A

Project Report
On
WORKING CAPITAL ANALYSIS IN HINDUSTAN
ZINC LIMITED, UDAIPUR (RA!"
SUBMITTED FOR
P#rt$#% &'%&$%%(ent o& t)e re*'$re(ent o& t+o ,e#r &'%% t$(e
co'r-e $n M#-ter o& .'-$ne-- A/($n$-tr#t$on (M.A"
SUBMITTED BY
DIMPLE MARDIA
(2006-07)
INSTITUTE OF MANAGEMENT STUDIES,
AISHWARYA INSTITUTE OF
MANAGEMENT (OUR AIM. )
ADARSH NAGAR UDAIPUR (RAJ.) 313001
ACKNOWLEDGEMENT
FOR ANY SUCCESSFUL WORKS, IT OWNS THANKS TO MANY.
Every nature individual in professional life is keenly aware of his/her sense of
indebtedness to many people who have stimulated & influenced his/her
intellectual development ordinarily. This feeling is formally expressed in
customary gesture of acknowledgement. Therefore it seems right to
acknowledge my gratitude with sense of veneration to almighty god for the
blessings showered on me and varies people who helped me during the
course of my investigation.
Prima facie I express my profound gratitude & indebtedness to my research
supervisor Mr. Hemendra Sharma Associate General Manager- finance!
for his worthy" scholarly & unimpeachable efforts" inspiring supervision &
invaluable guidance which helped me to complete my dissertation.
I olso owe my sincere gratitude to the director" #ishwarya collage of
management $r. %.&. 'ashora for providing me this opportunity.
I acknowledge my gratitude with sense of reverence to the management of
()* who provide me opportunity to undergo research in there esteemed
organi+ation. I owe my sincere thanks to $r. %aresh #garwal $anager ,-#!"
$r. &.-.-ardaliya $aterial dep.t.!" and $r. -.&.'ahire Production dep.t.! for
their providing necessary facilities" data" facts & information from time to time.
/inally I wish to express warm gratitude to my family" it is entirely due to their
blessing & constant encouragement that I have been able to complete
credibly my dissertation.
'#TE01
P*#,E0 1 2'#IP23
DIMPLE MARDIA)
Preface
The importance of working ,apital in a company that arise in
attempt to manage the current assets" the current liabilities and the
interrelation ship that exists between them.
$any changes occur in the company.s when Disinvestment
takes places. Especially in the /inance and (3 departments. #s far
as the changes in /inance dep.t. are concerned" new policies are
being implemented for the coming year which effects directly or
indirectly the working capital of the company.
-o the purpose of the research is to analy+e1 45orking ,apital
$anagement of the (industan )inc *imited6.
The focus of the study is on Pre and Post1'isinvestment changes
that might have happened in ()* and its effects on the financial
performance of the company. The study has tried to cover all the
aspect determining the financial performance of the company in
term of working capital management.
/inally" all research is cumulative. I have" as a researcher"
needed to cull out priorities" interpret and finally put down my
analysis.
CONTENTS
Research methodology
Company profile
Introduction
Mgt.Structure of HZ
Need of !or"ing capital
#etermination of !or"ing capital
Source of !or"ing capital
Ratio analysis
Conclusion of the study
imitation of the study
$alance sheet% &' ()C for fi*e year
!or"ing capital for fi*e year
$i+liography
Research Methodology
This chapter furnished the methodological details of present
investigation. Procedural specification and through observation of
study and design which are indispensable feature for any research
work.
OBJECTIVES:
To study the meaning, concept & importance of working
capital.
To study the concept of collections & payment of debtors,
creditor & bills.
To study the meaning of Working Capital and describing its
various procedures.
To study various techniques of working capital used in !".
To study the management of working capital. ow to use its
working cash.
To study its current assets and liabilities.
TECHNIQUES USED:
Collections, payment, classification, completion, tabulation,
analysis & interpretation of information, facts and figures
relevant to the company.
Consultation and personal observation.
#iscussion with officers and employee of the company.
#rawing conclusions through applications of various statistical
& financial tools and technique.
$raphical and diagrammatical presentation of data.
SOURCE OF INFORMATION:

