A STUDY ON THE WORKING CAPITAL MANAGEMENT IN MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE

Dissertation submitted to the Madurai Kamaraj University in partial fulfillment of the requirements for the award of the Degree of Master of Business Administration Submitted By

N. DINAKARAN
(Reg. No. B029008)

Under the Guidance of

Dr. V. CHINNIAH, M.Com., M.B.A., M.Phil., B.L., Ph.D.,

DEPARTMENT OF COMMERCE MADURAI KAMARAJ UNIVERSITY MADURAI 625 021.

JULY 2011

Dr. V. CHINNIAH, M.Com., M.B.A., M.Phil., B.L., Ph.D., Professor, Department of Management Studies, Madurai Kamaraj University, Madurai 6

CERTIFICATE
This is to certify that the dissertation entitled A STUDY ON THE WORKING CAPITAL MANAGEMENT AT MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE submitted by Mr. N. DINAKARAN, I year MBA is a record of research work carried out by her for the degree of Master of Philosophy, under my guidance. The subject of the dissertation is her original work and it has not previously formed the basis for the award of any degree, diploma, associateship, and any other similar titles of any university or institution. The dissertation represents entirely an independent work on the part of the candidate.

Place: Madurai-21 Date:

2

(DrV.CHINNIAH)

N. DINAKARAN, Department of Management Studies, Madurai Kamaraj University, Madurai 625 021.

DECLARATION
I hereby declare that the dissertation is entitled A STUDY ON THE WORKING CAPITAL MANAGEMENT AT MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE for the degree of Master of Philosophy, is my original work and done under the supervision of Dr. V. CHINNIAH, M.Com., M.B.A., M.Phil., B.L., Ph.D., Professor, Department of Management Studies, Madurai Kamaraj University, Madurai and that it has not previously formed the basis for the award of any degree, diploma, fellowship or other similar titles of any university or institution. Station : Madurai-21 Date: (N.DINAKARAN)

ACKNOWLEDGEMENT

First I would like to thank God and my beloved parents and the members of my family, for their blessings and prayers in making this dissertation a success.

I owe a deep of sense of gratitude to my esteemed guide Dr. V. Chinniah, M.Com., M.B.A., M.Phil., B.L., Ph.D., Professor, Department of Management Studies, Madurai Kamaraj University, Madurai. His help in correcting the drafts and clarifying the doubts are greatly appreciated with deep sense of gratitude.

I wish to express my sincere thanks to Dr.C. Chandran, M.B.A., Ph.D., Professor and Head of the Department of Management Studies, Madurai Kamaraj University for his

encouragement and support and also for permitting me to do research work in the Department of Management Studies.

I am very thankful to Dr. N. Sethuraman Founder Chairman, Dr. V. N. Rajasekaran Medical Director and Dr. N. Krishnamoorthy Academic Director of MMHRC for permitting me to undergo summer project in their organization.
4

I am also thankful to all the staffs of the Finance department of MMHRC for helping me to complete summer project in their organization.

I wish to express my thanks to my classmates & my friends who have co-operated with me to complete this project.

CONTENTS
Page No

Acknowledgement List of Tables

i ii

Chapter 1.

Introduction and Design of the Study

1.1 1.2 1.3 1.4 1.5 1.6 1.7 Introduction Scope of the Study Objectives of the Study Methodology Collection of Data Limitation of the Study Chapter Scheme

1 -25

II.

An Overview of Laptops
2.1 2.2 2.3 2.4 2.5 Introduction History of the Organisation Objective of MMHRC S.R.Trust Quality and Policy

26 43

2.6 2.7 2.8 2.9

Location and Layout Organisation Principles Future Plans Departments In MMHRC

2.10 Recognition Awards and Acceleration 2.11 Social Activities 2.12 Summary III.

The Analysis and Interpretation

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Introduction Gross Working Capital to Total Assets Ratio Net Working Capital to Current liability Ratio Gross Working Capital to Sales Working Capital Turnover Ratio Gross Profit Ratio Net Profit Ratio Current Ratio Quick Ratio

43 100

3.10 Absolute Liquid Ratio 3.11 Debtors Turnover Ratio 3.12 Average Collection Period 3.13 Creditors Turnover Ratio 3.14 Cash as Percentage of Current Assets

3.15 Statement Of Changes In Working Capital 3.16 Trend Analysis 3.17 Summary

IV.

Summary of Findings, Suggestions and Conclusion

4.1 4.2 4.3 4.4 Introduction Summary of Findings Suggestions Conclusion

100 112

Bibliography

LIST OF TABLES

Table 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10

Content
Gross Working Capital to Total Assets Ratio

Page No.
48

Net Working Capital to Current liability Ratio

51

Gross Working Capital to Sales

54

Working Capital Turnover Ratio

57

Gross Profit Ratio

62

Net Profit Ratio

64

Current Ratio Quick Ratio Absolute Liquid Ratio Debtors Turnover Ratio

67

70

74

77

3.11 3.12 3.13 l3.14 3.15

Average Collection Period Creditors Turnover Ratio Cash as Percentage of Current Assets Statement Of Changes In Working Capital Trend Analysis

80

84

87

87

95

10

List of Graphs
Graph 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 Content
Gross Working Capital to Total Assets Ratio

Page No.
49

Net Working Capital to Current liability Ratio

52

Gross Working Capital to Sales

55

Working Capital Turnover Ratio

58

Gross Profit Ratio

63

Net Profit Ratio

65

Current Ratio Quick Ratio Absolute Liquid Ratio

68

71

75

11

3.10 3.11 3.12 3.13 3.14 3.15

Debtors Turnover Ratio Average Collection Period Creditors Turnover Ratio Cash as Percentage of Current Assets Statement Of Changes In Working Capital Trend Analysis

78

81

85

88

89

96

12

CHAPTER-I INTRODUCTION & DESIGN OF THE STUDY

13

CHAPTER I INTRODUCTION AND DESIGN OF THE STUDY

1.1 INTRODUCTION TO THE STUDY

In the present scenario business expands in a rapid pace with the changing needs. Business plays a vital role in the capital formation of the country and considered as lifeblood for growing economy. So it is very important to manage business effectively and efficiently.

There are two vital aspects of corporate business i.e. liquidity and profitability. These two aspects are important to judge the solvency position of a company. Hence to be watched carefully and dealt with, the sustained decrease in value of money and also due to scarcity, high investment factors should be decided carefully.

