Professional Documents
Culture Documents
banks
Submitted in partial fulfillment of the requirements for the
award of
MASTER OF BUSINESS ADMINISTRATION IN
HUMAN RESOURCE MANAGEMENT(HRM)
Submitted by
Sunil B
to
Affiliated to
ACKNOWLEDGEMENT
First and foremost, I thank the Almighty God,my parents,teachers and friends.
I express my sincere thanks to the PRAGO TOOLS LTD for granting
permission to conduct my project work in his esteemed concern and for helping
and providing various information and data.
STUDENTS DECLARATION
I, Mr.Sunil B hereby declare that the Project Work titled WORKING
CAPITAL MANAGEMENT is the original work of mine and submitted to the
South Asian University in partial fulfillment of requirements for the award of
Master of Business Administration in FINANCIAL MANAGEMENT.
Date
CHAPTERS
CONTENTS
PAGE NO:
ACKNOWLEDGEMENT
LIST OF TABLES
II
LIST OF GRAPHS
III
CHAPTER-I
CHAPTER-II
INDUSTRY PROFILE
8-14
CHAPTER-III
COMPANY PROFILE
15-23
CHAPTER-IV
24-40
CHAPTER-V
CHAPTER-VI
FINDINGS
73-78
SUGGESTIONS
BIBILIOGRAPHY
CHAPTER 1
INTRODUCTION
79
INTRODUCTION
1. WORKING CAPITAL MANAGEMENT
The success of business, among other things depends upon the manner
in which its capital is managed in the dynamic business setting, the
composition of working capital mismanaged, in the dynamic business setting,
the difference between the current assets and current liabilities. Constantly
changes in relation to the level of activity of the business concern and rates at
which the current assets of current liabilities keep changing in relation to each
other and other things are significant factors also continuous review and
direction of the financial manager.
It is the task of the financial maintain an appropriate level of working
capital that is enough current assets to pay off current liabilities neither excess
nor less because excessive working capital leads to interruption in the smooth
functioning of the business concern.
There are numerous instances in the history of business world where
inadequacy of working capital has led to business failures when a firm finds it
difficult to meetings day to day.
Operating expenses essential out lays may have to be postponed for
want of funds, operating plans will go out of gear & enterprise objectives on
investment slumps the suppliers & creditors of the firm may have to wait
longer to raise their dues & will hesitate to extend further credit to the firm.
1.3 METHODOLOGY
Primary Data
DEF: The first handed information/Fresh data collected through various
methods is known as primary data.
In respect of primary data which the researchers is directly collects data
that have not been previously collected.
The primary data was gathered through personal interaction with various
functional heads and other technical personnel. Some information was also
collected by observation.
Secondary Data :
DEF: The data which have been already collected & comprised for another
purpose.
Secondary data was collected various reports / annual reports, documents
charts, management information systems, etc in PRAGA. And also collected
various magazines, books, newspapers and internet.
The analysis of the information gathered has been made on the basis of
the clarifications sought during the personal discussions with the concerned
people and perception during the personal visits to the important areas of
services.
CHAPTER II
MACHINE TOOLS INDUSTRY
AN OVERVIEW
countrys apex Body for the machine tools industry. Indian machine tool
Manufactures association (IMMA)
them in reaching out to their prospects buyers and sellers through better trade
contacts and more business opportunities.
Machine tool industry has undergone a radical shift in its paradigm
thinking, the Indian machine tool industry is now recognized as a provider of
low-cost high quality learn manufacturing solutions.
Efforts within the industry, are now on to better the features of CNC
machines, and provide further value additions at lower costs, to meet specific
requirements of users. Based on the perception of the current trends, and
emerging demands, CNC segment could be the driver of growth for the
machine tool industry in India.
2.3 Current trends :
A slowdown in the Indian economy since mid-1999 had its fallout on
prospects of Indian machine tool manufactures. The Indian machine tool
industry is besieged by lack of adequate business opportunities that has
stemmed from sluggish demand in the home market of all user industries.
Output by domestic metal working machine tool manufacturers in 2001
calendar year declined by 14 pr cent to Rs.5, 137 million marking the fourth
yeast of decline, since 1997, for the Indian machine tool industry. Much of this
fall was due to subdued investment by all the major users segments of machine
tools, except the Defense
expenditure outlay.
While decrease in domestic production was dormant in case of
conventional metalworking machine tools computer numerically conventional
metalworking machine tools, computer numerically controlled (CNC) machine
tool manufacturers too suffered, although marginally. Lathes, machining
centers, special purpose machines, and grinding machines were among the
machine tools that sustained much of the order inflow during 2001.even though
these segments registered decline, in comparison with the previous
corresponding year.
2.4 Export Performance:
In view of an imminent slowdown in the Indian economy, most Indian
machine tool manufactures focused on potential overseas markets for business
opportunities. Sustenance on Indian market alone did not look feasible enough.
Further, there has off late been a perceptible change in the image of the
made in India brand in overseas markets particularly true for Indian-built
machine tools. Enhanced features, competitive pricing, and marketing focus
has increased demand for Indian made machine tools in overseas markets,
particularly in Europe, United states, and East-Asian regions.
And this is what
Machine tool industry in India is scatted all over the country. The hub of
manufacturing activities, however, is concentrated in places like Mumbai and
Pune in Maharashtra; Batala, Jullunder and Ludhiana in Panjab; Ahmedabad,
Baoada, Jamnagar, Rajkot and Surendranagar in Gujarat, Combatore and
Chennai (Madras) in Tamilandu: some parts in East India; and Bangalore in
Karnataka.
