CHANGES IN WORKING CAPITAL

There are so many reasons for changes in working capital as follows CHANGES IN SALES AND OPERATION EXPENSES There are changes in sales and operating expenses may be due to three reasons. 1. There may be long run trend of change e.g. The price of raw material i.e. oil may constantly raise necessity the holding of large inventory. 2. Cyclical changes in economy dealing to ups and downs in business activity will influence the level of working capital both permanent and temporary. 3. Changes in seasonally in sales activities. POLICY CHANGES The second major cause of changes in the level of working capital is because of policy changes initiated by management. The term current assets policy may be defined as the relationship between current assets and sale volume. TECHNOLOGY CHANGES The third major point if changes in working capital are change in technology because changes in technology in our business more working capital is required changes in operation expenses rise or full will have similar effects on the levels of working following working capital statement is prepared on the base of balance sheet of last year.

TABLE 4.1
SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2010-11 (IN RS.)

S. No (A)

Particulars

As On 2010-11

As On 2011-12

Increase

Decrease

Current Assets, Loans & Advances Sundry debtors Cash & bank balances Stock Loans and advances Total (A) 426856 100000 19392 60000 606248 523116 140000 35506 60000 758622 96260 40000 16114 -

Current liabilities and Provisions a) Current liabilities (B) Sundry creditors 389411 137350 252061 -

b) Provision I. Audit fee payable II. Electricity Charges payable III. Labour charges payable IV. Rent payable V. Salaries payable Total (B) 12000 12200 40000 7100 80100 540811 13500 11200 48500 7100 85600 303250 1000 1500 8500 5500

Working Capital (A-B) Increase in working capital

65437 389935

455372 -

389935

455372

455372

405435

405435

INTERPRETATION:
In the year 2010-2011 there is an increase in working capital position of the company to Rs. 389935. In the year 2010-2011 the currents assets of the company had increased and current liabilities of the company had decreased when compared to previous year. The above schedule of 20102011 says about the position of the current assets and current liabilities of the company.

Graph 4.1
Table showing changes in Current Asset, Current Liabilities and Working Capital
800000 700000 600000 500000 Current Asset 400000 300000 200000 100000 0 2010-2011 2011-2012 Current Liabilities Working Capital

ANALYSIS In the year 2010-11 the working capital dipped low which shows company had financial problem but next working capital went high which shows company had decreased its current liabilities and increased its current assets.

TABLE 4.2
SCHEDULE CHANGES OF IN WORKING CAPITAL FOR THE YEAR 2011-12 (IN RS.)

S. No

Particulars

As On 2011-12

As On 2012-2013

Increase

Decrease

(A)

Current Assets, Loans & Advances Sundry debtors Cash & bank balances stock Loans and advances Total (A) 523116 140000 35506 60000 758622 808518 230000 53569 200000 1292087 285402 90000 18063 140000 -

Current liabilities and Provisions a) Current liabilities (B) Sundry creditors 137350 114600 22750

b) Provision I. Audit fee payable II. Electricity Charges payable III. Labour charges payable IV. Rent payable V. Salaries payable Total (B) 13500 11200 48500 7100 85600 303250 5000 16800 95000 15000 185000 431400 8500 5600 46500 7900 99400

Working Capital (A-B) Increase in working capital

455372 405315

860687 405315

860687

860687

564715

564715

ANALYSIS:
In the year 2011-2012 there is an increase in working capital position of the company to Rs. 405315. In the year 2011-2012 the currents assets of the company had increased and current liabilities of the company had also increase when compared to previous year. The above schedule of 2011-2012 says about the position of the current assets and current liabilities of the company. As there is an increase in current assets and increase in current liabilities with this working capital have increased. This indicates that financial position of the company is satisfactory due to increase in current assets of the company.

GRAPH 4.2
Table showing changes in Current Asset, Current Liabilities and Working Capital
1400000 1200000 1000000 800000 600000 400000 200000 0 2011-2012 2012-2013

Current Asset Current Liabilities Working Capital

INTERPRETATION; There is a increase in working capital from 2011-2012 to 2012-2013. Its shows the company is meeting its day to day expenses smoothly and financial position is satisfactory.

Table 4.3
Statement of gross working capital for three years period from 2010-2011 to 20122013
(IN RUPEES)

YEAR

GROSS WORKING CAPITAL

2010-2011 2011-2012 2012-2013

606248 758622 1292087

ANALYSIS: The above table indicates the Gross working capital position for three years period i.e., from 2010-2011 to 2012-2013. In this year 2010-2011 its amount is Rs. Rs.606248. It is increased to Rs. 758622 in the year 20112012. It is increased to Rs. 1292087 in the year 2012-2013.