The company has to maintain an optimal level of liquidity to run the business on a continuous basis without any interruptions. Working

14

capital acts as the backbone to meet the day-to-day requirements of the company. The concept of working capital is used in two major ways is considered to be lifeblood of business i.e., Gross working capital and the Net working capital. The consideration of the level of investment should be neither excessive nor inadequate in current assets. Hence, prompt and timely action should be taken by the management to improve and correct the imbalances in the liquidity position of the firm. Likewise, Inventories constitute the most significant part of current assets. Therefore, a company should maintain adequate stock of material for a continuous supply to its factory, which can be done by maintaining an optimal level and prudent control over it.

Cash management is concerned with managing of cash in flows into and out of the firm. Cash planning and control over the use of cash, protects the financial condition of the firm. When the firm grants trade credit and creates accounts receivable, which would be collected in the future. Thus, it represents an extension of credit to customers and sale of goods on credit is an essential part of the modern competitive economic system. Hence the management should weigh the benefits as well as cost to determine the goal of receivables management.

15

The present study is being conducted in MEENAKSHI MISSON HOSPITAL of the working capital management for five years from 2006-2007to 2010- 2011.

The working capital is an important element, which has to be managed efficiently for smooth functioning of the organization.

Concept of working capital There are two concepts of working capital, gross and net working capital. Gross working capital refers to the total of all current assets of the business. Net working capital refers to the different between the current assets and current liabilities it can be positive or negative.

A positive networking capital will arise when current assets exceeds current liabilities.

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A negative net working capital occurs when current liabilities are in excess of current assets.

NEED FOR WORKING CAPITAL The need for working capital is, to run the day-to-day business activities and cannot be over emphasized. We will hardly find a business firm, which does not require any amount of working capital in deed. Firm differs in their requirements of the working capital.

A firm should aim of maximizing the wealth to its shareholders. Earning a steady amount of profit requires successful sales activity. The firm has to invest enough funds in current assets for enumerating sales. Current assets are needed because sales do not connect into cash instantaneously. There is always an operating cycle involved in the conversion of sales into cash.

OPERATING CYCLE: Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involves three phases.

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Acquisition of resource such as raw material, labour, power, and fuel etc.

Manufacturing of the product, which includes conversion of raw material into work-in-progress into finished goods.

Sales of the product either for cash or on credit. Credit sales create account receivable for collection.

Cash

Debtors

Raw materials

18

Sales

Work in Process

Cash

ESTIMATION WORKING CAPITAL NEEDS The most Appropriate method of calculating the working capital needs of a firm is the concept of operating cycle. There are also three other approaches to calculate working capital needs.

Current Assets Holding Period To estimate to working capital requirement on the basis on average holding period of current assets and relating them to costs based on companys experience in the previous years. This method is essentially based on the operating cycle concepts.

Ratio of Sales To estimate the working capital requirement as a ratio of sales on the assumption that current assets change with sales.
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Ratio of Fixed Investment To estimate the working capital requirements as a percentage of fixed investment.

INTRODUCTION TO THE VARIABLE In the business, the word working capital means excess of current assets over liabilities. In other words, it is the circulation of capital in one form or another during the day-to-day operations of the business.

The working capital is defin`ed as stock of material, stores, fuel, semi-finished goods including work in progress and finished and by products, cash in hand and bank and algebraic sum of sundry creditors.

Definition Working capital is the amount invested in the working or current assets within the business. It is called circulating capital or revolving capital.

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Working capital stands for that part of the capital, which is required for the financial or working or current needs of the company.

In the words of Prof. Kuchhal The working capital as one of the conditioning factors in the long run operations of a firm that is often inclined to treat an issue of short run analysis and decision making.

In the words of Gestemberg Circulating capital means current assets that are changed in the ordinary course of business from one from to another.

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1.2 SCOPE OF THE STUDY

Working capital is that part of capital, which makes a business, run on a continuous basis without any interruption. The working of MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE shows that a positive Net working capital during the period of study. The barometer MEENAKSHI MISSION HOSPITAL &

RESEARCH CENTRE

to measure the effectiveness of managing

the working capital of is MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE the evaluation of the past performance and analyzing the financial statements using accounting and statistical tools. The study touched all important constituents of working capital such as cash, receivables, and inventory, thus the study would give a brief description of the performance of MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE and suggesting to improve its performance.

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1.3. OBJECTIVES OF THE STUDY

The objective of the present study is given below.

Primary Objective To study the working capital management of MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE.

Secondary Objectives 1. To attain the above primary objective, the following secondary objectives were framed. 2. To examine the liquidity position of the company. 3. To examine the profitability position of the company. 4. To evaluate the performance of inventory, receivables and cash management of the company. 5. To analyze the changes in working capital and trend of working capital. 6. To forecast sales and gross working capital for the years 2012,2013,2014,2015 and 2016.
23

7. To suggest suitable steps for better utilization of working capital.

1.4. METHODOLOGY OF THE STUDY

Research Design As the study is aimed at estimating the working capital management precisely the research design adopted here is based on the analytical method.

Analytical Research Design: Analytical research design is the design where the researcher has used the facts or information already available and analysed these to make a critical evaluation.

Period of the study The period of the study started from the financial year 20062007 to 2010-2011. For this purpose the sample data is taken from five years audited report.

Sources of data

24

The analysis of the working capital necessitates accurate and reliable data. Therefore the sources for collecting the data include both primary and secondary data.

Primary data The information collected is mainly based on the personal discussion with the financial executives.

Secondary data Secondary data is mainly collected from annual reports and other official records of the company.

TOOLS USED: The data collected from various sources were analysed by ratio analysis, and statement showing changes in working capital.

ACCOUNTING TOOL: Ratio analysis The ratio analysis is a accounting tool used to analyse the liquidity position and relationship between two numeric terms.

25

STATEMENT SHOWING CHANGES: Statement of changes in working capital is prepared to show the changes in the working capital between two balance sheet dates.

REGRESSION ANALYSIS: Regression analysis has been used to project sales and gross working capital for the years 2007-2008 to 20012-2013.

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1.5. LIMITATIONS OF THE STUDY

The

following

were

the

limitations

of

the

present

study

MEENAKSHI MISSION HOSPITAL & RESEARCH CENTRE.

1. The present study has mainly focused attention on Working Capital Management of. If sufficient time and other resources were available, the study could have been more elaborate. In that case interviews and other discussions could have been made in a much elaborate manner. 2. The study is limited for the period of five years (2006-2007 to 2009-2010) mainly based on secondary data such as published annual reports of the company. If it shows any deviations from the actual, the results of the study will be affected. 3. Final reports of the year 2010-2011 are not yet published so, that years analysis is not done.

