Working Capital Management And Ratio Analysis.

EXECUTIVE SUMMERY

VRL logistics limited a company registered under the provisions of the companys act 1956, with its symbol of services as VRL. Has built and maintained good will in the minds of public at large in the country in general and in Karnataka in particular with more than 800 branches all over the country. The company has 2800 vehicles consisting cargo and passenger buses and claiming as largest single fleet owner in the world entitled for an entry in the gunnies book of record has already accepted the entry. One of the major issues affecting the performance of the company is ensuring that the cash held by the company is neither excessive or in adequate but is sufficient for meeting its current requirement. Cash storage will affect the companys liquidity position while excessive cash will remain idle without contributing anything towards profitability. The study on capital management takes into amount the cash position. The liquidity position of the company is good to meet its short term obligations and when they become due. The company is using its cash efficiently. The major portion of its cash flow is used for acquiring fixed asset working capital management is concerned with the management of current assets. It is an important and integral part of financial management as short-term survival is perquisites for long-term success. Working capital that is it does not invest sufficient funds in current assets. It may become illiquid and consequently may not have the ability to meet current obligation. The study reveals that barrowing constitutes the major portion of its cash inflow. The financial charges are becoming drain on the company earnings the company has to takes steps to bring the size of barrowings. VRL can manage its cash better if it adopts budgetary.

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INTRODUCTION TO THE COMPANY

The chairman and managing director Mr. Vijay Sankeshwar started as an individual transporter in January 1976 without any background and experience, initially for the first 2 years he suffered heavy losses. At end of 1977 and started as local transport between Hubli and Gadag. Gradually business picked up similarly and sometimes hiring out to Vijayanand Road lines which was property concern. Later the above proprietorship firms were converted into a private limited company and sold their Lorries to the company came into existence and effective from 31st march 1983. In India roadways plays a very important role in connecting the different parts of the country. The globalization, privatization makes the customer to demand a specialized and quality service, to fulfill the demands one should maintain a very good in his. And kindly upgrade his service with new technologies. This will help in fulfilling this demand. In olden days the price plays an important variable of competition. But in today market the quality and additional service as a variable for competition. The customer in todays market is ready to pay high charges but they are not ready to consume the services which are low quality. They want a certain standards in the service which they want to consume. No doubt the majority share in the passenger transport is owned by government Transport Company. Because of this reason the private companies can land their private companies by putting these private companies by putting some restriction to them for lending the services.

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OBJECTIVES OF THE STUDY

1. To know the liquidity position of the VRL Logistics towards its short term obligations. 2. To find out various ratios with respect of 6 years Balance Sheet. 3. To know the working capital pattern and working capital components of the VRL Logistics. 4. To understand the management system and working process of the VRL Logistics Ltd. 5. To find out the how best the company utilizing its total assets. 6. To estimate the working capital requirements of VRL Logistics Ltd.

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INDUSTRY PROFILE

Transportation is a large and varied sector of the company. Modes of the conveyance for goods range from peoples head (on which loads are balanced) and bicycles rickshaws to trucks and railroad cars. The road transport grew rapidly after 1947. Both rail and road transport remains important. The share of transportation investment in total public investment declared during the period from the early 1950s to the early 1980s real public transportation investment also declined during much of that period because of the need for funds in the rest of the economy. As a consequence, by the early 1980s the transportation system was barely meeting the needs of the nation or preparing for future economy growth and for many any roads for easy. They were braking up because of overuse and lock up maintenance railroads required new track and rolling stock. Ports ended equipments and facility, particularly for bulk and container cargo. And at many airports the national civil airlines needed supporting equipments, including provision for instrument landings the government planned to devote 19% of the 8th 5 year plan (1992-1996) budget to transportation and communication up from the 16% devote to the sector during 7th plan. Although there is a large private sector involvement in transportation, government places a large regulatory and development rule. The central government has ministries to handle civil aviation, railroad and surface transportation counterpart agencies are found at the state and union territory level critical to improving the entry transportation sector in the late 1990s is the ability of the sector to adjust to the central governments national reform initiatives including privatization deregulation and reduced subsidies the sector must also adjust to foreign trade explanation, demographic. Pressures and incasing urbanization, technological and obsolescence, energy availability environment and public safety concerns.
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COMPANY PROFILE

