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EXECUTIVE SUMMARY
Mysore Sales International Ltd is a Government of Karnataka Marketing Organization offering
various products & services. It is a public sector enterprise of the Government of Karnataka. It
has the distinction of having earned profits consistently for nearly four decades and was
established in 1966 as a trading house. Now, it has a wide network of offices all over Karnataka
as well as some important locations in the country.
This report is about the training conducted in the corporate headquarters, registered and situated
in Cunningham Road, Bangalore on the title A Study on Working Capital Management.
Working capital management ensures that a company has sufficient cash flow in order to meet its
short term obligations and operating expenses. Any company whatever the business it carries can
ensure profitability only through working capital management. Through the management of the
working capital at Mysore Sales International Ltd, it assures the availability of funds to meet the
required working capital or day to day operations of the firm. Implementing an effective working
capital management system is an excellent way for many companies to improve their earnings.
The report consists of information on the liquor industry, global, national and Karnataka trends.
It consists of details about Mysore Sales International Ltd, where the study has been done. It
includes information on the nature of the study conducted its quality policy and also the products
and services rendered to its clients. The report also covers the structure, the analysis namely
SWOT analysis of the organization.










CHAPTER 1


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INDUSTRY ANALYSIS
The alcohol industry is the commercial industry involved in the manufacturing, distribution, and
sale of alcohol beverages. The industry has been criticized in the 1990s for deflecting attention
away from the problems associated with alcohol use. The alcohol industry has also been
criticized for being unhelpful in reducing the harm of alcohol. The World Bank works with and
invests in alcohol industry projects when positive effects with regard to public health concerns
and social policy are demonstrated. Alcohol industry sponsored education to reduce the harm of
alcohol actually results in an increase in the harm of alcohol. As a result it has been
recommended that the alcohol industry does not become involved in alcohol policy or
educational programs. In the UK the New Labor government took the view that working with the
alcohol industry to reduce harm was the most effective strategy. However, alcohol-related harm
and alcohol abuse increased. The alcohol industry has been accused of using similar tactics as
the pharmaceutical industry to exaggerate the health benefits of alcohol which is regarded as a
potentially dangerous recreational drug with potentially serious adverse effects on health.
Alcohol Industry in India
The Indian alcohol industry is amongst the fastest growing industry in the world and occupies the
3
rd
position in comparison to the same industry in other countries. This industry has seen a major
shift of consumption from the indigenous country liquor to Indian Manufactured Foreign Liquor
because of the rising per capita income of Indian people and a change in their lifestyle.
Alcohol industry is state subject; it means alcohol deals with state government of the country.
Every state government has its own rules and regulations for the alcohol industry.
This industry is a State affair and hence every manufacturer needs to get licenses in every state
they need to operate in and therefore there are few players which are literally national. Separate
licenses are required for production, bottling and distribution of the product, making it a
herculean task for a not so well connected and impatient player.
FDI in this industry is 100 per cent and when the case arises in which the owner is a
foreign company but the investor is Indian, then the investment will require a prior approval of
Foreign Investment Promotion Board and it will be for a given licensed capacity. To increase the


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investment, the investor will need a completely new approval. The licensing is done under the
Industrial (Development and Regulation) Act, 1956.


Competitors
The main players coming under alcohol industry in India is given below
Diageo USL
Prnord
Radicokhtian
Jagajith industry
John dislleries
Thialknagar industries
Pricing strategy
Excise duty, Sales tax, Value Added Tax and various other duties impacts the pricing of the
products to a great extent and also depends upon the markets they deals with. They divide
country into four markets
Free market: In this market the company is free to fix the price but they want to pay the
as per the excise duty, sales tax, VAT etc... but the company can directly deals with the
retailers and wholesalers ( for example Pondicherry)
Auction market : The market player decided by the auction conducted by the government
every year the person who bids the highest amount will win the market and takes care of
the for next one year ( for example Rajasthan)
Government market : Government will deals each and every thing in the market even the
volume that they want in the market (for example Kerala)
Mixed market : Government will deals the wholesale part and the retail part is deals with
private companies (for example Karnataka)


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Another important matter in the pricing strategy of the company is they will always aware about the
price of their competitors
Nature of demand, supply
Demand of the product will not touch the peak position or to the bottom of the scale. The supply
and the production that will deal by the government, which means that the government will
decide the volume that want in the market and also they will fix the volume of each brands that
they want to produce.
Challenges of the industry
The main challenge that the alcohol industry faces is the rules and regulations of the state
government. Alcohol industry is state subject, i.e. state governments take care of the volume that
they want to produce by the each company. If the rules and regulations are very strict then that
will difficult by the company to run and make the profit. Another important challenge is the state
government decided the state as dry state that like Gujarat will also problems to the company to
run. Alcohol industry is highly regulated industry.
Types of Market
The alcohol industry in India is a quintessential example of oligopoly market. The products
manufactured can be divided into the following categories:
IMFL (Indian Manufactured foreign liquor)
Foreign liquor bottled in India (BII)
Foreign liquor bottled in Origin (BIO)
Beer
Wine
Country liquor which includes cheap and spiced indigenous liquor

Although Beer, Country liquor and IMFL occupies almost the same market share in volume but
due to high price of IMFL it occupies almost 65% of market share in terms of value.


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Total market size of this industry in India is about $35 billion and is also showing a growth trend
of 8 percent per annum.
Another feature of oligopoly that is quite evident in Indian liquor industry is a unique form of
elasticity. IMFL and beer is showing an almost constant growth of around 8 percent CAGR per
annum but the growth isnt divided uniformly over the products of different prices. For instance
the growth is considerably higher in cheap to medium category of IMFL but the growth of high
end products is comparatively negligible. The uniqueness in this type of elasticity lies in the fact
that if the prices are made higher, the demand doesnt fall proportionately but the consumers
shift to cheaper products leading to a mass abandonment of the recently price hiked one.
This form of high elasticity results in the market giants locking horns with each other as each one
of them try continuously to drop their prices for retaining and increasing their market shares.
In India the presence of alcohol industry is having a characteristics of an organized market but
illicit activities are dominant especially in the case of country liquor. From the method of
production to the distribution and even pricing are majorly done outside the spectrum of
government laws and owing to its large market value of around Rs 2350 Cr it impacts the
economy substantially. Black marketing and hidden marketing is highly prevalent in this industry
because of the presence of several regional mafias in the distribution and manufacturing of
country liquor.






STRUCTURE Figure 1.1


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MANUFACTURING OF LIQUOR


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PRODUCTION OF RECTIFIED SPIRITS FROM MOLASSES
Figure 1.2















About Karnataka State Beverages Corporation (KSBCL)
The second largest revenue generator in the state is excise department... Despite various
administrative measures from time to time a general perception prevailed prior to 2003 that the
State has not been able to maximize revenue collections from this source due to evasion of duty.
Such a view has also been voiced in the report of the Tax Reforms Commission. Considering the
Sugarcane
Crushing of sugar can in factory
Sugar
Bagasse &
Press Mud
Molasses
Molasses storage tanks
Water
Molasses Dilution tanks

Yeast
Ferment for alcohol manufacture
Extra Neutral
Alcohol
Fuel Ethanol Plant
Water Molecule
Removal
Rectified Spirit
Ethanol
Distillation


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potentiality of garnering additional revenue, Government initiated a set of reforms in June 2003,
which broadly consists of reduction and rationalization of excise duty structure, simplification of
procedures and establishment of a Government owned Distribution Company for canalization of
IML, beer and spirit.
Thus, Karnataka State Beverages Corporation Ltd., emerged as a private limited company of the
Government of Karnataka on 02.06.2003 for the purpose of canalizing sale of liquor in the State
and commenced operations from 01.07.2003.
As a canalizing route, the manufacturers, both within and outside the state, keep their stocks in
the Corporations go downs across the State of Karnataka for distribution to wholesale licensees
till the end of 30
th
June 2006 and effective from 1
st
July 2006 the distribution is now made to the
retail and other licensees subsequent to abolition of wholesale business. To self-sustain its
activity, the Corporation is collecting a margin on the goods transacted as prescribed by the
Government of Karnataka. Initially the distribution was confined only to IML and Beer and later
the Government entrusted the partial canalization of Rectified Spirit with effect 01.11.2003 and
subsequently a total canalization of Spirit was implemented with effect from 01.09.2004.








Chapter 2
COMPANY PROFILE


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MSIL is a premier Government of Karnataka Marketing Organization dealing with various
products & services. It is a unique public sector enterprise of the Government of Karnataka. It
has the distinction of having earned profits consistently for nearly four decades and was
established in 1966 as a trading house. Now, it has a wide network of offices all over Karnataka
as well as some important locations in the country.
Keeping pace with the winds of rapid industrialization that are sweeping Karnataka,
MSIL is today resting on a strong footing of excellent performance coupled with deep routed
trust and confidence amongst its clients.
Mysore Sales International Limited, popularly known as MSIL, is a marketing
organization formed in 1966 to meet the marketing needs of Karnataka. Since then, the company
has grown from, strength to strength, to emerge as a dynamic marketing force with a national
presence and international reach.
A keen sense of business acumen, trade experience, managerial effectiveness and
credibility are few of the hallmarks of this marketing giant. And, its ability to manage a diverse
range of products and services through innovative marketing strategies is the secret of its
success. In a business where the prime motivator is people, MSIL has developed flexibility in its
thinking and management, enabling it to tackle every fresh challenge with an innovative
approach to stay in rhythm with the changing tastes and values.

