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DECLARATION

I FIROZ AMBADI hereby declares that this Project Report entitled

“A STUDY ON WORKING CAPITAL MANAGEMENT OF THE FACT LTD,

ERNAKULAM” is a bonafide record of work done by me in partial fulfillment

of the MBA Degree Course of the University of Mahatma Gandhi.

FIROZ AMBADIDate:



ACKNOWLEDGEMENT

First and foremost, I thank God whohelped me in my endeavor

My first and foremost acknowledgement is to Shrimathi. CHANDRIKA ,FINANCE OFFICER,F ACT LTD

, for giving me an opportunity to do my project work .I also owe my

special word of thanks to Mr.PHILIPOS (FACT TRAINING CENTRE) and Ialso thank Mr.Sabu for his constructive comments and sincere guidance.

I express my deep gratitude and indebtedness to the management,staff’s and employees of TCC Ltd for their constant support helped me tocomplete this project successfully.

I wish to extend my sincere gratitude to Ms.Divya (MBA) RegionalManagement College Malappuram, Academic guide for her immense helpand co-operation which she had extended during the course of project. And

also I owe my sincere thanks to our Head Of The Department.

I have pleasure and privilege in expressing my deep sense gratitudeand respect to our beloved Principal Mr. José Joseph (Regional ManagementCollege Malappuram), for his helpful guidance, critical suggestions, andinspiring encouragement, timely help and warn concern offered during thecourse of study.

I owe my graceful acknowledgement to my parents, teachers, friendsand everyone associated with my project.



CONTENTSPage No

1. INTRODUCTION OF THE STUDY

Objectives of the study

Scope of the study

Limitations of the study

2. RESEARCH METHODOLOGY

3. COMPANY PROFILE

About the company

Divisions of company

Products of company

Achievements of the company

4. REVIEW OF LITERATURE

Concepts of working capital

Determinants of working capital

Determining working capital mix

Analysis of working capital management

5. DATA ANALYSIS AND INTERPRETATION

Statement of gross working capital

Statement of net working cpiatl

Schedule of changes in working capital

Ratio analysis

Trend analysis

Fund flow analysis

FINDINGS AND SUGGESSION

CONCLUSION

BIBLIOGRAPHY



INTRODUCTION

Here this project study is entitled the analysis

and interpretation of management of working capital by the help of various

tools used for financial analysis. So first upon we know about theatrical

aspects of working capital and its management.

Working capital

Working capital is the capital required for the day to day

working of an enterprise. It is required for the purchase of raw materials and

for meeting the day to day expenditure on salaries , wages ,rents , advertising

etc.. It is needed for holding some convertible assets (current assets) such as

stock , book debts, bills receivables and cash. The firm operates its business

through these assets. These assets are convertible in the sense that these

change from one form of asset to another. Cash is converted in to raw material,

raw material converted in to work in progress, work in progress converted in

to finished goods , finished goods in to book debts and bills receivables and

then book debts and bills receivable in to cash. Thus the amount goes on

circulating or revolving from cash to current assets and current assets to cash.

That is why working capital is also called circulating capital or revolving

capital.

There are two views on the definition of

working capital, namely, gross concept and net concept. Gross working capitalrefers to total current assets. It represents the amount of funds invested in

current assets. Net working capital refers to the excess of current asset over

current liabilities. In other words, working capital is the difference between

current assets and current liabilities. Of the two , the concepts of net working

capital is most widely accepted.

Working capital = current asset – current liabilities



1

MANAGEMENT OF WORKING CAPITAL

Working capital management involves deciding

upon the amount and composition of current assets and how to finance these

assets. These decisions involve trade-offs between risk and probability. The

greater the relative proportion of liquid assets, the less the risk of running out

of cash, all other things being equal. However , profitability will also be less,

resolution of the trade off between risk and profitability with respect of these

decisions depends upon the risk preference of the management. The lower the

preference of the liquid asset to total assets, the greater the firms return on

total investment. This strategy will result in a low level of working capital.

The length of the operating cycle of the firms will

be different as such working capital of the firm will also vary . there is no

uniformity in the approach in assessing working capital requirements

especially with regards to inventories. Different firms will have different

inventory policies and different methods of allowing credit period as such

different will be there working capital requirements.

The problem of working capital requirement

can be examined under two heads. Internal financing and external financing.

We would be concerned with the internal financing aspects which deal with

determining the size of working capital needs in particular business. Situations

and seeking to achieve certain long run operating goals. Instead of telling

financial executives how much working capital is required in specific situation

our purpose is acquired them with tools and skills that may take them more

proficient in making quantitative decisions about working capital needs.

2



OBJECTIVES OF THE STUDY

To study and interpret the working capital management of FACT

Ltd

To analyses the changes in working capital position of the company.

To study the profitability position of the company.

Suggest measures for improvement with respect to management of

debtors, inventory and cash

To identify the areas of inefficiency

To analyses about the suitable proportion of current assets andcurrent liabilities in FACT.

To make suggestions and recommendations on the basis of the

study to improve the working capital of the trust.

SCOPE OF THE STUDY

Working capital is the single best method of determining the

position of the company, or how well that company may be doing. The study

was to analyze the working capital management of FACT Ltd Cochin. The

study involves the analysis of working capital, liquidity and profitability

position, as well as the operational efficiency of the company. For the

purpose of the study has been conducted for a period of last five year.

LIMITATIONS OF THE STUDY This study is limited for a period of five years from 2003-2007

Time is another major constraint in the study, because of not possible toamylase all documents.

Study based on annual report of company.

Tools used for analysis is subject to its inherent limit.

In this short period of time ,the research could not go through all

aspects of working capital management

3



RESEARCH METHODOLOGY

The methodology used in the study involves the collection of primary

data as well as secondary data. Mainly data are collected from the annual

report of the company.

Primary data: Direct interview with the concerned officers of the

company

Secondary data: Collected from the annual reports and other

records of the company.

Period of the study

A five year period from 2003-2007 has been taken for the study

Tools of analysis

1. Ratio analysis

2. Trend analysis

3. Schedule of changes in working capital

4. fund flow analysis

4



INDUSTRY PROFILE

Economic liberalization and reforms are the two key notes of the govt: political

philosophy today which has emplaced almost all sectors of the economy. Even

in the care of fertilizer sector , an attempt to introduce liberalization has been

made since aug 1992. fertilizer sector has to fall in line with the rest of

economy and a total decontrol would there for have to be ultimate goal for this

sector. In 1992 with a view to reducing the subsidy all the phosphoric and

politick fertilizers were decontrolled. consequently the prices of there

fertilizers increased sharply leading to fall in their consumption and

destructing in the ratio of fertilizer consumption. The retention pricing scheme(RPS) which was introduced in 1977 got confined urea only. Govt of India is

drawing a long term policy for fertilizer industry which is to ensure that is

transition to total decontrol is achieved in a shared manner. Govt of India

proposes to decontrol the fertilizer completely by 2006.

The most necessary requirements of human

being is food. The accelerated growth in a nation needs remarkable expansion

of food production from time to time. Agriculture must relay upon a primary

source for increase in food production.

India is the third largest producer and

consumer of chemical fertilizers in the worlds and accounts for about 12% of

world fertilizer consumption. The country produces several straight

nitrogenous fertilizers such as urea, ammonium sulphate, calcium ammonium

nitrate etc…as ell as complex fertilizers such as DAP and several NPK

complexes. Urea and DAP are the main fertilizers produced in India.

5



INTERNATIONAL SCENARIO

When there are large areas of unused frontier

land in the world it was often more economical for farmers to move on to newunfarmed land than to invest additional money in fertilizers for the land they

were than farming, a practice continued in second half of the 20 th century in

some under developed areas of the world. The use of manure and composts is

probably as old as agriculture itself and many other material such as ground

bones ,wood ash from burning the fallen trees , dried blood and fish were

employed long before the chemistry of soil and crops was understood. The

disappearance of frontiers combined with improvements in the technology of

fertilizers manufacture and more effective transportation lead to a growing

role of fertilizers for producing the needed food and fiber.

