AMERICAN POWER CONVERSION CORPORATION INTRODUCTION American Power Conversion provides protection against many of the primary causes

of data loss, hardware damage and downtime. Founded in 1981, APC is a leading provider of global, end-to-end AC and DC-based back-up power products and services, which include surge suppressors, uninterruptible power supplies (UPS), power conditioning Nb equipment, power management software, and DC power systems as well as precision cooling equipment, and professional and consulting services for Nonstop Networking. APC, known for Legendary Reliability, sets the standard for quality, innovation and support for power protection solutions from desktop systems to data center operations to entire facilities. Its comprehensive solutions, which are designed for both home and corporate environments, improve the manageability, availability and performance of sensitive electronic, network, communication and industrial equipment of all sizes.

APC sets itself apart from the competition in several ways:

Global one-stop solutions - APC provides worldwide access to "best-of-breed" offerings;

Financial strength - APC's financial strength makes it an attractive partner; Efficient manufacturing - APC provides high quality products to customers worldwide;

Innovative product offerings - APC designs solutions to address "real" customer needs.

INFRASTRUCTURE APCs Infrastructure is on-demand architecture for network-critical physical

infrastructure (NCPI). The Infrastructure design, which integrates power, cooling, rack, management and services, allows the selection of standardized, modular components to create a customized solution. This standardization coupled with the APC Design Portal enables an easily scalable architecture designed to meet changing needs and future expansion. This patent-pending approach provides increased availability, improved adaptability and speed of deployment as well as lowered total cost of ownership for IT environments from wiring closets to computer rooms to data centers.

APC'S CORPORATE MISSION The mission of APC is to create delighted customers by improving the manageability, availability, and performance of information and communication systems through rapid development and delivery of innovative solutions to real customer problems.

GLOBAL PRESENCE APCs corporate offices are located in West Kingston, Rhode Island. The Company has sales offices throughout the world; manufacturing facilities in the U.S., Ireland, Switzerland, Denmark, Philippines, China, India, and Brazil; and ships product to approximately 160 countries. In 2005, 52% of APCs revenues were in the Americas (North and Latin America), 30% were in Europe, the Middle East and Africa and 18%

were in Asia. As of December 31, 2005, APC had approximately 7,580 full-time employees worldwide.

APC HISTORY Three Massachusetts Institute of Technology (MIT) Lincoln Labs' electronic power engineers founded American Power Conversion in 1981. At the time, the research and development efforts of these three men were focused on solar power. Over the next few years, APC shifted its focus to power protection introducing its first UPS, the 750, in 1984. The need for capital to support this growing business was satisfied in July 1988 when APC became a publicly held company. The stock, trading under the symbol "APCC," was priced at $7.50, or $.125 per share when adjusted for stock splits.

Over the years, APC has developed a global, end-to-end, product offering targeted at four strategic application areas: Home/Small Office; Business Networks; Access Providers; and Data Centers & Facilities. Internal product development has been augmented with strategic acquisitions to form an industry leading product portfolio. Throughout the world, the APC brand has become synonymous with quality power back-up and management solutions.

KEY APPLICATION AREAS Today, the Company focuses its efforts on four key application areas:

Home/Home Office

Business Networks Access Provider Networks Data Centers and Facilities

Each requires customized efforts for products, sales and marketing, but each has a common theme: high availability is increasingly essential. APC is positioning itself to be the preferred brand worldwide in all four of these application areas.

RECOGNITION AND AWARDS Over the years, APC has received hundreds of awards worldwide-- more than any other UPS manufacturer. Such designations have recognized APC both for its reliable solutions and its overall business performance. The company is among the most recent Fortune 1000 companies and is part of the closely watched S&P 500 Index and the Nasdaq 100 Index. For its products, APC receives global recognition for its reliability and innovation.

APC's Vision & Mission

APC's Vision APC products ensuring availability wherever data is created, transmitted or stored.

APC's Mission To create delighted customers by improving the manageability, availability and performance of information and communication systems through the rapid delivery of innovative solutions to real customer problems. APC's Philosophy To Their To wants, justify listen needs our and to wishes as are they our our relate strategic to our customers. blueprint. goals.

expenditures

To quantify all aspects of our business in order to create benchmarks for success. To Employees To We To believe respond that quickly must make avoid direct emphasize good and enough decisively to never contributions to bureaucracy. our goals. quality. is.

opportunity.

To create an environment where ideas are encouraged, recognized and rewarded. To help employees grow personally and professionally.

To work together toward our goals and be rewarded together when they are achieved. To commit to leadership in every aspect of our business. APC History American Power Conversion, incorporated in March 1981, was founded by three electronic power engineers from the Massachusetts Institute of Technology. At the time, the research and development efforts of these three men were focused on solar electricity.

Over the next few years, government funding and incentives in the solar arena began to dry up. In response, APC shifted its focus to power

protection, introducing its first UPS in 1984, the 750. The need for capital to support this

growing business was satisfied in July 1988 when APC became a publicly traded company. The stock, trading under the symbol "APCC," was priced at $.125 per share when adjusted for stock splits. During this time, it was well known that computer systems required back-up power solutions. It was quite common for a mainframe computer to have a large uninterruptible power supply (UPS) and generator installed in tandem. APC came at the market from a different perspective. Industry trends involving the personal computer made APC management realize that smaller UPSs were necessary for the market that included personal computers, PC servers and their networks. Over the years, APC has developed a global, end-to-end, product offering targeted at four strategic application areas: Home/Small Office; Business Networks; Access Providers and Data Centers & Facilities. Internal product development has been augmented with strategic acquisitions to form an industry leading product portfolio. Throughout the world, the APC brand has become synonymous with quality power back-up and management solutions.

Today, APC is a leader in its industry, employing over 5,000 people worldwide, and is listed among the prestigious Fortune 1000, Forbes 500, Nasdaq 100 and S&P 500 rankings.

Executive Leadership

Laurent Vernerey

Karen Miranda

President and CEO

Chief Financial Officer

Jim Simonelli

Neil Rasmussen

Senior Chief Officer

Vice

President

Senior Innovation

Vice

President

of

Technology

Rob McKernan

Leonid Mukhamedov

President Americas

President Europe, Middle East and Africa

Philippe Arsonneau

Chenhong Huang

President Asia Pacific and Japan

Senior Greater China

Vice

President

WORKING CAPITAL MANAGEMENT LETREATURE

The perfect world does not requires or concentrates about current assets or current

liabilities because there would not be uncertainty, no transaction costs, information search costs, scheduling costs or production and technology constraints. The unit cost of production would not vary with the quantity produced. Capital, Labor and products markets shall be perfectly competitive and would reflect all available information. Thus

in such an environment, there would be no advantage for investing in short term assets. Whereas, the world in which we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowing and lending rates for investments and financing of equal risk. Similarly each organization is faced with its own limits on the production capacity and technology it can employ. There are fixed as well as variable costs associated with producing goods. In other words, the markets in which real firms operate are not perfectly competitive.

These real world facts introduce problems and require the necessity of working capital. The most important areas in the day to day management of the firm, is the management of working capital. Working capital management is the functional area of finance that covers all the current accounts of the firm. It is concerned with management of the level of individual current assets as well as the management of total working capital. Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash.

For example, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial inputs in future at reasonable price. This may necessitate the holding of inventory ie., current assets. Similarly an organization may be faced with an uncertainty regarding the level of its future cash inflows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of a reserve of short term marketable securities, again a short term capital asset. The unpredictable and uncertain global market plays a vital role in working capital. Though the globalization of economy and free trading of products envisages the continuous availability of products but how much its cost effective and quality based varies concern to concerns.

Working capital refers to the funds invested in current assets, ie., investment in stocks, sundry debtors, cash and other current assets. Current assets are essential to use fixed assets profitably. The term current assets refers to those assets which in the ordinary course of business can be converted into cash within one year without undergoing diminish in value and without disrupting the operations of the firm. The current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those which are to be paid within a year out of the current assets or earnings of the concern. The current liabilities are accounts payable, bills payable, bank overdraft and outstanding expenses.

