Amrutha

CHAPTER-1
INTRODUCTION
INTRODUCTION
Working capital, the life blood and controlling nerve of an

organization. Every business in this world is directing its production
activities towards the end of economic development. A developing
company requires an increasing volume of investments, the rate of
growth of such entities depends to a great extent on the effective
utilization of its capital.
In simple terms, working capital is an excess of current

asset over current liabilities. Good working capital management reveals
higher returns of current assets than current liabilities to maintain a
steady liquidity position of a company. Otherwise, working capital is a
requirement of funds to meet the day-to-day expenses. So a proper way
of management of working capital is highly essential to ensure a
dynamic stability in the financial position of an organization.
Working capital represents that part of resources of

business, which makes the business work. It provides liquidity to the
business. Working capital leads an important role by charging the
financial management through wires. A managerial accounting strategy
focuses on maintaining efficient level of cables of working capital,
current assets and current liabilities in respect of each other. Every
concern, business cannot be promoted without capital. It holds
exceptional importance in case of manufacturing concern. It also covers
various concepts like inventory management, cash management, credit
policy etc. in the absence of proper and efficient management of
working capital; it would be difficult to achieve the basic objective of
organizational efficiency.
TRACO CABLE COMPANY LIMITED, a premier Kerala government

company, commenced operation in the year 1964, manufacturing high
quality electric cables and wires in technical collaboration with m/s
Kelsey engineering company limited, Canada. One of Indias most
sought after paper insulated lead sheathed telecommunication cables
were produced by TRACO in collaboration with Hindustan cables; west
Bengal under an agreement assigned in 1974. Until the liberalization of
licensing policy in the country, TRACO was one of the two
manufacturers of telephone cables in India and the only one in the
whole of South India.
This project titled A STUDY ON WORKING CAPITAL

MANAGEMENT WITH REFERENCE TO TRACO CABLE LTD,
IRIMPANAM is a deliberate and systematic endeavor to study the
working capital management in TRACO cable company ltd,
IRIMPANAM. During the project work, it is being analyzed the
working capital position of this organization. Decisions relating to
working capital and short term finding are referred to as working
capital management. These involve managing the relationship between
a firms short term assets and short term liabilities. The goal of working
capital management is to ensure that the firms is able to continue its
operations and that it has sufficient cash flow to satisfy both existing
short term debts and upcoming operational expenses.
Under this project, the analysis study has been done for the
past five years from 2008-2009 to 2012-2013. The study is mostly
made from the financial analysis tools like ratio analysis and schedule
of changes in working capital with reference of annual report of the
TRACO Cable Company.
The organizational study of working capital management

is very helpful to know the liquidity position of the component years
and get a relevant idea about the utilization of current assets.
STATEMENT OF THE PROBLEM
Working capital management is an important factor for the day to day

operation of the business of the company. The study is conducted to
evaluate the working capital of the company and identify and know the
financial position of the company.
OBJECTIVES OF THE STUDY

1. To study the working capital management of TRACO cable
company ltd.
2. To analyze the liquidity position of the company.
3. To measure the profitability of TRACO ltd, IRIMPANAM.
4. To find out the operations and financial efficiency.
5. To examine performance of receivables in the company.
6. To improve the working capital of TRACO cable company.
SCOPE OF THE STUDY
The scope of the study is limited to the working capital

management of TRACO CABLE COMPANY LTD, which is one of the
government undertakings functioning in Kerala.
1. The study is designed to cover the analysis of working capital,

liquidity position and solvency of the company on the basis of
figures taken from financial statement published by it.
2. The study of working capital is based on tools like ratio

analysis, schedule method, etc.
3. The study provides better strategies to improve the financial

position of the company.
DURATION OF THE STUDY
The duration of the study was one month from 8-12-2014.
PERIOD OF THE STUDY
Year of 2008-2009 to 2012-2013.
RESEARCH METHODOLOGY OF THE STUDY
This study is mainly based on secondary data.
The secondary data consists of readily available information in

different financial texts and company database. Also through the annual
reports of the company.
LIMITATION OF THE STUDY

1. The study is mainly done with secondary data available from the
company and it suffers all the limitation.
2. The data is limited for a period of five years from 2008-09 to

2012-13.
3. The study is entirely based on quantitative data involving

numerical figures and no qualitative factors are taken into
consideration for the purpose of the study.
4. The time period provide for the study was insufficient.

