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A PROJECT REPORT

ON
“ WORKING CAPITAL MANAGEMENT THROUGH
RATIO ANALYSIS”
WITH SPECIAL REFERENCE TO
ITC LTD.
SUBMITTED TO

in partial fulfillment of the requirement for the two years full time
Post Graduate Degree
In
MASTER OF BUSINESS ADMINISTRATION

SUPERVISED BY : SUBMITTED BY :
DR. PATIRAJ KUMARI MS. RENUKA NEGI

DEPARTMENT OF MANAGEMENT STUDIES


KANYA GURUKUL MAHAVIDYALAYA, DEHRADUN
2ND CAMPUS, GURUKUL KANGRI UNIVERSITY
HARIDWAR-249401
2009-2011

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ACKNOWLEDGEMENT

I take this opportunity to place on record my grateful thanks and gratitude to all those
who gave me valuable advice and inputs for my study. My study could not have been
completed if I had not been able to get the reference materials from the company.

I express my sincere regards to my guide DR. PATIRAJ KUMARI


for support and guidance.
Last but not least, I would also like to express my thanks to my family members who
inspired me to put in my best efforts for the research / project report.

RENUKA NEGI

MBA 3rd sem.

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PREFACE

The research provides an opportunity to a student to demonstrate application of his/her


knowledge. Skill and competencies required during the technical session. Research also
helps the student to devote his /her skill to analyze the problem to suggest alternative
solution, to evaluate them and to provide feasible recommendations on the provided data.

Although I have tried my level best to prepare this report an error free report every effort
has been made to offer the most authenticate position with accuracy.

RENUKA NEGI

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DECLARATION

I RENUKA NEGI student M.B.A. (III Semester) hereby declare that the
project report entitled “A STUDY OF WORKING CAPITAL
MANAGEMENT OF ITC LIMITED ” is my own original work based on
the survey undertaken by me.

I also declared that this report has not been submitted to any university/
institute for the aware if any professional.

DATE
RENUKA NEGI
MBA (III Semester)

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CERTIFICATE
TO WHOMSOEVER IT MAY CONCERN

This is to certify that the RENUKA NEGI has completed project on “ A


STUDY OF WORKING CAPITAL MANAGEMENT OF ITC
LIMITED” which is based on data collected by researcher.

This report is completed under my supervision. It is only for academic


purpose and is a bonafide work done by research

Signature of Guide

………………… ..

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INDEX

S.NO. TITLE PAGE NO.

1. INTODUCTION

2. COMPANY PROFILE

3. OBJECTIVE OF STUDY

4. RESEARCH METHODOLOGY

5. DATA ANALYSIS & INTERPRETATION

6. OBSERVATION & FINDINGS

7. CONCLUSION

8. SUGGESTIONS

9. LIMITATION

10. BIBLIOGRAPHY

11. ANNEXURE

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INTRODUCTION

Introduction: Working Capital Management


Working capital refers to that part of the firm’s capital which is required for financing
short- term or current assets such as cash, marketable securities, debtors & inventories.
Funds, thus, invested in current assts keep revolving fast and are being constantly

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converted in to cash and this cash flows out again in exchange for other current assets.
Hence, it is also known as revolving or circulating capital or short term capital.
Working capital management is concerned with the problems arise in attempting to
manage the current assets, the current liabilities and the inter relationship that exist
between them.
The term current assets refers to those assets which in ordinary course of business can be,
or, will be, turned in to cash within one year without undergoing a diminution in value
and without disrupting the operation of the firm. The major current assets are cash,
marketable securities, account receivable and inventory.
Current liabilities ware those liabilities which intended at there inception to be paid in
ordinary course of business, within a year, out of the current assets or earnings of the
concern. The basic current liabilities are account payable, bill payable, bank over-draft,
and outstanding expenses.
The goal of working capital management is to manage the firm’s current assets and
current liabilities in such way that the satisfactory level of working capital is mentioned.

Definition:-
According to Guttmann & Dougall-
“Excess of current assets over current liabilities”.

According to Park & Gladson-


“The excess of current assets of a business (i.e. cash, accounts receivables, inventories)
over current items owned to employees and others (such as salaries & wages payable,
accounts payable, taxes owned to Government)”.
Capital required for a business can be classified under two main categories via,

1) Fixed Capital 2) Working Capital

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Every business needs funds for two purposes for its establishment and to carry out
its day- to-day operations. Long terms funds are required to create production facilities
through purchase of fixed assets such as p&m, land, building, furniture, etc. Investments
in these assets represent that part of firm’s capital which is blocked on permanent or fixed
basis and is called fixed capital. Funds are also needed for short-term purposes for the
purchase of raw material, payment of wages and other day – to- day expenses etc.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:

1. Gross working capital

2. Net working capital

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The gross working capital is the capital invested in the total current assets of the
enterprises current assets are those assets which can convert in to cash within a short
period normally one accounting year.

CONSTITUENTS OF CURRENT ASSETS

1) Cash in hand and cash at bank

2) 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.

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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.

