INTRODUCTION

The management of current asset and current liabilities and the inter relationship that exit
between them may be termed as working capital management. Working capital is also known as
current asset or current capital or circulating capital. It is a delicate area in the field of financial
management. It involves frequent decision making. It involves the administration of short term
assets like cash marketable securities, account receivables and inventories. Working capital is
attempted to manage and control the current assets and current liabilities in order to maximize
the profitability and ensure proper liquidity in the business. It has considered as the life blood
and controlling nerve center of the business.

Firms need cash to pay for all their day-to-day activities. They have to pay wages, pay for
raw materials, pay bills and so on. The money available to them to do this is known as the firm’s
working capital. The main sources of working capital are the current assets as these are the short-
term assets that the firm can use to generate cash. However, the firm also has current liabilities
and so these have to be taken account of when working out how much working capital a firm has
at its disposal.

Thus working capital is the same as net current assets, and is an important part of the top
half of the firm's balance sheet. It is vital to a business to have sufficient working capital to meet
all its requirements. Many businesses have gone under, not because they were unprofitable, but
because they suffered from shortages of working capital

Working capital, also known as net working capital, is a financial metric which
represents operating liquidity available to a business. Along with fixed assets such as plant and
equipment, working capital is considered a part of operating capital. It is calculated as current
assets minus current liabilities. If current assets are less than current liabilities, an entity has a
working capital deficiency, also called a working capital deficit.

A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a firm is
able to continue its operations and that it has sufficient funds to satisfy both maturing short-term
debt and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable and cash.

A firm’s net working capital position is not only important as an index of liquidity but it
is used as a measure of the firm’s risk. Risk, in this regard, means chances of the firms being
unable to meet its obligation on due dates. Lender considers a positive net working capital as a
measure of safety. All other things being equal, the more the net working capital a firm has, the

1
less will default in meeting current financial obligations. Lenders such as commercial banks
insist that the firm should maintain a minimum net working capital position.

A company can be endowed with assets and profitability but short of liquidity if its assets
cannot readily be converted into cash. Positive working capital is required to ensure that a firm is
able to continue its operations and that it has sufficient funds to satisfy both maturing short-term
debt and upcoming operational expenses. The management of working capital involves
managing inventories, accounts receivable and payable and cash

Working capital management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter-relationships that exist between
them. The term current assets refers to those assets which in the ordinary course of business can
be, or will be, turned into cash within one year without undergoing a diminution in value and
without disrupting the operations of the firm. The major current assets are cash, marketable
securities, accounts receivable and inventory. Current liabilities are those liabilities which are
intended at their inception to be paid in the ordinary course of business, within a year, out of the
current assets or earning of the concern. The basic current liabilities are accounts payable, bills
payable, bank over-draft, and outstanding expenses.

The goal of working capital management is to manage the firm’s current assets current
liabilities in such a way that a satisfactory level of working capital is maintained. This is so
because the firm cannot maintain a satisfactory level of working capital; it is likely to become
insolvent and may even be forced into bankruptcy. The current assets should be large enough to
cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current
assets must be managed efficiently in order to maintain the liquidity of the firm while not
keeping too high a level of any of them. Each of the short-term sources of financing must be
continuously managed to ensure that they are obtained and used in the best possible way. The
interaction between current assets and current liabilities is, therefore, the main theme of the
theory of working capital management.

Working capital in business is just like blood in a human body. Optimum and appropriate
movement of blood through the body is extremely necessary to continue life. Like human blood,
the proper circulation of funds (working/ circulating capital) is utmost necessary to continue
business. If the circulation of working capital becomes weak, the business can hardly prosper and
survive. An enterprise should maintain optimum amount of working capital so as to carry on the
productive and distributive activities smoothly. While, the determination of optimum level of
working capital involves fundamental decisions to an organization liquidity, which in turn are
influence by a tradeoff between profitability and liquidity (risk) Thus, the main objective of
working capital management is to arrange the needed amount of working capital at right time,

2
from right source and for the right period so that the tradeoff between liquidity and profitability
can be achieved.

CONCEPTS OF WORKING CAPITAL

The concept of working capital is very important because the term is used for the capital
needed for day-to-day operation. Adam Smith (1776) explained, “The goods of the merchant
yield him no revenue or profit, till he sells them for money, and the money yields him as little till
it is again exchanged for goods. His capital is continuously going from him in one shape, and
returning to him in another, and it is only by means of such circulation, or successive exchanges,
that it can yield him any profit. Such capital therefore, may very properly be called circulating
capital.” what we called working capital Smith called circulating capital. This capital is needed
for regular business operation such as purchase of raw materials, payment of direct and indirect
expenses carry on production, investment in stock and store, credit granted to customers, keeping
balance, etc.

The two concepts of working capital are

• NET WORKING CAPITAL

• GROSS WORKING CAPITAL

NET WORKING CAPITAL

Net working capital is defined as the difference between current assets and current
liabilities of a business. The net concept is useful to judge financial soundness of a firm and is of
special interest to sundry creditors and suppliers of short term loans and advances.

GROSS WORKING CAPITAL

Gross working capital on the other hand refers to the amount of funds invested in current
assets that are employed in the firm. Thus, net working capital is the net current assets
(difference assets and current liabilities), whereas gross working capital is the sum total of all
current assets.

The two concepts of working capital, gross and net are exclusive; rather they have equal
significance from management point of view. The gross working capital concept focuses
attention on two aspects of current assets management.

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 • Optimum investment in current assets
• Financing of current assets.

The consideration of the level of investment in current assets should avoid two danger
points excessive and inadequate investment. Investment in current assets should be just adequate,
not more, not less to the needs of the business firm. Excessive investment in current assets
should be avoided because it impairs firm’s profitability, as idle investment earns nothing. On
the other hand, inadequate amount of working capital can threaten solvency of the firm, if it fails
to meet its current obligation.

Another aspect of gross working capital points to the need of arranging funds to finance
current assets, whenever a need of working capital funds arises due to the increasing level of
business activity for any reason, arrangement should be made quickly. Similarly if suddenly
some surplus fund arises, they should not remain idle, but should be invested in short term
securities. Thus the financial manages should have a knowledge of the sources of working
capital funds as well as investment avenues where idle funds may be temporarily invested.

Net working capital, being the difference between current assets and current liabilities, is a
qualitative. It,

• Indicates the liquidity position of the firm and

• Suggests the extent to which working capital needs may be financed by permanent
sources of fund.

Current assets should be sufficiently in excess of current liabilities to constitute a margin

or buffer for maturing obligations within the ordinary operating cycle of business. It is a
conventional rule to maintain the level of current assets twice the level of current liabilities. A
weak liquidity position poses a threat to solvency of the company and makes it unsafe and
unsound. A negative working capital means negative liquidity, and may prove to be harmful for
the company.

Excess liquidity is also bad. It may be due to mismanagement of current assets.

Therefore, prompt and timely action should be taken by management to improve and correct the
imbalance in the liquidity position of the firm.

It may be emphasized that both gross and net concepts working capital are equally
important for the sufficient management of working capital. There is no precise way to
determine the exact amount of gross or net working capital for every firm. The data and
problems of each company should be analyzed to determine the amount of working capital.

4
Keeping in view constrains of the individual company, a judicious mix of long-term finances
should be invested in current assets.

NEED FOR WORKING CAPITAL

Working capital in need for any firm to carry out its day to day operations for the purchase of
raw materials, payments of wage and similar other expenses in other words to meet all the
expenses that arises between the period of sales and actual receipt of cash a company requires
working capital.

In its endeavor, to maximize shareholders wealth, the firm should earn sufficient return
from its operations. Earnings a steady amount of profit require successful sales activity. The firm
has to invest enough funds in current assets for generating sales. Current assets are needed
because sales do not convert into cash instantaneously. There is always an operating cycle
involved in the conversation of sales into cash.