VRL Logistics Limited (VRL) was funded in 1976 by Vijay Sankeshwar; chairman in Hubli a small town in north Karnataka, the southern state in India, with a single truck and a vision that way ahead of its time. Starting its operations in the general cargo transportation VRL has grown into a renowned, pan- India Logistics and passenger transport company, which is currently the largest private sector fleet owner in India, with a fleet strength of over 2800 vehicles, which in the limca book of records. 3PL and warehousing solutions offered by VRL is tailor made cater to unique needs of various customer of the industry. With the largest network in India, the VRL parcel service is indispensable for large number of corporate houses. This network spans the length and breadth of the country and is supported by large number of transshipment hubs, braches, and franchises and over valuable customers. VRL is now expending its services to rich even the remote locations of the country. Mr. Vijay Sankeshwar, the promoter commenced of the business of transportation in the state of Karnataka, as a proprietary concern in year 1976. The proprietary concern subsequently converted into a partnership firm by the name measures Vijayanand road lines in year 1978. This partnership firm was then converted into a private limited company under part ix of companys act, 1956 under the name of Vijayanand road lines private limited and a sati fact of incorporation, Bangalore dated march 31st 1983 was issued by the register of the company Bangalore and Karnataka. The company become a deemed public limited company in the year 1994 and an endorsement to this effect was made by the register of company, Bangalore, Karnataka on July 1st 1999, on the original certificate of incorporation dated march 31st 1983 pursuant to a special resolution passed by the share holders in extraordinary general meeting held
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on February 14th 1997 the status of our company was subsequently changed from a deemed public limited company to public limited company. The name of our company was changed into VRL Logistics Ltd and the ROC Karnataka granted a press certificate of incorporation, consequent on change of name to our company on august 25th, 2006. The company was initially in the business of transportation of goods and parcels, subsequent it commenced the business of courier service in the year 1992. In the year 1996 the acquired passenger buses and entered into an agreement with Vijayanand travels a proprietary concern on the business of passenger service. Initially Vijayanand travels a proprietary concern started by Mrs. Lalita Sankeshwar in November 1996 for giving the said vehicles on hire, to carry on the business of passenger service. Initially Vijayanand travels were operating within the state of Karnataka only. Over a period of time with the growth of it business, it began operating business between destination in Karnataka. The company acquired the business of Vijayanand travels on June 30th, 2004 for a total consideration Rs 50, 00,000. The company continued with the same business as separate divisions. Mrs. Vani Sankeshwar in august 2001, started Maruti parcel carries which operate as division of the company. The Shiva road lines were started in the year 2003 as separate division of the company. The Shiva road lines provide service only in the state of Karnataka covering 6 cities. A Shiva road lines has 7 dedicated branches. It provides door- to- door services without more than two tones. The company has recently diversified in the wind power business in 2006 and air charter business in 2007. Recently company has purchased premier 1a air from Hawker beech incorporation, USA 1A is 2 pilots and 6 passenger seats aircraft ( with club configuration seats) it has entered into MOU dated November 1 st, 2007 with IN damer company private Limited for maintenance of the aircraft. Over the VRL has evolved itself as providers of safe, reliable and timely delivery network, in the field of parcel services. It has now expanded its operation into EXPRESS cargo to meet the growing demand for quicker and speedier deliveries of parcels. Currently VRL handles over 6000 MT of parcels every day adding up to a staggering 216,000,000 MT of cargo per annum, apart from its core business of cargo transportation the company has diversified into
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passenger transportation. Today VRL is one of the leading companies in the Indian transport industry. In 2007, VRL Logistics Ltd. provides its way into the Indian aviation industry. It is a gradual progression for the company. From surface transport to air transport. The Indian aviation industry has experienced a tremendous growth in the last 2 years, more so in the private aviation sector. Keeping in mind the market demand VRL decide to enter the air-charter industry and serve the VVIP, VIP & corporate India. In the first phase VRL has acquired a brand new, premier jet one a year craft it is manufactured by Hawker beech corporation, USA. The company has future expansions plans to add more aircraft and helicopters, based on the market feedback and demand. Initially we wise to offer the jet aircraft on charter basis to the corporate sector, leisure and tourism sector, medical evacuation, a special mission charter, event management, advertisement agencies and VIP flights.

BOARD OF DIRECTORS Mr. Vijay.B.Sankeshwar, Mr. Anand Sankeshwar Mr. Karunakr Shetty. Mr. Sudhir Ghate Mr. J.S.Korlahalli Mr. Prabhakar Kore Chairman and Managing Director Managing Director Director. Director Director Director

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VRL LOGISTICS LTD., VARUR, HUBLI

Name of the organization Phone No. Fax E-mail Proprietor Location : VRL Logistics Ltd., Varur, Hubli. : 0836-2237613 : 0836-2297614 : varurho@vrllogistics.com : Vijay Sankeshwar : NH4, Pune-Bangalore Road, Near Varur, Hubli. Company type Head Office : Limited Company : VRL Logistics Limited, Regd. & Administrative Office: NH4, PuneBangalore Road, Varur, Hubli-581 207 Karnataka State Corporate Office : VRL Logistics Limited, Giriraj Annex, Circuit House Road, Hubli-580 029, Karnataka State Employees Area Brand Name : 7000 employees : 43 acres : VRL

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PERFORMANCE:
Years 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Turnover (Rs in Corers) 149 170 204 277 361 443 547 650 710

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Various Departments of VRL 1. ADMINISTRATION DEPARTMENT:

This department manages day today activities. In VRL travels the administration department include; Day today administration: Accounts queries and commission letter to agent Bus breakdown report Inspection report Instruction and other

Collection of reports Seats occupancy report Bus arrival report Customer feedback follow up: Customer suggestions Customers complaints Other reports: Bus fare Route fixation Opening of branches Agency inspection

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2. LEGAL DEPARTMENT:
Legal department is one which plays most prominent part in the company. It focuses on all the legal aspects concerned to the company. It functions positively towards the success VRL logistics Ltd., Functions of legal department: Settlement of industrial disputes: Industrial disputes includes strikes, lockouts are settled under Industrial Disputes Act. Thus, settlement of these disputes is one of the activities concerned with trade unions. Settlement of workmen compensation: This compensation, under Workmen Compensation Act includes accidents, matters related to gratuity, pension etc., are settled provided accidents to employees on job. Settlement of accident claims: In case of accidents or losses to the vehicles of VRL Logistics Ltd occurs, and then compensation can be claimed by this department. To avoid illegal activities in the firm: Illegal activities such as theft, robbery within premise are avoided. Advice the departments in the firm: This legal department acts as an advisor for the different department of the firm concerning with ethics, social obligation towards the public.

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Suit against debtors: Customers are given maximum period to clear the debt. If the positive response is not given first notice is sent. After 30 days second notice will be issued within 90 days and third notice within 20 days and thereafter are not sent, but personnel approach is given and then legal action is imposed, these notices are issued in order to avoid legal litigation, enmity. Suit against bounced cheque: Customers paying by the cheque if return by bank when there is no enough money in an a/c for it to be paid then the company has right to the customers for such as act. Settle legal charges: It is the responsibility of this department to pay all legal charges charged by the court/ govt.

2. HUMAN RESOURCE DEPARTMENT:

This department manages the most skilled resources in the organization i.e. human resources. The personnel department looks after the following area; Recruitments of staff Training the staff Motivation of employees. Allocation of work. Facilities of ESI Matters relating to leave, salary, bonus etc., Improving employer and employee relation.