Bangalore is considered as the hub for the Indian machine tool industry.
The city, for instance, house HMT machines Tools limited, a company that
manufactures nearly 32 percent of the total machine tool industrys output.
2.6 User Industries Services
The industrys prospects mainly depend on growth of engineering
industries. The user sectors of machine tools are the automotive, automobile
and ancillaries, Railways, Defense, Agriculture, steel, Fertilizers, Electrical,
Electronics, Telecommunication, textile machinery, ball & roller bearings,
industrial values, power-driven pumps, multi-product engineering companies,
earth moving machinery, compressors and consumer durable like washing
machines, refrigerators, television sets, watches, dish-washers, vacuum
cleaners, air conditioners, etc.
CHAPTER III
PROFILE OF PRAGA TOOLS
LIMITED
ORGANISATION PROFILE
3.1 INTRODUCTION
Praga is once of the leading machine tool manufacturing units in India
established in the year 1943, Pragas production are well known in the field of
machine tools the company in organized in four divisions via the machine tools
forge foundry and CNC division which pulsated with the activities of 697
employees turning out a wide range of production the four divisions equipped
with the modern facilities for design development of manufacture of machine
tools, are manned by qualified personnel with proven record of technical
knowledge and exquisite craft smashup acquitted over a period of year.
Praga is proud of its diverse of machine tools the cutler& tools venders
milling machines copy lathes thread rolling machines & Praga CNC machines
which keep pace with the ever changing technology in addition the company
also manufactures a wide of industrial forgings for railway automotive &
ordnance applications.
Pragas wriest investment has been in its excellent collaboration with
world famous names like Jones & shipman of UK for surface grinding and
cutter of tool vendors gamin of France for milling machines scoffers of grace
for thread rolling machines George finisher of Switzerland for coping lather
Mitsubishi Heavy industries of Japan for machining centers of Kayo spiky of
Japan for CNC lather the collaboration have culminated in Praga producing
PROFILE OF PRAGA
The Praga Tools is one of the oldest, machine Tools industries in India
and has entire its golden jubilee year in 1993-94. The company has
incorporated has the joint stock company is 1943 has a private company with
objective of manufacturing, instruments with the Technical assistance of a few
Czechoslovakia Engineers. The company was incorporated in Many 1943 as a
public limited company in private sector. The name PRAGA symbolizes the
technical co-operation extended in the initial phase by some Czechoslovakian
engineers who suggested the naming of the company as PRAGA after their
capital city PRAGUE (PRAGA).
In March 1995, the Government of India acquired the controlling
interest in the company by acquiring majority shares and placed the
administrative control under the ministry of commerce and industry from May
1995 to December 1963. The managing agents M/S united industrial
corporation limited initially managed the company. Administrative control of
the company has been transferred from the defense minister to the department
of public enterprise under ministry of industry on the 25th of April 1986.
Presently the company enjoys the status of being a subsidiary of HMT LTD.
Bangalore when a paid up capital of the company was transferred in its name
from the government.
The company has four manufacturing nits located with in the twin cities
of Hyderabad at Kavadiguda at Secunderabad it manufactures a wide range of
machine Tools, accessories and defiance items. A unit of forge and foundry
divisions is located at Kukatpally Hyderabad where manufactures castings and
forgings are.
FORCE DIVISION:
Railway Duplication
Auto dialer pants
Tractors links
Other carting
BOUNDARY DIVISION:
Carting for companies machine tools:
The sophisticated machines like CNC machining center sideway,
grinding machines, universal grinding machines, jigs boring machine with
coordinated system been added at a cost of Rs. 1,107.05 lacks.
PRAGAS VALUES:
Underlying our minion in a set of core corporate valued which deliver praga
priorities. This set of values creates an overall framework for determining our
derived future and developing plans to achieve it.
We take advantage of existing synergies and foreseeing higher level of
competitiveness. Safety in the priority value for all aspects of our business.
SWOT Analysis:
STRENGTHS:
Proven products and brand image.
High brand loyalty of customer.
High market shares in few of the products categories.
Skilled work force.
ISO 9001 accredited company.
WEAKNESSES:
Limited product gage.
Low volume production.
Out dead technology.
Inadequacy of working capital.
Aberrance of MIS.
Board needs to be board bared and must include.
Financial expensive.
Obsolete machinery.
High man power cost.
Poor marketing plants.
OPPORTUNITIES:
Prospects of improved in auto and automotive sector.
Export potential for exports of machines.
Foreign and components(with up gradation)
Opportunity to from joint venture update technology. And use technical
manicuring experience for globalization through venture partnership.
Threats:
Dwindling market for some of the products server.
Competition from imports of latest technology machines.
A threat from second hand machine imparts.
Shrinking resources of traditional customers, defense and railways.
The above analysis indicates ample scope and prospects for the company
subject to corrective steps being taken early.
CHAPTER IV
CONCEPTUAL & METHODOLOGLCAL
FRAME WORK
managed efficiently in order to maintain the liquidity of the short term sources
of financing must be continuously managed to ensure that they are obtained
and used in a best possible way.
Therefore interaction between current assets and current liabilities in the
main theme of working capital Management.
