PROJECT REPORT ON WORKING CAPITAL MANAGEMENT

FOR MICRO-INDIA ENGINEERING

SUBMITTED TO UNIVERSITY OF PUNE IN THE PARTIAL FULFILLMENT OF TWO YEARS FULL TIME COURSE MASTER OF BUSINESS ADMINISTRATION (MBA)

SUBMITTED BY KAMLESH SUNIL BIDKAR (BATCH 2010-2012)

JSPMS JAYAWANT INSTITUTE OF COMPUTER APPLICATIONS TATHAWADE, PUNE -411033

DECLARATION

I, Kamlesh Sunil Bidkar student of MBA, hereby declare that the project report entitled, Working Capital Management submitted by me to the University of Pune, in partial fulfillment of the requirement for the award of degree of Master of Business Administration under the guidance of Prof. Pravin Thorat is my original work and the conclusions drawn therein are based on the material collected by myself. The Report submitted is my own work and has not been duplicated from any other source. I shall be responsible for any unpleasure moment/situation.

Place: Date: Kamlesh Sunil Bidkar

ACKNOWLEDGEMENT This acknowledgement is nothing, but a gesture of gratitude towards all those people who were a driving in the successful completion of the project. First of all, I am highly indebted to Mr. Gorakh Pawar (M.D.) & Mr. Vijay Kapure (Account Officer), MICRO-INDIA ENGINEERING Pvt. Ltd. for availing me the opportunity to carry out the project in their esteemed organization and his valuable guidance had helped me a lot to understand the significance of Working Capital Management. I would also like to extend my further thanks to all the employees of MICRO-INDIA ENGINEERING Pvt. Ltd. For providing me a work friendly environment. In this context as a student of Jayawant Institute of Computer Application, Tathawade, Pune. I would like to acknowledge Director Dr. Ajay Kumar and project guide Prof. Thorat for their timely and valuable guidance, which helped me to complete the project.

Kamlesh Sunil Bidkar

EXECUTIVE SUMMARY Management is an art of anticipating and preparing for risk, uncertainties and overcoming obstacles. An essential precondition for sound and consistent assets management is establishing the sound and consistent assets management policies covering fixed as well as current assets. In modern financial management, efficient allocation of funds has a great scope, in finance and profit planning, for the most effective utilization of enterprise resources, the fixed and current assets have to be combined in optimum proportions. One of the most important areas in day to day management of the firm is the management of working capital. Working capital management is the function area of finance that covers all the current account of the firm. It is concerned with management of the level of individual current assets as well as the management of total working capital. The functions of finance department are procurement of funds and effective utilization of these procures funds in the business. Procurement of funds in firstly concerned for financing working capital requirement of the firm and secondly for financing fixed assets. Working capital may be regarded as lifeblood of a business. Its effective provision can do much ensure the success of a business, while its inefficient management an lead not only to loss of profit but also to the ultimate downfall of what otherwise might considered as a

promising concern. A study of working capital is so major importance to internal and external analysis because of its relationship with the current day to day operations of a business. The objective behind this project to understand meaning and importance of working capital , to analyze the various methods of calculating working capital, to study the various aspect of working capital and to find out the future requirement of working capital of MICRO-INDIA ENGINEERING . In this project the theoretical background include meaning of working capital, types of working capital, importance of working capital and working capital cycle. The data analysis includes calculation and projection of future working capital requirement, working capital element, working capital and operating cycle ratio analysis, their interpretation.

SR.N O. 1

TOPIC EXECUTIVE SUMMARY INTRODUCTION a) AIMS & OBJECTIVES b) SCOPE & LIMITATION

PAGE NO.

1-4

2 COMPANY PROFILE 3 RESEACH METHODOLOGY 4 THEROLOGICAL 15-46 5 6 FINDING 7 RECOMMONDATION 8 CONCLUSION 79 BIBLIOGRAPHY 78 77 BACKGROUND DATA.ANALYSIS.AND.. INTERPRETATION 47-74 75-76 13-14 5-12

INTRODUCTION

OBJECTIVES:1. To study the concept of Working Capital Management 2. To calculate and study the Operating Cycle of the company.
3.

To find out and analyze the Working Capital Ratios in Micro- India Engineering.

4.

To find out how to generate cash from the Operating Cycle of the company.

5.

To understand about factors affect on working Capital of the company.

6. To understand the need & requirement of Operating Cycle and Working Capital in Micro-India Engineering. 7. To find out importance of Operating Cycle and Working Capital management in Micro-India Engineering.

SCOPE:1) The better a company manages its working capital, the less the company needs to borrow. 2) If companies with cash surpluses need to manage working capital to ensure that such surpluses are invested will generate suitable returns for their investors. 3) Better for excessing current assets over current liabilities 4) Helps for current assets converting into cash flows within a few weeks or month 5) Helps for generating cash from operating cycle of the company.
6)

The better company manages its Operating Cycle in holding inventories and dealing with receivables and payables helps company to generate more cash .

LIMITATIONS:1. Most of the information used in the analysis was from secondary sources. 2. Confidential data was not allowed to be accessed or published in the project report. 3. Time duration for the analysis was very short therefore detailed analysis was not possible. 4. Due to time constrain all the measures were not considered for analysis. 5. Analysis for the year 2009-10 is done on the basis of unaudited balance sheet.

Company profile

COMPANY PROFILE

MICRO INDIA ENGINEERING is one of the leading organizations with more than 7 years of standing and proven experience in the field of manufacturing and assembly by adopting safe manufacturing their product with their environment friendly approach, apart from

maintaining speed of assembly & strong quality standard. Micro India Engineering is a partnership firm. Company manufactures as well as assembles different types of precision machined parts as per their customer specification. Certification DIN ISO 9001:2008 certified since 2008 they provide customized products to their customers. Their mantra is We promise what we can deliver & deliver what we promise.

Company manufactures precision machine parts by using CNC machine, VMC, Drilling Mach., Milling Mach., Cylindrical grinding And Surface Grinding Mach. Lathe Machine, welding and also Equipment Testing Machine etc. MACHINE Used in Plant:

Equipment testing regularly calibrated by an ISO17025 certified facilities. Micro-India Engineering is a Company manufactures precision machined parts & assembly works as per customers specification. It is located near Katraj, Ambegaon Kurd, Jambhulwadi Lake, and Pune:-411046.It established in the year 2004It is a Partnership firm It started with a paid up capital of Rs.14.49 lacks Equipments CNC Equipments Testing Equipments Conventional Products as per their Customer Specifications .Capabilities: - Turning, Milling,

Drilling, Grinding. I t has its another branch in Dhankawadi Pune as a J>B> Industries.

