CHAPTER-1

INTRODUCTION

INTRODUCTION
Working Capital is the amount of Capital that a Business has available to meet the day-today
cash requirements of its operations Working Capital is the difference between resources in
cash or readily convertible into cash (Current Assets) and organizational commitments for
which cash will soon be required (Current Liabilities) .It refers to the amount of Current
Assets that exceeds Current Liabilities (i.e. CA - CL) Working Capital refers to that part of
the firms Capital, which is required for Financing Short-Term or Current Assets such as
Cash, Marketable Securities, Debtors and Inventories.
Working capital management is the decision relating to working capital and short term
financing, and this includes managing the relationship between the companys short-term
assets and its short-term liabilities. This enables the company to continue operations and to
have enough cash flow at its disposal to satisfy both maturing short-term debt and upcoming
operational expenses, which is the major objective of working capital management.
The basic objective of working capital management is to put current assets to optimum use
for overall profitability of a business enterprise. If the firm can't maintain a satisfactory level
of working capital it is likely to become insolvent and may even be forced to bankruptcy.
The effective management of working capital requires both medium term planning and
intermediate reactions to changes in forecast and conditions.
The current assets should be managed in such a way that it should cover its current liabilities
in order to ensure a reasonable margin of safety. Therefore the interaction, between the
current assets and current liabilities is the main theme of the theory of working capital
management. It improves the operating performance of the business concern and it helps to
meet the short-term liquidity.

Definitions
Working capital is the money needed to fund the normal, day to day operations of your
business. It ensures you have enough cash to pay your debts and expenses as they fall due,
particularly during your start-up period.
Working capital may be defined by various authors as follows
The sum of the current assets is the working capital of the business J.S.Mill
According to Weston & Brigham - Working capital refers to a firms investment in short
term assets, such as cash amounts receivables, inventories etc

Scope of the study

1) The scope of the study is identified after and during the study is conducted.
2) The study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc.
3) Further the study is based on last 5 years Annual Reports of Gayatri Projects Ltd.

OBJECTIVES OF THE STUDY

1. To study the working capital management of Gayatri Projects Ltd.
2. To study the financial leverage ratios through various working capital related
Ratios.

NEED OF WORKING CAPITAL

Working Capital is an essential part of the business concern. Every business concern
must maintain certain amount of Working Capital for their day-to-day requirements and
meet the short-term obligations. Working Capital is needed for the following purposes.
1. Purchase of raw materials and spares The basic part of manufacturing process is, raw
materials. It should purchase frequently according to the needs of the business concern.
Hence, every business concern maintains certain amount as Working Capital to purchase raw
materials, components, spares, etc.
2. Payment of wages and salary The next part of Working Capital is payment of wages and
salaries to labor and employees. Periodical payment facilities make employees perfect in
their work. So a business concern maintains adequate the amount of working capital to make
the payment of wages and salaries
3. Day-to-day expenses A business concern has to meet various expenditures regarding the
operations at daily basis like fuel, power, office expenses, etc.
4. Provide credit obligations A business concern responsible to provide credit
facilities to the customer and meet the short-term obligation. So the concern must
provide adequate Working Capital.

CHAPTER-2
INDUSTRY PROFILE

CONSTRUCTION INDUSTRY IN INDIA

According to the Construction Federation of India (CFI), construction is the second
largest employer after the agriculture sector. There are three important segments of the
construction industry - infrastructure, industrial and real estate. Of these, infrastructure
constitutes about 54 per cent, while industrial construction 36 per cent and commercial and
5

residential construction constitute about 5 per cent each. The majority of the investment in
the construction sector (about 70 per cent) comes from public sources, while the private
sector contributes only about 30 per cent
Construction industry is an integral part of a countrys infrastructure and industrial
development. Construction becomes the basic input for socio-economic development.
Currently, the construction industry directly or indirectly employs approximately 33 million
workers, representing 14% of the workforce. It also accounts for nearly half of the fixed
capital formation.
Infrastructure growth is visible throughout the country in the form of new highways,
roads, ports, railways and airports; power plants; urban and rural infrastructure, including
water supply, sewerage, and drainage; irrigation and agriculture systems.
The Government of Indias focus and sustained increased budgetary allocation and
increased funding by international and multilateral development finance institutions for
infrastructure development in India has resulted in or is expected to result in several large
infrastructure projects in this region. Overall the construction sector has a positive outlook
on account of growing infra-structure demand and the emphasis of the Government on
catering to this demand.
A brief look at some major sectors of infrastructure is given below

Road Sector
The Indian road system has been the first area within infrastructure to gain serious
attention from the government. Road connectivity, while linking the regions of demand and
supply, forms the very basis of economic and social development, a fact recognized by the
government and reflected in its spending.
Currently, at 3.3 million km, Indias road network is the second largest in the world. The
network is divided into three categories national highways, state roads including state
highways and district roads and rural roads. National highways span a length of 70,548 km,
state highways 131,899 km, major district roads 467,763 km and rural roads 2,650,000 km.
Despite the importance of roads to the Indian economy, the road network in India is grossly
6

inadequate in capacity. Only 14 per cent of national highways and one per cent of state
highways are four-lane. Further, about 59 per cent of the national and 22 per cent of state
highways are double-lane.
The biggest initiative in the national highways sector is the NHDP which began in
December 1999. The massive programme aims at development of about 50,000 km of
national highways in seven phases by December 2015 at an investment of over Rs. 3,100
billion. The golden Quadrilateral, which is a part of the first phase and involves provision of
four-lane connectivity to the four metros, is about 98 per cent complete and the NorthSouth-East-West corridor, which is a part of Phase II, is around 58 per cent complete.
Further, projects under the third, fifth, sixth and seventh phases are under implementation.
The entire project has targeted deadline 2015-16. The Centrally-sponsored project aims at
developing 369,386 km in rural areas at an estimated cost of Rs. 1,320 billion.

Irrigation Sector
Irrigation is the most important input for agriculture and vital for food security.
Therefore, large investments were made in successive Plans for expansion of irrigation
facilities. The Investments in the irrigation sector are likely to increase by 2x to INR 2,231
billion in the Eleventh Plan compared with the Tenth Plan.T he Indian government plans to
complete 24 large and medium irrigation projects and 753 minor irrigation projects with
additional irrigation potential of 500,000 hectares.

Airports
Acceleration in traffic growth Air traffic in India has witnessed substantial growth in
the recent past. The Center of Asia Pacific Aviation expects domestic traffic to grow at 2530% and international traffic at 15% until FY10. Currently, 45% of the traffic is based out of
Delhi and Mumbai and around 70% out of the top five airports. This has led to inadequate
parking, runway and terminal capacity problems. Hence, there is a pressing need to develop
regional hubs and modernize existing airports. The Indian government has stated that the
total funds requirement for the modernization program of airports is INR408 billion by
2011, out of which around INR300 billion will be invested by private players.

Gayatri Projects Limited Share In Construction Industry

Gayatri Projects Ltd. is the flagship company of the esteemed and well diversified Gayatri
Group that has interests in infrastructure, power, hospitality, real estate and industry. With an
annual turnover of Rs. 1801.90 crores, net worth of Rs. 512 crores and assets of Rs. 2404
crore on a Standalone basis in FY12, it is one of Indias leading infrastructure players.
Established in 1963 as a partnership firm specializing in irrigation construction projects, it
has now established itself as one of Indias leading infrastructure companies with a rich and
diverse experience and expertise in both construction and ownership of infrastructure assets.
Gayatri Projects has been one of the strong foundations for the Groups growth and its
approach to business. Today, the company is one of the largest construction companies in
India and has been associated with the countrys prized landmarks, having cutting edge in
capabilities in every discipline of construction - civil, mechanical, electrical, and
instrumentation.
The company has a strong presence in the EPC (Engineering Procurement and Construction)
construction of road, irrigation and industrial projects across India. Over the last 5 decades,
the company has executed projects comprising over 6,700 kms of roads, 1,200 kms of
irrigation canals and several industrial projects and has a current order book of nearly Rs.
8000 crores. Gayatri Projects currently owns 7 road assets under a subsidiary, Gayatri Infra
Ventures Ltd. (GIVL) and 3 power projects amounting to nearly 5000 MW under another
subsidiary, Gayatri Energy Ventures Ltd. (GEVL).

COMPANY PROFILE

INTRODUCTION
GPL is an ISO 9001 2000 engaged in execution of major Civil Works including
Concrete/Masonry Dams, Earth Filling Dams, National Highways, Bridges, Canals,
Aqueducts, Ports, etc.