The current assets should be large enough to cover is current liabilities
in order to ensure a reasonable margin of safety. The interaction between
current assets and current liabilities in therefore the main theme of the threat of
working capital management.
The two concepts of working capital are:
4.3 Methodological Framework
The data used in this study have been taken from primary and secondary
sources. The necessary primary data have been collected from corporate office
of the organization; secondary data have been collected from the financial
statements published in the report of the PRAGA TOOLS LTD.
Data was analyzed through various established techniques of working
capital and personal observation. Editing the data, clarification and tabulation
of the financial data collection from the above mentioned source have been
done as per the requirements of the study. Data has been analyzed using various
comparative statements and working capital ratios.
The data is analyzed in the chapter-4 Analysis of Working Capital
PRAGA TOOLS LTD under the following head.
1. Trends in Net Working Capital
2. Working Capital Ratios
a) Current Ratios
b) Quick or Acid test Ratio
c) Current Asset Turnover Ratio
d) Current Assets to Total Asserts Turnover Ratio
3. Cash Management
a) Percentage of Cash to Current Asserts
4. Receivables Management
a) Debtors Turnover Ratio
b) Debtors Collection Period
5. Inventory Management
a) Inventory to Total Current Asserts
b) Inventory Turnover Ratio
c) Inventory Holding Period in Days
4.4 NEED FOR WORKING CAPITAL:
Working capital is the amount of funds necessary to cover the cost of
operating the enterprise. Working capital in a going concern is revolving
funds; it consists of cash receipts from sales which are used to cover the
cost of current operations.
The need of working capital arises because of time gaps in
manufacturing and marketing cycle of business operations. This time gap is
due to time gaps between Cash and purchase of Raw-Materials.
a) Purchase and production
b) Production and sales
c) Sales and Realization of cash.
During these intervals, the company should have ready working or
operating funds to keep their business going. Thus every business concern
should have sufficient liquidity funds as its disposal to buy Raw-Materials,
stores etc to pay wages to personnel and to meet incidental expenses with the
installed plant equipment, tools and other fixed assets, the concerned would be
able to produce finished goods by spending cash or Raw Materials,
intermediate goods Labor remuneration etc. The goods so produced will swell
into inventories or stock soon, the stock will take the form of debtors or Bill
Receivable on maturity.
There is therefore, a need for working capital, because the production
Sales and cash payment and realization of cash are not instantaneous, the
company needs cash to purchase Raw material and to meet expenses as there
may not be helps to meet future agencies.
The stocks or Raw materials are kept in order to assure smooth
production and protect against the risk of Non availability of raw material.
Similarly, stocks of finished goods have to be carried to meet the demands of
the customers on continuous basis and sudden demand. Thus, an adequate
amount of funds has to be invested in current assets for smooth and
uninterrupted. Production and sales process, which is refers to as operating
cycle or cash cycle. The operating cycle determines the need for working
capital.
The operating cycle represents the period during which investment of
one unit of remain blocked till recovery out of revenue, in other words, the
operating cycle refers to the time necessary to complete.
a) Conversion of cash into Raw Material.
b) Conversion of Raw Material into finished goods.
c) Conversion of finished goods into cash sales or credit sales.
d) Conversion to credit sales or receivable into cash.
Thus, it is said Management must know the length of time required to convert
cash into resource used by the firm, the resource into the resource used the firm
the resource into final product. The final product into receivable bank into cash.
This is the operating cycle of an enterprise.
Thus, it is said Management must know the length of time required to
convert cash into resource used by the firm, the resource into the firm the
resource into final product. The final product into receivable bank into cash.
This is the operating cycle of an enterprise.
The pattern of operating cycle depends upon the nature of the enterprise.
The financial institution may have a shorter cycle while trading concern has
and extended one. The usual operating cycle of manufacturing concern is
shown. In real business situation, the operating or cash flow cycle in not as
simple and smooth going as the depicted above. A going concern by nature
undergoes the process of liquidity the besides, a circular flow among working
capital itself, all process of liquidity valued added to the product of the firm.
Therefore, we can say that, working capital in needed not only for
financing current assets but also to meet various other requirements like
payment of dividends, interest etc. Therefore, it is recovery for a product
financial manager to provide correct amount of working capital at the time to
provide for operating reach.
5.5 SCOPE OF WORKING CAPITAL MANAGEMENT
Since a firm has to maintain a sound working position and there should
be optimum investment in working capital, effective management involves
manages of current assets and current liability. Current asserts management
involves management of current assets like Cash.
Marketable Securities, Account Receivable, inventories etc. effective in
order to maintain liquidity of the firm. The process of current asserts
management can be as follow management of cash and Marketable Securities.
a) Management of cash and Marketable Securities.
b) Management of Cash.
A. CURRENT ASSETS:
Current assets comprised items that would get converted in to cash in
short term, within a year, through the business operations current asserts
include.
Inventories including stock of raw material, work in progress, finished
goods & factory supplies. Packing, shipment material, office supplies etc
Loan & advances, other balances; include sundry debtors, bills receivables and
others including loans and advances, prepaid expenses etc.
Marketable securities including government securities and semi government
securities, cash and bank balances.
B. CURRENT LIABILITIES:
Current liabilities are those which are expected to fall due of mature for
payment in short period of one year and they represent short term source of
funds. They include:
C. SHORT TERM BORROWINGS:
Include bank borrowings other than those against own debentures and
other mortgages, trade creditors and other labializes sundry creditors,
outstanding expenses and advances received etc.