PRIMARY SOURCE .
%nformation schedule prepared for collection primary data relevant to the
working capital management of the company.
Personal observation & interviews with officers.
With the help of my supervisor and company&s employees.
SECONDARY SOURCE.
'nnual financial statement of the concerns i.e. (alance )heet, Profit
& loss account related to the period.
'nnual reports tread *ournal, maga+ines & periodical of the
company.
,eferences book, -ournals, statistical bulletins & newspaper.
CHAP!R " #
$ntrod%ction &f
H$'D(SA'
)$'C
*$M$!D
INTRODUCTION
%ndia is a country of large dimension. %t spreads over a
geographical area of ../0 million )quare 1ilometers, which is about
/.23 of the globe and makes the country the seventh largest in the
world. %ndia is 'sia&s third and worlds eleventh largest economy.
%ndia produces as many as 45 minerals compromising 5 fuels, 66
metallic, 50 non7metallic industrial and /8 miner minerals. Their
aggregate production in /8857/882 as about 988 million tones,
contribution by over .,688 mines :reporting mines; producing coal,
lignite, limestone, iron ore, bau<ite, cooper lead, +inc etc. the
aggregate value of mineral production in /8857/882 was more than
,s. 528 billion : app<. =68 billion ;.
The minerals policy opened the gates of %ndian minerals industry
to domestics and foreign investment, much of which was earlier
reserved for the public sector. %t ails to boost the country&s
e<ploration and mining efforts and render the mineral industry more
competitive.
There are following player&s deals in mineral and mining sector7
%>#?)T'> !%>C "%@%TA# :HZL;
%>#?)T'> CBPPA, "%@%TA# :HCL;
%>#%'> '"?@%>?@ CB@P'>C :INDAL;
)TA,"%TA %>#?)T,%A) "%@%TA# :SIL;
%>#?)T'> '"?@%>?@ CB@P'>C :HINDALCO;
MANAGEMENT STRUCTURE OF HZL
BOD
@r. 'gnivesh 'garwal D Chairman
@r. '-ita (a-pai Pande D #irector
@r. )u-it $ulati D #irector
@r. '.C. Wadhawan D #irector
@r. >.1. )hukla D #irector
@r. 'nil 'garwal D #irector
@r. >avin 'garwal D #irector
@r. 1.1 1aura D #irector
@r. Tarun *ain D #irector
@r. @.). @ehta D CAB & Whole time #irector
@r. ).". (a-a- D Chief Einancial Bfficer
@r. ,a-endra Pandwal D Company )ecretary
R!"#$%& O''"(
Y#-)#/ .)#+#n
U/#$p'r (R#j!"
010221
FA#'>T'
+!DA'A R!S&(RC!S
:Cashad (hawan, ?daipur;
Fedanta is a ?) =/./ billion "ondon listed, diversified metals
and mining $roup
Fedanta has copper, aluminum and +inc operations are %ndia.
Two copper mines in 'ustralia and copper mines in !ambia.
Fedanta also has interests in gold :'$,C; and optical fiber
:)BT"; Through the )terlite $roup.
EC /882 group turnover D ?) =6445./ million
EC /882 group A(%T#'D ?) =522 million.
%n %ndia, Fedanta ,esources has interests in !" :through
sterile;, ('"CB and @'"CB.
%ndian @arket )hares D7
!inc G Fedanta :!"; H23
Bnly %ntegrated !inc producer
Copper G Fedanta :)terlite; 5/3
Bne of two leading copper producers
'luminum G Fedanta :('"CB and @'"CB; /63
Bne of three aluminum producers
Cor,orate &-.ectives
arnessing natural resources in harmony with natural to enhance
economy well G being and quality of life.
To put %ndia on the world metals and mining map by becoming a
fortune 288 company.
To be in the top decide in term of cost of production by /88H across
all businesses.
To double per capita consumption of copper, aluminum and +inc
through application development and marketing efforts by /880.
To e<plore and develop mineral reserves by /868, for the subsequent
62 years in copper, aluminum and +inc.
To have relentless focus on e<ecution using best in class processes.
To build an organi+ation having world class capabilities and high
performance culture by attracting, developing and retaining talented
people.
To set up CPP&) I captive sources for entire power requirement.
To e<plore and develop additional mining resources.
To build world class capabilities and high performance culture.
To develop value added products such as C$$ alloys, +inc sheets
etc.
Cor,orate environmental ,olicy
?se appropriate environmentally sound technologies in all over
operations wherever feasible.
Conserve key inputs resources like water, energy and chemical
particularly the ha+ardous ones.
%nstitutionali+e the sense of environmental care among all the
members of !" family.
Affect continuous improvements in hose areas that is
environmentally significant.
>ot only comply with the applicable environmental lows, but go
beyond wherever possible.
H)* Milestones at a Glance
Ram,%ra Ag%cha Mine
Commissioned 6006
"ocation //2 km north of ?daipur, ,a-asthan, %ndia.
Capacity ..H mtpa ore
#etails 'n open cast mine with low strip ratio 2D6 and
good mineralogy leading to higher recovery and
overall low cost of production. Bnsite
concentrator to produce +inc concentrate.
Concentrate !inc 25725.23, lead 9..H79H3
Certification %)B 0886D/888, %)B 65886D6009, B)')
64886D6009

Ra.,%ra Dari-a Mine
Commissioned 604.
"ocation H2 km north7east of ?daipur, ,a-asthan, %ndia.
Capacity 6.. mtpa ore
#etails 'n underground mine with on site concentrator
and two vertical access shafts. @ining is done
through vertical crater retreat and blast hole
stopping. Bre is crushed before hoisting and
stockpiling for secondary and tertiary crushing.
Concentrate !inc 26.23, lead 26./72/.03
Certification %)B 0886D/888, %)B 65886D6009, B)')
64886D6000
)a/ar Mine
Commissioned 605/
"ocation 58 km Aast of ?daipur, ,a-asthan, %ndia.
Capacity 6./ mtpa ore
#etails 'n underground mining comple< consisting of
four underground mines and one concentrator
for all mines. @ining is done with sublevel
stopping with matching infrastructure. The
comple< is equipped with 9 @W of captive
power generation capacity.
Concentrate !inc 25..722./3, lead 95.H795.43
Certification %)B 0886D/888, %)B 65886D6009, B)')
64886D6000.
!" operates smelters based on Pyro7metallurgical :Chanderiya
"ead !inc )melter; and ydro7metallurgical :#ebari and Fi+ag !inc
)melter; process routes. The Chanderiya "ead !inc )melter is one
of the most cost7effective Pyro metallurgical !inc )melter in the
world.
Chanderiya *ead )inc Smelter 0-

Commissioned 6006
"ocation 6/8 km east of ?daipur, ,a-asthan, %ndia.
Capacity 6, 82,888 TP' of refined +inc, .2,888 TP' of refined
lead
#etails ' Pyro7metallurgical smelter using %)P Technology.
@ain by products is )ulphuric 'cid and )ilver and one
of the by product is cadmium.
Capacity power coal based 622 @FF captive power plants
commissioned in /882.
$eneration
Certification %)B 0886D/888, %)B 65886D6009, B)') 64886D6000
De-ari )inc Smelter 0-
Commissioned 6094
"ocation 6/ km east of ?daipur, ,a-asthan, %ndia.
Capacity 48,888 TP' of refined +inc.
#etails ' ydro7metallurgical smelter using ,"A Technology.
@ain by products is )ulphuric 'cid and Cadmium. The
plant is equipped with /0 @W of captive power
generation capacity.
Certification %)B 0886D/888, %)B 65886D6009, B)') 64886D6000
+i1ag )inc Smelter0-

