A

SUMMER TRAINING
PROJECT REPORT
ON

MANAGEMENT OF WORKING CAPITAL IN WPIL

LTD.

Submitted to Mahamaya Technical University, Noida in the partial

fulfillment of the requirement for the award of the degree
of
BACHELOR OF BUSINESS ADMINISTRATION
(ABES INSTITUTE OF BUSINESS)

Unider the Guidance of :- Submitted by

:-
Mr. Ashok Agarwal Sachin Kumar Gupta
Finance Manager BBA

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 Roll No.
1261070015

PREFACE

Practical aspect is of more knowledge and experience than the theory learning It is
incomplete without practical aspect. Summer training is one of the most important part of
curriculum for management student .Its basic idea is to strengthen the students concept
through practical training and make them aware with recent development the day when it
was business as usual and heavy advertisement and consider that customer exhibit
varying and diverse requirement for combination and prices consider that they have high
and rising expectation of quality and service .In their vat choices customer will granitite
to the offerings that best meet their individual need and expectation but will buy only the
basic of their perception volume. This project is basis of TOPIC .The study was
conducted for the period of two month attempts is being made to give a precise
comprehensive views and graphs are made to fulfill the understanding of the subject
matter.

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 ACKNOWLEDGEMENT

I am thankful to management of WPIL Ltd. for granting the permission, corporation and
valuable information for competition of this project.

No words are enough to thank Mr. Ashok Agarwal (Finance Manager), who not only
inspired me to work on this project but also accepted to guide me. In spite of heavy
responsibilities and busy schedules, they always managed time to provide proper
guidance.

I am also very thankful to ABES-IT, Ghaziabad and faculty members for their kind
support and co-operation.

Last but not the least, I would like to say that my parents and my friends for giving me
their constant support and encouragement in completion of my project.

Sachin Kumar Gupta

MBA 3rd sem.

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 DECLARATION

I SACHIN KUMAR GUPTA student of ABES IT Group Of Institutions here by

solemnly declare that the project titled MANAGEMENT OF WORKING CAPITAL

IN WPIL LTD. is my original as all the information, facts and figure in this report is

based on my own experience and study during my research.

Date __________

SACHIN KUMAR GUPTA

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 TABLE OF CONTENT

Chapter-1 Page No-

Introduction 1-29

Chapter-2

Objective of the Study 30-31

Research Methodology 32-35

Chapter-3

Data Analysis & Interpretation 36-66

Chapter- 5

Finding 67-70

Bibliography 71-72

Annexure

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MBA Page 6
 COMPANY PROFILE

Welcome to WPIL Limited

WPIL Limited dedicates itself to the cause of total customer satisfaction. The Company

has to its credit a rich experience of about 60 years in Designing, Developing,

Manufacturing, Erecting, Commissioning and Servicing of Pumps & Pumping Systems.

With the help of erstwhile foreign partners such as JOHNSTON PUMPS For Vertical

Turbines, HAYWARD TAYLOR for Submersibles and WORTHINGTON for

Horizontals; or with the in-house R&D recognized by the Ministry of Science and

Technology, Govt. of India, it has grown into a strong brand - WPIL.

WPIL Limited dedicates itself to the cause of total customer satisfaction. The
Company has to its credit a rich experience of about 60 years in Designing,
Developing, Manufacturing, Erecting, Commissioning and Servicing of Pumps &

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Pumping Systems.
With the help of erstwhile foreign partners such as JOHNSTON PUMPS for
Vertical Turbines, HAYWARD TAYLOR for Submersibles and WORTHINGTON
for Horizontals; or with the in-house R&D recognized by the Ministry of Science
and Technology, Govt. of India, it has grown into a strong brand - WPIL.
Historical Benchmarks:

1952 Johnston Pumps India - A JV of Johnston, US.

1982 License from Hayward Tyler, UK for Submersible motor.
1983 Worthington Pump India Ltd - JV of Worthington.
1990 1st 2 x 500 MW CW Pump order for NTPC Farakka.
2003 First turnkey contract from NTPC Vindyachal 500 MW
2005 Turnkey project for Bagjola Drainage Pumping Station
2006 Major Sea water Pumps (DuplexSS) for Saudi Arabia-JANA.
2008 WPIL-CLYDE JV is formed
2009- First Duplex Stainless Steel CW Pumps in India (NTPC - Simhadri),
10 orders for largest capacity
metalic CW Pumps (45,000 M/hr) & concrete Volute Pumps
2011 WPIL starts operations in Australia, Thailand & UK.
2012 WPIL through its international subsidiary WPIL international
(Singapore) has acquired the pump business of PSV South Africa
comprising of 100% shareholding in APE pumps,Mather & Platt SA,
PSV Services SA and PSV Zambia.

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Investors services

Do you need more information about Investor Services ?

Please download the .pdf files for more details.

Shareholding Pattern
Compliance with Corporate Governance
Financial Information
Investor Grievances
Corporate Announcement
Notice Of Board Meeting
Annual Report

Applications :
Circulating Water / Intake - River water or Sea water

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 Auxiliary Cooling Water
Ash Water Pump
General Service Water
Pumps :
Vertical Turbine, Mixed Flow Pumps
Submersible Pumps
Horizontal Split case Pumps

WPIL PUMPS INSTALLED IN ALMOST ALL MAJOR THERMAL POWER PLANTS

IN INDIA
Some Of The Major Installations :
Ramagundem STPP., NTPC. Capacity : 15000 M3 / HR.
Singrauli STPP., NTPC. Capacity : 16,500 M3 / HR.
Farakka STPP., NTPC. Capacity : 31,500 M3 / HR.
Talcher STPP., NTPC. Capacity : 33,100 M3 / HR.
Budge Budge TPS., CESC. Capacity : 15,500 M3 / HR.
Panipat TPS., HSEB. Capacity : 15,000 M3 / HR.
PT. Perusahaan Listrik Negara (Persero) for the Lampung, Indonesia 11,262 M / HR.