HISTORY
Commenced commercial operations in 1966, as a centralized marketing unit for a few
State-Owned industrial units.
From 1967 to 1989 marketing of all products of Karnataka Soaps & Detergent Ltd
(formerly known as Government Soap Factory) all over the country.
From 1969 to 2007, MSIL was the sole selling agency for the Marketing and Distribution
of Karnataka State Lottery tickets.
During the 70s, MSIL handled special projects such as the distribution of imported
cement, export of rice and the sales of agricultural implements produced at KIMCO.


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During the 80s, the company was marketing Asian Power Capacitors manufactured by
Asian Electronics, Nasik.
In order to facilitate the student community especially in rural areas with quality
notebooks at a reasonable price, Government of Karnataka has entrusted MSIL with the
responsibility of manufacture and distribution of notebooks. Today Vidya & Lekhak
brands of notebooks are extremely popular.
Since early 80s to May 2008 MSIL has served as Custodian /Administrators of the
Bangalore Air Cargo complex.
In 1989, MSIL entered the consumer durables market with the hire purchase scheme for
government employees MSIL Homemaker.
For a brief period MSIL also operated a retail showroom for silk products by the name of
Mandara.
MSIL also had an exclusive showroom for sale of imported furniture.
From 1989 to 2003, MSIL was the sole distributor of Indian Made Foreign Liquor
(IMFL) in Karnataka.
In 1990, MSIL ventured into the travel sector with MSIL Tours & Travels.
In 1992, MSIL was a pioneer in introducing solar water heating systems with the brand
name MSIL Hot spring.
In September 2002, MSIL established another joint venture with HAL and CONCOR as
partners to handle Air Cargo Operations.
In 2005, to protect the interests of the small investors, MSIL launched its own Chit fund
Scheme.
In joint venture with M/s. MSIL also entered into used car market.
Subsequent to the ban of Arrack in the state, to ensure that the Quality liquor is available
to public at MRP, Govt. has allotted about 400 retail liquor outlets to MSIL last year to
be opened across the state.
MISSION AND VISION STATEMENT OF MSIL
VISION
To remain customer focused always by constantly providing tangible and measurable
value for money in terms of the products and services.


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MISSION
To look forward and adapt to the times, to offer every consumer the best quality at the
most affordable price.


CORPORATE OFFICE
MSIL (Mysore Sales International Ltd)
MSIL HOUSE
36 CUNNINGHAM ROAD
BANGALORE-560 052
BRANCHES
Belgaum
Davanagere
Delhi
Gulbarga
Hubli
Mangalore
Mumbai
Mysore
DEPOTS
Bangalore
Bijapur
Davanegere
Gulbarga
Hassan
Hubli


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Mangalore
Mysore
FINANCIAL DATA
CAPITAL STRUCTURE
Equity Financed.
Equity Share Capital Rs 25 cr.
Paid up Share Capital Rs 366.23 lakhs and is fully held by Karnataka State Industrial
Investment and Development Corporation (KSIIDC) which is also Govt. Of Karnataka company.
BUSINESS TURNOVER
Rs.97828.66 lakhs (2012-2013)
PROFIT AFTER TAX
Rs2268.35 lakhs. (2012-2013)






RATIOS
LIQUIDITY RATIO
(i) Current ratio = current assets / current liabilities


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TABLE 2.1 CURRENT RATIO
Year 2012-13
Current Assets 2,88,84,79,965
Current Liabilities 1,46,07,90,947
Current Ratio 1.9:1
Significance :- According to accounting principles, a current ratio of 1.97:1 is supposed to be an
ideal ratio as it is close to 2:1..
It means that current assets of a business should, at least, be twice of its current liabilities. The
higher ratio indicates the better liquidity position, the firm will be able to pay its current
liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of
working capital. The current ratio for the company MSIL is satisfactory.
(ii). Quick ratio = quick assets /current liabilities
Table 2.2 QUICK RATIO
Year 2012-13
Quick Assets 2,438,850,499
Current Liabilities 1,46,07,90,947
Quick Ratio 1.69:1
Significance: - An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better.
This ratio is a better test of short-term financial position of the company. The company has a
quick ratio of 1.69 which is ideal.
LEVERAGE OR CAPITAL STRUCTURE RATIO
(i). Debt Equity Ratio
Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth


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TABLE 2.3 DEBT EQUITY RATIO
Year 2012-13
Long term loans 67,33,85,310
Shareholders fund 1,67,30,59,588
Debt equity ratio 0.40:1
Significance: - This Ratio is calculated to assess the ability of the firm to meet its long term
liabilities. Generally, debt equity ratio of 2:1 is considered safe.
If the debt equity ratio is more than that, it shows a rather risky financial position from the long-
term point of view, as it indicates that more and more funds invested in the business are provided
by long-term lenders.
The lower this ratio, the better it is for long-term lenders because they are more secure in that
case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders. The
debt-equity ratio of MSIL is seen to be satisfactory.
(ii) Debt to Total Funds Ratio
Debt to Total Funds Ratio = Long-term Loans/Shareholders funds + Long-term Loans



TABLE 2.4 DEBT TO TOTAL FUNDS RATIO
Year 2012-13
Long term loans 67,33,85,310
Shareholders fund +long term
loans
23,46,44,4898


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Debt to total funds ratio 0.28:1

Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words,
the proportion of long term loans should not be more than 67% of total funds.
A higher ratio indicates a burden of payment of large amount of interest charges periodically and
the repayment of large amount of loans at maturity. Payment of interest may become difficult if
profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower
ratio is better from the long-term solvency point of view. MSILs debt to total funds ratio is 28%
which is seen to be above the standard.
(iii). Proprietary Ratio:-
Proprietary Ratio = Shareholders Funds/Shareholders Funds + Long term loans

TABLE 2.5 PROPRIETARY RATIO
Year 2012-13
Shareholders fund 1,67,30,59,588
Shareholders fund +long term
loans
23,46,44,4898
Proprietary ratio 0.71:1
Significance: - This ratio should be 33% or more than that. In other words, the proportion of
shareholders funds to total funds should be 33% or more.
A higher proprietary ratio is generally treated an indicator of sound financial position from
long-term point of view, because it means that the firm is less dependent on external sources
of finance.


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If the ratio is low it indicates that long-term loans are less secured and they face the risk of
losing their money
(iv). Fixed Assets to Proprietors Fund Ratio:-
Fixed Asset to Proprietors Fund Ratio = Fixed Assets/Proprietors Funds (i.e., Net Worth)
TABLE 2.6 FIXED ASSETS TO PROPRIETORS FUND RATIO
Year 2012-13
Shareholders fund 1,67,30,59,588
Fixed assets 1,30,94,80,659
Fixed assets to Proprietary
ratio
3.56:1
Significance: - The ratio indicates the extent to which proprietors (Shareholders) funds are sunk
into fixed assets. Normally, the purchase of fixed assets should be financed by proprietors funds.
If this ratio is less than 100%, it would mean that proprietors fund are more than fixed assets and
a part of working capital is provided by the proprietors. This will indicate the long-term financial
soundness of business



ORGANISATIONAL STRUCTURE


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CHAPTER 3
BOARD OF DIRECTORS
MANAGING DIRECTOR
CHIEF GENERAL MANAGER
GENERAL MANAGER
DY GENERAL MANAGER
ASSISTANT MANAGER
SUPERVISOR
ASSISTANTS
INTERNS


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FUNCTIONAL DEPARTMENTS
Functional Departments (Bangalore Head Office)
(1) Accounts and Finance includes Administration
(2) Secretarial including legal
(3) Establishment including Human Resources (HR) and Security
(4) Corporate Communication
CORPORATE COMMUNICATION
The corporate communication team is similar to marketing division in any other companies.It
deals with inter as well external communication It does market research and evaluation and
handles media relations for the company.
Planning and strategizing the communication processes with the internal and external
audience.
To maintain a communication balance between the internal audiences i.e. the
organizations employees, to decrease the communication gap.
Marketing research to find out what is the demand of the audience.
To keep an eye on the industry developments.
To handle public relations and media relations department of the organization.
Periodical research and evaluation to determine the actions or adjustments needed for
social harmony (between the organization and its public).