Commissioned 60HH
"ocation 6H km from Fishakhapatnam, 'ndhra Pradesh, %ndia.
Capacity 29,888 TP' of refined +inc.
#etails ' ydro7metallurgical smelter using ,@A Technology.
@ain by products is )ulphuric 'cid and Cadmium. The
plant obtains part of its power requirement al low cost
due to )hare holding in a gas utility company in
'ndhra Pradesh.
Certification %)B 0886D/888, %)B 65886D6009, B)') 64886D6000
!" has an on going e<pansion pro-ect in these mining as well as
smelting, to raise its capacity of refined +inc to 5, 88,888 TP'.
"eading foreign venders like "urgi, Butokumpu, '((, 'lstom and (A"
are associated with these pro-ects. The total capital investment by !" on
these pro-ects is ,s. 69,5H2 million.
PR&2!C
!" has undertaken e<pansion pro-ect :phase %%; in mining as well as smelting
which has raised the capacity of refined +inc to 5,66,888 tons per annum. The
main e<pansion pro-ects areD7
Chanderiya 1inc smelter e3,ansion0 - The new 6,H8,888 TP' ydro7
metallurgical +inc smelter at chanderiya and associated 625 mvv power
plant were commissioned in may /882. This was built at a total cost of
=..2 million. ' second 6,H8,888 TP' ydro7metallurgical smelter will be
built at chanderiya along with a HH mvv captive power plant. The second
smelter and the accompanying captive power plant are e<pected to be
commissioned by /884. This is being built at a cost of =.88 million.
Ram,%ra Ag%cha mines0 - The ,ampura 'gucha mine e<pansion was
also completed in may /882. The mine is now operating its full capacity is
..H2 mtpa.
Chanderiya *ead smelter0 7 The new 28,888 TP' 'usmelt
T@
lead
smelter was commissioned in Eeb. /889.
Cor,orate Social Res,onsi-ility
!" has donated ,s. 66 million towards the mid day meal scheme of
govt. of ,a-asthan for constructions of kitchens at Chittorgarh, (hilwara,
and ?daipur district for catering to about 688888 rural school children.
,educing sulpher dio<ide :)B
/
; emission by J by /889 and achieving
!ero waste water discharge through 6883 recycling.
!" has prepared action plans and has planned investment of ,s. .48
million over the ne<t /7. year.
!" is implementing a meaning full need based sustainable
development initiative in a no. of operational village at its si< difference
location. Through its C), initiatives !" is impacting the lives of more
than 6, 82,888 rural masses belonging to over //,888 families.
)upporting education with contributions over ,s./6 million through the
running and equipping of schools for children of employees and other
local children. !" also offered scholarship of ,s./.5 million for children
from the words from which the employee are drown.
Provision of .83 of the fund of around ,s.648 million and supervision of
the construction of a dam, which is supply water from the region the
@ansi Wakal pro-ect to be completed.
Contribution ,s. 9. million for the construction of the industan !inc
cardiology center in ?daipur inaugurated in 'pril /88., now operated by
the $overnment of ,a-asthan. @edical aid is also being offered to local
people through the dispensaries and medical facilities located at the
!" sites and through health initiatives.
Contribution of ,s. / million in support of programmers to strengthen
local self7government in the villages of southern ,a-asthan, for e<ample
supporting the empowerment of women.
H%man Reso%rce Develo,ment
The main strength of any organi+ation is its employees. The management of
, in !" is a continuous process to ensure the development of employee&s
confidence, dynamism, effectiveness, motivation and morale in a system at
way, which helps to achieve higher productivity in terms of physical and
financial outputs. The management of , is always aimed at, to develop and
nurture a culture change in the organi+ation.
The focus is on positive attitude, openness, trust and achieving, e<cellence in
all spheres of activities.
Social Res,onsi-ilities
The concern of man kind at !" is not limited to its boundaries, but
spills over whole country, providing the backward and tribal
populance in and around its unit in Brissa, 'ndhra Pradesh, (ihar
and ,a-asthan. The concern manifests itself in form on numerous
rural health campaigns, family welfare activities, adult education
programmes, water supply, construction of roads in rural areasK
cattle fodder camps, cyclone relief measures in Brissa and 'ndhra
Pradesh, earth quake relief measures in (hu- etc.
Disinvestment
Eor the competitive success in the fast changing global market,
strategic partnership alliance is inevitable. The focus shall be on the
value creation within alliance. The capacity of both partners to
dynamically and creatively maneuver the alliance through a thicket
of uncertainties, changing priorities, organi+ation fractions and
competitive surprise is of vital importance. %n this background, the
$ovt. of %ndia has identified a strategic $roup and divested its
ma-ority stake.
CHAP!R " 4
5hat ma6es H)* s%ita-le com,any for the st%dy7
!" is the ma-or producer of +incIlead with the vertical integration in
other non7ferrous metal. %t has been one of the mini7>avaratna P)? of
government of %ndia.
Eollowing the policy of disinvestment of the government of %ndia, the
company has undergone into disinvestment on 66 'pril /88/. )ince then
the new management has introduces significant policy changes in
various function and taken number of steps to control cost and improve
the performance of the company.
%n view of the above, !" is considered a suitable company for the
financial analysis.
Sco,e of the st%dy
&-.ective of the st%dy0-
*udgment of the overall performance of
the company by analysis of financial statements.
S,an of the st%dy0-
'nalysis of financial statement for the period
of 9 year i.e. from /886 to /889.
The study included the following.