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1.6. SCHEME OF THE REPORT

The first chapter deals with the introduction to the study, objectives of the study, methodology of the study, scope of the study and limitations of the study undertaken.

The Second chapter deals with the Back Ground of the study. The Third chapter deals with the analysis and interpretations to analyse the short-term financial position of the firm with the help of the various tools like,

Accounting tool Ratio analysis Statement of changes in working capital

The fourth chapter deals with the findings made based on the analysis and the interpretations made and suggestions were given based on the study.

Finally a brief conclusion is given.

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CHAPTER-II BACKGROUND OF THE STUDY AREA

29

CHAPTER-II

INTRODUCTION

SR trust is a non-profit organization registered under Indian trust act on May 9, 1985. MMHRC, 15 years back it was Madurai Surgical Clinic - a 20 bedded hospital horsed in a rented building at Munichalai road, Madurai, with 2 departments urology and general surgery. Now it is a 650 bedded multi - special hospital health care centre that located 7 km away from the city of Madurai. MMHRC was launched into the health sphere of Madurai and Tamilnadu in the year 1990. The hospital started with financial aid from various funding agencies and banks as SBI, ICICI, IDBI and

30

other world bodies and voluntary organization. This hospital offers medical facilities to all people without any caste, creed or religion. In the multi-special territory care and research centre more than 40% of the outpatient and 20% of the inpatients are given treatment free of charge and more than 75 general ward patients are given free nutritious food three times a day. Mr. Lal Beer, American Christian missionary taught Dr. N. Sethuraman, founder president, SR trust sense of ethics, ideas, and values to develop into a moral person in life. Thiru.Manickkavasagam a missionary, his teacher and mentor inspired and motivated him to become an eminent doctor and to establish SR trust into a full fledged service organization.

AFFILIATED ORGANIZATION MADURAI KAMARAJ UNIVERSITY INDIAN MEDICAL ASSOCIATION MEDICAL CARE OF INDIA NATIONAL BOARD OF EXAMINATION

OBJECTIVES OF MMHRC MISSION

31

World class care within everybodys reaches VISION NO MAN IS POOR TO AFFORD FIRST GRADE MEDICAL TREATMENT VALUES Care Compassion Commitment Charity Empathy Quality service QUALITY POLICY MMHRC, in pursuit of excellences, is committed to comply with applicable requirements for developing and providing world class health care at an affordable cost. The MMHRC foster an environment in which every person is motivated to continually improve the efficiency and effectiveness in the management of health care services. In fulfilling the objectives of the hospital, 46 medical departments were established under one roof to cater to the patients for all the diseases. It has full line of state of the equipment for

32

precise diagnosis and renowned specialist medical and paramedical personnel who have an envious track record to provide best of health service. ISO 9001 The aspiration for internal reorganization for its quality MMHRC tried for ISO 9001 certificate and has reached the goal. It is now ISO 9001:2000 certified hospital. It got the recognition in November 2001. It has also successfully passed the review meeting. BC Roy award to Dr. N. S. Sethuraman founder chairman in 1988 by the president of India for socio medical services. S.R TRUST It is a public charitable non profit organization formed by Dr. N.Sethuraman (Socio medical activist) BOARD OF TRUSTEES Dr.N.Sethuraman founder president Dr.Mrs.Rajam sethuraman executive director Dr.S.Gurushankar vice chairman Dr.S.Ramesh vice president Mrs.Archanakarthick trustee (ICTCI Nominee) And other family members Mr.A.K.Amarnath (charted accountant)-Trust Auditor

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LOCATION AND LAYOUT: MMHRC has a main and annex building with 6 floors each. Each of the floors has a distribution of various departments or wards. Main Building Level 1 Obstetric and gynecology pediatric op, NICU training and development, Meenakshi limp fitting centre human capital

development physiotherapy and rehabilitation, CSSD, telephone exchange pharmacy store, ICTC, PPTCT, family counseling centre. Level 2 Out department, patient department MHC, 1 and 2 quality office, service insurance

Orthopedics,

admission

department, corporate department, billing, MRD, reception and imaging science, pharmacy 1 and 11,24hours. Level 3 IRCU Post Operation ward 1 and 2, medical ward, nephrology ward, dialyses, dietary department. Level 4 Urology ward, Main operation theatre, Gastroenterology Level 5

34

Neurosurgery ward, Smile train OT, Canteen and special rooms Level 6 Administrative wing, Internal auditing, doctors quarters, resource and development, Tele medicines, Video conference hall, Conference hall and management class rooms. 2nd level ramp Anthology 3rd level ramp Nursing superintendent room 4th level ramp Cardio Catheterization Laboratory 5th level ramp Guest room ANNEX BUILDING Level 1 Material department, Eye OP, Oncology OP, Family

counseling, Optical shop. Level 2 Nuclear medicine department OT Level 3 Radiation therapy ward, Special room

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Level 4 Blood bank, Histopathology, Microbiology, Mother Therasa special ward Level 5 Radiation therapy ward, Special room Level 6 Cardiology and Orthopedics ward RAMP POSITION Level 1 Ramp House keeping department

Level 2 Ramp Assisted reproduction technology laboratory Level 3 Ramp Eye ward Level 4 Ramp Cardiology ICO Level 5 Ramp Library, Smile train, Photography room, Class rooms PRINCIPLES

36

The principles followed by MMHRC staff members are the listed below. Start and continue the day with smiling approach. Respect others. Enthusiastic behavior Utilizing talents for the improvement of our organization. COMMITTEES Following are the committees that are formed in the hospital. Patient delight committee Management effectiveness committee Cost control committee Innovation committee Total quality service committee FUTURE PLAN To increase the bed strength level up to 1000. To increase the customer satisfaction level from 90%-98% To decrease customer complaints from 1%-0.05% To install stem cell preservation. To start Hospice home Cosmetic surgery unit

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 Eye bank Burns war Artificial kidney transplant services Chain of laboratory and pharmacy centers in and around Madurai. To install PET scan 64 slice CT scan Stem cell preservation Treatment planning system for Oncology patients. Linear accelerator for Oncology patients. QUALITY MMHRC joined the corporate drive for TQM, six years age, although staffs have been practicing quality implicitly right from the beginning. The fundamentals of TQM reengineering competitive edge, customer behavior tangibles the intangibles. Promotional strategies, HR and many more of such constituent of the present day strategic management are familiar to MMHRC staffs. DEPARTMENTS OF MMHRC There are three major departments in the hospital based on the activities/services rendered.