OPERATING CYCLE

There is a difference between current assets and fixed assets in terms of their liquidity. A
firm requires many years to recover the initial investment in fixed asset such as plant, machinery
and buildings. On the contrary, investment in current assets in turned over many times in a year.
Investments in current assets are realized during the firm’s operating cycle which is usually less
than a year.

Operating cycle is the time duration required to convert sales, after the conversation of
resources into inventories into cash. The operating cycle of manufacturing company involves
three phases:

• Acquisition of resources such as raw materials, labour, power and fuel etc.
• Manufacture of the product which includes conversation of raw materials into work-
in-progress into finished goods.
• Sales of the product either for cash or on credit. Credit sales create account receivable
for collection.

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1.2 INDUSTRY PROFILE

PROFILE OF THE FERTILIZER AND CHEMICAL INDUSTRY

India is the third largest producer and consumer of chemical fertilizers consumption. The
country produces several straight nitrogenous fertilizers such as urea, ammonium sulphate,
calcium, ammonium nitrate etc as well as complex fertilizer such as di-ammoniun phosphate and
several complex fertilizers. Urea and DAP are the main fertilizers product in India.

Fertilizers and chemical in India is undergoing major transformation and this industry is
gradually being decontrolled. Administered pricing is also being replaced by market determined
pricing. Besides recession and consequent decline in prices of certain inputs and finished
products in international market has made its domestic products costly and un-competitive.

Fertilizers products in India has been growing at an accelerating rate from very low level
after independence and still low level in the early 1970’s to a total product of 11.36 million tons
in 1995. Currently India produces various kinds of both nitrogenous and phosphates fertilizers
domestically. These include straight nitrogenous fertilizer (urea and ammonium) straight
phosphates fertilizer (single super phosphate) and complex fertilizers like di-ammonium
phosphate.

FEATURES OF INDIAN FERTILIZERS INDUSTRY

Fertilizers sector is very crucial to Indian economy, provides important inputs to

agricultural sector. It is regulated by government policies administering the fertilizers and the
production. Urea production is energy intensive process. Natural gas, naphtha’s fuel oil is used
as feed stock for production urea. Cost of energy varies from 65% to 85% of production costs.
Majority of industry is energy conscious and forces on energy management. Over the year, the
industry has provided its energy performance by bringing down the specific energy consumption
and improving capacity utilization.

GROWTH OF FERTILIZERS INDUSTRY IN INDIA

The Indian fertilizers industry has succeeded in meeting almost fully the demand of all
chemicals fertilizers. The industry had a very humble beginning in 1906. When the first
manufacturing unit of single super phosphate was set up in Ranipet near Chennai with an annual
capacity of 6000mt. the fertilizers and chemical Travancore India ltd at cochin in Kerala and

6
fertilizers corporation of India in Sandra in Bihar were the first large sized fertilizer plant set up
in the forties and fifteens with a view to establish an industrial base to achieve self sufficiency in
good grains subsequently green revolution in the late sixteen gave an implement to the growth of
fertilizers industry in India. The seventies and eighties then witnessed a significant addition to
the fertilizers production capacity. The installed capacity as on 30-01-2003 has reached a level of
121.10 lakh of nitrogen and 53.60 lakh mt of phosphate nutrient making India the third largest
fertilizer producer in the world.

OVERVIEW OF FERTLILZER AND CHEMICAL IN KERALA

Kerala has high degree of land use and cropping intensity. The state’s agricultural
productivity is decreasing year by year. The production and cultivation of rice is decreasing and
the farmers are attached to commercial crops like rubber and coconut. Due to the decrease in the
cultivation of rice the consumption of nitrate and potash has come down.

The per hectare consumption of fertilizers in different states in India the position of
Kerala is one of the low ranking states. FACT is having a market share of 53.4% in Kerala. Due
to the entry of competitors in the field of fertilizer FACT as lost its market share 62.2% to
53.47%.

In Kerala FACT has sold total volume of 233373 metric tons against the target of 313000
metric tons . 28007 metric tons of factmfos was sold during the year achieving 70% of the total
target to gain the market share FACT is planning to increase its marketing programs in several
areas of the Kerala state. The main competitors of FACT are SPIC and Madras fertilizers ltd.

7
1.3 COMPANY PROFILE

The Second World War, which cut of traditional sources of import of food grains,
aggravated our problem and famine conditions that prevailed in some part of the country, made
us sit up and think chemical fertilizers were this answer. But we didn’t know the technical how
the raw materials or the resources for setting up fertilizer plant. It was a daring and farsighted
administration of Travancore (Kerala) Dr.C.P .Ramaswamy Ayer had overcome the obstacle and
paved the way for setting up a chemical fertilizers factory.

FACT, India’s first large scale unit was setup in 1943.In 1947, FACT Udyogamandal
started production of Ammonium sulphate with an installed capacity of 10000MT Nitrogen.
FACT became Kerala state public sector enterprises on 15th August 1960 and 21st N November
1962; the Government of India became the major share holder.

The second stage of expansion of FACT was completed in 1962.The third stage of
expansion of FACT was completed in 1965 with setting up of a new Ammonium Sulphate plant.

FACT Engineering And Design Organization was setting up on 24.July 1965 to meet the
energy need for indigenous capabilities in vital area of Engineering, Design and Consultancy for
establishing large and modern fertilizer plants FEDO has since them diversified into chemical,
petro chemicals, hydro metallurgy, Pharmaceuticals and other areas.FEDO offers services from
project identification and evaluation stage to plant design, procurement, project management, site
supervision and commissioning of new plants as well as revamping and modernization of old
plants.

FACT engineering works was established on 13th April 1966 a unit to fabricate and install
equipments for fertilizer plants. Over the years FEW developed capabilities in the fabrication of
pressure vessels and heat exchanges. FEW have also undertaken lying of cross country piping
and fabrication and installation of large penstock of hydro projects.

The Cochin division of FACT, the second production unit was set up at Ambalamedu and
the first phase was commissioned on 1963, the second phase of FACT Cochin Division was
commissioned in 1976.

As a diversification plants from the traditional field of Fertilizer and Chemical, 50000
TPA Caprolactum plant at Udyogamandal was commissioned in 1990.

FACT set up 900 TPD Ammonia Plant at Udyogamandal at a cost of 638 crore following
an order of the high court of Kerala in February 1944 on a public Interest Litigation, to
decommission the existing imported ammonia storage and handling facility at Willington Island

8
(Cochin port), The ammonia plant was commissioned in 1998.The company’s main business is
manufacture and marketing of

A) Fertilizers

B) Caprolactum and Engineering Consultancy and Fabrication of Equipment.

CORPORATE OBJECTIVES OF FACT

 To produce and market fertilizers and caprolactum economically and in an

environmentally sound manner.
 To maintain optimum level of efficiency and productivity and to secure optimum return
on investment.
 To continuously monitor the plant and operational safety and to conform to statutory
pollution control standards.
 To continuously upgrade the quality of human resources of the company and to promote
organizational development.
 To ensure corporate organizational growth by expansion and diversification.
 To care for the community around.

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 OBJECTIVES AND METHODOLOGY

The objective research and methodology of this study followed by research design. Here
data collection methods and analysis are discussed in details.

In the liberalized economy all, the company is in heavy competition that results in lesser
selling price and lower profits. To know whether the company is operating effectively and
efficiently or not, working capital level of the company has to be analyzed. Working capital of a
company can be analyzed by different techniques.

It may be inter firm analysis and intra firm analysis. This study is mainly on intra firm
analysis. The study of working capital management of FERTILIZERS AND CHEMICALS
TRAVANCORE LIMITED has done for the period from 2003-2004 to 2007-2008.

The present study makes an attempt to analyze the working capital management level of
FACT by using various financial and account tools and to find out whether the performance will
be viable in the sense which being able to meet the burden of servicing debt and to see whether
the performance will satisfy the return expectations of those provide capitals.

The fact of the project analysis, ratio analysis and financial statement analysis.

1.4 OBJECTIVES OF THE STUDY

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 The present study was undertaken with the following objectives.