Group A

Vertical Mixed

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 Vertical Turbine Pumps
Range : Capacity upto 40,000 M/Hr
Power : upto 4000 kW
No. Of Models : 178
CORE COMPETANCE

capacity upto 45,000 M/Hr

Power : upto 1500 kW
No. Of Models : 88

Group B
Borewell Application Sewage Application / Bottom Suction Type

Submersible Pump
Range: Capacity upto 2400 M/hr, Power: upto 750 kW Range: Capacity upto 15000 M/hr
Speed : 2900 / 3500 RPM & 1460 /1760 RPM
Power Supply: 50 & 60 Hz

Group C

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MBA Page 12
CORPORATE & REGISTERED OFFICE

WPIL LIMITED
"Trinity Plaza", 3rd Floor,
84/1A, Topsia Road (South)
Kolkata - 700046, India.
Phone : +91 33 3021 6800

NAME OF REGISTRAR & TRANSFER AGENT

MCS LIMITED
77/2A, Hazra Road, Kolkata - 700029
Phone : 0(33) 2454 1892, 2454 1893
Fax : 0(33) 2454 1961, 2474 7674

FACTORY ADDRESS MARKETING

Domestic
WPIL LIMITED (India) :
22, Ferry Fund Road, Panihati, Mr. Asok Bhattacharya
Kolkata - 700114, West Bengal, India E Mail :
Phone : +91 33 2553 2905, 2553 3034 asok@wpil.co.in
Fax : +91 33 2583 3459
Mr. Gaurango
WPIL LIMITED Bandopadhyay
A-5, Sector XXII, Meerut Road, E Mail :
Ghaziabad - 201002, (U.P.), India gouranga@wpil.co.in
Phone : +91 120 3015784 / 2788117
Fax : +91 120 3015740 International
:
Mr. Subrata Samanta
E Mail :
subrata@wpil.co.in

PURCHASE
(BUYER)
Mr. R. S. Sharma
E Mail :
rssharma@wpil.co.in

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MBA Page 14
 Working Capital Analysis

EVERY NOBLE ACQUISITION IS ATTENDED WITH RISKS; HE WHO FEARS

TO ENCOUNTER IT MUST NOT EXPECT TO OBTAIN THE OTHERS.

-Pietro Metastasio

MONEY IS LIKE MUCK, NOT GOOD EXCEPT IT BE SPREAD.

-Francis Bacon
CREDITORS HAVE BETTER MEMORIES THAN DEBTORS.

-Benjamin Frankein

Working capital management is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities, and the interrelationships 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 with in one year without undergoing a
diminution in value and without disturbing the operations of the firm. The major
current assets are cash, marketable securities, accounts receivables and inventory.

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Current liabilities are those liabilities, which are intended at their inception to be
paid in ordinary course of business with in one year, out of current assets to
earnings of the concern. The basic current liabilities are accounts payables, bank
overdrafts, outstanding expenses.

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The interaction between current assets and current liabilities is therefore, the The goal of

working capital management is to manage the firms current assets and current

liabilities in such a way that a satisfactory level of working capital is maintained. This is

so because if the firm cannot maintain 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, 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 main theme of the theory of working capital

management. There are two concepts of working capital viz. Gross Working Capital and

Net Working Capital. The term Gross Working Capital also referred to as working

capital means the total current assets. On the other hand the term Net Working

Capital can be defined in two ways:

The most common definition of net working capital is the difference between

current assets and current liabilities,

The alternate definition of net working capital is that proportion of a firms current

assets, which is financed by long term funds.

IMPLICATION OF NET WORKING CAPITAL

Efficient working capital management requires that firms should operate with some

amount of net working capital, the exact amount varying from firm to firm depending

upon other things and on the nature of the industry. The theoretical justification for the

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use of net working capital, to measure a firms liquidity, is based on the premise that

greater the margin by which the current assets cover the short term obligations, the more

it will be able to pay its obligations when they become due for payment. Net working

capital is necessary because the cash outflows do not coincide. In other words it is the

non-synchronous nature of cash flows that make net working capital necessary.

Net working capital can alternatively be defined as that part of current assets, which is

finance with long term funds. Since current liabilities represent sources of short term

funds, as long as current assets exceed current liabilities, the excess must be financed

with long term funds. This alternative definition as shown subsequently is more useful for

the analysis of the tradeoff between profitability and risk.

TRADEOFF BETWEEN PROFITABILITY AND RISK

In evaluating a firms net working capital position an important consideration is the

tradeoff between profitability and risk. In other words, the level of a firms net working

capital has a bearing on its profitability as well as risk. The term profitability used in this

context is measured by profits after expenses. The term risk is defined as the profitability

that a firm will become technically insolvent so that it will not be able to meet its

obligations when they become due for payment.

The risk of becoming technically insolvent is measured using net working capital. It is

assumed that greater the amount of net working capital, less risky the firm is. Or the

greater the net working capital, the more liquid the firm and therefore the less likely it is

to become technically insolvent. Conversely lower level of net working capital and

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liquidity are associated with increasing levels of risk. The relationship between liquidity,

risk and

NATURE OF TRADEOFF

If a firm wants to increase its profitability, it must also increase its risk. If it is to decrease

risk, it must decrease profitability. The tradeoff between these variables is that regardless

of how the firm increase in the risk as measured used by the level of net working capital.

In evaluating the profitability risk tradeoff related to the level of net working capital,

three points have to be kept in mind about WPIL Limited operations.

That we are dealing with power company,

That current assets are less profitable than fixed assets, and

That short term funds are less expensive than long term funds.

THE EFFECT OF THE LEVEL OF CURRENT ASSETS ON THE

PROFITABILITY RISK TRADE OFF

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The effect of the level of the current assets on profitability- Risk and Trade off can be

shown, using the ratio of current assets to total assets. The ratio indicates the percentage

of total assets that are in the form of current assets.

Effect of increase / higher ratio

1. An increase in the ratio of current assets to total assets will leads to a decline in

profitability because current assets are assumed to be less profitable than fixed

assets.

2. A second effect of the increase in the ratio will be that because the increase in

current assets, assuming no change in current liability, will increase net working

capital.

Effect of decrease / lower ratio

A decrease in the ratio of current assets to the total assets will results in an increase in

profitability as well as risk. The increase in the profitability will primarily be due to the

corresponding increase in the fixed assets which are likely to generate higher return.

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 RATIO
ANALYSIS

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 RATIO ANALYSIS

RATIO ANALYSIS IS A STUDY OF RELATIONSHIP AMONG VARIOUS

FINANCIAL FACTORS IN A BUSINESS.