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1. Medical department 2. Emergency department 3. Administrative department MEDICAL DEPARTMENT There medical departments established in MMHRC and they are following a. Anesthesiology b. Andrology c. Audio logy and speech therapy d. Cardiology e. Cardiothoracic surgery f. Dental and oral surgery g. Dermatology and venerealogy h. ENT surgery i. Medical and surgical gastroenterology j. General medicine k. Hematology and blood bank l. Imaging science m. Oncology (Medical, Surgical, Radiation and PsychoOncology) n. Neurology

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o. Nephrology (Kidney transplant and dialysis) p. Neuro sciences q. Ophthalmology r. Orthopedics s. Obstetrics and Gynecology t. Physical medicine and Rehabilitation u. Pathology v. Psychiatry w. Pediatrics x. Radiation therapy y. Surgery z. Urology EMERGENCY SERVICES Accident and trauma care unit Intensive medical care unit Intensive coronary unit Intensive neonatal care unit Intensive therapeutic care unit Neuro intensive care unit Blood bank ADMINISTRATIVE DEPARTMENTS

40

a. Bio medical engineering b. Communication c. Human capital development d. Finance e. Information system f. Laboratory g. Library h. Marketing i. Materials j. Pharmacy k. Physiotherapy l. Reception m. Catering and diabetics n. Counseling o. House keeping p. ISO and Academic office q. Internal Auditing r. Laundry s. Maruthuvamalar Magazine t. Medical records u. Nursing

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v. Photography w. Quality service x. Resource and development y. Security z. Technical services aa. Training and development bb.Technical civil engineering cc. Technical vehicle dd.Technical and innovation SPECIALITY CLINIC AND SUPER SPECIALITY SERVICES a. Allergy and Asthma clinic b. Diabetic clinic c. Pain clinic d. Impotence and infertility clinic e. STD/HIV/AIOS clinic f. Therapeutic endoscopy PREVENTIVE MEASURES AT MMHRC a. Master health check up b. Executive master health check up c. Senior citizens health check up d. Health check up for children

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e. Pre marriage check up f. Comprehensive health check up g. Comprehensive diabetic check up h. Cancer screening check up i. Routine health check up j. Pre employment check up RECOGNITION/AWARDS/ACCREDITATION a. Golden peacock National quality award in 1999. b. B.C. Roy Award to Dr. N. Sethuraman, founder chairman in 1998 by the president of India. c. Certified as ISO9001:2001 by TUV West Germany. d. International quality circle Award for excellence Demo presentations. e. Vocational excellence Award by Rotary International. f. Two of the MMHRC publications Meenakshi

Maruthuvamalar and MMJ are recognized and approved by UNESCO-ISSN. g. Kidney transplantation approved by director of Medical and rural health services, government of Tamilnadu. h. To admit and treat Medico legal cases i.e.

Accident/Suicide/Poison.

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i. Approved hospital for treating state/central government employees and their dependant family members. j. Authorized Regional blood bank SOCIAL ACTIVITIES a. Family planning b. Blindness control c. HIV/AIDS control d. Polio eradication FEEDBACK SOLUTIONS Feedbacks are important tool to measure our service rendered. It provides us with recognition, support guidance for positive and negative perception. The ward secretaries administer a prescribed format when the patient is discharged after their stay at MMHRC. Quality service department analyzes and interprets customer complaints and speedy remedial actions are the quality parameters set for these departments.

THANK YOU BOARD The abbreviation given by the patients are posted in a wall named Thank you wall which motivates our Meenakshi Mission

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and feel extremely happy when their good work were expressed with a token of thanks and photographs. KAIZEN DAY Kaizen is a Japanese concept meaning Continuous

improvement. Quality service department takes all initiatives to organize the Kaizen day once in every 4 months. The main reason for the Kaizen day is to celebrate the quality failures through well enacted role plays which are a powerful tool to prevent such happenings in the future various awards are given like extra mile, best employee and SPARK master award. ACADEMIC STATUS As an educational institution MMHRC is affiliated with the following institutions. National Board of Examinations to conduct DMB courses in Urology, Surgical Gastroenterology, Nephrology, General medicine, Family medicine, General surgery, Anesthesiology, Radiology, Obstetrics and Gynecology, Orthopedics surgery. Medical council of India to train medical graduates for compulsory Rotary Internship and senior house surgeons. Indian medical association to conduct diploma in medical laboratory technology (DMLT).

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Madurai Kamaraj University to conduct job oriented regular courses for PGDTQM- P. G. Dip in Total Quality Management in hospitals PGDMRM- P. G. Dip in Medical Records Management P. G. Dip in Micro Credit Management P. G. Dip in Fund Raising Management Mother Terasa Womens University to conduct regular classes B.SC Laboratory Technology B.SC Applied Microbiology B.SC Applied Bio Chemistry B.B.M Hospital Administration

PUBLICATIONS MMHRC publishes the following monthly and occasional magazines. Muthuvamalarpublished by MMHRC. MMJ Medical Journal published by Meenakshi IMA Branch for the allopathic doctors. widely circulated allopathic magazine

46

MMHRC News letter carries information to public about the services, achievements and activities of the hospital. Red Ribbon news letter a publication of the STD/HIV/AIDS Information Technology Centre for Red Ribbon Club members. COMSORT News letter Bulletin (Consortium of Service Organization of Tamilnadu) supported by MMHRC. Hemophilia News letter- News letter of the hemophilia club. Kasakkum Inippu- Diabetic society MMHRC.

47

CHAPTER-III ANALYSIS & INTERPRETATION

CHAPTER - III
48

ANALYSIS AND INTERPRETATION

Intoduction:

RATIO ANALYSIS Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the Relationship between two or more variables. In financial analysis a ratio is used as a benchmark for evaluating the financial position and performance of the firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and financial position of the firm. The relationship between two accounting figures expressed mathematically is known as a financial ratio. The ratio reveals the firms ability to meet its current obligations. It measures the firms liquidity. The greater the ratios increase the firms liquidity position and vice-versa. The ratio indicates the quantitative relationship, which can be, in turn, used to make a qualitative judgement.

49

The ratio helps in analysing the financial information to indicate the operating financial efficiency and growth of the firm. The major importance of ratio analysis is

1) The ability of the firm to meet current obligation 2) The extent to which the firm has used its long-term solvency by borrowing funds. 3) The efficiency with which the firm utilising its assets in generating sales revenue. 4) The overall operating efficiency and performance of the firm.

Financial statements are very useful in giving various indicators; if it helps the techniques properly known as ratio analysis is restored to. The American Institute of Certified Public Accounts states the nature of financial statements as Financial Statements are prepared for the purpose of presenting a periodical review or reports on progress by the management and deal with the status of investment in the business and the results achieved during the period under review they reflect a combination of recorded acts accounting principles and personal judgment

50

GROSS WORKING CAPITAL TO TOTAL ASSETS RATIO

The working capital to total assets ratio reveals the relationship between the working capital and the total assets. Higher the ratio better will be the position of the company to utilize funds for productive purpose.