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CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:

o On the basis of concept.

o 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

Amount of Working
Capital
Temporary capital

Permanent Capital

Time

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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.

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 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.

 Ability to Face Crises:

A concern can face the situation during the depression.

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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.

Sources of working capital


The company can choose to finance its current assets by
1. Long term sources
2. Short term sources
3. A combination of them.

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Long term sources of permanent working capital include equity and preference
shares, retained earning, debentures and other long term debts from public deposits and
financial institution. The long term working capital needs should meet through long term
means of financing. Financing through long term means provides stability, reduces risk or
payment and increases liquidity of the business concern. Various types of long term
sources of working capital are summarized as follow:
1. Issue of shares:

It is the primary and most important sources of regular or permanent working capital.
Issuing equity shares as it does not create and burden on the income of the concern. Nor
the concern is obliged to refund capital should preferably raise permanent working
capital.

2. Retained earnings:

Retain earning accumulated profits are a permanent sources of regular working capital. It
is regular and cheapest. It creates not charge on future profits of the enterprises.

3. Issue of debentures:

It crates a fixed charge on future earnings of the company. Company is obliged to pay
interest. Management should make wise choice in procuring funds by issue of debentures.

Short term sources of temporary working capital

Temporary working capital is required to meet the day to day business expenditures. The
variable working capital would finance from short term sources of funds. And only the
period needed. It has the benefits of, low cost and establishes closer relationships with
banker.
Some sources of temporary working capital are given below:

1. Commercial bank:

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A commercial bank constitutes significant sources for short term or temporary working
capital. This will be in the form of short term loans, cash credit, and overdraft and though
discounting the bills of exchanges.

2. Public deposits:

Most of the companies in recent years depend on this source to meet their short term
working capital requirements ranging fro six month to three years.

3. Various credits:

Trade credit, business credit papers and customer credit are other sources of short term
working capital. Credit from suppliers, advances from customers, bills of exchanges, etc
helps to raise temporary working capital

4. Reserves and other funds:

Various funds of the company like depreciation fund. Provision for tax and other
provisions kept with the company can be used as temporary working capital.The
company should meet its working capital needs through both long term and short term
funds. It will be appropriate to meet at least 2/3 of the permanent working capital
equipments form long term sources, whereas the variables working capital should be
financed from short term sources. The working capital financing mix should be designed
in such a way that the overall cost of working capital is the lowest, and the funds are
available on time and for the period they are really required.

SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following-


1. Existing cash reserves
2. Profits (when you secure it as cash)
3. Payables (credit from suppliers)
4. New equity or loans from shareholder

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5. Bank overdrafts line of credit
6. Long term loans

If we have insufficient working capital and try to increase sales, we can easily over
stretch the financial resources of the business. This is called overtrading. Early warning
signs include

1. Pressure on existing cash


2. Exceptional cash generating activities. Offering high discounts for clear
cash payment
3. Bank overdraft exceeds authorized limit
4. Seeking greater overdrafts or lines of credit
5. Part paying suppliers or there creditor.
6. Management pre occupation with surviving rather than managing.

Different Aspects of Working Capital Management

Management of Inventory
Management of Receivables/Debtors
Management of Cash
Management of Payables/Creditors

MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of
companies. On an average, inventories are approximately 60% of current assets. Because
of large size, it requires a considerable amount of fund. The inventory means and
includes the goods and services being sold by the firm and the raw material or other
components being used in the manufacturing of such goods and services.

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Nature of Inventory:
The common type of inventories for most of the business firms may be classified as raw-
material, work-in-progress, finished goods.
Raw material:
it is basic inputs that are converted into finished products through the
manufacturing process. Raw materials inventories are those units which have
been purchased and stored for future productions.
Work–in–process:
Work-in-process is semi-manufactured products. They represent products that need
more work before them become finished products for sale.
Finished goods:
These are completely manufactured products which are ready for sale. Stocks of
raw materials and work-in-process facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus inventories serve as a
link between the production and consumption of goods.The levels of three kinds
of inventories for a firm depend on the nature of business. A manufacturing firm
will have substantially high levels of all the three kinds of inventories. While
retail or wholesale firm will have a very high level of finished goods inventories
and no raw material and work-in-process inventories.

So operating cycle can be known as following:-

Raw Material

Work in Progress

Cash Collection
from
Debtors
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Sales
Finished Goods

Credit Sales Cash Sales

Need to hold inventories

Maintaining inventories involves trying up of the company’s funds and incurrence of


storage and holding costs. There are three general motives for holding inventories:

Transactions Motive: IT emphasizes the need to maintain inventories to facilitate


smooth production and sales operation.

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Precautionary Motive: It necessitates holding of inventories to guard against the
risk of unpredictable changes in demand and supply forces and other factors.

Speculative Motive: It influences the decision to increase or reduce inventory


levels to take advantage of price fluctuations.

