows the result of operation during a certain period
in terms revenue obtained and cost incurred during the year. Thus, the
financial position and operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm

from the available accounting data and financial statements. The analysis is

done.
THE SUMMARY OF PROJECT

As a part of the research , number of analysis has been conducted to find out
the trend in the company’s working capital. Various ration like current ratio ,
Quick Ratio, Working capital turn over ratio, Debt to Equity Ratio etc. were
parameter to whether there has been any substantial or gradual changes
working capital from aggressive to conservative or vice versa. Find out the
working Capital policy on the return of the company .ROI, EVA, and ROCE were
taken as a yardstick for this purpose. An attempt was also made to find out the
receivable and the way of inventory management that how the company
handles different types of inventory like raw material, work in Progress,
Finished stock, etc.
CONCLUSION

The working capital of the Narnolia Securities Limited is Quite favourable

which means that the company is able to convert the cash immediately. The
liquidity of the firm is closed to standard ratio which shows that company is
able to meets its current liabilities. The profitability of the company show a
drastic decline in EPS due to lowering of its share price. The better inventory
policy helps the company to withstand during the recession period.

a) Liquidity of the Narnolia Securities Limited is favourable but during 2016

the current ratio is in danger situation as we can see that the current
ratio is 0.682 that means the company is unable to meet his liabilities at
a very short period hence the company should increase the demand to
meet its short term liabilities at a very short period
b) Working capital turn over ratio status of working capital turnocver ratio
of NSL during such period the TO was 58.62% but in 2016 decrease upto
-64.41 which was the bad signifecane and again it decline -3. Since all
the three years it keeps on fluctuating but overall the Ratio was not
Satisfactory because if it would decrease in future it would lead to over
tradind so it is advisable to produce the working capital TO Ratio or to
maintained at this level at
Bibliography
Books-

I.M.Pandey – financial Management

B.K Mehta - Management Accounting

Annual Reports of Narnolia Securities Limited

Website Reference

WWW.narnoliasecuritieslimited

www.google.com

www.workingcapitalmanagement.com
The End