HUMAN RESOURCE DEPARTMENT


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The human resource department takes care of staff selection, training, Staff retention and welfare
programs. There are 307 staffs working in the company and all the Top management consists of
eminent personalities with IAS Qualification
Advertising job vacancies
Notifying staff of promotion opportunities
Receiving and recording all job applications, arranging interviews and
notifying candidates of the result.
Arranging staff training and encouraging continuous professional development
Monitoring the working conditions of staff
Checking health and safety and keeping accident records
Recording sick leave and reasons for absence
Carrying out company welfare policies, e.g. long-service awards and company loans
Keeping records of grievances and disciplinary actions
Monitoring the terms and conditions of employment, including wage rates
Maintaining staff records
FINANCE DEPARTMENT
The finance department is responsible for preparing various accounts and report and it is their
responsibility to prepare budgets and allocate the necessary funds required.Their other functions
are as follows;
Management of financial resources for meeting the corporations programs of operations
and capital expenditure including investment of surplus fund, if any.
Ensuring uniform financial and accounting policies and procedures to the extent possible
in the division.
Establish and maintain a system of financial scrutiny and internal checks and render
advice on financial matters including examination of feasibility studies and detailed
project reports.
Establish and maintain an appropriate system of budgetary control and management
information system for different levels of the management.


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Carryout periodical studies with a view to control costs, educe expenditure, economy in
administrative expenditure and improve efficiency to maximize profitability of the
corporation.
Maintain the financial accounts, cost accounts and other relevant books and records in
accordance with the various statutory and other requirements. Advise on corporate cash
planning, credit planning and pricing policies of the Corporation.
SECRETARIAL INCLUDING LEGAL
This department are responsible for giving the company advices regarding various
aspects .They represent their company in the court and provide assistance in getting
claims.
Giving advice to the company, its divisions and employees on matters of law and legal
protection
Keeping company activities in strict compliance with new legislation
Representing company in all meetings, conferences and public events
Preparation of protocols, claims and counter-claims to courts
Representation of company in courts
Protection of company's rights and interests in judicial sittings
Creation of legal documentation requirements
Drafting and approving document layout
PRODUCT PROFILE
IPD/CPD
Solar water heaters
Led Lights
Cables
Mustard Oil
Water Purifier


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Nivaran 90
Nivaran Digestive
Water
Total Bar
EXPORTED
Sandalwood Oil
Soaps
Spices
Coffee
Rice
Garments
Iron Ore
Also, the company deals with products like
Packaged Drinking Water
Agriculture Products
Notebooks
Bags
Stationeries
Leather
Tea, Tobacco and Plantation Products



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EMPLOYEE TURNOVER
Minimum being a Public Sector Organization

EMPLOYEES
Total No: of Employees: 307

















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CHAPTER 4
SWOT ANALYSIS
STRENGTHS
As Company belongs to Government it ensures a trust and a brand image
Well trained employees, most of them having experience in the range of 20-30 years who
provides excellent service.
Headed by Indian Administration staffs whose efficiency and skills help the companys
performance.

WEAKNESS
Some group of employees form an informal organization and resist changes.
Products are priced not based on profit motive as the government.
Other than the liquor outlets all the products are concentrating on rural Area of the state.
More of a social welfare company than a profit making company and it usually doesnt
compete with private sectors.
OPPORTUNITIES
Opportunity to diversify business. The company being a government company will not
constraints regarding establishing a new business like obtaining license. They have
opportunities to diverse to other fields such as Stationary items
Opportunity to improve existing business. They have enough government aided funds
and they can easily start diversifying to fields like stationary
Opportunity to Expand Their Market as they have not explored urban markets till now
only the beverage divisions has found their way to urban market.




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THREATS
Withdrawal of liquor license by Government.
Cut throat competition from private sector
FUTURE PROSPECTS
The company has already ventured into office-cum- warehousing infrastructure sector and to
pursue this, it has already set up state-of-art office-cum-warehousing complexes at Mysore and
Mangalore and the Mysore Warehouse complex has started generating revenue for the company.
The on-going construction of Karnataka Bhawan in Mumbai is expected to complete in the next
financial year. Your company also decided to set up an Integrated Warehousing Complex on
Government allotted plots situated at Devanahalli International Airport, Bangalore. All these
projects would generate additional revenue for the company in the coming years.


















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CHAPTER 5
PROBLEM CENTERED STUDY
A STUDY ON WORKING CAPITAL MANAGEMENT
OF BEVERAGES DIVISION, MYSORE SALES INTERNATIONAL LTD
STATEMENT OF THE PROBLEM
The problem selected for the study is A study on working capital management at MSIL LTD
(BEVERAGES DIVISION). This study will try to identify the problem areas and give
suggestions to solve them. As its beverages division deals only with cash its working capital
constitutes mainly of inventory and cash.
OBJECTIVE OF THE STUDY
To analyze the schedule of changes in working capital
To analyze the performance of working capital management at MSIL.
To study the liquidity position and solvency of the division.
To suggest improvement wherever necessary, based on the study.
SCOPE OF STUDY
The study mainly deals with the working capital management at MSIL Beverages Division,
decisions regarding working capital, its nature of operation. The scope of study is to identify the
area of control over various components of working capital. The attempt is to identify the
financial performance of the company from 2010-11 to 2012-2013, companys growth and profit
earned.
RESEARCH METHODOLOGY
This research is a financial research in the field of working capital management of the beverages
division of Mysore Sales International Ltd. It assesses the overall working capital management
of the company by taking into account financial data for the period of four years from 2011 to
2013. Ratio analysis is being used for this purpose. Hence it is essentially a fact finding study.
SOURCES OF DATA
PRIMARY DATA- The primary data where provided by the different managers in the company
as and when approached.
SECONDARY DATA- The sources of the secondary data was obtained from the


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Annual reports, and the official company website.
WORKING CAPITAL ANALYSIS
Working capital is very essential for the smooth running of a business. It is the life blood of a
Company. A study of changes in the sources or working capital is necessary to evaluate the
Efficiency with which the working capital is employed in the company. This involves the
Need of working capital analysis. The analysis of working capital can be conducted through a
Number of ways, such as:
Ratio analysis
Fund flow analysis
Budgeting
LIMITATIONS OF THE STUDY
Efforts have been made to perform a detail study regarding the topic, however the following
Limitations where found:
The study is restricted to the corporate headquarters, Bangalore.
The information is availed from the statements, annual reports and records of the
company.
This is limited to the information gathered through the interview and the discussion with
the companys officials and executives.
As each company treats confidential status pertaining to some information and the
information was needed could not be made public.
A detailed analysis of all the items was not possible.
THEORY OF WORKING CAPITAL
Working capital plays an important role in an organization irrespective of the nature and kind of
the organization. Effective management of working capital is a basic requirement for any
organization to function in an efficient manner and grow. This is because a company needs
capital for running its day to day activities. Working capital represents the operating liquidity
available to an organization. Though investment in fixed assets is more or less static, the working
capital keeps constantly changing. In simple terms, working capital means excess of current
assets over current liabilities.


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Gross working capital is the total fund invested in various current assets such as cash in hand and
at the bank, inventories, bills receivables, debtors and short term loans and advances. Gross
working capital is of importance to a firm because financial managers are deeply interested in the
current assets of their firm, it enables the firm to realize the greatest return on its investment and
assign the areas of responsibilities to specific people or departments. Net working capital is the
difference between current assets and current liabilities which include bills payable, creditors and
outstanding expenses.
It is always considered good when current assets are more than current liabilities. This means
that the short term cash that we are receiving from our debtors is more than the short term cash
that we have to pay to our creditors. A positive working capital ensures that the firm is able to
continue its operations and has sufficient capital to meet its short term debt as well as upcoming
operational expenses. A negative working capital would mean that our current liabilities are
greater than our current assets. A negative working capital in most situations means that a
company may be heading towards bankruptcy or some serious financial troubles.
But negative working capital need not necessarily be bad for an organization. Negative working
capital may arise due to reasons like high inventory turnover or for companies with subscriptions
or longer-term contracts. Examples of organizations that have seen to have negative working
capital and yet have been profitable are McDonalds (with negative working capital of $698.5mn
between 1999-00) and amazon.com. In such organizations, the goods or final products are sold
and delivered to the customer even before the organization actually pays for them.
Working capital management involves effectively managing the cash, inventory, receivables and
payables of an organization so as to ensure sufficient cash flow and reduce debt. The level of
working capital needs to be optimum. The cash conversion cycle is a major factor in working
capital management and is the responsibility of all the processes of an organization be it finance,
purchase, sales, manufacturing, etc. Effective working capital management includes planning
and controlling the current assets and current liabilities in such a manner that removes the risk of
inability to meet short term debt and also avoids excessive and unnecessary investment in such
assets. It also involves planning the working capital requirement in advance and developing a
working capital model in tune with this.


