A STUDY ON CURRENT ASSETS MANAGEMENT AT LAKSHMI MACHINE

WORKS LIMITED, COIMBATORE

CHAPTER 1

1.1 INTRODUCTION ABOUT THE STUDY

Current assets are those, which can be converted into cash within a short period of
time. It is required for the establishment and for carrying out day-day operations. Current
assets are mainly divided into cash, receivables and inventory.

The management of current assets is primarily the task of determining how much
current assets the business should have on the amount that is to be deployed in current assets.
It should suffice the day- day requirements of the business and at the same time it should not
be kept idle. Efficient and effective management of current assets determines the profitability
and liquidity position of the company. Current assets management, receivables management
and inventory management.

In this study, an analysis of current assets management of Lakshmi Machine Works

Limited is undertaken.

Current Asset Management

The ageing analysis of your current assets including stock, debtors etc is of large
importance, since it is directly linked to the liquidity position of the company. You have more
space to business and more chances of profitability, when you are successful in reducing your
money in hands of your associates.

We have a strong analytical team which is trained in credit management. The debtor-
creditor position will be analyzed periodically and insights on the ideal Current ratio position
will be given to the management. We will intimate your team, when the optimum credit ratio
is crossed or when the stock in hand position goes below the margin.

Current asset management includes management of cash, cash equivalents, accounts

receivable and prepaid expenses. Directors can help you to maintain a good current asset

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position by effective debtors and creditors’ management. Directors current assets
management program focuses mainly on accelerating of the payments due to the company
through continuous follow ups and thereby reduces the time of debt realization considerably.

What is Current Assets Management?

Current asset management is the handling of the current assets of a company. Any
assets that a company or business has that is the equivalent of cash or can be liquidated into
cash in the period of a year is considered a current asset. Typically, current assets are the
inventory a company has, as well as the accounts receivables and any short-term investments
it has in place.

The main principle in current asset management is to keep the proper flow of income
and liability in balance. Managing current assets also takes into account the long-term
investments of a company, but short-term assets, another name for current assets, is important
in determining the liquidity of a company. The measure of liquidity is really the measure of
how well and how fast a company can pay off its debts.

Calculating the current ratio is key in figuring out the proper balance for current asset
management. The current ratio is the company’s current assets divided by its current
liabilities. Current liabilities are defined as what a business needs to pay off in a specific
cycle of time, either a financial year or a cycle of time particular to a business, whichever is
longer.

If a company had current assets of $100,000 US Dollars (USD) but the liabilities it
had were $60,000 USD, this would equal a value of approximately $1.67 USD, meaning that
the company has a $1.67 USD to pay off for every dollar they owe. This is typically
considered a decent current ratio, although what defines a good ratio will vary from industry
to industry. Generally speaking, a ratio of $2 USD in current assets to every $1 USD of
liability is considered decent.

A financial planner, or any person responsible for current asset management, works to
maintain a balance of the current ratio, also known as the working capital ratio. A balanced
ratio means not only the company is in good shape in the short-term, but it also means that
the company is more appealing to creditors and investors because the current ratio value is

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considered a good way to determine a company’s fiscal competence. If the value is too low, it
means the company is not a good credit risk as it can’t pay off its debts easily. A current ratio
value that is too high could mean the business is not good at managing and investing its
current assets.

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1.2 STATEMENT OF THE PROBLEM

Assessment of current assets management is highly to identify the financial strengths

and weakness of the firm by properly establishing the relationship between the item of
balance sheet and profit and loss account (Drake 2010). It also helps in short- term and long
term forecasting and growth can be identified with the help of a current asset management.
Moreover, bank performance assessment can also help improve managerial performance by
identifying best and worst practices associated with high and low measured efficiency.

However, according to Drake failures of commercial banks have been relatively high
in recent years in all over the world while the reason of each bank failure is somewhat unique
experiences, which differ from one bank to another. Recent studies have identified a few
factors that most failing banks seem to have in common. From those factors the main are
problems regarding loan portfolio, management efficiency, and uncontrollability of operating
expenses.

Besides, non-performing loans grow to such an extent that revenues fail off and loan
loss expenses as well as operating expenses absorb all the earnings that remain. In addition to
that failing banks often have inadequate system of sporting loan problem early and frequently
have expense control problem.

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1.3 SCOPE OF THE STUDY

Current assets management is the most important area in the day-to-day management
of the firm. The current assets should be large enough to cover its current liability in order
to ensure a reasonable margin of safety. Due to these reasons the present study is
conducted in computer systems on current asset management. The evaluation is for a
period of 5 years. Data were obtained from the record of the company. Various financial
techniques were used for the analysis. The study also provides suitable suggestions and
conclusions based on the findings.

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1.4 OBJECTIVES OF THE STUDY

 To find out the size and adequacy of current assets.

 To examine the relationship between current asset and liquidity position of the
concern.
 To suggest the measures for improvement if necessary in the management of working
capital.

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1.5 RESEARCH METHODOLOGY

It is the systematic way to solve a research problem. It includes various steps that
generally accepted by a researcher in studying his problem along with logic behind them. The
study is mainly depends on the secondary data, namely report of the company. Data were also
be collected from many text book, magazines, journals and newspaper.
The research basses the overall current assets management of the SRI. CHITHRA
SPINNERS by taking into account the financial data for the period of five years.
RESEARCH DESIGN

A reach design is the arrangements of conditions foe collection and analysis of data in a
manner that aims is to combine relevance to the research purpose with economy in procedure.

ANALYTICAL RESEARCH

This research means researcher has to analyze the facts or information already available and
analysis there to make a critical evaluation of the materials.

PERIOD OF STUDY

The study covers a period of five years 2013 to 2017

SECONDARY DATA

This study is mainly concentrated with on secondary data. The secondary are those
which have already been collected by someone else and which have already been through
statically. The method of collecting secondary data is published sources and unpublished
source.

TOOLS USED

o Ratio analysis
o Trend analysis
o Common size balance sheet
o Comparative balance sheet

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1.6 LIMITATIONS OF THE STUDY
The study is subjected to the following limitations:
 The main focus of the study is the size and adequacy of current assets, which is
difficult to determine.
 The study is limited to a period of six years.
 The study is based on the influence of personal judgement.
 Analysis and implementation are made based on figures given in annual report.

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1.7 CHAPTER SCHEME
This project consists of five chapters like the following
CHAPTER I: Chapter one deals with introduction to about the study, Statement of the
problem, Scope of the study, Objectives of the study, Research
Methodology, Research Design, Period of Study, Statistical Tools Used
and Limitations of the study.
CHAPTER II: Chapter two deals with review of literature
CHAPTER III: Chapter three Includes profile of the company
CHPATER IV: Chapter four deals with data analysis and interpretation through
representation of various tables, graphs and pie chart.
CHAPTER V: Chapter five deals with findings, suggestion and conclusion,
bibliography and appendix.

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 CHAPTER 2

2.1 REVIEW OF LITRARURE

Siddiquee and Khan1 (2000) in his study entitled “Indian Paper Industry: Heading for a
Bright Future” has analyzed the causes of low capacity utilization during the 1970s. He
observes that the major problem which causes the relatively low capacity utilization include
the shortage of raw materials, inadequate supply of power, coal and transport bottlenecks. He
has also observed that the capacity utilization in paper industry is influenced by several
factors.

Sen and Oruc2 (2000) in their study entitled, “Financial Ratio Analysis and Statistics”
enlightened that the coefficient of variation in the study period had a wide gap varying
between 7.1 per cent and 51.3 per cent for current ratio and ratio of fixed assets to sales. The
correlation of components of short term liquidity ratio generally possesses low correlation as
against long term solvency ratio components but the components of both ratios independently
possess quite satisfactory correlation in cotton textile industry. The profitability ratio
elements in the industry also have quite high correlation in cotton industry as compared to
synthetic industry.

Ramachandran and janakiramam3 (2001) in his article entitled “ Education and

Environment Contribution of the Paper Industry” has reported that the growth of the paper
industry was impressive and that the annual growth rate over the period 1951-1986 was 8.7
per cent for capacity and that of production, 7.4 per cent. He has observed that the overall
capacity utilization had been declined from ninety six per cent in 1951 to sixty per cent in
1986. He has also observed that the capacity utilization was not in accordance with the
growth of capacity of the paper industry.

Ganeshan4 (2002) in his article entitled “Paper and Paper Board” has examined the capacity
utilization of the Indian Paper Industry during the two decades. He has observed that the
capacity utilization declined very sharply from823 per cent to 66.4 per cent during the first
decade and to 60.41 per cent during the second decade of the study. He has further found the
installed capacity was increased to 28.51 lakh tonnes per annum during the year 1988 as
against the installed capacity of 9.54 lakh tones in the year 1971. The production of paper and

10
paper boards was also increased in a similar manner as from 7.75 lakh tones to 17.20 lakh
tones during the same period. Thus, it is noted that the capacity utilization of the paper
industry has an inverse relationship with the installed capacity and production.

Noreen, khan and Abbas5 (2002) in their study, “Paper Industry: An appraisal” pointed out
that the paper industry is a highly capital intensive industry. Due to steady rise in the cost of
inputs, heavy overheads, paucity of power and adverse impact of control orders over the
industry, this industry has been unable to function vigorously. They have selected some of the
important companies for the analysis during the period 1980-81 to 1985-86. The statistical
analysis shows that the profitability of these companies during the period under review is not
satisfactory. The profitability of these companies has been hampered because of controls over
prices and production of printing paper. The study concluded that the control over price and
production of printing paper should be removed.

Sayaduz zaman6 (2003) conducted a study among seven paper companies in India to
“Analyze the basic components of Working Capital”. The study revealed that the current ratio
in public sector undertakings during the study period was found to be highly erratic while the
same in private sector undertakings registered continuous decrease. As far as the inventory
was concerned, the study revealed that it was highly unplanned in public sector undertaking
units when compared to private sector units. The study contributed much in terms of realizing
the importance of effective management of working capital.