1. To assess the trend of working capital in FACT..

2. To study about the cash management practices.
3. To know the schedule of changes in working capital.
4. To analyze the percentage changes in the balance sheet.

1.5 SCOPE OF THE STUDY

• It enables the management to realize the asset locked-up in current assets and current
liabilities.
• It also enables the management for further decision in working capital.
• The study could help to understand the estimation of working capital management.

1.6 LIMITATIONS

• The study is based on past records of the organization.

• The study is restricted to financial year 2003-2009.
• Ratio has its own limitations.

1.7 REVIEW OF LITERATURE

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1. Working Capital Management in Lubin Laboratories Limited - case study

Found that there is a need of immediate improvement in debtors and debt collection policy.
The management should try for proper utilization of debtors and also try to maintain the
debtors as per their requirements so liquidity will not be interrupted.

2. The research article highlights concepts of working capital, working capital policy,
components of working capital and factors effecting working capital of Lubin Laboratories
Limited during the last seven years and identifies which factor are responsible for the
improvements of working capital of the company.

Dr. P.K.Singh

3. “ The skill for working capital management are somewhat unique, through the goals are same
as in managing current assets individuals, via to make an efficient use of funds for
minimizing the credit for loss to all aim profit objectives”

Dr.S.k.Kuchlal

4. “Working capital generally stands for excess of current assets over current liabilities.
Working capital management therefore refers to all aspects of the administration of the both
current assets and current liabilities”.

By. Western & Brigham

1.8 RESEARCH METHODOLOGY

Method of Data Collection

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 The study on the financial management was conducted with the aid of secondary data
available at FACT ltd during the course of the study. These were analyzed to interpret various
aspects.

Secondary data

Secondary data was collected with the help of last 5 years balance sheet, Profit and Loss
Account, Annual General Meeting Reports for respective years and also informal talks with
officers. The availability of the computer systems also help in collecting certain data for this
purpose.

Tools used for Data Analysis.

 Fund flow analysis

 Schedule of changes in working capital
 Ratio Analysis
 Common size statement.

Fund flow statement

Fund flow analysis reveals the change in working capital position. It tells about the
sources from which the working capital was obtained the sources from which the working capital
was obtained and the purpose for which it was used. Its bring out in open the changes which
have takes place behind the balance sheet. Working capital being the lifeblood of the business
such as analysis is extremely useful.

Common Size Statement

Comparative statement that gives only the vertical ratio for financial data without giving
rupee values are known as common size statement. They are also known as 100% statement. For
example, if the balance sheet items are expressed as the ratio of each asset to total assets and the
ratio of each liability to total liability, it will be called a common size balance sheet. Thus, a
common size statement shows the relation of each component to the whole. It is useful in vertical
finance analysis and comparison of two business enterprises at a certain date.

Ratio analysis

This is the most important tools available for financial analysts for their work. An
accounting ratio shows the relationship in mathematical terms between two interrelated

13
accounting figures. A financial analyst may calculate different accounting ratio for different
purposes. In this study the ratio analysis is used to calculate the profitability, liquidity, solvency
and working capital position of the firm.

Ratio analysis is a process of establishing and interpreting various ratios for helping in
making certain decision. It is used as a device to analyzed and interprets the financial wealth of
the enterprise. It involves

a) Selection of relevant data from the financial statement depending upon the
objective of study.
b) Calculation of appropriate ratios from the data.
c) Comparison of the calculated ratios.
d) Interpretation of the ratios

TYPES OF RATIO

Ratios may be classified in a number of ways depending upon one or the other similarity.
Some important classifications are given.

1. Statement wise classification.

This classification is based on the statement from which items are taken.

a) Balance sheet ratio

b) Income statement ratio
c) Combined ratio

2. Classification according to nature.

This mode of classification includes in its fold four different types of accounting
ratios which are as follows.

a) Liquidly ratios
b) Leverage ratios
c) Activity ratios
d) Profitability ratios

3. Classification according to importance.

It is evident that some ratio is more important than others. This classification has
been recommended by the British institution of management.

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 a) Primary ratios
b) Secondary ratios

LIQUIDITY RATIO

• Current Ratio

Current ratio in a business concern indicates the availability of current assets to meet its
current liabilities. Higher the ratio better is the coverage. Traditionally it is also called 2:1 ratio,
i.e. 2 is the standard for current assets for each unit of current liabilities. But this is only a
conservative outlook about the coverage of current liabilities.

Current Ratio = Current assets

Current liability

• Quick Ratio

This ratio is similar to current ratio except that it excludes inventory from the numerator
of the ratio. All current assets have different degrees of risk and liquidity, among them, inventory
is generally the least liquid asset as it needs more time for conversion than other components of
current assets or it would have no value at all at the time of real crisis. The quick ratio, therefore,
emphasis the relationship of liquid assets (i.e. current assets less inventory) to current liabilities.
The term liquid assets refers to current assets, which can be converted into cash immediately or
at a short notice. It is compared as follows.

Quick Ratio = quick asset

Current liabilities

• INVENTORY TURN OVER RATIO

This ratio indicates whether investment in inventory is efficiently used or not. It, therefore,
explains whether investment in inventories is proper limits or not. It also measures the
effectiveness of the firm’s sales efforts. The ratio is calculated as follow:

Inventory turnover ratio = cost of goods sold

Average inventory

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• GROSS WORKING CAPITAL TO FIXED ASSET RATIO

The Gross Working Capital to Fixed Assets Ratio measures the level of liquidity of the firm. The
firm is said to follow a conservative policy when ratio is high, as liquidity is high while risk and
profitability are low.

Gross Working Capital to Fixed Asset Ratio = Current Assets

Fixed Asset

• GROSS WORKING CAPITAL TO SALES RATIO

This ratio indicates the amount of working capital employed per rupee of sales. A higher ratio
indicates higher liquidity but lower profitability and risk.

Gross Working Capital to Sales Ratio = Current Asset

Sales

• WORKING CAPITAL TURNOVER RATIO

This ratio indicated whether the working capital has been efficiently utilized or not. The higher
the turnover ratio, the more efficient the management and utilization of the asset and lower the
turnover ratio is indicative of under utilization of available resources and presence of idle
capacity.

Working Capital turnover ratio = Cost of goods sold

Net Working Capital

• NET WORKING CAPITAL TO NET WORTH RATIO

The purpose of Net Working capital to Net worth ratio is to show the proportion of
Proprietor’s funds invested in Net Working Capital. If the Net Working Capital to Net worth
ratio is high. It indicates that the company is in a better solvency position.

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Net Working capital to Net worth Ratio = Net Working Capital

Proprietors Fund

2.1 ANALYSIS AND INTERPERTATION

INTRODUCTION

Data analysis and interpretation Shapes out the table and their respective interferences in
detail. The tables are followed with their respective interpretation for analyzing the data schedule

17
of changes in working capital, fund flow analysis; ratio analysis and common size statement are
used.

FUND FLOW ANALYSIS

A fund flow statement is a valuable aid to financial manager or a creditor in evaluating

the uses of funds by a firm and in determining how these uses are financed. Such a statement
provides an efficient method for the financial manager to asset the growth of firm and its
resulting financial needs and to determine the best way of financing those needs. In the nut shell,
funds statement is very useful in planning intermediate and long-term financing. It is an
important tool of working capital analysis also. It is a statement which highlights the underlying
financial movement and reflects the change in the financial position or working capital position
in two different dates. Funds flow statement is a new contribution to the science of accounting.
This technique is basically used in the analysis and interpretation of financial statement. The
fund flow statement describes the source from which additional fund where derived and the uses
to which this funds where put. Fund flow statement is one of the tool for managing favorable the
working capital. This statement reveals the comparative position of working capital on the two
balance sheet dates.