Management of Receivables/Debtors

The Receivables (including the debtors and the bills) constitute a significant portion of
the working capital. The receivables emerge whenever goods are sold on credit and
payments are deferred by customers. A promise is made by the customer to pay cash
within a specified period. The customers from whom receivable or book debts have to be
collected in the future are called trade debtors and represents the firm’s claim or assets.
Thus, receivable is s type of loan extended by the seller to the buyer to facilitate the
purchase process. Receivable Management may be defined as collection of steps and
procedure required to properly weight the costs and benefits attached with the credit
policy. The Receivable Management consist of matching the cost of increasing sales
(particularly credit sales) with the benefits arising out of increased sales with the
objective of maximizing the return on investment of the firm.

Nature
The term credit policy is used to refer to the combination of three decision variables:
1. Credit standards: It is the criteria to decide the type of customers to
whom goods could be sold on credit. If a firm has more
slow –paying customers, its investment in accounts
receivable will increase. The firm will also be exposed to
higher risk of default.
2. Credit terms: It specifies duration of credit and terms of payment by
Customer Investment in accounts receivable will be high
if customers are allowed extended time period for
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making payments.
3. Collection efforts: It determine the actual collection period. The lower
the collection period, the lower the investment in
accounts receivable and vice versa.

Management of Cash
Cash management refers to management of cash balance and the bank balance and also
includes the short terms deposits. Cash is the important current asset for the operations of
the business. Cash is the basic input needed to keep the business running on a continuous
basis. It is also the ultimate output expected to be realized by selling the service or
product manufactured by the firm. The term cash includes coins, currency, and cheque
held by the firm and balance in the bank accounts.

Factors of Cash Management:


Cash management is concerned with the managing of
1. Cash flows into and out of the firm
2. Cash flows within the firm and
3. Cash balance held by the firm at a point of time by financing deficit or investing
surplus cash. Sales generate cash which has to be disbursed out. The surplus cash has to
be invested while deficit has to borrow. Cash management seeks to accomplish this cycle
at a minimum cost and it also seeks to achieve liquidity and control.

Motives of holding cash


A distinguishing feature of cash as an asset is that it does not earn any substantial return
for the business. Even though firm hold cash for following motives:
Transaction motive:
Precautionary motive
Speculative motives
Compensatory motive

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Transaction motive: This refers to the holding of cash to meet routine cash
requirement to finance. The transactions, which a
firm carries on in the ordinary course of business.
1.Precautionary motive: This implies the needs to hold cash to meet
unpredictable contingencies such as strike, sharp increase in raw
materials prices. If a firm can borrow at short notice to pay them
unforeseen contingency, it will need to maintain relatively small
balances and vice-versa.
2. Speculative motives: It refers to the desire of the firm to take advantage
of opportunities which present themselves at unexpected
movements and which are typically outside the normal course of
business.
3. Compensatory motive: Bank provides certain services to their client free
of cost. They therefore, usually require client to keep
minimum cash balance with them to earn interest and
thus compensate them for the free service so provided.

Management of Payables/Creditors
Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position. Purchasing initiates cash outflows and an over-zealous
purchasing function can create liquidity problems. Consider the

Following:
Who authorizes purchasing in our company-is it tightly managed or spread among a
number of people?
Are purchase quantities geared to demand forecasts?
Do we use order quantities which take account of stock-holding and
purchasing costs?
Do we know the cost to the company of carrying stock?

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Do we have alternative source of supply?
How many of ours suppliers have a returns policy?
Are we in a position to pass on cost increases quickly through price
increase?

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

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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.

METHODS OF WORKING CAPITAL ANALYSIS


There are so many methods for analysis of financial statements but ITC LTD. used the
following techniques:-
 Comparative size statements
 Trend analysis
 Cash flow statement
 Ratio analysis
A detail description of these methods is as follows:-

COMPARATIVE SIZE STATEMENTS:-

When two or more than two years figures are compared to each other than we called
comparative size statements in order to estimate the future progress of the business, it is
necessary to look the past performance of the company. These statements show the
absolute figures and also show the change from one year to another.

TREND ANALYSIS:-
To analyze many years financial statements ITC LTD. uses this method. This indicates
the direction on movement over the long time and help in the financial statements.

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Procedure for calculating trends:-
1. Previous year is taken as a base year.
2. Figures of the base year are taken 100.
3. Trend % are calculated in relation to base year.

CASH FLOW STATEMENT:-


Cash flow statements are the statements of changes in the financial position prepared on
the basis of funds defined in cash or cash equivalents. In short cash flow statement
summaries the cash inflows and outflows of the firm during a particular period of time.
Benefits for the ITC LTD.:-
 To prepare the cash budget.
 To compare the cash budgets .
 To show the position of the cash and cash equivalents.

RATIO ANALYSIS:-
Ratio analysis is the process of the determining and presenting the relationship of the
items and group of items in the statements.

Benefits of ratio analysis to ITC LTD.:-


1. Helpful in analysis of financial statements.
2. Helpful in comparative study.
3. Helpful in locating the weak spots of the ITC LTD.
4. Helpful in forecasting.
5. Estimate about the trend of the business.
6. Fixation of ideal standards.
7. Effective control.
8. Study of financial soundness.