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4. STATIONERY DEPARTMENT: The stationery department generates a list of stationery items required by different branches as per their requisition, this includes; Collecting requisition from branches for items. Generate a copy of stationery Sending report to account department for verification. 5. MARKETING DEPARTMENT: This department is heart of the organization, which plans and decides about new marketing strategy to be introduced, it also involves some activities such as; It takes customer feedback. Follow-up the customer feedback. Forms the tariff rates. Offers discounts in non peak times. Formulates the promotional tools. Identify the necessity of expansion of business geographically. Generates the report an opening of new branches. Plan for introducing new coaches. 6. FINANCE / ACCOUNTS DEPARTMENT: One of the major departments in company is accounts department. In this department financial activities will take place. It is fully computerized. Internet is being used for daily recording calculation. There are two sections; Manual Section. Computer section The accounts department has got specialization because the company is in its growth phase.
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Books maintained in accounts department: Cash book Passing the journal entries and transferring the entries into ledger. Bank reconciliation statement Account of agencies and branches. Preparation of financial account. Other accounts maintained by accounts department:Drivers account: This account includes the amount given to the drivers for their expenses. This maintains in accordance with trip sheet submitted by the different department and it is also includes the Basic pay, HRA, DA, PF to drivers. Vehicles account: Here the expenditure accrued on each vehicle is calculated, the cost of benefit analysis is done to project the future potential of the vehicle. All branches have to send daily report to head officer in daily delivery stock summery. Head office will record all cash payments and cash receipts in daily cash statement book. 7. OPERATION AND MAINTENANCE DEPARTMENT: This department deals with technical and mechanical part of the company in VRL. This department takes part in vehicle planning and maintenance of vehicle. Vehicle Planning: Maintaining the time sheet and vehicle. Maintains the diesel entry card of bus from different branches. In case of bus breakdown alternative arrangements Maintaining the report of breakdown buses.
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Repairing the buses at workshop Sending the repaired bus report to the vehicle planning to move on again for trip. 8. INSPECTION DEPARTMENT: This department looks into official examination of different department to check whether the flow is continuous or not. It involves work processes. o Visiting and inspecting the branch o Creating the inspection report on branches. o Sending the report to administration department for correction measures. 9. BOOKING DEPARTMENT: This department helps to interact with the customers. Some features which comes under this department are; Collecting customer information. Booking contracts and tickets. Maintain passenger list provide boarding for passenger.

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VRL LOGISTICS LIMITED

MISSION To provide the highest quality service to our customer by continuously increasing cost efficiency and maintaining delivery dealings. To encourage our employees/ workforce to serve for quality and excellence them everything they do. The promote team work and create a work environment that takes care of talent and brings out the best in our employees.

VISION To become a premier company that cuts across various segment and emerges as the torchbearer of each segment that the group ventures into. VALUES Punctuality Integrity Honest Loyalty Credibility

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QUALITY POLICY Our commitment is to provide the quality logistic service consistency at reasonable price and continually improve the same to achieve customer delight on the sustainable task. VRL enjoys the distinction of being the single largest fleet owner in the private section India with more than 2800 vehicles.

PHILOSOPHY They immensely follow the philosophy of TIME IS GOLD

ISO 9001-2000 CERTIFICATION Vijayanand Travels is committed to quality and safety reorganization of these efforts to confirm its services to the highest standards regarding time management of passengers convince management system in June 2005.

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PRODUCT/ SERVICE PROFILE

VRL offer following services which are summarized below: 1) Goods transportation A. Full truck load B. Less than full load (parcel) I. General parcel II. Express cargo C. Courier D. Passenger travels 2) Wind power generation 3) Air charter business 4) News paper (English & kannada) 5) Packaged drinking water

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THEROTICAL FRAME WORK OF WORKING CAPITAL

The most profitable function of an organization is to make the working capital. Its current assets and current liabilities, which bring most of the earning for an organization and valuable ties which the community. An effective current assets and current liabilities policy provides funds to the vital sectors of the economy in appropriate amounts and appropriate time, by promoter economic development. Meaning of working capital. Concept of working capital. Types of working capital. Needs, objectives, principal, of working capital. Determinants of working capital. Estimation of working capital requirements, operating cycle.

Formula CURRENT ASSET

Inventories Sundry debtors Cash and bank balances

CURRENT LIABILITIES
Sundry creditors Other liabilities

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WORKING CAPITAL MANAGEMENT

The aim of the present study is to examine the small scale industry practices in working capital management is determined by the efficient administration of its various components such as cash, accounts receivables and inventory, the study attempts to determine the management of each component. Working capital in a business enterprise may be compared to the blood in a human body. Blood gives life and strength to the human body. Similarly working capital injects life and strength profits and solvency- to the business organization. Working Capital refers to short term funds required for the purpose of business operations. The funds used for meeting day to day expenses, stock of goods, granting of credit to customers and maintenance of the minimum balance. It is not necessary that the funds should be in the form of cash only. It can be in the form of near cash items like marketable securities, inventories and account receivable.

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CONCEPT OF WORKING CAPITAL

Like most of financial concepts, the concept of working capital is used in different connotations by different writers. Obviously, it is understood either as the total current assets or as the excess of current assets over current liabilities. The former is referred to the gross working capital and the latter the net working capital. So there are two concepts in working capital: 1. Gross working capital. 2. Net working capital.

Gross working capital is the total of all current assets, viz. cash, marketable securities account receivable and inventory net working capital refers to excess of current assets over current liabilities. Both of these concepts have their own importance. The gross concept is a going concern concept in which management is particularly interested because for the productive utilization of fixed assets all the currents are necessary. The net concept is useful to gauge the financial soundness of a form and is of special. No special distinction is made between the terms total current assets and working capital

by some authors working capital is nothing but total of current assets. It is a substitute for working capital, though not a perfect one working capital is the capital circulating into cash over an operating cycle. Working capital is equated with all the current assets. Working capital and current assets are interchangeable.

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The precise meaning of current assets and current liabilities: CURRENT ASSETS
Current assets are those assets which are used in the current operation of a business such as inventories, receivables, cash and bank balances and easily convertible securities. These assets generally change their form within an accounting period. current receivable may have a life span of 30 to 60 day, and inventories may be held for 30 to 100 day.

CURRENT LIABILITIES
Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bill payable, bank-overdraft, outstanding expenses, outstanding tax and income received in advance. current liabilities are those where liquidation is reasonably expected to require the use of existing resources properly classifiable as current assets, or the creation of other current assets, or the creation of other assets, or the creation of other current liabilities.

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TYPES OF WORKING CAPITAL

The operating cycle creates the need for current asset (working capital) however the need does not come to an end after the cycle is completed to explain this continuing need of current assets a destination should be drawn between and temporary capital.