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A firm could adopt a moderate or an aggressive model based on the requirements and the market
situation of the firm. And based on this model, a firm decides its working capital policies like
credit period for customers and suppliers, short term finance, inventories and securities. The
working capital requirements generally depend on the production levels and the attitude of
management towards risk. The firms should also benchmark their requirements against similar
firms so as to have an idea of where they stand. A sound working capital model can ensure a
balance between profitability and growth.
In todays competitive world, it is mandatory to keep large amount of current assets in the form
of inventory to ensure smooth functioning of the business. Inventory management plays a very
important role in working capital management. It includes analysis and identification of slow-
moving and surplus items so that efforts can be made to convert such items into cash. The
reduction of unnecessary stock leads to great improvements in working capital conditions of the
firm. But it should be seen that there is no understocking as this will lead to dissatisfied
customers and loss in business. Sometimes, the suppliers try to offer lucrative discounts to the
purchase managers for buying in bulk which is often more than what the requirement is. If such
an offer is accepted, it would mean locking up cash in holding this extra inventory. Managers are
tempted to do such transactions as it would not be reflected in the income statement, based on
which the incentives of the managers are decided. But when a cost benefit analysis is done, it is
possible that the holding and carrying cost of this excess inventory is much more than the
discounts that were offered by the supplier. The purchase manager should not fall into such a trap
and should do a CBA (Cost Benefit Analysis) before going in for such discounts and offers. This
same argument applies to other components of working capital such as receivables, credit policy,
average collection period, etc. of the firm as well.
Delaying payment to creditors might be seen as a way to temporarily increase the working
capital. But it is actually counterproductive and inefficient and is a damaging practice for both
the practitioners and the economy as a whole. It also damages the goodwill of the firm as it is not
making timely payments to its creditors and suppliers. Therefore instead of this, other practices
such as inventory and receivables management should be followed.


29


The importance of working capital has also been seen during the times of economic recession.
As seen during the downturn of 2008, the companies that were able to manage there working
capital well during the times of recession were the companies that were able to survive that
period and come out as more stronger than others after the recession. Working capital is rightly
called as one of the corner stones in continuing the business.
It is easy to manage and forecast the working capital needs and liquidity position during the
normal times when there is growth and expansion in an organization. However, the real test is
when the economy and the organization is going through an economic downturn. This is the time
when the organization needs to reassess its working capital position and predict the requirement
of the same. During such times, and organization sees a falling demand, a pressure to lower its
prices, the credit and capital start drying up, customers start tightening their belts and the
suppliers/creditors become less and less tolerable towards late payments. This is when the cash is
king and the effective management and control of working capital comes into focus.
An efficient working capital management can play a critical role in freeing up capital and using it
for the advantage of the firm. It ensures regular supply of materials and helps the firm to exploit
favorable market conditions. It can make the difference between success and failure of an
organization. By minimizing the funds trapped in current assets, a firm can easily reduce
financing cost and increase the funds available for expansion plans of the firm. In general, it can
boost up the morale of the organization. Due to all these, working capital management is a very
sensitive area in the field of financial management.
CLASSIFICATION OR KIND OF WORKING CAPITAL:
Working capital may be classified in two ways:
On the basis of concept
On the basis of time
On the basis of concept, working capital may be classified as
Gross working capital
Net working capital.
On the basis of time, working capital may be classified as:
Permanent or Fixed working capital


30


Temporary or Variable working capital.
ON THE BASIS OF CONCEPT
1. GROSS WORKING CAPITAL.
Gross working capital represents the fund invested in the current assets. Current assets include
those items that can be converted into cash in a shorter period of time.
CONSTITUENTS OF CURRENT ASSETS:
Cash in hand and Bank balance
Bills Receivable
Sundry Debtors
Short term Loans and Advances
Inventories of Stock as:
Raw Materials
Work in Process
Stores and Spaces
Finished Goods
Temporary Investments of Surplus Funds
Prepaid Expenses
Accrued Incomes
The importance of working capital:
It enables the enterprise to provide correct amount of working capital at right time.
The gross concept takes into consideration that every increase in the funds in the
enterprise will increase its working capital.
This concept is more useful in determining the rate of return of return on investment in
working capital.
2. NET WORKING CAPITAL
Net working capital is the net current asset, i.e. the excess of current assets over the current
liabilities.
The importance of working capital:
It is qualitative concept, which indicates the firms ability to meet its operating expenses
and short term liabilities.


31


It indicates the margin of protection available to the short term creditors, i.e. the excess
of current assets over current liabilities.
It is the indicator of the financial soundness of the company.
NET WORKING CAPITAL MAY BE NEGATIVE OR POSITIVE:
When the current assets exceed the current liabilities, the working capital is positive and the
negative working capital results when the current liabilities are more than the current assets.
Current liabilities are those liabilities which are intended to be paid in the ordinary course of
business within a short period of normally one accounting year of the current assets or the
income of the business. Examples of current liabilities are:
CONSTITUENTS OF CURRENT LIABILITIES:
Bills Payable
Sundry Creditors or Account Payable
Accrued or Outstanding Expenses
Short term Loans, Advances and Deposits
Dividends Payable
Bank Overdraft
Provision for Taxation, If does not amount to appropriation of profits.
The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital.


ON THE BASIS OF TIME
1. PERMANENT OR FIXED WORKING CAPITAL:
Permanent or fixed working capital is the minimum amount which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. There is always
a minimum level of current assets which is continuously required by the enterprises to carry out
its normal business operations.
2. TEMPRORAY OR VARIABLE WORKING CAPITAL:
Temporary or variable working capital is the amount of working capital which is required to
meet the seasonal demands and some special exigencies. Variables working capital can be
further classified as second working capital and special working capital. The capital required to


32


meet the seasonal needs of the enterprises is called the seasonal working capital. Temporary
working capital differs from permanent working capital in the sense that is required for short
periods and cannot be permanently employed gainfully in the business.
IMPORTANCE OR ADVANTAGE OF ADEQUATE WORKING CAPITAL:
Working capital is the life blood and nerve center of a business. Just a circulation of a blood is
essential in the human body for maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfully without an adequate amount of
working capital. The main advantages of maintaining adequate amount of working capital are as
follows:
Solvency of the Business
Goodwill
Easy Loans
Cash discounts
Regular supply of Raw Materials
Regular payments of salaries, wages & other day to day commitments.
Exploitation of favorable market conditions
Ability of crisis
Quick and regular return on investments
High morals
THE NEED OR OBJECTIVES OF WORKING CAPITAL:
The need for working capital cannot be emphasized. Every business needs some amount of
working capital. The need of working capital arises due to the time gap between production and
realization of cash from sales. There is an operating cycle involved in the sales and realization of
cash. There are time gaps in purchase of raw materials and production, production and sales, And
sales, and realization of cash, thus, working capital is needed for the following purposes:
For the purchase of raw materials, components and spaces.
To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power and office expenses
etc.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers.


33


To maintain the inventories of raw materials, work in- progress, stores and spares and
finished stock.
CONSEQUENCES OF UNDER ASSESMENT OF WORKING CAPITAL:
Growth may be stunted. It may become difficult for the enterprises to undertake
profitable projects due to non-availability of working capital.
Implementations of operating plans may become difficult and consequently the profit
goals may not be achieved.
Cash crisis may emerge due to paucity of working funds.
Optimum capacity utilization of fixed assets may not be achieved due to non-availability
of the working capital.
The business may fail to honor its commitment in time thereby adversely affecting its
creditability. This situation may lead to business closure. The business may be compelled to by
raw materials on credit and sell finished goods on cash. In the process it may end up with
increasing cost of purchase and reducing selling price by offering discounts. Both the situation
would affect profitable adversely. Now availability of stocks due to non-availability of funds
may result in production stoppage. While underassessment of working capital has disastrous
implications on business over assessments of working capital also has its own dangerous.
CONSEQUENCES OF OVER ASSESSMENT OF WORKING CAPITAL:
Excess of working capital may result in unnecessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery system &
cash management.
It may make management complacent leading to its inefficiency.
Over investment in working capital makes capital less productive and may reduce return
on investment.
Working Capital is very essential for success of business & therefore needs efficient
management and control. Each of the components of working capital needs proper management
to optimize profit.



DETERMINANTS OF WORKING CAPITAL:


34


A firm should have neither too much nor too little working capital. A large number of factors,
each has a different importance, influencing working capital needs of firms. The importance of
factors also changes for a firm over time.
Therefore, an analysis of relevant factors should be made in order to determine total
investment in working capital. The following is the description of factors which generally
influence the working capital requirements. The working capital requirement is determined
by a large number of factors but, in general, the following factors influence the working
capital needs of an enterprise:
(1) Nature of Business:-
Working capital requirements of an enterprise are largely influenced by the nature of its business.
For instance, public utilities such as railways, transport, water, electricity etc. have a very limited
need for working capital because they have invested fairly large amounts in fixed assets. Their
working capital need is minimal because they get immediate payment for their services and do
not have to maintain big inventories. On the other extreme are the trading and financial
enterprises which have to invest fewer amounts in fixed assets and a large amount in working
capital. This is so because the nature of their business is such that they have
to maintain a sufficient amount of cash, inventories and debtors. Working capital needs of most
of the manufacturing enterprises fall between these two extremes, that is, between public utilities
and trading concerns.
(2) Size of Business:-
Larger the size of the business enterprise, greater would be the need for working capital. The size
of a business may be measured in terms of scale of its business operations.
(3) Growth and Expansion:-
As a business enterprise grows, it is logical to expect that a larger amount of working capital will
be required. Growing industries require more working capital than those that are static.
(4) Production cycle:-
Production cycle means the time-span between the purchase of raw materials and its conversion
into finished goods. The longer the production cycle, the larger will be the need for working