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Types of ratio:-

 Liquidity ratio: They indicate the firms’ ability to meet its current
obligation out of current resources.

 Current ratio:- Current assets / Current liabilities


 Quick ratio:- Liquid assets / Current liabilities
Liquid assets =Current assets – Stock -Prepaid expenses

 Leverage or Capital structure ratio: This ratio discloses the firms ability to
meet the interest costs regularly and long term solvency of the firm.
 Debt equity ratio:- Long term loans / Shareholders funds or net
Worth
 Debt to total fund ratio:- Long terms loans/ share holder funds
+long term loan
 Proprietary ratio:- Shareholders fund/ shareholders fund+long term
loan

 Activity ratio or Turnover ratio:- They indicate the rapidity with which the
resources available to the concern are being used to produce sales.

 Stock turnover ratio:- Cost of good sold/Average stock


(Cost of good sold= Net sales/ Gross profit,
Average stock=Opening stock+closing stock/2)
 Debtors turnover ratio:- Net credit sales/ Average debtors
+Average B/R
 Average collection period:- Debtors+B/R /Credit sales per

(Credit sales per day=Net credit sales of the year/365)

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 Creditors Turnover Ratio:- Net credit purchases/ Average
Creditors + Average B/P
 Average Payment Period: - Creditors + B/P/ Credit purchase per day.

 Fixed Assets Turnover ratio:- Cost of goods sold/Net fixed Assets


(Net Fixed Assets = Fixed Assets – depreciation)
 Working Capital Turnover Ratio:- Cost of goods sold/
Working Capital
(Working capital= current assets – current liability)

 Profitability Ratios or Income ratios:- The main objective of every business


concern is to earn profits. A business must be able to earn adequate profit in
relation to the risk and capital invested in it.

 Gross profit ratio:- Gross profit / Net Sales * 100


(Net sales= Sales – Sales return)
 Net profit Ratio:- Net profit / Net sales * 100
(Operating Net Profit= operating net profit/ Net Sales *100 or
operating Net profit= gross profit – operating expenses)
 Operating Ratio :- Cost of goods sold + Operating expenses/Net
Sales * 100
(Cost of goods sold = Net Sales – Gross profit, Operating expenses =
office & administration expenses + Selling & distribution expenses +
discount + bad debts + interest on short term loans)

 Earning per share(E.P.S.) :- Net Profit – dividend on preference


share / No. of equity shares
 Dividend per share (D.P.S.):- Dividend paid to equity share
Holders / No. of equity shares *100.

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 Dividend Payout ratio(D.P.) :- D.P.S. / E.P.S. *100

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COMPANY
PROFILE

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HISTORY AND BACKGROUND

ITC was incorporated on August 24, 1910 under the name of ‘ Imperial Tobacco
Company of India Limited’. Its beginnings were humble. A leased office on Radha
Bazar Lane, Kolkata, was the centre of the Company’s existence. The Company
celebrated its 16th birthday on August 24, 1926, by purchasing the plot of land situated
at 37, Chowringhee, (now renamed J.L. Nehru Road) Kolkata, for the sum of Rs
310,000. This decision of the Company was historic in more ways than one. It was to mark
the beginning of a long and eventful journey into India’s future. The Company’s
headquarter building, ‘ Virginia House’ , which came up on that plot of land two years
later, would go on to become one of Kolkata’s most venerated landmarks. The Company’s
ownership progressively indianised, and the name of the Company was changed to I.T.C.
Limited in 1974. In recognition of the Company’s multi-business portfolio encompassing
a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology,
Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and
Greeting Gifting & Stationery - the full stops in the Company’s name were removed
effective September 18, 2001. The Company now stands rechristened ‘ITC Limited’.

Though the first six decades of the Company’s existence were primarily devoted to the
growth and consolidation of the Cigarettes and Leaf Tobacco businesses, the Seventies
witnessed the beginnings of a corporate transformation that would usher in momentous
changes in the life of the Company.

In 1925 as a strategic backward integration for ITC’s Cigarettes business. It is today


India’s most sophisticated packaging house.

In 1975 the Company launched its Hotels business with the acquisition of a hotel in
Chennai which was rechristened ‘ITC-Welcome group Hotel Chola’. The objective of
ITC’s entry into the hotels business was rooted in the concept of creating value for the
nation. ITC chose the hotels business for its potential to earn high levels of foreign
exchange, create tourism infrastructure and generate large scale direct and indirect

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employment. Since then ITC’s Hotels business has grown to occupy a position of
leadership, with 66 owned and managed properties spread across India.

In 1979, ITC entered the Paperboards business by promoting ITC Bhadrachalam


Paperboards Limited, which today has become the market leader in India.
Bhadrachalam Paperboards amalgamated with the Company effective March 13, 2002
and became a Division of the Company, Bhadrachalam Paperboards Division. In
November 2002, this division merged with the Company’s Tribeni Tissues Division to
form the Paperboards & Specialty Papers Division. ITC’s paperboards’ technology,
productivity, quality and manufacturing processes are comparable to the best in the world.