CHAPTER-2
COMPANY PROFILE
COMPANY PROFILE
TRACO CABLE COMPANY, a Premier Kerala Government

Company, commenced operations in the year 1964, manufacturing high
quality Electric Cables and Wires in Technical Collaboration with M/s.
Kelsey Engineering Co. Ltd., Canada. Since then TRACO has been in
the forefront in meeting the needs of Public Sector Undertakings in
India like Railways, Electricity Boards of various states in the country
and others for AAC/ACSR, Power and Signaling Cables.
One of India's most sought after Paper Insulated Lead Sheathed

Telecommunication Cables were produced by TRACO in collaboration
with Hindustan Cables, West Bengal under an agreement signed in
1974 until the liberalization of Licensing policy in the country,
TRACO was one of the two manufactures of Telephone Cables in India
and the only one in the whole of South India.
With the progress in Cable Technology, Paper Insulated Cables gave

way to the much more sophisticated Jelly Filled Telephone cables
which are superbly suited for communications. TRACO was one
among those who first perceived the opportunities inherent in this new
development. It soon went into Technical collaboration with M/s.
General Cables Inc. , USA, world leaders in the Communication cable
field and manufactured them in India to exacting standards
Traco Cable Company Ltd.
Date of incorporation 5-2-1960
Present activities: Manufacture and supply of various kinds of electrical

and telephone
Cables manufacture and supply of jelly filled telephone cables.
Summary of performance: The Company has been able to achieve

increased turnover
(About 36%) during the year 1994-95.However, the cost of raw

materials, chemicals etc.
Have also increased about 47%, thus reduced the profitability. The net
profit for the year
Stand at Rs. 271.70 lakhs as against Rs. 285.58 lakhs during the
previous year. The
Capacity utilization at Irimpanam unit increased by 22.67% as the

company could secure
Orders from KSEB.
INFRASTRUCTURE AVAILABLE
Land : 15.38 hectares
Plant area : 7500 sq.meters
Total built up area : 9500 sq. meters
Electricity : 2 nos. 1000kva transformers
Water : 3 bore wells for processing drinking water;
7000 liters /day;
One frp/spray cooling tower for the process of water cooling.
One well for process water;
PRODUCTS
Self Supported Aerial Cable
Polythene Insulated Moisture barrier self supporting aerial cable.

Suspension wire and the cable core are contained in a single polythene
sheath 10 pairs with 0.4, 0.5, 0.63 and 0.9 mm gauge. Spec:
Telecommunication
Research Centre Spec. No. 52-23/85 TRC with reference to various
ASTM, BS and IS specification
PVC Drop Wire
PVC insulated drop wire Spec: ITD Spec. Nos/WS-118D & P.V.C.
insulated and polythene sheathed aerial cables 5 pairs/10 pairs
Spec. No. SP/76-2/87/63
Bare Conductors
Bare Conductors - AAC, ACSR and all Aluminum Alloy conductors for
transmission and distribution purposes: Spec: IS 398 Part I IS 398 Part
II
IS 398 Part IV
Flat Twin Cable
Flat Twin weather proof cables - PVC insulated Aluminum Flat Twin
Cables:
1100 V. Grade Spec: IS 694 Extensively used for providing connections

to the domestic consumer.
Power Cable with Aluminum Conductor
PVC insulated and sheathed armored/unarmored Aluminum power

cables
1100 V. Grade. Spec: IS: 1554 Part I
Power Cables with Copper Conductor
PVC insulated and sheathed armored/unarmored copper
Power cables standard Specification: IS: 1554 Part I
1100 V. Grade
Railway Signaling Cables
Signaling Cables - Used by Railways. PVC insulated & sheathed

armored/unarmored Copper cables. 1100 V. Grade.
Spec : Indian Railway Specification No : S63 - 89 for PVC insulated

cables
for Railway Signaling
Steel Is Not the Limit
As Al-Mg-Si Alloy is joined our conductor family, we are growing

beyond Steel. TRACO has added All Aluminum Alloy Conductors
(AAAC) to its product range and joined the energy conservation
movement. Some of the salient features which make All Aluminum
Alloy Conductors (AAAC) markedly superior to ACSR are as follows:
High Strength/Weight Ratio: 21 to 26% lighter as compared to