Michalski7 (2003) in their study entitled “Financial Performance in Paper Industry- A Case
Study” stated that the financial position of the company had been improving from year to
year. The company’s performance in relation to generating internal funds in the form of
reserves and surplus was excellent and also was doing well in mobilizing outside funds. The
liquidity position of the company was sound as it was revealed by current and liquid ratios
which were above the standard. The solvency ratios showed that the company had been
following the policy of low capital gearing from 1990-91 as these ratios had been decreasing
from this year. The performance of the company in relation to its profitability was not up to
the expected level. The company’s ability to utilize assets for generation of sales had not been
improved much during the study period as it was revealed by its turnover ratios.

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Smmers and wilson8 (2004) in his study entitled “Working Capital Management through
Financial Statements: Analysis of Paper Industry in West Bengal” found that most of the
firms were suffering from shortage of working capital. One of the primary causes of such
shortage of working capital was that most of the firms under study were not capable of
earning adequate profit and were also suffering from losses. The expansion of fixed asserts
also caused the working capital crisis. The utilization of fund had not been covered by
sufficient amount of fund by way of long-term investment.

Pike and cheng9 (2004) this study examines changes in “Operating Performance among Real
Estate Investment Trusts” following an Initial Public Offering (IPO). The purpose is to
determine whether there is an enhancement in the value of the underlying asset that is related
to the IPO. They analyze equity, mortgage and diversified REITs separately. They also
compare the operating performance of recent IPOs to those of earlier years to address the
impact of the 1993 Revenue Reconciliation Act on institutional investors‟ demand for REIT
stock. Unlike previous analyses of industrial firms, REITs were found to have significant
increases in return on Assets and selected measures of financial performance. The post-IPO
cumulative stock price decline and recovery is illustrated.

Raman and kim10 (2005) has made an attempt on “Financial Analysis of Companies in
Criteria: A Profitability and efficiency focus” one of the objectives of the study is to analyze
the liquidity position of the companies and to point out the factors responsible for such a
position. It is concluded that the liquidity position was quite alarming since these are facing
chronic liquidity problems. Their proportion current assets in relation to the current liabilities
are very low. It is suggested that, they may be improved by reducing excessive burden of
current liabilities or increasing the level of current assets depending upon the requirements.

Bhattacharya11 (2005)“Working Capital Management of Paper Mills in Bangladesh-An

Overall View” concluded that all the units of the paper industry had failed to manage their
working capital requirements properly. The reasons for working capital crisis were improper
use of short-term funds, operating losses, over stocking to stores and spares; and non-
availability of raw- materials.

Natarajan sundar12 (2005) analyses the link between market orientation and performance
has been claimed largely on the basis of the analysis of subjective measures of performance.

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Consequently, the aim of this study is to examine the links between market orientation and
objectively measured financial performance. The paper begins with a brief examination of the
definition and components of market orientation. Thereafter, extant research into the
consequences of developing market orientation is reviewed critically, leading to the
development of a number of research hypotheses. After detailing the research design and
methodology adopted in this study, the findings of a survey of UK industry are presented.
Briefly, the results indicate that when subjective measures of performance are adopted,
market orientation is associated with company performance in certain environmental
conditions. However, when objective measures of performance are adopted, there is a
narrower range of environmental conditions where market orientation is positively associated
with performance. The paper concludes with a series of implications for both theorists and
practitioners.

Kaveri v.s13 (2005) found that the asset composition is to be significantly negatively related
with total Debt equity and long term dept equity in cement industries. Value of the assets and
life of the company were significantly positively related to total debt equity. Life of the
company was significantly positively related with long term debt equity in cement industries.
The regression coefficient of collateral value of assets was significant at 10 per cent level and
was positively associated with total debt equity.

Rao k.v and Rao chinta14 (2006) examine the financial and operating performance of thirty
one national telecommunication companies in twenty five countries that were fully or
partially privatized through public share offering. Using conventional pre-versus post-
privatization comparisons and panel data estimation techniques, they find that the financial
and operating performance of telecommunications companies improves significantly after
privatization, but that a sizable fraction of the observed improvement results from regulatory
changes-alone or in combination with major ownership changes-rather than from
privatization alone.

Hossain saiyed zabid15 (2006) in his article titled “A Simplified Model for Liquidity
Analysis of Paper Industry” has examined the liquidity of paper industry. The model
developed by him has been based on the assumption that the liquidity management of a
company in a particular year is effective if its‟ earnings before depreciation is positive and

13
not effective if its‟ earnings before depreciation is negative. The findings have revealed a
very high predictive ability of the estimated discriminant function.

Ahmed habib16 (2006) Ratio analysis is a commonly used analytical tool for verifying the
performance of a firm. While ratios are easy to compute, which in part explains their wide
appeal, their interpretation is problematic, especially when two or more ratios provide
conflicting signals. Indeed, ratio analysis is often criticized on the grounds of subjectivity that
is the analyst must pick and choose ratios in order to assess the overall performance of a firm.
In this paper they demonstrate that Data Envelopment Analysis (DEA) can augment the
traditional ratio analysis. DEA can provide a consistent and reliable measure of managerial or
operational efficiency of a firm. They test the null hypothesis that there is no relationship
between DEA and traditional accounting ratios as measures of performance of a firm. Their
results reject the null hypothesis indicating that DEA can provide information to analysts that
is additional to that provided by traditional ratio analysis. They also apply DEA to the oil and
gas industry to demonstrate.

Singaravel.p17 (2007) made “A Study of the Financial Performance with Reference to Steel
Industries Kerala Ltd”. This study covered from 1977-1998 to 2001-2002. The objectives of
the study was to analyze and evaluate the working capital management, to analyze the
liquidity position of the company, to evaluate the receivables, payables and cash management
and to suggest ways and means to improve the present date of working capital. The major
tools used for the analysis said that the working capital management suggested that the
inventory management have to be corrected.

PathaniakulwantSingh18 (2007) under took a study on “Financial Performance of Paper

Industry in Andhra Pradesh” for the period from 1989-90 to 1998-99. The primary objective
of the study was to analyze the investment pattern and utilization of fixed assets, ascertaining
the working capital condition, reviewing the profitability performance and suggesting
measures to improve the profitability. He concluded that the introduction of additional funds
along with restructuring of finances and modernization of technology were needed for better
operating performance.

Rao Govinda19 (2007) undertook a study entitled “Status and Growth of Paper and Pulp
Board Industry in North India – A Case study”. The study has revealed that due to the

14
availability of raw materials and labour, eighty per cent of the mills are running with the
optimum capacity utilization. The authors have observed that more than three thousand
people have got employment in ten paper and paper board mills with proportion of thousand
eight hundred skilled workers and thousand two hundred unskilled labours. The authors have
found out that the major problem faced by the industry is frequent breakdown of paper
production especially during the summer season due to scarcity of power supply.

Yadav Surendra S.20 (2008)“The Financial and Operating Performance of Privatization

Companies in Turkish Cement Industry”. This paper examines the post- privatization
performance of privatized companies in the Turkish cement industry. The findings indicate
that, when performance criteria for both the state and private enterprises are considered,
privatization in the cement industry results in significant performance deterioration. Total
value added and the return on investment declines significant after privatization. This
decrease mainly stems from deterioration in asset productivity. The decline in asset
productivity, however, is not caused by an increase in capital investment, since post-
privatization capital investment did not change significantly. Significant contraction in total
employment and an increase in financial leverage after privatization are among the key
research findings. Privatization through public offering, gradual privatization and domestic
ownership are found to stimulate the financial and operating performance of firms.

Sarawat b.p21 (2008) in their paper examine the financial performance of the acquiring firm
after the acquisition, using statistical analysis of industry- adjusted variables. Their findings
show that following: the acquisition, the profitability, the solvency and the liquidity of most
of the combined companies decline. This decline is also reflected in the failure prediction
scores. With respect to the added value, acquisitions are found to be accompanied by
increases in the labour productivity, but this is caused by the general improvement of gross
added value per employee of Belgian companies in the last ten years. So, it seems that,
contrary to the general expectations and beliefs, acquisitions usually do not seem to improve
the acquirer's financial performance.

Westhead paul22 (2009) Examined the internal funds availability for financing fixed assets in
paper industry in Andhra Pradesh. The study found that the owner funds were insufficient to
finance fixed assets and observed that fixed assets did not have significant relationship with
the sales.

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Warren and shelton23 (2009) investigated the impact of working capital management
policies on the corporate performance of the India consumer electronics industry. They noted
that inventory holding period, debtors‟ collection period and net working capital cycle had
negative relationship on the profitability of firms. Whereas, the average payment periods
positive correlation with profitability.

Cohn and pringle24 (2009) studied the performance appraisal might be said that the adoption
of liberalization measure and above suggestions would doubtlessly help the Indian chemical
industry to improve their performance individually and other industry as a whole. This study
also suggests that the policy of liberalization should further be strengthened. Thus, the
dreams of our planners to accelerate the economic growth in the country are still possible to
be translated into reality

Hilton25 (2010) showed that there was a statistically significant relationship between measure
of liquidity and selected measures of profitability, efficiency and indebtedness in Nigerian
quoted manufacturing companies. The impact of one per cent increase in average liquidity
measures produces a more significant increase in average profitability (21.9 per cent),
efficiency (16.1 per cent) and indebtedness (16.6 per cent).

Lovell26 (2010) deals with the “Performance of Indian Cement Industry - The Competitive
Landscape”. The Cement Industry is experiencing a boom on account of the overall growth
of the Indian Economy primarily because of increased industrial activity, and expanding
investment in the cement sector. The industry experienced a complete shift in the technology
of production. The competitiveness among the firms in Indian Cement Industry has also been
evaluated for the year 2006-2007, out of seventeen firms (90.21 per cent of the total market
share), about 47 per cent have been recorded, above industry average performance in the
overall competitiveness index.