The firm was awarded "GOLD MEDAL" by the then Prime

Minister Mrs.Indira Gandhi for its outstanding performance and successful completion of
the "NAGARJUNA SAGAR DAM" work.

COMPANY PROFILE ESTABLISHMENT

Date of Establishment
Revenue
Market Cap
Corporate Address

1989
372.512 ( USD in Millions )
1756.1883514 ( Rs. in Millions )
6-3-1090,TSRTowers1,RajbhavanRoad
SomajigudaHyderabad-500082,AndhraPradesh
www.gayatri.co.in
9

Management Details
Chairperson-T.IndiraSubbaramiReddy
MD-TV.SandeepKumarReddy
Directors - Archana Niranjan Hingorani, C H Hari
Vittal Rao, C S I Vlakshmi, Ch Hari Vittal Rao, G Siva
Kumar Reddy, Hari Vitthal Rao, I V Lakshmi, J Brij
Mohan Reddy, S M A A Jinnah, T Indira, T Indira
Reddy, T Indira Subbarami Reddy, T V Sandeep Kumar
Reddy, V L Moorthy
Business Operation
Background

Engineering - Construction
Gayatri Projects was incorporated as a Private Limited
company on September 15, 1989, under the Companies
Act, 1956 as Andhra Costal Construction Private
Limited in the state of Andhra Pradesh. The name of
the company was changed to Gayatri Projects Private
Limited with effect from March 31, 1994 and it was
converted into a Public limited company with effect
from December 2, 1994.
Gayatri Projects Limited

Financials

Company Secretary
Bankers
Auditors

Total Income - Rs. 20246.784 Million ( year ending

Mar 2013)
Net Profit - Rs. 630.891 Million ( year ending
Mar 2013)
I V Lakshmi
Bank of Maharashtra, State Bank of Bikaner & Jaipur,
United Bank of India
CB Mouli & Associates

Vision / Mission
1) We at Gayatri try to do our best to construct the highest quality works. This is our True
Spirit.
2) The attitude of trying to meet all customer needs and solve any problem in advance is
Customer Satisfaction.
3) The work of the Company is to serve in the Building of a Nation. This is our Service.
4) Putting more emphasis on the value gained by a customer rather than on the companys
self- benefit is our Value Creation.

10

Milestones
1989-90
on

Incorporation of the Company as Andhra Coastal Construction Private Limited

September 15, 1989 in the state of Andhra Pradesh

1993-94
Name of the Company changed to Gayatri Projects Private Limited with effect
from March 31, 1994
1994-95
Converted into a Public limited company with effect from December 2,
1994Investment by Videocon Appliances Limited and Videocon International Limited into
shares of the Company at a premium of Rs. 97/-.The Company took over all the assets and
liabilities of Gayatri Engineering Company.
1996-97
Completed construction of S Bund and Platforms at Kakinada Port Project
funded by ADB.Successfully completed filling of 50.00 Lakh cum. In a record time of 8
months at Reliance Petroleum Limited Project, Jamnagar. The registered office of the
company was shifted from Andhra Pradesh to Maharashtra.
1997-98
Formed a Joint Venture with IJM Corporation Berhad, Malaysia
2005-06
Took 40% interest in the equity of Western UP Toll way Limited a SPV created to
execute a BOT project awarded by NHAI. This will be the FIRST BOT project for our
Company. Awarded ISO 9001:2000 and Q9001-2000 Quality Certificate by American
Quality Assurance International, LLC, USA
2006-07
Awarded 2 contracts on annuity basis by NHAI in Uttar Pradesh in Joint Venture
2007
Gayatri Projects secures five new ordersGayatri Projects Ltd has bagged two orders
along with Maytas Infra Ltd under the consortium (Maytas-Gayatri Consortium) with a total
projects cost of Rs 880 crore.
2008
Gayatri Projects Ltd has informed that the Company and M/s. DLF Ltd,along with
associates have signed an MOU on January 17, 2008 for the purpose of construction of Road
projects on BOT basis.
2009
Company has secured two new orders along with Ratna Infrastructure Projects Pvt.
Ltd under Joint Venture namely (GAYATRI - RATNA JOINT VENTURE) with a total
11

projects cost of Rs 2,131.62 crores.Company has recommended dividend of 40% (Rs 4/- per
equity share of
Rs 10/-) on the paid up capital of the Company.
2010
Declared an interim dividend of Rs. 2.50/- per share (@ 25% of Rs.10/- per share)
on1, 11, 04,761 equity shares of Rs. 10/- each. Company has secured a new order under
BOT (Toll) with a total project cost of Rs. 602.00 crores.
2011
Company has bagged new order under Civil Engineering works for Rs. 68.09
Crores.

PROMOTERS
Dr. T. SUBBARAMI REDDY, whose name has now become the byword for leadership and
quality in the construction industry in India, entered into the construction business nearly
three decades ago. He was involved in the construction of major Irrigation Projects in the
State of Andhra Pradesh. In the year 1967, the Prime Minister of India Late. Mrs. Indira
Gandhi awarded him a Gold Medal, in recognition of his outstanding performance in the
construction of the Worlds largest and prestigious masonry dam Nagarjuna Sagar in
Andhra Pradesh State.
In the year 1975, Dr. Reddy diversified into other fields of specialized Civil Construction
such as site grading, Reservoirs, Ash Ponds, Industrial Plant constructions, Harbors and
Railway bridges, tunnels and major highway road projects. Currently the Company is being
controlled by a well mix of independent and promoter directors with varied experience in
the field of infrastructure development, banking and financial sectors.

Projects Executed by Gayatri Projects Limited

GPL has executed several construction projects during the last 18
years. The Company has constructed more than 1000 Km of the Highways and 1200 Km of
Irrigation Canals. The Company has executed 15 Road Projects amounting to Rs 1500 Crs,

12

25 irrigation projects amounting to Rs. 1000 Cr, 9 projects for construction of dams and
reservoir amounting to Rs. 500 Crs.
GPL have completed irrigation projects such as Construction of five packages
of Narmada Main Canal comprising of the 50.60 Km, Upper Krishna Project comprising of
44.00 Km, Sriram Sagar Project comprising of 954.00 Km and KC Canal comprising of
64.00 Km. GPL has executed, in which major ones include construction of Kaniti Balancing
Reservoir for Vishakhapatnam Steel Plant, construction of raw water pond for Jindal
Vijaynagar Steel Ltd., construction & rising of ash pond dykes to ancillary works for
NALCO Ltd. Etc.

Operations spread across various sectors of infrastructure development

GPL has executed various projects in different sectors of
infrastructure like highway, irrigation projects, mass excavation, ports, airports and
industrial civil works. Such diversification in different sectors enables us to reduce
dependence on any one sector or nature of the project.

Major Projects Completed

ROAD PROJECTS
We executed our first road project, funded by ADB in 1989. And since then weve honed our
skills and expertise further. We have laid more than 644 kms of roads / highway, the top 5
major assignments being:

Widening to 4/6-lanes and upgrading of the existing 2-lane Road in Andhra Pradesh
from Km.291 to Km.358 (OngoleChilakaluripet) Section of NH 5 (Contract
Package AP-13; Contract Value Rs. 231.17 crores)

Widening and strengthening of TalladaDevarapalli road (Contract Value Rs. 142.78

crores)

Upgradation of road from Hungund to Belgaum (Contract U8 for Karnataka State

Highways Improvement Project; Contract Value Rs. 140.07 crores)

13

Widening and strengthening of WarangalKhammam Road and KhammamTallada

Road (Contract Value Rs 136.20 crores)

Upgradation of road from Hirayur to Bellary (Contract U11 from Km.72.00 to

144.00 for Karnataka State Highways Improvement Project; Contract Value Rs.
132.64 crores).

IRRIGATION PROJECTS
The Company is traditionally strong in the irrigation works and has also been awarded the
Gold Medal by the then Prime Minister Smt. Indira Gandhi for outstanding contribution to
the construction of the worlds largest earth dam Nagarjuna Sagar Project in Andhra
Pradesh. The top 5 major assignments are

Construction of Narmada Main Canal Reach Km.168 to Km.177 (Contract Value

Rs. 93.89 crores).

Narmada Main Canal Reach Km.188 to Km.198 (Contract Value Rs. 39.47 crores).

Earthwork Excavation and Cement Concrete Lining including Construction of

Structures from Km.170.000 to Km.190.000 of KC. Canal (Contract Value Rs. 30.88
crores).
14

Earthwork Excavation and Cement Concrete Lining including Construction of

Structures from Km.150.650 to Km.170.000 of K.C. Canal (Contract Value Rs. 32.81
crores).