The financial manager plays a vital role in management of working capital. The financial management of any business organization involves the three following vital functions:

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1. 2. 3.

Management of Long Term Assets Management of Long Term Capital Management of Short Term Assets and Liabilities

In most of the organizations the first & second one which refers to Capital Budgeting and Capital Structure respectively will be maintained and cope up with organization growth. The third one which refers to Working Capital Management requires more skills for sustaining and steady growth rate for any organization.

The working capital management includes decisions

i. ii. iii. iv. v. vi.

How much stock/inventory to be hold How much cash/bank balance should be maintained? How much the firm should provide credit to its customers? How much the firm should enjoy credit from its suppliers? What should be the composition of current assets? What should be the composition of current liabilities?

For eg., a machine cannot be used without raw material. The investment on the purchase of raw material is identified as working capital. It is obvious that a certain amount of funds is always tied up in a raw material inventories, work in progress, finished goods, consumable stores, sundry debtors and day to day cash requirements. However the businessman also enjoys credit facilities from his suppliers who may supply raw material on credit. Similarly, a businessman may not pay immediately for various expenses. For

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instance, the laborers are pain only periodically. Therefore, a certain amount of funds is automatically available to finance the current assets requirements. However, the requirements for current assets are usually greater than the amount of funds payable through current liabilities. The satisfactory level of working capital is the main object of working capital management. Any organization which fails to maintain satisfactory level of working capital may be forced to bankruptcy. The current assets should always be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Thus the interaction between current assets and current liabilities is the main aim of working capital management.

The basic objective of financial management is to maximize shareholders wealth. This objective can be achieved when the company earns sufficient profits. The amount of profits largely depends on the magnitude of sales. But, sales do not convert into cash instantly. There is time lag between the sale of goods and the receipt of cash. Working capital is required to purchase the materials, pay wages and other expenses in order to sustain sales activity the time lag. The time gap between the sale of goods and realization of cash is called operating cycle. What operating cycle stands for?

a. b. c. d.

Conversion of cash into raw materials Conversion of raw materials to finished goods Conversion of finished goods into receivables Conversion of receivables into cash

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Where is Working Capital Analysis Most Critical?

On the one hand, working capital is always significant. This is especially true from the lender's or creditor's perspective, where the main concern is defensiveness: can the company meet its short-term obligations, such as paying vendor bills?

But from the perspective of equity valuation and the company's growth prospects, working capital is more critical to some businesses than to others. At the risk of oversimplifying, we could say that the models of these businesses are asset or capital intensive rather than service or people intensive. Examples of service intensive companies include H&R Block, which provides personal tax services, and Manpower, which provides employment services. In asset intensive sectors, firms such as telecom and pharmaceutical companies invest heavily in fixed assets for the long term, whereas others invest capital primarily to build and/or buy inventory. It is the latter type of business - the type that is capital intensive with a focus on inventory rather than fixed assets - that deserves the greatest attention when it comes to working capital analysis. These businesses tend to involve retail, consumer goods and technology hardware, especially if they are low-cost producers or distributors.

2.Concepts & Definitions of Working Capital There are two concepts of working capital 1.Gross Working Capital: It represents the total current assets and is also referred to as circulating capital because current capital as current assets, are circulating in nature.

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2.Net Working Capital: It is a measure of liquidity and it can be defined in two ways. a.The most usually implied definition of net working capital is that it represents the difference between current assets and current liabilities. Some people also define it as excess of current assets over the current liabilities. b.It is that portion of the firms current assets, which is financed by long term funds.

Nett working capital as a measure of liquidity is generally not very useful to compare the performance of different units due to difference in scales of operation, efficiency, and creditability in the market etc., between the different firms. However it is a very useful measure for internal control purposes. It can also be used to compare the liquidity position of the same unit over a period of time. This will help in maintaining the acceptable level of net working capital.

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

3. Objectives of Working Capital Management

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The main objective is to ensure the maintenance of satisfactory level of working capital in such a way that it is neither inadequate nor excessive. It should not only be sufficient to cover the current liabilities but ensure a reasonable margin of safety also. i. To minimize the amount of capital employed in financing the current assets. This also leads to an improvement in the Return of Capital Employed. ii. To manage the current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital acquired to finance them. This will ensure the maximization of the value of the business unit. iii. To maintain the proper balance between the amount of current assets and the current liabilities in such a way that the firm is always able to meet its financial obligations, whenever due. This will ensure the smooth working of the unit without any production held ups due to paucity of funds.

4.

Types of Working Capital

A. B.

Permanent Working Capital Temporary Working Capital

Permanent Working Capital:

The operating cycle is a continuous feature in almost all the going concerns and therefore creates the need for working capital and their efficient management. However the magnitude of working capital required will not be constant, but will fluctuate. At any

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time, there is always a minimum level of current assets which is constantly and continuously required by a business unit to carry on its operations. This minimum amount of current assets, which is required on a continuous and uninterrupted basis is after referred to as fixed or permanent working capital. This type of working capital should be financed (along with other fixed assets) out of long term funds of the unit. However in practice, a portion of these requirements also is met through short term borrowings from banks and suppliers credit. For eg., In a manufacturing unit, basic raw materials required for production has to be available at all times and this has to be financed without any disturbance. Temporary Working Capital Any amount over and above the permanent level of working capital is variable, temporary or fluctuating working capital. This type of working capital is generally financed from short term sources of finance such as bank credit because this amount is not permanently required and is usually paid back during off season or after the contingency. As the name implies, the level of fluctuating working capital keeps on fluctuating depending on the needs of the unit unlike the permanent working capital which remains constant over a period of time. 5. Determinants of Working Capital

Working capital management is an indispensable functional area of management. However the total working capital requirements of the firm are influenced by the large number of factors. It may however be added that these factors affect differently to the different units and these keep varying from time to time. In general, the determinants of working capital which are common to all organizations can be summarized as under:

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a. b. c. d. e. f. g. h. i. j.

Nature and Size of Business Production Cycle Business Cycle Production Policy Credit Policy Growth & Expansion Proper availability of raw materials Profit level Inflation Operating Efficiency

6.

Estimating of working capital requirements

The amount of the different constituents of the working capital such as debtors, cash, inventories, creditors, etc are estimated separately and the total amount of working capital requirement is worked out accordingly. Percent Sales method is the most simple and widely used method in combination with other scientific methods. A ratio is determined for estimating the future working capital requirements. This is generally based on the past experience of the management as this ratio varies from industry to industry and unit to unit within the same industry. Operating Cycle method points towards the length of time considered necessary to complete the following cycle of events:

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a. b. c. d. e. f.

Purchase of raw materials by converting cash Storage of raw materials including for buffer stock and safety margin Conversion of raw materials into work in progress Conversion of work in progress into finished goods Conversion of finished goods into debtors and bills receivable Conversion of debtors into cash

Cash Conversion Cycle is a measure of working capital efficiency, often giving valuable clues about the underlying health of a business. The cycle measures the average number of days that working capital is invested in the operating cycle. It starts by adding days inventory outstanding (DIO) to days sales outstanding (DSO). This is because a company "invests" its cash to acquire/build inventory, but does not collect cash until the inventory is sold and the accounts receivable are finally collected. The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for the purpose of making transactions. All three of these reasons stem from the need for companies to possess liquidity. Speculation: Economist Keynes described this reason for holding cash as creating the ability for a firm to take advantage of special opportunities that if acted upon quickly will favor the firm. An example of this would be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory. Precaution: Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are not received as expected cash held on a precautionary basis

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could be used to satisfy short-term obligations that the cash inflow may have been bench marked for. Transaction: Firms are in existence to create products or provide services. For providing of services and creating of products results in the need for cash inflows and outflows. Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they have. Receivable are essentially loans extended to customers that consume working capital; therefore, greater levels of DIO and DSO consume more working capital. However, days payable outstanding (DPO), which essentially represent loans from vendors to the company, are subtracted to help offset working capital needs. In summary, the cash conversion cycle is measured in days and equals DIO + DSO DPO:

7.