6. )tudy of the financial statements through ratio analysis.
/. 'nalysis of the possible reason for the change in the
performance of the company.
.. )tudy of the role of uncontrolled factors like "@A prices,
ta<ation policy etc on the profit.
5. )tudy of the e<pansion plans of the company.
D!S$G' &8 S(D90
The study comprises of seven chapters in all. The first and second
chapter throws ample light on the growth and development of
industry selected. The third chapter discusses the research
methodology used for study. The fourth chapter deals in detail with
theoretical concept of the working capital management. %n fifth
chapter the ,atio 'nalysis of !" & si<th chapter is the "imitation of
the Company. and finally main conclusions have been drawn &
suggestion given in the last chapter, the seventh. To facilitate an
easy understanding of the chapter, the timely helps of diagrams &
charts has been taken.
Objective of the study
The analysis of financial statements is very important in the modern
business. The financial analysis is very useful for management as
well as for other interested parties to know the performance of
company. The management can take corrective action on adverse
or undesirable aspect.
The following are the main ob-ective of our study.
6. To access the overall performance, liquidity position,
solvency position, profitability of the company through ,atio
'nalysis.
/. To make item wise analysis of the financial statements to
identify items responsible for changes in the liquidity, solvency,
profitability and overall performance.
.. To identify the various factors affecting profit and steps taken
by new management for improving performance and their effect
on the company.
5. To know the effect of uncontrolled factors on the profits.
2. To know the effect of changes in the accounting policy.
9. To make overall -udgment of the company.
CHAP!R " :
Working
Capital
@anagement
C&'C!PS ; D!8$'$$&' &8 5&R<$'G CAP$A*
' manufacturing concern needs finance not only for acquisition of
fi<ed assets but also for its day7to7day operations. %t has to obtain ,@ for
processing, pay wages, (ills and other manufacturing e<penses. ' non
manufacturing trading concern may not be require funds for purchase of
,@ and their processing but it also needs finance for storing goods and
providing credit to customers similarly, a concern engaged in providing
service may not have to keep inventories, but it may have to provide
credit facilities to its customers. Thus, all enterprises engaged in
manufacturing and trading or providing services require finance for their
day to day operations. The amount required to finance day to day
operation is called Working Capital.
%t is that capital which makes the company work. Ei<ed assets from
the skeleton while WC is the Elash and blood. WC is also known by other
terms. Fi+. circulating capital, fluctuating capital, revolving capital etc.
The peculiarity of WC is that keeps on changing continuously in course
of business operations. The assets and liabilities created during the
operating cycle are called current assets and current liabilities.
The term WC can be looked at in two ways.
6; $ross Working Capital :$WC;D it refers to the total of all current
assets of the company.
/; >et Working Capital :>WC;D %t refers to the difference between C'
& C".

The goal of Working capital management is to manage the C' and
C" in such a way that an acceptable level of net working capital is
maintained.
While the study of $WC indicate the nature and e<tant of working
capital requirements, the analysis of >WC indicates the liquidity positions
of an enterprise.
'!!D 8&R 5&R<$'G CAP$A*
The ob-ective of financial decision making is to ma<imi+e the
)hareholders wealth. To achieve this, it is necessary to generate
sufficient profit, which will depends upon the magnitude of the sales,
among other things. owever, sales do not convert into cash instantlyK
there is invariably a time lag between the sales of goods and the receipt
of cash. There is therefore, a need of working capital in the form of
current assets to deal with the problem arising out of lack of immediate
reali+ation of cash against goods sold. Therefore sufficient working
capital is necessary to sustain sales activity. Technically, this is referred
as the operating or cash cycle. The operating cycle can be said to be at
the heart of the need of working capital.
The term operating refers to the length of time necessary to complete the
following cycle of event.
6. Conversion of cash into inventory
/. Conversion of cash into receivable
.. Conversion of receivable into cash.
The operating cycle, which is a continuous process, is as shown in
figure 6
Phase .
RECEI3A.LE
Phase /