Abramovitz27 (2010) analyzed the relationship between working capital management

efficiency and earnings before interest and tax of the paper industries in India. The study
revealed that cash conversion cycle and inventory days had negative correlation with
earningsbefore interest and tax. While accounts payable days and accounts receivable days
related positively with earnings before interest and tax.

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Modigliani28 (2010) reported the “Relation between Corporate Social and Financial
Performance”. One of the older questions in the debate about Corporate Social Responsibility
(CSR) is whether it is worthwhile for organizations to pay attention to societal demands. This
debate was emotionally, normatively, and ideologically loaded. Up to the present, this
question has been an important trigger for empirical research in CSR. However, the answer to
the question has apparently not been found yet, at least that is what many researchers state.
This apparent ambivalence in CSR consequences invites a literature study that can clarify the
debate and allow for the drawing of conclusions. The results of the literature study performed
here reveal that there is indeed a clear empirical evidence for a positive correlation between
corporate social and financial performance. Voices that state the opposite refer to out-dated
material. Since the beginnings of the CSR debate, societies have changed. It can therefore
clearly state that, for the present Western society, “Good Ethics is Good Business.”

Appavadhanualu29 (2011) reported that Financial flows are often frosted in a fragmented
and discounted way from the physical product flow. Managers‟ false division from an
operational point of view concerning inventory, service level of capacity needs. The
implementation of such division influences predictability and boost company performance.

Chakraborty30 (2011) examined the effect of a firm's relationship with its non-financial
stakeholders, including its employees, suppliers, customers, and communities, on the
persistence of both superior and inferior financial performance. In particular, integrating and
extending the resource-based view of the firm and stakeholder management literatures,
develops the arguments that good stakeholder relations not only enable a firm with superior
financial performance to sustain its competitive advantage for a longer period of time, but
more importantly, also help poorly performing firms to recover from disadvantageous
positions more quickly. The arguments are supported by the analysis of a series of first-order
autoregressive models. The findings further suggest that the positive effect of good
stakeholder relations on the persistence of superior performance is not as strong as that of
some other firm resources, such as technological knowledge, but it is the only factor
examined that promises to help a firm to recover from inferior performance. Therefore, the
role of positive stakeholder relations in helping poorly performing firms recover is found to
be more critical than its role in helping superior firms sustain their performance advantage.

17
Misra31 (2012) observed that the factors determinant of Capital Structure - Experience of
Indian Cotton Textile Industry. This study has two objectives: First, to identify important
determinants of capital structure and secondly to test for the applicability of trade-off and
pecking order theories based on sample data drawn from the Indian Cotton Textile Industry
for the five year period 2003-04 to 2007-08. Multiple Regression Analysis and Step-wise
regression analysis have been carried out taking total debt to equity ratio as the dependent
variable. Profitability, growth opportunities, liquidity and business risk turned out to be the
most important determinants, followed by non-debt tax shield and uniqueness. Only firm size
and asset structure, two of the eight explanatory variables of the study, were not found to be
significant even at ten per cent level. On the basis of the signs of the regression coefficients
trade-off theory has been found to be applicable, rather than pecking order theory, a position
upheld by other empirical research works in the area.

Agrawal32 (2012) stated that the Indian Textile industry occupies an important place in the
economy of the country because of its contribution to the industrial output, employment
generation and foreign exchange earnings. One of the earliest to come into existence in India,
it accounts for 14 per cent of the total Industrial production, contributes to nearly 30 per cent
of the total exports and is the second largest employment generator after agriculture. Profit
earning is the aim of business. In the course of analysis of this study various Statistical
techniques have been made. The Statistical techniques used are correlation, t-test, and
Multiple Regression analysis to find out the relationship between the variable and to identify
the factor influencing the profitability. Based on the analysis net sales and net profit have
some relationship and working capital management was a highly influencing factor to find
out profitability of selected textile companies in Coimbatore district. Companies must
concentrate with other influencing factor for better profit of the company.

Vijaykumar33 (2012) has undertaken an analysis of financial performance of pharmaceutical

companies to understand how management of finance plays a crucial role in the growth. The
study covers to public sector drug & pharmaceutical enterprises listed on Bombay Stock
Exchange (BSE). The study has been undertaken for the period of twelve year from 1997-98
to 2008-09. In order to analysis financial performance in terms of liquidity, solvency,
profitability and financial efficiency, various accounting ratios have been used. Statistical
measures namely Liner Multiple Regression Analysis and Test of Hypothesis – t test has been
used.

18
Venkatachanlam34 (2013) in his study “A Comparison of Financial Performance of Major
Gujarat Pharma” players through value added and economic value added”. The purpose of
this study is to classify major Gujarat pharmacy players in cohesive categories on the basis of
their financial characteristic revealed by the financial statements. The study also revealed that
economic value added has also positive correlation with firm size, funds of proprietors, and
funds of money lenders and have significant impact on economic value added
Krishnamurthy and sastry’s35 (2013) focuses on the financial performance measures of
business group companies of India non-metallic mineral products industries. The study uses
financial data of fifty seven business group companies of Indian non-metallic mineral
products industries namely cement, glass, gems & jewellery, refractories, ceramic tiles, over
a period of ten years (1999-2008) and examines the firm’s financial performance using
performance measures through Operating Profit and Return on net worth, the size, Leverage,
Working Capital Ratio and Age of the firm are included as determinants of firm performance.
Non-metallic mineral product categories consist of important industries of the manufacturing
sector (which contributes almost fifteen per cent to the GDP) and three- four per cent to the
GDP.

Vinod prakash36 (2013) reported that “Financial Performance Evaluation - A Comparative

Study of Some Selected NBFCs”. In this study, five listed NBFCs in that period.

R.N. Agarwal37 (2014) studies the determination of capital structure choice of the selected
Indian industries. The main objective is to investigate whether and to what extent the main
structure theories can explain the capital structure choice of Indian firms. It has applied
multiple regression models on the selected industries by taking data for the period 2001-2008.
It examines the relevance of capital structure in selected Indian industries based on a
regression analysis and data study. It concludes that the main variables determining capital
structure of industries in India are agency cost, assets structure, non-debt tax shield and size.
The coefficients of these variables are significant at one per cent and five per cent levels.

N.C.Gupta38 (2014) in their article entitled “Inventory Management of Commercial Vehicle

Industry in India” reported that the overall analysis of inventory management of all units in
the Indian commercial vehicle industry is very good. Among the firms in the commercial
vehicle industry TML occupies the first place in the management of inventory. It is evidently
proved through strong correlation between inventory and sales. FML‟s average growth rate

19
of sales has been more than the growth rate of inventory which indicates that very good
administration of inventory. The study concluded that the proper management of inventory is
important to maintain and improve the health of an organization. Efficient management of
inventories will improve the profitability of the organization.
Seamy and Rao39 (2014) in their study entitled “Performance Analysis of Manufacturing
Companies in Pakistan” stated that the main objective is to examine the performance of
fourteen manufacturing companies in Pakistan using financial accounting ratios. The study
suggested as ENGRO being the largest company by total assets over three years (2006, 2007,
2008) spent more, making low sales, having less PBT and ROA than the other thirteen
smaller companies: FCC being second largest company by assets it shows high sales, high
PBT and ROA during the five year period. On the other hand, NRL being the fourth largest
company by total assets shows highest sales in five years, lowest expenditures in 2010 as
compared to other thirteen listed companies but it has decreasing PBT and ROA during the
period under investigation. Finally, they concluded that in highlighted companies incurred
higher Expenses as a result of Expense Preference Behaviour Theory and low productivity
growth.
Adesh sharma40 (2015) in his study “Trends in Liquidity Management and Their Impact on
Profitability: A Case Study”. Made an attempt to observe the trend values of liquidity
position of the company and study the correlation between liquidity and profitability. An
attempt has also been made to establish the linear relationship between liquidity and
profitability with the help of a multiple regression model. The study used various statistical
tests viz. t-test, F-test and Durbin-Watson test and has been applied in order to test the
significance of the results obtained. He concluded that the selected company always tries to
maintain adequate amount of net working capital in relation to current liabilities so as to keep
a good amount of liquidity throughout the study period.
Khanqah41 (2015) in their study investigated the relationship between the management
efficiency and the firms profitability for a sample of thirteen auto manufacturing companies
listed on the Bombay Stock Exchange. The analysis is carried out using Minitab 14 and
conducting Pearson Coefficient correlation test on variables of the study including Gross
Profit Ratio and Assets Turnover Ratio. The central conclusion of the study is that
profitability and management efficiency are highly correlated to each other and based on the
results of the study recommendations for improving the management efficiency and
profitability in this industry are suggested.

20
Sanger42 (2015) in their article titled “Liquidity Management and Corporate Profitability:
Case Study of Selected Manufacturing Companies Listed on The Nigerian Stock Exchange”
an attempt is made to measures the relationship between liquidity management and corporate
profitability using data from selected manufacturing companies quoted on the floor of the
Nigerian Stock Exchange. The result of the study was obtained using descriptive analysis and
the finding shows that liquidity management measured in terms of the companies Credit
Policies, Cash Flow Management and Cash Conversion Cycle has significant impact on
corporate profitability. They found that managers can increase profitability by adopting good
credit policy, short cash conversion cycle and effective cash flow management procedures.
Ashraf43 (2016) in their study dealt with the evaluation of earning power, analysis of
operating efficiency, analysis of financial efficiency and measurement of financial health of
Dairy Industry in Andhra Pradesh using Z score analysis. The financial health of Amrit Corp
Limited, GSKCH Limited, Heritage Foods India Limited and NDDB differs and these
companies fall under too healthy zone. The financial health of Ravi Leela Dairy Products
Limited is in danger and the unit is considered to be in bankruptcy zone. Its failure is certain
and it would occur probably within a period of two years.
Eljelly44 (2016) evaluate the profitability and financial position of selected cement companies
in India through various financial ratio and applied correlation, mean, standard deviation and
variance. The study uses liquidity and profitability ratios for assessment of impact of liquidity
ratios on profitability performance of selected cement companies.