GRAPH 4.3
Showing Gross Working Capital

Gross Working Capital

1400000 1200000 1000000 800000 600000 400000 200000 0 2010-2011 Gross Working Capital

2011-2012

2012-2013

INTERPRETATION: From the above the Gross Working Capital at Pro-B Tech Toolings indicates that the utilization of working capital is good in the year 20122013 the period is recorded almost a positive trend for 2011-2012 to 20122013.

TABLE 4.4 Statement of net working capital for three year period from 2010-2011 to 2012-2013
(IN RUPEES)

CURRENT YEAR 2010-2011 2011-2012 2012-2013 ASSETS 606248 758622 1292087

CURRENT LIABILITIES 540811 303250 431400

NET WORKING CAPITAL 65437 455372 860687

ANALYSIS: The above table indicates the net working capital position for three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is increase enormously to Rs. 860687 in the year 2012-13.

GRAPH 4.4
Showing Current Asset, Current Liability and Net Working capital
1400000 1200000 1000000 800000 600000 400000 200000 0 2010-11 2011-12 2012-13

Current Asset Current Liability Net Working Capital

INTERPRETATION: From the above the Net Working Capital at Pro-B Tech Toolings indicates that the utilization of working capital is good in the year 20122013. The higher the net working capital ratio, the greater ability to meet its current obligations.

WORKING CAPITAL TREND ANALYSIS

In the working capital analysis the direction at changes over a period of time is of crucial importance. Working capital is one of the importance fields of management. It is therefore very essential for analyst to make a study about the trend and direction of working capital over a period of time. Such analysis enables as to study the upward and downward trend in current assets and current liabilities and its effect on the working capital position. The term trend is very commonly used in day-today conversion trend, also called secular or long term need is the basic tendency of population, sales, income, current assets and current liabilities to grow or decline over a period of time. The trend is defined as smooth irreversible movement in the series. It can be increasing or decreasing. Emphasizing the importance of working capital trends it have been pointed out that analysis of working capital trends provide as base to judge whether the practice and privilege policy of the management with regard to working capital is good enough or an important is to be made managing the working capital funds. Further, any one trend by itself is not very informative and therefore comparison with illustrated their ideas in these words, An upwards trends coupled with downward trend or sells, accompanied by marked increase in FTREPL investment especially if the increase in planning investment by fixed interest obligation.

TABLE 4.5
Statement of net working capital for three year period from 2010-2011 to 2012-2013
(IN RUPEES)

2010-2011 PARTICULAR NET WORKING CAPITAL (A-B) WORKING CAPITAL INDENCES 100 65437

2011-2012

2012-2013

455372

860687

695.89

189

ANALYSIS:
The above table indicates the net working capital position for three years period i.e., from 2010-11 to 2012-13. In this year 2010-11 its amount is Rs.65437. It is increased to Rs. 455372 in the year 2011-12. It is increase enormously to Rs. 860687 in the year 2012-13. GRAPH 4.5
Showing Working Capital Indices

Working capital indices

800 700 600 500 400 300 200 100 0 2010-11 2011-12 2012-13 Working capital indices

INTERPRETATION: From the above the Net Working Capital at Pro-B Tech Toolings indicates that the utilization of working capital is good in the year 20122013. The higher the net working capital ratio, the greater ability to meet its current obligations.

CURRENT ASSETS Total assets are basically classified in two parts as fixed assets and current assets. Fixed assets are in the nature of long term or life time for the organization. Current assets convert in the cash in the period of one year. It means that current assets are liquid assets or assets which can convert in to cash within a year.

Table 4.6
Table is showing current assets (IN RUPEES)

PARTICULARS A)Current Assets Inventories Sundry debtors Cash & bank balance Loan & advances Total of current assets Current assets indices

2010-11 2011-12 2012-13

19392 426856 100000 60000 606248

35506 523116 140000 60000 758622

53569 808518 230000 200000 1292087

100

125.13

170.32

ANALYSIS
Current assets indices in the year 2010-11 is 100, in the year 2011-12 it is 125.13, in the year 2012-13 current assets indices are 170.32.

TABLE 4.6
Showing current Asset Indices

Current Asset Indices

180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13 Current Asset Indices

INTERPRETATION:
The companys current asset indices are increasing from the year 2010-11. Here we can see that the company had good stability and had less risk. The liquidity position of the company was on period up to 2012-13.