THEIR CAPABILITIES:

TURNING CNC Turning center : 450mm , Length 250mm Accuracy of 0.01 mm

Conventional lathe : 700 mm , Length 800 mm Accuracy of 0.01 mm 500 mm , Length 1000 mm Accuracy of 0.05 mm 300 mm , Length 800 mm Accuracy of 0.02 mm

MILLING :-

V.M.C. : Length 600mm Width 500mm with 3

dimensiona l profile Accuracy of 0.01mm [For Bore size , paralleled , flatness, Height, W. T.]

Conventional Milling : Length ] 600mm Width 300mm Accuracy

0.05mm [For paralleled flatness, Height, W. T.

DRILLING :M1TR : Bore up 25mm [with H7 tolerance] Center distance for Length 700mm ,

width 400mm Accuracy 0.05 mm

GRINDING :Cylindrical Grinding: 300 mm , Length 3000 mm

 Accuracy 0.01 mm

Surface Grinding: Length 450mm , width 200 mm ,Height 200mm Accuracy of 0.01 mm

Their products are:-

BOARD OF DIRECTORS CHAIRMAN EMARITUS Shri. K. J. PAWAR MANAGING DIRECTORS Shri. Krishna Pawar (Chairman & Managing Director)

Shri. Gorakh Pawar (Executive Director)

Shri. Sandip Pawar (Whole Time Director)

(Director) Shri. Kanwal Jit Singh (Director) BANKERS The Saraswat Co-op. Bank Ltd. HDFC Bank Ltd.

AUDITORS

Yeravdekar & Ranade (Chartered Accountants) Organization Structure: CHAIR PERSON

MANAGING DIRECTOR

MANAGER

DEPARTMENT

FINANCE MARKETING

PRODUCTION

ACCOUNTANT

SUPERVISOR

SALESMEN

LABOURS

CUSTOMER PROFILE: Bharat Electronics Ltd., Pune Magplastic Asia Ltd., Hinjewadi, Pune Inoxpa India P. Ltd., Pune Aesseal India P Ltd., Pune GL&V India P Ltd., Pune

Alfa Laval India Ltd., Pune Alfa Laval SPA, Monza, Italy Alfa Laval Jiangyin Manufacturing Co. Ltd., Jiang Yin City, China

CONCEPTUAL BACKGROUND

RESEARCH METHODOLOGY MEANING OF RESEARCH : Research is defined as a

scientific and systematic search for pertinent information on a specific topic. The meaning of research is a careful investigation or inquiry especially through search for new facts in any branch of knowledge. This project requires a detailed understanding of the concept Working Capital Management. Therefore, firstly we need to have a clear idea of what is working capital, how it is managed in Micro India Engineering., What are the different ways in which the financing of working capital is done in the company. The management of working capital involves managing inventories, account receivables and payable and cash. Therefore, one also needs to have knowledge about cash management, inventory management and receivables management. Then comes the financing of working capital requirement, i.e. how the working capital is financed, what are the various sources through which it is done. The suggestions and recommendation for better management and control of working capital are provided. The Research

Methodology is a way to systematically resolve the research problem. The researcher is require to have knowledge of all the aspects related to Research Methodology. METHODOLOGY USED FOR PROJECT The methodology used for calculating working

capital of Micro India Engineering which had based on working capital formula and the values from annual report of the Micro India Engineering . The methodology used for analyzing the financial

ratios of the Micro India Engineering which had based on formula and the values from annual report of the Micro India Engineering The information on the context of financial ratios and

interpretation is collected through various financial books and manuals. Analytical and Quantitative type of research is used

in the project. SOURCES OF DATA PRIMARY DATA :Primary data are those data which are collected a fresh and for the first time, and thus happen to be original in character. Primary data is directly collect for individuals by:-

 Survey method Personal interview Telephone survey etc.

Primary data was collected through personal unstructured discussion and interacting with the concerned guide and senior employees of the Micro India Engineering. This data helps in calculating working capital, interpretation of ratios.

SECONDARY DATA :-

Secondary data are those data which have already been collected. The researcher uses this data for further research. Secondary data can be collected by :-

Previous years Annual Reports

Financial Management Books Internet websites

 Reports on Working Capital for Research etc.

The project mainly depends upon the secondary data. Secondary data related to the project is current annual reports, book on Financial Management by various authors and internet websites the imp amongst them being: www.microindiaengineering.com, www.indiainfoline.com and also previous years annual reports , reports on working capital for research. WORKING CAPITAL Meaning of Working Capital Every business needs funds for two purposes. Long term funds are required to create production facilities through purchase of fixed assets such as Plant and Machinery, Land, Building, Furniture, etc. Investments in these assets represent that part of firms capital which is called fixed capital. Funds are also needed for short term purposes for the purchase of raw material, payment of wages and other day - to day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short term or Current Assets such as Cash, Marketable Securities. And Debtors & Inventories. Funds. Thus, invested in current assets keep revolving fast and are being constantly converted in to cash and these cash flows out again in exchange for other current

assets. Hence, it is also known as revolving or circulating capital or short term capital. The prime objective of the company is to obtain maximum profit thought the business. The amount of profit largely depends upon the magnitude of sales. However the sale of goods and receipt of cash. The time gap between the sales and actual realization in cash is technically termed as operating cycle. Additional capital required to have uninterrupted business operations, and the amount will be locked up in the current assets. Regular availability of adequate working capital is inevitable for sustained business operations. If the proper find is not provided for the purpose, the business operations will be effected and hence this part of finance to be managed well.

CONCEPT OF WORKING CAPITAL There are two concepts of working capital:

1. Gross working capital: It refers to firms investment in current assets. Current assets are the assets, which are easily converted into cash within a financial year. The gross working capital points to the need of arranging funds to finance current assets .This concepts does not consider current liabilities at all reasons given for the concept. I. When we consider fixed capital as the amount invested in fixed assets. Then the amount invested in current assets should be considered as working capital. Ii. Current asset whatever may be the source of acquisition, are used in activities related to day to day operations and their forms keep on changing. Therefore they should be considered as working capital

2. Net working capital: It refers to the difference between current assets and current liabilities. Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. And vice- versa for negative net working capital. Net working capital is a qualitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Net working capital also resolves the questions of judicious mix of long term and short term funds for financing current assets.

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES The gross working capital concept is financial or going concern concept whereas working capital is an accounting concept of working capital. CURRENT ASSETS which can convert in to cash within a short period normally a one accounting year. CONSTITUENTS OF CURRENT ASSETS 1. Cash in hand and cash at bank 2. Bills receivables 3. Sundry debtors 4. Short term loans and advances. 5. Inventories of stock as : a. Raw material b. Work in process

c. Stores and spares d. Finished good CURRENT LIABILITIES are those liabilities, which are intended to be paid in the ordinary course of business within a short period of normally one accounting year out of the current assets or the income business. CONSTITUENTS OF CURRENT LIABILITIES a. Accrued or outstanding expenses b. Short term loans, advances and deposits. c. Dividends payable. d. Bank overdraft. e. Provision for taxation, if it does not amt. to app. Of profit. f. Bills payable g. Sundry creditors. ADVANTAGES OF WORKING CAPITAL:

1.