35


capital because the funds will be tied up for a longer period in work in process. If the production
cycle is small, the need for working capital will also be small.
(5) Business Fluctuations:-
Business fluctuations may be in the direction of boom and depression. During boom period the
firm will have to operate at full capacity to meet the increased demand which in turn, leads to
increase in the level of inventories and
book debts. Hence, the need for working capital in boom conditions is bound to
increase. The depression phase of business fluctuations has exactly an opposite effect on the
level of working capital requirement.
(6) Production Policy:-
The need for working capital is also determined by production policy. The demand for certain
products (such as woolen garments) is seasonal. Two types of production policies may be
adopted for such products. Firstly, the goods may be produced in the months
of demand and secondly, the goods may be produces throughout the year. If the second
alternative is adopted, the stock of finished goods
will accumulate progressively upto the season of demand which requires an increasing
amount of working capital that remains tied up in the stock of finished goods for some months.
(7) Credit Policy Relating to Sales:-
If a firm adopts liberal credit policy in respect of sales, the amount tied up in debtors will also be
higher. Obviously, higher book debts mean more working capital. On the other hand, if the firm
follows tight credit policy, the magnitude of working capital will decrease
(8) Credit Policy Relating to Purchase:-
If a firm purchases more goods on credit, the requirement for working capital will be less. In
other words, if liberal credit terms are
available from the suppliers of goods (i.e., creditors), the requirement for working capital
will be reduced and vice versa.
(9) Availability of Raw Material:-


36


If the raw material required by the firm is available easily on a continuous basis, there will be no
need to keep a large inventory of such materials and hence the requirement of working capital
will be less. On the other hand, if the supply of raw material is irregular, the firm will be
compelled to keep an excessive inventory of such raw materials which will result in high level of
working capital. Also, some raw materials are available only during a particular season such
as oil seeds, cotton, etc. They would have to be necessarily purchased in that season and have to
be kept in stock for a period when supplies are lean. This will require more working capital.
(10) Availability of Credit from Banks:-
. If a firm can get easy bank facility in case of need it will operate with less working capital. On
the other hand, if such facility is not available, it will have to keep large amount of working
capital
(11) Volume of Profit:-
The net profit is a source of working capital to the extent it has been
earned in cash. Higher net profit would generate more internal funds thereby contributing the
working capital pool.
(12) Level of Taxes:-
Full amount of cash profit is not available for working capital purpose. Taxes have to be paid out
of profits. Higher the amount of taxes less will be the profits for working capital.
(13) Dividend Policy:-
Dividend policy is a significant element in determining the level of
working capital in an enterprise. The payment of dividend reduces the cash and thereby, affects
the working capital to that extent. On the contrary, if the company does
not pay dividend but retains the profits, more would be the contribution of profits
towards capital pool.

(14) Depreciation Policy:-


37


Although depreciation does not result in outflow of cash, it affects the working capital indirectly.
In the first place, since depreciation is allowable expenditure in calculating net profits,
it affects the tax liability. In the second place, higher depreciation also means lower disposable
profits and, in turn, a lower dividend payment. Thus, outgo of cash is restricted to that extent.
(15) Price Level Changes:-
Changes in price level also affect the working capital requirements. If the price level is rising,
more funds will be required to maintain the existing level of production. Same level of current
assets will need increased investment when prices are increasing. However, companies that can
immediately their product prices with rising price levels will not face a severe working capital
problem. Thus, it is possible that some companies may not be affected by rising prices while
others may be badly hit.
(16) Efficiency of Management:-
Efficiency of management is also a significant factor to determine the level of working capital.
Management can reduce the need for working capital by the efficient utilization of resources. It
can accelerate the pace of cash cycle and thereby use the same amount working capital again and
again very quickly.
IMPACT OF WORKING CAPITAL.ON PRPFITABILITY
In order to run the company successfully, the fixed and the current assets play a commendable
role. Managing the working capital is mandatory because, it has a major significance on
profitability and liquidity of the business concern. Usually, it was observed that, if firm wants to
take a bigger risk for bumper profits and losses, it minimizes the dimension of its working capital
in relation to the revenues it generates. If it is willing to improve its liquidity, that in turn raises
the level of its working capital. Nevertheless, this technique might tend to reduce the sales
volume and consequently, it would affect the profitability. Thus, a company needs to have a
striking balance between the liquidity and the profitability. This research has analyzed the impact
of working capital on the profitability for a sample of 100 Indian companies listed in the Bombay
Stock Exchange for a period of 2 years from 2010-2011. The various components for measuring
the working capital management include the Receivable days, Inventory turnover days, Payable
days, Cash conversion cycle, Current ratio and Quick ratio on the Net operating profitability of


38


the Indian companies. The controlled variables like; Fixed assets on total assets, the Debt ratio
and the size of the firm (measured in terms of natural logarithm of sales) have also been used for
measuring of the working capital management. Descriptive Statistics, Pearsons Correlation,
Regression Analysis are used for analyzing this research. All these tests are used so as to
correlate the theories contributed by the literature by several authors with the statistical results.
The results depict that, there is a strong negative association between the components of the
working capital management and the profitability ratios of the Indian firms which indicates that,
as the cash conversion cycle increases it would tend to reduce the profitability of the company,
and the managers might increase the shareholders value by shortening this cash conversion
cycle to a minimum level. It is also observed that the negative association also persists between
the liquidity and the profitability of the Indian firms. Nevertheless, there is a positive relationship
between the size and the profitability of the firm. This indicates that, as the size of the firm
increases the profitability of the firm also increases.

Finally a negative relationship is observed between the debt and profitability of the Indian firms.
The results derived from this research signify that, the managers might able to raise their profits
by diminishing the time period for the debtors and inventories so that, time period for payables
would increase.

The role of working capital in investment process
For operating a firm working capital is as crucial as fixed capital. It is the net amount of short
term assets current assets minus current liabilities of the firm which gives it some latitude at
several activities.
Or instance, by holding inventories at various stages of the production process the firm can run
larger batches and is less vulnerable to strikes, and the presence of accounts receivable on the
balance sheet reflects the fact that the firm is willing to sell goods to customers that are solvent
but short of cash.


39


The decline in working capital affects investment directly since it implies a fall in internal funds,
and indirectly by raising the cost of external funds. When its liquidity decreases or when
prospects concerning future sales deteriorate, the cost of external finance rises.
It is conceivable that firms also save working capital in order to make sure that it can carry out an
investment plan that takes years without interruption due to lack of cash.
Working capital will be used to smooth investments in the case of convex adjustment costs. If a
fixed costs component dominates, investments decisions will seem irreversible. The size of the
stock of working capital influences the timing (delay) of investment. The firms of higher credit
quality dont need to accumulate working capital as a buffer against fluctuations in cash flow as
they have access to the commercial paper market.


40


Data analysis, interpretation and learnings
Net Working Capital
An analysis of the Net Working Capital of the company will help us in getting an overview of
the operating efficiency of the company. The net working capital is calculated as follows

Table 5.1 NWC
Years Current assets Current Liabilities NWC
2010-11 2,76,70,79,794 1,61,47,86,979 1152292815
2011-12 2,55,70,36,920 1,27,47,89,052 1282246941
2012-13 2,88,84,79,965 1,46,07,90,947 1427689018



Figure5.1
The above chart shows that in the year 2011, the company has a net working capital of
Rs 1152292815. In the year 2012, we see a slight increase to Rs 1282246941. After this there has
0
500000
1000000
1500000
2011 2012 2013
Working capital (amount in
thousands)
Working capital


41


been an increase in the year 2013 with Rs 1427689018 All these years show a positive position
of net working capital for the company.
Components of Working Capital
Table 5.2
2010-11 2011-12 2012-13
Inventories 237640356 418675861 449629466
Sundry debtors 73115263 67344665 62950757
Cash and bank
balances
1465262560 1418906539 1603030929
Other current assets 49059927 56570936 125274185
Loans and advances 872803030 595538919 647594628
Stock with hirers 69198658 0 0
Current assets 2767079794 2557036920 2888479965

creditors 997614151 627439528 770769651
Other current liability 181599767 250637947 263074066
Short term borrowings 0 2354925 0
Provisions 435573061 394356652 426947230
Current liabilities
and provisions
1614786979 1274789052 1460790947




CURRENT ASSETS (amounts in thousands)


42


Figure 5.2



















0.00
500000.00
1000000.00
1500000.00
2000000.00
2500000.00
3000000.00
2011
2012
2013
Stock with hirer
other
short term loan and advances
cash
trade recievables
inventories