Permanent working capital

The need for current assets arises as already observed because of the cash cycle. To carryon business certain minimum level of working capital is necessary on continues and uninterrupted basis.

Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or variable, working capital.

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NEED FOR WORKING CAPITAL

To fulfill its endeavor to maximize the share holders wealth. Firm has to earn sufficient return from its operation which needs a successful sales activity. The firm has to invest sufficient funds in current assets to succeed in sales of goods and actual receipt in cash. Hence there is need for working capital in the form of current assets to sustain sales activity during that period. Since cash inflows and cash outflows dont match. Firms have to necessarily keep cash or investment in short-term liquid securities to fulfill its obligations as and when they become due. The adequate stock of inventory provides a cushion against being out of stock and helps as guard to meet demand for its products. To be competitive, the firm must sell its products to their customers on credit which necessitates the holding of accounts receivables. Therefore an adequate level of working capital is absolutely necessary for the smooth sales activities, which in term enhances the owners wealth.

Working capital need arises for the following purposes:

1. For purchasing raw material, components and spare parts. 2. For paying wages and salaries. 3. To incur day - to - day expenses and overhead costs like fuel, power and offices expenses etc. 4. To meet selling costs of packing advertising etc. 5. To provide credit facilities to customers. 6. To maintain inventories of raw materials, work- in progress, spare parts and finished goods.

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OBJECTIVES OF WORKING CAPITAL OF VRL

To ensure adequate of a firm. To minimize the risk. It contributes to the maximization of firms value. To estimate to working capital requirement of VRL Logistics Ltd. To study the working capital component such as receivables accounts, cash management, inventory position. To study the optimum level of current assets and current liabilities of the company.

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DETERMINANTS OF WORKING CAPITAL

1. Nature of business:The working capital requirement of a enterprise are basically related to the conduct of business enterprises fall into some broad categories depending on the nature of their business. Public utilities have two futures which have a bearing on working capital need are: The cash nature of business that is cash sale and Sale of services rather than commodities

2. Production cycle :This is another factor, which has bearing on the quantum of working capital. The term production or manufacturing cycle refers to the time involved in the manufacturing of goods. It covers the time span between procurement of raw materials and the completion of the manufacturing process leading to the finished goods.

3 Business cycle:The working capital requirement is also determine by the nature of the business cycle. Business need to cyclical and seasonal changes, which in term causes a shift in the working capital position. The variation in the business conditions may be in two directions: Upward phase when boom condition prevail, and Downswing phase when economic activity is marked by a decline

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4 Production policy:The quantum of working capital is also determined by production policy. The demand for products is seasonal that is they are purchased during certain months of the year there are two opinions for production policy to enterprises either they confine their production only to periods when goods are purchased or they follow a steady production during the slack season the firm have to maintain their working force and physical facilities without production and sale.

5 Credit policy:
The credit policy relating to sales and purchases also affects the working capital. The credit policy influences the requirement of working capital in two ways.

1. The credit terms granted by the firm to its customer / buyers of goods. 2. Credit terms available to the firm its credits.

The credit policy terms granted to customer have a bearing on the supplies of goods (trade creditors) the need for working capital is less. The working capital requirement of the business is affected by the terms of purchase and sale and the role given to credit by a company in its with credit and debtors.

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ESTIMATION OF WORKING CAPITAL

Expenses on raw materials, labor and overhead. Length of time, the raw materials to be held in sock. Length of time the raw materials in manufacturing process in semi finished goods. Length of time, finished goods are held in ware house waiting sales. Credit period granted by the sundry creditors. Time gap in the payment of wages, salaries and other operating expenses.

COMPONENTS OF WORKING CAPITAL

The components of working capital are: Cash management Receivables management Inventory management

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CASH MANAGEMENT
Cash is the liquid form of an asset. It is the ready money available in the form or with the business, essential for its operations. A firm needs the cash for the following three purposes:

Transaction motive: The firm must and should keep the funds for transactions like purchase,
sales etc. these activities which are not known in advance, are not considered while preparing a cash budget.

Precautionary motive: The firm also funds for the safeguard against uncertainties, which
are an integral part of business operations.

Speculative motive: To tap profits from opportunities arising from fluctuations in

commodity prices, interest rates etc. the company with surplus cash is in a better position to exploit such situations.

Cash flows: The flow of cash into and out of the business over a period refers to cash flow.
Cash inflow can be in the form of cash received from customers, lenders and investors. Cash outflow can arises because of payments made to employees (salaries) supplies and creditors.

Positive cash flows: when cash flow exceeds outflow it results in positive cash flows.
Positive cash flow is beneficial to the business, the only thing to be cautious about is the opportunity cost, incurred as result of idle money.

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Negative cash flows: negative cash flows arise when cash outflows exceed inflows. This can
be due to various reasons. A good cash management has a major impact on the overall working capital management. It is required to meet the business obligations in the firm. The benefits of good cash management are: Control of financial risk Opportunity for risk Increased customer, supplier, and shareholder confidence

The cash management is commonly deals with the following aspects.

Cash planning or identifying of cash flows Managing the cash flows Optimum cash level

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STATEMENT OF THE PROBLEM

To find out how working capital is involved and to make an in depth study, this researcher undertook the task of defining the problem in this study. The researcher problem undertakes involves the financing and efficient management of current assets that is inventories, receivables, and cash. Working capital management involves the management of current assets and current liabilities. The manner of administration of current assets and current liabilities determine to a very large extent the success or failure of the business.

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FORMULA OF WORKING CAPITAL

Net working capital = current assets current liabilities Current assets and current liabilities include three accounts which are of special importance. The accounts represent the areas of the business where managers have the most direct impact. Account receivables (current asset) Inventory (current assets) Accounts payable (current liabilities)

The current portion of debt (payable within 12 months) is critical, because often secured by long term assets. Common types of short- term debt are bank loans of credit.

An increase in working capital that the business has either increase current assets (that is received cash or other current asset) or has decreased current liabilities. For example has paid off some short term creditors.

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WORKING CAPITAL MANAGEMENT

Decisions relating to working capital and short- term financing are referred to as working capital management. These involve managing the relationship between a firms short term asset and short- term liabilities. The goals of working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy short term debt and upcoming operation expenses.