Solvency of the business: Adequate working capital helps in maintaining the solvency of the business by providing uninterrupted of production.

2.

Goodwill: Sufficient amount of working capital enables a firm to make prompt payments and makes and maintain the goodwill.

3.

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

4.

Cash Discounts: reduces cost.

Adequate working capital also enables a

concern to avail cash discounts on the purchase and hence

5.

Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw material and continuous production.

6.

Regular Payment of Salaries, Wages and Other Day to Day Commitments: It leads to the satisfaction of the employees and raises the morale of its employees increases their efficiency, reduces wastages and costs and

FACTORS

DETERMINING

WORKING

CAPITAL

MANAGEMENT:
1.

Nature of business: The requirement of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sales only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investments in fixed assets but have to large amount of working capital along with fixed investments.

2.

Size of the Business: Greater the size of the business, greater is the requirement of working capital.

3.

Production Policy: If the policy is to keep production steady by accumulating inventories it will require higher working capital.

4.

Length of Production Cycle: The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and

service costs before the final product in obtained. So working capital is directly proportional to the length of the manufacturing process.
5.

Seasonal Variations: Generally, during the busy season, a firm requires larger working capital then in slack season.

6.

Working capital cycle: The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

7.

Stock Turnover: There is an inverse co- relationship between the working capital and the velocity or speed with which the sales are affected. A firm having a high rate of turnover.

8.

Credit Policy: A concern that purchases its requirements on credit and sales its product/ services on cash requires lesser amount of working capital and vice versa.

9.

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

10. Rate

of Growth of Business: In faster growing concern, we

shall require large amount of working capital .

11. Earning

Capacity and Dividend Policy: Some firms have

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

12. Price

Level Changes: Changes on the price level also affect the

working capital requirement. Generally rise in prices leads to increase in working capital.

TYPES OF WORKING CAPITAL

TYPES OF WORKING CAPIATL

ON THE BASIS B/S concept

ON THE BASIS of TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

REGULAR WORKING CAPITAL

TEMPORAR Y WORKING CAPITAL

SPECIFIC WORKING CAPITAL

SEASONAL WORKING CAPITAL

Significance of Working Capital:

Payment of Supplier s Dividen d Distribu tion

Easy Loans from Banks

Significanc e of Working Capital Increase Debt Capacit y

Increas e Efficien cy

Increa se In Fix Assets

Another important aspect of working capital management is to analyze the total working capital needs of the firm in order to find out the permanent and temporary working capital. Working capital is required because of existence of operating cycle. The lengthier the operating cycle, greater would be the need for working capital. The operating cycle is continuous process and therefore, the working capital is needed constantly and regularly. However the magnitude and quantum of working capital is required will not be same all the times, rather it will fluctuate. The need for current asset tends to shift over time. Some of these changes reflects permanent changes in the firm as is the case when the inventory receivables increases as the firm grows and the sales become higher and higher. Other changes are seasonal, as is the case with increased inventory required for a particular festival season still others are random reflecting the uncertainty associated with growth in sales due to firms specific or general economic factors.

The working capital needs can be bifurcated as : Permanent working capital Temporary working capital

Permanent working capital: There is always a minimum level of working capital, which is continuously requires by a firm in order to maintain its activities. Every firm must have a minimum of cash, stock and other current assets, this minimum level of current assets , which must be maintained by any firms all the times, is known as Permanent working capital for that firm. This amount of working capital is constantly and regularly required in the same way as fixed assets are required. So , it may also be called fixed working capital.

Temporary working capital: Any amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. The position of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes.

Amt. of Working Permanent Capital

Temporary

Amt.of Working Temporary

Permanent

Capital

Time Figure : 3

Time Figure: 4

The permanent level is constant while the temporary working capital is fluctuating increasing and decreasing in accordance with seasonal demands as shown in the figure. In the case of an expanding firm, the permanent working capital line may not be horizontal. This is because the demand for permanent current assets might be increasing (or decreasing) to support a rising level of activity. In the case line would be rising.

Working Capital Cycle Cash flows in a cycle into, around and out of a business. It is the business life blood and every managers primary task is to help keep it flowing and to use the cash flow to generate cash surpluses. If it doesnt generate surpluses, the business will eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help to improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represents a substantial proportion of a firms total profits. There are two elements in the business cycle that absorb cash Inventory (stocks and work in progress) and Receivables (debtors owing you money). The main source of cash is Payables (your creditors) and Equity and Loans. WORKING CAPITAL ENGINEERING CYCLE FOR MICRO INDIA

Marketing Department Design Department

Money is received from Customer Production Planning and Control (PPC)

Completion of Project

CASH

Material Requirement Planning (MRP)

Production Activity takes place & RM is converted into WIP Purchase of Raw Material

Raw Material Supply for Production

Figure No; 5

If you..

Then..

Collect receivables ( debtors) You release cash from the cycle fasters

Collect receivables (debtors) Your receivable soak up cash slower

 Get better credit ( in terms of You increase your cash resources duration or amount) from suppliers Shift inventory (stocks) faster You free up cash

Move inventory (stocks) slower

You consume more cash

It can tempt to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. of you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment- loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and. Like water flowing downs a plug whole, they remove liquidity from the business.

SOURCES OF WORKING CAPITAL: The company can choose to finance its current assets by

1. Long term sources 2. Short term sources 3. A combination of them 1. Long term sources: Long term sources of permanent working capital includes equity and preference shares, retained earnings, debentures and other long term debts from public deposits and financial institutions. The long term working capital needs should meet through long term means of financing. Financing through long term means provides stability, reduces risk or payments. And increases liquidity of the business concern. Various types of long term sources of working capital are summarized as follow Issue of shares It is the primary and most important sources of regular or permanent working capital. Issuing equity shares as it does not create and burden on the income of the concern. Nor the concern is obliged to refund capital should preferably raise permanent working capital. Retained earnings Retain earning accumulated profits are a permanent sources of regular working capital. It is regular and cheapest. It creates not charge in future profits of the enterprises. Issue of debentures

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

Long term debt Company can raise funds from accepting public deposits, debts from financial institutions like banks, corporations etc. the cost is higher than the other financial tools. Other sources sale of idle fixed assets, securities received from employees and customers are example of other source4s of finance. 2. Short term sources of temporary working capital Temporary working capital is requiring meeting the day to day business expenditures. The variable working capital would finance from short term sources of funds. And only the period needed. It has the benefits of, low cost and establishes closer relationships with banker. Commercial bank A commercial bank constitutes sources for short or temporary working capital. This will be in the form of short term loans. Cash credit, and overdraft and though discounting the bills of exchanges. Public deposits