Ratio analysis is a technique of analyzing the financial statements by computing ratios.

In others words, ratio analysis is a process of determining and interpreting relationship

between the items of financial statements to provide a meaningful understanding of the

performance and financial position of an enterprise. Ratio analysis is an accounting tool

to present accounting variables in a simple, concise, intelligible and understandable form.

OBJECTIVES OF RATIO ANALYSIS

The objective of ratio analysis is to judge the earning capacity, financial soundness and

operating efficiency of the business organisation. The use of ratios in accounting and

financial management analysis helps the management to know the profitability, financial

position (liquidity & solvency) and operating efficiency of the enterprise.

EXPRESSION OF RATIO

Accounting ratios express the relationship between two financial variables of the financials

statements. They are expressed in anyone of the following:

(1) PURE -: It is expressed as a quotient. For example, current ratio that expresses

the relationship between current assets and current liabilities is (say) 2.

CURRENT RATIO- : CURRENT ASSETS

CURRENT LIABILITIES

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 = Rs 200000 =2

Rs 100000

It may also be expressed as 2: 1.

(2) PERCENTAGE -: It is expressed in percentage. For example, gross profit ratio

which relates gross profit to net sales is (say) 25%.

G/P RATIO-: GROSS PROFIT * 100

NET SALES

(3) TIMES -: It is expressed in a number of times a particular figure is compared to

another figure. For example, stock turnover ratio which studies relationship

between cost of good sold and average stock is (say) 4 times.

(4) FRACTION -: It is expressed in fraction. For example, ratio of fixed assets to

share capital is (say) 3.75.

NOTE -: Ratio, sometimes, may be expressed in terms of days also. For example, the

average collection period is 73 days.

ADVANTAGES AND USES OF RATIO ANALYSIS

Useful in analysis of financial statements.

Useful in simplifying accounting figures.

Useful in judging the operating efficiency of business.

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 Useful in forecasting.

Useful in locating the weak spots.

Useful in inter-firm and intra firm comparison.

LIMITATIONS OF RATIO ANALYSIS

False results.

Different meanings are put on different terms.

Not comparable if different firms follow different accounting policies.

Affect of price level changes.

Window dressing.

Personal bias.

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 LIQUIDITY
RATIOS
(SHORT-TERM)

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 LIQUIDITY RATIOS
(SHORT-TERM)

CURRENT RATIO OR WORKING CAPITAL RATIO

Current ratio is a relationship of current assets to current liabilities and is computed to

assess the short-term financial position of the enterprise. It means current ratio is an
indicator of the enterprises ability to meet its short-term obligations.
CURRENT RATIO- : CURRENT ASSETS
CURRENT LIABILITIES

OBJECTIVE & SIGNIFICANCE

The objective of calculating current ratio is to assess the ability of the enterprise to meet
its short-term liabilities promptly. It is used to assess the shortterm solvency of the
business enterprise since this ratio assumes that current assets can be converted into cash
to meet current liabilities. Its shows the number of times the current assets are in excess
over current liabilities. As a normal rule, current assets should be twice the current
liabilities.

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 ACID TEST RATIO OR QUICK RATIO OR ACID RATIO

Acid Test Ratio is a relationship of liquid assets with current liabilities and is computed
to assess the short-term liquidity of the enterprise. This is calculated as follows -:
LIQUID RATIO: - LIQUID ASSETS
CURRENT LIABILITIES

LIQUID ASSETS = CURRENT ASSETS - (STOCK + PREPAID EXP)

OBJECTIVE AND SIGNIFICANCE

The objective of computing Quick Ratio is to assess the short-term solvency of the
enterprise. This Ratio is an indicator of short term debt paying capacity of the enterprise
and thus, is a better indicator of liquidity. The comparison of current ratio with liquidity
ratio would indicate the degree of inventory held, therefore quick ratio is considered as a
further refinement of the current ratio.

NOTE: - A Quick Ratio of 1:1 is usually considered favorable, since for every rupee of
current liabilities, there is a rupee of quick assets.

A High Quick Ratio compared to current ratio may indicate under stocking while low
quick ratio indicates overstocking

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 ACTIVITY
RATIOS

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ACTIVITY RATIOS

INVENTORY TURNOVER RATIO

Inventory Turnover Ratio establish relationship between the cost of goods sold during a
given period and the average amount of inventory carried during that period. It indicates
whether the investment in stock has been efficiently used or not, the purpose being to
check whether only the required minimum amount is invested in stocks. It is calculated as
follows -:

INVENTORY TURN OVER RATIO: - COST OF GOODS SOLD ASSETS

+ Direct expenses - Closing stock.

Average Inventory:- Opening stock + Closing stock
2
INVENTORY HOLDING PERIOD: - 360(DAYS)
ITR
OBJECTIVE & SIGNIFICANCE
The objective of computing inventory (stock) turnover ratio is to ascertain whether the
investment in stock has been judicious or not i.e., that only the required amount is
invested in stocks

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DEBTORS TURNOVER RATIO

Debtors turnover ratio establish the relationship between net credit sales and average
debtors (or receivable) of the year. It is calculated as follows: -

DEBTORS TURNOVER RATIO: - NET CREDIT SALES

AVG. ACCOUNT RECEIVABLE

ACCOUNT RECEIVABLE: - It includes Trade Debtors and Bills Receivable.

NOTE: - If details regarding opening and closing receivable and credit sales is not given,
the ratio can be calculated as follows:-

DEBTORS TURNOVER RATIO: - TOTAL SALES

ACCOUNT RECEIVABLE

AVERAGE COLLECTION PERIOD (ACP): - 360(DAYS)

DTR

OBJECTIVE & SIGNIFICANCE

This Ratio indicates the number of times the receivable are turned over in a year in
relation to sales. It shows how quickly debtors are converted into cash and thus, indicates
the efficiency of the staff entrusted with collection of amounts from debtors.

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 CREDITORS OR PAYABLES TURNOVER RATIO

It shows the relationship between net credit purchases and total payable or average

payable; where as average payment period or creditors velocity signifies the credit period

enjoyed by the enterprise in paying creditors. It is calculated as follows:-

CREDITORS TURNOVER RATIO- : TOTAL CREDIT PURCHASES

AVG. ACCOUNT PAYABLE

AVERAGE PAYABLE: - It includes Creditors and Bill payable.