Industrial Projects
GPL has executed many industrial projects for reputed Indian companies, both in the public
and private sector. Some of our major projects in the industrial, railways and ports segments
are

Civil Engineering works in Medium Merchant and Structural Mills of

Visakhapatnam Steel Plant (Contract Value Rs. 14.89 crores).

Civil Engineering Works in Auxiliary Shops Zone-M of Visakhapatnam Steel Plant

(Contract Value Rs. 13.80 crores).

Civil Works for Coke Oven-2 (Contract Value Rs. 9.78 crores).

Civil, Structural and Architectural work at HPCL terminal, Vijayawada (Contract

Value Rs. 6.09 crores).

15

Construction of New BG Railway line in 3 sections i.e. KR-51, KR-55 & KR-57 for
Koraput-Rayagada Lane. (Contract Value Rs. 14.21 crores).

Construction of approach Berths and Back-up area at Kakinada Port Cont-C2.

(Contract Value Rs. 45.00 crores).

SITE LEVELING PROJECTS

We have worked on various site leveling and formation projects for different industrial
projects. Some of them are

Development of Garment Complex at Thane, Land Development & Allied works

(Contract Value Rs. 38.96 crores).

Area grading/filling & leveling of entire area of power (2X250 MW) and
construction of retaining wall in the premises of Power House at Korba East
(Contract Value Rs. 23.86 crores).

Leveling and Grading work in Group-I for Simhadri Thermal Power Project
(Contract Value Rs. 16.36 crores).

16

Site grading and construction of roads, drains and ponds at Reliance Petroleum Ltd.
Project site, Jamnagar (Contract Value Rs. 13.65 crores)

Area Grading Roads, drains for NFCL phase-II, Kakinada (Contract Value Rs. 7.79
crores).

Construction of approach Berths and Back-up area at Kakinada Port Cont-C2.

(Contract Value Rs. 45.00 crores).

OUR JOINT VENTURES

The companys existing Joint Ventures are
IJM-Gayatri JV
IJM-Gayatri JV has been formed on December 21, 1998 in the ratio of
60:40 for submitting the prequalification, tender and subsequent execution of various civil

17

and / or structural works including Earth works, National and / or State Highways, Bridges,
Dams, Reservoirs, Airports, Roads and Buildings within India.
JAIPRAKASH - GAYATRI JOINT VENTURE
Jaiprakash-Gayatri JV has been formed on July 9, 2004 in the ratio of 60:40
for the purpose of participation in the pre-qualification bids as a joint venture and to
participate subsequently in the tenders for the projects.

RNS-GPL JOINT VENTURE

RNS-GPL Joint Venture has been formed on May 7, 2005 in the ratio of 50:50
for tendering and execution of work consisting of construction and completion of widening
and strengthening of roads from Ramanathapuram to Tuticorn with a total length of 118 kms
of State Highways in Tamilnadu.
Gayatri GDC Joint Venture
Gayatri GDC Joint Venture has been formed on 17 th day of
September,2006 in the ratio of 70 : 30 for execution of work of Rehabilitation and
Upgrading of Kapsara (Km 38) to Hathidad (Km 62) and Rajkheta (Km 83) to Dhanwar
(Km 110.6) and Ramanujganj (Km 0) to Wadrafnagar (Km 53.80) Section in Chhasttisgarh
Pacakage 10A.
Gayatri- BCBPPL Joint Venture
Gayatri and B.C. Biyani Projects Private Limited has entered joint venture
on 19th January 2008 for execution of work of Indira Sagar main canal from RD 130.935 Km
to 155.00 Km including distribution work at Madya Pradesh.
Gayatri-JMC Joint Venture
The Gayatri JMC Joint Venture has awarded the work of Widening and
Strengthening of Chittoor- Puttur Road from Km 3/200 to Km 64/00and the work order
value is Rs.113.08 Crores. The GPL will execute 75% the work on back to back basis.
18

DLF- Gayatri Consortium

Gayatri have entered into MOU with DLF Limited on 17th January, 2008,
which is the largest real estate developer in India to jointly apply for the all future road
works as a consortium. The DLF is in the business of planned urban infrastructure
development with a track record of six decades. The joint venture with DLF will benefit the
company in qualifying for large scale works being announced by NHAI and to procuring
more number of orders on combined strengths and improves prospects of bidding.

VISWANATH - G AYATRI JOINT VENTURE

Was formed on 26th August 2010 and was awarded the contract for design, Manufacture,
Predispatch Inspection , testing and supply of material for construction of New 11KVA
line,LT Line on AB cable , 25KVA 11/0.4 KV Distribution X-mer Substation , Four pole
Structure Additional KV Bay with VCB, Replacement of Bare LT line with AB cable , under
Feeder Seperation Programme MPPKVVCL Indore First Phase Lot NO V and X on turnkey
basis under O&M under division Barwani and Ratlam Districts.

Plant Machinery & Equipments

At GPL, we are proud to own an in-house state-of-the-art fleet of construction equipment.
Some of them owned by us are

Heavy earth moving machines such as hydraulic excavators, loaders, dozers, earth
compacters, etc.

Concreting plants such as batching plants, concrete mixers, transit mixers, concrete
pavers, etc.

Road equipment such as vibratory tandem rollers, electric paver finishers,

mechanical paver finishers, hot mix plants, static rollers, truck mounted pressure
bitumen sprayer, integrated stone crushing plants, etc.

19

Quarry equipment like wagon drills, jack hammers, air compressors, etc.

Transportation equipment such as cars and jeeps, tippers, tractors, water tankers,
trailers, etc.

Fabrication and erection plant such as welding generators, gas cuttings sets, work
shop equipment, cranes, generators and other miscellaneous equipment.

Competition
The construction industry is highly fragmented with large number of
players operating in an unorganized sector and a few of them in the organized sector. Some
of key players in the construction industry are L&T,Gammon (India) Ltd., Nagarjuna
Constructions, Simplex Concrete Piles Ltd., IVRCL Infrastructure & Projects Ltd. With the
works coming up all over country, the numbers of agencies have increased. This forced
most of the key players to limit their bidding to Mega Projects where few agencies get prequalified. To meet this tough competition, we are planning to enter into various joint
ventures.

Organizational Structure
The Registered & Corporate office is monitoring the entire
organization and is having overall control over the various site offices situated all over the
country. This organization is headed by Executive Vice Chairman and Managing Director
and at the helm President at Corporate Office having close association with the Executive
Directors, and Vice Presidents (Projects). The Executive Directors and Vice President
(Projects) are directly in-charge of projects under their control, and are assisted by the field
General Manager, Project Manager and other field staff for the proper planning,
implementation and successful execution of the projects.
General Manager Projects manages the project site, assisted by Project
Manager. The site organization is further divided into various functions, such as personal

20

administration, mechanical, quality, stores and materials and accounts and finance headed by
senior executives.

Key Management Personnel

At present the Company has a total strength of 935 employees who
are the permanent employees of the Company. Apart from this the Company has engaged
employees on a contractual basis on need basis.

Board of Director

Managing Director

Vice President
(Projects )

Executive Director
(Techno - legal)

General Manager
(Projects)

General Manager

Legal Consultants
Projects Manager

Company Secretary

CFO

President

Vice President
(Finance)

General Manager
Systems & Audit

Material Engineer
QC Engineer
Dy. Project. Engineer

General Manager
Accounts

Manager
(Tenders)
Manager
(Procurement)
Manager
(Contracts)
Manager
(Planning)

Safety Officer

21

Organization Structure

CHAPTER-3
REVIEW OF LITERATURE

22

INTRODUCTION
Working capital management involves the relationship between a firm's short-term assets
and its short-term liabilities. The goal of working capital management is to ensure that a firm
is able to continue its operations and that it has sufficient ability to satisfy both maturing
short-term debt and upcoming operational expenses. The management of working capital
involves managing inventories. Ratio Analysis is a form of Financial Statement Analysis that
is used to obtain a quick indication of a firm's financial performance in several key areas.
Ratio Analysis as a tool possesses several important features. The data, which are provided
by financial statements, are readily available. The computation of ratios facilitates the
comparison of firms which differ in size. Ratios can be used to compare a firm's financial
performance with industry averages. In addition, ratios can be used in a form of trend
analysis to identify areas where performance has improved or deteriorated over time.
Ratio analysis is a method of analyzing data to determine the overall financial
strength of a business. Financial analysts take the information off the balance sheets and
income statements of a business and calculate ratios that can then be used to make
assessments of the operating ability and future prospects of that business. These ratios are
useful only when compared to other ratios, such as the comparable ratios of similar
businesses or the historical trend of a single business over several business cycles. There are
various ratios that measure a company's efficiency, short-term strength, profitability, and
solvency.