Provision for taxation, dividends and other current provisions.
PRORIETORS
FUNDS
CREDITORS
Temporary or
Fluctuating
Permanent
TIME
Both kinds of working capital are necessary to facilitate the sale process
through the operation cycle. Temporary working capital is created is created to
meet liquidity requirements that are purely transient nature.
4. Fixed assets are not efficiently utilized for the lack of working capital
funds thus the firms profitability would deteriorate.
5. Paucity of working capital funds renders the firm unable to avail
attractive credit opportunities etc.
6. The firm losses its reputation when it is not in position to honor its short
term obligation as result the firm faces tight credit terms.
Thus, enlightened management should therefore maintains a right
amount of working capital on a continuous basis which helps to develop the
organization effectively and efficiently.
4.10 ROLE OF FINANCIAL MANAGER IN WORKING CAPITAL
MANAGEMENT:
1. Working capital management requires must of the finance manger time
as it represent a large position of investment is assets.
2. Working capital management requires much of the finance management
time as it represent larger position of investment in assets.
3. Action should be taken to curtail unnecessary investment in current
assets.
4. All precautions should be taken for the effective and efficient
management of working capital.
5. Larger firms have to manage their current assets and current liabilities
very carefully and should see that the work should be done properly in
order to achieve predetermined organization goals.
6. The financial manger should pay special attention to the managements
of current assets on continuing basis.
working capital include those which effect only current accounts or only non
current accounts.
MANAGEMENT OF CASH
CASH MANAGEMENT:Cash is the important assets for the operations of the business cash is the
basis input to keep the business running on continuous basis. Cash shortage
will disrupt the firms manufacturing operations while excessive cash will
simply remain ideas without contribution anything towards the firms
profitable way.
Cash management is concerned with the managing of cash flow into and
out of the firm cash flow with in the firm and cash balances held by the firm
at appoint of time by financing depict investing surplus cash. Cash
management is to obtain adequate control over cash position to keep the
firm sufficiently liquidate and to use excess cash in some profitable way.
CASH PLANNING:Cash planning is technique to plan and control of the use of funds. It
protect the financial condition of them firm by developing a projected cash
statement from a forecast of plans are very crucial and developing the
overall operating plans of the firm.
USES OF CASH MANAGEMENT:1. It indicates companys future financial need especially for its working
capital requirement.
CHAPTER V
DATA ANALYSIS &
INTERPRETATION
Due to privacy reasons PRAGA TOOLS LTD gave the old statements and
reports.
Table-1
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2001 & 31-03-2002
Rs. in Lakhs
S.No.
Particulars
31-03-2001
31-03-2002
Increase
Decrease
(a)
Current
Assets
Inventories
1,44,120.00
1,19,395.00
24,725.00
71,970.00
61,278.00
10,692.00
1,213.00
1,252.00
31,317.00
22,180.00
Total (a)
2,48,620.00
2,04,105.00
Current Liabilities
3,41,037.00
3,70,306.00
29,269.00
82,424.00
83,160.00
736.00
4,23,461.00
1,74,8,741.00
4,53,466.00
Sundry debtors
Cash & Bank
balance
Loan & Advance
39.00
9,137.00
(b)
Current
Liabilities
Provisions
Total (b)
Working
Capital
Net increase
in W.C
Total of
N.W.C
(a-b)
-7,74,841.00
-2,49,361.00
74,520.00
74,520.00
-1,74,841.00
74,559.00
74,559.00
ANALYSIS:
Above table explaining that working capital shows the continuous increase in
the net working capital through in the year 31-03-2000 to the year of comparing the
balance sheet is the year 31-03-2001 to 31-03-2002. So, this is due to the sale of
inventory and reducing the debtors and increasing the current liabilities and
provisions.
Rs. in Lakhs
S.No.
Particulars
31-03-2002
31-03-2003
Increase
Decrease
(a)
Current Assets
Inventories
1,19,395.00
72,230.00
47,165.00
Sundry debtors
Cash & Bank
balance
Loan & Advance
611,278.00
28,478.00
32,800.00
1,252.00
7,041.00
22,180.00
13,205.00
Total (a)
2,04,105.00
1,20,954.00
Current Liabilities
3,70,306.00
3,10,123.00
60,183.00
83,120.00
71,062.00
12,099.00
Total (b)
4,53,466.000
3,81,185.00
(a-b)
-2,49,361.00
-2,60,231.00
5,789.00
8,975.00
(b)
Current
Liabilities
Provisions
Working
Capital
Net decreased
in W.C
Total of
N.W.C
10,870.00
-2,49,361.00
-2,49,361.00
88,940.00
88,940.00
ANALYSIS:
Above table discloses that working capital shows the continuous increase in
the net working capital through in the year 31-03-2002 to the year of comparing the
balance sheet is the year 31st March. So, this is due to the sale of inventory and
reducing the debtors and decreasing the current liabilities and provisions.
Table-2
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2003 & 31-03-2004.
Rs. in Lakhs
S.No.