AVERAGE PAYMENT PERIOD: - 360 (DAYS)

CTR

OBJECTIVE & SIGNIFINANCE

The objective of computing creditors turnover ratio is to establish the number of times the

creditors are turned over in relation to purchases.

NOTE -: The lower the ratio, the better is the liquidity position of the firm, and the
higher the ratio, the lesser is the liquid position of the firm.

FIXED ASSETS TURNOVER RATIO

Fixed Assets Turnover Ratio establishes the relationship between fixed assets and net
sales indicating how efficiently they have been used in achieving the sales. When
compared with a previous period or with the industry standard, it indicates whether the
investment in fixed assets have been judicious or not. This ratio is computed as follows
-:

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FIXED ASSETS TURNOVER RATIO: - NET SALES
NET FIXED ASSETS

NET FIXED ASSETS (NFA): - Fixed assets Depreciation

OBJECTIVE & SIGNIFICANCE

assets is justified in relation to the sales achieved.

If there is a fall in the ratio, it indicates that fixed assets remained idle and therefore,
the management should investigate and determine the reason for decline.

The objective of calculating this ratio is to establish whether the investment in fixed

CURRENT ASSETS TURNOVER RATIO

This Ratio establishes the relationship between net sales and current assets. It indicates
how efficiently currents have been used in achieving the sales. As an indicator of efficient
or inefficient use, the ratio should be compared with the previous period or industry
standards. It is calculated as follows:-
CURRENT ASSETS TURNOVER RATIO- : NET SALES
CURRENT ASSETS

NET SALES: - It means Gross Sales minus Sales Return.

OBJECTIVE AND SIGNIFICANCE

The objective of calculating this ratio is to establish whether the current assets have been
efficiently used to produce sales or whether the current assets have been utilising
efficiently or not. On the basis of this ratio, efficiency or inefficiency of current assets
over and under investments in the firm is examined.

NOTE: - The ratio is useful for those concerns where use of fixed assets is negligible.

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 PROFITABILITY
RATIOS

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 PROFITABILITY
RATIOS
GROSS PROFIT RATIO

This Ratio establishes relationship of Gross profit on Sales to Net Sales of the firm. It is
computed as follows:-
GROSS PROFIT RATIO: - GROSS PROFIT * 100
NET SALES

GROSS PROFIT: - Sales - Cost of Good Sold (COGS)

NET SALES: - It means Gross Sales (both Cash & Credit) minus Sales Return.

OBJECTIVE & SIGNIFICANCE

Gross Profit Ratio is a reliable guide to the adequacy of the selling price and efficiency
of trading activities. This Ratio should be adequate to cover the administrative and
marketing expense and to provide for fixed charges, dividends and building up reserves.
.
NET PROFIT RATIO

Net Profit Ratio establishes the relationship between net profit and sale, i.e., it shows the
% of net profit earned on sales. Net profit is computed by deducting all direct costs, i.e.
cost of good sold and indirect costs like administrative and marketing expense, finance
charges and making adjustments for non-operating expense from net sales and adding
non-operating incomes. It is calculated as follows: -

NET PROFIT RATIO: - NET PROFIT * 100

NET SALES
NOTE: - Sometime Net Profit Ratio is computed taking either (Profit before taxes) or
(Profit after tax)

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OBJECTIVE AND SIGNIFICANCE

The Net Profit Ratio is an indicator of overall efficiency of the business. Higher the net
profit ratio better it is. This ratio helps in determining the operational efficiency of the
business. A comparison with the industry standard is also an indicator of the efficiency of
the business. Sometimes Net Profit Ratio is taken as a better indicator of profitability
since tax liability on profit is beyond the control of the enterprise.

OPERATING RATIO

The Operating Ratio is computed to establish relationship between Operating Costs and
Net Sales. This Ratio indicates the proportion that the cost of sales or operating costs
bears to sales. Cost of sales includes direct costs of goods sold as well as other operating
expense, administration, selling and distribution expense which have matching
relationship with sales. It excludes non-operating incomes and expense, i.e., income and
expense, which have no bearing on production and sales. E.g. Interest and dividend
received on investment, interest on loans etc. It is calculated as follows: -

OPERATING RATIO: - COST OF GOODS SOLD + OPERATING EXPENSE *

NET SALES

OR

OPERATING RATIO: - OPERATING COST * 100

NET SALES

COGS: - Opening stock + Purchases + Direct Expenses Closing Stock

OPERATING EXPENSE: - Administrative Expense + Selling and Distribution

Expense.

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 CHAPTER -2
OBJECTIVE OF THE
STUDY

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OBJECTIVE OF THE STUDY

The ratios calculated and analyzed have been broadly divided under four parameters. The
objective of the study is :

To study and analyze the liquidity position of WPIL Limited

To study and analyze the profitability,
To study the efficiency of working capital management,
To study and analyse the structural health of the division working capital
structure.

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 RESEARCH
METHODOLOGY

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 Research Methodology

Objective

The basic objective of this project is to provide an analytical overview of Working

Capital Management of WPIL Limited by bringing into use various theoretical tools
and skills which have been studied. This includes studying and analyzing financial data
published in annual reports over a period of 3 years from 2008-09 to 2010-11. With the
aim of gaining useful insights into the skills needed for controlling the movement of
working capital. It also includes suggestion and comments to improve specific areas of
weaknesses. The broad areas, which have been analyzed, are as follows -

Data Collection

Primary Data

The primary sources of data like the profit and loss account, balance sheet, etc. is taken
from the last three years annual report of WPIL Limited. Using this data, ratios are
calculated under four heads. These data and other financial highlights for the past three
years are used to calculate the storage periods of the components, which make up the
operating cycle.

All the data analysis is done with the help of my guide Mr. Ashok Behl. All of the
analysis has been done for the past three years with a view to analyze trends.

Secondary Data

Secondary data is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, surveys, organizational records and
data collected through qualitative methodologies or qualitative research. Primary data, by
contrast, are collected by the investigator conducting the research.