Mohanmmadi45 (2016) in their study examined the relationship between working capital
management and profitability for listed companies on Tehran stock exchange. Hundrden forty
seven companies were selected for the period of 2005-2009. The effect of various variables
of working capital management including cash conversion cycle, the current ratio, current
asset to total asset ratio, current liabilities to total asset ratio and debt to total asset ratio on
return on assets and return on equity are studied. Multivariate regression and Pearson
correlation are used to test the hypothesis. The results of the statistical test of the hypothesis
show a negative significant relationship exist between cash conversion cycle and return on
assets and cash conversion cycle and return on equity. However, the relationship between
current ratio and return on equity is insignificant.

Padachi46 (2016) in their study entitled “An Empirical Analysis on Financial Performance of
Public Sector Housing Corporation in India: A Case Study of HUDCO”, stated that the main

21
concept of their study is Profitability and liquidity management is of crucial importance in
financial management decision. The most favourable financial performance could be
achieved by a company that can trade-off between profitability and liquidity performance
indicators. The purpose of this study is to find out the financial position of and know the
significance of them. Descriptive statistics discloses that performance of the selected unit in
terms of liquidity, solvency and profitability position is very satisfactory and relatively
efficient financial position is found in all the cases. They suggested that both the institutions
under the study should concentrate on financial profitability, especially unexplained variables
in purpose of creating shareholders‟ wealth.

Kithii47 (2017) conducted a study on “Profitability of Indian Banks – A Comparative Study

of SBI and HDFC”. The study revealed that the various profitability ratios of two banks as
the measure of profitability. The common denominator used for developing the various
profitability ratios is business volume (deposits plus advances). The study analyses the
published five-year data from 2007-08 onwards for the two largest banks, i.e., SBI- the
largest public sector bank and HDFC- the largest private sector bank. The comparative
analysis of the profitability of the two banks clearly reveals that there is a large difference
between the profitability of the two banks. HDFC‟s profitability is more than that of SBI.

Keynes48 (2017) in their study related to “Analyzing the Financial Performance of Selected
Indian Automobile Companies”, suggested that the financial performance of Actual Auto
Ltd, Ashok Leyland, HMT Ltd, Tata Motors Ltd, and SML ISUZU Ltd are highly improved
as compared to the group average value for all ratios. In India there is a huge scope for
automobile companies. They are financially strong and they are growing at the rate of 17 per
cent per annum and contributing to the Indian economy reasonably. Finally, the study
provides companies with understanding of the activities that would enhance their financial
performances. The results of this study imply that it might be necessary for all companies to
take all required decisions to enhance their financial position.

Mathuva49 (2017) in his study “A Study on Financial Status of TATA Motors Ltd” stated the
main objectives to analysing the overall financial status of the TATA Motors Ltd by using
various financial tools. In order to analyze financial status in terms of Profitability, Solvency,
Activity and Financial stability various accounting ratios have been used. It is cleared from
the study that the company’s financial performance is satisfactory. The company has stable

22
growth and it shows a greater status in all the areas it works. The company has been
suggested to reduce the expenditure as it increases every year. Decrease in expenses will
increase the profitability.

Lamberson50 (2017) main objectives of their study is known about the financial health of the
steel industries and to analyze and compare the financial performances of NSE listed steel
industries based on ratio analysis and „Z‟Score (Altman/s model). They suggested that the
companies‟ try to increase production and sales get maximize profit to strengthen financial
position of the NSE listed companies. The management may utilize maximum production
capacity and reduce interest burden increase profit. The policy of borrowed financing in
selected steel group of companies under study was not proper. So the companies may use
widely borrowed funds and can try to reduce the fixed charges burden gradually by
decreasing borrowed funds and enhancing the owner’s fund.
They concluded that the companies might enlarge their equity share capital by issuing new
equity shares. For regular supply of raw materials and the final product infrastructure
facilities are required further improvement.

23
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Paper Industry in Andhra Pradesh – A Study”, the Management Accountant,
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liberalization, Finance India”, Volume 22, No.3, , Pp.571-580.
25. Hilton, “Liquidity performance relationship in Nigerian manufacturing companies ”,
Finance India, Volume II, Issue 3, , Pp.117-131.
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Journal of Finance, Volume. 39, No.1, , Pp.127-145.
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29. Appavadhanulu, “Interrelating operational and financial performance measurement in
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Companies: A study of Indian Non-Metallic Mineral Products Industries”, Journal of
Business Strategy, Volume -7, Issue-4, Pp.45-53.
36. Vinod Prakash ,“Financial Performance Evaluation-A Comparative Study of some
selected NBFCs”, Indian Journal of Finance, Pp.13-22.
37. Seamy and Rao, “Determinants of capital structure of Indian industries”, Journal of
Accounting and Finance, Volume 25, No.1, Pp.32-40.
38. R.N.Agarwal. "Inventory management of commercial vehicle industry in India”,
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pp.56 – 62.
39. N.C.Gupta, “Performance Analysis of Manufacturing Companies in Pakistan”,
Business Management Dynamics, Volume.1, No.7, Pp.12-21.
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Case Study”, Great Lakes Herald Volume 6, No. 1, Pp. 16-30.
41. Khanqah, “Management Efficiency and Profitability in Indian Automobile Industry:
From Theory to Practice”, Indian Journal of Science and Technology, Volume. 5 No.
5, Pp.2779 -2781.

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42. Sanger, “Liquidity Management and Corporate Profitability: Case Study of Selected
Manufacturing Companies Listed on the Nigerian Stock Exchange” Business
Management Dynamics, Volume.2, No.2, Pp.10-25.
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Z Score Analysis”, International Journal of Marketing, Financial Services &
Management Research, Volume.1, Issue 12, ISSN 2277 3622, Pp.54-61.

44. Eijelly, “Profitability and Financial Performance: A Study on Selected Cement

Companies in India”, International Journal of Business and Management Tomorrow,
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profitability of listed companies in Tehran stock exchange”, Business Management
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Corporation in India: A Case Study of HUDCO”. International Journal of Research in
Commerce& Management, Volume No. 4, Issue No. 02, Pp. 76-80.
47. Kithii, “Profitability of Indian Banks – A Comparative Study of SBI and HDFC”.
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48. Keynes, “Analysing the Financial Performance of Selected Indian Automobile
Companies”. Global Research Analysis, Volume: 2, Issue 4, Pp 18-20.
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Applied Research, Volume 3, Issue 4, Pp.320-322.
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International Journal of Scientific Research, Volume2, Issue No.9, Pp. 46-48.

27
 CHAPTER 3

PROFILE OF THE COMPANY

LAKSHMI MACHINE WORK LIMITED

LMW, founded in the year 1962, is today a global player and one among the three
manufactures of the entire range to Textile machinery. History stands as a documented proof
of LMW’s corporate and financial success reflecting phenomenal growth since first year of
operations. LMW has 60 per cent market share in the domestic textile spinning machinery
industry.
LMW diversified into CNC machine tool and is a brand leader in manufacturing
customized products. LMW foundry makes precision castings for industries the world over.
The only company in Asia outside Europe to manufacture OE production for micron of
Switzerland. LMW’s global presence has grown over the years, with a market presence not
only in developing countries, but also in Europe. LMW has won the export award in textile
machine exports for the past several years.

MISSION
To deliver greater value to our customers by providing complete, competitive
solutions through technological leadership, manufacturing excellence and dynamic
responsiveness to market needs.

VISION
To enhance customer satisfaction and our image globally, achieve exponential growth
and attain leadership through world-class products and services.

VALUES
 Excellence
 Integrity
 Learning and sharing
 Contribution to industry and society
 Responsiveness to market needs.

28
BUILDING BUSINESSES
Founded in 1962, LMW is today a global player and one among the few manufactures
to provide the entire range of spinning machinery. The company diversified into CNC
machine tools and is one of the leading manufactures of customised products. LMW’s
foundry makes precision castings that cater to diverse industries. In 2009, the company
leveraged its engineering expertise to develop components for the highly-complex aerospace
sector. Headquartered in Coimbatore (India), the company’s business is divided inti four
business verticals- textile machinery, machine tools, castings and aerospace. The company’s
share are listed on the Bombay and national stock exchanges in India.

TEXTILE MACHINERY BUSINESS

Today’s customer expects significantly higher value from the label than the value
printed on the label; a simple change that has transformed business realities across the textile
value chain, especially challenging the sustainability of players at the bottom of the chain

MACHINE TOOL BUSINESS

The growing need to capture customer attention has forced players to tread the
innovation path that have made products, assemblies and components increasingly complex;
a desire that transformed equipment expectation- making complex the new norm.

FOUNDRY BUSINESS
The globe is fast awakening to the lasting perils arising out of rapid industrialisation;
the growing urgency to save the world for a better and brighter tomorrow has resulted in an
interesting mind set alteration namely ‘while strategy is paramount, sustainability is
intrinsic’; ‘results are crucial but responsibility is cardinal’.

ADVANCED TECHNOLOGY CENTRE

The government articulated its vision of strengthening India’s respect as a global
manufacturing hub through its clarion call ‘make in India’; a dream that has positioned India
as an attractive manufacturing hub for corporates across the globe aspiring to be global
conglomerates.