For the year2003-2004

Table :2.1.1

Sources Amount Uses Amount

Fund generated from Loss of the year 16722
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operation:
Profit after tax 0 Capital expenditure 344
Depreciation 6458 Rey payment of long term loan 720
Long term loan 7726 Repayment of short term loan 515
Short term loan 0 Miscellaneous expenditure not written off 2512
Others 0 Reduction in liability towards interest 0
Increase/decrease in working capital -6629
Total 14184 14184

This table shows the sources and uses of funds for the period 2003-2004 of FACT. Their
sources of fund for the period is long term loan and it occupies the major portion of its sources
fund raised during the period are rs.7726 lakes. Its depreciation occupies the second position in
the source was Rs.6458. the losses of the year is Rs.16722. the miscellaneous expenditures not
written off (net) is Rss.2512. Repayment of long term loans and short term loans are Rs.720 and
Rs.515 even though this are happened, the company will meet Rs.-6629 in working capital.

For the year of 2004-2005

Table:2.1.2

Sources Amount Uses Amount

Fund generated from Loss of the year 16796

operation:

Profit after tax 0 Capital expenditure -92

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Depreciation 6127 Rey payment of long term loan 0

Long term loan 4494 Repayment of short term loan 40

Short term loan 0 Miscellaneous expenditure not written off -496

Increase/decrease in working capital -5627

Total 10621 10621

This is the fund flow of the year 2004-2005. In this year depreciation is about Rs.6127
lakhs and the long term loans is Rs.4494. but the main fact is the loss of the year is high and it is
about Rs.16796.it is high comparing to previous year. In use of fund a negative trend is showing.

For the year of 2005-2006

Table:2.1.3

Sources Amount Uses Amount

Fund generated from Loss of the year 0

operation:

Profit after tax 23566 Capital expenditure 224

Depreciation and 6271 Rey payment of long term loan 0

impairment loss

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Conversion of the 29230 Reduction in liability towards the gvmt of 29230
government of India India loan on account of conversion into
loan into capital capital

Long term loan 4000 Repayment of short term loan 0

Short term loan 5121 Miscellaneous expenditure not written off -2429

Increase/decrease in working capital 3584

Reduction in liability towards the gvmt of 32710

India loan on account of write off

Reduction in liability towards interest due 4869

on the gvmt.0f India loan written off

Total 68188 68188

This year is entirely different from previous year. In this year government provide loan
into capital Rs.29230 lakhs. Long term loan of Rsw.4000 sand short term loan of Rs.5121. in
uses side loss 0f the year was competed by loans provided by government of India to the capital.
Also the reduction in liability towards the government of India loan on account of write off
Rs.32710.reduction in liability towards interest due on the government of India loan written off
is about Rs.4869.

For the year of 2006-2007

Table:2.1.4

sources amount Uses amount

fund generated from loss of the year 12473

operation:

profit after tax 0 capital expenditure 982

depreciation and 6401 reduction in liability towards the gvmt of 0

impairment loss India loan on account of conversion into
capital

conversion of the 0 reduction in liability towards the gvmt of 0

government of India India loan on account of write off

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loan into capital

long term loan 3000 reduction in liability towards interest due 0

on the gvmt.0f India loan written off

short term loan 18889 miscellaneous expenditure not written off -151

grand-in- aid 0 increase/decrease in working capital -14986

received from gvmt
of India

total 28290 28290

In year of 2006-2007 depreciation and impairment loss is about Rs.6401. in this year
government did not provide any loan. The main source of fund is from the short term loan
Rs.18889 and also long term loans are another source of Rs.3000. in the uses side there is a loss
of Rs.12473. and also a negative working capital of aboutRs.-14986 is shown.

For the year of 2007-2008

Table:2.1.5

sources amount Uses amount

fund generated from loss of the year 19103

operation:

profit after tax 0 capital expenditure 295

depreciation and 2993 reduction in liability towards the gvmt of 0

impairment loss India loan on account of conversion into
capital

conversion of the 0 reduction in liability towards the gvmt of 0

government of India India loan on account of write off
loan into capital

long term loan 1500 reduction in liability towards interest due 0

on the gvmt.0f India loan written off

short term loan -6965 miscellaneous expenditure not written off -5

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grand-in- aid 20000 increase/decrease in working capital -1865
received from gvmt
of India

total 17528 17528

In the year of 2007-2008 the main source of fund is from the grant-in-aid received from
the government of India Rs.20000. deprecation and impairment loss Rs.2993 and the conversion
of the government of India loan into capital Rs.1500. in uses side loss for the year before
adjustment of grand-in-aid is Rs.19103 and capital expenditure is Rs.295.

ANALYSIS OF COMMON SIZE STATEMENT

This table indicates the total absolute figure of balance sheet of FACT was Rs. 18170.24
lakhs in 2004, Rs. 17458.65 in 2005, Rs. 19122.74 in 2006, Rs.20551.26 lakhs in 2007,
Rs.20428.45 lakhs in 2008. Which was going on increase, the absolute figures of share capital
shows an constant trend that is Rs. 2131.91 for the years 2004 to 2008 respectively, but the
percentage shows the increasing trends upto 2005 and decreasing from the year 2006. The
secured loans starts on increasing in percentage 11.72%, 12.20%, for the years 2004 $ 2005.
Then the percentage decreases 11.14%, 10.37%, $ 10.43% for the years 2006 to 2008.

Then coming to the current liabilities were fluctuated there is no constant flow in funds. It
shows a increasing trend from 26.7% to 30.64%. Then it decreases from 27.18% to26.7%. There
will be a decrease in depreciation from 34.45% to 29.63% in 2003 to 2004. After that increased
from 30.05% to 37.38% in between the years 2005 to 2008. As regards the fixed assets the table
indicates that the absolute figures of fixed assets of FACT, has starts on Rs.13321.54 in 2004,
Rs.11569.91 in 2005, Rs.13742.87in 2006, Rs.16017.47 in 2007, Rs.16173.02 in 2008. However
the relative percentage shows 73.31%, 66.12%, 71.86%, 78%, and 79.16% respectively. It shows
that funds are not properly invested in fixed assets.

23
 In case of capital work in progress are fluctuated and it increased from .13% to 10.96% in
the year 2004 to 2005. After that a decreasing trend is shown from the year 2006 to 2008, 4.92%
to .05%.

The absolute figure of current assets was Rs.4267.84 lakhs in 2004, which decrease to
Rs.2588.75 lakhs in 2005, then increases to Rs.3576.06 lakhs in 2006, which rises to Rs. 3717.33
in 2007 and then decrease to Rs. 3457.23 lakhs in 2008. The relative percentage was 23.48%,
14.82%, 18.7%, 18% and 16.92% for the years2004, 2005, 2006, 2007 and 2008 respectively.

The absolute figure of net profit was also fluctuated. It is highest in the year of 2005 is
Rs. 1384.53 lakhs and it is lowest in the year of 2004 is Rs. 555.28 lakhs. From the year 2006 it
goes on decreasing to Rs.861.51 lakhs to Rs.785.33 lakhs.

COMMON SIZE STATEMENT

Table:2.2

Liabilities 2003- percentage 2004- Percentage 2005- percentage 2006- percentage 2007- percentage
2004 2005 2006 2007 2008
Share 2131.19 11.72% 2131.19 12.20% 2131.19 11.14% 2131.19 10.37% 2131.19 10.43%
capital
Secured 4889.38 26.92% 5092.81 29.17% 5387.47 28.17% 6225.7 30.29% 4836.46 23.67%
loans
Unsecured 0 0% 0 0 0 0 0 0 372.05 1.82%
loans
Current 4889.10 26.907% 5063.93 29% 5859.42 30.64% 5583.33 27.18% 5473.83 26.7%
liabilities
Depreciatio 6260.57 34.45% 5170.72 29.63% 5744.66 30.05% 6611.04 32.16% 7614.92 37.38%
n
Total 18170.2 100 17458.6 100 19122.7 100 20551.2 100 20428.4 100
4 5 4 6 5
Assets
Fixed assets 13321.5 73.31% 11569.9 66.12% 13742.8 71.86% 16017.4 78% 16173.0 79.16%
4 1 7 7 2
Capital wip 25.28 0.13% 1915.16 10.96% 942.00 4.92% 1.16 .005% 10.57 0.05%
Investment .30 .001% .30 .17% 0 0 2.30 .011% 2.30 0.01%
Current 4267.84 23.48% 2588.75 14.82% 3576.06 18.7% 3717.33 18% 3457.23 16.92%

24
assets
P & l a/c 555.28 3.079% 1384.53 7.93% 861.51 4.52% 813.00 3.984% 785.33 3.86%

Total 18170.2 100 17458.6 1oo 19122.4 100 20551.2 100 20428.4 100
4 5 4 6 5

2.3 RATIO ANALYSIS

IMPORTANCE OF RATIO ANALYSIS

• Ratio makes it easy to grasp the relationship between various items and helps in
understanding the financial statements.
• Ratio indicates trends in important items and thus will help in forecasting
• Ratio are very useful for measuring the performance and very useful in cost
control.
• Ratio may be used as measures of efficiency.
• Ratio helps in a simple assessment of liquidity, profitability, solvency and
efficiency of the firm.