Particulars
31-03-2003
31-03-2004
Increase
Decrease
(a)
Current Assets
Inventories
72,230.00
50,765.00
Sundry debtors
Other current
Assets
Cash & Bank
balance
Loan & Advance
28,478.00
34,042.00
5,564.00
4,932.00
4,932.00
7,041.00
1,56,398.00
1,49,357.00
13,205.00
11,368.00
Total (a)
1,02,954.00
2,57,505.00
Current Liabilities
3,10,123.00
3,77,829.00
67,706.00
71,062.00
71,793.00
671.00
3,81,185.00
4,49,562.00
-2,60,231.00
-1,92,057.00
---
21,465.00
1,837.00
(b)
Current
Liabilities
Provisions
Total (b)
Working
Capital
Net decreased
in W.C
Total of
N.W.C
(a-b)
68,174.00
68,174.00
1,59,853.00
1,59,853.0
0
ANALYSIS:
The above table discloses in this working capital as that was the Net decrease
in working capital in this year 31-03-2003 to 31-03-2004 is Rs.68,174.00 due to major
reasons of adjusting current assets as increase and the current liabilities decrease but
the provision decreased.
Table-3
STATEMENT SHOWING CHANGES IN WORKING CAPITAL BETWEEN
31-03-2004 & 31-03-2005.
Rs. in Lakhs
S.No.
Particulars
31-03-2004
31-03-2005
Increase
Decrease
(a)
Current Assets
Inventories
Other current
Assets
Sundry debtors
Cash & Bank
balance
Loan & Advance
50,765.00
43,429.00
7,336.00
4,932.00
5,313.00
381.00
34,042.00
36,681.00
2,639.00
1,56,398.00
51,469.00
1,04,929.00
11,368.00
10,466.00
902.00
Total (a)
2,57,505.00
1,47,358.00
Current Liabilities
3,77,829.00
3,90,548.00
71,733.00
57,232.00
4,49,562.00
4,47,780.00
-1,92,057.00
-3,00,422.00
(b)
Current
Liabilities
Provisions
Total (b)
Working
Capital
Net decreased
in W.C
Total of
N.W.C
(a-b)
-1,92,057.00
12,719.00
14,501.00
1,08,365.00
1,08,365.00
-1,92,057.00
1,25,886.00
1,25,886.00
ANALYSIS:
In this above table of working capital discloses that as the net increase in
working capital in this 31-03-2004 to 31-03-2005 is Rs.1,08,365.00 due to major
reasons of adjusting current assets as increase and the current liabilities decreases but
the provision decreased.
Particulars
31-03-2005
31-03-2006
Increase
Decreased
Inventories
43,429.00
40,255.00
--------
3,174.00
5,313.00
5,837.00
524.00
--------
36,681.00
37,282
601.00
-------
51,469.00
1,34,653.00
83,184.00
-------
Total (a)
1,47,358.00
2,34,274.00
Current
liabilities
3,90,548.00
2,71,304.00
1,19,244.00
-------
Total
57,232.00
4,47,780.00
69,406.00
3,40,710.00
(a-b)
-3,00,422.00
-1,06,436.00
Sundry
Debtors
Cash & bank
balances
Loans &
advances
(b) Current
Liabilities
Provisions
Working capital
Net decrease in W.C
1,93,986.00
Total of N.W.C
1,06,436.00
12,174.00
1,93,986.00
1,06,436.00
2,09,334.00
2,09,334.00
ANALYSIS :Lastly in this year the statement of working capital shows the continued
decreased in the net working capital through in the year 31st March 2005 to the year of
comparing the balance sheet is the year 31 st March 2006. So, this is due to funds flow
statement.
SOURCES
Increased in secured
Loans
Increased in Un-secured
Loans
AMOUNT
APPLICATIONS
Purchased of Fixed
Assets
Net increased in working
14,062.00
capital
2,39,919.00
AMOUNT
2,53,981.00
Total
108.00
85,948.00
1,67,925.00
2,53,981.00
ANALYSIS:
During this year 2000-2001 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds increased figures of the secured and unsecured loans. The company has
adjusting their losses through these areas and in this year the purchasing power
of the company is also decreased.
SOURCES
Increased in secured
Loans
Increased in Un-secured
Loans
Work in Progress
Total
AMOUNT
APPLICATIONS
AMOUNT
Purchased of Fixed
Assets
Net increased in working
8,237.00
capital
2,64,416.00
Total
33.00
85,948.00
1,87,418.00
2,73,399.00
ANALYSIS:
In this last year of comparing there is the funds flow statement is still
including the losses from the operation. The company has procured huge
amount from borrowing loans in the from of secured and unsecured loans. The
company has Wright off their losses in operations which is the major thread of
the company thats need to be ratified by the management of the PRAGA
TOOLS Limited.
SOURCES
Increased in secured
Loans
Increased in Un-secured
Loans
Total
AMOUNT
APPLICATIONS
Purchased of Fixed
Assets
Net increased in
13,764.00
working capital
4,07,033.00
4,20,779.00
AMOUNT
652.00
10,870.00
4,09,284.00
Total
4,20,779.00
ANALYSIS:
During this year 2002-2003 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds increased figures of the secured and un-secured loans. The company has
adjusting their losses through these areas and in this year the purchasing power
of the company is also decreased.
SOURCES
Increased in un-secured
Loans
Sales of fixed assets
AMOUNT
13,747.00
Decreased in
secured loans
AMOUNT
1,05,789.00
9,211.00
68,174.00
14,657.00
Total
APPLICATIONS
1,05,789.00
10,870.00
Total
1,05,789.00
ANALYSIS:
During this year 2003-2004 the funds flow statement the losses of the
PRAGA TOOLS LIMITED is still continuing. The company has mobilized his
funds from increased figures of the secured and un-secured loans.