Management of working capital

Management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and inventories and debtors) and the short term financing such that cash flows and returns are acceptable.

Cash management
Identify the cash balances which allows for the business to meet day to day expense, but reduce cash holding cost.

Inventories management
Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials and minimize recording costs and hence increases the investment in raw materials and minimize recording costs and hence increases cash flow.

Debtors management
Identify the appropriate credit policy that is credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence return on capital or vice versa.

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Short term financing

Identify the appropriate source of financing, given the cash conversion cycle, the inventory is ideally financed by credit granted by the supplier, however it may be necessary to utilize a bank loan (or overdraft) or convert debtors to cash through factoring

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CASH MANAGEMENT BASIC PROBLEM

Cash management technique one of the basic objectives of cash management is to minimize level of cash balance with the firm.

The objectives is sought to be achieved by means of the following

Preparing cash budget Providing for unpredictable description

Controlling inflow of cash care should be taken to ensure that there is no significant direction between the projected cash inflows and projected cash outflows, appropriated technique has to be devised for spread collection of cash and there technique are;

Concentration banking

Lock box system

Control over cash outflows centralize disbursement should be followed as compared to

decentralized system in cash of collection. Payment should be made on date. The firm should pay within the term offered by suppliers.

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MANAGEMENT OF INVENTORIES
INTRODUCTION
The tired major asset in working capital is inventory. The term inventories refer to the stock of the product. A firm is offering for sale and the components that make up the products.

Inventory as a current asset, differed from other current asset because only financial managers are not involved return all the function areas, finance, marketing and purchasing are involved.

Management of inventories involves two basic problems

I. Maintaining a sufficient large size of inventories for efficient and smooth production and sale production. II. Maintaining minimum investment inventories to minimize the direct and indirect cost associated with holding inventories to minimize profitability. Inventories should neither excessive nor inadequate if inventories kept at high level of inventories may result in frequent interruption in the production scheduling therefore company should maintain optimum inventory to achieve its objectives.

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Objectives of inventory management:I. II. III. Ensuring contains supply of inventories for facilitating interrupted production. Maintaining sufficient stock of supply. Minimizing carrying cost. Optimum investment in inventory.

IV.

Techniques of inventory management:

A. Determination of the types of control required. B. The basic economic order quality. C. The record point.

D. Safety stock.

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RECEIVABLES MANAGEMENT
INTRODUCTION
The sale of goods on credit is on essential fact of the model competitive economics systems, the terms receivables is defined as debtor owned to the customer arising from sale of goods services in the ordinary course of business.

Objectives of receivables management

Objectives of receivables management is to promote sales and projects until and point is reached where the return on investment in further funding receivables is less than the cost of raised to finance that additional credits.

Policies for managing requires:Receivables management is not merely collect receivables quickly but attention should also be benefit cost trade off involved in the various areas of allocates receivables management.

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RATIOS
Financial ratios are used to evaluate profitability, liquidity, solvency and capital market strength. It involves establishing a relevant financial relationship between components of financial statements. Two companies may have earned same amount of profit in a year, but unless the profit is related to sales or total assets, it is not possible to conclude which of them is more profitable. Ratio analysis helps in identifying significant relationship between financial statement items for further investigation. If used with understanding of industry factors and general economic conditions, it can be a powerful tool for recognizing strength as well as its potential trouble spots. This ratio measures the degree of operating success of a company.

The only reason why investors are interested in a company is that they think they will earn a reasonable return in the form of capital gain and to learn about the ability of the company to earn revenues in excess of its expenses. They will not be interested in sales. Failure to earn an adequate rate of profit over a period will also drain the company cash and impair its liquidity. The commonly used ratios

The commonly used financial ratios to evaluate profitability are Profit margin ratio Asset turnover ratio Return on asset Return on equity. Earnings per share

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1. Profit margin ratio:This ratio, also known as return on sales (ROS), measures the amount of net profit earned by each rupee revenue.

Profit margin ratio=

2. Asset turnover ratio:This is a measure of a firms efficiency in utilizing its assets. It indicates how many times the assets were turned over in a period and thereby generated sales. If asset turnover is high, the company is managing is assets efficiently. If it is low, it means the company has more than it really needs for its operations. Averages rather than year- end amounts of assets are a better measure of the level of assets held during the year. The difference between average and year- end amounts will be more pronounced for companies that are engaged in expanding capacity.

Asset turnover ratio=

*100

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Working Capital Management And Ratio Analysis.

3. Return of assets ratio:This is a measure of profitability from a given level of investment. It is an excellent indicator of overall performance of a company.

Return on assets=

4. Return on equity:This is a measure of profitability from the standpoint of the companys shareholders. It

measures the efficiency with which shareholders funds are employed. In order to moderate the influence of shareholder transaction such as share issue, buy- bank and retained earnings, analysts generally use the average of beginning and ending amounts for the year.

Return on equity=

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5. Earnings per share:Financial analysts regard the earnings per share (EPS) as an important measure of profitability. EPS is useful in comparing performance over time. But it is not of much help in making comparisons across firms because the number of equity shares can differ even if all of them have identical amount of shareholders equity.

Earnings per share=

LIQUIDITY RATIOS
Liquidity is the ability of a business to meet its short- term obligations when they fall due. An enterprise should have enough cash and other current assets which can be converted into cash so that it can pay its suppliers and lenders on time. The following four ratios Current ratio Quick ratio Debtors turnover ratio Inventory turnover ratio

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1. Current ratio:This is the ratio of current assets to current liabilities. It is widely used indicator of a companys ability to pay its debt in the short-term. It shows the amount of current assets a company has per rupee of current liabilities. Heres current assets include loans and advances and current liabilities include provision. Current ratio=

1. Quick ratio:All current assets are not equally liquid. While cash is readily available to make payments to suppliers and debtors can be quickly converted into cash, inventories are two steps away from conversion into cash (sale and collection). Thus a large current ratio by itself is not a satisfactory measure of liquidity when inventories constitute a major part of the current assets. Therefore, the quick ratio or acid test ratio is computed as supplement to the current ratio. This ratio relates relatively more liquid current assets, usefully current assets less inventories, to current liabilities. Quick ratio=

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Working Capital Management And Ratio Analysis.