WORKING CAPITAL MANAGEMENT

This chapter mainly discuss about the different concepts involved in the
working capital management. The emphasis has been given to theoretical back ground
of related items of working capital management

23

Capital of the concern may be divided into two major headings.

CAPITAL

FIXED CAPITAL

WORKING CAPITAL

Fixed capital means that capital, which is used for long-term investment of the business
concern. For example, purchase of permanent assets. Normally it consists of non-recurring
in nature. Working Capital is another part of the capital which is needed for meeting day to
day requirement of the business concern. For example, payment to creditors, salary paid to
workers, purchase of raw materials etc., normally it consists of recurring in nature. It can be
easily converted into cash. Hence, it is also known as short-term capital. Working capital
includes the current assets and current liabilities areas of the balance sheet. Working capital can be
called by its alternative name "Net Current Assets".

SIGNIFICANCE OF WORKING CAPITAL

Working capital is the life blood and the centre of business. Just as circulation of blood is
essential in the human body for maintain the smooth running of a business. No business can
run without an adequate amount of working capital as follows.

Solvency of Business
Adequate working capital helps in maintaining solvency of the business by providing
uninterrupted flow of production.

Cash Discounts
Adequate working capital also enables a concern to obtain cash discounts on the
purchases and hence is reducing costs.
24

 Quick and regular return on investments

Easy investor wants a quick and regular return on his investment. Sufficient working
capital enables a concern to its investor as there may not be much pressure to plough
back profits.

Easy Loans
A concern having adequate working capital high solvency and good credit standing can
arrange loans from banks and other on easy and favorable terms.

Regular supply of Raw materials

Sufficient working capital ensures regular supply of raw material and continuous
production.

Goodwill
Sufficient working capital enables a business concern to make prompt Payments and
hence helps in creating and maintaining good will.

CONCEPT OF WORKING CAPITAL

Working capital can be classified or understood with the help of the following two important
concepts

Gross Working Capital

Gross Working Capital is the general concept which determines the working capital concept.
Thus, the gross working capital is the capital invested in total current assets of the business
concern.
Gross Working Capital is simply called as the total current assets of the concern.

25

GWC = CA
Net Working Capital
Net Working Capital is the specific concept, which considers both current assets and current
liability of the concern.Net Working Capital is the excess of current assets over the current
liability of the concern during a particular period. If the current assets exceed the current
liabilities it is said to be positive working Capital; it is reverse, it is said to be Negative
working capital.

NWC = C A CL
Component of Working Capital
Every business needs adequate liquid resources in order to maintain day- to- day Cash flow. It
needs enough cash to pay wages and salaries as they fall due and to pay creditors if it is to keep its
workforce and ensure its supplies. Maintaining adequate working capital is not just important in the
short-term. Sufficient liquidity must be maintained in order to ensure the survival of the business in
the long- term as well. Even a profitable business may fail it does not have adequate cash flow to
meet its liabilities as they fall due Therefore, when businesses make investment decisions they must
not only consider the financial outlay involved with acquiring the new machine or the new
building, etc, but must also take account of the additional current assets that are usually involved
with any expansion of activity.
Working capital constitutes various current assets and current liabilities. This can be
illustrated by the following chart

Working Capital

Current Assets

Current Liabilities

Cash in Hand

Bills payable

Cash at bank

Sundry Creditors

Bills Receivable

Outstanding Expenses

Sundry debtors

Short term loans and advances

Accrued Income

Dividend payable

Inventories

Bank overdraft

Prepaid Expenses

Provision for taxation

26

Current Assets
Current assets are defined as either cash or those assets that can be converted into
cash within the current year. The major components of these current assets are inventories, account
receivables and advances.

Cash
It is most liquid current assets and includes cash in hand and cash at bank it
provides in start liquidity and can be used to meet obligations / acquire assets without delay

Cash

Inventory

Receivables

Cash sales
Inventories
These are materials: commodities or goods used in day- to-day operations of
production of in the form of finished goods. These include raw materials, work- in progress and finished goods.
Inventory is divided into three types
Finished goods Held for sale in the ordinary course of business
Work in Progress In the process of production for such sales
Raw Material Currently consumed in the production of goods and services to be available
for sale

27

Account Receivables
These are short- term debts owed by company arising from credit and sales made to
customers of the firms.

Advances
These represent amount paid for which the goods and services have not yet been rendered,
including advances given to suppliers and employees

Current Liabilities
This is second major content of the balance sheet is liabilities defined as the claims of
outside against the form alternatively they represent the amount that the form owes to
outside that is other than owners. The assets have to be financed by different sources.
One source of funds is borrowing long term as well as short term. The firms can borrow
on a long term basis from financial institution / banks or through bonds / mortgage /
debentures

TYPES OF WORKING CAPITAL

Working Capital may be classified into three important types on the basis of time
1. Permanent working capital.
2. Temporary working capital.

Seasonal working capital.

Special working capital.

3. Semi variable working capital.

Permanent Working Capital

It is also known as Fixed Working Capital. It is the capital; the business concern must
maintain certain amount of capital at minimum level at all times. The level of Permanent

28

Capital depends upon the nature of the business. Permanent or Fixed Working Capital will
not change irrespective of time or volume of sales

Permanent Working Capital

Amount of working
capital

Time

Temporary Working Capital

It is also known as variable working capital. It is the amount of capital which is
required to meet the Seasonal demands and some special purposes. It can be further
classified into Seasonal Working Capital and Special Working Capital. The capital required
to meet the seasonal needs of the business concern is called as Seasonal Working Capital.
The capital required to meet the special exigencies such as launching of extensive marketing
campaigns for conducting research, etc

Amount of
Working capital

Temporary
Working Capital

Time
Semi Variable Working Capital
Certain amount of Working Capital is in the field level up to a certain stage and after that it
will increase depending upon the change of sales or time.
29

Semi Variable working capital

Amount of working
Capital
Time

Working Capital Position/ Balanced Working Capital Position.

A business concern must maintain a sound Working Capital position to improve the
efficiency of business operation and efficient management of finance. Both excessive and
inadequate. Working Capital leads to some problems in the business concern.
A. Causes and effects of excessive working capital

Excessive Working Capital leads to unnecessary accumulation of raw materials,

components and spares.

Excessive Working Capital results in locking up of excess Working Capital.
It creates bad debts, reduces collection periods, etc.
It leads to reduce the profits.

B. Causes and effects of inadequate working capital

Inadequate working capital cannot buy its requirements in bulk order.

It becomes difficult to implement operating plans and activate the firms profit target.
It becomes impossible to utilize efficiently the fixed assets.
The rate of return on investments also falls with the shortage of Working Capital.
It reduces the overall operation of the business.

30

FACTORS DETERMINING WORKING CAPITAL REQUIREMENTS

They are two type of factors are there

Internal factors
External factors

Internal Factors
a) Nature of business
Working Capital of the business concerns largely depend upon the nature of the
business. If the business concerns follow rigid credit policy and sells goods only for
cash, they can maintain lesser amount of Working Capital .A transport company
maintains lesser amount of Working Capital while a construction company maintains
larger amount of Working Capital

b) Size of Business
The working capital requirements of a concern are directly influenced by the size of its
business, which may be measured in terms of scale of operations Greater the size of a business
unit, generally large will be the requirements of working capital.

c) Production cycle
Amount of Working Capital depends upon the length of the production cycle. If the
production cycle length is small they need to maintain lesser amount of Working
Capital. If it is not, they have to maintain large amount of working capital

d) Business cycle
Business fluctuations lead to cyclical and seasonal changes in business condition and it
will affect the requirements of the Working Capital. In the booming conditions,
the Working Capital requirement is larger and in the depression
condition, requirement of Working Capital will reduce. Better business
results lead to increase the Working Capital requirements.

e) Firms Production Policy

31

It is also one of the factors which affect the Working Capital requirement of the business
concern. If the company maintains the continues production policy, there is a need of
regular Working Capital. If the production policy of the company depends upon the
situation or conditions, Working Capital requirement will depend upon the conditions
laid down by the company.

f) Credit Policy
The credit policy of firm also influences magnitude of working capital. If the company
maintains liberal credit policy to collect the payments from its customers, they have to
maintain more Working Capital. If the company pays the dues on the last date it will
create the cash maintenance in hand and bank.

g) Growth and Expansion of Business

Working capital requirements of an enterprise tend to increase in correspondence with
growth in volume of sales.

h) Depreciation Policy
The depreciation policy influences the level of working capital by affecting tax liability and
retained earnings of the enterprise. Since depreciation is tax deductible expenses items, higher
amount of depreciation results in lower tax liability and greater profitability.

i) Operating efficiency of firm

Operating efficiency of firm results in optimum utilization of resources at minimum cost if
a firm successfully controls operating cost, it will be able to improve net profit margin which
will, in term, release greater funds for working capital purposes

j) Availability of raw materials

Major parts of the Working Capital requirements are largely depend on the availability
of raw materials. Raw materials are the basic components of the production process. If
the raw material is not readily available, it leads to production stoppage. So, the concern
must maintain adequate raw material; for that purpose, they have to spend some amount
of Working Capital.

k) Earning capacity
32

If the business concern consists of high level of earning capacity, they can generate
more Working Capital, with the help of cash from operation. Earning capacity is also one
of the factors which determines the Working Capital requirements of the business
concern

External Factors
A) Business Fluctuations
Business fluctuations refer to alternate expansion and contraction in general business
activity. In a period of boom that is when business is prosperous, there is a need for longer
amount of working capital due to increase in sales, rise in prices, optimize expansion of
business on the country in the items of depression that is when there is a down swing of the
cycle, the business contracts, sales decline, difficulties are faced in collections from debtors and
firms may have a large amount of working capital lying idle.