29
MANAGEMENT DISCUSSION AND ANALYSIS
Global economy GDP growth fell short of expectations in 2016, slowing marginally
to 3.1 per cent year-on year, as deceleration in key emerging and developing economies
overshadowed a modest recovery in major developed countries. This deceleration was
accompanied by modest increase in commodity prices, subdued global trade, bouts of
financial market volatility, and weakening capital flows global industries production (IP)
growth slowed to 1.5per cent year- on year in 2016, after growing by 1.8per cent in 2015. IP
inn organisation for economic co-operation and development (“OECD”) countries eased to
just 0.3per cent year-on-year in 2016, after growing by 0.8 per cent in 2015. Challenges:
recent political developments highlight a fraying consensus about the benefits of cross-border
economic integration. A potential widening of global imbalances coupled with sharp
exchange rate movements, should those occur in response to major policy shifts, could
further intensify protectionist pressures. Increased restrictions on global trade and migration
would hurt productivity and incomes, and take immediate toll on market sentiment. Outlook:
global economy is projected to grow at 3.4per cent during CY 2017 unlike 3.1per cent
growth in CY 2016. The advanced economies are forecast to grow at 1.9% while emerging
and developing economies are expected to grow at 4.5 per cent in 2016. Economic growth to
the US is projected to improve to 2.3 per cent with growing focus on nationalism and
protectionism. China is projected to witness a sustained and robust economic growth of
6.5per cent in 2017- on expectations of continuous policy support. Moreover, most of the
corporates in emerging markets have already been exposed to high corporate debt, declining
profitability and weak bank balance sheets- which could impact global trade and investment
and result to tighter global financial conditions and reversal of capital flows.

CURRENT ASSET MANAGEMENT

Current assets refer to those assets that can be converted into cash within a short
period of time. The main types of current assets are cash, debtors, inventories etc. efficient
and effective management of current assets determines the profitability and liquidity position
of the company. Current assets management can hence be studied under three heads:
1. Cash management
2. Receivables management
3. Inventory management

30
Cash management
Cash is an important component of current assets. It is a common denominator to
which all current assets can be reduced.

Motives
1. Transaction motive
2. Precautionary motive
3. Speculative motive
4. Compensative motive

Objectives of cash management

1. To meet the payment
2. To minimize funds committed to cash balance

Receivables management
It is another important component of current asset. It involves analysis of the following:
1. Credit policy
2. Credit terms
3. Collection policies

The term receivable are defined as ‘debt owed to the firm by customers arising from
sale of goods or services in the ordinary course of business.’

The objective of receivables management is to promote sales and profits until that point is
reached where the returns on investment in further by receivable is less than the cost of funds
raised to finance that additional credits.

Features
1. Involves risk
2. Based on economic value
3. Implies futurity

31
Inventory management
Inventories constitute the most significant part of current asset of a large majority of
companies in India. Larger the size of the inventories more the funds invested in them.
Inefficient and ineffective management of inventories will cause failure in the long-term
profitability of the concern.

Objectives
1. To reduce the firm’s investment in the inventory.
2. Efficient organizing the firm’s production and sales operation in order to meet
the demands.
Factors influencing inventory management
1. Lead-time
2. Quantity discount
3. Obsolete inventory and scarp
4. Service level
5. Material planning
6. Cost of holding inventory
7. Re-order point
8. Stocks
9. Variety reduction
Cash management
Cash is one of the current assets of a business. It is needed at all times to keep the
business going. A business concern should always keep sufficient cash for meeting its
obligations. Any shortage of cash will hamper the operations of a concern and any excess of
it will be unproductive.

Receivables management
Receivables result from credit sales. A concern is required to allow credit sales in
order to expand its sale volume. It’s not always possible to sell goods on cash basis only.
Sometimes, other concerns in that line might have established a practice of selling goods on
credit basis. Under these circumstances, it is not possible to avoid credit sales without
adversely affecting sales. The increase in sales is also essential to increase profitability.

32
Inventory management
Every enterprise need inventory for smooth running of its activities. It serves as a link
between production and distribution processes. There is generally, a time lag between the
recognition of a need and its fulfilment. The greater the time lag, the higher the requirement
for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the
need for inventory. It also provides a cushion for future price fluctuations.

The investment in inventories constitutes the most significant part of current assets
in most of the undertakings. Thus, it is very essential to have proper control and management
is to ensure the availability of materials in sufficient quantity as and when required and also
to minimize investment in inventories.

OTHER INFORMATION
Employees' Capability of Decision Making
Managers working for a firm make decisions which determine the cost and benefit of
available resources. It is important to understand that people employed by a firm are capable
in making profitable decisions. Key business managers have to be trained and skilled when
making use of economic resources. The business orientation, personal psychology,
background, experiences in life, and sense of ownership with the business interact at
workplace while they make decisions.

Payables Management
There is considerate understanding between practitioners of payables management
that delaying payables is a good strategy to maximize value of the firm. There is negligible
research on the topic. This form of short term financial management needs more research
attempts.
The author discusses the repercussions of tying such huge amounts, had they been
placed in other productive uses, it would generate larger benefits to all parties. The example
of Toyota is quoted who developed a “lean” value system as described by the author “These
systems, as so much else, were developed by Toyota and others in Japan over a period of 20-
30 years. They entail tightly controlled, prevention based processes; no duplication of effort
or capability; shared continuous improvement; and more technical (and more relevant)
aspects such as extensive data sharing, EDI, paperless ordering and delivery systems,
automatic payment techniques, etc.”

33
Receivables Management
Like payables management little evidence can be quoted for the impact of receivables
management on the overall WCM policies and strategies of a business firms.
The author presents in his conclusions that effective management of trade credit
brings economic value and some industry sectors are better than others in collection to trade
credit. A negative relation is also reported between financial performance and trade collection
period. Firms with better collection mechanisms are found to have better reinvestment
position. It is also found that trade collection period has negative association with company
size and smaller firms take long to clear their bills. The study further reports that larger firms
dictate their smaller counterparts in trade credit relationships.

Profitability
The most important consideration for obtaining efficiency of WCM of a firm is the
issue of profitability the literature has extensively discussed. Therefore, the review on this
factor naturally turns out to be relatively large. Profitability of a business as an internal micro
level factor is the net result of numerous internal strengths and weaknesses of a business
organization. For instance, a typical organization has to convert its strengths into profits and
has to avoid its weaknesses to fade its profits by increasing costs of the business. Profitability
of a manufacturing firm can be attributed to a number of factors, however with respect to
WCM, it has been investigated by many scholars around the world.

Liquidity Needs
Business firms need to have ample liquidity to smoothly perform the business
activities. Scholars have extensively researched this aspect and have reached to different
findings on it. Liquidity is generally known as the ability of a firm to meet its short term
obligations which may be interest or non-interest bearing. Liquidity measures the ability of a
company to fulfil all of its obligations. No firm can operate without liquidity. Profitability is
the rate of return on company’s investment. Liquidity can be increased by investing in current
assets but an unnecessary high investment in short-term assets would reduce profitability.
According to the author “An aggressive strategy finances a firm’s seasonal needs,
and possibly some of its permanent needs, with short-term funds, including trade credit as
well as bank lines of credit or commercial paper. This approach seeks to increase profit by
using as much of the less expensive short-term financing as possible, but increases risk since
the firm operates with minimum net working capital, which could become negative. Another

34
factor contributing to risk is the potential to quickly arrange for long-term funding, which is
generally more difficult to negotiate, to cover shortfalls in seasonal needs.
The conservative strategy finances all expected fund requirements with long-term
funds, while short-term funds are reserved for use in the event of an emergency. This
strategy results in relatively lower profits, since the firm uses more of the expensive long-
term financing and may pay interest on unneeded funds. The conservative approach has less
risk because of the high level of net working capital (i.e., liquidity) which is maintained; the
firm has reserved short-term borrowing power for meeting unexpected fund demands.”
The emphasis on cash conversion cycle is noteworthy and it is viewed that extension
in this cycle is costly for firms as it may tie up current assets. The debate on investment in
current assets extends to the competing objectives of different managers like the financial,
purchasing, marketing, production managers. These managers have their own agenda for
enhancing the firm value. Purchasing managers optimize purchasing decisions through
availability of trade discounts therefore buying in bulk makes sense to them for value
enhancement. Financial managers are interested in keeping inventory levels low so that
financing costs may be reduced.
Marketing managers usually are interested in more finished goods so that firm value
could be enhanced through the offer of sales incentives. For manufacturing managers the
notion of increasing firm value is in the smooth production function where there is no
shortage of raw materials and no shortage in meeting demands of customers. The interplay of
these managerial objectives put unseen pressures on the WCM of a firm. Finally the book
presents different inventory models like the ABC model, the JIT model, the EOQ model, and
the MRP model.

Financing Opportunities and Requirements

During the sugar cane crushing season, the inventory level would be the highest when
the season is in progress. Once season is over and inventory is sold, the working capital level
would be the lowest.” The author further goes on and presents the factors of WCM as
business nature, scale of operations, the sales and demand for a product, production policy
and existing technology, credit policy, credit availability, operating efficiency, seasonality of
business, production competencies, business cycles, price level changes, and working capital
cycle. The author mentions the liquidity profitability trade-off in the following paragraph.
“Both liquidity and profitability do not go together.