In 2004, ITC acquired the paperboard manufacturing facility of BILT Industrial


Packaging Co. Ltd (BIPCO), near Coimbatore, Tamil Nadu. This KOVAI Unit allows
ITC to improve customer service with reduced lead time and a wider product range.

On 1985, ITC set up Surya Tobacco Co. in Nepal as a joint venture with the reputed
Soaltee group. In August 2002, Surya Tobacco became a subsidiary of ITC Limited and
its name was changed to Surya Nepal Private Limited (Surya Nepal).

ln 1990, ITC acquired Tribeni Tissues Limited, a Specialty paper manufacturing


company and a major supplier of tissue paper to the cigarette industry. The merged entity
was named the Tribeni Tissues Division (TTD). To harness strategic and operational
synergies, TTD was merged with the Bhadrachalam Paperboards Division to form the
Paperboards & Specialty Papers Division in November 2002.

Also in 1990, leveraging its agri-sourcing competency, ITC set up the International
Business Division (IBD) for export of agri-commodities. The Division is today one of
India’s largest exporters. ITC’s unique and now widely acknowledged e-Choupal
initiative began in 2000 with Soya farmers in Madhya Pradesh. Now it extends to 6 states
covering over 3.1 million farmers.

ln 2000, ITC’s Packaging & Printing business high quality greeting cards under the
brand name ‘Expressions’. launched a line of In 2002, the product range was enlarged
with the introduction of Gift wrappers, Autograph books and Slam books. In the same
year, ITC also launched ‘Expressions Matrubhasha’, a vernacular range of greeting cards in

32
eight languages and ‘ Expressions Paperkraft’ , a range of premium stationery products.
In 2003, the company rolled out ‘Classmates’ , a range of notebooks in the school
stationery segment.

ITC also entered the Lifestyle retailing business with the Wills Sport range of
international quality relaxed .wears for men and women in 2000. The Wills Lifestyle
chain of exclusive stores later expanded its range to include Wills Classic formal
wear (2002) and Wills Clublife evening wear (2003). ITC also initiated a foray into the
popular segment with its men ’s wear brand, John Players, in 2002.

In 2000, ITC spun off its information technology business into a wholly owned
subsidiary, ITC InfoTech India Limited, to more aggressively pursue emerging
opportunities in this area.

ITC made its entry into the branded & packaged Foods business in August 2001 with the
launch of the Kitchens of India brand. A more broad-based entry has been made since
June 2002 with brand launches in the Confectionery, Staples and Snack Foods
segments. In 2002, the ‘ mint-o’ trademark was acquired and relaunched in orange
and mint flavours. In the same year ‘ Candyman’ was added to the confectionery
range and ‘ Aashirvaad’ atta was rolled out. The ‘Aashirvaad’ brand now extends to
ready-to-eat foods, ready-to-cook pastes and salt. In 2003 the ‘Candyman’ range was
expanded to include deposited candies and eclairs. In 2003 ‘ Sun feast’ biscuits were
launched and ‘mint-o ’ lemon mint flavour was introduced. In 2004 the ‘Kitchens of
India’ brand was extended to cooking pastes.

In 2002, ITC’s philosophy of contributing to enhancing the competitiveness of the entire


value chain found yet another expression in the Safety Matches initiative. ITC now
markets popular safety matches brands like Mangal Deep, VaxLit, Delite and Aim.

ITC’s foray into the marketing of Agarbattis (incense sticks) in 2003 marked the
manifestation of its partnership with the cottage sector. ITC’s popular agarbattis brands
include Spriha and Mangal Deep across a range of fragrances like Rose, Jasmine,
Bouquet, Sandalwood, Madhur, Sambrani and Nagchampa.

33
COMPANY OVERVIEW

ITC is one of India's foremost private sector companies with a market capitalisation of
over US $ 22 billion and a turnover of over US $ 5 billion.* ITC is rated among the
World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies
by Forbes magazine, among India's Most Respected Companies by BusinessWorld and
among India's Most Valuable Companies by Business Today. ITC ranks among India's
`10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and
published by the Economic Times. ITC also ranks among Asia's 50 best performing
companies compiled by Business Week.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers,
Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology,
Branded Apparel, Personal Care, Stationery, Safety Matches and other FMCG products.
While ITC is an outstanding market leader in its traditional businesses of Cigarettes,
Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even
in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal
Care and Stationery.

As one of India's most valuable and respected corporations, ITC is widely perceived to be
dedicatedly nation-oriented. Chairman Y C Deveshwar calls this source of inspiration "a
commitment beyond the market". In his own words: "ITC believes that its aspiration to
create enduring value for the nation provides the motive force to sustain growing
shareholder value. ITC practices this philosophy by not only driving each of its
businesses towards international competitiveness but by also consciously contributing to

34
enhancing the competitiveness of the larger value chain of which it is a part."
ITC's diversified status originates from its corporate strategy aimed at creating multiple
drivers of growth anchored on its time-tested core competencies: unmatched distribution
reach, superior brand-building capabilities, effective supply chain management and
acknowledged service skills in hoteliering. Over time, the strategic forays into new
businesses are expected to garner a significant share of these emerging high-growth
markets in India.