NATIONAL SCENARIO

India is one of the world's largest producers

and consumers of fertilizers , both phosphorescent and nitrogenous. The

fertilizer industry in the country is also among the fast growing sector in the

world. There are around 25 chemical fertilizers used in the country at present.

There fall under four broad categories namely nitrogenous, phosphates,

potassium and complex fertilizers.

71% of total fertilizer consumption during

1994-95 was of the nitrogenous variety where as the phosphorescent andpottasic fertilizers accounted for 22% and 7% in the same order. While urea ,

calcium and ammonium phosphate are the major nitrogenous fertilizers,

single super phosphate falls under the phosphatic category. Ammonium

phosphate is the main complex fertilizer.

6

STATE SCENARIO



Kerala has high degree of land use and cropping intensity.

The state's agricultural productivity is decreasing year by year. The

production and cultivation of rice is decreasing and the farmers are attached tocommercial cropes like rubber and coconut. Due to decrease in the cultivation

of rice, the consumption of nitrate and potash has come down. The percentage

consumption of fertilizers in different sates in India , the position of kerala is

one of the low ranking states. FACT is having market share of 53.4% in Kerala.

This is comparatively higher than the other companies in kerala. Due to the

entry of competitors in the field of fertilizers FACT has lost its market share

62.2%.

GENERAL HEALTH OF THE INDUSTRY

It is feared that several fertilizer units will be closed down in the process of

switch over from the present administrated pricing mechanism to a market

based industry. this would mean substantial loss of domestic fertilizer

production and corresponding incurred in import of raw material to meat the

demand. Even under the present circumstances health of industry is not good

several units have become loss making according to expenditure reform

committee recommendation of instead of unit wise retention price there will

be a GroupWise lump sum concession per ton of urea based on feed stock

which will harm some units and benefit others and there will be wide spread

sickness in the urea industry

Implication for future

India has become third largest country with a total capacity

of 11.07 million tones of p205 in the year 2000-2001. further capacity addition

for N now been started for the time being due to very narrow demand supply

gap at present and costly feed stock. However there will be some addition to

the phosphatic capacity. Domestic production of nitrogen fertilizers was 11.004



million tones in 200-01 where as production of phosphate fertilizer was 4.703

million tones. Which are marginal higher compared to last year production.

All India capacity utilization has gradually improved over the years and was

maintained at almost cent per cent level for N. however during 2000-01vestrichous were imposed on capacity utilization of urea at 92%. The increase

in production of total N is observed due to increase in production of DAP

during 2000-01 was 10% higher compared to previous year. The capacity

utilization for P205 fertilizers was cent per cent

8

COMPANY PROFILE



The history of fact is a stage of initiative , enterprise , innovation and

adventure in industrial development in India. The story of fact begin the time

of second world war. During those days entire India had face a shortage in the

supply of food items. The condition was so severe that even our traditional

ways of cultivation and farming was not so sufficient to meet the

requirements. Every one was search of a long term solution for solving the

problem. Finally they came to the conclusion that chemical fertilizer will be an

answer tom the problem. It was at this time sir, C.P Ramaswami Iyer took the

initiative to put up the fertilizer plant for the production of chemical fertilizer.

He worked all the ways for the building up of a chemical fertilizer in kerala.

This can be considered an first stage of development of a fertilizer plant called

Fertilizers And Chemicals Travencore Ltd.

FACT became a public sector enterprise on

1960 and 1962 FACT was came under control of central Govt: The third stage

of expansion of FACT was completed in 1965 with setting up of a new

ammonium sulphate plant. FACT engineering and Design Organization

(FEDO) was set up on 24th July 1965 to meet the merging need for indigenous

capabilities in vital areas of Engineering , Design and consultancy for

establishing large modern fertilizer plants, FEDO has since the diversified in to

chemicals , petrochemicals , hydrometallurgy , pharmaceutical and other

areas. FEDO offers services from project identification and evaluation stage to

plant design , procurement , projects management , site supervision and

commissioning of new plants as well as revamping and modernization of oldplants.

FACT Engineering Works(FEW) was

established on 13th April 1966 as unit to fabricate and install equipments for

fertilizer plant. Over the years FEW few developed capabilities in the

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fabrication of pressure vessels and heat exchangers. FEW has also undertaken

lying of cross country piping and fabrication and installation of large heddle

projects. The cochin division of FACT , the 2nd production unit was set up at

Ambalamedu and the first phase was commissioned in 1973. The 2nd

face ofFACT cochin division was commissioned in 19769. as diversified plans from

the traditional field of fertilizers and chemicals 50000 TPA Caprolactum plant

at udyogamandal was commissioned in 1990.

FACT was set up 1990 TPD Ammonia

plant at Udyogamandal at s cost of 638 crores following an order of high court

of kerala in Feb 1994 on public interest Litigation ,to decommission the

existing imported Ammonia storage and handling facility at Willington Island

(cochin port). The Ammonia plant was commissioned in 1998. the companies

main business is manufacture and marketing of fertilizers , caprolactum and

engineering consultancy and fabrication of equipments.

From the year 1983-84 FACT had

overcome the break even point forever and started making a profit balance on

its profit and loss account. This trend was continued in several years. Till 1997-

98 FACT maintain the good run. But after that because of the effect of

globalization and several other reasons the trend was reversed. The profit

story of FACT became and old story and the negative trend continued for a

long period. It was such a difficult period for FACT , sop that most of the

experts predicted its death of giant industry. As expected at he time of sellingup FACT it had began a revolution in the field of agriculture and chemical

fertilizers. It had made the chemical fertilizers familiar to the Indian farmers.

Started an a large fertilizer plant in the country , FACT had fulfill and fulfilling

the whole needs and

10



expectation of past , present and future generations respectively. The different

kinds of activities that had been initiated and done by FACT had made it

living legend in the minds o people.

DIVISIONS OF FACT

The udyogamanadal division of FACT can be

called an birth place of FACT and the mother of entire fertilizer industry in

India. It was at udyogamandal division the first commercial production of

FACT was taken place on 1947. At the beginning there was an ammonium

sulphate plant having a capacity to produce 10000 tons of N. Over the years

the division grew phenomenally because of the multistage expansion

programs involving the rationalization and modernization of production

process aided this and technologies successfully experimented and

implemented at FACT by their on technologists, in the corse of their

experiences and expertise were enriched.

The current annual production capacity ofudyogamandal division is 76050 tons of N and 29700 tons of P2O apart from

the manufacturing of ammonia ,sulphuric acid,sulphur dioxide, phosphoric

acid, synthetic , co2 etc. are also produced in udyogamandal division. The 900

TPD ammonia complex set up at udyogamandal division was the latest

addition to that division. The division has been conferred iso 14001

certification for environmental management system.

COCHIN DIVISION

The success of FACT inculcating and building at

fertilizer awareness as well as in creating an atmosphere of self reliance in

agriculture production leads to more intensive efforts in maximizing

indigenous

11





ISO 9002 certification for quality and ISO 14001 for environment management

system.

MARKETING DIVISIONFACT has been the pace seller in the fertilizer

marketing. Through innovative farmers education and fertilizer promotion

programs FACT created awareness about scientific cultivation and fertilizer

are among the farmers. This was achieved with the aid of various programs

over the

part of 60 years. During the part from its very inception , FACT had realized

the taste of fertilizer manufacturers involves much more than fertilizer

production and marketing. The understood that the magical transformation in

agriculture production brought by fertilizer use had to be brought home to the

farmers through a variety of ways , which are understandable to them , to

show them the role of chemical fertilizer in agriculture. FACT had also

realized that given the Indian farming condition and the tradition approach of

the farmers , it was an uphill task and nothing short of creating a new wave ofawareness of fertilizer will do the trick. And this was exactly what FACT

marketing activities set out to achieve. Today the marketing division of FACT

has well organized distribution in south India for the sales of fertilizers and

other inputs. The FACT agro service centers located in major markets serve the

farmers with supply of fertilizer and know how.