35
 Let us see the situation when the firm follows liberal credit policy. More credit sales
require more working capital, as more funds would be tied up in receivables. So, when a firm
follows liberal credit policy, it experiences liquidity crunch. However, it would have higher
profits. When the firm switches to follow stringent credit policy, it would discontinue sales to
those customers who have been taking longer time for payments or their creditworthiness has
become doubtful. Lesser sales ease the problem on liquidity front. As a result, firm would not
have liquidity problems. However, less sales result in lesser profits and profitability problem
commences. So, profitability and liquidity are the two conflicting issues.”
Theoretically speaking, the life of working capital is limited and for many firms it
does not exceed a year, however in practice some level of investment always remain
permanent. This means that to keep business going in the long run some level of investment
remains locked up in unfinished and finished stocks with some materials in process. Almost
every business carries forward these components to the next year financial statements. A
minimum level of current assets is permanent working capital while current assets needed to
take care of fluctuations in business activities is variable working capital. Predicting the level
is easy for permanent working capital while it is a tough challenge in case of variable
working capital.
After critical reviews of literature in Section 2.2 & Section 2.3 that details a number of
factors. This thesis inserts employees’ capability of decision making in addition to liquidity
proxy, debt employment, business performance, growth etc. and formulates the following
hypotheses for different sectors of manufacturing firms in Pakistan

Macro Level Factors – Internal to a sector

Macro level factors are those factors identified by researchers that affect both the
societal and task environment of a business firm. The internal factors are identified as those
factors affecting the task or sector environment for a business firm. They include the
regulatory framework under which a business performs, social responsibility of the firms for
society in general, sector specific competition, or the industries effects like demand supply
forces that affect a specific industry.
Along with the set of internal sector specific factors there are external macroeconomic
forces like the state of the economy in general. When economies are performing better a
number of economic indicators show an upward trend like the Gross Domestic Product,
Foreign Direct & Indirect Investment, Employment figures, Production Indices etc. Poor

36
performing economies affect the cost of doing business and have implications on short term
and long term financial management of business firms.

Industry Effects
An industry remains exposed to shocks like raw material scarcity, technological
changes, regulatory changes etc. There may be sector specific concentration of investment,
ease of discounts etc. Some authors have their findings on industry effects.

Compelling Business Reasons for Firms

Corporations that work at international or national level have to devise a system of
collection from customers in a variety of bank branches, lockboxes, and the concentration of
collected cash to central accounts. Most companies prefer to put idle cash in money market
securities. All sales are not in cash, firms have to make credit. Customer credit is equally
significant as trade credit availed by the selling firm. The accrual based philosophy of selling
makes it essential for business firms to adopt a sound credit policy. The terms of sale
identifies that when goods are to be sold on cash and when on credit. There remains a chance
or probability that customers may not pay their due bills, credit analysis can make companies
aware of such chances. For clearance of due bills business firms also need to have a sound
collection policy.
Economic order quantity is used in determining the optimal amount of credit a
company should offer. For determining this point the carrying costs mean the cash flows that
must be incurred when credit is granted. The opportunity costs (lost sales from refusing
credit) have to be fairly estimated along with demand for credit sales. In a collection policy
receivables have to be routinely monitored. Inventory is the biggest form of current asset a
manufacturing firm manages in routine.
Inventory management influences the overall working capital policy of a firm and the
effectiveness and efficiency of WCM heavily rests on it. Inventory is in different varieties in
a manufacturing business, it may be in raw form, in semi-finished form or in finished form.
Keeping too much inventory than required is again a costly affair for manufacturing
concerns. It is necessary to assess the future demands for products and then to activate
production processes accordingly. Companies that pay heed to managing their inventories
efficiently reap better economic benefits. Keeping a low level of inventory can be very costly
as stock-out costs are associated, there could also be lost sales or lost customers. Firms make
shrewd decisions relating to the ordering or holding of inventories. Manufacturing firms

37
reserve stores both for raw inventory and for finished products. This involves holding cost
that adds to the final costing of a product. There may be efficiency scope in holding costs.
Frequent ordering means more expenses. Business firms devise a most economic order
quantity approach towards lowering the costs and by achieving business objectives. This
could be achieved using the conventional Economic Order Quantity model.

Macro Level Factors – External to a sector

There is a general saying that macroeconomic conditions affect every body.
Businesses decide according to prevailing macroeconomic conditions. When economies are
not performing good businesses act and react differently to opportunities. Similarly a
different approach is adopted by businesses when economies are booming. Very few scholars
seem to have taken a note of this. It is important to know that how short term financial
decisions are taken when macroeconomic indicators show a poor picture of the economy or
vice a versa.

Impact of Inflation on Receivables

In inflationary times more assets tied in receivables means more opportunity cost. It
depends on the invested amount of account receivables. Higher the amount tied up means
higher the cost for the firm with higher risks of losses. Trade credits may not involve interest
in which case the supplier bears the cost. Not only of the interest on the receivable amount
but also of the discounted value realizable after taking the effect of inflation percentage.

Impact of Inflation on Cash Balances

Finally the effect of inflation may affect the management of cash for business firms.
Keeping higher levels of fixed deposits or cash at hand seems costly when its depreciation by
inflation increases day by day or month by month. Under such circumstances it may be
necessary to search for investment opportunities where the net effect may be mitigated by
reaping some interest through employment of idle cash.

Summary of Reviewed Literature

In sum the above literature on linking profitability with WCM show a variety of
approaches aimed at exploring the relationship. Cash conversion cycle has been a favourite
explanatory variable for most of the research studies. Most researchers agree that cash

38
conversion cycle is negatively related to profitability suggesting improving cash conversion
cycle means improving profitability.
Some researchers do not agree and believe on the basis of their findings that higher
cash conversion cycles are good for reaping higher profits. Even there are researchers who
conclude that there is no relationship between cash conversion cycle and profitability and
improvement in one does not bring any improvement in the other. Profitability is a tricky
issue and there is no single measure for it. Different indicators of profitability are generally
used including accounting and economic profit indicators.
The literature reviewed above implies the use of net operating profit, return on assets,
gross operating profit, and return on capital employed, operating profit margin, gross profit,
and gross operating income as main indicators of profitability by contemporary researchers.
The list of explanatory variables used by most research studies include average
receivable (days), average payable (days), average inventory (days), average payable (days)
as important internal micro level factors towards efficient management of WCM.
Researchers have relied upon a number of control variables in their research settings
like fixed financial asset ratio, size of the firm, sales growth, leverage, debt used by a firm
etc. There seems an agreement amongst research findings that speeding receivables, cash and
inventory conversion increase profitability whereas delaying payables is more beneficial.
Some researchers do not agree with delaying payables by firms and are of the view that
optimality should be achieved where business relationships with suppliers do not become a
threat to the business. The reviewed literature do unfolds an interesting debate in the
determining factors of working capital. The determining factors include both internal and
external components.
Researchers have investigated numerous factors in this regard. Internal financing
options, access to capital markets, operating cycle, leverage, operating cash flows, Tobin’s q,
return on assets, proportion of non-executive boards, chief executive’s ownership of shares,
sales force participation, debt ratio, business indicators, performance, ratio of fixed to total
assets, changeable operating conditions, credit & collection experience make a list of internal
micro level factors.
The external micro/macro level factors for a firm that determine WCM includes cost
of financing, level of economic activity, level of industry activity, firm growth, type of
industry, industry practices, industry effects, seasonal implications on sales volume and
supplies. There are some factors identified by literature that can be attributed both to internal
and external categories. Like firm growth depends both on internal and external conditions

39
and their interplay determines WCM. Likewise are higher market share of business, product
image relevant to competition, and size of the firm.
The divergent views of the authors can be conveniently studied in the framework of
following categories. Each category is supported by views of different researchers and
scholars. The following categorization enables us to understand all those important factors
which are identified by authors in different parts of the world which will have to be
investigated especially in their relation to working capital management.

40
 CHAPTER -4
ANALYSIS AND INTERPRETATION

CURRENT RATIO

Current ratio may be defined as the relationship between current assets and current
liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity
and is most likely used to make the analysis of a short-term financial position or liquidity of a
firm. It is calculated by dividing the total of current assets by total current liabilities.

CURRENT RATIO = Current Asset

Current Liabilities

TABLE NO.4.1

Table Showing the Current Ratio

YEAR CURRENT CURRENT LIABILITIES RATIO

ASSETS
2013 1095.4 804.75 1.36
2014 1342.81 871.86 1.54
2015 1450.86 851.08 1.70
2016 1546.27 802.73 1.92
2017 551.75 766.96 0.71
Source : Secondary Data

Above the table 4.1 shows that the current ratio of Lakshmi machine works limited at
observed that the financial year of 2016. The current ratio of 1.92per cent. It addressed that
the current assets value 1546.27 crore was high comparing with the financial year 2017 the
current ratio was 551.75 crore and the same the current ratio was 0.28per cent.

41
 Chart No.4.1.1

Chart showing the current ratio

1.5

0.5

0
2013 2014 2015 2016 2017

Years

42
LIQUID RATIO

Quick ratio, also known as acid test or liquid ratio, is a more rigorous test of
liquidity than the current ratio. The term liquidity refers to the ability of the firm to pay its
short-term obligations and when they become due. Quick ratio may be defined as the
relationship between quick nor liquid assets and current liabilities. An asset is said to be
liquid if it can be converted into cash within a short period without loss of value.

LIQUID RATIO = Liquid asset

Liquid liabilities

Table No. 4.2

Table showing liquid ratio

YEAR LIQUID CURRENT LIABILITIES RATIO

ASSETS
2013 869.7 804.75 1.08
2014 1062.18 871.86 1.21
2015 1162.2 851.08 1.36
2016 1239.29 802.73 1.54
2017 219.97 766.96 0.28
Source : Secondary Data

The above table shows that the liquid ratio of Lakshmi machine works limited. In the year
2013 to 2017. It is calculated as 1.08:1, 1:21:1, 1.36:1, 1.54:1, 0.28:1.

43
 Chart No. 4.2.2

Chart showing liquid ratio

1.6

1.4

1.2

0.8

0.6

0.4

0.2

0
2013 2014 2015 2016 2017

years

44
CURRENT ASSETS TO TOTAL ASSETS RATIO

This ratio shows the relationship between current assets and total assets. It indicates how
the firm is able to maximize the rate of return on the investment by keeping a minimum
investment in current assets.