ITC's Agri-Business is one of India's largest exporters of agricultural products. ITC is one
of the country's biggest foreign exchange earners (US $ 3.2 billion in the last decade).
The Company's 'e-Choupal' initiative is enabling Indian agriculture significantly enhance
its competitiveness by empowering Indian farmers through the power of the Internet. This
transformational strategy, which has already become the subject matter of a case study at
Harvard Business School, is expected to progressively create for ITC a huge rural
distribution infrastructure, significantly enhancing the Company's marketing reach.

ITC's wholly owned Information Technology subsidiary, ITC Infotech India Ltd, provides
IT services and solutions to leading global customers. ITC Infotech has carved a niche for
itself by addressing customer challenges through innovative IT solutions.

ITC's production facilities and hotels have won numerous national and international
awards for quality, productivity, safety and environment management systems. ITC was
the first company in India to voluntarily seek a corporate governance rating.

ITC employs over 26,000 people at more than 60 locations across India. The Company
continuously endeavors to enhance its wealth generating capabilities in a globalising
environment to consistently reward more than 3,44,000 shareholders, fulfill the
aspirations of its stakeholders and meet societal expectations. This over-arching vision of
the company is expressively captured in its corporate positioning statement: "Enduring
Value. For the nation. For the Shareholder."

35
VISION

Sustain ITC's position as one of India's most valuable corporations through world class

performance, creating growing value for the Indian economy and the company’s

stakeholders

Mission
To enhance the wealth generating capability of the enterprise in a globalizing
environment, delivering superior and sustainable stakeholder value.

BOARD OF DIRECTORS
The Board of Directors at the apex, as trustee of shareholders, carries the responsibility
for strategic supervision of the Company. The strategic management of the Company
rests with the Corporate Management Committee comprising the wholetime Directors
and members drawn from senior management. The executive management of each
business division is vested with the Divisional Management Committee (DMC), headed
by the Chief Executive. Each DMC is responsible for and totally focused on the
management of its assigned business. This three-tiered interlinked leadership process
creates a wholesome balance between the need for focus and executive freedom, and the
need for supervision and control.

B O A R D O F D I R E C T O R S

C H A I R M A N
Y C Deveshwar

36
E X E C U T I V E D I R E C T O R S
Anup Singh K Vaidyanath K N Grant

N O N - E X E C U T I V E D I R E C T O R S
AV Girija Kumar
A Baijal S Banerjee
S H Khan S B Mathur D K Mehrotra

H G Powell P B Ramanujam Anthony Ruys

Basudeb Sen B Vijayaraghavan

D I V I S I O N A L
M A N A G E M E N T
C O M M I T T E E S

India
Tobacc
o
Divisio
n

Sanjiv Puri
Divisional Chief Executive

H Malik
Member

A K Mukerji
Member

Foods Division

C Dar
Divisional Chief Executive

M Ganesan
Member & Secretary

37
Paritosh Wali
Member

M S Gadhok
Member

V L Rajesh
Member

S Ganeshkumar
Member

Lifestyle Retailing Business Division

A Chand
Divisional Chief Executive

Riaz Ahmed
Member & Secretary

S Roy
Member

K Bose
Member

M Rastogi
Member

R Kaicker
Member

Education & Stationery Products Strategic Business Unit

C S Das
SBU Chief Executive

B K Pramanick
Member

Sanjeev Seksaria
Member

N Thakur
Member

38
Safety Matches Strategic Business Unit

R Gopal
SBU Chief Executive

R Ramamurthy
Member & Secretary

B K Pramanick
Member

Agarbattis Strategic Business Unit

V M Rajasekharan
SBU Chief Executive

Senthil Kumaran
Member & Secretary

B K Pramanick
Member

39
ITC PRODUCTS

Take an abiding commitment to world-class quality. Add deep market insight; cutting-edge
technology; a pervasive culture of innovation. And you have ITC brands that do India proud
across a range of products and services: Aashirvaad, Sunfeast, Kitchens of India, mint-o,
Candyman, Bingo!, Wills Lifestyle, John Players, Essenza Di Wills, Fiama Di Wills, Vivel
Portfolio, Superia, ITC-Welcomgroup, Classmate, Paperkraft, AIM, Mangaldeep.

 Cigarettes
 Foods
 Lifestyle

40
 Personal care
 Education & stationary
 Safety Matches
 Agarbattis

OBJECTIVES OF
THE STUDY
41
OBJECTIVES OF THE STUDY
 To study the working capital management of the concern so as to analyze and
interpret the inventory position of the ITC Limited.

 To assess the strength and weakness of the concern in various areas.

 To assess the over all efficiency and performance of the company.

42
RESEARCH
METHODOLOGY
43
RESEARCH METHODOLOGY
This type of analysis helps the management of the company to plan its future polices
according to the external environment. Any sound research must have an proper design to
achieve the required result, this study is constructed on the basis of descriptive design.