The most significant aspect of FACT is marketing and

promotional programmers in within focus on the rural development. Many

ueque and novel methods of promotion had been developed by FACT realize

the goal. The concept of fertilizer festival is the most original and renowned

among them. Village adoption is another original practice introduced in the

country for the first time by FACT to demonstrate the fertilizer use. FACT

agriculture study centers –Krishi Vidyan Kendram is another novel program

to impact agriculture education to farmer. This scheme is selected pockets ,

will train farmers in modern scientific methods of cultivation. FACT is also



offering a series of other free agronomy services to the farming community

like free soil testing , farmers club and demonstration.

To ensure timely supply of fertilizers to farmers

FACT maintain a chain of go down with a lot of storage capacity . FACTfertilizer also made available through the retail network of the co-operative

marketing federation and the agro industries corporation of the southern

states. In kerala FACT maintains the largest dealer network and also maintain

the major market of FACT. Today kerala , Tamil nadu , Karnataka and

andrapradesh are the major markets of FACT. The division continues its

farmers education programs like demonstration , village adoption, farmers

training and seminars.

FACT ENGINEERING AND DESIGHN ORGANISATION

(FEDO)

As a fast growing organization fact was continuously facing

with challenges arising out of problem of technology , rawmaterial,process

marketing and personnel. FACT constructive response to these challenges was

to meet them with innovation , invention ,improvisation and managerial acts .

the most significant act among them was the setting up of a separate

organization for the design and engineering of chemical fertilizer plant are for

involving new process for producing various chemicals vital for industry. As a

result of that FACT engineering and development organization was

established on 1965

FEDO is India's on of the project engineering

organization as a wide spectrum of industries like petrochemicals , refining ,

pharmaceuticals , hydro metallurgy etc.. and petroleum storage ,

environmental engineering , off site facilities etc… It undertakes project

execution on consultancy basis , design and engineer handmade procurement

and construction with practiced care , hard core professionals , advanced

computer system , technology tie-ups with globally reputed technology license



and a provoking track record have made FEDO the first choice for engineering

and turn key projects for India blue chips and western Asian countries.

FACT ENGINEERING WORKS (FEW)FEW was established on 1996. FEW is get another

division of FACT which is established to turn in to reality the dream that the

FACT revolution had give wise to. It was originally conceived on fabricating

unit for large scale fertilizer plant. And on the years roll by FEW had attained

new dimensions and on today FEW is one of the leading fabricators in India ,

equipped with modern facilities and an excellent team of professionals. Over

the years it developed capabilities in the manufacture of chare pressure vessels

, heat exchanger , columns , tower etc.. required for the fertilizers ,

petrochemical and petroleum industries. FEW had received ISO 9002

certification in 1998.

RESEARCH AND DEVELOPMENT

Research and development plays a vital role in giving

the company and its products the cutting edge in the competitive market.

FACTs well equipped research and development department has advanced

facilities equipped with pilot plants , modern equipments and accessories. A

team of highly motivated research scientists backs it. Various process has been

developed and patented by FACT research and development division of

which several have been commercialized successfully. Field trials on slow

release fertilizers developed by the division have been successful. Production

of bio-fertilizers has commenced with an installed capacity of 150 tons per

annum.

PRODUCT PROFILE

FACT manufactures straight fertilizers , complex fertilizers ,

fertilizer mixtures and chemicals.

a) STRAIGHT FERTILIZERS



1) Ammonium Sulphate

Ammonium sulphate is a nitrogenous fertilizer

containing 20.6% nitrogen , entirely in ammoniac form. It has

excellent physical properties-non hygroscopic , crystalline and freefollowing. It is deal an a straight nitrogenous fertilizer and also an

iron ingredients in fertilizer mixtures. It is the most widely proffered

nitrogenous fertilizer for dressing on all crops. Another unique

advantages is that it contains 24% sulphare , an important secondary

nutrient.

2) Urea

FACT urea with its 46% nitrogen is the highest

concentrated nitrogenous fertilizer. It is marketed in the form of pills

an has got good physical prosperities. It is the cheapest source of

"N". There is a great saving in overhead like transport , storage ,

handling and application charges due to its concentrated nutrient

contents. FACT urea is deal for foliar application also , the nutrient

content is extremely low.

b) COMLEX FERTILIZERS

1) FACTOM FOS 20:20:0:15

(Ammonium Phosphate Sulphate)

Factom fos 20:20:0:15 is a chemical blend of 40 parts of

20%"N" and p2o5. The entire N is in ammonial form and P is

completely water soluble. In addition FACTOM FOS contains 15 %

sulphar , a secondary plant nutrient which is now attaining greatimportance is the cultural scene. FACTOM FOS 20:20:0:15 with the

granular formant non hygroscopic and fire flowing nature , has

excellent physical properties. It is ideal for application on all soils

and crops. FACTOM FOS 20:20:0:15 can also be used for foliar

application.

2) Diammonium Phosphate



FACT Di –Ammonium (DAP) is also an NP complex

fertilizer with 18 % N and 46% P2O5. It is a concentrated fertilizer.

As the entire "N" is in ammonial form and phospherom fully in

water soluble form , it is suitable for all soils crops. The high "P"content of the fertilizer make its ideal and suitable for application to

crops like pulses , ground nut and other legumes.

c) FERTILIZER MIXTURES

1) NPK Mixtures

FACT prepares a very large scale all the standared

mixtures for different cropes for Kerala an stipulated by the dept of

agriculture. In adition FACT prepares special tailor made fertilizer

mixtures of any required grade plantation cropes like coffee , tea ,

rubber etc…

2) Rose Mix

FACT rose mix is a special tonic for roses. This

fertilizer blend besides N , P and K contains the secondary and trace

elements in the required form and correct quantity for roses. Rose

mix is marketed in 500gms packets and available at prominent

fertilizer shops.

3) Vegetable Mixture

FACT vegetable mixture is also a special blend

exclusively prepared for use on vegetables. FACT vegetable mixture

is available in 1 kg packet.

4) Garden MixtureFACT garden mixture is also a fertilizer blend

specially prepared for garden , pot flowers and foliage types. It is

sold in 1 kg packet.

d) CHEMICALS

1) An Hydro Ammonia

Ammonia is one of the basic products in the

manufacturer of fertilizers. FACT produces Ammonia of over



99.96% purity , used mainly for manufacture of ammonium

phosphate. Besides it also finds are mainly for rubber and explosive

industry and refineries. It is also used in the pharmaceutical

industry.2) Sulphuric Acid

FACT has one of the largest plants in Asia for

producing Sulphuric Acid. Sulphuric Acid manufactured in FACT

plants has purity of 98%.

3) Caprolactum

Caprolactum is the raw material for Nylon-6 the

product quality of FACT Caprolactum is among the best available in

the world.

4) Nitric Acid and Soda Ash

Small quantities of Nitric Acid and Soda Ash are

obtained from the caprolactum plants as by products.

18



REVIEWOF

LITERATURE



CONCEPTUAL BACK GROUND OF WORKINGCAPITAL

INTRODUCTION

In practice a firm has to empty short term assets and short term

sources of finance for management of such assets , described as working

capital management , is one of the most important aspects of the overall

financial management. It is one of the important decision making area of

financial management of an enterprise. It requires understanding of

(1) How to raise and allocate financial recourses

(2) How to create short term investment and financial

decision to the overall objectives of the firm.

(3) How to relate short term financial decisions to certain

long term financial decisions

NEED FOR WORKING CAPITAL

The need for working capital to run the day to day business

activities cannot be over emphasized. We will hardly find a business firm

which does not require any amount of working capital , indeed , firms differ in

their requirements of the working capital.