TYPES OF RATIO USED

Various types of ratio used for analysis are:

LIQUIDITY RATIO
25
 • Current Ratio

Current ratio in a business concern indicates the availability of current assets to meet its
current liabilities. Higher the ratio better is the coverage. Traditionally it is also called 2:1 ratio,
i.e. 2 is the standard for current assets for each unit of current liabilities. But this is only a
conservative outlook about the coverage of current liabilities.

Current Ratio = Current assets

Current liabilities

Table: 2.3.1

YEARS CURRENT ASSET CURRENT CURRENT RATIO

LIBILITY
2003-2004 48009 35603 1.32
2004-2005 40802 34023 1.20
2005-2006 54150 39032 1.39
2006-2007 72030 41681 1.72
2007-2008 57746 29011 1.9

Interpretation

A high current ratio is an indicator that the firm is liquid. Relatively low current ratios
represent a low liquidity position. It is an index of the firm’s financial stability. The current ratio
of FACT on the of 2004-2005 is less compared to other years. Gradual increase in the current
ratio can be watch out. The company’s position is satisfactory.

Quick Ratio

This ratio is similar to current ratio except that it excludes inventory from the numerator
of the ratio. All current assets have different degrees of risk and liquidity, among them, inventory
is generally the least liquid asset as it needs more time for conversion than other components of
current assets or it would have no value at all at the time of real crisis. The quick ratio, therefore,
emphasis the relationship of liquid assets (i.e. current assets less inventory) to current liabilities.
The term liquid assets refers to current assets, which can be converted into cash immediately or
at a short notice. It is compared as follows.

Quick Ratio = Quick assets

Current liabilities

26
Table: 2.3.2

Year Liquid asset Liquid liability Liquid ratio

2003-2004 28322.51 35602.43 .80
2004-2005 17913.07 12406.09 1.44
2005-2006 28620.00 39031.55 .73
2006-2007 37414.47 41380.60 .90
2007-2008 25901.93 29011.08 .80

The liquid ratio of the firm is seems to be decreased. In the year of 2004-20005 is 1.44
and after that year is in the declined stage. And also no constant decrease. In the year 2005-2006
it is .07. Then a slight change is occurred and decrease.

WORKING CAPITAL TURNOVER RATIO

The working capital turnover ratio is determined to find out the efficiency with which
the net working capital is being utilized. Working capital turnover can be calculated as sales to
net working capital.

This ratio indicated whether the working capital has been efficiently utilized or not. The
higher the turnover ratio, the more efficient the management and utilization of the asset and
lower the turnover ratio is indicative of under utilization of available resources and presence of
idle capacity.

Working Capital turnover ratio = sales

Net working capital

Table: 2.3.3

Yrs Sales Net working capital ratio

2003-2004 76751 12406 6.19
2004-2005 98055 6679 14.46
2005-2006 101917 15118 6.74
2006-2007 105501 30103 3.50
2007-2008 56297 `27360 2.06

The ratios are in the decreasing trend. It is high in the year of 2004-2005 and then
decreased. In the year of 2004-2005 the ratio is 14.46 and at the very next year it is decreased to
27
6.74. In the year of 2006-2007 it is 3.50 because of the continuous decrease in sales and the net
working capital. This trend is shown in the year of 2007-2008.

NET WORKING TO SALES

It is determine to find out the efficiency with which the net working capital is being
utilized. The higher the turnover ratio indicates the better performance and vice-versa, working
capital to sales ratio can be calculated by dividing sales by net working capital.

Table: 2.3.4

Years Net working capital Sales Ratio

2003-2004 12406 76751 .16
2004-2005 6779 98055 .07
2005-2006 15118 101917 .15
2006-2007 30103 105501 .29
2997-2008 27360 56297 .485

The ratios are in raising trend it is lower in 2005 and starts raising from 2006 onwards. In
the year of 2004-2005 the net working capital to sales ratio is .07. Next year, 2005-2006 the sales
is increased. After 2005 the net working capital to sales ratio is increased.

CURRENT ASSET TURN OVER RATIO

Current assets are era those that can be converted into ready cash in the normal course of
business. Current assets include inventories, debtors, cash and bank balance, loan and advances
and other assets.

Table: 2.3.5

Years Sales Current asset ratio

2003-2004 76751 48009 1.60
2004-2005 98055 40802 2.40
2005-2006 101917 54150 1.88
2006-2007 105501 72030 1.46
2007-2008 56297 57746 1.06
28
 Current asset turnover ratio shows the affective utilization of the current asset. 2003-2004
the current asset turnover ratio is 1.60. In the year of 2004-2005 the sales is increased so that the
ratio is increased to 2.40. Next year 2005-2006 it is decreased to 1.88 because of the gradual
increase in the sales and the current asset. Decreasing trend in the ratio is followed by the recent
years.

FIXED ASSETS TURNOVER RATIO

The fixed assets turnover ratio indicates the sales generated by every one rupee invested
in fixed assets. A higher ratio indicates the greater efficiency in utilization of fixed asset.

Fixed assets of the company include land and building, machinery, furniture, vehicles etc.
the fixed asset ratio will be less than one.

Fixed asset turnover ratio = sales

fixed asset

Table:2.3.6

Year Sales Fixed asset Ratio

2003-2004 91936.50 66332.91 1.16
2004-2005 76742.58 56941.40 1.72
2005-2006 98055.28 50826.14 2.00
2006-2007 105500.96 44762.93 2.36
2007-2008 56297 42420 1.33

Fixed asset turnover ratio in the year 2003-2004 is 1.16 and it is increased to 1.72 in the
year of 2004-2005. Increasing trend is shown to the years 2006-2007. But in the year of 2007-
2008 the ratio is decreased to 1.33.The efficiency in asset utilization is bad. It is increasing from
2004 and a decrease in the year of 2008.

TOTAL ASSET TURNOVER RATIO

Some analyst likes to compute the total assets turnover ratio in addition to net assets
turnover. This ratio shows the firma ability in generating sales from all financial resources
committed to total assets of the company includes both fixed and current assets. Total asset
include net fixed asset and current assets.

Total asset turnover ratio = Sales

29
 Total assets

Table: 2.3.7

year Sales Total asset Ratio

2003-2004 76751 114342 .67
2004-2005 98055 97743 1.003
2005-2006 101917 104976 .97
2006-2007 105501 116793 .05
2007-2008 56297 100166 .56

The total asset turnover ratio the firm is a not constant it is in a fluctuating mood. In the
year of 2003-2004 it is .67 after that 2004-2005 it is increased to 1.003. Then it shows a
decreasing trend for the next two years. In the year 2006-2007 ratio is .05 but in the year 2007-
2008 a slight increase, .56 is the total assets turnover ratio. Level of the total asset turnover ratio
is bad.

30
 COMPOSITION OF WORKING CAPITAL

Chart: 2.1

loansandadvance
18%

othercurrent
1%

inventories
debtors
cashandbank cashandbankbalance
balance othercurrent
12% loansandadvance

invento
56

debtors
13%

31
CASH MANAGEMENT RATIO

Cash management ratios are covered cash bank balance to current assets and cash
turnover ratio.