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Secondary data analysis saves time that would otherwise be spent collecting data and,
particularly in the case of quantitative data, provides larger and higher-quality databases
than would be unfeasible for any individual researcher to collect on their own. In addition
to that, analysts of social and economic change consider secondary data essential, since it
is impossible to conduct a new survey that can adequately capture past change and/or
developments.

The data has been taken from the annual reports of WPIL Limited.

The ratios have been calculated under four parameters. Under each parameter, few ratios
have been selected to be studied.

Liquidity Ratios
Solvency Ratios
Activity Ratios
Profitability Ratios
Ratios to Analyze the Structural Health of Working Capital

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RATIOS TO ANALYZE THESTRUCTURALHETH OF WORKING CAPITAL

RATIO TO ANALYZE THE STRUCTURAL HEALTH OF WORKING CAPITAL

In addition to efficiency and liquidity of working capital, management should also look
into the structural health aspect. The structural health of the working capital in business is
generally studied by analyzing the shifts and changes between its various elements i.e.
cash, receivables, inventories and other item of current assets.

Decomposition analysis can help management to detect the occurrences and extent of
such structural shifts and changes in a concerns resources allocation over a period of
time. If after scanning the data any unusual phenomenon is detected, management can
further investigate that in depth. Under decomposition analysis, the value of individual
items can be seen in relation to total assets. Likewise, the proportion of short-term
liabilities can be gauged with respect to total liabilities.

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 Chapter-3
DATA ANALYSIS AND
INTERPRETATION

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THE EFFECT OF THE LEVEL OF CURRENT ASSETS ON THE PROFITABILITY
RISK TRADE OFF
(In Lakhs)

Year C.A. T.A. Ratio (Times)

2008-09 3411 5908 .57
2009-10 3905 6540 .60
2010-11 3043 5364 .56

Profitability Risk Trade Off

0.6

0.59
0.58
0.57
Ratio (Times)
0.56
0.55
0.54
2008-09 2009-10 2010-2011
Year

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 ACCORDING TO THE DATA AVAILABLE WPIL Limited HAVE HIGHER
PROFITABILITY IN YEAR 2010-11 WHERE AS IN 2009-10 PROFITABILITY
DECREASE BECAUSE RATIO OF CURRENT ASSETS TO TOTAL ASSET
INCREASES.

The composition of current assets to the total assets at the finance division is such that
there is hardly any earning on them. Here we see that almost 50% of the total assets on an
average have been devoted to current assets.
If the level of current assets to the total assets in 2010-11 is 40% instead of 56% the
organisation could have used the excess 15% to earn higher profits on these funds by
employing them into fixed assets. This in turn would of course decrease the liquidity of
the organisation.
Hence, it can be concluded that while deciding upon the level of working capital to be
maintained, the company must make a cost-benefit analysis to reach the optimum level of
working capital that maximizes returns.

For example:- The management might observe that if it exercises tight control over the
current assets, it still is in a good position to repay the current liabilities, then it can
employ excess funds in fixed assets and vice-versa.
If it feels that less amount current assets are hurting sales and the smooth flow of
production because of tighter credit policies and inventory control measures, it can
increase the level of current assets to lessen the risk of insolvency.

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NET WORKING CAPITAL
(IN LAKHS)
WORKING
Year C.A. C.L.
CAPITAL
2008-09 3411 991 2420
2009-10 3905 1606 2299
2010-11 3043 1161 1882

Net Working Capital

2500

2000

1500

1000 Working Capital

500

0
2008-09 2009-10 2010-11
Year

Current ratio or working capital ratio

(In Lakhs)
Year C.A. C.L. Ratio (Times)

2008-09 3411 911 3.44

2009-10 3905 1606 2.43

2010-11 3043 1161 2.62

MBA Page 45
ACID RATIO OR QUICK RATIO
(In Lakhs)
Year Q.A. C.L. Ratio (Times)
2008-09 2314 991 2.33
2009-10 2758 1606 1.71
2010-11 1751 1161 1.51

Cash Ratio

2.5
2
1.5
1
Ratio (Times)
0.5
0
2008-092009-1012010-11

Year

INTERPRETATION

The Quick Ratio of WPIL Limited is slightly higher than the ideal ratio. The ideal ratio
is 1:1. And in the year 2008-09 the quick ratio is just double than the ideal ratio. Higher
quick ratio means excessive amount of liquid assets have been invested.
A High Quick Ratio compared to current ratio may indicate under stocking while low
quick ratio indicates overstocking

CASH RATIO
(In Lakhs)
YEAR ALA CL RATIO (%)

MBA Page 46
 2008-09 167 991 16.85%
2009-10 173 1606 10.77%
2010-11 282 1161 24.2%

Cash Ratio

2.5
2
1.5
1
Ratio (Times)
0.5
0
2008-092009-102010-11

Year

INTERPRETATION
WPIL Limited does not maintain too large amount of cash balance except in the form of
bank credit. The cash ratio indicates the amount of current liabilities the organisation can
pay if the creditors demand immediate payment. An ideal cash ratio is 50% and WPIL
Limited figures are too low. Management believes that there is no compelling need to
maintain large cash balances. This is because, firstly, it can get immediate loan from its
banks and secondly, WPIL Limited being a division, it can any time get loan from its
Corporate Office.

MBA Page 47
ACTIVITY RATIO

(In Lakhs)
YEAR COGS AVG. STOCK RATIO IHP
2008-09 3840 1097 3.5 103
2009-10 4940 1147 4.3 267
2010-11 4718 1292 3.6 358

Inventory Turnover Ratio

400
350
300
250
200
150 IHP (Days)
100
50
0
2008-09 2009-10 2010-11
Year

MBA Page 48
INTERPRETATION
Inventory is one area where management has achieved constant success. It has tried to
reduce operating cycle of the division for which it was imperative to reduce the inventory
storage periods consisting of three components raw-material, work in progress and
finished goods. The inventory turnover of WPIL Limited is almost same except in year
2009-10 which is 4.6. The inventory holding period is constantly increased which is not
a good sign for the management.