We know firms aim at maximizing the wealth ofshare holders. In its endeavor to maximize share holders wealth , a firm

should earn sufficient return from its operations. Earning a study amount of

profit requires successful sales activity. The firm has to invest enough fund in

current assets for the success of the sales activity current assets are needed

because sales do not convert in to cash instantaneously. There is always an

operating cycle involved in the conversation of sales in to cash.

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OPERATING CYCLE

The operating cycle of manufacturing company involve three phases.

1) Acquisition of recourses such as raw material , labor , power and fuel.

2) Manufacture of the product which includes conversion of raw material

in to work in progress and finished goods.

3) Sales of the product either for cash or on credit. Credit sales create book

debts for collection.

Concept of working capital

1.Gross working capital refers to firm’s investment in current

assets. Current assets are the assets which can be converted in to

cash with in a accounting year and include cash, short term

securities, debtors, bills receivable and stocks.

2.Net working capital refers to the difference between current assets

and current liabilities. Current liabilities are those claims of

outsiders which are expected to mature for payment with in an

accounting year accounting year and include creditors, bills payable

and outstanding expenses. Net working capital can be negative or

positive. A positive networking capital will arise when current

assets exceeds current liabilities. A negative net working capital

occurs when current liabilities are in excess of current assets.

20



A firm is required to invest in current assets for a smooth,

uninterrupted production and sales. How much a firm will invest in current

assets will depend on its operating cycle.

The two concepts of working capital-gross and net are not exclusive;

rather they have equal significance from the management point of view. The

gross working capital concept focuses attention on two aspects of current

assets management: a) how to optimize investment in current assets? (b) How

should current assets be financed?

The consideration of the level of investment in current assets should

avoid two danger points- excessive and inadequate investment in current

assets. Investment in current assets should be just adequate, not more or less,

to the needs of the business firm. Excessive investment in current assets

should avoid because it impairs the firm’s profitability, as idle investment earn

nothing. On the other hand, inadequate amount of capital can threaten

solvency of the firm because of its inability to meet its current obligations.

Another aspect of gross working capital points to the need of arranging

funds to finance current assets. Whenever a need for working capital funds

arises due to the increasing level of business activity or for any other reason,

financing arrangement should be made quickly. Similarly, if suddenly, some

surplus funds arise they should not be allowed to remain idle, but should be

invested in short- term securities.

Net working capital is a qualitative aspect. It indicates the liquidity

position of the firm and suggests the extent to which working capital needs

may be financed by permanent source of funds. Current assets should be

sufficiently in excess of current liabilities to constitute a margin or buffer for

21



maturing obligations within the ordinary operating cycle of a business. A

weak liquidity position poses a threat to the solvency of the company and

makes it unsafe and unsound. A negative working capital means a negative

liquidity, and may prove to be harmful for the company’s reputation.Excessive liquidity is also bad.

Net working capital concept also covers the question of judicious mix

of long-term and short-term funds for financing current assets. For every firm,

there is a minimum amount of net working capital which is permanent.

Therefore, a portion of the working capital should be financed with the

permanent sources of funds such as equity share capital, debenture, long-term

debt, preference share capital or retained earnings. Management must,

therefore, decide the extent to which current assets should be financed with

equity capital and/ or borrowed capital.

In summary, it may be emphasized that both gross and net concepts of

working capital are equally important for the efficient management of

working capital. There is no precise way to determine the exact amount of

gross or net working capital for any firm.

TYPES OF WORKING CAPITAL

The classification of working capital in to two components in current assets is

short and long terms are as follows.1)Permanent working capital

Permanent working capital is the minimum mount of current assets

which is needed to conduct the business even during the dullest season of the

year. The amount varies from year to year , depending upon growth of the

company and the stage of the business cycle in which it operates. It is the

amount of funds which required to produce the goods and services which are



required on a continuing basic over the entire year. It is maintained as the

medium to carry on operations at any time.

2) Variable working capital

It represents the additional assets which are required of different times

during the operating year additional inventory , extra cash etc.

Seasonal working capital is the additional of current assets

cash receivables , inventory which are required the most active business

season for the year. It is temporarily invested in purchase.

3) Gross working capital

Working capital some times defined as " the current assets ofv thec

firm notably cash and marketable securities , amount receivables and

inventory". This is also known as gross working capital. It refers to funds

invested in current assets. The gross working capital is going concern

concept. This concept is helpful to provide current amount off working

capital t the right time so that the firm is able to realize the greatest return

on investment.

4) Net working capital

It refers to both current assets and current liabilities. Net

working capital is defined as current assets minus current liabilities. The

concept of net working capital enable a firm to determine how much

amount is left for operational requirements.

5) Balance sheet working capitalIt is one which calculated from the items appearing in the

balance sheet. Gross working capital is represented by the excess of current

assets over current liabilities are examples of balance sheet working capital.

6) Cash working capital

It is one which calculated from the item appearing in the

profit and loss account it shows the real flow of money or values at a

particular time and it is conceded to be the most realistic approach in



working capital management. It is basis of the operation cycle concept

which has assumed great importance in financial management in recent

years. The reason is that the cash working capital indicates the adequacy of

cash flow , which is an essential pre requisite of a business.7) Negative working capital

Negative working capital emerges when current liabilities

exceed current assets such a situation is not absolutely theoretical and

occurs when a firm is nearing a crisis of some magnitude.

DETERMINANTS OF WORKING CAPITAL

There are no set of rules or formulae to determine the working capital

requirements of firms. A large number of factors, each having a different

importance, influence working capital needs of firms. Following are the factors

which generally influence the working capital requirements of firms.

1) Nature of business

Working capital requirements of a firm are basically

influenced by the nature of its business. Trading and financial firms have avery small investment in fixed assets, but require a large sum of money to

be invested in working capital. Manufacturing undertakings also have to

invest substantially in working capital and a nominal amount in fixed

assets. In contrast, public utilities have a very limited need for working

capital and have to invest abundantly in fixed assets. Their working capital

requirements are nominal because they may have only cash sales and

supply services, not products.

2) Size of business/scale of operations

The working capital requirements of a concern are directly

influenced by the size of its business which may be measured in terms of

scale of operations. Greater the size of a business unit, generally larger will

be the requirements of working capital.

3) Production policy



In certain industries, the demand is subject to wide fluctuations due

to seasonal variations. The requirements of working capital, in such cases

depend upon the production policy. The production could be kept either

steady by accumulating inventories during slack periods with a view tomeet high demand during peak season or the production could be

curtailed during the slack season and increased during the peak season. If

the policy is to keep production steady by accumulating inventories it will

require higher working capital.

4) Manufacturing process/length of production cycle

In manufacturing business, the requirements of working capital

increase in direct proportion to length of manufacturing process. Longer

the process period of manufacture, larger is the amount of working capital

required.

5) Sales and demand conditions

The working capital needs of a firm are related to its sales. It is

difficult to precisely determine the relationship between volume of sales

and working capital needs. A growing firm may need to invest funds in

fixed assets in order to sustain its growing production and sales. This will,

in turn, increase investment in current assets to support enlarged scale of

operations. It should be realized that a growing firm needs funds

continuously. It used external as well as internal sources to meet increasing

needs of funds.

Sales depend on demand conditions. Most firms experience seasonal

and cyclical fluctuations in demand for their products and services. Thesebusiness variations affect the working capital requirements, specially the

temporary working capital requirement of the firm.

6) Credit policy

The credit policy of the firm affects the working capital by

influencing the level of debtors. A concern that purchases its requirements

on credit and sells its products/services on cash requires lesser amount of

working capital. On the other hand a concern buying its requirements for



cash and allowing credit to its customers, shall need larger amount of

working capital as very huge amount of funds are bound to be tied up in

debtors or bills receivables.

7) Availability of creditThe working capital requirements of a firm are also affected by credit

terms granted by its creditors. A firm will need less working capital if

liberal credit terms are available to it. Similarly , the availability of credit

from banks also influences the working capital needs of the firm. A firm,

which can get credit terms easily on favorable conditions, will operate with

less working capital than a firm without such a facility.