Most of the companies in recent years depend on these sources to meet their short term working capital requirements ranging from six month to three years. Various credits Trade credit, business credit papers and customer credit are other sources of short term working capital Credit from suppliers, advances from customers, bills of exchanges, promissory notes, etc helps to raise temporary working capital. Reserves and other funds Various funds of the company like depreciations fund. Provision for tax and other provisions kept with company can be used as temporary working capital. its working capital needs through both long term and short term funds. It will be appropriating to meet at least 2/3 of the permanent working capital equipments from long tern sources, whereas the variables w.c. should be financed from short term sources. A) LIQUIDITY RATIOS

Liquidity refers to the ability of the firm to meet its current obligations as and when these become due. The short term obligations are met by realizing amounts from current, floating or circulating assets. The current asset should either be liquid or near about liquidity. These should be convertible in cash for paying obligations

of short term nature. The sufficiency or in sufficiency of current assets should be assessed by comparing them with short term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated:

1. Current ratio 2. Quick ratio 3. Absolute liquid ratio

1. CURRENT RATIO Current ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short term financial position or liquidity of a firm. It is defined as the relation between current asset and current liabilities. Thus,

CURRENT RATIO =

CURRENT ASSETS

CURRENT RATIOS =

CORRENT ASSETS

CDURRENT LIABILITIES

CURRENT LIABILITIES

The two components of this ratio are:

Current assets include cash, marketable securities, bill receivable, sundry debtors, inventories and work in progress. Current liabilities include outstanding expenses, bill payable, dividend payable etc. High current ratio is an indication that the firm is liquid and has the ability to pay its current obligations time. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 1:1.33 i.e. current assets double the current liabilities considered to be satisfactory.

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

QUICK RATIO = QUICK ASSETS CURRENT LIABILITIES

Where quick assets are: Marketable Securities Cash in hand and Cash at Bank Debtors.

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

As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its short term obligations. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories.

B) TURNOVER RATIOS: Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, larger is the amount of sales and profits. Current assets movement ratios measure the efficiency with which firm manages it resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated.

1. Inventory turnover ratio

2. Inventory conversion ratio

3. Debtors turnover ratio

4. Average collection period

5. Working capital turnover ratio

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

1. INVENTORY TURNOVER OR STOCK TORNOVER RATIO: Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it . It will therefore be advisable to dispose the inventory as soon as possible

INVENTORY TURNOVER RATIO = COST GOODS SOLD AVERAGE INVENTORY

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

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK 2

2. INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION RATIO = 365(WORKING DAYS) INVENTORY TURNOVER RATIO

The inventory conversion period ratio represents the average number of days in which inventory of the firm is converted into cash. Generally shorter the inventory conversion period the better is the inventory management.

3. DEBTORS TURNOVER RATIO: A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in trying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. So liquidity position of a concern also depends upon the quality of trade debtors. Two types of ratios can be calculated to evaluate the quality of debtors.

DEBTORS TURNOVER RATIO = CREDIT SALES Avg. DEBTORS

Debtors velocity indicates the number of times the debtor is turned over during a year. Generally higher the value of debtor turnover ratio the more efficient is the management of debtor/sales or more liquid re the debtors. Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors. this ratio should

be compare with the ratio of firms doing the same business and a trend may be found to make a better interpretation of the ratio.

AVERAGE DEBTORS = OPENING DEBTORS+CLOLING DEBORS 2

4. AVERAGE COLLECTION PERIOD:

AVERAGE COLLECTION PERIOD = NO.OF WORKING DAYS DEBTROS TURNOVER RATIO

The average collection period ratio represents the avg. no. of days for which a firm has to wait before its receivable is converted into cash. It measures the quality of debtors. Generally, shorter the average

collection period the better is the quality debtors as a short collection period implies quick payments by debtors and vice versa.

AVERAGE COOLECTION PERIOD =

365(NET WORKING DAYS) DEBTORS TURNOVER RATIO

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

WORKING CAPITAL TURNOVER RATIO = SALES NET WORKING CAPITAL

C) Financial Ratio: 1. Debt Equity Ratio This ratio is calculated to measure the comparative proportion of borrowed funds and share holder funds invested in the firm. A firm raises funds through owned funds, which are also called as shareholders fund, or proprietors fund as well as borrowed funds. The proportion between these, two sources should be properly balanced; otherwise the firm may face problems. This ratio indicates this proportion and is calculated as shown below:

DEBT EQUITY RATIO = LONG TERM DEBT SHARE HOLDERS FUND

OPERATING CYCLE OF MICRO INDIA ENGINEERING :The time lag between the purchases of raw materials and the collection of cash for sales is referred to as the Operating Cycle for the company. The time lag between the payment for raw materials purchases and the collection of cash from sales is referred to as The Cash Cycle

Figure No.:- 6

Operating cycle is the time duration required to convert raw materials into cash. The operating cycle of a production unit involves three phases: Acquisition of resources such as raw material, labor, etc. Production of the product. Conversion of raw materials into finished products. Sales of the finished products either for cash or credit.

CASH PROCESS ON

PURCHASE OF RAW MATERIAL

RECEIVABLES IN

FINISHED

WORK

PRODUCTS PROCESS Figure No.:- 7 Diagram shows Production Cycle. Working capital is required for each and every stage of production. The current assets are required because the operations do not convert into cash immediately. Following is the Working Capital Cycle.

IMPORTANT FORMULAS

1) INVENTORY HOLDING PERIOD= AVERAGE DEBTORS x 365 ANNUAL COST OF GOODS SOLD

(ANNUAL COST OF GOODS SOLD = MATERIAL CONSUMED+COST OF EMPLOYMENT+MANUFACTURING EXPENSES)

2) DEBTORS COLLECTION PERIOD= AVERAGE DEBTORSX365 CREDIT SALES

3) CREDIT PERIOD = AVERAGE CREDIT X365 PURCHASE 4) OPERATING CYCLE= INVENTORYHOLDINGPERIOD+DEBTOS COLLECTION PERIOD-CREDITORS PERIOD

DATA ANALYSIS AND INTERPRETATION

CALCULATION OF NET OPERATING CYCLE: 1) Raw Material Holding Period:Raw Material Holding Period Particulars Average 31.03.0 6 49.81 = Average Inventory Annual Cost of Goods Sold 31.03.0 7 68.81 31.03.0 8 106.24 31.03.0 9 95.48 31.03.10 169.86 365

inventory Cost of goods sold 149.98 Raw Material Holding Period 25

225.49 28

330.16 15

280.18 11

370.50 39

Graph No.: - 1 INTERPRETATION Raw material holding period shows the increase and decrease in each year, its average ratio is 23.6 From 2007 the raw material holding period decreases the requirement of working capital decreases In 2010 there is increase in raw-material holding period hence requirement of working capital has increased.