A high ratio indicates that more sales are being produced by a rupee of investment in
stocks. A very high inventory turnover ratio indicates overtrading and it may leads to
shortage of working capital where as low inventory turnover ratio may reflect inefficient
use of investment, over- investment in stocks, accumulation of stocks at the end of the
period in anticipation of higher prices or unsold goods,

MBA Page 49
DEBTORS TURNOVER RATIO
(In Lakhs)
YEAR SALES DEBTORS RATIO ACP
2008-09 8011 2146 3.73 97
2009-10 9271 2581 3.6 100
2010-11 9399 1465 6.41 57

Debtors Turnover Ratio

100

80

60

40 ACP (Days)

20

0
2008-09 2009-10 2010-11
Year

INTERPRETATION
Another area, which forms an integral part of working capital management, is Account
Receivable. In 2010-2011 WPIL Limited Debtors Turnover Ratio was 6.41 this is quite
high which means that debts are being collected promptly. Prompt collection of book
debts means more available funds which can be put to some other use. WPIL Limited
credit collection policy is 90 days but it collects its debt before the expiry of collection
period. Where as lower ratio indicates inefficiency in collection and more investment in
debtors than required
CREDITORS OR PAYABLE TURNOVER

MBA Page 50
 (In Lakhs)
Year Purchases Creditor Ratio APP

2008-09 3838 602 6.3 57

2009-10 4724 1110 4.2 85

2010-11 4517 734 6.15 59

Creditors Turnover Ratio

90
80
70
60
50
40
APP
30
20
10
0
2008-09 2009-10 2010-11
Year

INTERPRETATION
WPIL Limited Creditors Turnover Ratio is very high in the year 2009-10 which is 4.2.
A high Turnover ratio or shorter payment period shows the availability of less credit or
early payments to its creditors. It also indicates that the enterprise is not availing the full
credit period. Where as low turnover ratio or longer payment period implies availability
of more credit or delayed payments.
FIXED ASSET TURNOVER RATIO
(In Lakhs)

MBA Page 51
 Year Sales F.A Ratio(Times)
2008-09 8011 2497 3.2
2009-10 9271 2635 3.5
2010-11 9399 2321 4.1

Fixed Asset Turnover Ratio

4.5
4
3.5
3
2.5
2 Ratio (Times)
1.5
1
0.5
0
2008-09 2009-10 2010-11
Year

WPIL Limited Fixed Assets Turnover Ratio is continuously increasing which is a good
sign, which means that there is improvement in the utilisation of fixed assets.
A High Ratio indicates efficient utilisation of fixed assets and vice- versa.

MBA Page 52
CURRENT ASSETS TURNOVER RATIO
(In Lakhs)
Year Sales C.A Ratio(Times)
2008-09 8011 3411 2.3
2009-10 9271 3905 2.4
2010-11 9399 3043 3.1

Current Asset Turnover Ratio

3.5
3
2.5
2
1.5 Ratio (Times)
1
0.5
0
2008-09 2009-10 2010-11
Year

INTERPRETATION
Higher the ratio, better it is. But, too high a ratio indicates overtrading. WPIL
Limited Current Assets Turnover Ratio is increasing continuously. Which means
more investment is their in current ass

MBA Page 53
GROSS PROFIT RATIO
(In Lakhs)
Year G/P Sales %(Ratio)
2008-09 4171 8011 52%
2009-10 4331 9271 47%
2010-11 4681 9399 50%

Gross Profit Ratio

52%
51%
50%
49%
48%
47% Ratio (%)
46%
45%
44%
2008-09 2009-10 2010-11
Year

INTERPRETATION

WPIL Limited Gross Profit Ratio is decline which is the matter of concern for the
management and should be investigated carefully. It may be due to-:
The prices of materials may have gone up or wages may have increased and the
selling price may not have increased in proportion to it.

MBA Page 54
NET PROFIT RATIO

(In Lakhs)
YEAR N/P SALES RATIO (%)

2008-09 1550 8011 19.3%

2009-10 1422 9271 15.3%

2010-11 1478 9399 16%

Net Profit Ratio

20.00%

15.00%

10.00%
Ratio (%)
5.00%

0.00%
2008-09 2009-10 2010-11
Year

MBA Page 55
 OPERATING RATIOS
(In Lakhs)
YEAR COGS OPE. EXP. SALES RATIO (%)

2008-09 3840 1001 8011 60.4%

2009-10 4940 1178 9271 65.9%

2010-11 4718 1444 9399 65.5%

Opearting Ratio

66.00%
65.00%
64.00%
63.00%
62.00%
61.00% Ratio (%)
60.00%
59.00%
58.00%
57.00%
2008-09 2009-10 2010-11
Year

INTERPRETATION

WPIL Limited Operating Ratio lies between 60 to 70% which is good sign for the management.
Because lower the Operating Ratio, the better it is, because it would leave higher margin to meet
interest, dividend etc.

MBA Page 56
 CURRENT ASSETS TO TOTAL ASSEST RATIO

This ratio indicates the percentage of total assets that are in the form of Current
Assets: -

CURRENT TO TOTAL ASSETS RATIO: - CURRENT ASSETS * 100

TOTAL ASSETS
(In Lakhs)
Year C.A T.A Ratio(Times)
2008-09 3411 5908 .57
2009-10 3905 6540 .60
2010-11 3043 5364 .56

Current To Total

0.6
0.59
0.58
0.57
Ratio (Times)
0.56
0.55
0.54
2008-09 2009-10 2010-11
Year

MBA Page 57
 CASH TO CURRENT ASSETS RATIO

Cash to current assets ratio is the proportion of cash to current assets. This ratio can be
calculated as follows:
CASH TO CURRENT ASSETS RATIO: - CASH * 100
CURRENT ASSETS

(In Lakhs)
Year Cash C.A. Ratio (%)
2008-09 167 3411 5%
2009-10 173 3935 4.5%
2010-11 282 3043 10%

Cash To Current

10%

8%

6%

4% Ratio (%)

2%

0%
2008-09 2009-10 2010-11
Year

INTERPRETATION
The Quick Ratio of WPIL Limited is slightly higher than the ideal ratio. The ideal ratio
is 1:1. And in the year 2008-09 the quick ratio is just double than the ideal ratio. Higher
quick ratio means excessive amount of liquid assets have been invested.