Sources of Working Capital

The working capital necessary and what constitutes working capital have been analyzed in depth. Now we look out what are the ways we can generate working capital. a. b. c. d. Trade Credits Bank Credit Current provisions and non-bank short term borrowings: and Long term sources ie., equity share capital, preference share capital and

other long term borrowings. Short term source of funds are generally available at comparatively lower costs but theoretically these funds can be called back any moment and therefore it is more

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appropriate to meet at least two thirds of the permanent working capital requirements from the long term sources. The advantages of long term sources is, it reduces risk as there is no need to repay the loans at frequent intervals and funds can be employed gainfully and it increases liquidity. 8. Summary

Traditional analysis of working capital is defensive; it asks, "Can the company meet its short-term cash obligations?" But working capital accounts also tell you about the operational efficiency of the company. The length of the cash conversion cycle (DSO+DIO-DPO) tells you how much working capital is tied up in ongoing operations. And trends in each of the days-outstanding numbers may foretell improvements or declines in the health of the business.

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. Thus the importance of adequate of working capital in commercial undertakings can never be over emphasized. The various studies conducted by the Bureau of Public Enterprises have shown that one of the reasons for the poor performance of public sector undertakings in our country has been the large amount of funds locked up in working capital. This results in over capitalization. Over Capitalization implies that a company has too large funds for its requirements, resulting in a low rate of return a situation which implies a less than optimal use of resources. Insolvency risk is there in the case of under capitalization of working capital. Hence working capital management plays a pivotal role in growth or to sustain in market for any organization.

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INTRODUCTION

Proper management of working capital is very important for the success of an enterprise. Constant management is required to maintain appropriate levels in the various working capital components. It aims at protecting the purchasing power of assets and maximizing the return on investment. It has been found that the major portion of a financial managers time is utilized in the management of working capital.

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The management of working capital also helps the management in evaluating various existing or proposed financial constraints and financial offerings. The two vital aspects of corporate business life are liquidity and profitability

WORKING CAPITAL Meaning: The term working capital refers to that portion of an organization capital which is required in the short-run to finance current assets such as debtors, cash balance, bank balance, marketable securities, bills and inventory. The value of these assets keeps changing over a period.

Working capital has to be regarded as one of the conditioning factors in the longrun operations of a firm, which is often inclined to treat it as an issue of short- run analysis and decision-making. The skills of working management are somewhat unique thought the goals are the same as in managing warrant asset individually viz. to make

an efficient use of fonder for minimizing the risk of breaks to attain profit objectives.

DEFINITION

Working capital is amount of funds necessary to cover the costs of operating the enterprise. According to the institute of chartered accountants of India, working capital means the funds available for day-to-day operations of an enterprise.

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CONCEPTS OF WORKING CAPITAL

There are two concepts regarding the meaning of working capital.

a) Net working capital b) Gross working capital

NET WORKING CAPITAL

The net working capital concept is a qualitative concept indicating the soundness by the current ratios viz Current assets or current liabilities. The net concept of working capital is suitable for proprietary, capital and management are united.

Net working capital to the difference between current assets and current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable and outstanding expenses.

Net working capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities. A negative net working capital occurs when current liabilities are in excess of current assets. This concept refers to the differences between, the net working capital help the management loan for permanent

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sources for its financing since working capital under this approach does not increase with increases in short-term borrowings

GROSS WORKING CAPITAL

The working capital refers to the firms total investment in current assets. It is also called the circulating capital. It is equal to the total sum of current assets only and it may represent both owned capital as well as loan capital used for financing the current assets.

Current assets are the assets which can be converted into cash within an accounting year and include cash, short-term securities, and debtors (accounts receivable or book debts) bills receivables and stock (inventory).

RATIONALITY OF THE STUDY

Working capital management policies have a great effect on firms profitability, liquidity and its structural health. Therefore, the basic goal of working capital

management is to manage each firms current assets and current liabilities in such a way that, as acceptable level of net working capital is always maintained in the business.

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Each current asset must be managed in order to maintain the firms liquidity wile not keeping too high level of any one of them. It ultimately assists in increasing the

profitability of the concern. Hence, the problem of efficient management of working capital is to establish a trade-off between liquidity and profitability.

As a matter of fact a business cannot survive in the absence of a satisfactory ratio between its current assets and current liabilities. Further more its ability to prosper will be largely determined by the composition of the current assets pool. Management in setting policies with respect to general operations, purchasing, financing, expansion and dividend must work within the limitations set by the working capital position.

Hence, we can conclude that the strategies of a firm should be in such a way that it establishes company trade-off between current assets and current liabilities properly for achieving outstanding results. Thus, the estimation of working capital affects the firms stability, which follows the basis for this analysis undertaken. This analysis includes not only finding out reasons for bad outcomes in the past time but also for justifying the estimations.

LITERATURE REVIEW

FINANCE:

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In our present day economy, finance is defined as the provision of money at the time when it is required. Every enterprise whether big, medium or small, needs finance to carry on its operations and to achieve its targets. Finance refers to the management of flow of money through an organization. It concerns wit the application of skills in the manipulation, use and control of money. In fact, finance is so indispensable today that it is rightly said that it is the lifeblood of an enterprise. Without adequate finance, no enterprise can possibly accomplish its objectives.

WORKING CAPITAL: Working capital is the excess of current assets over current liabilities. It is required for running the day-to-day affairs of the unit. According to Shabin, working capital is the amount of funds necessary to cover the cost of operating the enterprise. According to Genstenberg, working capital means current assets of a company that are changed in the ordinary course of business from one form to another. For e.g. from cash to inventories, inventories to receivables, receivables to cash.

NEED FOR WORKING CAPITAL: Every business needs some amount of working capital. The need for working capital arises due to the time gap between production and realization of cash from sales. There are time gaps in purchase of and production of and production; production and sales and sales and realization of cash. Then, working capital is needed for the following purposes. For the purchase of raw materials, components and spares.

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To pay wages and salaries. To incur day-to-day expenses and overhead costs such as fuel power and office expenses. To meet the selling costs such as packing, advertising etc.

To provide credit facilities to the customers. To maintain the inventories of raw materials, work-in-progress, store spares and finished stock.

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital 1. Gross Working Capital 2. Net Working Capital

GROSS WORKING CAPITAL

Gross working capital, simply called as working capital refers to the firms investment in current assets. Current assets are the assets, which in ordinary course of business can be converted into cash within an accounting year.

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Examples of Current Assets: Cash and Bank Balances Short term loans and advances Bill Receivables Sundry Debtors Inventory Prepaid Expenses Accrued Income Money Receivable in 12 month

The gross working capital concept focuses attention of two aspects of current assets management. Optimum investment in current assets and Financing of current assets.

The consideration of the level of investment in current assets should avoid two danger points-excessive and inadequate investments in current 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 arrangement should be made quickly.

NET WORKING CAPITAL Net working capital refers to the difference between the current assets and current liabilities. Current liabilities are those claims of outsides, which are accepted, to mature 28

for payment with an accounting year and include creditors, bills payable and outstanding expenses. Net working capital = current assets current liabilities Net working capital can be positive or negative. A positive net working capital will arise when current assets exceeds current liabilities. It is a quantitative concept. It indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds.

TYPES OF WORKING CAPITAL Working capital can be classified into two categories i.e. Permanent working capital Temporary or variable working capital

PERMANENT WORKING CAPITAL It is the minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. Tandon Committee has reserved to this type of working capital as Core Current Assets.

CHARECTERISTICS OF PERMANENT WORKING CAPITAL Amount of permanent working capital remains in the business in one form or another. It also grows with the size of the business. It is permanently needed for the business, and therefore, it should be financed out of long term funds.