CURRENT ASSETS TO

TOTAL ASSETS RATIO = CURRENT ASSET

TOTAL ASSETS

Total No.4.3

Table showing the current assets to total assets ratio

YEAR CURRENT ASSETS TOTAL ASSETS RATIO

2013 1095.4 960.29 1.14
2014 1342.81 1104.44 1.21
2015 1450.86 1260.47 1.15
2016 1546.27 1426.14 1.08
2017 551.75 1538.43 0.35
Source : Secondary Data

The above table 4.3 shows that the current assets to total asset ratio of Lakshmi machine
works limited. In the year 2013 to 2017. It is calculated as 1.14, 1.21, 1.15, 1.08, and 0.35.

45
 Chart No .4.3.3

Chart showing the current asset total assets ratio

ratio

2013 2014 2015 2016 2017

46
QUICK ASSETS TO TOTAL ASSETS RATIO

This ratio show the relationship between the quick assets and the total assets. It reveals
extend of funds invested in quick assets so as to pay off its liabilities.

QUICK ASSETS TO

TOTAL ASSETS RATIO= QUICK ASSETS

TOTAL ASSETS

Table no.4.4

Table showing the quick assets to total assets ratio

YEAR QUICK ASSETS TOTAL ASSETS RATIO

2013 869.7 960.29 0.90
2014 1062.18 1104.44 0.96
2015 1162.2 1260.47 0.92
2016 1239.29 1426.14 0.86
2017 219.97 1538.48 0.14
Source : Secondary Data

The above table show that the Lakshmi machine works limited. In the year 2013 to 2017. It is
calculated as 0.90, 0.96, 0.92, 0.86, and 0.14.

47
 Chart No.4.4.4

Chart showing the quick assets to total assets ratio

ratio
4%

24%
23%

25%
24%

2013 2014 2015 2016 2018

48
CURRENT ASSET TURNOVER RATIO

This ratio shows the relationship between the sale and the current assets of the company. It
indicates and evaluates the efficiency with which the firm is able to manage its current asset.

CURRENT ASSET TURNOVER RATIO = SALE

CURRENT ASSETS

Table No.4.5

Table showing the current asset turnover ratio

YEAR SALES CURRENT RATIO

ASSETS
2013 1917.13 1095.4 1.75
2014 2241.62 1342.81 1.66
2015 2571.20 1450.86 1.77
2016 2745.30 1546.27 1.77
2017 2432.29 551.75 4.40
Source : Secondary Data

States that the table no.4.5 the current asset turnover ratio of Lakshmi machine works limited
is observed that the financial year of 2017.

It addressed that the sales value 2432.29crore was high

comparing with the financial year 2014 the sales was 2241.62crore and the same the current
asset turnover ratio was 1.66 per cent

49
 Chart No. 4.5.5

Chart showing the current asset turnover ratio

RATIO
2013
15%

2017
39% 2014
15%

2015
15%
2016
16%

50
THE CASH AND BANK BALANCE TO CURRENT ASSTE RATIO

This ratio shows the relationship between the cash and bank balance and the current
assets. High ratios indicate accumulation of cash and bank balance, which has an adverse
effect on the profitability of the company. Low ratio indicates sufficient amount of cash and
bank balance.

CASH AND BANK BALANCE TO

CURRENT ASSET RATIO = CASH AND BANK BALANCE

CURRENT ASSET

Total no.4.6

Table Showing the cash and bank balance to current asset ratio

YEAR CASH AND BANK CURRENT RATIO

BALANCE ASSETS
2013 749.69 1095.4 0.68
2014 879.39 1342.81 0.65
2015 941.62 1450.86 0.64
2016 1030.34 1546.27 0.66
2017 24.88 551.75 0.04
Source : Secondary Data

From the table shows that the cash and bank balance to current asset ratio of Lakshmi
machine works limited is observed that the financial year of 2013.it is the current asset ratio
of 0.68per cent.

It addressed that the current assets value 1095.4 was high comparing with the financial year
2017 the current asset was 551.75crore and the ratio was 0.04per cent.

51
 Chart No.4.6.6

Chart showing the cash bank balance to current asset ratio

0.7
0.6
0.5
0.4
0.3
0.2
0.1
ratio
0
2013 2014 2015 2016 2017

52
THE RECEIVABLES TO SALES RATIO

This ratio is mainly used to measure the quantity to receivables and sales performances. A
high ratio indicates in efficient management of receivables. And low ratio indicates firm’s
inability to go for credit sale.

RECEIVABLES TO SALES RATIO = RECEIVABLES

SALES

Table No. 4.7

Table showing the receivables to sales ratio

YEAR RECEIVABLES SALES RATIO

2013 120.01 1917.13 0.06
2014 182.79 2241.62 0.08
2015 220.58 2571.20 0.08
2016 208.95 2745.30 0.07
2017 195.09 2432.28 0.08
Source : Secondary Data

Above the table shows that the receivables to sales ratio of Lakshmi machine works
limited is observed that the financial year of 2014, 2015 and 2017. It is the ratio of 0.08per
cent. It addressed that the sales value 2241.62cr, 2571.20cr and 2432.28cr was high
comparing with the financial year 2013. It is the ratio of 0.06per cent.

53
 Chart No.4.7.7

Chart showing the receivables to sales ratio

ratio

100%
90%
80%
70%
60%
0.06 0.08 0.08 0.07 0.08
50%
40%
30%
20%
10%
0%
2013 2014 2015 2016 2017

ratio

54
THE SUNDRY DEBTOES TO CURRENT ASSET RATIO

This ratio gives the relationship between the sundry debtors and current assets. A high
ratio indicates a high debt position for the firm and low profitability. A low ratio indicates
sufficient debtors. It also helps to measure the firm’s ability to manage its debtors.

SUNDRY DEBTORS TO

CURRENT ASSETS RATIO = SUNDRY DEBTORS

CURRENT ASSETS

Table No.4.8

Table showing the sundry debtors to current asset ratio

YEAR SUNDRY CURRENT RATIO

DEBTORS ASSETS
2013 120.01 1095.4 0.10
2014 182.79 1342.81 0.13
2015 220.58 1450.86 0.15
2016 208.95 1546.27 0.13
2017 195.09 551.75 0.35
Source : Secondary Data

The table 4.8 clearly shows the sundry debtors to current assets ratio is which indicates that
the company is having small amount of debtors.

It is found that less than 50 per cent of the current assets constituted by sundry debtors. So
the liquidity position of the company is satisfactory.

55
 Chart No.4.8.8

Chart showing the sundry debtors to current assets ratio

Ratio
0.35

0.3

0.25

0.2

0.15

0.1

0.05

0
2013 2014 2015 2016 2017

56
THE INVENTORY TURNOVER RATIO

This ratio indicates how fast inventory is sold. A high ratio is good from the
viewpoint of liquidity and low ratio would signify that inventory does not sell fast and stay in
the shift or in the warehouse for a long time.

INVENTORY TURNOVER RATIO = SALES

INVENTORY

Table No.4.9

Table showing the inventory turnover ratio

YEAR SALES INVENTORY RATIO

2013 1917.13 225.70 8.49
2014 2241.62 280.63 7.98
2015 2571.20 288.66 8.90
2016 2745.30 306.98 8.94
2017 2432.28 331.78 7.33
Source : Secondary Data

The above table shows that the inventories turnover ratio of Lakshmi machine works limited.
In 2013 to 3017. It is calculated as 8.49, 7.98, 8.90, 8.94, and 7.33.

57
 Chart No.4.9.9

Chart showing the inventory turnover ratio

RATIO

8.94
8.9
8.49

7.98

7.33
2013 2014 2015 2016 2017

58
INVENTORIES TO CURRENT ASSET RATIO

It shows the relationship between stock and current assets. A high indicates
accumulation of inventories and low profitability. A low ratio indicates sufficient quantity of
inventory. It also helps to measure the firm’s ability to manage inventories.

INVENTORIES TO

CURRENT ASSET RATIO = INVENTROY

CURRENT ASSETS

Table No.4.10

Table Showing inventories to current asset ratio

YEAR INVENTORY CURRENT RATIO

ASSETS
2013 225.70 1095.4 0.20
2014 280.63 1342.81 0.20
2015 288.66 1450.86 0.19
2016 306.98 1546.27 0.19
2017 331.78 551.75 0.60
Source : Secondary Data

The above table 4.10 shows the inventories to current asset ratio of the years. In 2015 and
2016 the ratio is very low indicating quick movement of inventory and thus high profitability.

It is found that in 2017 the inventory has been accumulating. It indicates that the volume
of current asset during the year.

59
 Chart No.4.10.10

Chart Showing inventories to current asset ratio

Ratio

15%

2013
43% 14%
2014
2015
14%
2016
14%
2017

60
SUNDRY CREDITORS TO INVENTORY RATIO

It shows the relationship between sundry creditors and inventories. A high ratio
indicates inventories are not managed properly. A low ratio indicates credit facilities are not
utilized properly and the accumulation of stock, which denotes less profit. There is no
standard ratio to interpret this ratio.

SUNDRY CREDITORS TO

INVENTORY RATIO = SUNDRY CREDITORS

INVENTORY

Table No.4.11

Table showing sundry creditors to inventory ratio

YEAR SUNDRY INVENTORY RATIO

CREDITORS
2013 120.01 225.70 0.53
2014 182.79 280.63 0.65
2015 220.58 288.66 0.76
2016 208.95 306.98 0.68
2017 195.09 331.78 0.58
Source : Secondary Data

The above table.4.11 shows that the sundry creditors to inventory ratio of Lakshmi
machine works limited is observed that the financial year of 2015 is the ratio of 0.76 per cent.

It addressed that the inventory value 288.99crore was high comparing with in the financial
year 2013 the inventory was 225.70crore and the ratio was 0.53per cent.