2) Finished Goods Holding Period

FG Holding Period =

Average FG Sales

365

Particulars Average Finished Goods 81.42 83.28 Sales 149.98 225.49 FG Holding Period 41 42

31.03.0 6

31.03.0 7

31.03.0 8 63.58 330.16 14

31.03.0 9 75.59 280.18 38

31.03.10 88.85 370.5 46

Graph No. ; - 2 INTERPRETATION The finished goods holding period is inversely proportional to average ratio i.e. 36.2 from last five years on average finished goods to sales In 2009 finished goods cost decreases and sales increases then the finished goods holding period also decreases shown in graph

 In 2010 average finished goods cost increased up to 88.85 as well as sale also increased up to Rs. 370.50 there finished goods holding period has also increased up to 46 days. 3) Debtors Collection Period :Debtors Collection = Period Average Debtors Debtor = Average Debtors Sales opening debtor + Closing 2 31.03.0 7 225.49 29.18 47 31.03.0 8 330.16 47.09 52 31.03.0 9 280.18 32.04 42 365

Particulars 31.03.06 Sales Debtors In days 149.98 30.12 73

31.03.10 370.5 39.13 38

Graph No. : - 3

INTERPRETATION Debtors Collection Period is inversely proportional to the sales, In 2006- 2010sales increase inversely debtors decrease as well as debtors collection period also decrease

When sale increases, the receivable holding period w decreased. As debtors collection period decreases, the requirement of working capital is low.

4) Gross Operating Cycle :-

Gross Operating Cycle =

Raw Material Holding Period

+ Finished Goods Holding Period + Debtors Collection Period

Particular

2005-06 2006-07 2007-08 2008-09 2009-10

Raw Material Holding Period

25 Days

28 Days 15 Days 11 Days 39 Days

Finished Goods Holding Period

41 Days 42 Days 14 Days 38 Days 46 Days

Debtors Collection 73 Days 47 Days 52 Days 42 Days 38 Days Period

Gross Operating Cycle

139 Days 117 Days 81 Days 91 Days 123 Days

Graph No.: - 4 INTERPRETATION : From 2006- 2010 shows gross operating cycle is directly

proportional to the Raw material holding period, i.e. 39days as finished goods holding period i.e. 46 days and Receivables holding period is 38 days In 2008 cost of goods sold and sale increases, the Raw material

holding period, finished goods holding period and Receivables holding period decreases.

As a result of that the gross operating cycle also decreases. As

gross operating period decreases, the requirement of working capital is low.

5) Payment Deferral (Creditors) Period :-

Creditors Period =

Average Creditors 365 Purchases

Particulars Average creditors Purchases Cr. Period ( in days) Avg.Cr./Pur.*36 5

31.03.0 31.03.0 31.03.0 31.03.0 6 7 8 9 31.03.10 18.01 139.98 29.14 214.39 44.05 319.07 20.01 269.09 50.09 358.04

47

49

50

27

51

Graph No. : - 5 INTERPRETATION :

From

2006-2008

the

companys

creditors

period

is

continuously increasing each year i.e. from 47days to 50 days. In 2009 it has shown decrease i.e.27 days. But again in 2010 it has increased up to 51 days that means the requirement of working capital has increased in 2010 6) Net Operating Cycle :-

Net Operating Cycle = Gross Operating Cycle Creditors Period

Particular

2005-06 2006-07 2007-08 2008-09 2009-10

Gross Operating Cycle139 Days117 Days81 Days 91 Days 123 Days Creditors Period 47Day 49 50 27 51 s Days Days Days Days Net Operating Cycle 92 Days 68 Days 31 Days 64 Days 72 Days

Graph No.: -6 INTERPRETATION

In 2006-2008the gross operating period has decreased by increase in of goods sold and sale.

cost

As a result in 2006- 2008 of that the Net Operating Cycle has decreased. Year 2007-08 shows the lowest requirement of working capital.

Calculation of Working Capital for MICRO INDIA ENGINEERING Rs. In lacks Current Assets, Loans & 2005-06 Advances (a)Inventories (b)Sundry Debtors 2 49.81 30.1 2006-07 2007-08 68.81 29.18 106.2 4 47.09 2008-09 2009-10 95.48 32.04 69.86 39.01

(c)Cash and Bank Bal. (d)Other Current Assets (e)Loans and Advances Total (A) Less: - Current Liabilities & Provisions (a) Liabilities (b) Provisions Total (B)

13.68 57.70 59.42 218.73

44.13 86.77 93.95 329.84.

53.43 95.44 194.91 497.50

47.34 78.53 86.03 339.42

61.03 96.20 90.71 355.81

60.12 58.06 118.18

90.04 89.64 179.68

118.37 110.76 228.13

79.02 50.77 129.79

88.60 61.99 149.79.

Net Current Assets (AB)

99.82

150.06

269.37

210.63

206.02

Graph No. : - 7 INTERPRETATION : In Graph No. 7 year 2005-06 working capital is Rs.99.82 lakhs were as in 2006-07 it is 150.06 lacs which shows increases is current assets 32 % where as current liabilities decreases by 5%. Therefore working capital is more than double. In year 2007-08 working capital is Rs.269.37 lacs , as compared to previous year increase in assets is by 53% whereas in liabilities has increase more than one third i.e.85% In year 2008-2009 working capital is Rs210.63 lacs which is decreased by Rs 59.74 lacs, as compared to previous year assets increase by 33% whereas liabilities has increased . Due to

increase in inventory by Rs 109.01, this year shows highest increase in inventory. In year 2009-2010 working capital is Rs206.02 lacs, due to decrease in assets by 6% whereas liabilities show increase by 9%. This shows very less fluctuations.

Statement showing change in working Capital in MICRO INDIA ENGINEERING Rs.In Lacks.

Current Assets, 2005Loans & Advances 06 a)Inventories b)Sundry Debtors c)Cash and Bank Balances d)Other Current Assets e)Loans and Advances Total (A) Less: - Current Liabilities & Provisions (a) Liabilities (b) Provisions Total (B) 49.81 30.12 13.68 57.70 59.42 218.7 3

200607 68.81 29.18 44.13 86.77 93.95 329.8

200708

Increa Dec se (+) reas e(-) 106.24 19.04 47.09 0.94 53.43 30.46 95.43 29.07

Increas Decreas e (+) e(-) 37.43 17.91 9.3 8.66 100.96

194.91 34.53 497.5 0 111.09

60.12 58.06 118.1 8

90.04 89.64 179.6 8

118.37 29.92 110.76 31.58 228.1 3

28.33 21.12 48.45

Net Current Assets 99.82 150.0 269.3 50.24 119.31 (A-B) 6 7 Statement showing change in working Capital in MICRO INDIA ENGINEERING Rs.In Lacks.