VARIABLE WORKING CAPITAL

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The amount of working capital over permanent working capital is known as variable working capital. The amount of such working capital keeps on fluctuating from time to time on the business activities. It may again be subdivided into seasonal working capital and special working capital. Seasonal working capital is required to meet the seasonal demands of busy periods occurring at stated intervals on the other hand, special working capital is required to meet extraordinary needs for contingencies.

APPROCHES FOR FINANCING WORKING CAPITAL There are three approaches to financing the working capital. Matching approach Conservation approach Aggressive approach

MATCHING CONCEPT The firm can adopt a financial plan, which matches the expected life of assets with the expected life of the source of funds raised to finance assets. The firm follows matching approach, long term financing will be used to finance fixed assets and permanent current assets and short term financing temporary or variable current assets. However, it should be realized that exact matching is not possible because of the uncertainty about the expected life of the assets. The firms fixed assets and permanent current assets are financed with long-term funds and as the level of these assets increases, the long term financing level also increases. The temporary or variable current assets are financed with

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short-term funds and as their level increases, the level of short-term financing also increases.

2.COSERVATIVE APPROACH A firm is practice may adopt a conservative approach in financing its current and fixed assets. The financing policy of the firm is said to be conservative when it depends more on long-term funds for financing needs. Under a conservative plan, the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the periods when the firm has no need for temporary current assets, the idle long-term funds can be invested in the tradable securities to conserve liquidity. The conservative plan relies heavily on long term financing.

3.AGGRESIVE APPROACH A firm may be aggressive in financing its assets. A firm follows aggressive policy when it uses more short-term financing than warranted by the matching plan. Under an aggressive policy, the firm financing a part of its permanent current assets with shortterm financing. Some extremely aggressive firms may even finance a part of their fixed assets with short-term financing.

DANGER OF EXCESSIVE WORKING CAPITAL A firm may be tempted to over trade and lose heavily. Unable to extract benefits of customer credit.

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The situation may lead to unnecessary purchases and accumulation of inventories. This cause more chances of theft, waste, losses etc. There arises an imbalance between liquidity and profitability. Excessive working capital means funds are idle. The situation leads to greater production, which may not be having matching demand. The excess of working capital leads to carelessness about cost of production.

DETERMINANTS OF WORKING CAPITAL The need of working capital is not always the same it varies from year to year or even month to month depending upon a number of factors. There is no set of rules or formulae to determine the working capital needs of the firm. Each factor has its own importance and the importance of the factors changes for a firm overtime. In order to determine the proper amount of working capital of a concern, the following factors should be considered carefully.

1.NATURE OF BUSINESS The amount of working capital is basically related to the nature and volume of business in concerns where the cost of the raw materials to be used in the manufacturing of a product is very large in proportion to its total cost of manufacturing the requirement of working capital will be very large.

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2.SIZE OF BUSINESS UNIT The size of the business unit has an important impact on its working capital needs. Size ma be measured in terms of scale of operation. A firm with larger scale of operation will need more working capital than a small firm.

3.SEASONAL VARIATION Seasonal industries require more working capital to stock the raw materials during the season.

4.TIME CONSUMED IN MANUFACTURING The average time taken in the process of manufacture is also an important factor in determining the amount of working capital. The longer the period of manufacturing the larger the inventory required.

5.TURNOVER OF CIRCULATING CAPITAL Rapidly of turnover determines the amount of working capital. The faster the sales the larger the turnover hence less working capital. 6.GROWTH AND EXPANSION Growing concerns requires more working capital than those that are static. It is logical to expect larger amount of working capital in a growing concern to meant its growing needs of funds. 7.INVENTORY TURNOVER

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With a better inventory control, a firm is able to reduce its working capital requirements. If the inventory turnover is high the working capital requirements will be low. 8.DIVIDEND POLICY Dividend policy and working capital are interrelated. Management takes a view of current assets before declaring a dividend. 9.PRICING LEVEL CHANGES Rising price level requires more working capital to maintain the same level of current assets.

10.TERM OF PURCHASE AND SALE Terms of purchase and sales affect the amount of working capital. The practice of cash purchases with credit sales requires more working capital.

SOURCES OF WORKING CAPITAL

After determining the level of working capital on the basis of various determinants the next step is to consider how it will be financed. A large manufacturing concern may procure funds from various sources to meet its working capital requirements from time to time. For the convenience of study the sources of working capital may be classified under two heads.

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Sources of long term or regular working capital Sources of short term or seasonal working capital

Sources of Long Term Working Capital: The long term working capital requirements can be met from the following sources.

1.ISSUE OF SHARES It is the safest way of procuring permanent and regular working capital without any fixed charges.

2.ISSUE OF DEBENTURE Regular and long term working capital may be obtained at lower cost of trade on equity.

3.RETAINED PROFITS Accumulated large profits are also considered to be a good source of financing longterm working capital requirements. It is the best and the cheapest source of finance.

4.SALE OF FIXED ASSETS If there is any idle fixed assets in the firm can be sold out and the proceeds may be utilized for financing the working capital requirements.

Sources of Short term Working Capital: The sources of short-term working capital may be classified in two heads.

35

1. Internal sources 2. External sources INTERNAL SOURCES Under this category the sources of working capital are tapped from within the internal sources are depreciation funds, provision for taxation and accrued expenses.

1.DEPRICIATION FUND Depreciation funds created out of profits provided they are invested in or represented by assets.

2.PROVISION FOR TAX There remains a time lag between making the provision for and payment of taxation. A company may utilize such provision during the intermittent period temporarily.

3.ACCURED EXPENSES The company sometimes postpones the payment of certain expenditure due to finalization of the accounts. These accrued expenses also constitute an important source of working capital.

EXTERNAL SOURCES External sources mean the sources providing finance for companys working capital other than those of internal sources. These may be enumerated as given below.

36

1.NORMAL TRADE CREDIT Creditors provide short-term finance to the company by selling the goods, inventories and equipment on the basis of deferred payment. It is very common source of short-term finance and normally every concern use this source as a normal trade practice.

2.CREDIT PAPERS Bills payable or promissory note, which may be discounted from bankers for meeting short term capital by the drawer.

3.BANK CREDIT The greater part of the working capital is supplied by commercial banks to their customers through direct advances in the shape of loans, cash credit or over draft and through discounting the credit, papers, e.g. bills payable and promissory notes etc.

4.CUSTOMER CREDIT Advance may also be obtained from customers against the contracts entered into b the enterprise such advances are generally asked for, by the companies manufacturing large plants and machinery involving longer time in completing the process of manufacturing e.g. ship building industries. The amount can be used for purchasing raw materials, paying wages and so on.

5.PUBLIC DEPOSITS

37

Most of the companies in recent years depend on this source to meet their working capital requirements. Under the companies Act 1956 a company is authorized to raise funds equal to 25% of paid up capital and free reserves b this source.

6.GOVERNMENT ASSISTANCE Central and state governments of the country provide short-term finances to industries or businesses by allowing tax concessions, sanctioning direct loans or grants to industries or a class of industries to assist their production programs etc.

WORKING CAPITAL POLICY Working capital management policies have a great effect on firms profitability, liquidity and its structural health. A finance manager should therefore, chalk out

appropriate working capital policies in respect of each competent of working capital so as to ensure high profitability, proper liquidity and sound structural health of the organization.

In order to achieve this objective the financial manager has to perform basically following two functions.

1. Estimating the amount of working capital. 2. Sources from which these funds have to be raised.

38

OBJECTIVES OF WORKING CAPITAL MANAGEMENT

The objectives of working capital management are twofold: 1. Maintenance of working capital and 2. Ability of ample funds at the time of need.

The basic goal of working capital management is to manage each of the funds current assets and current liabilities in such a way that an acceptable level of networking capital is always maintained in the business.

WORKING CAPITAL FORECAST There are number of methods to determine the working capital needs. 1. By Determining the Amount of Current Assets and Current Liabilities: The assessment of working capital requirement can be made on the basis of the current assets required for the business and the credit facilities available for the acquisition of such current assets from the current liabilities.