8) Business cycles

Business cycle refers to alternate expansion and contraction in

general business activity. In a period of boom i.e., when the business is

prosperous, there is a need for larger amount of working capital due to

increase in sales, rise in prices, optimistic expansion of business, etc. on the

contrary in the times of depression i.e., when there is a down swing of the

cycle, the business contracts, sales decline, difficulties are faced in

collections from debtors and firms may have a large amount of working

capital lying idle.

9) Operating efficiency

The operating efficiency of the firm relates to the optimum

utilization of resources at minimum costs. The firm will be effectively

contributing in keeping the working capital investment at a lower level if it

is efficient in controlling operating costs and utilizing current assets. Theuse of working capital is improved and pace of cash conversion cycle is

accelerated with operating efficiency. Better utilization of resources

improves profitability and thus, helps in releasing the pressure of working

capital.

10) Price level changes

Changes in the price level also affect the working capital

requirements. Generally, the rising prices will require the firm to maintain



larger amount of working capital as more funds will be required to

maintain the same current assets. However, companies which can

immediately revise their product prices with rising prices levels will not

face a severe working capital problem. The effect of rising prices may bedifferent for different companies.

11) Earning capacity and dividend policy

Some firms have more earning capacity than others due to

quality of their products, monopoly conditions; etc. Such firms with high

earning capacity may generate cash operations and contribute to their

working capital. The dividend policy of a concern also influences the

requirements of its working capital. A firm that maintains a steady high

rate of cash dividend irrespective of its generation of profits needs more

working capital than the firm that retains larger part of its profits and does

not pay so high rate of cash dividend.

12) Other factors

Certain other factors such as operating efficiency, management

ability, irregularities of supply, import policy, asset structure, importance

of labour, banking facilities, etc., also influence the requirements of

working capital.

FACTORS AFFECTING THE WORKING CAPITAL REQUIRMENTS

The working capital requirements of a concern depend upon a large

number of factors such as nature and size of business , the character of their

operation etc. It is not possible to rank them because all such factors are of

great importance and individual factors changes a firm overtime.However , the important factors generally influencing the working

capital requirements are:

1) Nature of business

2) Size of business

3) Production policy

4) Manufacturing process

5) Seasonal variations





DATA ANALYSIS AND

INTERPRETATION



TABLE NO.1

STATEMENT SHOWING GROSS WORKING CAPITAL

Particulars 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Inventories 19686.01 22889.15 25996.71 34615.62 31844.48

Sundry

debtors

22815.45 9997.38 14817.40 19233.92 7585.22

Cash and

bank

balances

2465.98 2277.77 3462.62 7781.95 6746.39

Other

current asset

42.29 36.93 11.59 730.39 501.98

Loans and

advances

2998.79 5600.99 9969.59 9668.21 11068.34

Total current

assets

48008.52 40802.22 54257.91 72030.09 57746.41

Source: Annual report of FACT

29



TABLE NO.2

STATEMENT SHOWING NET WORKING CAPITAL

(Rs. Lakhs)

Particulars 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Inventories 19686.01 22889.15 25996.71 34615.62 31844.48

Sundry

debtors

22815.45 9997.38 14817.40 19233.92 7585.22

Cash and bank

balances

2465.98 2277.77 3462.62 7781.95 6746.39

Other

current asse

42.29 36.93 11.59 730.39 501.98

Loans and

advances

2998.79 5600.99 9969.59 9668.21 11068.34

Total current

assets

48008.52 40802.22 54257.91 72030.09 57746.41

CURRENT LIABILITIES

Liabilities 34177.19 27513.19 37086.51 39098.07 25414.43

Provisions 1425.24 1640.16 1939.89 2282.53 3596.65

Total

current

liabilities

35602.43 29153.35 39026.40 41380.60 29011.08

Net

working

capital

12406.09 11648.87 15231.51 30649.49 28735.33


30



TABLE NO. 3STATEMENT OF CHANGES IN WORKING CAPITAL

(Rs. Lakhs)

Particulars 2003-2004 2004-2005 Increase Decrease

Current assets

1.Inventories 19686.01 22889.15 3203.14

2. Sundry Debtors 22815.45 9997.38 12818.07

3. Cash&Bank 2465.98 2277.77 188.21

4.other asset 42.29 36.93 5.36

5.loans and

advances

2998.79 5600.99 2602.2

Total 48008.52 40802.22

Current liabilities

1.liabilities 34177.19 27513.19 6664

2. provisions 1425.24 1640.16 214.91

Total 35602.43 29153.35

Working capital 12406.09 11648.87

Decrease in workingcapital

-757.21 757.21

Total 11648.87 11648.87 13226.55 13226.55

31



TABLE NO. 4STATEMENT OF CHANGES IN WORKING CAPITAL

(Rs. Lakhs)


Current assets

1.Inventories 22889.15 25996.71 3107.56

2. Sundry Debtors 9997.38 14817.40 4820.02

3. Cash&Bank 2277.77 3462.62 1184.85

4.other asset 36.93 11.59 25.345.loans andadvances

5600.99 9969.59 4368.6

Total 40802.22 54257.91

Current liabilities

1.liabilities 27513.19 37086.51 9573.32

2. provisions 1640.16 1939.89 299.73

Total 29153.35 39026.40

Working capital 11648.87 15231.51

Increase in workingcapital

3582.64 3582.64

Total 15231.51 15231.51 13481.03 13481.03

32



TABLE NO. 6

STATEMENT OF CHANGES IN WORKING CAPITAL

(Rs. Lakhs)


Current assets

1.Inventories 25996.71 34615.62 8618.91

2. Sundry Debtors 14817.40 19233.92 4416.52

3. Cash&Bank 3462.62 7781.95 4319.334.other asset 11.59 730.39 718.8

5.loans andadvances

9969.59 9668.21 301.38

Total 54257.91 72030.09

Current liabilities

1.liabilities 37086.51 39098.07 2011.56

2. provisions 1939.89 2282.53 342.64

Total 39026.40 41380.60

Working capital 15231.51 30649.49Increase in working

capital15418 15418

Total 30649.49 30649.49 18073.55 18073.55

33



TABLE NO. 7

STATEMENT OF CHANGES IN WORKING CAPITAL

(Rs. Lakhs)


Current assets

1.Inventories 34615.62 31844.48 2771.14

2. Sundry Debtors 19233.92 7585.22 11648.7

3. Cash&Bank 7781.95 6746.39 1035.564.other asset 730.39 501.98 228.41

5.loans andadvances

9668.21 11068.34 1400.13

Total 72030.09 57746.41

Current liabilities

1.liabilities 39098.07 25414.43 13683.64

2. provisions 2282.53 3596.65 1314.12

Total 41380.60 29011.08

Working capital 30649.49 28735.33Decrease in working

capital-1914.16 1914.16

Total 28735.33 28735.33 16997.93 16997.93

34



TREND ANALYSIS

Time series or trend analysis of ratios indicates the direction of change.

This kind of analysis is particularly applicable to the items of profit and loss

account.

Trend percentage is also referred to trend ratio. The financial

performance for a series of years may be analyzed to determine the trend of

the data contained therein. This method of analysis is adopted to determine,

the direction, upward or down ward. The method of calculating trend

percentage includes the calculation of percentage relationship, each item bears

to the same item in the base year. Each item of the base year is taken as 100and

on that basis the percentage for each of the item of each of the year is

calculated.

There are different steps for calculating trend percentage.

1) Selection of the base year, which may be earliest, latest on any

intervening period.

2) Assignment of a weight of 100 to each amount of the base year is

next step.

3) Mention each item amount of every other year as a percentage of

its base year amount by applying the formula.

Trend percentage thus shows not only the magnitude but also the

direction upward or down ward during various years and hence is quite

useful in horizontal analysis. It is advisable that trends of sales and net income

may be studied in the light of two factors: the rate of expansion or secular

trend in the growth of the business and the general price level.

35



1. Trend analysis of current assets

TABLE NO.8

STATEMENT SHOWING TREND ANALYSIS OF CURRENTASSETS

Year Current assets (Rs.