Gross Working Capital Working capital to total assets = -----------------------------Total Assets

51

TABLE NO. 1 GROSS WORKING CAPITAL TO TOTAL ASSETS RATIO (Rs. In millions) Gross Working Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Capital 158.29 172.43 192.48 209.32 218.41 Total Assets Ratios

641.56 760.53 834.91 937.15 1199.3

0.23 0.22 0.24 0.19 0.22

Interpretation The working capital to total assets ratio of the company shows a fluctuating trend. The ratio is high during the period 2007-2008 with0.24 due to increase in current assets. The ratio is low during the period 2008-2009 with 0.19 due to increase in the total assets of the

52

company. The average ratio is 0.22 This implies that the company utilizes the funds in a better way.

EXHIBIT NO. 1

0.3 0.25 0.2 0.15 0.1 0.05 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Series1

53

54

NETWORKING CAPITAL TO CURRENT LIABILITIES RATIO

The net working capital to current liabilities reveals the relationship between the net working capital and the current liabilities. Lower the ratio better will be the position of the company.

Net Working Capital to current liabilities =

Networking capital Current Liabilitie s

Net working capital= Current Assets Current Liabilities

55

TABLE NO. 2 NETWORKING CAPITAL TO CURRENT LIABILITIES RATIO (Rs. In millions)

Net Working Year Capital

Current Ratios Liabilities

2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

111.73 121.16 133.44 143.64 148.99

46.56 51.22 58.96 65.68 78.42

2.3 2.3 2.2 2.1 1.8

Interpretation The ratio of net working capital to current liabilities is high

56

during the period2005-2007which stood at 2.3 due to decrease in current liabilities. The ratio is low during the period 2006-2007 with 1.8 due to increase in current liabilities. The average ratio is 2.14. The decreasing trend in the ratio shows a favorable position to the company.

EXHIBIT NO.2

GRAPH
2.5

1.5 Series1 1

0.5

0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

57

GROSS WORKING CAPITAL TO SALES

Gross working capital to sales indicates the amount of working capital employed per rupee of sales. It also indicates the efficiently with which current asset turn into sales. A lower ratio implies more efficient use of funds.

Gross Working Capital Gross working capital to sales = --------------------------------Sales

58

TABLE NO. 3 GROSS WORKING CAPITAL TO SALES (Rs. In millions) Gross Working Year Capital 2005-2006 2006-2007 2007-2008 2008-2009 158.29 172.43 192.48 203.32 678.34 737.48 798.73 854.82 0.23 0.23 0.24 0.24 Sales Ratio

59

2009-2010

218.41

880.91

0.25

Interpretation From the table it is interpreted that gross working capital to sales shows standard trend. The ratio was high during the period 2009-2010 with 0.25 due to increase in gross working capital after that the ratio shows a decreasing trend and it is minimum during the period 2007-2008 due to increase in sales. This indicates a better performance of the company.

EXHIBIT NO.3

0.242 0.24 0.238 0.236 0.234 0.232 0.23 0.228 0.226 0.224 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Series1

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WORKING CAPITAL TURN OVER RATIO

The working capital turn over ratio indicates the velocity of the utilization of net working capital. This ratio measures the efficiency with which the working capital has been utilized by the firm. Higher the ratio better will the position of the company.

Working capital turn over ratio =

Total Sales Networking Capital

Net Working Capital= Current Assets =Current Liabilities

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TABLE NO.4 WORKING CAPITAL TURN OVER RATIO (Rs. In millions) Net Working Total Sales Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 678.34 737.48 798.73 854.82 880.91 Capital 111.73 121.16 133.44 143.64 142.99 6.2 6.1 5.9 6.0 6.3 Ratios

Interpretation
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The working capital turnover ratio shows a fluctuating trend. The ratio is high during the period 2009-2010, which was 4.29 due to increase in sales. The ratio is low during the period 2007-2008, which was 5.9 due to decrease in its sales. The average ratio is 6.1. This indicates that the company has efficient control over the working capital in recent years.

EXHIBIT NO.4
2000 1800 1600 1400 1200 1000 800 600 400 200 0 Years 2010-2011 2011-2012 2012-2013 2013-2014 Series1

GROSS PROFIT RATIO

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This ratio measures the relation ship of gross profit to net sales and is usually presented in percentage.

Gross Profit Gross Profit Ratio = -------------------- X 100 Net Sales

Gross Profit = Sales Cost of goods Sold.

Cost of goods sold = Material + Labour + all direct expenses.

TABLE NO. 6 GROSS PROFIT RATIO (Rs. In millions)

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Year 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Gross Profit 311.8 338.7 360.2 391.7 412.5

Net sales 678.34 737.48 798.73 854.82 880.91

Ratios 45.9 52.7 47.0 47.9 46.3

Interpretation The gross profit ratio is high during the period 2007-2008 with 52.7. The ratio is less during the year 2006-2007 with 45.9 due to proportional decrease in gross profit. The average ratio is 47.96

EXHIBIT NO.6

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54 52 50 48 46 44 42 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011

Series1

NET PROFIT RATIO

Net profit ratio establishes a relationship between net profit (after tax) and processing charges (sales) and indicates the efficiency of the management. This ratio is the overall measure of a firms profitability.

Net Profit (after tax) Net Profit Ratio = -------------------------- x 100 Net Sales

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TABLE NO. 7 NET PROFIT RATIO (Rs. In millions) Net Profit Year 2005-2006 2006-2007 2007-2008 (After tax) 88.27 95.43 104.55 Net Sales 678.34 737.48 798.73 Ratio 13.01 12.09 13.08

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2008-2009 2009-2010

112.88 120.05

854.82 880.91

13.2 13.6

Interpretation The net profit ratio shows a Increasing trend. The ratio was high during the period 2007-2008 with 13.08 due to increase in net profit. The ratio is minimum during the period 2006-2007 with 12.09 due to decrease in net profit. The average ratio is 12.99. This ratio shows that the company is in a good position and indicates the better efficiency of the management.