MBA Page 58
RECEIVABLE TO CURRENT ASSEST

RECEIVABLES TO CURRENT ASSETS RATIO: - RECEIVABLES * 100

CURRENT ASSETS

(In Lakhs)
Year Debtors C.A Ratio (%)
2008-09 2146 3411 63%
2009-10 2581 3905 66%
2010-11 1465 3043 48%

Receivable To Current

70%
60%
50%
40%
30% Ratio (%)
20%
10%
0%
2008-09 2009-10 2010-11
Year

MBA Page 59
 INVENTORY TO CURRENT ASSTES RATIO

This ratio is the proportion of Inventory to Current assets. It is calculated as: -

INVENTORY TO CURRENT ASSETS RATIO: - INVENTORY * 100

CURRENT ASSETS

(In Lakhs)
Year INVENTORY C.A. Ratio (%)
2008-09 1097 3411 32%
2009-10 1147 3935 29%
2010-11 1292 3043 42%

Inventory To Current

45%
40%
35%
30%
25%
20% Ratio (%)
15%
10%
5%
0%
2008-09 2009-10 2010-11
Year

INTERPRETATION
Studying the above ratio gives a fair indication of the Structural Health of the Working
Capital of WPIL Limited. The structure of Working Capital at WPIL Limited is such that
debtors take up the major portion of the Current Assets. The receivable to Current .

MBA Page 60
 CASH
MANAGEMENT

MBA Page 61
 CASH MANAGEMENT

Cash management is one of the areas of working capital management. Apart from the

fact that it is the most liquid current asset, cash is the common denominator to which all

current assets can be reduced because the major liquid assets that are receivables and

inventory get eventually converted into cash. This underlines the significance of cash

management.

CASH HOLDING MOTIVES

There are generally four motives of maintaining cash balances:-

TRANSACTION MOTIVE: This refers to the holding of cash, to meet routine

cash requirements to finance the transaction, which a firm carries on in the ordinary

course of business. Receipts and payments constitute a continuous two-way flow of

cash. But the inflows and outflows dont perfectly coincide or synchronize. Thus,

the need for cash balances arises. WPIL LIMITED needs the bulk of its cash

balances for transaction purpose. With large storage periods and longer debtors

collection period, the receipts and payments do not synchronize due to which cash

balances are required for transaction motive.

PRECAUTIONARY MOTIVE: In addition to the non-synchronization of

anticipated cash flows, a firm may have to pay cash for purposes, which cannot be

predicted or anticipated. floods, strikes, increases in costs, non-availability of

material etc.

MBA Page 62
 SPECULATIVE MOTIVE: Speculative motive refers to the desire of a concern

to take advantage of opportunities which present themselves at unexpected

moments and which are typically outside the normal course of business.

COMPENSATING MOTIVE: Yet another motive to hold cash balances is

to compensate banks for providing certain services and loans. Bank provide a

variety of services to Compensating balances are also required by some loan

agreements between a bank and its customers.

CASH MANAGEMENT AT WPIL LIMITED

Against the backdrop of cash management in practice, salient features of cash

management are presented of WPIL LIMITED which are as following:-

In this division, cash management forms an integral part of working capital

management. So, all out efforts are made to contain the length of the operating

cycle to a reasonable level. In particular, the division has been able to reduce

Ssubstantially the overall inventory levels through proper vendors selection and

development and by entering into a contract with them where by they maintain bulk

of the companys required stock.

The division operates through an annual Cash Budget and a rolling Cash

Forecast drawn up every month for the next three months. Under cash forecast,

every months cash inflows (collections) and outflows (expenses under the major

heads) are the cash forecast are based on well-organised information system.
MBA Page 63
 The division hardly maintains any cash balance expects in the form of the line of

bank credit. Besides by properly negotiating with the bank, the company has been

able to effectively speed up collections.

The division is entitled to borrowing funds (in addition to bank credit) from its

corporate head office according to its requirements. It has to repay this amount to

head office along with an interest of 18.5% per annum.

MBA Page 64
 RECEIVABLE
MANAGEMENT

MBA Page 65
 RECEIVABLE MANAGEMENT

It is defined as the Debt owed to the firm by the customer arising from the sale of
goods or service in the ordinary course of the business. Accounts receivables
represent the amount due from its customers to whom the company has extended the
credit. In the modern world the extension of credit is inevitable and most of the
companies have to offer the credit to maintain the existing level of sales. Also to improve
the performance, the company may be required to change the terms of its credit. For the
most of the investment in accounts receivables constitutes a major component.

Accounts receivables play a major role in the conduct of the business for the most firms.
The great majority of companies do not demand immediate cash payment when they sell
goods to their regular, credit worthy customers. This is true for firms engaging in retain
trade and firms that sell primarily to other business. Most sales require the firm to carry a
receivable for a customer for 10 to 60 days. Thus, receivables represent significant
current assets that must be financed on a continuing basis.

Let us examine the receivable to current assets ratio of WPIL LIMITED.

This Ratio is the proportion of Receivable to Current Assets. It is calculated as follows: -

MBA Page 66
EFFICIENCY OF RECEIVABLE MANAGEMENT AT WPIL LIMITED

The efficiency of Receivable Management at WPIL LIMITED can be gauged using the
figures of receivables Average Collection Period

Year ACP
2008-09 97
2009-10 100
2010-11 57

Management often has to extend credit periods exceeding its credit policy which is
around 100days. The above figure indicates that in the year 2009-10 it has taken WPIL
LIMITED as long as 100 days to collect payment from debtors. Though, this figure is
reasonably high, managemen cannot reduce this.

MBA Page 67
 INVENTORY
MANAGEMENT

MBA Page 68
 Inventory Management

The term inventory refers to the stockpile of the product a concern is offering for sale

and the components that make up the product. The assets which concern store as

inventory in anticipation of needs includes:

Raw-material,

Work-in-progress,

Finished goods.

Inventory, as a current asset, differs from other current assets because only financial

managers are not involved rather, all the functional areas, i.e. Finance, Marketing,

Production and Purchasing are involved. The views concerning the appropriate level of

inventory would differ among the different functional areas.

The job of the financial manager is to reconcile the conflicting viewpoints of the various

functional areas regarding the appropriate inventory levels in order to fulfill the overall

objective of maximizing the owners wealth. The basic objective of inventory

management can be said to basically consist of two counter balancing parts:

To minimize the concerns investment in inventory, and

MBA Page 69
 To meet the demand for the product by efficiently organizing the firms production

and sales operations.