Phase 6
&P!RA$'G C9C*!
Eig.677 %f it were possible to complete the sequences instantaneously,
there would be no need for current assets :working capital;.
)ince cash inflows and cash outflows do not match, firm have to
necessarily keep cash or invest in short term liquid securities.
)o that will be in a position to meet obligations when they become due
similarly, firm must have adequate inventory to guard against the
possibility of not being able to meet a demand for their products.
'dequate inventory, therefore, provides a cushion against being out of
stock. %f firm have to be competitive they must sell goods to their
customers on credit which necessities the holding of account receivable.
The concept of operating cycle is a cycle is a more precise tool for
financial management to precisely measure the WC requirements, to
trance its change and to determine the optimum level of WC
requirement. %t is emphasi+ed that the various component of the
operating cycle have to be continuously moving and changing from one
status to another.
The following situation prevalent in a business is assessed in an
operating cycle approach to WC management.
>ature of WC changes with the passage of time & also with day7to7
day business transactions.
IN3ENTORY
CASH
There are businesses which are seasonal in nature of buying of row
materials. ' company manufacturing and selling seasonal items like
packed tea, has to buy the raw materials during the seasonal which
means more money is required during that period.
What is LcurrentM :either assets or liabilities; for a particular period for
particular industries depends on technologies and business
characteristics peculiar to each nature of business.
@aintaining of two small WC may yield higher return of capital
employed temporarily but in the succeeding periods and also in the
long run the profitability and yield on capital employed may reduce.
The levels of WC to be maintained as a direct bearing on the
profitability of the business beside the question of maintain
liquidity.
Production cycle consist of the following in respect of a
manufacturing concern.
%. (uying of row materials.
%%. )torage of row materials.
%%%. %nput of row materials to the productions process.
%F. Butput as finish goods.
F. )elling of goods.
F%. Collection of money from credit customers.
The sum total of days starting with the input of raw materials and the
selling of finish goods and the collection against sales involved in each
segment will be the L$ross Bperating Cycle Period.M When the average
payment of the company to the suppliers is deducted from the gross
operating cycle period it is called the L>et Bperating Cycle PeriodM or
simply cycle period. The shorter the duration of operating cycle period,
the faster will be the transformation of current assets into cashK as a
consequence the lesser will be the necessity of WC fund.
The average inventory of row material and store consumption cost of
production, cost of sales and the purchases are derived by dividing the
respective year7end figures by .92 days.
The total number of days against each formula is found out for :a; to :d;
which is the gross operating cycle and the total number of days against
:e; is deducted to arrive at the net operating cycle.
C(RR!' ASS!S A'D *$A=$*$$!S
C(RR!' ASS!S0-
The term Ncurrent assets& includes assets which are acquired with the
intention of converting them into cash during the normal business of the
company.
The board categories of C', therefore, are G
6. Cash including fi<ed deposits with bank
/. 'ccounts receivable, i.e., trade debtors and all bills receivables.
.. %nventories, i.e., stock of row materials, work in progress, finish
goods, )tore and spare parts.
5. 'dvances recoverable, i.e., the advances given to suppliers of
goods and services or deposits with government and public
authorities, e.g.7 customs, port7authorities, advance income ta<.
2. Prepaid e<penses, i.e., cost of une<pired services, e.g., prepaid
advances, etc.
C(RR!' *$A=$*$$!S0-
The liabilities payable within a year and out of current assets. The value
of these liabilities generally changes within one year. "ong term liabilities
if matured and are to be paid in the current period and out of C', will
become C".
"ong term categories of current liability areD7
'ccounts payable, e.g. (ills payable and Trade Creditors.
But standing A<penses G A<penses for which service have been
received by the business but from which payment have not been
made.
(ank Bverdraft
)hort term loan i.e. loan from bank etc. which are payable within one
year from the date of (alance )heet.
'dvance payment received by the business for the services to be
rendered or goods to be supplied in future.
Current maturities of "ong Term "oans.
There is another way of looking at the WC on the basis of time
elementK the WC can be classified into two categories.
1! 8i3ed or Permanent or Hard-core 5C G %t represents the minimum
amount to ensure effective utili+ation of E' and supports the normal
operations. %t is permanently invested and can be reali+ed only when
the business operations are closed down. Avery business has to
maintain a minimum stock of ,@, W%P :work in progress;, E$
:finished goods;, Tools, and )pares etc. )imilarly it required certain
amount for disbursement of wages, salaries and other e<penses
regularly. %n Characteristics it is very similar to fi<ed assets, since it is
employed almost permanently and it cannot be retrieved at a short
notice.
4! +aria-le or em,orary or 8l%ct%ating 5C G %t fluctuated with the
activity level in the firm. )uch as fluctuation are sub-ect to season&s
variation or cyclical changes. The temporary AC could be funded by
short term sources of finance.

CHAP!R " >
,'T%B
'>'"C)%)
$'R&D(C$&'
,atio analysis is a widely used tool or finance analysis. The term
ratio in it refers to the relationship e<pressed in mathematical term
between two individual figures and group of figures connected which
each other in some logical manner and are selected from financial
statement of the concern. The ratio analysis is based on the fact that a
single accounting figure by itself may not communicate any meaningful
information but when e<pressed as a relative to some other figure, it may
definitely provide some significant information. The relationship between
two or more accounting figuresI groups is called a financial ratio. '
financial ratio helps to e<press the relationship between two accounting
figures in such a way that users can draw conclusions about the
performance, strength and weakness of a firm.
The operations and financial position of a firm can be described by
studying its short terms and long terms liquidity position, profitability and
its operational activities. Therefore, ratios can be classified into following
four board categories.
67 "iquidity ,atio
/7 Capital )tructureI "everage ,atios
.7 'ctivity ,atios
57 Profitability ,atios
OO *i?%idity Ratios0-
The terms N"iquidity& and N)hort term solvency& are
used synonymously. "iquidity and short term solvency means ability of the
business to pay its short term liabilities. %nability to pay off short term liabilities
affects its credibility as well as its credit rating. Continuously default on a part
of the business leads to commercial bankruptcy. Aventually such commercial
bankruptcy may lead to its sickness and dissolution. )hort term lenders and
creditors of the business are very much interested to know its state of liquidity
because of their financial stake.
Traditionally, two ratios are used to highlight the business N"iquidity&.
These are Current ,atio and Puick ,atio.
Significance of the C%rrent and @%ic6 Ratio0-