EXHIBIT NO.7

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14 13.5 13 12.5 12 11.5 11 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Series1

CURRENT RATIO

The current ratio computed by dividing the current assets by the current liabilities. The current ratio indicated the company capability to meet the current debt. As a general ratio is considered as a norm of solvency, a low ratio is an indicator that a company may force some difficulty in meeting its current obligations. The standard norm is 2:1. Current ratio =
Current Assets Current Liabilitie s

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TABLE NO.8 CURRENT RATIO (Rs. In millions) Current Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Current Assets 158.2 172.4 192.4 209.3 201.8 Liabilities 56.5 59.2 65.8 75.2 75.4 Ratio 2.8 2.9 2.9 2.7 2.6

Interpretation In this table, current ratio shows a fluctuating trend. The ratio is high at 2.91 during the period 2001-2002 due to increase in current assets. The ratio is lower at 2.6 during the period 2009 2010 due to
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increase in current liabilities. The average ratio is 2.78. In the previous year they have fixed to the standard norm of 2:1. This implies that the company is in a good position.

EXHIBIT NO.8

2.95 2.9 2.85 2.8 2.75 2.7 2.65 2.6 2.55 2.5 2.45 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Series1

QUICK RATIO Quick ratio is also known as Acid test ratio or liquidity ratio, is a more rigorous test of liquidity than the current ratio. The term
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liquidity refers to the ability of a firm to pay its short term obligation and as when they become due. The word liquidity denotes the ability of the company to convert current assets into cash during the normal course of business and to have a regular and uninterrupted flow of cash to meet outside current stringent measures of liquidity. Then current ratio includes inventories which are least liquid form of current assets are excluded from the ratio. The standard norm is 1:1.

Quick ratio =

Liquid Assets Current Liabilitie s

Quick Assets=Current Assets- (Stock + Prepaid Expenses)

TABLE NO. 9 QUICK RATIO

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(Rs. In millions) Current Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Liquid Assets 141.39 154.33 172.78 187.52 197.51 Liabilities 56.5 59.2 65.8 75.2 75.4 Ratio 2.1 2.3 2.6 2.4 2.6

Interpretation Usually a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and vice versa. In the above table, the liquid ratio is high at 2.6 during the periods 2009-2010 and 2007 2008 due to increase in liquid assets. The ratio is low at 1.2 during 2005 2006 due to increase in liabilities. The average ratio is 2.2. The ratio is above the standard norms, so the liquidity position of the firm is satisfactory.

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EXHIBIT NO.9
3 2.5 2 1.5 1 0.5 0 Series1

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ABSOLUTE LIQUID RATIO Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. Hence company authorities are of the opinion that absolute liquid ratio should also be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute liquid assets include cash in hand and bank marketable securities or temporary investments. The acceptable norm for this ratio is 50% or 1:2.

Absolute liquid ratio =

Absolute Liquid Assets Current Liabilitie s

Absolute Liquid Assets = Cash In hand + Bank and Short term marketable securities + Temporary Investments

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TABLE NO.10 ABSOLUTE LIQUID RATIO (Rs. In millions) Current Year 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Absolute Assets 44.6 51.6 64.4 73.8 86.2 Liabilities 56.5 59.2 65.8 75.2 75.4 Ratio 0.7 0.8 0.97 0.98 1.1

Interpretation In this table, the absolute liquid ratio of the company shows a Increasing trend. The ratio is higher during the period 2009-2010 with 1.1 It is less in the year 2005-2006 as 0.7 due to increase in current liabilities. The average ratio is 0.91. From the above table it is inferred that the companys absolute liquidity is satisfactory. Hence the company maintaining good cash position.
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EXHIBIT NO.10

1.2 1 0.8 0.6 0.4 0.2 0 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Series1

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RECEIVABLES MANAGEMENT

It is another important component of current assets. It involves analysis of the following: 1 Involves risk 2 Based on economic value 3 Implies futurity

78

Objectives 1 To obtain optimal volume of sales 2 To maintain an optimum level of investment in inventories 3 To keep down average collection period 4 To increase the profits 5 To increase the capacity to face competition

DEBTORS TURNOVER RATIO

There must be a sound credit and collection policies to have an efficient receivable management. The length of the credit period directly affects the volume of investment in receivable and indirectly the net worth of the company. The purpose of receivable turnover ratio is to measure the liquidity of the receivable. Since the debtors constitute the major element of the total current assets, the solvency depends upon the reliable value of receivable. The account receivable turnover ratio is the comparison of the size of uncollected amount from customers where the ratio is high indicating an unfavorable state of receivables management.

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Debtors turnover ratio =

Total Sales Debtors

Hint: It is considered that 100 % of the sales made by the company is in the form of credit sales. TABLE NO.13 DEBTORS TURNOVER RATIO (Rs. In millions) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Net sales 678.34 737.48 798.73 854.82 880.91 Turnover 98.9 102.2 107.8 115.1 112.7 Ratios 6.8 7.2 7.4 7.4 7.8

Interpretation The debtors turnover ratio of the company is in a Increasing trend. The ratio is high during the period 200920010 with 7.8 due to

80

increase in the credit sales. The ratio is low during the period 20052006 with 6.89 due to decrease in debtors. The average ratio is 7.32. This indicates that the increasing trend is not favorable to the company. So, the company should take steps to reduce the debtors.

EXHIBIT NO.13

81

Ratios
7.8 7.6 7.4 7.2 7 6.8 6.6 6.4 6.2

Ratios

AVERAGE COLLECTION PERIOD

The average collection period indicates the average time it takes to convert receivable into cash. Too low and average collection period may reflect and excessively restrictive credit policy and suggest the need for relaxing credit standard for the acceptable collection period may indicates an excessively liner credit policy leading to a larger number of receivable being post due some being uncollected.

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No of Working Days Average collection period = --------------------------Debtors turnover ratio

TABLE NO.14 AVERAGE COLLECTION PERIOD (Rs. In millions) Average No. of Working Year Days Debtors Turnover Ratio Collection Period (Days)

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2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

312 312 312 312 312

6.8 7.2 7.4 7.4 7.8

45.8 43.3 42.1 42.1 40

Interpretation The average collection period shows a fluctuating trend. The period is high during 2005-2006 with 46 days due to decrease in turnover and lower during the years 2009-2010 with 40 days. The average collection period is 43 days. The above table indicates that the company should frame good collection policies to reduce the collection period.

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EXHIBIT NO.14

Average Collection Period (Days)

46 45 44 43 42 41 40 39 38 37

Average Collection Period (Days)

CREDITORS TURN OVER RATIO

In the course of business operations, a firm has to make credit purchases and incur short-term liabilities. A supplier of goods will be interested in finding out how much time the firm is likely to take in
85

repaying its trade creditors. This ratio indicates the velocity with which the creditors are turned over in relation to purchases.

Net credit purchases Creditors turn over ratio = ---------------------------Average trade creditors

Hint: Companys opinion towards credit purchases is Total purchases Import purchases.