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. 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
44
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.
45
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

46
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.

CALCULATIONS OF RATIOS

Ratios are relationship expressed in mathematical terms between figures, which are
connected with each other in some manner.

CLASSIFICATION OF RATIOS

47
Ratios can be classified in to different categories depending upon the basis of
classification

The traditional classification has been on the basis of the financial statement to which the
determination of ratios belongs.

These are:-

 Profit & Loss account ratios

 Balance Sheet ratios

 Composite ratios

RESEARCH DESIGN

For the proper analysis of data simple statistical techniques such as percentage were use.
It helped in making more accurate generalization from the data available.

SOURCES OF DATA

Secondary data were collected to meet the objective. The data is collected for the
annual reports of the International tobacco company, Haridwar. Data has been taken as
per the requirements of the study of the RATIO ANALYSIS. Secondary data is used for
it.

TOOLS OF ANALYSIS
It is essential to use a systematic research methodology for the assessment of a project
because without the use of a research methodology analysis of any company or
organization will not be possible.
In the present analysis mostly secondary data have been used. Its is worth a white to
mention that I have used the following types of published data:

 Balance sheet

48
 Profit & Loss A/c
 Schedules

LIMITATIONS OF THE STUDY

 Non monetary aspects are not considered making the results unreliable.
 Different accounting procedures may make results misleading.
 In spite of precautions taken there are certain procedural and technical limitations.
 Accounting concepts and conventions cause serious limitation to financial
analysis.
 Lack of sufficient time to exhaust the detail study of the above topic became a
hindering factor in my research.

49
Data analysis
&
Interpretation

50
Data analysis & interpretation:

CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITES

(Rupees in crore)

Year 2008(1) 2009(2) 2010(3)


Current Assets 7019.27 8161.11 8127.08
Current Liabilities 4432.30 4705.01 8048.24
Current Ratio 1.58 1.73 1.01

51
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 decreased from 2008 to 2010.
The current ratio of company is near the ideal ratio. This depicts that company’s
liquidity position is more sound in previous years. Its current assets are more
than its current liabilities.

QUICK RATIO

QUICK RATIO = QUICK ASSETS

CURRENT LIABILITES

52
(Rupees in Crore)

Year 2008(1) 2009(2) 2010(3)


Quick Assets 2968.75 3561.39 3578.01
Current Liabilities 4432.30 4705.01 8048.24
Quick Ratio 0.67 0.76 0.44

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 less than ideal ratio. This shows company has slightly strong
liquidity position in previous years.

ABSOLUTE LIQUID RATIO

ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

53
(Rupees in Crore)

Year 2008(1) 2009(2) 2010(3)


Absolute Liquid Assets 570.25 1032.39 1126.28
Current Liabilities 4432.30 4705.01 8048.24
Absolute Liquid Ratio 0.13 0.22 0.14

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.

INVENTORY TURNOVER OR STOCK TURNOVER


RATIO:

INVENTORY TURNOVER RATIO = SALES

AVERAGE INVENTORY

54
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK

(Rupees in Crore)

Year 2008(1) 2009(2) 2010(3)


Sales 13947.53 15388.11 18153.19
Average Stock 3702.28 43254.12 4574.40
Inventory Turnover Ratio 3.77 times 3.56 times 3.97 times

Interpretation: This ratio shows how rapidly the inventory is turning into receivable
through sales. In 2008 the company has 3.56 inventory turnover ratio and it increased to
3.97 times in 2010. This shows that the company’s inventory management technique is
more efficient as compare to last years.

INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO

55
Year 2008(1) 2009(2) 2010(3)
Days 365 365 365
Inventory Turnover Ratio 3.77 3.56 3.97
Inventory Conversion Period 97 days 103 days 92 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.

DEBTORS TURNOVER RATIO:

DEBTORS TURNOVER RATIO = SALES (CREDIT)

AVERAGE DEBTORS

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR

Year 2008(1) 2009(2) 2010(3)


Sales 13947.53 15388.11 18153.19
Average Debtors 686.81 702.8 763.74

56
Debtor Turnover Ratio 20.31 times 21.90 times 23.77 times

Interpretation:

This ratio indicates the speed with which debtors are being converted or
turnover into sales.The higher the values of debtors turnover, the more efficient
is the management of credit.The debtor turnover ratio is increasing year to year.
It indicates efficiency of marketing and credit policy of the firm.

AVERAGE COLLECTION PERIOD:

Average Collection Period = No. of Working Days

Debtors Turnover Ratio

Average Collection Period = 365 (Net Working Days)

Debtors Turnover Ratio

Year 2008(1) 2009(2) 2010(3)


Days 365 365 365
Debtor Turnover Ratio 20.31 21.90 23.77
Average Collection Period 18 17 15

57
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 is decreasing
year to year. It indicates managerial efficiency in credit collection.