Current ,atio in a business concern indicates the availability of current
assets to meet its current liabilities. igher the ratio better is the coverage.
Traditionally, it is also called /D6 ratio, i.e. / is the standard for current assets
for each unit of current liabilities.
Puick asset consists of only cash near cash assets. %nventories are
deducted from current assets on the belief that these are not Nnear cash
assets&.
OO Ca,ital Str%ct%reA leverage Ratio.
The Capital )tructureI "everage ,atios may be defined as those
financial ratios which measure the long term stability and structure of the firm.
These ratios indicate the mi< of funds provided by owners and lenders and
assure the lenders of the long term funds with regard toD7
67 Periodic payment of interests during the period of the loan and
/7 ,epayment of principal amount of maturity.
herefore leverage ratios are t/o ty,es0-
67 Capital structure ,atio and
/7 Coverage ratio
OO Activity Ratio0-
The activity ratios are also called the Turnover ratios or Performance
ratio. These ,atios are employed to evaluate the efficiency with which the firm
manages and utili+ed its assets. These ratios usually indicate the frequency of
sales w.r.t. its assets. These assets may be capital assets or WC or average
inventory. These ratios usually calculated with reference to salesI costs of
goods sold and are e<pressed in term of rate or times. )everal activity ratios
are followsD7
67 Capital Turnover ,atio
/7 Ei<ed 'ssets Turnover ,atio
.7 Working capital Turnover ratio
57 %nventory turnover ,atio
OO Profita-ility Ratios
The Profitability ratios measure the profitability or the operational
efficiency of the firm. These ratios reflect the final result of business
operations. The result of firm can be evaluated in term of its earning with
reference to a given level of assets or sales or owners interests etc.
Therefore, the profitability ratios are broadly classified in three categoriesD7
6. Profitability ratio required for analysis from owners point of view.
/. Profitability ratio based on assets I investments.
.. Profitability ratio based on sales of firm.
A,,lication of ratio for eval%ating financial ,erformance
' popular technique of analy+ing the performance of a business concern
is that of financial ratio analysis. 's a tool of financial management, they are
of crucial significance. The importance of ratio analysis lies in the fact that is
presents fact on a comparative basis and enables drawing of inference
regarding the performance of firm. ,atio analysis is relevant in assessing the
performance of a firm in respect of following aspectsD7
OO *i?%idity ,osition G

With the help of ratio analysis one can draw conclusions regarding
liquid position of a firm. The liquidity position of a firm would be satisfactory if it
is able to meet its current obligations when they become due. ' firm can be
said to have ability to meet its short term liabilities if it has sufficient liquid
funds to pay the interest on its short maturity debt usually within a year as well
the principal. This ability is reflected in the liquidity ratio of the firm. The
liquidity ratios are particularly useful in credit analysis by bank and other
supplier of short term loans.
OO *ong term solvency G
,atio analysis is equally useful for assessing the long term financial
viability of a firm. The aspect of the financial position of a borrower is of
concern to the long term creditors, securities analyst and the presents and
potential owner the business. The long term solvency is measured by the
leverageI capital structure and profitability ratios which focus on earning power
and operating efficiency. ,atio analysis reveals the strength and weakness of
the firm in this respect. The leverage ratios, for instance, will indicate whether
a firm has a reasonable proportion of various sources of finance or weather
heavily loaded with debt in which case its solvency is e<posed to serious
strain. )imilarly, the various profitability ratios would reveal weather or not the
firm is able to offer adequate return to its owners consistent with risk involved.
OO &,erating efficiency G
,atio analysis through light on the degree of efficiency in the
management and utili+ation of its assets. The various activity ratios measure
this kind of operational efficiency. %n fact, the solvency of a firm is, in the
ultimate analysis, department upon the sales revenues generated by the use
of its assets total as well as its component.
OO &verall Profita-ility G
?nlike the out side parties which are interested in one aspects of
the financial position of the firm, the management is constantly concern about
the overall profitability of the enterprises. That is, they are concerned about
the ability of the firm to meet its short term as well as long term obligation to its
creditors, to ensure a reasonable return to its owner and secure optimum
utili+ation of the assets of the firm. This is possible if an integrated view is
taken and all the ratios are considered together.
OO $nter firm com,arison G
,atio analysis not only throws light on the financial position of a firm
but also serves as a stepping stone to remedial measures. This is made
possible due to inter firm comparison. ' single figure of particular ratio is
meaningless unless it is related to some standard or norm.
&=2!C$+!
To do comparative study of financial position of pre and post
disinvestment period.
SAMP*!
TCPA BE #'T' D )ACB>#',C #'T'
)B?,CA BE #'T' D '>>?'" ,APB,T
PA,%B# BE #'T' TB (A '>'"C)A D /88/ 77 /889
Analysis
De-t !?%ity Ratio
#ebt equity ratio used to measure long term financial solvency of a
firm. %t can be calculated by the following formulaD7
Total #ebt
#ebt Aquity ,atio Q
)hare&s holder&s equity
TableD 6 :,s. %n million;
GRAPH0 #
D!= !@($9 RA$&
9!AR &A* D!= SHAR!H&*D!RB
S
!@($9
D!= !@($9
RA$&
/88/ .H.9. 68H68..4 .88.2
/88. 9.H4 66H85.62 .88824
/885 98HH.09 /6659.H ./0
/882 2H6../5 /9/59.64 .//
/889 2248./ .04H4 .65
0
0.05
0.1
0.15
0.2
0.25
0.3
2002 2003 2004 2005 200
D!"# !$%&#'
()#&*
9!AR
$nter,retation07
's shown in data table and graph, after disinvestment debt
equity ratio has increased with rate as compared to before disinvestment. %n
/889 the ratio is 8.65K it means higher rate proportion of owner&s fund which
indicates lower degree of risk. The capital structures of the company only
consist of equity share capital. %t shows smaller calm of creditors and less
interest burden.
Ret%rn on otal Assets0-
,eturn on total assets is measured in terms of the relationship
between >et Profit and 'ssets. Eormula to calculate it isD7

>et Profit
,eturn on Total 'ssets Q
Total 'ssets
TableD / :,s. %n million;
9!AR '! PR&8$ &A*
ASS!S
R&A
/88/ H08.H9 6.428.06 .98
/88. 65/6.2/ 6/0H..26 .66
/885 5852.44 60858.29 ./6
/882 922...8 /5969.48 ./H
/889 65H/5.48 .892/.28 .54
GRAPH0 4
R!(R' &' &A* ASS!S
0
0.1
0.2
0.3
0.4
0.5
0.
2002 2003 2004 2005 200
ROTA
CA',
%nterpretationD7