2. Debtors turnover ratio:We need to measure the liquidity of specific current assets in order to understand the quality of current assets. The ability of a company to collect credit from its customers in a prompt manner enhances its liquidity. The debtor turnover ratio measures the efficiency of a firms credit and collection policy and shows the number of times each year the debtors and collection efforts. High debtor turnover indicates that debtors are being converted rapidly into cash and the companys portfolio of debtors is good. Debtor turnover ratio= 3. Average debt collection period:We can also compute the average debt collection period by dividing the number of days in a year by the debtor turnover ratio. Average debt collection period= 4. Inventories turnover ratio:This ratio shows the number of times a companys inventory is turned into sales. Investment in inventory represents idle cash. The lesser the inventory, the grater the cash available for meeting operating needs. Besides, lean, fast- moving inventory runs a lower risk if obsolescence and reduces interest and storage charges. High inventory turnover is a sign of efficient inventory management. In recent years, many companies have started following just-intime inventory practices whereby they make purchases at the time they are required for production or sales.

Inventory turnover ratio=

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SOLVENCY RATIO
The long term solvency of a business is affected by the extent of debt used to finance the assets of the company. The presence of heavy debt in a companys capital structure is thought to reduce the companys solvency because debt is more likely than equity. The debt-toequity ratio and the interest coverage ratio are important indicators of solvency.

5.

Debt to- equity ratio:A wise mix of debt and equity can increase the return on equity for two reasons.

Debt is generally cheaper than equity. Interest payments are tax- deductible expenses, whereas dividends are paid from taxed profits. In addition, dividend payments attract dividend distribution tax.

But excessive use of debt financing is risky. A company has a legal obligation to make interest payments and to repay the principal at the due dates. If a company takes on so much debt that it becomes unable to make the required interest and principal disbursement on time, the creditors may force liquidation of the company. The debt- to- equity ratio measures the relationship of the capital provided by creditors to the amount provided by shareholder. Debt includes both short- term and long term debts but not operating liabilities.

Debt to equity ratio=

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Working Capital Management And Ratio Analysis.

6. Interest cover ratio:This is a measure of the protection available to creditors for payment of interest charges by the company. The ratio shows whether the company has sufficient income to cover its interest requirements by a wide margin. The interest coverage ratio is computed by dividing profit before interest and tax by the interest expense. A high ratio implies adequate safety for payment of interest even if there were to be a drop in the companys earnings. Interest coverage ratio=

CAPITAL MARKET RATIOS Capital market ratios relate the market price of a companys share to the companys earnings and dividends. Price earnings (PE) ratio, dividend yield, And price-to- book ratio are the most commonly used ratios that aid investors and analysts in understanding the strength of a company in the capital market. Price earnings ratio=

Dividend yield:It represents the current cash return to shareholders. It is the ratio of dividend per share to current market price per share.

Dividend yield=

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Information relating to various current assets and liabilities include in the Year 2005-06 Particulars Current assets: Inventories Sundry debtors Cash and Bank balance Total 869.5 1721.25 708.15 3298.9 26.36% 52.17% 21.47% 100.00% Amount Percent

Current liabilities: Sundry creditors Other provisions Total 2732.87 307.13 3040 89.89% 10.10% 100.00%

Inventories Sundry Debtors Cash and Bank Balances Sundry Creditors Other Liabilities

It may be inferred that in the overall composite on of sundry creditors are the highest (89.06%), followed by sundry debtors (52.17%), inventories (26.36%), cash and bank balances (21.47%), other liabilities (10.94%).

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Working Capital Management And Ratio Analysis.

Information relating to various current assets and liabilities include in the year 2006-07 Particulars Current assets: Inventories Sundry Debtors Cash and Bank Balance Total 960.29 2371.32 1515.85 4847.46 19.81% 48.92% 31.27% 100.00% Amount Percent

Current Liabilities: Sundry Creditors Other Provisions Total 2794.28 280.43 3074.71 90.88% 9.12% 100.00%

Inventories Sundry Creditors Cash and Bank Balances Sundry Creditors Other Provisions

It may be revealed that in the overall composition of sundry creditors are the highest (90.88%), followed by sundry debtors (48.92%), inventories (31.27%), cash and bank balances (19.81%), other liabilities (9.12%).

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Working Capital Management And Ratio Analysis.

Information relating to various current assets and liabilities include in the year 2007-08 Particulars Current assets: Inventories Sundry Debtors Cash and Bank Balance Total 633.06 2922.98 1941.39 5497.93 11.47% 52.97% 35.55% 100% Amount Percent

Current Liabilities: Sundry Creditors Other Provisions Total 3355.96 105.12 3461.08 96.96% 4.00% 100%

Inventories Sundry Debtors Cash and Bank Balances Sundry Creditors Other Provisions

it may be revealed that in the overall composition of sundry creditors are the highest (96.96%), followed by sundry debtors (52.97%), inventories (11.47%), cash and bank balances (35.55%), other liabilities (4.00%).

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Information relating to various current assets and liabilities include in the year 2008-09 Particulars Current Assets: Inventories Sundry Debtors Cash and Bank Balance Total 686.35 4459.29 2391.17 7536.81 9.11% 59.17% 31.72% 100.00% Amount Percent

Current Liabilities: Sundry Creditors Other Provisions Total 2944.90 109.83 3054.73 96.40% 3.60% 100.00%

Inventories Sundry Debtors Cash and Bank Balances Sundry Creditors other Provisions

It may be revealed that in the overall composition of sundry creditors are the highest (96.96%), followed by sundry creditors (59.17%), inventories (9.11%), cash and bank balance (31.72%), other liabilities (3.60%).

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Information relating to various current assets and liabilities include in the year 2009-10 Particulars Current Assets: Inventories Sundry Debtors Cash and Bank Balance Total 695.52 4914.04 1862.69 7472.25 9.30% 65.76% 24.92% 100.00% Amount Percentage

Current Liabilities: Sundry Creditors Other Provisions Total 4841.83 57.76 4899.59 98.81% 1.17% 100.00%

Inventories Sundry Debtors Cash and Bank Balances Sundry Creditors OtherbProvisio ns

It may be revealed that in the overall composition of sundry creditors are the highest (98.18%), sundry debtors (65.76%), cash and bank balances (24.92%), inventories (9.30%), other provisions (1.17%).