2. Cash Forecasting Method: In this method the position of cash at the end of the period is shown after considering the receipts and payments to be made during the period. Its form assumes more or less a summary of cashbook. This shows the deficiency or surplus of cash as the definite point of time. 3. The Balance Sheet Method:

39

The Balance sheet method of forecast is made up of the various assets and liabilities of the business. Afterwards, the difference between the two is taken which will indicate either cash surplus or deficiency. 4. Profit and Loss adjusted Method: Under this method the forecasted profits are adjusted after adding the cash inflows and deducting the cash outflows. The basic idea under this method is to adjust the estimated profit on cash basis.

5. Working Capital as a Percentage of Sales: Under this method the working capital is to be related to sales and calculated as a percentage of sales.

6. Working Capital as a Percentage of Fixed Assets: In this method working capital is related to fixed capital investment. Therefore, it is projected as a percentage of fixed capital investment

OPERATING CYCLE: Working capital is required because of the time gap between the sales and their actual realization in cash. This time gap is technically terms as operating cycle of the business.

In case of manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of event. Conversion of cash into raw materials.

40

Conversion of raw materials into work in progress. Conversion of work in progress into finished goods. Conversion of finished goods into account receivables. Conversion of accounts receivable into cash.

This cycle is continuous phenomena. In case of Trading Firm the operating cycle will include the length of time required to: Cash into inventories. Inventories into accounts receivables. Accounts receivables into cash. In case of Financing Firm the operating cycle includes the length of time taken for 1 year. Conversion of cash debtors, and Conversion of debtors into cash.

WORKING CAPITAL TURNOVER RATIO It measures the efficiency of the employment of working capital. Generally higher the turnover, greater is the efficiency and larger the sale of profits. Working capital turnover ratio can be calculated wit help of the following formula.

SALES Working Capital Turnover Ratio = --------------------------------------NET WORKING CAPITAL

41

Permanent and Variable Working Capital This minimum level of current assets is referred to as permanent or fixed working capital. The extra working capital, needed to support the changing production and sales activities is called fluctuating working capital. Difference between permanent and temporary working capital .It is shown that permanent working capital is stable over time, while temporary working capital is fluctuating some time increasing and sometimes decreasing.

SCOPE OF THE STUDY

The scope of the study is concerned with the proper management of funds, as much to know how effectively funds are utilized for meeting short-term and long-term needs. The basic scope of the researcher is to enroll the firms involvement in rising of funds and their effective utilization keeping in view the overall objectives of the firm.

42

The scope of the study enabled the researcher to analyze the risk return possibilities in the employment of funds, applying analytical tools to procure the profitability of the business. Ascertaining the working capital will come to know either inadequacy or excess funds with the concern. The inadequacy of funds will adversely affect the day-to-day working of the concern where as excess funds may tempt management to include in extravagant spending.

Analyzing the capital structure, inferences the kind and proportion of different securities for raising funds and proper decision about the kind of securities to be employed which influences the short-term and long-term financial planning of an enterprise.

Finding the investment pattern is essential so that it will come to know the source of funds. The decision-making technique such as capital budgeting may be applied in making decision about capital budgeting. Assessing cash position of the concern will achieve greater task, such as cash requirements for,

Purchase of raw materials Making payment to creditors Meet wage bill Meet day-to-day expenses

43

And different sources of cash may be from Cash sales Collection of debtors

Preparing cash flow statement is able to find us the various sources and applications.

Some of the financial control devices are, Return on investment Budgetary control Ratio analysis will help in evaluating the performance in various areas and take corrective measures wherever needed.

7. OBJECTIVES OF THE STUDY To determine working capital requirement. To view fluctuations in working capital changes. To ascertain the trend of sales and working capital for next year. To analyze the relationship between sales and debtors. To study ratio analysis of working capital. To analyze the overall performance of the company. To suggest measures for improvement, if necessary.

44

STATEMENT OF NET WORKING CAPITAL FOR 2010

PARTICULARS CURRENT ASSETS Sundry Debtors Stock Cash and Bank Loans & Advances TOTAL Current Liability & Provisions Current Liability & Provisions

2010

58.69 632.08 2.20 223.32 916.29

1087.94

45

TOTAL

1087.94

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITY

CURRENT ASSETS CURRENT LIABILITY

= 916.29 = 1087.94 -------------

NET WORKING CAPITAL =

(171.65) -------------

STATEMENT OF NET WORKING CAPITAL FOR 2011

PARTICULARS CURRENT ASSETS Sundry Debtors Stock Cash and Bank Loans & Advances TOTAL Current Liability & Provisions Current Liability & Provisions TOTAL

2011

115.97 1541.18 8.41 212.89 1878.45

1877.68 1877.68

46

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITY

CURRENT ASSETS CURRENT LIABILITY

= 1878.45 = 1877.68 -------------

NET WORKING CAPITAL =

0.77 -------------

STATEMENT OF NET WORKING CAPITAL FOR 2012

PARTICULARS CURRENT ASSETS Sundry Debtors Stock Cash and Bank Loans & Advances TOTAL Current Liability & Provisions Current Liability & Provisions TOTAL

2012

71.73 1726.59 5.24 439.48 2243.04

1169.35 1169.35

NET WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITY

CURRENT ASSETS

= 2243.04

47

CURRENT LIABILITY

= 1169.35 -------------

NET WORKING CAPITAL = 1073.69 -------------

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2010-2011 PARTICULARS 2010 lakhs) CURRENT ASSETS Sundry debtors Stock Cash and Bank Loans & Advances Total Current Asset CURRENT LIABILITIES Current Liability Provisions Total 1087.94 1877.68 1877.68 0.77 170.88 171.25 789.74 58.69 632.08 2.20 223.32 916.29 115.97 1541.18 8.41 212.89 1878.45 6.21 57.28 909.10 10.43 2011 (lakhs) (lakhs) (lakhs) CHANGES IN WORKING CAPITAL INCREASE DECREASE

current 1087.94

Liability Working Capital 171.65 Decrease in Working Capital Total 171.25

1760.44 1766.65 1766.55

48

INTERPRETATION: There is a Net Decrease in working Capital of 170.88 lakhs due to decrease in current assets like Sundry debtors, cash & bank, Loans & Advances, increase in current assets (Fixed deposits) and also decrease in current liability (Liability and Provisions). The Net effect is Net Decrease in Working Capital.

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR 2011-2012

49

PARTICULARS

2011 (lakhs)

2012 (lakhs)

CHANGES IN WORKING CAPITAL INCREASE DECREASE (lakhs) (lakhs)

CURRENT ASSETS Sundry debtors Stock Cash and Bank Loans & Advances Total Current Asset CURRENT LIABILITIES Current Liability 1877.68 1374.73 1374.73 567.2 567.2 566.49 115.97 1541.18 8.41 212.89 1878.45 33.36 1511.51 11.50 385.56 1941.93 3.09 172.67 82.61 29.61 -

Provisions Total Current 1877.68 Liability Working Capital 0.77 Increase in working 566.43 capital Total I 567.2

566.43 678.71 678.71

INTERPRETATION:

There is a Net increase in working Capital of 566.43 lakhs due to decrease in current assets such as fixed deposits, increase in current assets like sundry Debtors, Cash & Bank, Loans & Advances and also decrease in current liability like Provisions. The Net effect is Net Increase in Working Capital.

INTERPRETATION:

50

There is a Net increase in working Capital of 506.49 lakhs due to increase in current assets like sundry Debtors, Cash & Bank, Loans & Advances and also decrease in current liability like Provisions. The Net effect is Net Increase in Working Capital.

RATIO ANALYSIS

INTRODUCTION

Analysis and interpretation of financial statements with help of ratios is termed as ratio analysis involves the process of computing, determining and presenting the ratio analysis was

relationship of items or groups of items of financial statements

pioneered by ALEXANDER WALL who presented a system of ratio analysis in the year

51

1909. Alexander contention was that interpretation of financial statements can be made easier by establishing quantitative relationships between various items of financial statements.