ACSR. Reduction of tension is 21 to 23% and hence lighter towers
would be satisfactory- saving in cost would be greater.
High Electrical Conductivity: Conductivity is 6% to 11%
higher than the corresponding ACSR-Lower AC resistance and hence,
considerable decrease in line losses.
Good Corrosion Resistance: Usage of AAAC in the coastal

area is of great significance.
Great Abrasion and Creep Resistance:Abrasion resistance of

alloy stands is more than four times that of E.C.G. Grade Aluminum.
Overall strength will not change in case of repetition short duration
short circuits.
High Conductor Metal Efficiency: Metal efficiency of

Aluminum Alloy wire is 126 whereas that of EC Grade Aluminum is
only 82.
Thermal Expansion: Along with the rise and fall of

temperature the sag increases or decreases to throughout the conductor.
Connect ability: Superior to ACSR - Greater torque can be

applied without concern for the cold flow beneath the conductor.
Raising From Underground to the Skies
It is true that all these years much of our time and effort was spent on
making underground cables that are as fail proof as can be. As a result,
we have connected millions of people, playing an important role in
communications. And our efforts are still on, to bring you better
products. But there are no plans to stop with underground cables alone.
And thereby ignore people who could not be connected with
underground cables due to geographic and economic reasons. In short,
TRACO has diversified into Aerial Cables.
TRACO's new range of self support Aerial Cables connect people

aerially at the same time, economically. They are manufactured to be
national and international standards.
TRACO has developed Aerially Bunched Cables for LT Overhead lines

also. They are polythene Insulated Aluminum Cables of specification:
REC Specification No.s2/1984 and have a rated voltage of 1.1 K V.
This type of cables helps in reducing the power interruptions to the
barest minimum level possible. Many of the advanced countries are all
ready switching over to these cables from the bare counter system.
'TRACO' CARRIES POWER ALL OVER INDIA AND

PARTICIPATES IN RAILWAY SIGNALLING
Our Bare Conductors, Weather - Proof Cables and

Power are used by several Electricity Boards in India manufactured to
meet the Indian Standard Specification. With stringent quality control
methods, our cables are of excellent quality and have been acclaimed as
one of the best in the country. Our, signaling Cables made to Railway
specifications are functioning all over India. This is because TRACO
Never Compromises On Quality.
Why Us?
We are professionally managed and well-established company

having a spacious state-of-the-art infrastructure. Accepted widely in
domestic and international markets as leading manufacturer and
supplier of cables, we offer premium quality products. Products offered
by us are appreciated for their high quality, efficiency, durability and
high conductance power. We aim at becoming partner of everyone and
help you by offering innovatively manufactured cables at affordable
prices.
Few parameters of our business that helps us in winning an edge over

our competitors are:
Quality & durability
Innovative and cost-effective products
Products are chemical and heat resistant
Well-versed team
Strong infrastructure
Customize service
Time production and delivery
QUALITY POLICY
Trace cable company ltd shall strive for continual improvement in its
performance by meeting the needs of internal and external customers,
complying with regulations through the involvement of all its
employees.
ENVIRONMENT POLICY
Traco cable company ltd is committed for continual improvement in

environmental performance, to prevent pollution, to conserve resources
and to comply with relevant environmental regulations.
CERTIFICATION
ISO 9001-2000 (Quality management system certification)
ISO 14001(Environmental management system certification)
ISO 9001-2000 STANDARDS
International organization for standardization, ISO was formed in 1947