Lakhs)

Trend percentage

2003 48009 100

2004 40802 85

2005 54150 113

2006 72030 150

2007 57746 120



36

GRAPH SHOWING TREND OF CURRENT ASSETS

0

20

40

6080

100

120

140

160

t r e n d p

e r c e n t a g e

2003 2004 2005 2006 2007

year

trend percentage

Interpretation:



From the graph it is clear that the direction of changes of current

assets is fluctuating. During the year 2003, the current assets decreased from

100to 85, which further started growing during the years 2005 and 2006.

37

2. Trend analysis of current liabilities

TABLE NO.9

STATEMENT SHOWING TREND ANALYSIS OF CURRENT LIABILITIES

Year Current liabilities(Rs.

Lakhs)

Trend percentage

2003 35602.43 100

2004 29153.35 82

2005 39026.4 90

2006 41380.6 116

2007 29011.08 82



38

GRAPH SHOWING TREND OF CURRENT LIABILITIES



0

20

40

60

80

100

120

p e r c e n t a g e

2003 2004 2005 2006 2007

year

trend percentage

Interpretation:From the graph it is clear that the current liabilities have

fluctuated during the last five years, which had decreased from 116to

82 during the last year 2006-07.

39

3. Trend analysis of sundry debtors

TABLE NO.10

STATEMENT SHOWING TREND ANALYSIS OF SUNDRY DEBTORS



Year Sundry debtors (Rs.

Lakhs)

Trend percentage

2003 22815.45 100

2004 9997.38 44

2005 14817.40 65

2006 19233.92 85

2007 7585.22 45



40

GRAPH SHOWING TREND OF SUNDRY DEBTORS

0

1020

3040

50

60

7080

90

100

p e r c e n t a g e

2003 2004 2005 2006 2007

year

trend percentage

Interpretation:



As per the graph, the direction of change of sundry debtors

is fluctuating. The first 2 years shows a decreasing trend, and it goes

on increasing in the next two years and the last year it is decreased.

41

1. Trend analysis of sundry creditors

TABLE NO.11

STATEMENT SHOWING TREND ANALYSIS OF CREDITORS

Year Creditors (Rs. Lakhs) Trend percentage

2003 13773.89 100

2004 14345.03 104

2005 19625.15 142

2006 18316.66 132

2007 6887.24 51



42

GRAPH SHOWING TREND OF SUNDRY CREDITORS

0

2040

60

80

100

120

140

160

p e r c e n t a g e

2003 2004 2005 2006 2007

year

trend percentage

Interpretation:



As per the graph, the creditors shows a growing trend in

years, 2003, 2004 and 2005. But during the last year of study, i.e.,

2006-07, it decreased to51.

43

CURRENT RATIO

Current ratio in a business concern indicates the availability of

current assets to meet its current liabilities. Higher the ratio better is

the coverage. Traditionally it is also called 2:1 ratio, i.e. 2 is the

standard for current assets for each unit of current liabilities. But this

is only a conservative outlook about the coverage of current

liabilities.

Current ratio = Current Assets

Current Liability

TABLE NO.1

STATEMENT SHOWING CURRENT RATIO

Year Current Assets Current liabilities

Cash to Current

Assets ratio

2003 48009 35602.43 1.35

2004 40802 29153.35 1.4



2005 54150 39026.4 1.39

2006 72030 41380.6 1.74

2007 57746 29011.08 1.99

TOTAL


44

GRAPH SHOWING CURRENT RATIO

0

2

4

6

8

10

12

r a t i o s

2003 2004 2005 2006 2007

year

current ratio

Interpretation



As a conventional rule, a current ratio of 2 to 1 or more is

considered satisfactory. But the current ratio of the company over the 5 years

is not meeting the ideal ratio. But in the last year the ratio is just 2:1. so wecan conclude that working capital position of the company is improving

stage.

45

QUICK RATIO

This ratio is similar to current ratio except that it exclude

inventory from the numerator of the ratio. All current assets have

different degrees of risk and liquidity, among them, inventory is

generally the least liquid asset as it needs more time for conversion

than other components of current assets or it would have no value atall at the time of real crisis. The quick ratio, therefore, emphasis the

relationship of liquid assets (i.e. current assets less inventory) to

current liabilities. The term liquid assets refers to current assets,

which can be converted into cash immediately or at a short notice. It

is compared as follows.

Quick Ratio = Quick Assets

Current Liabilities

TABLE NO.2

STATEMENT SHOWING CURRENT RATIO



Ssource: Annual report of FACT

46

GRAPH SHOWING QUICK RATIO

0

0.1

0.20.3

0.4

0.5

0.60.7

0.8

0.9

r a t i o s

2003 2004 2005 2006 2007

year

Quick ratio

Interpretation:

Year Liquid assets Current liabilities Quick ratio

2003 28322.5 35602.43 .8

2004 17913.07 29153.35 .61

2005 28261.2 39026.4 .72

2006 37414.47 41380.6 .9

2007 25901.93 29011.08 .89

Total



The quick ratio of the company is showing a satisfactory current

financial condition. During the last three years, the company maintaining

and improving the liquidity position. In 2004 ,company has a low liquidity

but after 2004 company improve illiquidity position.

47

DEBT EQUITY RATIO

Several debt ratios may used to analyze the long term

solvency of the firm. The firm may be interested in knowing the

proportion of the interest bearing debt in the capital structure. Total

debt include short and long term borrowings from financial

institutions, debenture/bonds, deferred payment arrangements for

buying capital equipments, and bank borrowings, public deposits

and any other interest bearing loan. The relationship describing the

lender’s contribution for each rupee of the owner’s contribution is

called Debt-Equity Ratio.

Debt Equity Ratio = Outsiders Fund

Shareholders Fund

TABLE NO.3

STATEMENT SHOWING DEBT EQUITY RATIO

Year Outsiders fund Shareholders fund Debt equity ratio

2003 113015.27 35660.14 3.16

2004 115890.74 35580.88 3.25

2005 68074.52 64806.53 1.05

2006 92863.47 64802.36 1.43

2007 75857.73 64798.36 1.17




48

GRAPH SHOWING DEBT EQUITY RATIO

0

0.5

1

1.5

2

2.5

3

3.5

ratio

2003 2004 2005 2006 2007

year

debt equity ratio

Interpretation:The debt equity ratio of the co shows a fluctuating trend. During the

year 2003-the ratio was 3.16, which increased to 3.25 during 2004. while in the

following years showed an decreasing trend in the debt equity ratio, such as



1.05 in 2005, 1.43 in 2006 and 1.17 in 2007. And this decrease in the ratio

means company not concentrated in using long term debt .

49

ABSOLUTE LIQUIDITY RATIO

Absolute liquidity is represented by cash and near cash items. Hence, in the

computation of this ratio, only absolute liquid assets are compared with

current liabilities. These assets normally included cash, bank, and marketable

securities. It is to be observed that receivable are excluded from the list of

liquid assets.

Absolute ratio = cash + bank+ marketable securities

Current liability

TABLE NO.4

STATEMENT SHOWING ABSOLUTE LIQUIDITY RATIO


Year Liquid assets Current liability Absolute ratio

2003 28322.5 35602.430.79

2004 17913.07 29153.350.6

2005 28261.2 39126.400.72

2006 37414.47 41380.600.9

2007 25901.93 29011.080.89



50

GRAPH SHOWING ABSOLUTE LIQUIDITY RATIO

20032004

20052006

2007

West

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

year

ratio

Absolute liquid ratio

Interpretation:



The absolute liquid ratio of the company is satisfactory and it is

showing a fluctuating trend. In last two years absolute liquid ratio is

increased .