43


CURRENT LIABILITY
Figure 5.3

Following is an analysis of the various components of working capital:
The inventories have been increasing over the period of past 3 years. The inventories in
2011 were Rs 237640356 which increased by a huge margin of 76% to Rs 418675861 in
the year 2012. Further, there was a 79% increase in the inventories from 2012 to 2013,
the inventories of 2013 being Rs 449629466. The most likely cause for this increase in
the inventories is the expansion and acquisition activities being carried.
The company has hold a good consistent record of debtors. In the year 2011 the debtors
were amounting to Rs 73115263 which decreased to Rs 67344665 in the year 2012 and it
further decreased to 62950757 Rs in the year 2013. The decreasing trend shows the
decrease in credit sales or quick and timely payments from debtors. Even though sundry
debtors form a part of current assets, but having excess of debtors is not good for the
company due to the risk of them turning into bad debts.
The Cash and bank balances were Rs 1465262560 as on 2011 which reduced slightly by
3 pc to Rs 1418906539 but in the next year there showed an increase in the cash balance.
The balance as on march 31
st
2013 stood as Rs1603030929
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011
2012
2013
Provision
Borrowings
other
Creditors


44


The Other current assets in 2011 stood at Rs 49059927. In 2012, there was an increase by
15% in the other current assets and the value was Rs 56570936
The value of other current assets increased by 121% in 2013 to Rs 125274185
The other current assets include various items like interest accrued on investments, on
deposits and rent receivables.
The Loans and advances of the company in 2011 were Rs 872803030. There was a 31%
decrease in the next year, the value in 2012 being Rs 595538919 lakh. 2013 saw a 8%
increase in the loans and advances to Rs 647594628
The year 2011 the company had a stock with hirers which amounted to Rs69198658
which the company did not hold to it through the next years.
The Current liabilities increased in a less constant manner from 2011 to 2013
In 2011, their value was Rs 1614786979 which decreased by 21% in 2012 to
Rs 1274789052 and they increased by 14% in 2013 to Rs 1460790947.
There an increase in the Other Current Liabilities like Current maturities of long term
debts, Current maturities of finance lease obligations, Book overdrafts, Advances from
patients/customers, Sundry deposits, Interest accrued and due on borrowings, Deferred
revenue, Premium payable on redemption of redeemable preference shares, Capital
creditors, Derivative financial instruments, etc.
The provisions of the company stood at Rs 435573061 in 2011. They decreased by 9% to
Rs 394356652 in 2012. In 2013, there was an increase by 8% to Rs 426947230. .





Figure 5.4 CURRENT ASSETS


45




If we see the overall current assets, in 2011 they stood at Rs 2767079794. This amount increased
by 7% in 2012 to Rs 2557036920. There was a sudden increase in the current assets in 2013 to
Rs 2888479965 which showed an increase by 13%.

2300000
2400000
2500000
2600000
2700000
2800000
2900000
3000000
2011 2012 2013
Current assets (in thousands)
Current assets
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
2011 2012 2013
Current liability
Current liability


46


Figure 5.5
In case of the total current liabilities, the value in 2011 was Rs 1614786979 which decreased by
21% in 2012 to Rs 1274789052 and increased by 14% in 2013 to Rs 1460790947.
ROTA (Return on Total Assets)

A B C D=B/C
Year EBIT Total assets ROTA
2010-11 8,69,92,494 3,30,67,59,853 0.026
2011-12 33,65,28,430 3,6200,18,871 0.092
2012-13 36,57,80,029 4,19,79,60,624 0.087
Table 5.3 ROTA
ROTA (Return on Total Assets) indicates how effectively the company is using all its assets to
generate income before contractual obligations like Interest and Tax need to be paid. It is
calculated by dividing the Earnings before Interest and Tax. Here we have deducted the
amortization and depreciation from the earnings.
The return on total assets in MSIL is showing a positive increase in the year 2012 which shows a
good performance of the company .In the next year the total assets amount has increased which
led to a decline in ROTA in the year 2013.The company should have made more efforts to
increase the profit with the expansion programs
Gearing ratio






47



Table 5.4 Gearing ratio
A B C=A+B D E=C/D
Years Loan Funds
Current
Liabilities Total debt Total assets
Gearin
g ratio
2011 76,43,40,624 1,20,38,47,179 1,968,187,803 3,30,67,59,853 0.595
2012 89,47,49,808 1,27,47,89,052 2,169,238,860 3,62,00,18,871 0.599
2013 67,33,85310 1,46,07,90,947 2,134,176,257 4,19,79,60,624 0.508

Gearing ratio shows the degree to which a firm's activities are funded by owner's funds versus
creditor's funds. Here total debt versus total assets is used to show how much of the companys
assets have been financed by debt. A gearing ratio with a higher value means that a firm is more
vulnerable to downturns in the business cycle because the company must continue to service its
debt regardless of how bad sales/revenues are. . In our case, the gearing ratio was 0.595 for 2011,
0.599 for 2012, and 0.508 for 2013 which shows a stable trend with slight fluctuations. Here the
ratio is above 50 percent which is a not sigh and company must concentrate on revealing from
these loans slowly.
Total margin





A B C D=C/B


48


Table 5.5 Total Margin

Total margin includes all other sources of revenue and expenses that are not related to operations
unlike the operating margin that looks only at revenue derived from operations. Total margin
may differ significantly from the operating margin if substantial amounts of non-operating
revenue or expenses are reported. For this company, the total margin has shown a good trend and
has been increasing from 2011 to 2012ie .046 to .056... But it has decreased in 2013 to 0.46
which is not good.



Current ratio




Table 5.6 Current ratio
A B C=A/B
Years Current assets Current Liabilities NWC
2010-11 2,40,81,29,457 1,20,38,47,179 2.00
Year
Total revenue (1)
Total operating
expenses (2)
Operating
Income Total margin
2010-11 2,86,53,63,126 2,73,62,70,632 1,29,092,494 0.046
2011-12 6,00,41,74,222 5,68,23,92,441 3,21,781,781 0.056
2012-13 8,29,90,45,077 7,93,09,53,482 3,68,091,595 0.046


49


2011-12 2,55,70,36,920 1,27,47,89,052 2.00
2012-13 2,88,84,79,965 1,46,07,90,947 1.97

Current Ratio is an index of the firms financial stability. The standard ratio is 2:1. The division
has maintained a current ratio more than the standard indicating that it has maintained liquidity
throughout the period. It is always higher the better because a higher current ratio shows that a
company is more capable of paying its short term liabilities. The current ratio for MSIL has been
favorable throughout till 2013. The current ratio for 2011 was 2 and for 2012 it was 2. For the
year 2013, its 1.97 which is idle for the company


Quick ratio




Where,

Table 5.7 Quick ratio
A B C=A/B
Years Quick assets Current Liabilities Quick ratio
2010-12 2,101,290,433 1,20,38,47,179 1.745
2011-12 2,138,361,059 1,27,47,89,052 1.677
2012-13 2,438,850,499 1,46,07,90,947 1.669


50


The quick ratio of the division is above the standard ratio of 1:1 all through the years and is at a
satisfactory level. It means that the company has liquid asset sufficient to provide a cover to
current liability. The ratio shows a stable solvability throughout the three years. Which is a good
sign for the company.
Absolute liquid ratio




Where


Table 5.8 Absolute liquid ratio
A B C D =(B/C)
Years Absolute liquid assets Current Liabilities Absolute liquid ratio
2010-11 1,46,52,62,560 1,20,38,47,179 1.217
2011-12 1,41,89,06,539 1,27,47,89,052 1.113
2012-13 1,60,30,30,929 1,46,07,90,947 1.097
Absolute liquid ratio takes into consideration only the most liquid assets which are Cash and
bank balances and the marketable securities. This ratio was 1.217in 2011 and showed a slight
declining trend in the next two years it stands as 1.113 and 1.097 respectively. An absolute liquid
ratio of 0.5 or more is considered good and for this company in most of the years its less than
that. The company shows a positive sign regarding this ratio.



51


Current assets to total assets ratio
Table 5.9 Current assets to total assets ratio
A B C=A/B
Years
Current Assets,
Loans & Advances Total assets
Current assets/
Total assets
2010-11 2,40,81,29,457 3,30,67,59,853 0.728
2011-12 2,55,70,36,920 3,62,00,18,871 0.706
2012-13 2,88,84,79,965 4,19,79,60,624 0.688
The current assets to total assets ratio shows what portion of the total assets of a company is in
the form of current assets. The current asset to total assets is showing a declining trend in the
company





Table 5.10 Current liabilities to total assets ratio
A B C=A/B
Years
Current Liabilities
& Provisions Total assets
Current liabilities/
Total assets
2010-11 1,20,38,47,179 3,30,67,59,853 0.10
2011-12 1,27,47,89,052 3,62,00,18,871 0.14


52


2012-13 1,46,07,90,947 4,19,79,60,624 0.05

The current liabilities to total assets ratio for 2011 was 0.10, for 2012 it was 0.14. It decreased to
0.05 in 2013.This ratio being low than 20 percent is a good sign for the company.
Inventories to current assets ratio Table 5.11
A B C=A/B
Years Inventories
Current Assets, Loans
& Advances
Inventories/
Current assets
2010-11 30,68,39,014 2,40,81,29,457 0.127
2011-12 41,86,75,861 2,55,70,36,920 0.163
2012-13 44,96,29,466 2,88,84,79,965 0.155