CASH AND BANK BALANCE TO CURRENT ASSETS RATIO.

Cash and bank balance to current asset ratio increase would lead to an increase in
profitable than fixed asset.

Table: 2.3.8

Year Cash Current asset Cash to current asset

ratio
2003-2004 2465.86 45009.73 .05
2004-2005 2277.77 35201.79 .06
2005-2006 3462.62 44287.76 .08
2006-2007 7782.67 72030.09 .108
2007-2008 6746.39 57746.41 .11

To assess the efficiency of cash management to cash bank as percentage of current assets
over a period of five years has been taken and analyzed. From this table, it is clear that cash to
current asset ratio is increasing. In the year 2003-2004 the ratio is .05 and at the next year it is
increased to .06. 2005-2006 the ratio is increased to .08 because of the slight increase in the cash
and the current asset. But in the year 2007-2008 the cash and the current asset is decreased from
the previous year the ratio maintain .11.

CASH TURNOVER RATIO:

Cash turnover ratio indicates the efficiency of the firm in utilizing funds. Cash turnover
ratio may include sales and cash and bank balance. The sales include banking before interest and
tax, if the amount of cash exceeds than it can be concluded that the management has not
significantly utilized the surplus cash stock with them.

32
Cash turnover ratio:

Table:2.3.9

Year Sales Cash Ratio

2003-2004 76750.89 2465.86 31.13
2004-2005 98055.28 2277.77 43.05
2005-2006 101916.6 3462.62 29.42
2006-2007 105500.96 7782.67 13.56
2007-2008 50296.97 6746.39 8.34

In this table, it clear that the ratio has been decreases from the year 2003-2004 and still in
the decreasing mode. In the year 2003-2004 the ratio is 31.13 and in the year 2004-2005 the ratio
shows highest value that is 43.05. After that in 2005-2006 it is decreased to 29.42. For the
continuing years this trend is followed 2007-2008 the ratio is 8.34.

RECAIVABLES MANAGEMENT RATIO

Receivables occupy a very important place in the structure of current assets. The main
purpose of maintain receivables to push up the sales and ultimate profits by allowing certain
creditor the potential customers who otherwise find it difficult to make cash purchase. The
receivable management ratio is used measures of how effectively a firm using credit extended to
customers.

Debtor turnover ratio

The debtor’s turnover ratio shows the extent of trade credit granted and the efficiency in
the collection of debtors. Thus, it is an indication of efficiency of trade credit management.

Debtor’s turnover ratio: = sales

Debtors

Table: 2.3.10

Years Sales debtors Ratio

2003-2004 76750.98 22815.45 3.36
2004-2005 98055.28 9997.38 9.80
2005-2006 101916.61 14817.40 6.88
2006-2007 105500.96 1933.92 5.49
33
2007-2008 56296.97 7585.22 7.42

From this table that the ratio is in fluctuating in the year 2003-2004 the ratio is 3.36. In
the year 2004-2005 is high because of the increase in the sales and the ratio is 9.80. and then
decreased in the year 2005-2006. In the year 2006-2007 the ratio is 5.49 and to the very next year
it is increased to 7.42

DEBT COLLECTION PERIOD

The shorter the average collection period better the credit management and better
liquidity of debtors, as short collection period and low debtors to sales ratio imply prompt
payment on the part of the debtor

Debt collection period:

Table:2.3.11

Year Day Debtors turnover average collection

period
2003-2004 365 3.36 108
2004-2005 365 9.80 37.24
2005-2006 365 6.87 53.12
2006-2007 365 5.48 66.60
2007-2008 365 7.42 49.19

From this table we can clear get that there is a no constant come down of the average
collection period. In 2003-2004 it is high and to the next year it is 37.24 in 2004-2005. In 2005-
2006 it goes to 53.12 and in the year 2006-2007 is 66.60. then in the year 2007-2008 it comes
down to 49.19.

INVENTORY MANAGEMENT

The inventory comprises of raw materials, Work-in-progress, Finished goods and Stores
& Spares. Since inventory is the most significant single component in the total working capital,
its management is important both for short-term liquidity and long-term profitability. Excessive
inventory retard the liquidity and cash cycle of the concern. Likewise shortage of inventory
affects adversely the size and continuity of production and employment. Good inventory
management is a sign of good financial management. Hence a firm must have the right inventory
at the right time to meet the demand. The faster the inventory turnover through sales into
receivables, the lesser the rupee investment of inventory relative to sales. The inventory
34
management is concerned with the determination of optimal level of investment from each item
of inventory and the inventory as a whole. The ratio analysis has wider applications as a measure
of inventory management especially in the case of manufacturing concerns.

Inventory percentage of growth:

Table:2.3.12

Year inventories Percentage

2003-2004 19686.01 14.57%
2004-2005 22889.71 16.95%
2005-2006 25996.15 19.25%
2006-2007 34615.62 25.64%
2007-2008 31844.48 23.58%

Inventory percentage growth shows the growth of the inventory. In the year 2003-2004
the percentage is 14.57 and it is increased in the next year 16.95. In the year 2005-2006 the
percentage is 19.25 and it is increased to 25.64. But in the year 2007-2008 it is decreased to
23.58.

• INVENTORY TURNOVER RATIO

This ratio indicates the number of times inventory or stock is replaced during the year. It
measures a relationship between goods sold and inventory level. This ratio can be computed.

Cost of goods sold

Inventory Turnover Ratio =
Average inventory at cost

Table:2.3.13

Year Cost of goods sold Avg. inventory Inventory turnover

ratio
03-04 3179.33 8543.71 .37
04-05 1101.10 12467.80 .09
05-06 547.21 13220.58 .04
06-07 5664.11 25395.25 .22
07-08 33330.00 11139.62 .29

The inventory turnover ratio in the year 2003-2004 is .37 and it is decreased in the year
2004-2005 to .09. In the year 2005-2006 it is .04. After this it is increased to .22 and in the year
2007-2008 the ratio is increased to .29.

• INVENTORY TO CURRENT ASSETS RATIO

35
 The inventory to current assets ratio is an important ratio which indicates the amount of
investment in inventory per rupee of current assets investment. The ratio indicates the state of
liquidity position of current assets.

Inventory to Current Assets Ratio = Inventory

Current Assets

Table: 2.3.14

Years Inventory Current asset Inventory to current

asset turnover ratio
03-04 19686.01 45009.73 43.74
04-05 22889.71 35201.79 65.02
05-06 25996.71 44287.76 58.70
06-07 34615.62 72030.09 48.05
07-08 31844.48 57746.41 55.14

From the above table it is found that FACT maintained an average 40% of current assets
as inventory. After 2003 the inventory holding were in an increasing manner which indicates the
decrease in the amount to be invested in inventory advance. In the year 2004-2005 the inventory
to current asset turnover ratio is 65.02 and after this year the ratio is decreased. But in the last
year it is increased to 55

2.4 SCHEDULE OF CHANGES IN WORKING CAPITAL

Working capital represents the excess of current asset over current liabilities. Since all
current asset and current liabilities are the components of working capital. It is necessary to
ascertain the working capital and to measures the increase or decrease there in, to prepare an “a
statement or schedule in working capital”.

Based on the rules the schedule of changes has to be prepared.

1. An increase in current assets, Increase in working capital.

2. An decrease in current assets, decrease in working capital.

3. An increase in current liabilities, decrease in working capital.

4. An decrease in current liabilities, increase in working capital.

Table:2.4.1

Particular 20072008 2006-2007 2005-2006 2004-2005 2003-2004

36
Cash and bank -1036 4320 1185 -188 817
balance

Inventories -2771 9086 2641 3203 995

Sundry debtors -11649 4417 4820 -12818 -6303

Other current assets -228 360 334 -5 13

Loans and advances 1401 -320 4369 2602 -544

-14283 17881 13349 -7206 -5022

Current liability -12418 2895 9878 -1579 1607

Provision -1865 14986 3471 -5627 -6629

Increase/decrease in -14283 17881 13349 -7206 -5022

working capital

Interpretation

It should be noticed from the schedule of changes in working capital for the year 2004 a
decrease in current asset and an increase in current liabilities. It should be inferred that the net
decrease in working capital reveals that there was release of funds from working capital

The working capital decrease from Rs12406 lakhs in 2003-2004 to Rs.11648.87 lakhs in
2004-2005. It could be inferred that the net decrease in working capital reveals of funds from
working capital.