B) Technology Development
Technology development in the area of production can have shape effects on the need for working
capital. If a firm switches over to new manufacturing process and installs new equipments with
which it is able to cut period involved in converting raw materials into finished goods, permanent
working capital requirements of the firm will decrease If the new machine

COMPUTATION (OR ESTIMATION) OF WORKING CAPITAL

A. Estimation of components of working capital method
Working capital consists of various current assets and current liabilities. Hence, we have
to estimate how much current assets as inventories required and how much cash required to
meet the short term obligations. Finance Manager first estimates the assets and required
Working Capital for a particular period.

B. Percent of sales method

Based on the past experience between Sales and Working Capital requirements, a
ratio can be determined for estimating the Working Capital requirement in future. It is the
simple and tradition method to estimate the Working Capital requirements. Under this
33

method, first we have to find out the sales to Working Capital ratio and based on that we
have to estimate Working Capital requirements. This method also expresses the relationship
between the Sales and Working Capital.

C. Operating cycle
Working Capital requirements depend upon the operating cycle of the business. The
operating cycle begins with the acquisition of raw material and ends with the collection of
receivables.
The operating cycle can be shortened by the following means

Raw materials procurement

One should have a good supply network. This means that he should have a
supplier who can provide him with his raw material requirement at the right time,
place and in the required quantity at minimum amount of time.

Production process
In the production process there should not be any time lag from the time of
actually receiving the raw materials and the starting of production process. This
means as soon as the materials arrive they should be introduced in the production
process.

Finished goods
The goods once produced should be held in the companys possession as the
companys capital would be locked up in these goods. Thus it is essential that the
company sell all these finished goods as soon as possible so as to allow the company
reacquires its capital employed in the operating cycle.

Receipt of sales
The receipts of the money from the debtors as soon as possible so as to
regain the money along with the profits.
34

This is how the operating cycle operates along with how it can be improved so as to
enable the company to regain the money invested in the production of the goods being
produced.

Calculation of Operating Cycle

Operating cycle period
Formula

OC = R +W+F+D-C
Working Capital Cycle
The working capital cycle can be defined as
The need of time, which elapses between the point at which, cash beings to be expended on the
production of a product and the collection of cash from a customer.
The diagram below illustrates the working capital cycle for a construction firm:

35

The upper portion of the diagram above shows in a simplified form the chain of events in a
manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank
through which funds flow.
These tanks, which are concerned with day_ to_ day activities, have funds constantly flowing into
and out of them.

The chain starts with the firm buying all input materials on credit.

In due course this stock will be used in production, work will be carried out on the
stock, and it will become part of the firm's work in progress (WIP)

Work will continue on the WIP until it eventually emerges as the finished product

As production progresses, labor costs and overheads will need to be met

Of course at some stage trade creditors will need to be paid

When the finished goods are sold on credit, debtors are increased
36

They will eventually pay, so that cash will be injected into the firm
Each of the areas_ stocks (raw materials, work in progress and finished goods), trade
debtors, cash (positive 0r negative) and trade creditors_ can be viewed as tanks into and from which
funds flow.

SOURCES OF WORKING CAPITAL

Sources of working capital can divide into two parts
1) Short term working capital
2) Long term working capital

1) Short Term Working Capital

Short term sources can be dividing into two parts.
a) Internal Working Capital
b) External Working Capital

a) Internal Working Capital

1) Depreciation Reserve
The adding back of depreciation to determine the funds from operations is
misunderstood by some people they think that depreciation is a source of working capital. It
must be of funds. Funds (working capital) are provided by reserves, not by depreciation.
Unlike other operating expenses, depreciation does not use cash or working capital.
However, it can indirectly influence the flow of funds by affecting the firms tax liability of
the firm will be reduced there will be less outflow of cash to the income tax authority.
Except through its impact on tax liability depreciation expense has no effect on working
capital.
2) Reserve for Taxation
This is also calculated the same of above model. In this to pay future on sales than to
reserve some amount for the purpose.

b) External Working Capital

(1) Bank Credit
37

(2) Advance from Creditors

(3) Public Deposits
(4) Govt. Assistance
The types of methods are the source of working capital. These are out of the firm. These are
depending a performance of company. These relative importances of these vary from
country to country and from time to time depending upon the prevailing environment. In
India, the primary sources for Financing Working Capital trade credit. And short-term bank
credit. To obtain short-term bank credit Working Capital requirements have to be estimated
by the borrowers and the banks are approached with the necessary supporting data. The
banks determine the maximum credit based on the margin requirements of the security. The
margin represents a percentage of the value to the assets offered as security by the borrowed.

Forms of Credit
After getting the overall credit limit sanctioned by the bankers, the borrower draws
funds periodically. The following form of credit is available to the borrower.

a) Loan Arrangement
Under the arrangement the entire amount of loan is credit by the bank to the
borrowers account. In case the loan is repaid in investments, interests in payable of actual
outstanding.

b) Over draft arrangement

Under these arrangements, certain facilities are available to the borrowers, which are
not available under the loan arrangement with the overdraft arrangement the borrower is
allowed to over draw on his current account with the bank up to a stipulated limit. Within
this limit any number of drawing are permitted. Repayments can be made whenever desired
during the period. The interest liability of the borrowed is determined on the basis of the
actual amount utilized.

c) Cash Credit arrangement

This form of Credit is operated in the same way as the over draft arrangement. The

38

borrower can draw up to stipulated limit based on the security margin. He has to pay 1% as
commitment charges on the underutilized balanced during the period.

LONG TERM WORKING CAPITAL

a) Issue of Share
It is most important source of long-term regular working capital as for as possible
efforts should made to procure the maximum amount of regular working capital out of the
proceeds of shares.

b) Issue of Debentures
It is another regular working capital can also be procured by the issue of debentures
and bonds. If anybody wants mobilize working capital in the form of debentures they can
get easily permission from SEBI and Ministry of Industry.

c) Sale of fixed assets

If there any ideal fixed asset in the firm it can be sold out and the proceeds may be
utilization finance of working capital requirements.

d) Term loans
Midterm and long term loans for a period above five years provide important source
of working capital.

e) Securities from Employees and from Customers

Certain Companies requiring a Security Deposits from their employees before given
the employment under the term of service contracts.

Two important aims of working capital management are

a. Profitability and

b. Solvency i.e., the firms continuous ability to meet maturing obligations.

Liquidity Vs Profitability
39

To ensure solvency the firm should be very liquid, means larger current assets
holdings. But a considerable amount of the firms funds will be died up in current assets,
and to the extent this investment is idle, the firms profitability will suffer. To have higher
profitability, the firm may sacrifice solvency and maintain a relatively low level of current
assets but its solvency would be threatened and would be exposed to greater risk of cash
shortages and stock outs.

Principles of Working Capital Management

Working capital management is the management of current assts.Management of fixed
assets and current assets differ in three important ways. First, in managing fixed assets, time
is very important, consequently, discounting and compounding aspects of time element play
a significant role in capital budgeting and a minor one in the management of current assets.
Second, the large holding of current assets, especially cash, strengthens firms
liquidity position and reduces riskiness, but it also reduces the overall profitability.
Third, levels of fixed as well as current assets depend upon expected sales, but it is
only current assets which can be adjusted with sales fluctuations in the short-run.can utilize
less expenses raw materials, the inventory needs may be reduced.