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Information relating to various current assets and liabilities include in the year 2010-11 Particulars Current Assets: Inventories Sundry Debtors Cash and Bank Balance Total 607.46 6873.78 1585.69 9066.93 6.69% 75.81% 17.48% 100.00% Amount Percentage

Current Liabilities: Sundry Creditors Other Provisions Total 5335.61 301.52 5637.13 94.65% 5.34% 100.00%

Inventories Sundry Debtors Cash and Bank Balances Sundry Creditors Other Provisions

It may be revealed that in the overall composition of sundry creditors are the highest (94.65%), sundry debtors (75.81%), cash and bank balances (17.48%), inventories (6.69%), other provisions (5.34%).

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Estimation of Net working Capital Requirement

Year Current Assets Current Liabilities 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 3298.9 4847.46 5497.43 7536.81 7472.25 9066.93 3040 3074.71 3461.08 3054.73 4899.59 5637.13 Gross Working Capital 3298.9 4847.46 5497.08 7536.81 7472.25 9066.93 Net Working Capital 258.9 1772.25 2036.35 3054.73 2572.66 3429.80

Net Working Capital from 2005-06 to 2010-11:

Net Working Capital

4000 3500 3000 2500 2000 1500 1000 500 0 2006 2007 2008 2009 2010 2011 Net Working Capital

By using this graph we can easily identified that the net working capital of the firm is continuously increasing up to 2019-10 but in 2010-11 it is decreased.
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Ratios from 2005-06 to 2010-11

year Current ratio Quick ratio Cash ratio Debt ratio Debt equity ratio Interest coverage ratio Stock turnover ratio Stock velocity Debtors turnover ratio Debt velocity Fixed asset turnover ratio Total asset turnover ratio Working capital turnover ratio 23.25 7.86 8.34 7.09 9.10 8.19 1.67 0.77 0.86 1.05 1.16 1.22 17days 2.13 16days 0.91 17days 1.03 20days 1.31 23days 1.48 24days 1.58 20.64 21.64 20.64 17.62 15.28 15.14 67days 48days 24days 19days 15days 13days 5.41 7.53 15.17 18.57 22.98 28.40 11.40 7.74 5.83 6.95 5.98 6.53 2006 1.50 1.21 0.233 0.638 0.638 2007 2.83 2.51 0.49 0.55 0.55 2008 2.89 2.69 0.56 0.63 0.63 2009 4.00 3.77 0.78 0.66 0.66 2010 2.60 2.46 0.38 0.74 0.74 2011 2.93 2.82 0.28 1.056 1.05

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Gross profit ratio Net profit ratio

86.79%

84.42%

77.89%

81.16%

77.82%

79.27%

0.974%

19.05%

1.35%

0.073%

4.06%

5.70%

Operating ratio Operating profit ratio Return on investment ratio Earnings per share

34.22%

39.60%

53.54%

49.79%

50.68%

45.18%

98.17%

97.76%

97.70%

99.17%

93.79%

92.03%

22.82

7.69

8.15

7.03

8.53

7.53

0.61

11.78

1.27

0.11

4.77

7.38

Current ratio interpretation: in the 2005-06 the capability of meeting the short term
obligation is low, in 2006-07 the capability ratio has doubled, in 2007-08 the ratio has slightly increased, 2008-09 there is a drastic change in the current ratio but in the year 2009-10 the capability of meeting the short term obligations decreased half of the previous year in 2010-11 again there is a slight increase in the current ratio.

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Quick ratio: in the year 2005-06 the liquidity position to meet current obligations is 1.21, in
the year2006-07 the liquidity position has increased to 2.51 compared to previous year in the year 2007-08 the liquidity position has slightly increased, in the year 2008-09 the liquidity position has doubled to meet the current obligations, but in the year 2009-10 the liquidity position has decreased, in the year 2010-11 again there is a slight increase in liquidity position.

Cash ratio: in the year 2005-06 the ready cash available with VRL to meet the current
obligations for every one rupee of current liabilities there was rupee 0.23, in the year 2006-07 the cash ratio position doubled that is 0.49, in the year 2007-08 slight increase in cash ratio i.e 0.56, in the year 2008-09 cash ratio increased, in the year 2009-10 cash ratio decreased slightly, in the year 2010-11 cash ratio slightly decreased.

Debt ratio: in the year 2005-06 debt was 0.63, and in the year 2006-07 debt decreased, in the
year 2006-07 debt was slightly decreased but in the year 2007-08 slightly increased, again in the year 2007-08 slightly increased, in the year 2008-09 it is increased, in the year 2009-10 it is again increased but in 2010-11 it reached maximum.

Interest coverage ratio: in the year 2005-06 the VRL interest paid on is debt 11.40, in the
year 2006-07 interest paid is decreased, in the year 2007-08 it is slightly decreased, in the year 2008-09 it is again decreased, but in the year 2009-10 it is again decreased but in the year 201011 it is slightly increased.

Stock turnover ratio: in the year 2005-06 the 2005-06 the stock turnover ratio is 5.41 times
increased, in the year 2006-07 stock turnover ratio is 7.53 times again in the year 2007-08 stock ratio was 15.17, again in the year 2008-09 it is increased to 18.57 times, in the year 2009-10 it increases to 22.98 times, in the year 2010-11 it increases to 28.40.

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Stock velocity: in the year 2005-06 the stock velocity 67 days it not good, in the year 2006-07
it is 48 days it is better, in the year 2007-08 it is 24 days it is better, in the year 2008-09 it is 19 days it is still better, in the year 2009-10 it is 15 days it good, in the year 2010-11 it is 13 days it is still better.

Debtor turnover ratio: in the year 2005-06 it is high i.e.20.64 it is good, in the year 200607 it is high i.e. 21.64, in the year 2007-08 it is 20.64 it is decreased in the year 2008-09 it is again decreased to 17.62, in the year 2009-10 it is decreases, in the year 2010-11 it is decreasing 15.14.