COMPOSITION OF CURRENT ASSETS

Analysis of current assets components enable one to examine in which components the working capital fund has lacked. A large tie up of funds in inventories affects the profitability of the business or the major portion of current assets is made up cash alone, the profitability will be decreased because cash is non-earning assets. TABLE 4.7
Table is showing current assets(IN RUPEES)

PARTICULARS A)Current Assets Inventories Sundry debtors Cash & bank balance Loan & advances Total of current assets

2010-11 2011-12 2012-13

3.20 70.41 16.49 9.90 100

4.68 68.96 18.45 7.91 100

4.14 62.57 17.81 15.48 100

ANALYSIS
In 2010-11 the inventories was 3.20 and in other continuous years is increasing except in 2012-13. Sundry debtors has been decreased from 70.41 in the year 2010-11 to 62.57 in the year 2012-13. cash and bank balance is increasing format except the year 2012-13.

GRAPH 4.7
Showing current asset composition

2012-13

Cash and Bank Balances 2011-12 Sundry Debtors Loans and Avances Inventories 2010-11

20

40

60

80

INTERPRETATION:
It was observed that the size of current assets is increasing with increase in sales. The excess of current assets is showing positive liquidity position of the firm but it is not always good because excess current assets then required, it may adversely effects on profitability. Current assets include some funds investments for which pay interest. The balance of current assets is highly increased because of increase in sundry debtors, cash balances and inventories. Current assets components show sundry debtors are the major part in current assets in indicates that the inefficient collection management. Over investment in the debtor affects liquidity of firm for that company has raised funds from other sources like short term loan which incurred the interest.

CURRENT LIABILITIES
Current liabilities mean the liabilities which have to pay in current year. It includes sundry creditors means supplier whose payment is due but not paid yet, thus creditors called as current liabilities. Current liabilities also include short term loan provision as tax provisions. Current liabilities also include bank overdraft, for some current assets like bank overdraft and short term loan, company has to pay interest thus the management of current liabilities has importance.

TABLE 4.8
Table is showing current liabilities (IN RUPEES)

PARTICULARS Currnet liabilities Provisions Total of current liabilities Indices of current liabilities

2010-11 2011-12 389411 151400 540811 100 137350 165900 303250 56.07

2012-13 114600 316800 431400 142.25

ANALYSIS
In 2010-11 the indices of current liabilities is 100 after that the indices of 2011-12 current liabilities increased except the year 2012-13. GRAPH 4.8
Showing current liabilities indinces

Current Liabilities Indices

180 160 140 120 100 80 60 40 20 0 2010-11 2011-12 2012-13 Current Liabilities Indices

INTERPRETATION:
Current liabilities growth in the year 2012-13 because company created the credit in the market by good transaction. There are also downs in current liabilities during the year 2011-12. To get maximum credit from supplier which is profitable to the company it reduces the need of working capital of firm. But company enjoyed over creditors which may include indirect cost of credit terms.

RATIO ANALYSIS
Ratio analysis is the powerful tool of financial statement analysis. A ratio is define as the indicated quotient of two mathematical expressions and as the relationship between two or more things. The absolute figures reported in the financial statement do not provide meaningful understanding of the performance and financial position of the firm. Ratio analysis helps to summaries large quantities of financial data and makes qualitative judgment of the firms financial performance.

ROLE OF RATIO ANALYSIS

Ratio analysis helps to appraise the firm in the term of their profitability and efficiency of performance, either individually or in relation to other firms in same industry. Ratio analysis is one of the best possible techniques available to management to impart the basic functions like planning and control. As future is closely related to the immediately past, ratio calculated on the basis of historical financial data may be of good

assistance to predict the future. E.g. on the bases of inventory turnover, ration or debtors turnover, ratio in the past, the level of inventory and debtors can be easily ascertained for any given amount of sales. Similarly, the ratio analysis may be able to locate the point out the various areas which needs the management attention in order to improve the situation. E.g. current ratio which shows a constant decline trend may be indicate the need for further introduction of long term finance in order to increase the liquidity position. As the ratio analysis is concerned with all the aspect of the firms financial analysis liquidity, solvency, activity, profitability and overall performance, it enables the interested persons to know the financial and operational characteristics of an organization and take suitable decisions.

LIMITATIONS OF RATIO ANALYSIS

The basic limitation of ratio analysis is that may be difficult to find a basis for making the comparison Normally, the ratios are calculated on the basis of historical financial statement organization for the purpose of decision making may need the hint regarding the future happiness rather than those in the past. The external analyst has depends upon the past which may not necessary to reflect financial position and performance in future. The technique o ratio analysis may prove inadequate in some situation if there is differs in opinion regarding the interpretation of certain ratio. As the ratio calculates the basis of financial statements, the basic limitation which is applicable to the financial statement is equally applicable. In case of technique of ratio analysis also ie., only facts

which can be expressed in financial terms are considered by the ratio analysis. The technique of ratio analysis has certain limitation of use in the sense that it only highlights the strong or problem arias; it does not provide any solution to rectify the problem areas.