with its head quarters at Geneva, Switzerland, at the initiative of United
Nations standards co-ordination committee to facilitate the
international co-ordination and unification of industrial standards. The
term ISO is derived from the Greek word isos, which means
equality. From equal to standards, is the line of thinking that lead to
the choice of ISO as the name of the organization.
It mission is to promote the development of standardization and related
activities in the world with a view to facilitate the exchange of goods
and services worldwide and to develop co-operation in the spheres of
intellectual, scientific, technological and economic activity. ISO has so
far developed more than 10000 standards covering industrial,
economic, scientific and technological activities.
ISO 9001-2000 VERSION
Improvements in the system and improved customer/ dealer

satisfaction.
Comply with the requirement of customers and applicable

statutory/ regulatory requirements.
Improvement in effectiveness of the established quality systems.
Addresses customer, dealer, vendor, society, employees and share

holders for their requirement and satisfaction.
OBJECTIVES
In any business organization, profit is the ultimate goal. To survive in a

competitive business environment, goods and services produced by a
firm should have the minimum required quality. Extra quality means
extra cost. Thus TRACO Cable Company strives to achieve the quality
standard. They have a quality assurance system of policies, procedures
and guidelines which help in building specified standards of product or
service quality. Production is the main objective of the TRACO Cable
Company ltd. The company strives to achieve maximum output from
maximum utilization of resources. TRACO has been in the forefront in
meeting the needs of public sector undertakings in India like railways
electricity boards of various states in the country and other for
AAC/ACSR, power and signaling cables. Efforts are still on, to bring
out better products. They also strive to maintain the Indian standard
specification.
ORGANIZATIONAL STRUCTURE OF TRACO CABLE

COMPANY
BOARD OF DIRECTORS
MD CEO
HOD Sr. Unit

P&A Manager Head
Marketing Thalasse
Unit Head Unit Head Sr.
Irimpana Thiruvalla Manager Sr.
m Finance manage
r
purchas
Manager P & A
Manager Q A
Manager store
Manager Production
Manager Finance
Manager Maintenance
Asst Manager Purchase
Asst Manager Marketing
FUNDAMENTAL DEPARTMENT
1. PRODUCTION DEPATMENT\ OPERATION

DEPARTMENT
ACSR cables means aluminum conductor steel

reinforced cables. Main raw material for ACSR cables are aluminum
and steels. Aluminum cables are of 9.5 mm diameter. First step for
production of ACSR cables is to pass aluminum wires through a rod
break down machine so that we could get aluminum wire at required
size. These should rebound to a bobbin. Next step for production is
rewinding of steel through machine. After rewinding, steel should
rewind to a rebound to a bobbin. Final and most important step of
ACSR production is placing these rebound bobbins in tabular standers.
Ratio regarding number of rebound bobbins to the placed in standers is
that there will be aluminum bobbins and one steel bobbin. When the
power is on the six aluminum cable is twisted to the steel cable. The
final product ACSR is come out and ACSR cables are rebound in a
wooden drum. Later ACSR cable should transfer to quality assurance
for final inspection and testing the tested OK cables are handled over to
stores.
TYPES OF ACSR CABLES
Squirrel 6+1 (include 6 aluminum wire and 1 steel wiring

having diameter of 2.11mm)
Rabbit 6+1 (include 6 aluminum wire and 1 steel wire having

diameter of 3.55mm)
Raccoon 6+1 (include 6 aluminum wire and 1 steel wire having
diameter of 4.09mm)
SUPPLIERS
The major suppliers of materials for ACSR cables are:
Aluminum
Nalco
Balco
Hidalco
Steel
Tata
Aradhya
PERSONAL AND ADMINSTRATIVE DEPARTMENT
Personal and Administrative Department main

responsibility is the recruitment, selection, training, and development of
staffs. This will involve developing staff to maximize their potential in
a manner that furthers the organizations objectives. P&A adopts a
welfare role which includes looking after employees when they are at
work. They may also create policies that balance organizational needs
with those of employee.
FINANCE DEPARTMENT
The objective of a company is to maximize its value to its

shareholders. The corporate office situated at Panampally Nagar does
most of the accounting and taxation jobs of TRACO. At IRIMPANAM
plant there is a separate accounting and finance department this
department deals with salary, wages and costing. Excise duty of the raw
materials also comes under this department. All the transactions are
sanctioned to the factories look after the local purchase and issue of
salaries o employees there. The orders are sent by head office to the
factory sub department. In these departments are looked after in
computerized format also done paper works.
QUALITY ASSURANCE DEPARTMENT