The working capital increase from 11648.87 lakhs in 2004-2005 to Rs.15231.51 lakhs in
2005-2006. It could be inferred that there was efficient management of working capital.

In 2005-2006 the working capital of Rs.15118.45 increased to Rs.30649.49 lakh in 2006-

2007. It could be inferred that there was more efficient management of working capital. Here the
current assets are excess over current liabilities.

The working capital decrease from Rs.30603.57 lakes in 2007-2008. It could be inferred
that the net decrease in working capital reveals that there was release of funds from working
capital.

37
2.5 COMPARITIVE STUDY

The fertilizers and chemical Travancore limited performance is compared Travancore

cochin chemicals limited; another chemical manufacturing firm .The board of director cum
chairperson as Shri. P.H.Kurian I.A.S.

Here we consider only the percentage as a factor. The comparison is based on their
common size statement, schedule of changes in working capital management and ratio analysis.

COMMON SIZE STATEMENT

This table indicates the percentage of the absolute figures of balance sheet of fertilizers
and chemicals Travancore limited and Travancore chemicals cochin.

SHARE CAPITALS

The share capital of FACT is about 10.43% and that of TCC is about 26.43%.TCC offers
more share capital to the public. From the table , it is clear that the share capital of FACT is less
than that of TCC.

SECURED LOANS

FACT is more depends on the secured loans when compared to TCC. Secured loans are
mainly collateral borrowing and lending obligation.
38
CURRENT LIABILITY

The current liability depends on the concerns life period. So that TCC has less current
liability compared to FACT. Both the firms had not a constant change in the current liability.

DEPRECIATION

Depreciation shown from both firm is equal. it shows that there is a lack of supervision in
both the organization.

FIXED ASSETS

Both the firms have its fixed assets more than 50%. It shows that there is a better future
for both the organization.

CURRENT ASSETS

The current asset of both the company is nearly 20% of their assets. FACT the current
assets are fluctuating no constant increase or decrease in the current asset. There is net loss
shown by TCC. In the last year both firms current asset is decreased from the previous year.

39
 Table: 2.5.1

2003-04 2004-05 2005-06 2006-07 2007-08

Liabilities TCC FACT TCC FACT TCC FACT TCC FACT TCC FACT
Share 15.58 11.72% 14.78% 12.20 28.44 11.14 25.01 10.37 26.43 10.43%
capital % % % % % % %
Reserves & .08%s .44% .04% .02% .04% .002 .04% .02% .03% ..004%
surplus
Secured 6.79% 26.92% .043% 29.17 10.48 28.17 16.62 30.29 14.87 23.67%
loans % % % % % %
Unsecured 27.21 0% 28.79% 0 2.29% 0 3.28% 0 4.27% 1.82%
loans %
Current 15.64 26.907 12.15% 29% 17.15 30.64 15.99 27.18 11.85 26.7%
liabilities % % % % % % %
Depreciation 34.69 34.45% 36.85% 29.63 41.60 30.05 39.07 32.16 42.53 37.38%
% % % % % % %
Total 100 100 100 100 100 100 100 100 100 100
Assets
Fixed assets 63.83 73.31% 60.59% 66.12 63.39 71.86 56.37 78% 59.86 79.16%
% % % % % %
Capital wip .27% 0.13% .18% 10.96 .23% 4.92% .49% .005% .370% 0.05%
%
Investment .02% .001% .022% .17% .02% 0 .02 .011% . 0.01%
0022%
Current 21.09 23.48% 17,009 14.82 23.84 18.7% 27.83 18% 23.59 16.92%
assets % % % % % %
Misc exp. 00 00 1.081% .07% .01% .004%
P & l a/c 13.42 3.079% 21.10% 7.93% 11.89 4.52% 15.28 3.984 16.15 3.86%

40
 % % % % %
Total 100 100 100 100 100 100 100 100 100 100

RATIO ANALYSIS

CURRENT RATIO

This ratio shows the current asset and current liability relationship. current ratio is the
most common ratio for measuring liquidity.

Current ratio

Table:2.5.2

YEARS Fact Tcc

2003-2004 1.32 .80
2004-2005 1.20 .51
2005-2006 1.39 .61
2006-2007 1.72 .67
2007-2008 1.9 .63

This ratio shows that FACT is better than TCC. In TCC the ratio is less than 1. The
preferable ratio is 2:1. FACT the current ratio is greater than TCC. In the year 2003-2004 the
ratio of FACT is 1.32 and that of TCC is .80. Next it is decreased to 1.20 in FACT and .51 in
TCC. In the year 2005-2006 it is increased to 1.39 in FACT and .61 in TCC. In 2006-2007 the
ratio is also increased to 1.72 for FACT and .67 for TCC. In the year 2007-2008 the ratio of
FACT is increased to 1.9 at the same time the ratio of TCC is decreased to .63.

41
Chart:2.2

42
 Currentratio

1.8

1.6

1.4

1.2

ratio 1

0.8 fact
tcc
0.6

0.4

0.2

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years

LIQUID RATIO

43
 The ratio shows the relationship between the liquid assets and current liabilities. If 1:1 is
standard form that the liquid assets are equal to current liabilities.

Table: 2.5.3

Year FACT TCC

2003-2004 .80 .59
2004-2005 1.44 .38
2005-2006 .73 .44
2006-2007 .90 .47
2007-2008 .80 .81

The acid test ratio of 1:1 is considered satisfactory as a firm can easily meet all its current
liabilities. If the ratio is less than 1:1, then the financial position of the concern shall be deemed
to be unsound. From this table we can understand that the liquid ratio of FACT is better than
TCC. The financial position of TCC is unsounded.

Chart:2.3

44
 Liquidratio

1.6

1.4

1.2

ratio 0.8
FACT
0.6 TCC

0.4

0.2

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
year

WORKING CAPITAL TURNOVER RATIO

45
 This ratio reflects the turnover of the firm’s net working capital in the course of the year.
It is a good measure of over-trading and under trading. Whether it is high or low turnover will
results in excess or low net working capital.

Table:2.5.4

Yrs FACT TCC

2003-2004 6.19 -4.52
22004-2005 14.46 -4.75
2005-2006 6.74 -4.76
2006-2007 3.50 -4.98
2007-2008 2.06 -15.12

The working capital turnover ratio of FACT is always positive but decreased from 2003
to 2008. In TCC the working capital turnover ratio is negative. In the year 2003-2004 the ratio of
FACT is 6.19 and that of TCC is -4.52. From 2003 both companies working capital turnover
ratio is decreasing. In the year 2007-2008 the ratio of FACT is 2.06 and that of TCC is -15.12.

chart:2.4

46
 workingcapital turnoverratio

15

10

0
ratio
-5 fact
tcc

-10

-15

-20
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years

CURRENT ASSET TURNOVER RATIO

47
 The current assets turnover ratio tells us to know the efficiency of the firm. This shows
the utilization of current assets in case of sales.

Current asset turnover ratio:

Table:2.5.4

Years FACT TCC

2003-2004 1.60 2.14
2004-2005 2.40 3.43
2005-2006 1.88 3.04
2006-2007 1.46 3.31
2007-2008 1.06 1.72

In this table the FACTs current asset turnover ratio is starts on decreasing trend. It means
that the utilization of current asset in FACT is not better. In case of TCC there is increase in a
period of 2004-2005, and then goes on decreasing.