51

TOTAL ASSETS TO DEBT RATIO:The ratio of Total Assets to Debt ratio establishes a relationshipbetween total assets and the total long term debts. The twocomponents of this ratios, i.e., total assets and debt are computed asfollows:

(a) Total assets : Total assets include fixed as well as current assets.However, it does not include fictitious assets like preliminary expenses,underwriting commission, etc. and debt balance of Profit and Lossaccount

(b) Long term Debts : Long term debt refers to debt that will mature afterone year. It includes debenture, bonds, loans from financial institutions.

Formula:Total asset to debts ratio = Total asset

Long term debt

TABLE NO.5

STATEMENT SHOWING TOTAL ASSET TO DEBTS RATIO

Year Debt Total asset Absolute ratio

2003 113015.27148675.41 1.3

2004 115890.74151471.62 1.3

2005 68074.52132881.05 1.95

2006 92863.47127016.34 1.36

2007 75857.73140656.09 1.85




52

GRAPH SHOWING TOTAL ASSET TO DEBT RATIO

2003 2004 2005 2006 2007

West

1.3 1.31.95

1.36

1.85

year

ratio

total asset to debt ratio

Interpretation:

Total asset to debt ratio is usually expressed as pure ratio 2:1. It helps

to measure the safety margin available to the providers of long term

debts. Here the ratio is less than 2:1, this indicates a risky financial



position as it means that business depends heavily on outside loans

from its existence.

53

PROPRIETARY RATIO:

The objective of computing the proprietary ratio is to establish the

relationship between proprietor’s funds and total assets. Proprietor’sfunds means share capital plus reserves and surplus, both of capital

and revenue nature. Loss if any should be deducted. Funds payable

to others should not be added. This ratio shows the extent to which

the shareholders own the business. The different between this ratio

as % and 100 represent the ratio of total liabilities to total assets. It is

worked out as follows:

Proprietary ratio = Share holders fund

Total asset

TABLE NO.6

STATEMENT SHOWING PROPRITORY RATIO




54

GRAPH SHOWING PROPRITORY RATIO

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

ratio

2003 2004 2005 2006 2007

year

propritory ratio

Year Equity Total asset Absolute ratio

2003 35660.14

148675.41 0.23

2004 35580.88151471.62 0.23

2005 64806.53132881.05 0.48

2006 64802.36127016.34 0.5

2007 64798.36140656.09 0.46



Interpretation:

The propritory ratio of the co shows a improving trend. During the

year 2003 and 2004 the ratio is 0.23: 1 but in the last three years which

increased to 0.48:1 ,0.50: 1 and 0.46:1 respectively.While in the following yearsshowed a increasing trend in the propritory ratio.

55

FIXED ASSET RATIO

Fixed asset ratio indicates the extend to which the total of fixed assets is

financed by long term funds of the firm. Generally the total of long term funds

or the ratio should be 100%. But in case the fixed assets exceed the total of long

term funds, it implies that the firm has financed apart of its fixed assets out of

the current funds or working capital which is not a good financial policy. And

if the total long term funds are more than total fixed assets, it means that

working capital requirements are met out of the long term funds of the firm.

Fixed assets ratio = Net fixed assets

Long term funds

TABLE NO.7

STATEMENT SHOWING FIXED ASSET RATIO




56

GRAPHS SHOWING FIXED ASSET RATIO

Fixed asset ratio

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

2003

2004

2005

2006

2007

year

ratio

Interpretation

The fixed asset ratio is high in the year 2005, but in 2007 it is increasing

trnd. The ratio decreased to 0.49 during 2006, which increased to 0.57 during

Year Net fixed assets Long term funds Fixed Asset ratio

2003

66959.97

113015.27

0.59

200457391.96

115890.740.49

200551340.65

68074.520.75

200646030.77

92863.470.49

200743327.6

75857.730.57



2007. This shows that the ratio is vary from year to year as increasing and

decreasing trend simultaneously.

57

GENERAL PROFITABILITY RATIO

1. GROSS PROFIT RATIO

The gross profit ratio reflects the efficiency with whichmanagement produces each unit of product. This ratio indicates theaverage spread between the cost of goods sold and the sales revenue.

Gross profit ratio = Gross profit* 100

Net sales

TABLE NO.8

STATEMENT SHOWING GROSS PROFIT RATIO


Year Gross profit Sales Gross profit ratio

2003 -6832 76751 -8.9

2004 -2035 98055 -2

2005 -1371 101917 -1.34

2006 -1158 105501 -1.09

2007 -9316- 56297 -16.5



58

GRAPH SHOWING GROSS PROFIT RATIO

-20

-15

-10

-5

0

ratio

2003 2004 2005 2006 2007

year gross profit ratio

Interpretation:

The gross profit ratio in recent five years is decreasing trend such

as.-8.9, -2 , -1.34, -1.09 ,-16.5 . the ratio decreased to -16.5 in the year 2007. in

2007 gross profit ratio of the company has big changes. Because it is varry



from -1.09 to -16.5 . totally gross profit ratio of the company is not satisfactory

in recent years , especially in 2007.

59

NET PROFIT RATIO

This ratio explains per rupee profit generating capacity of sales. If the

cost of sales is lower, then the net profit will be higher than we divide it with

the net sales, the result is the sales efficiency. Lower is the net profit per rupee

of sales, lower will be the sales efficiency. The concern must try for achieving

greater sales efficiency for maximizing the return on investment. This ratio is

very useful to the proprietors and prospective investors because it reveals the

overall profitability of the concerns. This can be calculated as

Net profit ratio = Net profit after tax

* 100

Net sales

TABLE NO.9

STATEMENT SHOWING NET PROFIT RATIO

Year Net profit Sales Net profit ratio

2003 -16722 76751 -21.78

2004 -16796 98055 -17.12

2005 23566 101917 23.12

2006 -12473 105501 -11.8

2007 897 56297 1.6




60

GRAPH SHOWING NET PROFIT RATIO

-25

-20

-15

-10

-5

0

5

10

15

20

25

ratio

2003 2004 2005 2006 2007

year

net profit ratio

Interpretation:



From the study, it is clear that the company is not making profits

during the years, i.e., 2003 and 2004. The ratios for the 2 years are negative.

While the company is making profits during 2005. The net profit ratio during

the years 2003, and 2004 are-21.78 and -17.12 but in 2005 it is varry to 23.12as net profit .In 2007 it is positively varry from 2006 as -11.8 to 1.6 and this

gives the idea of improved efficiency of the company.

61

OPERATING RATIO

The operating ratio is yardstick of operating efficiency. The

operating ratio indicates the average aggregative variations in

expenses, where some of the expenses may be increasing while

others may be falling. These ratios when compared from year to year

for the firm will throw light on managerial policies and programmes.

Operating ratio = Operating cost* 100

Net sales

TABLE NO.10

STATEMENT SHOWING OPERATING PROFIT RATIO

Year Operating cost Sales Operating profit ratio

2003 111451.3 76751 145.2

2004 134491.63 98055 137.15

2005 152431.05 101917 149.5

2006 161762.88 105501 153.3

2007 108933.17 56297 193.5




62

GRAPH SHOWING OPERATING PROFIT RATIO

Interpretation:

The operating profit ratio of the company is improved during

the recent five years : 145, 137,149,153,193 respectively. So it depics that

operating efficiency of the company is improved especially in 2006 to 2007

operating profit ratio

0

50

100

150

200

250

2003 2004 2005 2006 2007year

ratio



,because in 2006 the ratio is 153 it is hugely changes to 193 in 2007 ,it is

satisfactory level of operating ratio.