WORKING CAPITAL TURNOVER RATIO:

Working Capital Turnover Ratio = ___Cost of Sales____

Net Working Capital

58
Working Capital Turnover = _______Sales

Networking Capital

Year 2008(1) 2009(2) 2010(3)


Sales 13947.53 15388.11 18153.19
Networking Capital 2586.97 3456.1 78.84
Working Capital Turnover 5.39 4.45 230.25

Interpretation:

This ratio indicates low much net working capital requires for sales.
Thus this ratio is helpful to forecast the working capital requirement on the basis
of sale.Working capital turnover is high in 2010 because of decrease in working
capital due to increase in provisions.

59
INVENTORIES

(Rs. in Crores)

Year 2008(1) 2009(2) 2010(3)


Inventories 4050.52 4599.72 4549.07

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 2008 is 57% in 2009 is 56% and in 2010 is 55% of their current assets.
The company should try to reduce the inventory upto 10% or 20% of current assets.

60
CASH BANK BALANCE:

(Rs. in Crores)

Year 2008(1) 2009(2) 2010(3)


Cash Bank Balance 570.25 1032.39 1126.28

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

61
that in 2008 the cash is 570.25 but in 2009 it has increase to 1032.39. In 2010, it
is increased upto 1126.28. So in 2010, the company has no problem for meeting
its requirement as compare to previous years.

DEBTORS:

(Rs. in Crores)

Year 2008(1) 2009(2) 2010(3)


Debtors 736.93 668.67 858.80

62
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 2008(1) 2009(2) 2010(3)


Current Assets 7019.27 8161.11 8127.08

63
Interpretation:

This graph shows that there is increase in current assets in 2009. 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 2008(1) 2009(2) 2010(3)


Current Liability 4432.30 4705.01 8048.24

Interpretation:

64
Current liabilities shows company short term debts pay to outsiders. In 2008 the
current liabilities of the company increased. But still increase in current assets is
more than its current liabilities.

NET WOKRING CAPITAL:

(Rs. in Crores)

Year 2008(1) 2009(2) 2010(3)


Net Working Capital 2586.97 3456.1 78.84

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.

65
OBSERVATIONS
&
FINDINGS
66
OBSERVATIONS & FINDINGS
 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 2006 to 2008.. This
depicts that company’s liquidity position is sound. Its current assets are more than
its current liabilities.
 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.
 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.

 This graph shows that there is 64% increase in current assets in 2008. This
increase is arise because there is approx. 50% increase in inventories. Increase in
current assets shows the liquidity soundness of company.

 Current liabilities shows company short term debts pay to outsiders. In 2008 the
current liabilities of the company increased. But still increase in current assets are
more than its current liabilities.

67
 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.

CONCLUSION

In the present study I have analyzed the working management of ITC Limited.
I found that inventory is increasing which shows that company has sufficient stocks to
meet up out production of the company.
Inventory Turnover Ratio measures the velocity of conversion of stock into sales.
Usually, a high inventory turnover indicates efficient management of inventory because
more frequently the stocks are sold, the lesser amount of money is required to finance the
inventory. The Inventory Turnover Ratio is decreasing which is not a good sign for the
company.
The business firm has adequate internal control procedure commensurate with the size of
the firm and nature of its business for the purchase of stores, machinery, equipment and
other assets and with regards to sale of goods. From the comparative study of inventory
turnover it is clear that stock velocity indicates inefficient management of inventory
during the year 2009.
So the company’s performance outlook continues to be positive and optimistic. The
company remains confident of delivering of strong operating and financial performance.
Efficient stock velocity indicates efficient management of inventory of the firm and no
slow movement of the stock due to damaged goods.

68
SUGGESTIONS

After interpretation and analysis, I am giving certain suggestions to the company which I
hope may be helpful for the company.

 The company should utilize its stock more efficiently.

 The company should pay attention towards the proper and efficient utilization of
working capital.

 The company can reduce the time for purchase order. The buffer should be
maintained incase of emergency. Insurance should be covered especially fire in
case of transit journey also.

69
BIBLIOGRAPHY

70
BIBLIOGRAPHY

Books:

Sharma R.K & Gupta shashi K; “Management accounting principles and practice.” Eight
edition, kalyani publisher’s New Delhi.

Bhalla V.K “financial management and policy”, first edition, annual publication, New
Delhi.

Maheshwari S.N ; “Management accounting and financial control”, thirteen edition,


sultan chand & sons, New Delhi.

Kothari C.R;”Research methodology methods & techniques”, second edition, vishwa


prakashan Delhi(1990).

Gupta Sunita, management of working capital, first edition , New century publications,
New Delhi(2003).

Chandra Prasana Financial Management, TMH, 4th edition, 1997, New Delhi.

PORTALS:

http://www.google.co.in/#hl=en&source=hp&q=balance+sheet+of+
+itc+2010&aq=f&aqi=&aql=&oq=&gs_rfai=&fp=d4204c7adcb357d0

www.itcportal.com/shareholder/annual.../itc-annual...2010/.../Balance-sheet.pdf
71
www.itcportal.com/itc-annual-reports-2010/.../Balance-Sheet-Abstract.pdf

ANNEXURE

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