TABLE NO.15 CREDITORS TURNOVER RATIO (Rs. In millions)

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Net Credit Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Purchases 21.4 25.6 29.3 31.4 32.5

Average Creditors 20.8 24.4 27.9 30.1 31.7 Times 1.02 1.04 1.05 1.04 1.02

Interpretation The creditors turn over ratio is in a fluctuating trend. It is higher in the year 2007-2008 with 1.05 due to increase in credit purchases. It is less during the year 2009-2010 with 1.02 due to decrease in credit purchases. The average ratio is 1.03. From the above table it is inferred that the companys creditors turnover ratio is satisfactory

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EXHIBIT NO.15

Times
1.05 1.04 1.03 Times 1.02 1.01 1 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

88

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

Objectives To meet the payments To minimize funds committed to cash balance

Motives Transaction motive This refers to holding of cash to meet routine cash requirements to finance the transaction, which a firm carries on in the ordinary course of business.

Speculative motive This refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected moments and which are typically outside the normal course of business.

Precautionary motive In addition to the non-synchronization of anticipated cash

89

inflows and outflows in the ordinary course of business, a firm may have to pay cash for purpose, which cannot be predicted.

CASH AS PERCENTAGE OF CURRENT ASSETS The ratio of cash in current assets provided an index of operations and used correctly helps to determine the minimum level of cash, monthly control of cash and historical records, give some indication of trends and increase level of cash in current assets. This could be a reduction in the credit given by the companys suppliers or by too high a cash balance. The first may be unavoidable the second is not the ratio, which can only given an indication of a potential problems, further analysis is required.

Percentage of current assets =

Cash Balance at the End x 100 Current Assets

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TABLE NO.17 CASH AS PERCENTAGE OF CURRENT ASSETS (Rs. In lakhs) Cash Balance at the Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 End 12.1 12.9 13.7 14.8 15.4 Current Assets 158.2 172.4 192.4 209.3 201.8 Ratio 7.6 7.4 7.1 7.0 7.6

Interpretation Cash as a percentage of current assets shows a fluctuating trend. It is high during 2005-2006 with 7.6 and low during 2008 2009 with 7.0 due to decrease in cash balance. The average ratio is 7.32This indicates that the company should maintain the cash balance
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to meet its short-term obligations.

EXHIBIT NO.17

92

7.6 7.5 7.4 7.3 7.2 7.1 7 6.9 6.8 6.7 2006-2007 2007-2008 2008-2009 2009-2010 Series1

STATEMENT OF CHANGES IN WORKING CAPITAL

Working capital means the excess of current assets over current liabilities. Statement of changes in working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of current assets and current liabilities derived from two balance sheets.

The changes in the amount of any current assets over the current liabilities in the current balance sheet as compared to that of the previous balance sheets either results in increase or decrease in working capital. The difference is recorded for each individual
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current assets and current liabilities and other information is not of PARTICULARS 2005-2006 2006-2007 INCREASE DECREASE %

any use for preparing this statement.

TABLE NO.18 (In millions)

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Current assets:

Inventories Sundry Debtors Cash & Bank balance Total Current Assets

16.9 98.92 42.47

18.1 102.21 51.69

1.2 3.2 9.2

7.1% 3.2% 21%

158.2 LESS: Current Liabilities: Total Current Liabilities

172.0

46.5 NET WORKING CAPITAL (CA-CL) 111.7

51.2

0.47

1.0%

121.2

9.5

8.5%

NET INCREASE IN WORKING CAPITAL 3.6 3.2

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121.2 PARTICULARS 2006-2007

121.2

13.6

13.6 DECREASE %

2007-2008 INCREASE

Interpretation

By analyzing the current assets and the current liabilities of the company for the years 2005-2006 and 2006-2007, the net working capital shows a net increase of 3.2 %. The current assets like inventories and sundry debtors have increased and the current liabilities have decreased there by increasing the net working capital.

TABLE NO.19 (In millions)

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Current assets:

Inventories Sundry Debtors Cash & Bank balances Total Current Assets

18.1 102.2 51.6 172.0

19.7 107.84 70.92 198.4

1.6 5.6 19.23

8.8% 5.4% 37%

LESS:

Current Liabilities:

Current Liabilities

51.2

65.8

14.6

28%

NET WORKING CAPITAL (CA-CL) 121.2 12.2 NET INCREASE IN WORKING CAPITAL 6.43 133.44 5.4

5.3
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133.44

133.44

26.43

26.43

Interpretation

By analyzing the current assets and the current liabilities of the company for the years 1998-1999 and 1999-2000, the net working capital shows a net increase of 18.40 %. The current assets like inventories, sundry debtors and cash and bank balances have increased. The current liabilities show a increase. So it is clear that the firm have sufficient cash and adequate working capital to meet the day-to-day requirements.

TABLE NO.20

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PARTICULARS

2007-2008

2008-2009 INCREASE DECREASE %

Current assets:

Inventories Sundry Debtors Cash & Bank balances Total Current Assets

19.7 107.84 70.92 198.4

21.8 115.1 73.84 209.3

2.1 7.3 2.9

10.6% 6.7% 4.0%

LESS:

Current Liabilities:

Current Liabilities

65.8

65.6

0.2

0.3%

NET WORKING CAPITAL (CA-CL) 133.4 10.3 NET INCREASE IN WORKING CAPITAL 12.5 143.7

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143.7

143.7

12.5

12.5

Interpretation

By analyzing the current assets and the current liabilities of the company for the years 1999-2000 and 2000-2001, the net working capital shows a net increase of 58.16 %. The current assets like sundry debtors, inventories and loans and advances have increased. The current liabilities have increased there by the need for working capital has decreased.

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TABLE NO.21 (Rs. In millions)

101

PARTICULARS

2008-2009

2009-2010 INCREASE DECREASE %

Current assets:

Inventories Sundry Debtors Cash & Bank balances Total Current Assets

21.8 115.1 73.84 209.3

20.9 112.7 86.2 219.8 12.36

0.9 2.4

4.1% 2.0% 16.7%

LESS:

Current Liabilities:

Current Liabilities

65.6

75.4

9.8

14.9%

NET WORKING CAPITAL (CA-CL) 143.7 142.99

NET DECREASE IN WORKING CAPITAL 143.7 143.7

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0.74

13.1

13.1

Interpretation

By analyzing the current assets and the current liabilities of the company for the years 2000-2001 and 2001-2002, the net working capital shows a net decrease of 1.22 %. The current assets like loans and advances have decreased despite the increase in cash and bank balances and the current liabilities and provisions have decreased. So it is clear that the firm have excessive cash balance in the company and the need for working capital in reduced by 1.22 %.