Debt velocity: in the year 2005-06 it is 17 days it is good, but in the year 2006-07 it is 16 days
it is better, in the year 2007-08 it is again 17 days, in the year 2008-09 it is 20 days it is not good, in the year 2009-10 it is 23 days it again bad, in the year 2010-11 it is 24 days it is bad for the company.

Fixed asset turnover ratio: in the year 2005-06 it is 2.13 it shows better utilization of fixed
assets, in the year 2006-07 it is 0.91 that not good, in the year 2007-08 it is 1.03 they improve in using the fixed assets, in the year 2008-09 it is 1.31 they are utilizing the fixed assets, in the year 2009-10 it is 1.48 they are improve in utilizing the fixed assets, in the year 2010-11 it is 1.58 improve in utilizing the fixed assets.

Total assets turnover ratio: in the year 2005-06 the ratio is 1.67 it is utilization of the
assets, in the year 2006-07 it is 0.77 it is not good for the company, in the year 2007-08 it is 0.86 improve in utilizing the fixed assets, in the year 2008-09 it is 1.05 better for the company, in the year 2009-10 it is 1.16 better for the company, in the year 2010-11 it is 1.22 it shows the better utilization of total assets by the company.

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Working capital turnover ratio: in the year 2005-06 it is 23.25 shows better utilization of
working capital, in the year 2006-07 it is 7.86 it is not good for the company which means they are not utilizing working capital properly, in the year 2007-08 it is 8.34 they are improve in utilization of working capital, in the year 2008-09 it is 7.09 they are still improved, in the year 2009-10 it is 9.10 it is improved, in the 2010-11 it is decreased in the 8.19.

Gross profit: in the year 2005-06 it is 86.79% it shows relationship between sales, gross profit
margin and cost of goods sold it is good for the company, in the year 2006-07 it is 84.42% it is better, in the year 2007-08 it is 77.89% it is decreased compared to previous year, in the year 2008-09 it is 81.16% they are improved, in the year 2009-10 it is 77. 82% it is slightly decreased it is not affect that much, in the year 2010-11 it is 79. 27% again it is increased but slightly.

Net profit: in the year 2005-06 it is 0.974% it not good, in the year 2006-07 it is
1.005%sllightly increase in the profit, in the year 2007-08 it is 1.35% slightly increased it is better for the company, in the year 2008-09 it is 0.073% it is slightly decreased, in the year 200910 it is 4.06% increased in the net profit, in the year 2010-11 it is 5.70% improve in the net profit.

Operating ratio: in the year 2005-06 it is 34.22% it is good for the company, in the year
2006-07 it is 39.06% it is slightly increased, in the year 2007-08 it is 53.54% it is increased more it is not good for the company, in the year 2008-09 it is 49.78% it slightly decreased, in the year 2009-10 it is 50.68% slightly increased as compared with the previous year, in the year 2010-11 it is 45.18% decreased. It is good if the company maintaining lower operating ratio.

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Operating profit ratio: in the year 2005-06 it having 98.17% it is good if company
maintains high operating profit ratio, in the year 2006-07 it is having 97.76% slightly decreased but not that much, in the year 2007-08 it is 97.70% very minute change not affect much, in the year 2008-09 it is 99.17% increased slightly, in the year 2009-10 it is 93.79% decreased, in the year 2010-11 it is 92.03% again decreased .it is better if they maintain higher operating profit ratio.

Return on investment: in the year 2005-06 it is having 22.82 they maintain effective in
utilizing the investments, in the year 2006-07 it is 7.69 decreased drastically in the year 200708 it is 8.15 slightly increased, in the year 8.15 it is decreased slightly it is not good for the company, in the year 2008-09 it is 7.03 again decreased, in the year 2009-10 it is 8.53 increased slightly, in the year 2010-11 it is 7.53 it is decreased slightly. Maintaining higher return on investment is good for the company.

Earnings per shareholders: in the year 2005-06 it is 0.61 it is not good for the company,
in the year 2006-07 it is 11.78 it is increased drastically it is profit for the company as well as for the shareholders, in the year 2007-08 it is 1.27 it is decreased drastically it is bad for the company as well as for the share holders, in the year 2008-09 it is 0.11 it is decreased, in the year 2009-10 it is 4.77 it is increased, beneficial for the company, in the year 2010-11 it is 7.38 increased. Earnings per share increased beneficial for both company as well as share holders.

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FINDINGS
The VRL has the good capacity of paying the current obligations and short term obligations because the company has sound cash balance and bank balances. The VRL has been using more debt and the debt ratio is increasing year by year because they are using more debt to generate more earnings per share. The company has been paying its interest on debt regularly and promptly to the sundry creditors that is the reason they are getting debt from the lenders. The companys turnover is increasing year by year and holding period of the stock is also decreasing it is good for the company, it shows that the management is effective. The company is utilizing its total assets very effectively to achieve the objectives of the organization. The company does not have any problems regarding working capital because the company has sound amount of cash balances and bank balances. The operating expenses is fluctuating it is affecting the net profit margin.

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SUGGESTION
The company should not finance in working capital requirement through long term borrowings. Instead of having financed from banking source it is better to relating the quantum of capital clause by increasing the authorized share capital and there by issuing the shares and the company should also mobilized some of funds through accepting public deposits on the interest rates will be law compare to the financial charges paid for bank.

From the analysis part as we found that operating expense is not constant over the years so the company need to emphasis on this point.

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CONCLUSION
The main intention of the study is project work has to understand the short term and long- term liquidity of the firm. The other objectives of this report were to know the working capital financing pattern and its impact on the profitability. Keeping these objectives in mind necessary calculation have been made and presented in the charts. From the data analysis we can concluded that company has sound financial represent the current requirement of the firm has deals with current assets and current liabilities. The working capital requirement have progress by 3429.8% between the years 2010-11 this indicates the company has better financial condition.

By using all these information we can conclude that the financial position of VRL Logistic Ltd quite satisfactory.

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BIBILOGRAPHY
1. Financial Management 2. Financial Management 3. Financial Accounting : By I.M. Pandey : By Khan and Jain :By R. Narayanaswamy

4. Annual Report of VRL from 2006-2007 To 2010-2011

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