The
company has adjusting their losses through these areas and in this year the
purchasing power of the company is also decreased.
SOURCES
AMOUNT
Net increased in
working capital
Funds lost in
2,12,657.00
operations
1,700.00
Increased un-secured
loans
13,746.00
15,266.00
Total
APPLICATIONS
2,43,369.00
Total
AMOUNT
1,08,365.00
1,35,004.00
2,43,369.00
ANALYSIS:
During this year of comparing there is the funds flow statement is still
including in losses from the operations. The company has procured huge
amount from borrowing loans in the form of secured and unsecured loans. The
company has Wright off their losses in operations in operations which is the
major thread of the company thats need tobe ratified by the management of the
PRAGA TOOLS Limited.
AMOUNT
1,93,986.00
Funds lost in
operations
16,74,024.00
Total
18,70,053.00
APPLICATIONS
Decreased Security
loans
Decreased unsecurity
loans
Total
AMOUNT
18,45,247.00
24,806.00
18,70,053.00
ANALYSIS:In this year 2005-2006 the funds flow statement the losses of the PRAGA
TOOLS LIMITED is still continuing. The company has mobilized his funds increased
figures of the secured and unsecured loans. The company has adjusting their losses
through these areas and in this year the purchasing power of the company is also
decreased.
SOURCES
AMOUNT
AMOUNT
Decreased Security
APPLICATIONS
loans
18,45,247.00
Decreased unsecurity
1,93,986.00
loans
24,806.00
Funds lost in
operations
16,74,024.00
Total
18,70,053.00
Total
18,70,053.00
ANALYSIS:In this year 2005-2006 the funds flow statement the losses of the PRAGA
TOOLS LIMITED is still continuing. The company has mobilized his funds increased
figures of the secured and unsecured loans. The company has adjusting their losses
through these areas and in this year the purchasing power of the company is also
decreased.
CHART 1
TRENDS IN NET WORKING CAPITAL
INTERPRETATION:Net working capital had shown an increasing trend since, 2002, which in taken
as a base year from 100% to 98.40% in 2006. Which appears to be a normal trend. A
careful analysis into the components of the working capital would reveal the changes
in NWC the current assets decreased in the next years that is 2003-04 and at the next
consecutive assets increased in the next consecutive year to a good extent, but there is
a decreasing trend in the year 2005-06 as the current liabilities are covered their in a
increase in the next two year, 2003-04 & 2004-05 but there is gradual decrease in the
year 2005-06 which is good sign to the company.
This is calculated on the basis of the prevision year i.e. the net working capital
shown a decreasing trend compare to the year 2002-03 then the net working capital
increaser gradually from 2003-04 & 2005-06.
TYPES OF RATIOS
Several ratios calculated from the accounting data, can be
grouped into various classes according to financial activity or function to be
evaluated the parties interested in financial analysis are short and long term
creditors owners and managements short term creditors main interested is in
the liquidity position or short term solvency of the form long term creditors
on the other hand. Are more interested in the long-term solvency and
profitability of the form. Similarly owners are more interested on the form
profitability and conditions. Management is interested in evaluating every
aspect of the forms performance. They have protect interested of all the
parties.
The ratios are classified into three types.
(a).
Liquidity Ratios
(b).
Leverage Ratios
(c).
Profitability Ratios
LIQUIDITY RATIOS:Liquidity Ratios measure the ability of the firm to meet its current
obligations. The analysis of liquidity needs the preparation of cash budget
and cash fund flow statement but liquidity ratios by establishing relationship
between cash and other current asset of current obligation, provide a quick
measures of
LIQUIDITY OR SHORT TERM SOLVENCY RATIOS:Liquidity ratio measures the short-term solvency of the firm. The
following are the important liquidity ratios.
4.2 WORKING CAPITAL RATIOS:Current Assets
Current Ratio = ---------------------Current Liabilities
The current Ratio is calculated by dividing current assets by current liability.
The current ratio is a measure of the firms short term solvency a current ratio of 2 or
more in considered satisfactory.
TABLE 2
CURRENT RATIO
(In Lakhs)
Year
Current Assets
Current Liabilities
Current Ratios
2002-03
17846.14
4652.24
4.10
2003-04
15800.00
5117.81
3.09
2004-05
20272.00
11485.00
1.76
2005-06
1377.11
5130.73
2.69
CHART 2
CURRENT RATIO
INTERPRETATION:Generally 2:1 in considered ideal for a concern from the ratios we can observe
that the ratios are above the standard in the year 2002-03 & 2003-04 but in the year
2004-05 the firm in not able to maintain a standard level of liquidity so the current
assets ratio has been directed below standard level that is by 1.76 but in the year
2005-06 the company is able to regain its standard level and can obtain its current
assets ratio by 2.69 compared to its current liabilities.
Quick Assets
Quick or Acid Test Ratio = -----------------------Current Liabilities
The quick Ratio is more penetrating test of Liquidity than Current Ratio, this Ratio
measures the firms liability to meet short term liabilities from its liquid assets that is
current assets inventories.