This ratio shows the percentage of inventories in current assets, the higher the inventories in
stock it is a risk as well as an additional cost to the company. In MSIL the ratios has been
favorable for all the three years even though it increased to .163 and 0.155 in years 2012 and
2013 from 0.127 in the year 2011.
Sundry debtors to current assets ratio
Table 5.12
A B C=A/B
Years Sundry debtors
Current Assets,
Loans & Advances
Sundry debtors/
Current assets
2010-11 7,31,15,263 2,40,81,29,457 0.030


53


2011-12 6,73,44,665 2,55,70,36,920 0.026
2012-13 6,29,50,757 2,88,84,79,965 0.021
This ratios shows the role of debtors in the current assets of the company. Debtors even though
they provide regular business is always a risk, a risk of bad debt. Hence it is always better to
have a small ratio of debtors .Msil has done exactly that their debt ratios are 3,2 and 2 %
respectively for years 2011,2012 and 2013



Current asset turnover ratio




Table 5.13 Current asset turnover ratio

A B C=A/B
Years Operating Income
Current Assets,
Loans & Advances
Current assets turnover
(Operating Income/CA)
2010-11 1,29,092,494 2,40,81,29,457 0.053
2011-12 3,21,781,781 2,55,70,36,920 0.125
2012-13 3,68,091,595 2,88,84,79,965 0.127
This ratio shows the relation between the current assets and the sales. This shows the efficiency
of management to generate sales out of current assets.
The current assets ratio is not consistent during the years, it keeps on increasing year by year
indicating that the division is able to generate more sales out of its current assets.


54


Working capital turnover ratio





Table 5.14 Working capital turnover ratio

A B C=A/B
Years
Revenue from
operations Net Working Capital
Working capital
turnover ratio
2010-11 2,86,53,63,126 1,15,22,92,815 2.486
2011-12 6,00,41,74,222 1,28,22,46,941 4.682
2012-13 8,29,90,45,077 1,42,76,89,018 5.812
This ratio indicates the velocity of the utilization of the net working capital. This ratio indicates
the number of times the working capital is turned over in the course of the year. This ratio
measures the efficiency with which the working capital is being used by the firm.
The working capital turnover ratio is seen to increase in the years, the highest in the year 2011-
2012 and 2013. The division didnt have any shortage of working capital in the period of study.
Higher ratio is the indication of lower investment of working capital and more profits. The
increasing trend shows the effective utilization of working capital.
Cash conversion cycle
Table 5.15 Cash conversion cycle
2010-11 2011-12 2012-13
Inventory turnover days 9.05 7.80 9.36
Debtors turnover days 70.31 78.50 61.67


55


Creditors turnover days 185.23 147.99 260.03
Following is an analysis of the cash conversion cycle of Mysore Sales International Limited
Inventory turnover days

Table 5.16 Inventory turnover days
A B C=A/B D D/C
Years
Operating
Revenue Inventories
Inventory
turnover
ratio
No. of days
in the
period
Inventory
turnover
days
2010-11 2,86,53,63,126 30,68,39,014 9.338 365 39.087
2011-12 6,00,41,74,222 41,86,75,861 14.340 365 25.453
2012-13 8,29,90,45,077 44,96,29,466 18.457 365 19.775


Inventory turnover days
The inventory turnover days shows how many times a company's inventory is sold and replaced
over a period. The inventory turnover ratio is calculated by dividing the sales by the inventory.
We can obtain the inventory turnover days by dividing the number of days in that period by the
inventory turnover ratio and for 2011 its39.087 and 25 in 2012 and 19 in 2013. This means that
the inventory gets converted into cash in these many number of days. The company is showing a


56


positive trend as the inventory days are getting shorter in the years but still should work on
inventory turnover days.

Debtors turnover days








Table 5.17

A B C=A/B D D/C
Years
Operating
Income
Sundry
debtors
Debtors
turnover
Ratio
No. of days
in the
period
Debtors
turnover
days
2010-11 2,86,53,63,126 7,31,15,263 39.18 365 9.315
2011-12 6,00,41,74,222 6,73,44,665 89.15 365 4.094
2012-13 8,29,90,45,077 6,29,50,757 131.833 365 2.76


Debtors turnover days
Debtors turnover days are the number of days in which the debtors or the receivables of the
company are turned into cash. The debtors turnover ratio is calculated by dividing the net credit
sales by the debtors/receivables. We can obtain the debtors turnover days by dividing the number
of days in that period by the debtors turnover ratio. These days are lesser the better since it
would mean that receivables are getting converted into cash in less days also reducing the
chances of bad debts. For this company, the debtors turnover days are 9for the year 2011 which


57


reduced to 4 and 2 in the next two years. The trend has been more or less decreasing over the
period of time which is a good thing. Since it is a beverage industry also its always better to
have shorter debt turnover days.
Creditors turnover days

Table 5.18 Creditors turnover days

A B C=A/B D D/C
Year Purchases
Sundry
creditors
Creditors
turnover
Ratio
No. of days
in the period
Creditors
turnover
days
2010-11 2,28,17,23,656 64,14,42,762 3.557 365 102.614
2011-12 5,14,88,49,593 62,74,39,528 8.206 365 44.47
2012-13 7,11,69,67,846 77,07,69,651 9.233 365 39.532


Creditors turnover days
Creditors turnover days are the number of days in which the company pays off its
suppliers/creditors. The creditors turnover ratio is calculated by dividing the purchases by the
trade creditors/payables. We can obtain the creditors turnover days by dividing the number of
days in that period by the creditors turnover ratio .In this case, the creditors turnover days are 102
which was not good at the beginning. Its not good to keep liabilities in our side waiting. The


58


number of days for 2012 reduced to 44 which is a good sign and 40 in the next year. This is idle
for the company the turnover days are not long nor that short.
Statement of changes in working capital
Net working capital is the excess of current assets over current liabilities therefore an increase in
net working capital is a use of funds and decrease in net working capital is a source. Changes in
net working capital lead to inflow and outflow of cash. When the current assets increase there is
an outflow of cash and when current assets decrease there is an inflow of cash. Similarly when
current liabilities increase there is an inflow of cash as the added liabilities such as short term
loans and borrowings add money and when current liabilities decrease there is an outflow of
cash. Therefore the changes in working capital are also included in the Cash flow statement
under Cash from operations.
This statement is prepared by comparing the values of the current assets and current liabilities of
a firm of two periods/financial years and it is determined whether these current assets and
liabilities and the working capital in total are increasing or decreasing. When changes in working
capital are positive, it means that the firm is selling off/reducing the current assets or it may be
increasing its current liabilities. When changes in working capital are negative, it means that the
firm is investing in current assets or is reducing its current liabilities.




Statement of changes in working capital for 2011-2012
Table 5.19 Statement of changes in working capital for 2011-2012

Effect on working capital
Particulars As at As at Increase Decrease


59


31 March 2011 31 March 2012
Current assets
Inventories 30,68,39,014 41,86,75,861 11,18,36,847
Sundry debtors 7,31,15,263 6,6663,554 64,51,709
Cash and bank balances 1,46,52,62,560 1,41,89,06,539 4,63,56,021
Loans and advances 51,38,52,693 59,55,38,919 8,16,86,226
Other current assets 4,90,59,927 5,72,52,047 81,92,120

Current liabilities and
provisions

Short term borrowings 31,39,900 23,54,925 7,84,975
Trade Payables 64,14,42,762 62,74,39,528 1,40,03,234
Other Current liability 16,61,35,203 25,06,37,947 8,45,02,744
Short term Provisions 39,31,29,314 39,43,56,652 12,27,338
Total Current liabilities
(B)
1,20,38,47,179 1,27,47,89,052
Net Working Capital (A-
B)
1,20,42,82,278 1,28,22,47,868 21,65,03,402 13,85,37,812
Increase in NWC 7,79,65,590
1,28,22,47,868 1,28,22,47,868



60


There is an increase in current assets and liabilities. There is a net increase of working capital by
Rs 7, 79, 65,590compared to previous year. This is because the division has opened 142 new
outlets in the year 2012.

Statement of changes in working capital for 2012-2013
Table 5.20 Statement of changes in working capital for 2012-2013
Effect on working capital
Particulars As at
31 March 2012
As at
31 March 2013 Increase Decrease
Current assets
Inventories 41,86,75,861 44,96,29,466 3,09,53,605 -
Sundry debtors 6,6663,554 6,29,50,757

37,12,797-
Cash and bank balances 1,41,89,06,539 1,60,30,30,929 18,41,24,390 -
Loans and advances 59,55,38,919 64,75,94,628 5,20,55,709 -
Other current assets 5,72,52,047 12,52,74,185 6,80,22,138 -
Total Current assets (A) 2,55,70,36,920 2,88,84,79,965



Current liabilities and
provisions

Short term borrowings 23,54,925 - 23,54,925 -
Trade Payables 62,74,39,528 77,07,69,651

1,43,33,0123
Other Current liability 25,06,37,947 26,30,74,066

1,24,36,119


61


Short term Provisions 39,43,56,652 42,69,47,230

3,25,90,578
Total Current liabilities
(B)
1,27,47,89,052
1,46,07,90,947
NWC 1,28,22,47,868 1,42,76,89,018 33,75,10,767 19,20,69,617
Increase in NWC 14,54,41,150


1,42,76,89,018

In the above statement we can see that the net working capital has increased by a huge amount of
Rs 14,54,41,150 The main factor leading to this increase is the increase in the cash and bank
balances under the current assets. There has been an increase of Rs 18,41,24,390 in the cash and
bank balances.
All other items in the current assets have also increased moderately. And so have the items under
current liabilities. But the overall increase in the current assets is much more than the overall
increase in the current liabilities which has led to a net increase in the working capital of the firm
in 2013.