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REGRESSION ANALYSIS
TABLE NO. 32 PROJECTION OF SALES

(Rs. in millions) Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 X -3 -2 -1 0 1 Y 678.34 737.48 798.73 854.82 880.91 XY -2035.02 -1474.96 -798.73 0 880.91 X2 9 4 1 0 1

Y = Sales

Estimation

Y = a + bx

a=

Y = 790.056 n

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b=

XY = 228.52 X2

TABLE NO. 33 (Rs. in millions) Years 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 Sales 1109.43 1337.52 1566.04 1794.56 2023.08

Interpretation From the above table Sales for the company based on the prevailing trends is projected to increase in the future years 2010-2011 to 2014-2015.

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EXHIBIT NO. 19

Sales
2500 2000 1500 Sales 1000 500 0 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

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TABLE NO. 33 PROJECTION OF GROSS WORKING CAPITAL

(Rs. in millions) Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 X -3 -2 -1 0 1 Y 158.29 172.43 192.48 203.32 218.41 XY -155.29 -344.86 -192.48 0 218.41 X2 9 4 1 0 1

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Y = Gross working capital

Estimation Y = a + bx

a=

Y = 188.98 n

b=

XY = 31.6 X2

TABLE NO. 35 (Rs. in millions) Years 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 GROSS WORKING CAPITAL 250.01 281.6 313.21 344.81 376.41

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Interpretation From the above table Gross working capital of the company based on the prevailing trends is projected to increase in the future years 2010-2011 to 2010-2015.

EXHIBIT NO. 20

GROSS WORKING CAPITAL

400 350 300 250 200 150 100 50 0

GROSS WORKING CAPITAL

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CHAPTER-IV

110

SUMMARY OF FINDINGS, SUGGESTIONS & CONCLUSION

111

5.1 FINDINGS

Findings based on ratio analysis:

1. The gross working capital to total assets ratio shows a fluctuating trend. It is clear that the gross working capital increases with sales. 2. The net working capital shows a increasing trend. The ratio has decreased in the recent years. It seems that the daily working capital maintenance is good.

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3. Gross working capital to sales shows an fluctuating trend which indicate that the company is using its working capital efficiently. 4. Working capital turnover ratio indicates that the company has efficient control over the working capital turnover in recent years. 5. The Gross profit ratio shows a decreasing trend. It is due to increase in the manufacturing cost. 6. The Net profit shows an increasing trend. It shows that the company is in a good position and indicates the better efficiency of the management. 7. The Current ratio of the company shows a decreasing trend, but it has fixed to the standard norms, which indicates that the company is able to meet its current obligations and its liquidity position is excellent.

8. The Quick ratio shows a fluctuating trend. But the ratio is above standard norms. This shows that the firm is liquid and has the ability to meet its current obligations in time. 9. Absolute liquid ratio of the company shows a fluctuating trend. The ratio is highly less than the standard norms. It shows that the companys absolute liquidity is unsatisfactory. Hence the company should increase its cash position.

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10.Debtor turnover ratio shows an increasing trend indicating the companys efficient control over the debtors. 11.The average collection period indicates an average of 43 days for collecting debts. 12.Creditors turnover ratio is satisfactory proving a good purchase policy. 13.Cash as percentage of current assets ratio indicates that the company has very high cash percentage and it also shows a increasing t trend.

Findings based on working capital analysis:

14.The schedule of changes in working capital shows that there is an continuous increase in the Net working capital of the company . This shows that the company is maintaining higher working capital to meet the increasing expenses.

Findings based on regression analysis: 15.Sales for the company based on the prevailing trends are projected to increase for the future years 2010-2011 to2011-2015. 16.Gross working capital of the company based on the prevailing trends is projected to increase for the future years 2010-2011 to 2011-2015.
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115

5.2 SUGGESTIONS

116

In the present study, researcher has given the following suggestion based on the findings to improve the working capital management of the company.

1. Company can speed up the collection by framing good collection policies. 2. The firm has to maintain the cash and bank balances to meet its short-term obligations.

3. As the firm has a small margin to cover interest rates and income tax, it should try to reduce the operating cost. 4. The firms working capital shows mostly an increasing trend, hence the company should try to monitor the needs to maintain a good working capital position.

117

118

CONCLUSION

The premier instruments and controls limited are financially sound and the performance of the company over the five years from 1997-1998 to 2005-2010 though there were some fluctuations. By analyzing the data using accounting ratios, working capital changes, and correlation and regressions analysis it is concluded that liquidity position of the company is satisfactory. The working capital is showing a increasing trend for the period under study.

The net profit of the company is increasing which shows a better profitability position. By reducing its operating cost it could further increase its profitability.

It is concluded that the company has to concentrate on its cash balance to improve its working capital position.

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BIBLIOGRAPHY

Andre Fourcans1 and Thomas J. Hindelang 2, 1974, "Winter Simulation Conference archive. Proceedings of the 7th conference on Winter simulation" Volume 1 table of contents Washington, DC, Pages : 141-149.

Banerjee Bhabatosh, "Management of Working Capital Derivation from a Case Study", The Management Accountant, Aug. 1974, Pg. 569.

Banerjee Bhabatosh, faculty of Business Studies, University of Calcutta, "Working Capital Turnover and Turnover Ratios and Cash Management", the management accounts, January 1979, pg. 22.

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 By S. Hassim, "Journal of Construction Engineering and Management", Vol. 129, No. 4 July/ August 2003, pp. 369-374.

Kenhma Rao, N. and Ramachandran, N., "Working Capital Management and the Concept of Leverage", 77, Pg. 803.

Kevlin R. Smith, December 2004, "Earnings Management Constraints And Market Reactions To Subsequent Earnings Surprises", Eller College of Management, The University of Arizona Tucson, AZ 85721. Morris Lamberson, "The Response Of The Working Capital Position Of Small Firms To Changes In The Business Cycle", University of Central Arkansas. www.uni.com

Steven Mark Fazzari and Bruce Clayton Petersen, "Working capital and fixed investment: new evidence on financing constraints", www.uni.com.

Jain S.P & Narang K.L, Management Accounting, Kalyani Publishers, New Delhi, 2000.

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 Khan & Jain, Financial Management, Tata Mcgrew Hill, New Delhi, 1998.

Kothari C.R, Research Methodology, Wishwa Prakashan, New Delhi, 1990

Pandey I.M, Financial Management, Vikas Publishing House, New Delhi, 1998

www.pricol.com.

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