61
 Chart No.4.11.11

Chart showing sundry creditors to inventory ratio

RATIO
2013 2014 2015 2016 2017

18% 17%

20%
21%

24%

62
 TREND ANALYSIS

Table No: 4.12

Trend analysis of sales for Lakshmi machine works limited from the year 2013 – 2017.

YEARS SALES
AMOUNT %
2013 1917.13 100
2014 2241.62 116.92
2015 2571.20 134.11
2016 2745.30 143.19
2017 2432.26 126.86
Source : Secondary Data

The above table shows that the trend analysis of Lakshmi machine works limited from the
year 2013 to 2017. It is in the increasing trend, in the year 2016, the sales goes high level of
143.19 per cent in the year 2014, less sale of 116.92 per cent.

63
 Table No: 4.13

Trend analysis of sundry debtors for Lakshmi machine works limited from the year
2013 - 2017

YEARS SUNDRY DEBTORS

AMOUNT %
2013 120.01 100
2014 182.79 152.31
2015 220.58 183.80
2016 208.95 174.11
2017 195.09 162.56
Source : Secondary Data

The above table states that the trend analysis of Lakshmi machine works limited from
the year 2013 to 2017. It is in the increasing trend. In the year 2015, the sundry debtors goes
high level of 183.80 per cent in the year 2014 less sundry debtor 152.31 per cent.

64
 Table No: 4.14

Trend analysis of inventories for Lakshmi machine works limited from the year 2013 -
2017

YEARS INVENTORIES
AMOUNT %
2013 225.70 100
2014 280.63 124.33
2015 288.66 127.89
2016 306.98 136.01
2017 331.78 147.00
Source: Secondary Data

Describes the table shows that the trend analysis of Lakshmi machine works limited
from the year 2013 to 2017. It is in the increasing trend. In the year 2017, the inventories
goes high level of 147.00 per cent in the year 2014, less 124.33 per cent.

65
 Table No: 4.15

Trend analysis of cash & bank balance for Lakshmi machine works limited from the
year 2013- 2017

YEARS CASH & BANK BALANCE

AMOUNT %
2013 749.69 100
2014 879.39 117.30
2015 941.62 125.60
2016 1030.34 137.43
2017 24.88 3.31
Source : Secondary Data

The above table states that the trend analysis of Lakshmi machine works limited form
the year 2013 to 2017. It is in the increasing trend. In the year 2016, the cash & bank balance
goes high level of 137.43 per cent in the year 2017, less 3.31 per cent.

66
 Table No: 4.16

Trend analysis of investments for Lakshmi machine works limited from the year 2013-
2017

YEARS INVESTMENTS
AMOUNT %
2013 103.83 100
2014 128.83 124.07
2015 128.83 124.07
2016 129.64 124.85
2017 126.24 121.58
Source : Secondary Data

The above table shows that the trend analysis of Lakshmi machine works limited
from the year 2013 to 2017. It is in the increasing trend, in the year 2016, the investments
goes high level of 124.85 per cent in the year 2017 less 121.58 per cent.

67
COMMON SIZE BALANCE SHEET

In a common size balance sheet total asset or liabilities is taken as 100 and all the
figures are expressed as percentages of the total. Comparative common size balance sheet for
different period helps to highlights the trend in different items. If it is prepared for different
firms in an industry.

It facilitates to judge the relative soundness and helps to highlight the trend in different firm
in an industry. It facilities to judge the relative soundness and help in understanding their
financial strategy. This will be clear from the following illustration.

68
 Table No: 4.17

COMMON SIZE BALANCE SHEET OF LAKSHMI MACHINE WORKS LIMITED

FOR THE YEAR ENDING 2013-2017

PARTICULAR 2016 % 2017 %

AMOUNT AMOUNT
Capital work in 7.56 0.33 3.34 0.14
progress
Investment 129.64 5.66 126.24 5.46

Inventories 306.98 13.40 331.78 14.35

Sundry debtors 208.95 9.12 195.09 8.43

Cash and bank 1030.34 44.99 24.88 1.07

Loan and advances 205.70 8.98 1168.58 50.54

Total current assets 1889.17 82.49 1849.86 80

Fixed assets 400.90 17.50 462.25 20.12

Total assets 2290.07 100 2312.13 100

Current liabilities 802.73 35.05 766.96 33.17

Provisions 61.19 2.67 6.74 0.291

Total current 863.92 37.72 773.70 33.46

liabilities
Share capital 11.27 0.49 10.96 0.47

Reserves & surplus 1414.88 61.78 1527.47 66.06

69
Shareholders’ funds 1426.15 62.27 1538.43 66.54

Total liabilities 2290.07 100 2312.13 100

Source : Secondary Data

INTERPRETATION

The above table showing the common size balance sheet for five years 2016-2017 fixed asset
accounted for 17.50 per cent in 2016 was increasing to 20.12 per cent in the year 2017.
Current liabilities considered by 33.17per cent in the year 2017.

The study on common size balance sheet shows that the current asset is more than the
current liabilities in both the year 2016- 2017. The current asset management is satisfactory.

70
COMPARATIVE BALANCE SHEET

A comparative balance sheet show the asset and liabilities and owner equity of a business
enterprise at the beginning and at the end accounting year with increase and decrease in the
absolute data in terms of rupees and percentage. The single balance sheet focus on the finance
status of the firm as on a particular date, while a comparative balance sheet focus on the
changes that have taken place on one accounting period.

The change in the balance sheet items is result of acquisition or sales of asset, changes in
assets and liabilities etc., a comparative balance sheet has two column for the data of original
balance sheet, the third column is used to show to show increase or decrease in figure.

71
 Table No.4.18

COMPARATIVE BALANCE SHEET OFLAKSHMI MACHINE WORKS LIMITED

FOR THE YEAR ENDING 2013-2017

PARTICULAR 2016 2017 INCREASING/ INCREASING/

DECREASING DECREASING%
INVENTORIES 306.98 331.78 24.8 8.10

SUNDRY 208.95 195.09 13.86 6.63

DEBTORS
CASH AT BANK 1030.34 24.88 1005.46 97.58

LOAN & 205.70 1168.53 963.53 463.41

ADVANCES
TOTAL CURRENT 1751.97 1720.28 31.69 1.80
ASSETS
FIXED ASSET 400.90 462.25 61.35 15.30

TOTAL ASETS 2152.87 2182.53 93.04 17.1

CURRENT 863.92 773.70 90.22 10.44

LIABILITIES
TOTAL CURRENT 863.92 773.70 90.22 10.44
LIABILITIES
TOTAL 1426.14 1538.43 112.29 7.89
SHAREHOLDER
FUNDS
TOTAL 2290.06 2312.13 22.09 0.96
LIABILITIES
Source : Secondary Data

72
INTERPRETATION

Comparative the balance sheet of the company for the year end 2016-2017 current assets
have been decreased by 1.80 percent, the total assets have been increased by 17.1 percent, the
total current liabilities have been decreased by 10.44percent, and the total liabilities have
been decreased 0.96 percent.

73
 CHAPTER 5

FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 FINDINGS

 The current ratio of Lakshmi machine works limited of the year 2016. The high level
of the ratio is 1.92per cent.
 The company’s liquid ratio of the year 2016 was the increasing ratio is 1.54 per cent.
 The financial year 2013 to 2017 the current assets to total asset ratio was found the
1.21per cent is the high value.
 It was found that the company’s quick asset to total asset ratio of the year 2014 was
increased ratio.
 The current asset turnover ratio of the 2017 is high, the ratio is 4.40per cent.
 The company’s cash and bank balance to current asset ratio of the year 2013 was
high.
 The financial year 2013 to 2017 the receivables to sales ratio was found the 0.08per
cent ratio was the high.
 It was found that the company’s sundry debtors to current asset ratio of the year 2017
was increased.
 The inventory turnover ratio of the year 2016 is high. The ratio was 8.94per cent.
 The financial year 2013 to 2017 of the company. The inventories to current asset ratio
of the year 2017 was high.
 The sundry creditors to inventory ratio of the year 2015 is high.
 The trend analysis of sales is increasing in the year 2016 is high.
 The increasing trend of sundry debtors of the year 2015 is goes high.
 The trend analysis of inventories is increasing in the year 2017 is goes high.
 The increasing trend of cash & bank balance of the year 2016 is goes high.
 The trend analysis of the investment is increasing trend of the trend year 2016 is high.
 The study on common size balance sheet shows that the current asset is more than the
current liabilities in both year 2016- 2017. The current asset management is
satisfactory.
 The study on comparative balance sheet shows that the total asset have been increased
by 17.1per cent.

74
5.2 SUGGESTIONS

The following suggestions are put forward for the improvement in the performance of
“LAKSHMI MACHINE WORK LTD” in current asset management.

1. The company should fine out the absolute and non-moving stock in the inventory and
dispose them suitably.
2. The company should also take care to avoid over investment in inventory, which will
enable the firm to increase its profitability.
3. The ability of the firm to meet its short term liabilities is normal as indicated by the
current ratios. The same practice may be adopted in the future also.
4. The company should invest more in income generating assets and maintain the
investment in current assets to the minimum.
5. The company should improve their collection efforts by sending periodical reminders
and by appointing more collection agents.

75
 5.3 CONCLUSION

A study on current asset management of the Lakshmi machine work ltd revealed the
company’s financial and liquidity position is satisfactory. The company has to take various
measures to improve the collection period so as to enhance the liquidity position. Appropriate
strategies can be adopted to achieve better results. Adequate steps should be implemented to
increase the sales and to increase the effective utilization of the resources. The company can
formulate policies to reduce investment inventory and to suitably dispose the obsolete
inventory. Periodical evaluation may be made by the concern to assess the current assets, its
components etc., in order to improve the current asset management in future.

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BIBLIOGRAPHY

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