MEANING OF RATIO A ratio is mathematical relationship between two items expressed in a quantitative form.

Ratios can be defined as Relationships expressed in quantitative terms, between figures which have cause and effective relationships or which are connected with each other in some manner or the other.

Accounting ratios are designed to show how one number is related to another and the meaning of such relationships. The ratio is worked out by dividing one number by another number. Accounting ratios measure and indicate efficiency of an in all aspects.

STEPS IN RATIO ANALYSIS

Selection of relevant information: the first step in ratio analysis is to select a relevant information from financial statements and calculate appropriate ratios required for decision under consideration.

52

Comparison of calculated ratios: in order to assess the relative meaning, the ratios calculated are compared with the past ratios and industry ratios.

Interpretation and reporting: the third in ratio analysis is to interpret the significance of various ratios draw inferences and write a report. The report may recommend specific action in the matter of the decision situation or may present alternatives with comparative merits or it may just state the facts and interpretation.

ADVANTAGES OF RATIO ANALYSIS:

Forecasting: rations reveal the trends in costs, sale, profit and other interrelated facts, which will be helpful in forecasting future events. Managerial control : ratios can be used in instrument of control regarding sales, cost and profit. Facilitates communication: ratios facilitate the communication function of Management as ratios convey the information relating to the the future quickly, force fully and clearly. Measuring efficiency: - ratio help to know operational efficiency comparison of present ratios with those of the past working and also with those of the other firms in the industry. Facilitating investment decisions: ratios are helpful in computing return on investment. This helps the management in exercising effective regarding profitable avenues of investment. decisions present and

53

LIMITATIONS OF RATIO ANALYSIS

Practical knowledge: the analyst should have through knowledge and experience the firm and industry.

Ratios are means: ratios are not end in themselves but they are mean to achieve a practical purpose or end.

Interrelationship: ratios are inter-related and therefore a single ratio cannot convey and meaning. It has to be interpreted by reference to other related ratios to draw meaningful conclusions.

Non Availability of standards and norms: ratios will be meaningful if they can be compared with standards or norms. Expect for a few financial ratios, other ratios are lack standards which are universally recognized

Change in price level: ratio analysis becomes redundant during periods of heavy price fluctuations.

RATIOS

54

CURRENT RATIO

Current assets mean assets that will either be used up or converted into cash within a years of time or normal operating cycle of the business, whichever is longer. Current liabilities mean liabilities payable within a year or during the operating cycle of the business, whichever is longer.

An ideal current ratio is 2. The ratio of 2 is considered as a safe margin of solvency due to the fact that if the current assets are reduced to half, i.e., 1 instead of 2, then also the creditors will be able to get their payments in full.

A higher current ratio would indicate inadequate employment of funds while a poor current ratio is a danger signal to the management. It shows that business is trading beyond its resources.

CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITIES

TABLE SHOWING CURRENT RATIO FOR THE YEAR 2008-2012

YEAR

CURRENT

CURRENT

CURRENT

55

2008-2009 2009-2010 2010-2011 2011-2012

ASSETS 916.29 1878.45 1941.93 2243.04

LIABILITIES 1087.94 1877.68 1374.73 1169.35

RATIO 0.84 1.00 1.41 1.92

CURRENT RATIO FOR THE YEAR 2009-2012

56

CURRENT RATIO
2.5 2 1.5 1 0.5 0 2009 2010 2011 2012 0.84 1 1.41 1.92

INFERENCE: The current ratio of 2:1 is considered as ideal ratio . the current ratio for the last 4 accounting period shows increasing trend. The current ratio is stepping up due to decreases in current liabilities. The ratio is health ratio

LIQUID RATIO

57

The liquid ratio gives a better picture of the firms capacity to meet is short term obligations out of the short-term assets. However it is difficult to establish a standard fo this ratio and it is also dangerous to rely too much on a 1:1.

LIQUID RATIO = LIQUID ASSETS CURRENT LIABILITIES

10.3.2TABLE SHOWING LIQUID RATIO FOR THE YEAR 2009-2012

YEAR 2008-2009 2009-2010 2010-2011 2011-2012

LIQUID ASSETS 284.21 337.28 430.42 516.45

CURRENT LIABILITIES 1087.94 1877.68 1374.73 1169.35

RATIO 0.26 0.18 0.31 0.44

58

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2009 2010 201 1 2012

INFERENCE: The liquid ratio refers to asset quickly convertible into cash .The liquid ratio for the last 4 years is increasing. The last year (2012) ratio is 0.44. It is not in good liquid position

59

CASH POSITION RATIO:

This ratio is also called Absolute Liquidity ratio or super quick ratio. This ratio is calculated when liquidity is highly restricted in terms of cash and cash equivalents. This ratio measures liquidity in terms of cash and near cash items and short term current liabilities. Cash & Bank Balances CASH POSITION RATIO = --------------------------------------Current liabilities

TABLE SHOWING CASH POSITION RATIO FOT THE YEAR 2009-2012 YEAR CASH BALANCE 2008-2009 2009-2010 2010-2011 2011-2012 2.20 8.41 11.50 5.24 &BANK CURRENT LIABILITIES 1087.94 1877.68 1374.73 1169.35 0.20 0.45 0.84 0.45 RATIO

60

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 C HR AS ATIO 2009 2010 2011 2012

INFERENCE: The ideal cash position ratio is called super quick ratio. The standard norm for the cash position ratio is 75:1 But the company to meet the ideal standard for the year (2010-2011) ratio is 0.84.The other years ratio is low.

61

OPERATING PROFIT RATIO:

The operating profit is the ratio of profit made from operating sources to sales, usually shown as percentage. It is a measure of the managements efficiency in running the routine operations of the firm.

PROFIT BEFORE INTEREST, DEP & TAX OPERATING PROFIT RATIO = --------------------------------------------*100 NET SALES

TABLE SHOWING OPERATING PROFIT RADIO FOR THE YEAR2009-2012 YEAR 2008-2009 2009-2010 2010-2011 2011-2012 PBT &I &DEP 94.47 286.63 400.73 507.94 NET SALES 1448.81 3794.99 4752.99 4671.77 RATIO 6.52 7.55 8.43 10.87

62

12 10 8 6 4 2 0 OP RAT E ING RAT IO 2009 2010 2011 2012

INFERENCE: This analysis is used to measure of management efficiency in running the routine operations of the business. The higher the ratio in the year (2012) indicates higher efficiency.

NET PROFIT RATIO:

63

This ratio indicates what portion of sales is left to the firm after all costs, charges, and expenses have been deducted. It is extremely useful to the firm being an indication of cost control and sales promotion. NET PROFIT NET PROFIT RATIO = ------------------------- * 100 NET SALES

TABLE SHOWING NET PROFIT RATIO FIR THE YEAR 2005-2008 YEAR 2008-2009 2009-2010 2010-2011 NET PROFIT 52.37 94.33 270.27 NET SALES 1448.81 3794.99 4752.99 4671.77 RATIO 3.59 2.49 5.68 8.61

2011-2012 402.43 5. NET PROFIT RATIO:

NET PROFIT RATIO 10 8 6 4 3.59 2.49 5.68 8.61

2 INFERENCES: 0 2009

2010

2011

2012

64

This analysis measures the efficiency of the business from the owners point of view the higher ratio in the year (2012) its indicates higher efficiency of the business during that period increases in sales. The lower the ratio may be due to low efficiency or increases the cost of raw material etc

CURRENT ASSET TURNOVER RATIO

CURRENT ASSET TURNOVER RATIO =

SALES

-------------------------CURRENT ASSET

TABLE SHOWING CURRENT ASSET TURNOVER RATIO FOR THE YEAR2009-2012 YEAR 2008-2009 2009-2010 2010-2011 2011-2012 SALES 1448.82 3794.99 4752.99 4671.77 CURRENT ASSET 916.29 1.58 1878.45 2.02 1941.93 2.45 2243.04 2.08 RATIO

65

3 2.5 2 1.5 1 0.5 0 C URRE NT R IO AT 2009 2010 2011 2012

INFERENCE: This ratio show continuous increases in ratios. In the middle year(2011)is ratio is fluctuating the radio is 2.45, because the sales in the year is increases.