Benefits of Working Capital Management

Create an effective, companywide working capital management system
1. Handle cash flows more efficiently
2. Develop successful strategies for short term liquidity
3. Enhance the conversion of accounts receivable to cash
4. Find out how different purchasing approaches affect accounts payable and cash
Management
5. Measure and control the costs of your company's working capital management
40

6. Apply a global approach to working capital management; incorporating major foreign

subsidiaries into your system value added conversion work in progress.
Even profitable companies fail if they have inadequate cash flow. Liabilities are
settled with cash not profits. The primary objective of working capital management is to
ensure that sufficient cash is available to
A. Meet day - to- day cash flow needs
B. Pay wages and salaries when they fall due
C. Pay creditors to ensure continued supplies of good and services
D. Pay government taxation and providers of capital- dividends and
E. Ensure the long- term survival of the business entity

CURRENT RATIO (OR) OPERATING RATIO

Current ratio is the ratio of total current assets (CA) total current liabilities
(CL). A satisfactory current ratio is 2:1 would enable a firm to meet its obligations the
standard ratio must be maintain that is current assets should be twice of current liabilities as
if the ratio is less than two than difficulty may be experienced in the payment of current
liabilities and if it is higher than two it is very comfortable for the creditor but for the
business concern it is an indicator of idle funds and a lack of enthusiasm for work. It can be
calculated as follows.
Current assets
Current ratio= --------------------------Current liabilities
Current assets= inventories+ sundry debtors+ cash & bank balances + loans & advances
Current liabilities= current liabilities+ provisions

QUICK RATIO (OR) ACID TEST RATIO

The quick or acid test ratio takes into consideration the differences in the
liquidity of the components of current assets. It represents the ratio between quick or liquid
assets (assets which can be easily converted into cash within a short period without loss of
41

value) and the total current liabilities. It is superior to the current ratio between; both these
ratios should be used ad completely to each other to analyze the liquidity position of a firm.
The standard ratio is 1:1 it can be calculated as under.
Liquid Assets
Quick ratio=

--------------------------Current liabilities

Liquid assets= Sundry debtors+ cash & bank balances+ loans & advances.
Current liabilities= current liabilities+ provisions

INVENTORY TURNOVER RATIO

This ratio, also known as stock turnover ratio establishes the relationship
between cost of goods sold during a given period and the average amount of inventory held
during that period. It indicates the number of times inventory is placed during the year or
how quickly the goods are sold. It is a test of efficient inventory us management. Higher the
ratio, the better it is because it shows that finished stock is rapidly turned-over. On the other
head, a low stock turnover ratio is not desirable because it reveals the accumulation of
obsolete stock, or the carrying too much stock. This ratio is calculated as follows
Cost of goods sold
Inventory turnover ratio = --------------------------Average stock
Cost of goods sold = opening stock+ purchase+ manufacturing expenses- closing stock
Average stock= opening stock + closing stock /2

DEBTORS TURNOVER RATIO

It indicates the efficiency of receivables management & shows how quickly
trade credit is collected. When a firm sells goods on credit, book debts are created. Debtors
42

are expected to be converted into cash over a short period. To a great extent, the amount and
quickly of debtors determine the liquidity position of the firm. Debtors turnover or
receivables turnover is calculated by dividing credit sales by average debtors. This ratio
indicates the number of times, on an average the debtors. This ratio indicates the number of
times, on an average the debtors or receivables turnover each year. Generally, the higher the
value of debtors turnover, the more efficiency is the management of assets. Sometimes, data
relating to credit sales, opening balance and closing balance of debtors may not be available.
Then debtors turnover can be calculated by dividing total sales by closing balance of
debtors.

Credit sales
Debtors turnover ratio =

--------------------------Average debtors

(Or)
Total sales
Debtors turnover ratio =

--------------------------Closing debtors

WORKING CAPITAL TURNOVER RATIO

This is the ratio used to the relation between the working capital and net sales. This ratio
calculated by dividing the working capital with the net sales. This shows the how much
working capital is in organization at how many times to the net sales.

43

This ratio is calculated as under

Net sales
Working Capital turnover ratio =

--------------------------Working Capital

MANAGEMENT OF ACCOUNTS RECEIVABLES

Accounts receivable are a legally enforceable claim for payment to a business by its
customer/ clients for goods supplied and/or services rendered in execution of the customers
order. These are generally in the form of invoices raised by the business and delivered to the
customer for payment within an agreed time frame. Accounts receivable are shown in the
balance sheet as asset. Accounts receivable is money owed to you by your customers for
goods or services that have been delivered or used, but not yet paid for.
Accounts receivable are created when a customer purchases your goods or services
but does not pay for them at the time of purchase. In other words, a sale has been made but
you have not yet collected payment from your customer. Businesses with accounts
receivable typically issue invoices for their products or services at a later date. The invoice
represents a legal obligation for the customer to pay for the goods and services based on the
terms agreed upon at the time of the sale.
The objective of receivables management is to have a trade-off between the benefits and
costs associated with the extension of credit. The benefits are increased sales and associated
increased profits or marginal contribution.

The major categories of cost of accounts

receivables are collection costs, capital costs, delinquency costs and default costs. A firms
investment in accounts receivables depends on volume of credit sales and collection period.
The financial manager can influence volume of credit sales and collection period through
credit policy.
Credit policy includes credit standards, credit terms and collection efforts. Credit standards
are criteria to decide to whom credit sales can be made and how much. If the firm has soft
44

standards and sells to almost all customers, its sales may increase but its costs in the form of
bad-debt losses and credit administration will also increase. The conditions for extending
credit sales are called credit terms and they include the credit period and cash discount.
Cash discounts are given for receiving payments before than the normal credit period. All
customers dont pay within the credit period.
Therefore, this firm has to make efforts to collect payments from customers. Collection
efforts of the firm aim at accelerating collections from slow payers and reducing bad-debt
losses. The firm should in fact thoroughly investigate each account before extending credit.
It should gather information about each customer, analyze it and then determine the credit
limit. Depending on the financial condition and past experience with a customer, the firm
should decide about its collection tactics and procedures.

MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60% of current assets in
public limited companies in India. Because of the large size of inventories maintained by
firms, a considerable amount of funds is required to be committed in them. It is, therefore,
absolutely imperative to manage inventories efficiently and effectively in order to avoid
unnecessary investments in them.
The term inventory refers to the stockpile of the product a firm is offering for sale and the
components that make up the product.
The assets which firms store as inventory in anticipation of need are
Raw materials
Work-in-process (semi-finished goods) and
Finished goods.
The raw material inventory contains items that are purchased by the firm from other and are
converted into finished goods through the manufacturing (production) process. They are an
important input of the final product.
45

The work-in-process inventory consists of items currently being use in the production
process. They are normally partially or semi-finished goods that are at various stages of
production in a multi-stage production process.
Finished goods represent final or completed products which are available for sale. The
inventory of such goods consists of items that have been produced but are yet to be sold.
Stocks of raw materials and work-in-process facilitate production, while stock of finished
goods is required for smooth marketing operations. Thus inventories serve as a link between
the production and consumption of goods.

CHAPTER-4
Research Methodology
46

Introduction
Research methodology is a way to systematically solve the research
problem. It may be understood as a science of studying how research is done
Systematically. In that various steps, those are generally adopted by a researcher in studying
his problem along with the logic behind them.
It is important for research to know not only the research method but
also know methodology. The procedures by which researcher go about their work of
describing, explaining and predicting phenomenon are called methodology. Methods
comprise the procedures used for generating, collecting and evaluating data. All this means
that it is necessary for the researcher to design his methodology for his problem as the
same may differ from problem to problem.
Data collection is important step in any project and success of any project
will be largely depend upon now much accurate you will be able to collect and how much
time, money and effort will be required to collect that necessary data, this is also important
step.

47

Data collection plays an important role in research work. Without proper data
Available for analysis you cannot do the research work accurately.

RESEARCH DESIGN
It is an Descriptive in nature.
Types of data collection
There are two types of data collection methods available
1. Primary data collection
2. Secondary data collection

1) Primary data collection

Discussions with the finance manager and other members of the finance department.

2) Secondary data collection

Secondary data is collected through annual reports and balance sheet and manual of the
company.
Project is based on
1. Annual report of GPL 2008-09
2. Annual report of GPL 2009-10
3. Annual report of GPL 2010-11
4. Annual report of GPL 2011-12
5. Annual report of GPL 2012-13
48

Limitation of the study

Following limitations were encountered while preparing this project:

1) This project has completed with annual reports; it just constitutes one part of data
collection i.e. Secondary. There were limitations for primary data collection because of
confidentiality.

2) This project is based on five year annual reports. Conclusions and recommendations are
based on such limited data. The trend of last five year may or may not reflect the real
working capital position of the company.