Chart:2.5

48
 currentassetturnoverratio

3.5

2.5

ratio
fact
1.5
tcc

0.5

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
year

FIXED ASSET TURNOVER RATIO

49
 Fixed asset turnover ratio indicates the extent to which the investment in fixed assets
contributes towards sales. If compared with a previous year, it indicate whether the investment in
fixed assets has been judicious or not. Here this ratio must be less than one.

Fixed asset turnover ratio:

Table:2.5.6

Year FACT TCC

2003-2004 1.16 1.29
2004-2005 1.72 1.39
2005-2006 2.00 1.36
2006-2007 2.36 1.31
2007-2008 1.33 1.10

The fixed assets turnover ratio must be less than one. From this table, both the firms
FACT and TCC have the ratio greater than one. This means that both firms are not better in
utilizing the fixed asset.

chart:2.6

50
 fixedassetturnoverratio

2.5

1.5

fact
ratio
tcc
1

0.5

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years

CASH TURNOVER RATIO

51
 The ratio indicates the efficiency of the firm in utilizing its funds. If the cash balance is
excess than it can be concluded that management is inefficient to employ the surplus cash. Cash
turnover should be kept as much as possible.

Cash turnover ratio:

Year FACT TCC

2003-2004 31.13 12.85
2004-2005 43.05 53.75
2005-2006 29.42 87.72
2006-2007 13.56 88.64
2007-2008 8.34 81.65

Table:2.5.7

FACT, the cash turnover ratio is decreasing which means that the firm have optimum
utilization of available cash. But in TCC the ratio increases in the year 2003 to 2007 then
decrease which means that the utilization of cash in TCC is not better. In the year 2007-2008 the
ratio of FACT is 8.34 and that of TCC is 81.65, which is high compared to FACT.

chart:2.7

52
 Fixedassetturnoverratio

90

80

70

60

50
ratio
40 fact
tcc
30

20

10

0
2003- 2004- 2005- 2006- 2007-
20004 2005 2006 2007 2008
years

DEBTORS TURN OVER RATIO

53
 The purpose of this ratio is to discuss the credit collection power and policy of the firm.
For this ratio a relationship is established between accounts receivables and net credit sales of the
period. Generally, the higher the value of debtors turnover, the more efficient is the management
of credit.

Debtors turnover:

Table:2.5.7

Years TCC FACT

2003-2004 7.76 3.36
2004-2005 9.29 9.80
2005-2006 9.90 6.88
2006-2007 8.65 5.49
2007-2008 7.64 7.42

Comparing with TCC, FACTs debtors turnover ratio is less but both the firm’s ratio is
fluctuating. In the year 2003-2004 the ratio of FACT is 3.36 and that of TCC is 7.76. after that
the ratio of FACT is increased to 9.80 in the year 2004-2005 and that of TCC is 9.29. in the next
year the ratio of FACT is decreased to 6.88 and that of TCC is increased to 9.90. in the year
2006-2007 the ratio of both the firms was decreased the ratio of TCC is 8.65 and FACT is 5.49.
but in the year 2007-2008 the ratio of FACT and TCC are increased to 7.42 and 7.64.

54
chart:2.8

Debtorsturnoverratio

10

ratio 5
fact
4 tcc
3

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years
55
 Debtorsturnoverratio

10

ratio 5
fact
4 tcc
3

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years

INVENTORY TURNOVER RATIO

56
 Inventory turnover ratio indicates whether investment in investment in inventory is
efficiently used or not. It, therefore, explains whether investment in inventories is with in proper
limits or not. It also measures the effectiveness of the firm’s sales efforts.

Inventory turnover ratio:

Table: 2.5.8

Years FACT TCC

2003-2004 .37 26.64
2004-2005 .09 58.96
2005-2006 .04 70.11
2006-2007 .22 26.88
2007-2008 .29 28.33

The inventory turnover ratio of FACT is always in decimals. In the year 2003-2004 the
ratio of FACT is .37 and that of TCC is 26.64. In TCC the next two years the ratio is increased
but in FACT the ratio is decreased.

Chart:2.9

57
 inventoryturnoverratio

80

70

60

50

ratio 40
fact
30 tcc

20

10

0
2003- 2004- 2005- 2006- 2007-
2004 2005 2006 2007 2008
years

Schedule of changes in working capital

Table:2.5.10

Particular 2007-2008 2006-2007 2005-2006 2004-2005 2003-2004

58
Cash and bank 115.26 139.28 967 644.19 1336.39
balance

Inventories 1018.27 1044.91 1098.56 954.67 1175.40

Sundry debtors 1229.14 1424.95 124.12 166.17 710.41

Other current assets 00 00 00 00 00

Loans and advances 1094.56 1108.19 1386.38 823.72 1045.64

3457.23 3717.33 3576.06 2588.75 4267.84

Current liability 5470.29 5530.05 5811.37 5063.93 4882.17

Provision 3.54 53.28 48.05 00 6.93

Total 5473.83 5583.33 5859.42 5063.93 4889.10

Increase/decrease in -2016.6 -1866 -2283.36 -2475.18 -621.26

working capital

Interpretation

From this schedule of changes in working capital, it show always decrease in the net
working capital. No constant decrease is happened it is always fluctuating.

In case of FACT the working capital is decreased in the last year. Before 2004-20085the
working capital is increased and after this it goes on decreasing.

FACT is better than TCC for utilizing the current asset and current liability. TCC is in a
declain stage.

59
 FINDINGS

 The current asset ratio of FACT is increasing than that of TCC.

 The major portion of working capital has been occupied by the inventories
 It is finding that both the companies have decreased working capital.
 From the analysis of various ratios, it is clear that the overall financial performance of
FACT and TCC was under severe financial crisis.
 The organization utilized it assets not in a better way it can be replicated from the current
ratio and the liquid ratio.
 Both the firms not showing constant fluctuation.
 Sources of fund for this organization are only by means of the financial packages offered
by the banks and government.

60
 SUGGESTION

 As the management of working capital involves frequent decision-making, it is

proposed that the management should keep an eyes on the environmental conditions
and economic trends

 Locking up of funds in inventory is decreasing due to the decreased cash conversion

cycle; this is shown in the current asset turnover ratio as well as in the number of
days in inventory in cash conversion cycle.
 An optimal level of inventories should be maintained by the organization to reduce
the opportunity cost due to the inefficient use of inventory.
 The firm can improve or tighten its credit policies to maintain the current number of
day’s receivable.
 By implementing new technologies to fasten the production capacity of the firms can
reduce the operating cycle.
 The firm should ask further financial written off and packages until its overcome the
problems to improve its problems to improve its profitability.
 It is better to reduce the current liabilities, which reduces their net working capital.

61
 CONCLUSION

The working capital management in FACT was controlled in an efficient manner from
04-06. The improvement in cash conversion cycle and current assets leads the company in a
progressive manner for the two financial years 06-08. The role of inventory management in
releasing the funds locked up in the inventories is clearly found out in the study by means of
number of day’s inventory and other inventory ratio.

The company has to maintain its current assets and current liability efficiently and
effectively. The financial ratios were found to be comfortable and the stock has the most
dominant factor, which influences working capital.

From this study the analysis of working capital management of FACT has been properly
utilized.

62
 REFERENCE

Books, Journals and Periodicals

Books

1. I.M. Pandey, Financial Management, Vikas Publishing House, Pvt. Ltd, New, Delhi.
2. S.P. Jain and K.L. Narang Advanced Accountancy- Vol II, Kalyani Publishers,
Ludhiana.
3. P.Mohana Rao, and Alok K.Pramanik, Working Capital Management-Deep & Deep
Publications Pvt.Ltd, New Delhi.
4. M.Y. Khan, P.K. Jain, Financial Management, Tata McGraw Hill Publishing
Company Limited, New Delhi.
5. James C. Van Horne, Financial Management Pearson Education,

Periodicals

Annual Report of FACT Aluva.

Annual reports of TCC Aluva.

Website

www.fact.com

www.tcc.com

www.google.com

www.wikipedia.com

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