It means that the concern should minimize investments in inventory implies that

maintaining an inventory involves costs, such that the smaller the inventory, the lower the

cost to the concern. But inventories also provide benefits to the extent that facilitate

smooth functioning of the concern, the larger the inventory.

MBA Page 70
RAW MATERIAL

YEAR RATIOS HOLDING PERIOD

2008-09 3.7 97

2009-10 4.16 87

2010-11 3.5 102

WORK IN PROGRESS

YEAR RATIOS HOLDING PERIOD

2008-09 19.2 19

2009-10 21.8 17

2010-11 26.4 14

FINISHED GOODS

YEAR RATIOS HOLDING PERIOD

2008-09 320 1

2009-10 274 1

2010-11 131 2

MBA Page 71
 THE ORDER QUANTITY PROBLEM
(ECONOMIC ORDER QUANTITY MODEL)

After various inventory items are classified on the basis of the ABC analysis, the
management becomes aware of t This ratio is the proportion of receivable to current
assets. It is calculated as: -

he type of control that would be appropriate for each of these categories. A key inventory
problem particularly in respect of the group A items relates to the determination of the
size or quantity in which inventory will be acquired. The determination of the appropriate
quantity to be purchased in each lot to replenish stock as a solution to the order quantity
problem necessitates resolution of conflicting goals.

The costs associated with inventories are - ordering costs, and carrying costs. The
economic order quantity refers to the level of the inventory comprising
acquisition/ordering/setup costs and carrying costs is minimal. Thus, EOQ may be
defined as the level of inventory order that minimizes the total cost associated with
inventory management.

o Economic Order Quantity is placed. For analyzing the EOQ as an inventory

management technique several sophistic mathematical models are available. These are,
however, outside the scope of this project.

MBA Page 72
 CHAPTER-4
FINDINGS

MBA Page 73
 FINDINGS

The purpose of the project report was to provide an analytical overview of the working
capital management at WPIL Limited.
It was found that management has been making constant efforts, with a
reasonable success to attain efficiencies in management of working capital. The
entire process of working capital management at WPIL Limited is backed up
by a well-organised information system, which is used to make forecasts with
reasonable accuracy.
WPIL Limited enjoys a good rapport with its suppliers as well as with its
customers, enabling it to make payments for liabilities for whenever they are
due.
On the basis of various aspects, it was found that the division is quite successful
in maintaining the organisation and the division is maintaining a very good
liquidity, activity and leverage position. Little bit of problem is with accounts
receivables and inventory turnover and holding periods.
In the last year the account receivables show a considerable improvement.
Management hopes to reduce the operating cycle from 116 days in year 2010-11
to a lower level in next year.
With the further improvement in the inventory periods, better management in
dealing with debtors, management would definitely be able to reduce operating
cycle to 90 days.
WPIL Limited also increased their profits to achieve the ultimate goal of
financing that is wealth maximization means creating for the shareholder.

MBA Page 74
 RECOMMENDATIONS

MBA Page 75
 RECOMMENDATIONS

On the basis of the intense study for the past one month on the Working Capital
Management, it was found that the overall performance of the division is quite
Satisfactory. The division is performing according to the required situation but if certain
aspects are taken into consideration than definitely the performance of the division will
increase beyond the expectation.

The receivables collection period should be curtail down further, higher the
receivable period higher will be operating cycle & higher will be the requirement
for the working capital.

The inventory turnover should be increased. Higher turnover ratio will ultimately
bring down the inventory holding period.

The management must consider the various financing policies. The dependence on
one source is not at all relevant in this highly competitive environment. The
management must focus on overall moderate working capital policy.

There should be proper accounting information system. The division is provided by

latest technologies but its implementation is not up to the required standards.

MBA Page 76
 BIBLIOGRAPHY

MBA Page 77
 BIBLIOGRAPHY

FINANCIAL MANAGEMENT

KHAN AND JAIN

FINANCIAL MANAGEMENT

I.M PANDEY

FINANCIAL MANAGEMENT

GUPTA &SHARMA

FINANCIAL MANAGEMENT

JOHN J. HAMPTON

MBA Page 78
 ANNEXURE

MBA Page 79
Particular 2013 2014 2015 2016

Financial position

Share capital 797 767 797 797

Reserve &surplus 4048 2660 1510 775
Net worth 4845 3457 2307 1572
Gross block 4498 4085 3455 2760
Accumulated dept 1996 1824 1678 1560
Net block 2502 2261 1744 1200

Summary of depreciation
Total income 22531 21721 16607 11650
Pbt tax&dept 2908 2537 1732 1166
Interest 429 356 412 334
Depreciation 171 143 166 78
P B tax 2308 2038 1204 745
PAT 1573 1337 828 495
Dividend 186 186 93 nil
Earnings per share 19.75 16.78 10.39 6.22

MBA Page 80
 FINANCIAL HIGHLIGHT

LIQUID ASSETS 2314 2758 1751

ABSOLUTE LIQUID ASSETS 167 173 282
CAPITAL EMPLOYED 4917 4934 4203
SALES 8011 9271 9399
FIXED ASSETS 2497 2635 2321
TOTAL ASSETS 5908 6540 5364
COST OF GOODS SOLD 3840 4940 4718
INVENTORY 1097 1147 1292
DEBTORS 2146 2581 1485
CREDITORS 602 1110 734
PURCHASES 3838 4724 4517
CURRENT ASSETS 3411 3905 3043
CURRENT LIABILITIES 991 1606 1161
RAW-MATERIAL CONCUMED 3566 4673 4412
OPENING STOCK OF FINISHED GOODS 10 14 26
CLOSING STOCK OF FINISHED GOODS 14 21 46
OPENING STOCK OF WORK-IN-PROGRESS 88 264 172
CLOSING STOCK OF WORK-IN-PROGRESS 264 172 186
GROSS PROFIT 4171 4331 4681
OPERATING EXPENSE 1001 1178 1444
NET PROFIT BEFORE TAX 1550 1422 1478

MBA Page 81
COST OF PRODUCTION 3390 4766 4369

MBA Page 82