DEBTORS TURN OVER RATIO

Debtors Turnover or debtors velocity indicates the velocity of debt collection of a firm. In simple words, it indicates the number of times average debtors

66

(Receivables) are turned over during a year, thus:

Debtors Turnover ratio( Debtors velocity)

=Net credit sales / Average Trade Debtors =No of time

Trade debtors = Sundry debtors + Bills Receivables

DEBTORS TURNOVER RATIIO =

NET CREDIT SALES SUNDRY DEBTORS

TABLE SHOWING DEBTORS TURNOVER RATIO FOR THE YEAR 2009-2012 YEAR SALES SUNDRY DEBTORS RATIO

67

2008-2009 2009-2010 2010-2011 2011-2012

1448.82 3794.99 4752.99 4671.77

58.69 115.97 33.36 71.73

24.68 32.72 142.47 65.13

7.DEBTORS TURN OVER RATIO

16 0 14 0 12 0 10 0 8 0 6 0 4 0 2 0 0 D EBTOR R S ATIO 2 009 2 010 2 011 2 012

INFERENCE:

68

Debtors turnover ratio for the sale is 65.13 in 2012. which shows efficient management of debtors. Debtors Turnover Ratio for the year 2010-2011 is 142.47 as the ratio increases because of growth in sales.

CAPITAL TURNOVER RATIO: Managerial efficiency is also calculated by establishing the relationship between sales with the amount of capital invested in the business. Higher ratio indicates higher efficiency and lower ratio indicates ineffective usage of capital.

SALES CAPITAL TURNOVER RATIO = ----------------------------------CAPITAL EMPLOYED

TABLE SHOWING CAPITAL TURNOVER RATIO FOR THE YEAR 2005-5008 YEAR SALES EMPLOYED CAPITAL RATIO

69

2008-2009 2009-2010 2010-2011 2011-2012

1448.82 3794.99 4752.99 4671.77

89.00 16.27 1011.63 3.75 1757.63 2.70 2250 2.07

8.CAPITAL TURNOVER RATIO:

18 16 14 12 10 8 6 4 2 0

2009 2010 2011 2012

C IT AP AL T NOV R UR E R IO AT

INFERENCE:

70

The Capital turnover ratio is constantly decreasing from 2009 to 2012, it is mainly due to continuous increase in sales. In the ratio is decreased due to increase in capital employed when compared to increase in sales. High ratio indicates the effective usage of the capital. FIXED ASSETS TURNOVER RATIO:

The fixed assets turnover ratio determines efficiency of utilization of fixed assets and profitability of a business concern. Higher the ratio, more is the efficiency in utilization of fixed assets. A lower ratio is the indication of under utilization of fixed assets.

FIXED ASSET TURNOVER RATIO =

__SALE_____ FIXED ASSET

TABLE SHOWING FIXED ASSETS TURNOVER RATIO FOR THE YEAR 20052008

71

YEAR 2008-2009 2009-2010 2010-2011 2011-2012

SALES 1448.82 3794.99 4752.99 4671.77

FIXED ASSET 1058.10

RATIO 1.37

1008.18 1187.82 1168.04

3.76 4.00 4.00

4 3.5 3 2.5 2 1.5 1 0.5 0

2009 2010 2011 2012 F E IX D AS E S ST RAT IO

INFERENCE:

72

The fixed assets turnover ratio shows an increasing trend for the 4 years (2009-2012) .The ratio in the year (2009) 1.37 which indicates the under utilization of fixed assets which is due to increase in net fixed assets.

DEBT EQUITY RATIO:

The debt equity ratio is determined to ascertain the soundness of the longterm financial policies f the company. It is also known as external-internal equity ratio. The debt equity ratio is calculated by dividing total long-term debt by share holders funds. The share holders funds includes shares capital plus reserves and surplus. The ideal ratio for the debt equity ratio is 1:1.

DEBTORS EQUITY RATIO = LONG TERM DEBT SHARE HOLDERS FUND

TABLE SHOWING DEBT EQUITY RATIO FOR THE YEAR 2005-2008

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YEAR 2008-2009 2009-2010 2010-2011 2011-2012

LONG TERM DEBT 676.50 779.69 1161.38 1460.54

SH. FUNDS 213.52

HOLDER RATIO

3.17 231.93 596.24 790.45 1.85 .DEBT EQUITY RATIO 3.36 1.95

3.5 3 2.5 2 1.5 1 0.5 0 D EBT EQUITY R ATIO 2009 2010 2011 2012

INFERENCE:

74

The debt equity ratio indicates that the company does not view debt as a source of funds on it is self sufficient with huge internal cash balances. The ideal ratio for debt equity ratio is 1. The ratio is continuous decreases because issue of fresh share capital is issued in 2011

PROPRIETARY RATIO

PROPRIETARY RATIO =

SHARE HOLDER FUNDS ---------------------------------------TANGIBLE ASSETS

TABLE SHOWING PROPRIETARY RATIO FOR THE YEAR 2009-2012

75

YEAR 2008-2009 2009-2010 2010-2011 2011-2012

SH. FUNDS 213.52 231.93 596.24 790.45

HOLDER

TANGIBLE ASSET 1974.39

RATIO

0.11 2886.63 0.08 3129.75 0.19 3411.08 0.23

11. PROPRIETARY RATIO 0.25 0.2 0.15 0.1 0.05 0 20 09 20 10 20 11 20 12

PR OPR ITAR Y R ATIO

INFERENCES:

76

In this proprietary ratio are increases in 2011 & 2012. In the middle year (2010) ratio is low, because the values of share holder funds are 231.93. In Ratio is increasing in other two year in issue of fresh share capital.

CASH TO CURRENT ASSET

Cash is important and sensitive current assets. Cash is also viewed as most liquid asset. When the proportion of cash is high in current assets, company can viewed as more liquid one. This kind of analysis will be helpful to the managers to understand the turnover capacity of the concern.

CASH TO CURRENT ASSET =

CASH -----------------------CURRENT ASSET

TABLE SHOWING CASH CURRENT ASSET FOR THE YEAR 2009-2012 YEAR CASH CURRENT ASSET RATIO

77

2008-2009 2009-2010 2010-2011 2011-2012

2.20 8.41 11.50 5.24

916.29 0.24 1878.45 0.45 1941.93 0.59 2243.04 0.23

0.6 0.5 0.4 0.3 0.2 0.1 0 2009 2010 2011 2012

INFERENCE From the above we can see that cash played a very small role in all the years. But in the year 2010-2011 it occupies a major place in current assets. The high level of cash & bank balances in the year may be due to substantial collection from debtors during 2010-2011 financial year.

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CASH TO CURRENT LIABILITIES

Percentage of cash in relation to current liabilities will enable us to understand the creditors repayment capacity of the concern without damaging the regular operation.