TABLE 3
QUICK RATIO
Year
Quick Assets
Current Liabilities
Quick Ratios
2002-03
10141.00
4352.00
2.33
2003-04
8697.00
5118.00
1.64
2004-05
15335.00
11486.00
1.34
2005-06
9722.00
5130.00
1.89
CHART-3
QUICK RATIO
INTERPRETATION:
Quick ratio is ascertained by comparing the liquid assets this ratio shows the
immediately available assets which can be easily converted in to cash to meet the
short term solvency of the company the normal value which shows the non
availability of assets for immediate conversion into liquid cash in the later year the
figures were a little.
ABSOLUTE LIQUIDITY RATIO:It is the ratio of absolute liquidity assets to quick liabilities. However, for
calculation purpose it is taken as ratio of absolute assets includes cash in hand at bank
and short term or temporary inventory investments.
-------------------------------Current Liabilities
Absolute Liquidity Assets = Cash in hand + Cash at bank + Short term investments
The ideal Absolute Liquidity Ratio is taken as 1:2 or 0.5
Absolute Liquid
Current
Current
Assets
Liabilities
Ratio
2001-2002
23,432,000.00
453,466,000.00
0.05:1
2002-2003
20,246,000.00
381,185,000.00
0.05:1
2003-2004
167,776,000.00
449,562,000.00
0.37:1
2004-2005
61,935,000.00
447,780,000.00
1.14:1
2005-2006
150,900,000.00
340,710,000.00
0.44:1
S.No
Year
ANALYSIS:The above tables shows the Absolute Liquidity Ratio during the study period
the ratio was 0.08:1 in 2002 and gradually decreases to 0.05 in 2003, which in 2003,
which to too below from the standard 0.05:1 so the company, should try to improve
and also maintain this ratio
LEVERAGE OR CAPITAL STRUCTURES RATIOS:Leverage ratios indicate, the relative interest of owner and creditors in a
business. The significant Leverage ratios are
1.DEBIT EQUITY RATIO:The ratio examines the relationship between funds and owners funds of a
firm. In other words it measures the relative claims of creditors and shareholders
against the assets of a business. Debit, usually refers to the long-term liabilities.
Equity and performance share capitals and reserves.
Long Term Liabilities
Debit Equity Ratio =
Share Holders
Debit equity
Liabilities
funds
ratio
S.No
Year
2001-2002
1,978,031,000.00
361,731,000.00
5.47
2002-2003
2,398,602,000.00
361,731,000.00
6.63
2003-2004
2,306,560,000.00
361,731,000.00
6.38
2004-2005
2,532,963,000.00
363,431,000.00
6.97
2005-2006
662,910,000.00
1,237,367,000.00
0.54
ANALYSIS:A high debt equity ratio means a high claim of outsider on the assets of
business and very highly debt financed from will be under great pressure to pay the
interest charges and it is unfavorable to the firm. A firm with a debt equity ratio of
two or less exposes its creditors to relatively less risk a firm a high debt equity ratio
exposes its creditors to grater risk so this firm should minimize this ratio.
Net Sales
WORKING CAPITAL TURNOVER RATIO
----------------------Working Capital
This ratio in computed by dividing net sales by working capital this ratio helps
to measure the efficiency of the utilization of net working capital is needed if any
increase in sales is contemplated working capital should be a adequate and thus this
ratio helps management to maintain the adequate level of working.
CHART-4
WORKING CAPITAL TURNOVER RATIO
Year
Net Sales
Working Capital
2002-03
15192.02
13493.9
1.1
2003-04
16283.04
10682.82
1.49
2004-05
23993.07
8786.15
2.56
2005-06
24610.98
8646.38
2.85
CHART -5
INTERPRETATION:
This ratio maker a comparison between net sales and net working capital in
order to find the working capital turnover ratio the working capital turnover ratio for
the year 2002-03 in 1.10 hence there is increase in working capital turnover ratio for
the next 3 year has increased in a gradual way in the last year the net sales has been
increased and the working capital in being similarly that of previous year hence the
working that of previous year hence the working that capital turnover ratio is at 2.82
in the year 2005-06.
TABLE-5
DEBTORS TURNOVER RATIO
(In Lakhs)
Year
Total Sales
Account Receivables
2002-03
15191.02
3803.54
3.99
2003-04
16283.04
4513.34
3.66
2004-05
24948.18
10325.48
2.42
2005-06
25884.26
5143.55
5.03
CHART-5
DEBTORS TURNOVER RATIO
INTERPRETATION:
From the date of interpretation it in observed that both the rates & account
revisable are going up, we see that in the year 2002-2003 the division was in a very
good portion regarding the collection but in the year 2004-2005 due to increase in the
amount of average payables the ratio has come down drastically.
In the year 2005-06 the decrease in the previous year has been reduced by the
increased in the ratio of current year 2005-06.
Year
No of Days
2002-03
364
3.99
91
2003-04
365
3.66
100
2004-05
365
2.42
151
2005-06
365
5.03
73
Period in Days
CHART-6
DEBTORS COLLECTION PERIOD
INTERPRETATION
During the year 2005-2006 average collection period is very low which indicates the
better quality of debtors as the quick payments by them with in a shot period
During the year 2004-2005 average collection period is very high as 151 days which
indicate ting the inefficient performance of the debtor as by laet payments.