%n graph it is that the overall return on total assets is increasing
but the highest increase in year /88/ at the time of investment. Post
disinvestment trend of return on total assets is higher than pre disinvestment
trend. This is due to efficient utili+ation of assets in generation revenue.
Ret%rn on 8i3ed Assets0-
,eturn on fi<ed assets is measured in term of the relationship between
>et Profit and 'ssets. Eormula is given asD7
>et Profit
,eturn on total assets Q
Ei<ed 'ssets
TableD . :,s. %n million;
9!AR '! PR&8$ 8$C!D
ASS!S
R!(R' &'
8$C!D ASS!S
/88/ H08.H9 90//.66 .66
/88. 65/6.2/ 9986.60 ..8
/885 5852.44 4064.H8 .2/
/882 922...8 64556.56 .56
/889 65H/5.48 60646 .4.
$,'PD .
R!(R' &' 8$C!D ASS!S
0
0.1
0.2
0.3
0.4
0.5
0.
0.+
0.,
0.-
2002 2003 2004 2005 200
RETURN ON
FI.ED
ASSETS
CA',
$nter,retation0-
,eturn on fi<ed assets is highest in /889. %n /882 it was low due to high
proportion of fi<ed assets. %n /889 net profit has increased so return on fi<ed
assets has also increased.
Ret%rn on $nvestment0 7
The profitability ratio can also be relating the profits of a firm to its total
capital employed. ,eturn on investment can be calculated by the following
formulaD7
>et Profit
,eturn on investment Q
Capital Amployed
TableD 5 :,s. %n million;
9!AR '! PR&8$ CAP$A*
!MP*&9!D
R&$
/88/ H08.H9 68H68..4 8.8H
/88. 65/6.2/ 66H85.62 8.6H
/885 5852.44 /6659.H 8./.
/882 922...8 /9/59.64 8./0
/889 65H/5.48 .04H4 8.58
$,'PD 5
R!(R' &' $'+!SM!'
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2002 2003 2004 2005 200
ROI
CA',
$nter,retation0-
'fter disinvestment return on investment has increased. %n /889 it is
8.58 which is highest. %t is due to optimum utili+ation of the assets of the
company. The company has obtained assets that are providing a satisfactory
return on investment and has disposed of assets that are not providing return.
C%rrent ratio
This ratio measures the solvency of the company in the short term. This
can be calculated by using the following formulaD7
Current assets, "oans & advances
Current ,atio Q
Current liabilities & Provisions
TableD 2 :,s. %n million;
9!AR C(RR!'
ASS!S
C(RR!'
*$A=$*$$!S
C(RR!'
RA$&
/88/ 90/4.4 /052.55 /..2
/88. H.92.H5 /005../ /.59
/885 68050.9H 5/24.25 /.2H
/882 H.94.44 266H./4 6.55
/889 6.80..4 5624.6 /.6H
$,'PD 2
C(RR!' RA$&
0
0.5
1
1.5
2
2.5
3
2002 2003 2004 2005 200
CURRENT
RATIO*
CA',
$nter,retation
There are not many changes in C, but as compared to /882 C, has
increased with higher rate in /889. %t is due to increase in sundry debtors. The
company&s C, in /889 is /.6H which are higher than ideal :/D6; due to pilling
up of inventory.
*i?%id Ratio
"iquid ratio :quick ratio; is used as a measure of the company&s ability to
meet its current obligations. The formula to calculate it is as followsD7
"iquid assets
"iquid ,atio Q
Current liabilities
TableD 9 :,s. %n million;
9!AR *$@($D
ASS!S
C(RR!'
*$A=$*$$!S
*$@($D RA$&
/88/
9/H9./0
/052.55 /.6.
/88.
5.8..0H
/005../ 6.55
/885
HH/..42
5/24.25 6.46
/882
58/2.4/
266H./4 8.H4
/889
0/9/.4
5624.6 8.//
$,'PD 9
*$@($D RA$&
0
0.5
1
1.5
2
2.5
2002 2003 2004 2005 200
LIQUID
RATIO
CA',
$nter,retation0-
%n /88/ it was high that was /.6.. %t was due to increase in sundry
debtors and bank balance in short deposits. 't the same time current liabilities
also reduced in the form of ta< provision.
'gain in /88. at the time disinvestment liquid ratio had to 6.55 due to
increase in current liabilities mainly in provision for dividend.
5or6ing ca,ital t%rnover ratio0-
This ratio indicates the e<tent of working capital turnover in achieving
sales of the firm. The ratio can be calculated by the following formulaD7
)ales
Working capital turnover ratioQ
>et working capital
TableD H :,s. %n million;
9!AR SA*!S '! 5&R<$'G
CAP$A*
5.C.(R'&+!
R RA$&
/88/ 6/.55.40 .04...9 ..68
/88. 6566/.9. 5.H6.5/ ../.
/885 64565.05 9906.6. /.H2
/882 /6494.86 //26.98 0.H6
/889 .4H90.H8 H89/ 2.50
$,'PD H
5&R<$'G CAP$A* (R'&+!R RA$&
0
2
4