CASH TO CURRENT LIABILITIES =

CASH --------------------------------CURRENT LIABILITIES

TABLE SHOWING CASH TO CURRENT LIABILITIES FOR YEAR 2009-2012 YEAR 2008-2009 2009-2010 2010-2011 2011-2012 CASH 2.20 8.41 11.50 5.24 CURRENT LIABILITIES 1087.94 0.20 1877.08 0.45 1374.73 0.84 1169.35 0.04 RATIO

79

0 .9 0 .8 0 .7 0 .6 0 .5 0 .4 0 .3 0 .2 0 .1 0

20 09 21 00 21 01 21 02 C HT AS O C R NT UR E

INFERENCE cash to current liabilities just the cash necessary for meeting short term obligations. in the year 2011(0.84) the ratio is good. on other three ratio is poor

CURRENT ASSETS TO TOTAL ASSETS

CURRENT ASSETS CURRENT ASSETS TO TOTAL ASSETS = --------------------------------- * 100 TOTAL ASSETS

80

TABLE SHOWING CURRENT ASSETS TO TOTAL ASSETS FOR THE YEAR 2009-2012 YEAR 2008-2009 2009-2010 2010-2011 2011-2012 CURRENT ASSET 916.29 1878.45 1941.93 2243.04 TOTAL ASSET 1974.39 46.41 2886.63 65.07 3129.75 62.05 3411.08 65.76 RATIO

70 60 50 40 30 20 10 0

C R UR ENT AS ET TO S TOTAL AS ET S

2009 2010 2011 2012

81

CURRENT ASSETS TO TOTAL ASSETS

INFERENCE

This ratio indicates the proportion of current assets to total assets of the company. This ratio is fluctuating in nature. The higher ratio in the year 2012(65.76) indicates maintenance of sufficient cash balance and inventories. The lower ratio in the year 2009(46.41) indicates lower level of inventory and cash balance.

CURRENT LIABILITIES TO TOTAL LIABILITIES

CURRENT LIABILITIES TO TOTAL LIABILITIES = CURRENT LIABILITIES --------------------------------TOTAL LIABILITIES

82

TABLE SHOWING CURRENT LIABILITIES TO TOTAL LIABILITIES FOR THE YEAR 2009-2012

YEAR 2008-2009 2009-2010 2010-2011 2011-2012

CURRENT TOTAL LIABILITIES LIABILITIES 1087.94 1877.68 1374.73 1169.35 1764.44

RATIO

61.67 2657.37 70.66 2536.11 54.21 2629.90 44.46

CURRENT LIABILITIES TO TOTAL LIABILITIES

80 70 60 50 40 30 20 10 0

20 09 20 10 20 11 20 12 C R UR ENT L IL TO IAB ITY TOTAL LIAB ILITY

83

INFERENCE

This indicates the proportion of current liability to total liability of the company. Generally current liability will be short term in nature. This is mainly taken to meet or carry out day-to-day requirements of the business. The current liability increase in accordance with the volume of operation but not proportionately to total liability. The current liabilities are such liability that has to met in the immediate future.

COMMON SIZE BALANCE SHEET FOR THE YEAR 2009 AND 2010

84

PARTICULARS

2009 AMOUNT (RS) PERCENTAGE (%)

2010 AMOUNT (RS) PERCENTAGE (%)

ASSETS CURRENT ASSETS S.DRS STOCK CASH AND BANK BALANCES LOAN AND ADVANCES OTHER TOTAL CURRENT ASSET FIXED ASSETS Fixed assts Total assets Liabilities and capital Current liabilities Current liabilities & provision Loan funds Total liabilities Capital and reserves Share capital & Reserves and surplus Total share holders funds Total liabilities and capital 213.52 213.52 1977.96 10.79 10.79 100 231.93 231.93 2889.30 8.03 8.03 100 1087.94 676.50 1764.44 55 34.20 89.21 1877.68 779.69 2657.37 64.99 26.98 91.97 1058.10 1977.96 53.49 100 1008.18 2889.30 34.89 100 58.69 632.08 2.20 223.32 3.57 919.86 2.97 31.96 0.11 11.29 0.18 115.97 1541.18 8.41 212.89 2.67 1881.72 0.29 7.37 0.09 65.11 4.02 53.34

COMMON SIZE BALANCE SHEET FOR THE YEAR 2011 AND 2012
PARTICULARS 2011 AMOUNT (RS) ASSETS CURRENT ASSETS S.DRS STOCK CASH AND BANK BALANCES LOAN AND ADVANCES 115.97 1541.18 8.41 212.89 0.29 7.37 4.02 53.34 33.36 1511.51 11.50 385.56 1.07 48.25 0.37 12.31 PERCENTAGE (%) 2012 AMOUNT (RS) PERCENTAGE (%)

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OTHER TOTAL CURRENT ASSET FIXED ASSETS Fixed assts Total assets Liabilities and capital Current liabilities Current liabilities & provision Loan funds Total liabilities Capital and reserves Share capital & Reserves and surplus Total share holders funds Total liabilities and capital

2.67 1881.72 1008.18 2889.30

0.09 65.11 34.89 100

2.60 1944.53 1187.82 3132.35

0.08 62.08 37.92 100

1877.68 779.69 2657.37 231.93 231.93 2889.30

64.99 26.98 91.97 8.03 8.03 100

1374.73 1161.38 2536.11 596.24 569.24 3132.35

43.89 37.08 80.97 19.03 19.03 19.03

FINDINGS

The increase in working capital is due to the increase in sales in 2009-2010 the company has a better current ratio which is equal to the ideal ratio.

In 2006 and 2008 company maintained overstocking of materials. This can be understood by the quick ratio of the company.

The fixed asset ratio of the company shows how efficiently the funds are utilized for working capital than fixed asset.

Debtors turnover ratios for the year 2008-2009 show better performance of the company.

The current asset proportion towards total asset for the year 2012 shows

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better utilization of funds as it shows an higher increases.

However there was an operating profit during the years 2010-2011 and 2011-2012 due to increase in sales and reduction in manufacturing and other expenses.

Cash flows of the company seems to be good. It is observed that the company is continuously looking for the better sources of fund over the period of years.

Issue of fresh share capital can help to reduce the radio debt equity. The cash position ratio has been decreasing due to increase in current liabilities.

The net working capital has been increasing continuously due to continuous increase in current assets over current liabilities.

The continuous increase in operating profit for the past four years shows more income over expenditure

Share capital & Reserves and surplus of the company is showing an increasing trend for the three years from(2009 & 2011 & 2012).2010 is low because that only fresh share can issued.

Investments of the company have been on an increasing trend .

Fixed asset also showed an decreases in years.

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Current asset of the company have been continuous increasing for the years (2009-12).

Current liabilities & provision of the company have been on an increasing for the past four years.

SUGGESTIONS:

1. The company should concentrate to maintain the liquidity position and try to mobilize funds from bank / financial institution.

2. While comparing the current ratio and liquid ratio of the company there seems to be an overstocking of raw material. It is better to maintain the stock to the needed level.

3. The profitability position of the firm is good and it is increasing every year. To increase the profitability further the company should increase its sales in the future years.

4. The working capital of the firm is good and it keeps on increasing, but at the same time current liabilities also moderate. To maintain the increasing trend of the working capital,

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the company should try to decrease the current liabilities and increase the current assets in the future.

5. The turn over ratios of the company keeps on increasing every year. Therefore the efficiency of the company is also increasing year after year. So the company should maintain its increasing trend by increasing its long term assets.

6. The overall financial performance of the company is satisfactory between the year 2009-2012.

CONCLUSION

The result of the study clearly brings out the position of the company with regard to working capital. Though the financial performance of the company is low in some of the areas, it is satisfactory in most of the areas. The result of the study is restricted to those four years only.

The important factor which is worth mentioning here is that the company has to use the resources as effective as possible to further improve the financial position of the company.

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BIBLIOGRAPHY

TEXT BOOKS

I.M.Pandey, Financial Management, Vikas Publishing House Pvt.Ltd. 8th Edition 1999.

Khan and Jain-Basic Financial management & Practice- Tata McGraw Hill- 5th Edition 2001.

C.R.Kothari, Research Methodology, Wishva Prakashan, New Delhi,2001.

R.P.Rustagi, Fundamentals Of Financial Management, Tata McGraw hill

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Publishing Company Ltd, 5th Edition, 2001.

Prasanna Chandra, Finanacial Management Theory and Practice, Tata McGraw Hill Publishing Company Ltd., New Delhi, 1997.

Annual Reports Source : ICAI, ICWAI, Friends, etc www.apc.com/ http://www.apc.com/site/apc/index.cfm?isocountrycode=in http://www.schneider-electric.com/site/home/index.cfm/in/

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