3) Also it was difficult to collect the data regarding the competitors and their
financial information. Industry figures were also difficult to get

Research Sequence
This study consists of two sequences both of which serve the purpose of
Understanding the determinants of WCM and ultimately developing a conceptual
framework. Further, each sequence consists of multiple stages dealing with relevant
literatures and actual practices Scapens (2004) explained that working with case studies
requires a comprehensive research plan, specified research questions, and all evidence
should be recorded to ensure procedural reliability

Figure 2. 1: Research Methodologies

49

Research Sequence 1
The research sequence 1 consists of three stages which will be briefly explained in this
section;

Stage 1
Using literature review from various academic disciplines (accounting, finance,
strategic management, operation management, and organizational Behavior) to identify
the research questions.

Stage 2
Using research questions as a topic of focus group discussion (consist of
management accountants, financial controllers, or CFO) to refine research instruments
for fieldwork.

Stage 3
Using research instruments to collect relevant data by using multiple case studies. Semistructured interviews will be undertaken with key informants who are directly involved with
WCM. The interviews will be transcribed for analysis, and stored according to appropriate
ethical standards.

Archival records will be accessed (also through appropriate ethical

process) to provide further insight. Data will be coded, categorized and themed for
theoretical constructs and narrative explanations.

50

Developing Conceptual Framework

The final output of this study is to develop a conceptual framework that explains the
determinants of WCM practices in the Malaysian context.

Using the output from

research sequences one and two, a process of triangulation will be used to validate the
theoretical conjecture from the

literature review with the multiple cases research

findings. This process will require a constant comparison of data to develop the
conceptual framework, in coherent manner.

CHAPTER-5
51

DATA ANALYSIS AND

INTERPRETATION

CURRENT ASSET ANALYSIS

Current Asset is all of company's assets that can be used to pay off current liabilities within
current fiscal period or over next 12 months. Current Asset includes cash or cash
equivalents, accounts receivable, short-term investments, and the portion of prepaid
liabilities which will be paid within next 12 months. Because these assets are easily turned
into cash, they are sometimes referred to as liquid assets.
Table No. 5.1 CURRENT ASSET ANALYSIS
(Rs. in lakhs)
Particul

2008-2009

2009-10

2010-11

2011-12

2012-13

6043.48

6933.2

6933.2

14703.

22411.

ars
Invento

52

ries

51

79

Sundry

22391.1

31490.

32847.

51428.

84903.

Debtors

65

03

33

Cash&
Bank
Balance

7560.14

20521.

20521.

17120.

19895.

95

92

29

09

Loan&

27648.7

40433.

59802.

57495.

61892.

Advanc

64

09

94

82

63643.5

99379.

120104

140748

189103

45

.25

.07

.5

es
Total of
C.A.

53

200000
180000
160000
140000
120000
Loans &Advances

100000

cash&bank bal

80000

sundry debtor's

60000

inventories

40000
20000
0

Fig.5.1

54

1. TABLE SHOWING THE WORKING CAPITAL FOR THE YEAR

31-03-2008 to 31-3-2009
Table No. 5.2
SNO.

PARTICULARS

(Rs. in lakhs)
YEAR

31-3-2008

CHANGES IN
WORKING CAPITAL
31-3-2009 INCREAS DECREASE
E

A.CURRENT ASSETS
1
2
3

3855.96
16798.68
7560.14

6043.48
22391.18
5876.47

2187.52
5592.5
_

_
_
1683067

BALANCES
4
LOANS &ADVANCES
5
TOTAL
B.CURRENT LIABILITIES

23708.21
51922.99

27648.73
61959.86

3940.52

22993.94

30146.35

7152.41

1038.94
24032.88

1204.49
31350.84

165.55

27890.11

30609.02

INVENTORIES
SUNDRY DEBTORS
CASH&BANK

CURRENT
LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT
ASSETS(A)-CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL

2718.91
30609.02

2718.91
30609.02

11720.54

11720.54

INTERPRETATION
In 2008-2009 the Net Working Capital has decreased with the amount of Rs.2718.91.

2. TABLE SHOWING THE WORKING CAPITAL FOR THE YEAR

31-03- 2009 to 31-03-2010
55

Table No.5.3
SNO.

PARTICULARS

YEAR

(Rs. in lakhs)

31-3-2009

31-3-2010

CHANGES IN WORKING
CAPITAL
INCREASE DECREASE

A.CURRENT ASSETS
1

INVENTORIES

6043.48

6933.21

889.73

SUNDRY DEBTORS

22391.18

31490.65

9099.47

CASH&BANK
BALANCES
4
LOANS &ADVANCES
5
TOTAL CURRENT
ASSETS
B.CURRENT LIABILITIES

5876.47

20521.95

14645.48

27648.73
61959.86

40433.64
99379.45

12784.91

CURRENT
LIABILITIES
PROVISIONS

30146.35

37384.58

1204.49

767.44

TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL

31350.84

38152.02

30609.02

61227.43

_
437.05

30618.41
61227.43

7238.23
_

30618.41
61227.43

37856.64

37856.64

INTERPRETATION
In 2009-2010 the Net Working Capital has decreased with the amount of Rs.30618.41

3. TABLE SHOWING THE WORKING CAPITAL FOR THE YEAR

56

31-03- 2010 to 31-03-2011

Table No.5.4
SNO.

PARTICULARS

(Rs. in lakhs)

YEAR
31-3-2010

31-3-2011

CHANGES IN WORKING
CAPITAL
INCREASE DECREASE

A.CURRENT ASSETS
1
2
3
4
5

1
2

INVENTORIES
6933.21
SUNDRY DEBTORS
31490.65
CASH & BANK
20523.47
BALANCES
LOANS & ADVANCES
40433.64
TOTAL CURRENT
99380.97
ASSETS
B.CURRENT LIABILITIES

6425.46
32847.03
17120.29

_
1356.38
_

507.75
_
3403.18

59802.09
116194.87

19368.45

CURRENT LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)

37386.1
767.44
38153.54

45916.28
989.21
46905.49

61227.43

69289.38

_
_

8530.18
221.77

CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL

8061.95
69289.38

8061.95
69289.38

20724.83

20724.83

INTERPRETATION
In 2010-2011 the Net Working Capital has decreased with the amount of Rs.8061.95.

4. TABLE SHOWING THE WORKING CAPITAL FOR THE YEAR

31-03- 2011 to31-03-2012
Table No.5.5

(Rs. in lakhs)
57

SNO.

PARTICULARS

YEAR
31-3-2012

CHANGES IN WORKING
CAPITAL
INCREASE DECREASE

INVENTORIES
6425.46
SUNDRY DEBTORS
32847.03
CASH & BANK
17120.29
BALANCES
LOANS & ADVANCES
46090.03
TOTAL CURRENT
102482.81
ASSETS
B.CURRENT LIABILITIES

14703.51
51428.33
14412.22

8278.05
18581.3
_

57495.94
138040

11405.91

CURRENT

27234.24

21775.36

1089.62
28323.86

236.74

31-3-2011
A.CURRENT ASSETS
1
2
3
4
5

1
2

5458.88

LIABILITIES
PROVISIONS
852.88
TOTAL CURRENT
6311.76
LIABILTIES
CURRENT ASSETS(A) 96171.05

_
_
2708.07
_

109716.14

CURRENT

LIABILITIES(B)
NET INCRESE IN
WORKING CAPITAL
TOTAL

13545.09

13545.09

109716.14

109716.14

38265.26

38265.26

INTERPRETATION
In 2011-2012 the Net Working Capital has decreased with the amount of Rs.13545.09.

5. TABLE SHOWING THE WORKING CAPITAL FOR THE YEAR

31-03- 2012 to31-03-2013
Table No.5.6

(Rs. in

lakhs)
SNO.

PARTICULARS

YEAR

CHANGES IN WORKING
CAPITAL
58

31-3-2012

31-3-2013

INCREASE

DECREASE

INVENTORIES
14703.51
SUNDRY DEBTORS
51428.33
CASH &BANK
14412.22
BALANCES
LOANS & ADVANCES
57495.94
TOTAL CURRENT
138040
ASSETS
B.CURRENT LIABILITIES

22411.79
84903.8
19895.09

7708.28
33475.47
5482.87

_
_
_

61892.82
189103.5

4396.88

CURRENT LIABILITIES
PROVISIONS
TOTAL CURRENT
LIABILITIES
CURRENT ASSETS(A)CURRENT
LIABILITIES(B)
NET INCREASE IN
WORKING CAPITAL
TOTAL

27234.24
1089.62
28323.86

11556.80
1059.99
12616.79

15677.44
29.63

_
_

109716.14

176486.71

A.CURRENT ASSETS
1
2
3
4
5

1
2

66770.57

66770.57

176486.71

176486.71

66770.57

66770.57

INTERPRETATION
In 2012-2013 the Net Working Capital has decreased with the amount of Rs.66770.57.