,
10
2002 2003 2004 2005 200
/CTO
CA',
$nter,retation0-
There is a significance changes in /882 as working capital turnover ratio
is highest. %n /889 it is due to increase in sundry a debtor which contributes in
increased working capital.
'et Profit Ratio
>et profit ratio reflects net profit margin on the total sales after deducting
all e<penses but before deducting interest and ta<ation. This ratio measured
the efficiency of operational of the company. This can be calculated by the
following formulaD7
>et Profit
>et profit ratio Q < 688
)ales
TableD 4 :,s. %n million;
9!AR '! PR&8$ SA*!S '! PR&8$
RA$& DEF
/88/ H08.H9 6/.55.40
9.58
/88. 65/6.2/ 6566/.9.
65.64
/885 5852.44 64565.05
/2...
/882 922...8 /6494.86
.5.2.
/889 65H/5.48 .4H90.H8
56.80
$,'PD 4
'! PR&8$ RA$&
0
10
20
30
40
50
2002 2003 2004 2005 200
NPO
CA',
$nter,retation0-
The net profit has increase with higher rate after disinvestment as
compared to before it. The net profit ratio was 9.583 which was lowest but in
/889 it is 563 which is highest.
!arning ,er Share0-
The earning per share is one of the important measure economic
performance of a corporate entity. %t can be calculated by the following
formulaD7
>et profit available for Aquity )hare holder
Aarning per share Q
>umber of equity )hare
TableD 0
CA', A',>%>$ PA,
)',A
/88/ 6.96
/88. ...9
/885 0.24
/882 62.26
/889 .5.42
$,'PD 0
!AR'$'G P!R SHAR!
0
5
10
15
20
25
30
35
2002 2003 2004 2005 200
EPS
CA',
$nter,retation0-

Aarning per share is increasing with high rate. 'fter disinvestment
steady growing in AP) year after year indicates a good track of profitability. %n
/889 AP) is .5.42 which are highest.
CHAP!R " G
Concl%sion of the st%dy
The following are the main conclusion of the study.
The current ratio maintains at a level of /.6H times and the acid test ratio
has fallen to 8.// times in /889, which is less then the normal level.
The cash and the bank balance have reduced tremendously and the
creditors have increased. 't the same time the sundry debtors have also
decrease.
There has been a tremendous increase in the profitability of the
company. The net profits in /889 have shown a good increase.
)ales have increased by /653 in /889 as compared to /88/ i.e. after
disinvestment.
P'T available for appropriation has increased to roaring and
tremendous height in /889 i.e. 60623 as compared to /88/
,eturn on capital employed and return on share holder equity has
shown continuous improvement as compared to the previous year. The
AP) was 6.96 in /88/ which has increased to .5.42 in /889.
'fter disinvestment co. has paid off most of its loan.
Thus the overall position and the performance of the company are very
good. Erom shareholder point of view, their investments are quit safe and they
are likely to get more and more benefits in the future. The short terms as well
as the long term lenders of loan funds are also very safe. The company&s
future is very bright.
CHAP!R " H
Limitations of the study
Avery pro-ect work has its limitations further, a work in social sciences
and commerce can not be like that of any natural science where results are
universally true.
%n the absence of universally accepted norms, interpretations of results
often become a matter of -udgment uniformity and the present study is not an
e<ception to do it. #espite my best endeavor to maintain uniformity and
ma<imum converge.
Aach ratio is indicative of certain aspects of the organi+ation, e.g. C, is
with respects of C' & C" only and as such totally is not possible to be
drowned.
,atios have overbearing reflection of post position.
The study is limited to only five years :60047/889; performance of the
company.
The data used in this study have been taken from published annual report
only. 's per the requirement and the necessity some data are grouped and
sub grouped. Therefore the data is not comparable over the year.
CHAP!R " I
5&R<$'G CAP$A*
') 'T TA A># BE E%>'>C%'" CA',
:,s. %n million;
7I7*I893#P(:
READIN0S:1
PARTICULAR
A1 C(RR!' ASS!S
I23!2#*(&!4
S%25(' D!"#*(4
C)46 7 B)28 ")9)2:!
O#6!( C%((!2# A44!#4
&A*DAF
=- C(RR!'
*$A=$*$$!S ;
PR&+$S$&'
S%25(' C(!5&#*(4
P(*3&4&*241D&3&5!25
C*(;*()#! D&3&5!25 #)<
P(*3&4&*2 #*=)(54
C*2#&2>!2:&!4
&A*?B@
C1 5&R<$'G CAP$A*DA-=F
D1$'CR!AS! A D!CR!AS!
$' 5C
/88/78. /88.785 /885782 /882789
301.++
22.-
25-.10
11,.+
3225.,2
2+2+.30
404.13
121.1,
3343.0,
20,.4-
221.0+
2.+0
3,31.00
,-,.50
+40.30
01.+0
3+2.32 10120.43 1+5.34 114+1.5
2450.-
33,.03
43.31
11.4-
3254.41
1004.13
1111
1111
42+4.15
,43.13
1111
1111
415,.10
1,+3.+0
1111
1111
2--3.52 425,.54 511+.2, 031.,0
33+,.,0
1111111
5,1.,-
24,3.0-
105,.0
1 4,03.,3
543-.+0
43,1.4
6. ).> @aheshawariD Cost & @anagement 'ccountingD )ultan
Chand & )ons, >ew #elhi
/. @.C.1han & P.1.*ainD @anagement 'ccountingK Tata @c$raw
ill Publishing Co. "td., >ew #elhi.
.. %.@.PandeyD @anagement 'ccounting Fikas Publishing :P;
"T#., >ew #elhi.
5. >.1. 'garwalD Cost 'ccountingK )huchita Prakashan :p; "td.
'llah bad.
REFERENCES:1
2. >.1. PrasadD Principals and Practices of Cost 'ccountingD
(ook )yndicate :P; "td., Calcutta.
P%"9&46!5 A::*%2#4A R!;*(#4 7 S#)#&4#&:)9 B%99!#&24 7
P!(&*5&:)94:
9. 'nnual ,eports of !". Erom /88/ to /889.
H. Company&s annual data & Einancial )tatements.
4. Einance & Commerce.
0. ,ecords, *ournals & @aga+ines of !".
NE/SPAPERS:
68. The Aconomic Times.
66. The Einancial A<press.
6/. The Times of %ndia.
6.. The %ndustrial Times.