Current Assets, 07-08 Loans & Advances (a)Inventories (b)Sundry Debtors (c)Cash and Bank Bal (d)Other Current Assets (e)Loans and Advances Total (A) Less: - Current Lias & Provisions (a) Liabilities (b) Provisions Total (B) 106.24

08-09 95.48 3 32.04 1 47.34 6 78.53 4 86.03

09-10 169.86 39.01 111.03 186.20

Incr ease Decrea (+) se(-) 10.76 15.051 6.091 16.901

Increase (+) 74.389 6.978 63.579 107.666

Decre ase(-)

47.09 53.43 95.43 194.91

183.71 9 497.50 339.42 355.89 118.37 110.76 79.02 238.91 111.94 50.77 6 228.13 129.79 149.79

108.88 97.671 158.091 46.467 39.359 39.351 98.347 58.74 159.89 61.179 220.01 128.58

Net Curr Asst (A269.37 210.63 206.02 B) INTERPRETATION :

The above table shows the change in working capital by

comparison made between the each two years. The statement shows the increase and decrease of assets and liabilities in each year.

 Comparison made for 2005-06 &2006-07 shows that there is increase in assets by 52 % as we can see in the table that every asset increased. In year 2007-08 increase in asset by 72% than previous year this shows that the business is increasing and requirement in working capital are increasing. In year 2008-09 assets has decreased by 37% where as liabilities increased 58% here we can say that the company is maintaining its assets and liabilities to fulfill the requirement of working capital. Year 2009-10 shows increase in asset by 6% the percentage of increase is less because of decrease in loans & advances whereas the provisions has decreased by 20% so the liabilities shows increase.

Table showing comparison between sales & working capital Rs. In lacs

CHANGE IN WORKING CAPITAL & SALES

400 350 300

25000 200 150 100 50 0 2005-06 2006-07 2007-08 YEARS 2008-09 2009-10 Working capital Sales

Years Sales Working capital

RS.(IN LACS)

200506 149.98 99.82

2006-07 2007-08 2008-09 225.49 150.06 330.16 269.37 280.15 210.63

2009-10 370.5 206.02

Graph No. 8

INTERPRETATION:-

In the above graph we see that the sales increases continuously till 2007-08 but it decreased in 2008-09 by 9%This year shows increase in asset by 6%

In 2005-06 working capital is 20% of net sales while as in 200607 are increased more than twice and it is 30% of net sales. In the year 2008-09 working capital was decreased by 9% of net sales COMPARISON BETWEEN OPERATING CYCLE AND NET WORKING CAPITAL

Year

Operating (Days)

Cycle Net Capital (Lakhs)

Working

2005-06

92 Days

99.82

2006-07

68 Days

150.06

2007-08

31 Days

269.37

2008-09

64Days

210.63

2009-10

72 Days

206.02

INTERPRETATION: In the year 2005-06, operating cycle was 92 days and net working capital was Rs.99.82 Lacks as working capital was used more efficiently. In the year 2006-07, operating cycle decreased to 68 days and net working capital increased to Rs.150.06. This is because there is hike in prices in raw material that resulted into increase in working capital requirement.

 In the year 2007-08, operating cycle again decreased to 31 days and net working capital is increased to Rs.269.37 lack. This is because there is hike in prices in raw material that resulted into increase in working capital requirement. In 2008-09, operating cycle again increased to 64 days and so the working capital decreased to Rs.210.63lakh In the year 2009-10 operating cycle days were 72 Days and so there was decrease in requirement of working capital i.e.Rs.206.02 Lacks Even though there is decrease in operating days cycle we can see increase in working capital requirement as there increase in Sales each year.

ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL

1) INVENTORY ANALYSIS:-

Inventory is total amount of goods and materials content in a store of factory at any given time

Rs.In Lacks Inventory 31.03.06 Stockin-hand 12.81 Working process 37.00 TOTAL 49.81 Graph:INVENTORY
200 150 100 75 50 25 0 31.03.2006 31.03.2007 31.03.2008 31.03.2009 31.03.2010 YEARS Stock in hand Work in process

31.03.07 18.81 50.00 68.81

31.03.08 31.14 75.10 106.24

31.03.09 60.46 35.02 95.48

31.03.10 75.46 94.40 169.86

RS (IN Lakhs)

Graph No. 9

INTERPRETATION: From the above table we can see that inventory of 2006-07 shows increase by 45% to previous year.

The year 2008 shows decrease in inventory by 28% as compared to previous year its a good sign as the liquidity of company is not blocked in material.

In 2009 increase in inventory is more than thrice this is because the stock in hand as well as WIP has increased as compared to previous year. After analyzing WIP as per AS 7 issued by ICAI all the entities involved in execution of manufactured product has to follow a percentage of completion method of accounting. Under this method of contract the revenue is recognized in statement of Profit & Loss in accounting period in which work is performed.

 Hence WIP is a part of work done but bill is not certified by client .if it is certified till the year end then WIP is reduced and sundry debtors increases. In next year i.e. 2010 the increase in inventory is by 10% compared to previous 2009

2) SUNDRY DEBTORS ANALYSIS:-

Debtors or an account receivable is an important component of working capital and fall under current assets. Debtors will arise only when credit sales are made. Rs.In Lacks

Sundry Debtors Retention money with Client Security deposit with client Debt outstanding more than six months other Debts TOTAL Graph :-

31.03.0 6 12.00 14.00 02.01 2 .11 30.12

31.03.0 31.03.07 8 11.06 14.34 4. 05 1.00 29.18 15.04 21.02 7.01 4.02 47.09

31.03.0 9 11.77 16.42 9.64 4.05 32.04

31.03.10 11.13 18.40 3.11 7.40 39.01

Sundry Debtors

In Lac

Graph No. - 10

INTERPRETATION:-

 In the table and graph we see that there is rise and decrease in the debtors of Micro India Engineering in the successive years. A simple logic is that debtors increase only when sales increase and if Debtors increases it is good sign for growth. We can see that there is increase in 2008 as compared to 2007 and slight decrease in 2007 and again increase in 2009 by 25% of previous year so there is no steady position. We can say that it is a good sign as well as negative also. Company policy of debtors is very good but a risk of bad debts is always high in debtors. When sales are increasing with a great speed the profit also increases. Co. can use the money in many investment plans.