NET WORKING CAPITAL

Table No.5.7

(Rs. in

thousands)
YEARS

CURRENT ASSETS

CURRENT
LIABILITIES

NET WORKING
CAPITAL

59

2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

61959.86
99379.45
116194.87
138040
189103.5

31350.84
38152.02
46905.49
28323.86
28323.86

30609.02
61227.43
69289.38
109716.14
160779.64

200000
180000
160000
140000
120000
100000

CURRENT ASSETS

Ratio 80000

CURRENT LIABILITIES

60000

NET WORKING CAPITAL

40000
20000
0

Fig.5.2

INTERPRETATION
If the current assets were greater than the current liabilities it indicates the companys good
financial position.

Current Ratio
Current Assets
Current Ratio =

-------------------Current Liabilities

60

Current assets
Current assets include cash and bank balances, marketable securities, inventory, debtors,
loans & advances and pre paid expenses.
Current liabilities
Current liabilities include loans and advances (taken), trade creditors, accrued expenses and
provisions.
Table No.5.8 (Rs. in thousands)
YEARS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

CURRENT ASSETS

CURRENT

CURRENT RATIO

61959.86
99379.45
116194.87
138040
189103.5

LIABILITIES
31350.84
38152.02
46905.49
53281.32
139730.95

1.9
2.6
2.4
2.5
1.3

3
2.5

2.6

2.4

2.5

1.9

2
1.3

Ratio 1.5
1

Year

0.5
0
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013
Year

Fig.5.3
61

INTERPRETATION
By observing above table it can be known that firms current ratio is more than 1 in all the
years except in 2008-2009 and 2012-2013, were it is up to 2. It indicates that the firm is able
to meet its current obligations smoothly.Gayatri Projects Ltd., maintained a good liquidity in
all financial years of study. So comparativly the company is not having any liquidity
problem.

Quick Ratio
The acid test ratio is called quick ratio, is a fairly stringent measure of liquidity. It is based
on those current assets which are highly liquid inventories are inclueded from the numerator
of this ratio because inventories are deemed to be the least liquid component of current
assets.
Quick assets
Quick Ratio =

------------------Current liabilities

Quick assets
Quick assets are defined as current assets excluding inventories.

Current liabilities
Current liabilities include loans and advances (taken), trade creditors, accrued expenses and
provisions.
Table No.5.9
YEARS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

QUICK ASSETS
55916.38
92446.25
109769.41
129034.98
167026.83

QUICK LIABILITIES
31350
38152.02
46905.49
26047.08
38134.14

(Rs. in thousands)
QUICK RATIO
1.7
2.4
2.3
4.9
4.3
62

7
6

4.9

5
Ratio

2.4

1.7

4.3

2.3

Quick Ratio

1
0
2008-20092009-20102010-20112011-20122012-2013
Year

Fig.5.4

INTERPRETATION
The quick ratio/acid test ratio is very useful in measuring the liquidity position of a firm. It
measures the firm's capacity to pay off current obligations immediately and is more rigorous
test of liquidity than the current ratio. It is used as a complementary ratio to the current ratio.
A quick ration of 1:1 is considered to represent a satisfactory current financial condition. It
means the company should maintain the quick ratio of 1:1 to get good results in future.
From the above table it is inferred that quick ratio in 2009 was 1.7 and increased to 2.4 in
2010 and then decreased to 2.3 in 2011 and has a continues increase in remaining years.

TOTAL DEBT RATIO

A financial ratio that measures the extent of a companys or consumers leverage.
The debt ratio is defined as the ratio of total debt to total assets, expressed in percentage, and
can be interpreted as the proportion of a companys assets that are financed by debt.
63

Total debt ratio =

Total Assets - Total Equity

_____________________
Total Assets
Table No.5.10 (Rs. in

thousands)
YEARS

TOTAL ASSETS

2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

TOTAL EQUITY

61959.86
99379.45
116194.87
240462.82
292911.38

21575.4
28041.17
33795.88
51622.18
62542.87

0.78

TOTAL DEBT
RATIO
0.65
0.71
0.70
0.78
0.78

0.78

0.78
0.76
0.74

0.71

0.72

0.7

0.7

Ratio

0.68
0.66

0.65

Total Debt Ratio

0.64
0.62
0.6
0.58
2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

YEAR

Fig.5.5
INTERPRETAION

64

From the above table it is observed that total debt ratio is 0.65 in 2009 and increased
to 0.71 in 2010 and then continues increase in remaining years i.e., in 2012 and 2013 the
ratio is 0.78.

DEBT TO EQUITY RATIO

Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It
is a leverage ratio and it measures the degree to which the assets of the business are financed
by the debts and the shareholders' equity of a business.

Total Liabilities

Debt-to-Equity Ratio =

Shareholders' Equity

Table No.5.11 (Rs. in thousands)

YEARS
2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

TOTAL LIABILITIES
31350.84
38152.02
46905.49
240462.82
292911.38

SHARE

HOLDERS DEBT TO EQUITY

EQUITY
21575.45
28041.17
33795.88
51622.18
62542.87

RATIO
1.4
1.3
1.3
4.6
4.6

65

4.6

4.6

4.5
4
3.5
3

Ratio

2.5
2

1.4

1.5

Debt
Ratio
1.3 to Equity1.3

1
0.5
0
2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

YEAR

Fig.5.6

INTERPRETAION
From the above table it is observed that debt equity ratio is 1.4 in 2009
and decreased to 1.3 in 2010 and 2011.then it increased to 4.6 in 2012 and 2013.

EQUITY MULTIPLIER
The ratio shows a company's total assets per dollar of stockholders' equity. A higher
equity multiplier indicates higher financial leverage, which means the company is relying
more on debt to finance its assets.

Equity Multiplier =

Total Assets
_____________
Total Equity

Table No.5.12 (Rs. in

thousands)
66

YEARS

TOTAL ASSETS

2008-2009
2009-2010
2010-2011
2011-2012
2012-2013

TOTAL EQUITY

61959.86
99379.45
116194.87
240462.82
292911.38

21575.4
28041.17
33795.88
51622.18
62542.87

4.6

EQUITY
MULTIPLIER
2.8
3.5
3.4
4.6
4.6

4.6

4.5

3.5

4
3.5
3

Ratio

3.4

2.8

2.5

Equity Multiplier

2
1.5
1
0.5
0
2008-2009

2009-2010

2010-2011

2011-2012

2012-2013

YEAR

Fig.5.7

INTERPRETAION
From the above table it is observed that Equity Multiplier is 2.8 in 2009 and
increased to 3.5 in 2010.Then decreased to 3.4 in 2011 and continues increase to 4.6 in 2012
and 2013.

67

CHAPTER-6

FINDINGS, SUGGESTIONS AND

CONCLUSION

68

FINDINGS
The study reveals that Total debt ratio increase in 2009-2010 so that the company has
more leveraged and company has greater financial risk.
The debt equity ratio is fluctuating so that the company has more risky financial
position.
.

69

SUGGESTIONS

The working capital management of Gayatri project ltd is not satisfactory so it is

suggested that to improve its working capital position.

It is suggested to train its human resources to have required skilled human
resource for increase in efficiency of operation.

70

CONCLUSION

Working capital is an important liquidity indicator and historically it has been a major
benchmark for the profitability of construction contractors in infrastructure projects. A high
return on capital employed is an illusion if it is accompanied by inefficient or fraudulent
working capitalmanagement. The study on working capital management conducted in
GAYATRI Ltd. to analyze the financial position of the company. The companysfinancial
position is analyzed by using the tool of annual reports from 2008-09 to 2012-13.The
financial status of GAYATRI PROJECTS Ltd. is good.

71

APPENDIX

72

BIBLIOGRAPHY
BOOKS
To obtain more information regarding the present study and to substantiate it
with theoretical proof, the following references were made:
1. Dr.S.N.Maheshwari(2004).FinancialManagement.9thEdition,Sulthan
Sons Educational Publisher New Delhi.Page no.B-50.
2. P.V.Kulkarni(2002).Financial
Management.11thEdition,Himalaya
House.Page no.308.
3. Prasanna Chandra(2006).Financial

Management.6thEdition,Tata

Chandra

and

Publishing
McGraw-Hill

Publishing Co.Ltd New Delhi.Page No.73.

WEB SITES

WWW.GAYATRI.CO.IN

73