63

CHANGES IN FINANCIAL POSITION FOR THE YEAR ENDED31ST MARCH 2004

2003-2004



SOURSES OF FUNDSFunds generated from operationsProfit after taxDepreciationLong term loan

Short tem loan

APPLICATION OF FUNDSLoss for the yearCapital expenditure (net)Repayment of long term loansRepayment of short term loansReduction in liability towards the governmentOf India loan on account of conversion in to capitalReduction in liability towards the government of India loanon account of write offReduction in liability towards interest due on the govt ogfIndian loan written offMiscellaneous expenditure not written off(net)Increase/decrease(-) in working capital

064580

77260

1418

16722344720515

0

0

0

2512-6629

14184

64


2004-2005




Short tem loan


061270

44940

10621

16796-92040

0

0

0-496-5627

10621

65


2005-2006




Short tem loan


235666271292304000

512168188

022400

29230

32710

4869-24293584

68188

66




2006-2007

SOURSES OF FUNDSFunds generated from operationsProfit after taxDepreciationLong term loanShort tem loan

APPLICATION OF FUNDSLoss for the yearCapital expenditure (net)Repayment of long term loansRepayment of short term loansReduction in liability towards the governmentOf India loan on account of conversion in to capitalReduction in liability towards the government of India loanon account of write offReduction in liability towards interest due on the govt ofIndian loan written offMiscellaneous expenditure not written off(net)Increase/decrease(-) in working capital

06401

0300018935

28336

124739820

0

0

0-15115032

28336

67


2007-2008




Short tem loan


0299301500

-696520000

17528

19103295--------

0

0

0-5-1865

17528

68

FINDINGS

The working capital position of the company is on fluctuating trend in last

five years. But in 2005 to 2007 it is changed positively and shows increasing

trend as compare with 2003 and 2004. Totally net working capital shows

increasing and decreasing trend.



Company shows positive working capital for the last five years of the

study due to increase in current asset and decrease in current liabilities. It

depicts that working capital position of the company is in satisfactory level

to maintain the day to day operations.

In 2006 net current asset has a major increase compare with 2005, but it has

major decrease in 2007.These two major changes is closely affect the

working capital position especially in 2007.

But , on the basis of current ratio of the firm it is on increasing trend but not

in satisfactory level as compare with the ideal ratio of 2:1

On the basis of trend analysis of current asset it is on fluctuating trend and

it will closely affect the working capital position and also affect the day to

day operations.

The trend percentages of current liability is on increasing trend fromm 2004

to 2006 but on 2007 it is decreased and it positively affect for the

maintaining of good working capital position.

Short term solvency position of the company is satisfied on the basis of its

increasing trend. But on the basis of apt ratio it is not satisfied except lasttwo years.

Generally company use outsiders fund on the basis of the debt equity ratio.

but in last three years company try to maintain the balancing of debt and

equity by reducing using more fund from owners and reducing fund from

outsiders for balancing a good long-term solvency position.

The quick ratio of the company is satisfied in last two years on the basis of

the ideal ratio of 1:1

The gross profit margin of the company is in decreasing trend and we can

know that company has gross loss in last five years. It is not enough

sufficient to cover the operating and other non operating expenses.

Net profit of the company is on fluctuating trend. It represents the

inefficiency of the operation. But in the last year company has increasing

trend in their profitability.



Profitability in operation is increasing trend in last five years on the basis of

operating profit ratio. It is the result of effective operation management of

the company

70

SUGGESTION

The company shows decreasing trend in working capital for the last year,

so it should maintain adequate current asset to meet its day to day

operations.



The company should try to decrease the current liabilities for a better

working capital position.

Company must consider creditors and outsiders by maintaining a good

position in short term and long term solvency

The company should adopt inventory control techniques and take a good

inventory decisions for the positive affects for a better working capital

position.

Greater emphasis should be given tom minimize the cost . so cost control

technique is applied. It can be positively affect the profitability of the

company.

Company try to maintain a good solvency position for good strength of the

working capital position.

The company must take effective measures to reduce the operating

expenses

The company can improve the earning power and increase the net prodfit

margin by reducing operating expenses and increasing the sales volume.

The company’s liquidity position is also not satisfactory, so it should try tomaintain better liquidity position.

The company’s net profit ratio is not satisfactory and there exist wide gap

between gross profit ratio and net profit ratio because of increasing

operating cost. Therefore steps must be taken to reduce all operating

expenses.

71

CONCLUSION

The study was conducted for a period of 5 years from 2003 to 2007.

secondary data was obtained from the published annual report of the

company. Ratio analysis , trend analysis , schedule of changes in working



capital , fund flow analysis done to evaluate the " WORKING CAPITAL

MANGEMENT OF FACT Ltd". The analysis of five years reveals that the

various factors affects the overall performance and their positive and negative

involvement in financial and non financial aspects of the company.Totally we can conclude that financial

position of the company is on improving stage and company take necessary

decisions for the improvement of profitability , solvency ,leverage and all

other financial strength of the company as compare with previous years.

72

BIBLIOGRAPHY

1. I M Pandey, Financial Management, vikas publishing house pvt

ltd.



2. M Y Khan & P K Jain, Financial Management, Tata McGraw-Hill

publishing Company Limited.

1. Annual Reports of TCC, for five years from 2002-2003 to 2006-

2007.2. www.tcckerala.com.

3. A.Vinod, Financial Management, Calicut University central co-

operative stores limited. No. 4347

4. Dr.S.N.Maheswari – Management Accounting & Financial

control

I GUGJ

73

http://www.tcckerala.com/








































0

20

40

60

80100

120

140

160

2003 2004 2005 2006 2007

East















FINDINGS

Current ratio of the company shows a fluctuating trend. An ideal current

ratio is 2:1. Average current ratio for the last five years is 0.67, Showing that

the liquidity position is not satisfactory.



Companies’ quick ratio for the last five years is 0.48. The standard norm

fixed for quick ratio is 1:1. This again shows that the company’s liquidity

position is not satisfactory. This is unfavorable to creditors.

The average absolute liquid ratio is 0.05. The acceptable ratio is 1:2. This

shows that company’s financial position is not satisfactory.

During the years, 2003-2004 and 2004-2005, the company had satisfactory

gross profit ratios, indicating increasing sales.

Net profit ratio shows a down ward trend. It has declined over the 5 years

and has not increased as fast as the gross margin. This implies that the

operating expenses relative to sales have been increasing.

The operating profit ratio also shows a declining trend, the reason can be

the increasing operating cost.

The average inventory turn over ratio is 6.14. A high inventory turn over

ratio is indicative of good inventory management.

The average debtors turn over ratio is 8.28 times. Debtors turn over ratio is

satisfactory. It shows the effectiveness of the company’s credit policy. The

average debt collection period is 44 days. The company shows negative working capital for the last 5 years of the

study, due to the increase in current liabilities and decrease in current

assets.

SUGGESTION

♦ The company shows negative working capital for the last five years, so it

should maintain adequate current asset to meet its day to day operations.



♦ The company should take necessary measures to check the increasing

current liabilities.

♦ The company’s liquidity position is also not satisfactory, so it should try to

maintain better liquidity position.

♦ The company’s net profit ratio is not satisfactory and there exist wide gap

between gross profit ratio and net profit ratio because of increasing

operating cost. Therefore steps must be taken to reduce all operating

expenses.

♦ The cash management should be done more carefully as it holds only a

small portion of current assent.

CONCLUSION

In this study an attempt is made to analyze the working

capital position of the company. The study shows that the overall performance

of the company is not satisfactory. The analysis and interpretation of various

data relating to working capital management helped to reach a conclusion that

the efficiency of working capital is not sufficient, since the working capital

amounts show negative balance. It also reveals that the company is not having

a satisfactory liquidity and profitability position.

The overall success of any company depends upon its

working capital position. So it should be handled properly because it shows

the efficiency and financial strength of the company. Therefore the company

should enforce strict and possible measures in every sphere of its activity to

bring the company back to sufficient working capital position and improve its

financial performance for better prospects in the coming days.There should be a better short term fund management.



92

BIBLIOGRAPHY

3. I M Pandey, Financial Management, vikas publishing house pvt

ltd.

4. M Y Khan & P K Jain, Financial Management, Tata McGraw-Hill

publishing Company Limited.

5. Annual Reports of TCC, for five years from 2002-2003 to 2006-

2007.

6. www.tcckerala.com.7. A.Vinod, Financial Management, Calicut University central co-

operative stores limited. No. 4347

8. Dr.S.N.Maheswari – Management Accounting & Financial

control

I GUGJ





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