62



Table 5.21 Percentage change in current assets

From the above data the most striking two points are the inventories which increased from the
year 2011 .Sundry debtors was found declining which is a very good sign for the company .Cash
balance showed a decline in the year 2012 which is certainly good for the company but the
company regained it in the next year i.e. 2013.Loans and advances is fount increasing which is a
good sign for the company. Another striking event was that other assets increased to 119 %in the
year 2013 i.e. because of the interest accrued on deposits increased in the year. Its again a good
sign for the company.

Current assets 2011 2012 2013 %incr
ease or
decrea
se
(2011-
12)
%increas
e or
decrease
(2012-13)
%change
Inventories 30,68,39,014 41,86,75,861 44,96,29,466 36.44 7.39-
Sundry debtors 7,31,15,263 6,6663,554 6,29,50,757 8.824 5.56-
Cash and bank
balances
1,46,52,62,560 1,41,89,06,539
1,60,30,30,929
3.16
12.97-

Loans and advances 51,38,52,693 59,55,38,919 64,75,94,628 15.89 8.74-
Other current assets 4,90,59,927 5,72,52,047 12,52,74,185 16.69 118.81-
Total Current
assets (A)

2,41,81,29,457
2,55,70,36,920
2,88,84,79,965
-


63


CHAPTER 6
FINDINGS,SUGGESSTIONS AND CONCLUSION
6.1 FINDINGS
The working capital has been seen increasing in the company throughout the years. The
year 2012-2013 showed a tremendous increase in working capital the reason for this is
that the other assets account has increased in the last year.
Current liabilities is showing a declining trend because the company paid out their short
term loans, 87,28,03,030 was converted into 64,75,94,628
The company is able to create more sales out of its current assets. It is evident from the
increasing trend of current assets turnover ratios.
Net working capital ratios is showing an increasing trend that is 2.48,4.68 and 5.81 for
the last three years .This shows the efficiency in which the company is managing working
capital and this also shows that there is no visible shortages of working capital in the past
three years.
The statement showing the changes in working capital states that there is an increase of
77,96,550 between the financial years 2010-2011 and 2011- 2012
The next year the statement shows an increase which is almost the double from the last
year which is Rs 1,45,44,190 .The main reason for this is that in that year there was an
increase in cash and bank balances.












64


6.2 SUGGESTIONS
Since my findings and the company reports states that the company is showing an increasing
trend regarding working capital, it might lead to some problems because there is an excess in
working capital when compared to the requirements
Since this is a concern I have the following suggestions
Since there is excess of Working capital the company should be concerned about
inventory acquiring and should purchase only as per requirements as storing costs money
like warehouse rent or electricity bills etc.
With an adequate or excess working capital in hand the company as a whole will remain
pleased and satisfied and they will lose the focus on their productivity and efficiency in
operations. The company should avoid this scenario.
I feel the company should start focusing on urban markets as well as a little more on
profitability to withstand the completion in the market by the private sector businesses
Company seems to have a conservative approach to working capital management they
can try out much more riskier practices in order to achieve more profits.

6.3 CONCLUSIONS
Over the three year period, on an average, current assets of the Beverages Division
comprise of 61.1% inventory, 14% loans and advances, 16% bank balance 8.1% cash in
hand and .80% sundry debtors. This shows that the major part of current assets is getting
held up as inventory.

The division has enough current assets to manage its current liabilities. While comparing
the total current assets and the total current liabilities curves, it is observed that the
current assets are much in excess of the current liabilities, and there is highly positive net
working capital with the division which remains as idle funds.

Current Ratio is an index of the firms financial stability. The standard ratio is 2:1. The
division has maintained a current ratio more than the standard indicating that it has
maintained liquidity throughout the period. The ratio was as high as 10.71 during the
financial year 2010-2011.This means that the profitability was low. Through effective


65


management techniques the division was able to bring the ratio down to a stable position
in the following years.

The quick ratio of the division is above the standard ratio of 1:1 all through the years and
is at a satisfactory level. It means that the company has liquid asset sufficient to provide a
cover to current liability. But in the year 2010-2011, the ratio was 4.27:1 which shows
high liquidity of the division held up as current assets other than inventory.

The ideal absolute liquid ratio is 0.5:1. The company has followed the ideal; liquid ratio
for all the three years.

The current assets ratio is not consistent during the years, it keeps on fluctuating in a
zigzag pattern year by year. An increase indicates that the division is able to generate
more sales out of its current assets but in a declining year its the opposite.

The working capital turnover ratio is seen to increase in the years, the highest in the year
2012-2013. The division didnt have any shortage of working capital in the period of
study. Higher ratio is the indication of lower investment of working capital and more
profits. The increasing trend shows the effective utilization of working capital.


The cash turnover ratio during the period is seen to be very satisfactory and increasing for
the division. This means that the division is turning over their cash balance more times
per year and takes only fewer days to replenish it, i.e. they are using it their cash
effectively and not letting it sit idle.







66


BIBLOGRAPHY

Books:-
I.M. Pandey, Financial management, Vikas Publishing Pvt, Ltd.

Websites:- www.msil.com ,www.google.com
msilonline.com


Other materials
1. Annual report of the company.
2. Balance Sheet.








ANNEXURES
Summarized Balance Sheet of Mysore Sales International Limited for three years.



(Rs. in lakhs)
Particulars 2010-2011

OWN FUNDS:-
2011-2012 2012-2013


67



Share capital 366.23 366.23 366.23
Share Application money 2780.96 3907.25 3907.25
Reserve & Surplus 13019.49 14138.57 16364.57
TOTAL 16166.68
LOAN FUNDS:-
18412.05 20637.85
Short term loans 753.05 77.42 53.88

TOTAL 16919.73 18489.47 20691.73




APPLICATION OF FUNDS:-
Fixed Assets 3999.03 4071.36 4097.95
Investments 1336.06 1336.06 1336.06
Deferred Tax asset (Net) 61.71 784.46 825.04
Working Capital 11,522.93 12,333.59 14,432.68
TOTAL 16919.73 18489.47 20691.73
Summarized Profit & account of Mysore Sales
Loss International Limited
For the year ended 31.3.11 For the year ended 31.3.12 For the year 31.3.13 Revenue from operation
2,73,68,01,866 5,82,37,39,199 8,09,54,01,558



68


Other incomes 12,85,61,260 18,04,35,023 20,36,43.519
Total Revenue 2.86,53,63,126 6,00,41,74,222 8,29,90,45,077

Expenses:-
Cost of material
consumed 13,00,36,532 15,43,99,163 14,94,87,279

Purchase of Stock-in
Trade 2,28,17,23,656 5,14,88,49,593 7,11,69,67,846

Changes in inventory
(Finished goods & WIP) (4,71,70,430) (13,88,54,364) (5,72,38,456)

Employee benefits
Expenses. 12, 63, 76,774 14, 66, 83,027 21, 47, 45,507

Financial cost 50, 84,569 56, 26,986 98, 73,417

Depreciation &
amortization expenses 1,31,74,699 2,29,06,640 2,45,45,525

Other expenses 22,70,44,832 34,27,81,396 47,25,72,364
Total expenses 2,73,62,70,632 5,68,23,92,441 7,93,09,53,482

Profit before exceptional and extraordinary items and tax
12,90,92,494 32,17,81,781 36,80,91,595







69 | P a g e










70 | P a g e

Exceptional items Profit
before extraordinary items.

Prior Period items
Profit before tax

Tax expenses:- (a)
Current tax
(b) Provision for earlier
years
Deferred tax

Profit (Loss) for the period
from continuing operations.

Profit (loss) discontinuing
operations

Tax expenses of
discontinuing operations

Profit (loss) from
discontinuing operations

Profit (loss) for the period.




4,21,00,000

8,69,92,494

-
8,69,92,494


-
1,06,54,158
2,95,60,219



4,67,78,177


(38,83,010)


-


(38,83,010)



-
32,17,81,781

(1,47,46,649)
33,65,28,430


10,51,16,385

17,94,71,698
(6,86,74,905)



12,06,15,251


(57,45,260)


29,62,034)


(87,07,294)


11,19,07,958

-
36,80,91,595

23,11,566
36,57,80,029


13,06,80,886

-
(76,58,225)



24,27,57,368


(1,52,86,119)


6,35,255


(1,59,21,374)


22,68,35,994








71 | P a g e




4,28,83,010























72 | P a g e

Earnings per equity share:-







(1) Basic
(2) Diluted

117
117



306
306

619
619
























73 | P a g e