Cash and Bank 31.03.0 31.03.0 31.03.0 31.03.0 balances 6 7 8 9 Cash in hand 2.61 4.85 5.6 3.01 Bank bal. with Sch..banks current account 3.03 12.33 19.4 15.68 deposit A/c for big margin money 6.62 22.24 29.33 29.54 Bank bal with Bank Current account 1.25 0.1 0.1 0.1 Deposit account 1.14 6.6 0 0 Total 13.68 44.13 53.43 47.34 3) CASH AND BANK BALANCE ANALYSIS

31.03.1 0 5.67 18.83 38.97 0.1 0 61.03

Cash is called the most liquid asset and vital current assets; it is an important component of working capital. securities and time deposits with bank In Lacks.

Cash & Bank Balance

Rs.(in la kh s)

110 90 70 60 40 20 0 31.03.2006 31.03.2007 31.03.2008 31.03.2009 31.03.2010

Years

Graph No. : - 11 INTERPRETATION:

From the above table and graph we can see that there is increase in balance by 66% in 2007 compared to 2006 this increasing trend shows a good sign till 2008 we can see increase is 21%..Year 2009 shows a decrease in balance by 24% this has caused by industrial slow down but again we can see boom in 2010 by 36% which is good sign.

WORKING CAPITAL RATIOS:1) Position of Debtors Turnover ratio in MICRO INDIA ENGINEERING Rs. In lacks Debtors Turnover Sales Debtors Sales/Debtors 31.03.0 6 149.98 75.12 1.98 31.03.0 7 225.49 83.51 2.71 31.03.0 8 330.16 95.94 3.47 31.03.0 9 280.18 57.82 4.91 31.03.10 370.50 65.15 5.69

Graph No.12 INTERPRETATION: In Graph No.:- 12. Generally a low receivable ratio implies that it considered congenial for the business as it implies better cash flow. The ratio indicates the time at which the debts are collected on an average during the year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer. Now if we analyze the five year data we can say that it holds a moderate risk while receiving its money from its debtors.

Debtors turnover ratio shows increasing trends which indicate that the company has been able to collect its debtors faster.

2) Position of ENGINEETING

Creditors

Turnover

in

MICRO

INDIA

Rs. In lacks Creditors turnover Credit Purchases Creditors Creditors Ratio Credit Purchases / Creditors 31.03.0 6 139.01 60.12 31.03.07 31.03.08 31.03.09 128.06 90.04 157.05 118.37 319.02 79.02 31.03.10 274.06 138.60

2.31

1.42

1.32

4.04

2.01

Graph No. : - 13 INTERPRETATION:

Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit period

 Now if we analyze the five years data we find that in the year 2009 the ratio was very high which means that its position of creditors that year was not good, but year 2006 and 2007 2008 and 2010 years it is seen that the ratio is very less as compared to 2009 years which is very good sign for the company. So we can say it enjoys a very good credit facility from the supplier. 3) POSITION OF CURRENT RATIO IN MICRO INDIA ENGINEERING Rs. In lacks Current Ratio Current Assets, Loans & Advances a)Inventories b)Sundry Debtors c)Cash and Bank Balances d)Other Current Assets e)Loans and Advances Total (A) Less: - Curr. Lia.& Prov. (a) Liabilities (b) Provisions Total (B) Current Asset/Current Lia 31.03.0 31.03. 6 07 05-06 49.8 1 30.1 2 06-07 68.81 29.18 31.03.0 31.03.08 9 07-08 106.24 47.09 53.43 91.44 194.91 497.50 08-09 95.48 32.04 47.34 78.53 86.03 339.42 31.03. 10 09-10 69.86 39.01 61.03 96.71 90.71 355.81

13.68 44.13 57.70 86.77 59.4 2 218.7 3 60.12 58.06 .84 90.04 89.64 93.95 329

118.37 110.76

79.02 50.77 129.79 2.62 9

118.18 179.68 228.13 1.85 1.84 2.20

88.60 61.99 149.7 2.38

Graph No. : - 14 INTERPRETATION :

In Graph no.14 This ratio reflects the financial stability of the enterprise. The standard of the normal ratio is 2:1

These five years data holds a stable position all throughout period as it is near up to the standard ratio to some extend as there is increase in current asset as compared to its liabilities and so it helps to stable the position of the company. Company must try to maintain it throughout.

4) POSITION OF ENGINEERING Rs. In Lack

QUICK

RATIO

in

MICRO

INDIA

Quick Ratio Current Assets, Loans & Advances (a)Inventories (b)Sundry Debtors (c)Cash and Bank Bal (d)Other Curr. Assets (e)LoansandAdva nce Total (a)Inventories less Total (A) Less: - Curr.Lia. & Pro. (a) Liabilities (b) Provisions Total (B)

31.03. 06 200506 49.8 1 30.1 2 13.6 8 57.7 0 59.4 2 218.7 3 49.8 1 168.9 2 60.1 3 58.0 6 118.18

31.03.0 7 2006-07 68.81 29.18 44.13 86.77 93.95 329.84 68.81 261.03

31.03.0 31.03.1 8 31.03.09 0 200708 106.24 47.09 53.43 95.44 194.91 2008-09 95.24 32.04 47.34 78.53 86.03 1 69.86 425.6 391.26 244.18 7 1 61.03 96.71 90.71 355.8 200910 69.86 39.0

497.50 339.42 106.24 95.24

99.04 80.64 6

118.37 79.02 110.7 50.77 129.79 9

88.60 61.99 149.7

179.68 228.13

Quick ratio A/B

1.42

1.45

1.71

1.88

2.84

Graph No. 15 INTERPRETATION :-

It is the ratio between quick liquid assets and quick liquid liabilities. The normal value for such ratio is 1:1.It is used as an assessment tool for testing the liquidity position of the firm.

In the above graph It indicates the relationship between liquid assets whose realizable value is almost certain on one hand and on liquid liabilities on other hand. Liquid assets comprises of all current assets minus stock.

By analyzing the 5 years data we can say that the position was strong for 5 years from 2006 to 2010 but in 2010 it slightly below than 2009 because the quick liquid assets &quick liquid liabilities 31.03.200 6 31.03.200 7 150.06 225.49 1.62 31.03.200 8 269.37 330.16 1.22 31.03.200 9 210.63 280.15 1.77

Years Net Working 99.82 Capital Net Sales 149.98 Net Sales/ Net Working Capital 1.50 less than year 2009.

31.03.2010 206.02 370.50 2.6

On an average we can say that the liquidity position of MICRO INDIA ENGINEERING is stable.

5) Proportion of WORKING CAPITAL on SALES in MICRO INDIA ENGINEERING In Lacks.

Graph No. 16

INTERPRETATION: Graph no. 16 indicates that in 2008-09-10 the Proportion of working capital on sales this ratio indicates whether the investments in current assets or net current assets (i.e., working capital) have been properly utilized.