----------------------Average Inventory
----------------------------------------2
TABLE-7
INVENTORY TURNOVER RATIO
(In Lakhs)
Year
Avg. Inventory
2002-03
10711.19
7704.71
1.39
2003-04
11850.37
7554.4
1.57
2004-05
18665.5
6170.48
3.02
2005-06
16358.92
4495.96
3.46
CHART-7
INVENTORY TURNOVER RATIO
INTERPRETATION:From the above figure given in the table we can interpret that the inventory
to the cost of goods sold for the year 2002-03 in 1-39 their ratio has been increasing
continuously in an exponential manner in all the year which in a good sign to the
company. This shows the effective utilization of the inventory by the company.
In the year 2002-03 the percentage of inventory in current assets 42.17% which is not
beneficial sign to the company. In the next year has increased by nearly 3% more than
the previous year at that time the company retained not to block the current assets
with inventory, in the year 2004-05 it has decreased drastically to 24%. In the
following year this has increased by 5% but this is not sufficient on the increase in the
recent past was much more than that.
Days in Year
Inventory Holding Period (in days)
TABLE-8
INVENTORY HOLDING PERIOD (IN DAYS)
(In Lakhs)
Year
No. of Days
Collection Period
2002-03
365
1.93
189 Days
2003-04
365
1.39
263 Days
2004-05
365
2.27
161 Days
2005-06
365
3.29
111 Days
CHART-8
INVENTORY HOLDING PERIOD
INTERPRETATION:
In general the inventory ratio of any company should be as low as foible.
The reason being the occurrence of the blockage of money due to holding of the
inventory. The figure shows in the year 2004-05 and 2005-06 also would have been
for the company if they were similar to the velour in the year 2002-03 & 2003-04.
7. AVERAGE COLLECTION PERIOD:The ratio is another device to measure the quality of debtors. It shows the
nature of the firm credit policy to the shorter period. The better the quality of debtors
since the short term collecting period implies prompt payment by debtors and
excessively long period implies a too long and liberal and inefficient credit and
collection performance where as too low period indicates a very strict credit and
collection period.
Months in a Year
Average Collection Period
---------------------Debtors Turnover
S.No.
Year
No. of Months in a
Debtors
Average Collection
year
period
9.52
1.
2001-
12.00
Turnover Ratio
1.26
2.
2002
2002-
12.00
0.81
14.81
3.
2003
2003-
12.00
2.31
4.76
4.
2004
2004-
12.00
2.52
4.76
5.
2005
2005-
12.00
3.17
3.79
2006
ANALYSIS:The table shows that the average collection period of the company the
average collection period was 9.52 month in 2002, which is decreased to 4.76 in the
month of 2005 it shows the company is unable to collect the money in proper time or
company is extending more credit period to the customer. The company should try to
reduce this credit period.
CHAPTER VI
FINDINGS
&
SUGGESTIONS
FINDINGS
1. The company is not having sufficient working capital
2. Inventories are decreased by year by year
3. Loans & advances are decreases by year by year
4. current liabilities are more than current assets.
5. The working capital is negative working capital
6. Current liabilities are decreased by ever year but in 2003-04 to 14.12%
and again in 2004-2005 decreased from 14-42% to 13.39%
7. long term liabilities are increased by every year but in 2003.04 year
long term liabilities are decreased from 76.356 to 73.989 and again
increased from 74.98% to 7-8-76%
8. The Quick Ratio > 1 which shows the sound short-term solvency.
9. The suggested current ratio is 2:1. But it is not fixed as it various from;
industry. Here in this case the current ration is more than 1 and it is enough to
meet the current liability.
10. When comparing Working capital is compared with net sales it is in increasing
trend indicating the effective utilization of the net working capital.
11. The debtors turnover ration is high and it shows the better trade credit
management.
12. Debtors collection period is very less which shows the better trade credit
management.
13. Debtors collection is very less it shows the better collection of funds from
debtors.
14. Inventory holding period is less; it shows the better management of inventory.
CONCLUSION
The company is performing exceptionally well due to the up wising in
the global market followed by the domestic market. It is an up coming one with
good and innovative ideas and believed in improving all the areas of its
operations. The company has a good liquidity position and does not delay its
commitment in case of both its creditors and debtors. The company being
mostly dependent on the working capital facilities, it is maintaining very good
relationship with their banks and their working capital management is well
balanced.
7. The cost of holding inventory is too high so the inventory holding period
is to be reduced and to build up inventory in anticipation of export
orders from Russia and Germany.
8. The company has to make new joint venture with other companies in
order to reduce the losses.
9. The current assets should be managed more effectively so as to avoid
unnecessary blocking of capital that could be used for other purposes.
10. The Working Capital requirement is to be assessed based on the norms
circulated by RBI for the machine tools industry.
11. The inventory turnover ratio has decreased considerably from the year
2001-02 to 2004-05. This was due to the huge average stock holding
even when there was a decrease in sales figure this clears that inventory
should be managed appropriately moreover it was improved in the year
2003-04.
12. The company has maintained proper records showing full particulars,
quantitative details and solutions of fixed assets are indicated for major
items in the register, the managements during the year has conducted a
random verification in respect of fixed assets, which in our opinion is
reasonable, having regard to the size of the company and the nature of
tits assets.
13. The management has physically verified the stock of finished goods and
work in progress at the end of the year.
14. In respect of service activities there is a reasonable system for recording
receipts issues and consumption of materials and stores and collection of
materials consumed to the relative jobs, commensurate with the size and
nature of its business.
BIBILOGRAPHY
BOOKS
Financial management
Financial management
Management accounting
Financial Management and polices
Financial Management
Web sites
www. Pragatools.org
www.machinetoolsindustry.com