LIQUIDITY RATIO
The ratios compounded under this group indicate the short term position of the organization and also indicate the efficiency with which the working capital is being used. The most important ratio under this group is follows

CURRENT RATIO
The current is calculated by dividing current assets by current liabilities: Current assets Current ratio = Current liabilities Current assets include cash and those assets which can be converted in to cash within a year, such as marketable securities, debtors and inventories. All obligations within a year are include in current liabilities. Current liabilities include creditors, bills payable accrued expenses, short term bank loan income tax liabilities and long term debt maturing in the current year. Current ratio indicates the availability of current assets in rupees for every rupee of current liability.

TABLE 4.9
Statement of current ratio from 2010-2011 to 2012-2013 (IN RUPEES)

CURRENT YEAR 2010-2011 2011-2012 2012-2013 ASSETS 606248 758622 1292087

CURRENT LIABILITIES 540811 303250 431400

CURRENT RATIO 1.12 2.50 2.99

ANALYSIS: The above table represents current assets, current liabilities of Pro-b Tech Tooling for last 3 years from 2010-11 to 2012-13. Ratio between the current assets and current liabilities is shown in the above table. The current ratio in the year 2010-11 was 1.12. It was increased 2.50 in the year 20112012 and 2.99 in the year 2012-2013. .

GRAPH 4.9
Showing Current Ratio

3 2.5 2 1.5 1 0.5 0 2010-11 2011-12 2012-13 Current Ratio

INTERPRETATION: From the above the Current Ratio at Pro-B Tech Toolings indicates that the utilization of Current Ratio is good in the year 2012-13.The higher current ratio is greater the margin of safety, the more the firms ability to meet its current obligations

QUICK RATIO
Quick ratios establish the relationship between quick or liquid assets and liabilities. An assets is liquid if it can be converting in its cash immediately soon without a loss of value. Cash is the most liquid asset other assets which are consider to be relatively liquid and include in quick assets are debtors and bills receivable and marketable securities. Inventories are considered as less liquid. Inventory normally required some time for realizing into cash their value also be tendency to fluctuate. The quick ration is found out by dividing quick assets by current liabilities.

Current asset inventory Quick ratio = Current liabilities

TABLE 4.10
Statement of quick ratio 2010-2011 to 2012-2013 (IN RUPEES)

QUICK YEAR 2010-2011 2011-2012 2012-2013 ASSETS 586856 723116 1238518

CURRENT LIABILITIES 540811 303250 431400

QUICK RATIO 1.08 2.38 2.87

ANALYSIS: The above table represents Quick ratio of Pro-B Tech Tooling for the last three years from 2010-11 to 2012-13. The position of Quick ratio for the past three years in the year 2010-11 was 1.08. It was increased to 2.38 in the year 2011-12 and 2.87 in the year 2012-13.

GRAPH 4.10 Showing Quick Ratio

Quick Ratio

2012-13

2011-12

Quick Ratio

2010-11

0.5

1.5

2.5

INTERPRETATION:
From the above the analysis of Quick Ratio at Pro-B Tech Tooling indicates that the utilization of Quick Ratio is good in the year 2010-11 the period is recorded almost a positive trend for 2011-12 and 2012-13.

TABLE 4.11
Statement of quick ratio from 2010-2011 to 2012-2013(IN RUPEES)

CASH AND YEAR BANK BALANCE 2010-2011 2011-2012 2012-2013 100000 140000 240000

CURRENT LIABILITIES

CASH RATIO

540811 303250 431400

0.18 0.46 0.55

ANALYSIS: The above table represents cash ratio of Pro-B Tech Tooling for the last five years from 2010-11 to 2012-13. . This means cash worth Rs. 1 are adequate for liabilities worth Rs. 2. In the year 2010-11 the cash ratio is 0.18 and it is increased to 0.46 in the year 2011-12 and 0.55 in the year 2012-13 .GRAPH 4.11
Showing Cash Ratio

Cash Ratio

2012-13

2011-12

Cash Ratio

2010-11

0.1

0.2

0.3

0.4

0.5

0.6

INTERPRETATION: From the above the Cash Ratio at Pro-B Tech Tooling indicates that the utilization of Cash Ratio is not good in the year 0.18. But it showed positive increase in next two year Cash ratio is very exact measure of liquidity. From the point of view absolute liquidity ratio, a ratio of 1:2 or 0.5 considered as on acceptable standard