 It shows the relationship between sales and working capital. Higher the ratio lower is the investment in working capital and higher is the profitability. But too high ratio indicates over trading. This proportion is an important indicator about the working capital position. Now if we analyze the five years data, we found that it follows an increasing and decrease trend which means that its investment in working capital is lower and the company is utilizing more of its profit. I fonnd that proportion has increased at a faster rate in 2007 which is not a good sign for the company and the company is required to look into these matters closely. The year 2008 shows decrease in proportion because of increase in assets by 33% and sales is more than twice. Year 2009 shows Increase in net current asset by 16%. In 2010 shows Increase in Net current asset by 35 % of previous year.

6) Position of STOCK TURNOVER RATIO in MICRO INDIA ENGINEERING Rs. In Lacks.

Inventory Turnover ratio Average Stock(A) Cost of goods sold (B) Stock turnover ratio B/A

31.03.06 10.81 149.98 14

31.03.0 7 18.56 225.49 12

31.03.0 8 21.99 330.16 15.03

31.03.0 9 11.64 280.15 24.05

31.03.10 46.96 370.50 9

Graph No. 17

INTERPRETATION :-

In Graph no.17 this ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year. If a firm maintains a minimum stock level in order to maximize sales by

quick rotation of inventory and the holding cost of inventory will be minimum. A low stock turnover ratio reveals undesirable accumulation of obsolete stock.

By analyzing the five year data we seen that in the year 2006 to 2007 it is more or less double which has been rectified in the year 2008. But it is needless to say that ratio of the company maintains is very high and the company is required to take measures to lower down this ratio as it affects the working capital cycle of company and the flow of cash in the company

To previous so again the number of days of operation has increased In 2009 In 2010 also there is decrease in number of days of operation i.e. 9 days.

Finding: In Working Capital Management funds are needed for short term purposes for the purchase of Raw-material, Wages & other day to day expenses these funds are known as Working Capital. Working refers to that part of the firms capital which is required for finding shortDebtors etc. term or current assets. Such as Cash, Inventories,

Working Capital with Sales:Sale of a company increased from 149.98 lacks to 370.50 lacks from 2006-2010. Working capital wit sales ratio increased from the year 2006 i.e. 1.5 to 2.60 in 2010. Hence need of a working capital increased from 99.82 lacks to 206.2 lacks in 2010. Higher the Ratio lower is the investment in working capital of the company

Working Capital with Ratio:Debtor Turnover Ratio:In 2006 the Co.s Debtor Turnover Ratio was 1.98 and in 2010 it increased upto 5.69. It indicates good sign for the company because higher the value of Debtor turnover ratio The more efficient is the management of Debtors. Creditor Turnover Ratio:In the year 2009 Credit Turnover Ratio was very high i.e. 4.04 that means positions of creditors that year was not good. And In 2010 Creditors Turnover Ratio decreased upto 2.01 which is very good sign for the company. Company enjoying a very good facility from the suppliers.

Current Ratio of the Micro India Engineering:This ratio indicates the financial stability of the company. The standard of the normal ratio is near up to standard ratio is 2:1 . Current Assets increased as compare to current liabilities of the firm.

Position of Quick Ratio in Micro-India Engineering:It is used as an assessment tool for testing the liquidity position of the firm .Liquid assets comprises all Current assets Stock. By analyzing 5 years data liquidity position of Micro- India Engineering is Stable. Operating Cycle Of Micro-India Engineering:Operating Cycle is the time duration required to convert raw material into cash. Net operating Cycle = Gross operating cycle Creditors Period. Gross operating cycle includes Raw material holding period, Finished goods holding period and Debtors collection period. In the year 2006 Gross operating cycle period was 139 days, in 2007117 days, in 2008 81 days, in 2009 & 2010 it was 91 days and 123 days. Gross operating cycle decreased hence requirement of working capital also decreased. In year 2010, Gross operating cycle increased therefore requirement of working capital also increased.

IN year 2009 creditors period is decreased up to 27 days , hence requirement of working capital also decreased. In the year 2008 Net operating cycle decreased up to 31 days it shows the lowest requirement of working capital. In the year 2010 Net operating cycle increased up to 72 days it shows high requirement of working capital for the company

SUGGESTIONS The company should try to keep the net operating cycle period low by minimizing raw material holding period, finished goods holding period and debtors turnover ratio. Currently, Current Ratio of MICRO INDIA ENGINEERING is 1:5 Company should take measures so that its Current Ratio is maintained and its not too below from standard by increasing current assets.

 MICRO INDIA ENGINEERING has its quick ratio up to standard in 2009-10. Company should maintain this ratio throughout.

Conclusion:-

Working Capital involves the relationship between the firms current or short term assets and its current or short term liabilities The aim of working capital management is to ensure that the firm is able to continue its operation and that it has sufficient ability to satisfy both maturing short term liabilities with its current assets ( cash , Account receivables, inventory ) It shoes the relationship between sales and working capital. Higher is the ratio lower is the investment in working capital and higher is the profitability. In 2006 ratio was 1.50 and it increased up to 2.60 in year 2010. Debtors are the valuable current assets in the working capital management . Higher the value of Debtor Turnover Ratio the more efficient is the management of debtors/sales. A low Debtor Turnover Ratio indicates poor management of debtor/sales. Management of debtors turnover ratio is more efficient in working capital management , because in year 2006debtoe turnover ratio was 1.98 and it increased up to 5.69 in 2010 In Micro-India Engineering Credit turnover ratio was up to 4.04 it means position of creditors in that year was not so good, and in year 2010 ratio decreased up to 2.01 it is good sign for the company. So it indicates that company enjoying a very good credit facility from their supplier. Financial position of Micro-India Engineering is up to standard of the normal ratioi.e.2:1.Current Ratio shows the financial stability of the

company. Current assets increased from 218.73 lacks to 355.81 lacks as compared to increased in the liabilities i.e. from 118.8 lacks to 149.79 lacks Quick Ratio used for an assessment tool for testing the liquidity position of the firm. Liquid assets comprise all current assets stock. By analyzing 5 years data to conduct that liquidity position of MicroIndia Engineering is stable.

Operating Cycle is the time duration required to convert raw material into cash. Net operating Cycle = Gross operating cycle Creditors Period. Gross operating cycle includes Raw material holding period, finished goods holding period and Debtors collection period. The operating cycle of a production unit involves 3 phases:

Acquisition of resources such as raw material labour etc.

Companies production of the product Conversion of raw material into finished products

Sale of the finished products either for cash or credit.

BIBLIOGRAPHY

:-

Financial Management- Mr. Prasanna Chandra, 1st edition Financial Management- Mr. Vechlekar, 2nd edition.

WEBLIOGRAPHY

1. 2. 3.

www.microindiamfg.com www.mieinfoline.com www.google.com

Email id: - microindiamfg@rediffmail.com