TRACO is known as its high quality products. Quality
Assurance Department ensures that the production International
Standard specifications. As it concentrate more on quality, the products
price tend to rise, when compared to its competitors. If it does not
produce the right quality, it may lose its ISO Certification. So care is
taken to produce high quality products. Therefore, it is the
responsibility of the Quality Assurance Department to check whether
the quality of the finished goods match the International standard.
MAINTENANCE DEPATMENT
Maintenance department takes care of maintenance and

preservation of machinery and infrastructure. It is the responsibility of
the maintenance department to make sure that the factory premises and
all the necessary facilities are available for a good working
environment. The infrastructure is maintained well in such manners that
are no complaints from the employees of the organization. The
machinery used for production is to be maintained and repaired
whenever necessary. This will in smooth working of the production
process without any disruption.
PURCHASE DEPARTEMENT
The purchase department is situated in the head office at

PanampillyNagar, Kochi. In this department, the purchase of raw
materials, packing materials, machinery, spares and general consumers
are looked after. Also the transportation of raw materials and finished
goods is ascertained and paid. Purchase department as a very important
role to play because it required purchasing the materials on time in such
a manner that there is no disruption in the production process.
CHAPTER 3
THEORETICALFRAME WORK
In order to maintain flow of revenue from operation every firm
needs certain amount of current assets like, funds required either to pay
for expenses or to meet obligation for service received or goods
purchased etc by a firm. These funds are known as working capital.
Capital required for a business can be classified under two main
categories,
i. Fixed capital, and

ii. Working Capital
Working capital is defined as the excess of current asset over

current liabilities and provisions. That is, the amount of surplus of
current asset which remain after deducting current liabilities from total
current assert which is equal to the amount invested in working capital
consisting of work- is progress, raw materials and component
stocks, consumable items amount owing by customers and cash at the
or hand. Working capital in a going concern is a revolving fund, it
consists of cash receipts from sales which are used to cover the cost of
operation.
In the present day economy, finance is defined as the provision of

money at the time when it is required. Every enterprises, whether big,
medium or small, needs finance to carry on its operations and to
achieve its targets. It is considered as the life blood of an enterprise.
According to Hoagland define, working capital is descriptive
of that capital which is not fixed. But more the common use of
working capital is to consider it as the difference between the book
value of current asset and current liabilities.
CLASSIFICATION OR KINDS OF WORKING CAPITAL
Working capital may be classified into two ways.
a. On the basis of concept

b. On the basis if time.
I. CONCEPTS BASIS OF WORKING CAPITAL
There are two concept of working capital:
a) Balance sheet concept

b) Operating cycle circular flow concept.
On the basis of Balance Sheet Concept, there are two interpretation of

working capital. There are:
i. Gross Working Capital Concept: The term Gross Working

Capital refers to the total of all current assets. In other words, the
firms investment in total current or circulating assets. Current
assets are the assets which can be converted into cash within the
accounting year. The Gross concept of working capital is very
suited to company organization where ownership is separated
from management and control.
In the broad sense, the term working capital refers to the gross
working capital and represents the amount of funds invested in current
assets. Thus, the gross working capital is the capital invested in current
assets of the enterprise.
TABLE 1
CONSTITUENT OF CURRENT ASSETS
1. Cash in hand and bank balances.
2. Bills receivables.
3. Sundry debtors (less provision for bad debts)
4. Short-term loans and advances.
5. Inventories of stock, as:
a. Raw materials,
b. Work in process
c. Stores and spares,
d. Finished goods.
6. Temporary investments of surplus funds.
7. Prepaid expenses.
8. Accrues incomes.
ii. Net working capital: The net concept of working capital is
qualitative, indicating the firms ability to meet its operating
expenses and current liability. The term Net Working Capital
refers to the difference between current assets and current
liabilities. Net Working Capital can be grouped as positive Net
Working Capital and Negative Net Working Capital. Net
Working Capital can be expressed as:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT

LIABILITIES
TABLE 2
CONSTITUENT OF CURRENT LIABILITIES
1. Bills payable.
2. Sundry creditors or accounts payable
3. Accrued or outstanding expenses.
4. Short-term loans, advances and deposits.
5. Dividends payable
6. Bank overdraft
7. Provision for taxation, If it does not amount to appropriation of profits.
Both Net and Gross concept of working capital are

important.Gross working focuses attention on the efficient management
of individual current assets in the day to day operation of the business.
But for having a long term view of working capital, it is essential to
concentrate on the net concept of working capital, because long term
funds are to be arranged for financing net working capital. Thus
working capital can be defined as the excess of current asset over
current liabilities.
On the basis Operating Cycle Concept, it is the time duration to
convert sales, after the conversion of resources into inventories, into
cash. The operating cycle of a manufacturing company involve three
phases:
Acquisition of resources
Manufacture of the product
Sales of the product
Operating cycle is defined as the time duration which the firm requires
to manufacture and sell the product and collect cash. Thus operating
cycle refers to the acquisition of resources, conversion of raw materials
into sales and collection of sales. Larger the operating cycle, larger will
be the investments in current assets.
A firm is required to invest in current assets a smooth,

uninterrupted production and sales. How much affirm will invest in
current assets will depend in its operating cycle.
Cash received from debtors and paid t o suppliers o f raw m aterials
Sale of finished goods Raw mat erials int roduced int o process
Finis hed goods produced
Diagram 1
II TIME BASIS OF WORKING CAPITAL
Working capital can be classified into two under the basis of time. They
are:
(a) Permanent or fixed working capital

(b) Temporary or variable working capital.
(a) Permanent or Fixed Working Capital

Permanent or fixed working capital is the minimum amount
which is required to ensure effective utilization of fixed facilities and
for maintaining the circulation of current assets. There is always a
minimum level of current assets which is continuously required by the
enterprises to carryout its normal business operation. As the business
grows, the requirements of permanent working capital also increase due
to the increase in current assets.
(b) Temporary or Variable Working Capital

Temporary or variable working capital is the amount of working capital
which is required to meet the seasonal demand and some special
exigencies. Temporary or Variable working capital can be classified as:
Seasonal working capital and,

Special working capital
Most of the enterprises have to provide additional working

capital to meet the seasonal and special need. The capital required to
meet the seasonal needs of the enterprises is called seasonal working
capital. Special working capital is that part of working capital which is
required to meet special exigencies such as launching of extensive
marketing campaigns for conducting research, etc.
Temporary working capital differs from permanent working

capital in the sense that it is required for short periods and cannot be
permanently employed gainfully in the business. In other words, it
represents additional current assets required to meet fluctuation during
the operating year.
FACTORS DETERMINING THE WORKING CAPITAL

REQUIREMENTS
1. Nature or character of business.
2. Size of business/scale of operation.
3. Production policy.
4. Manufacturing process/length of production cycle.
5. Seasonal variation.
6. Working capital cycle.
7. Rate of stock turnover.
8. Credit policy.
9. Business cycle.
10. Rate of growth of business.
11. Earning capacity and dividend policy.
12. Price level changes.
13. Other factors.
IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING

CAPITAL
1. Solvency of the business.
2. Goodwill.
3. Easy loans.
4. Cash discount.
5. Regular supply of raw materials.
6. Regular payment of salaries, wages and other day-to-day
Commitments.
7. Exploitation of favorable market conditions.
8. Ability to faces crisis.
9. Quick and regular return on investments.
10. High morale.
EXCESS OR INADEQUATE WORKING CAPITAL
Every business concern should have adequate working capital to

run its business operations. It should have either redundant or excess
working neither capital nor inadequate or shortage of working capital.
Both excess as well as short working capital position are bad for any
business. However, dangerous from the point of view of the firm.
Disadvantage of Redundant or excessive Working Capital
1. Excessive working capital means idle funds which earn no profit

for the business and hence the business cannot earn a proper rate
of return on its investments.
2. When there is a redundant working capital, it may lead to
unnecessary purchasing and accumulation of inventories causing
more chances of theft, waste and losses.
3. Excessive working capital implies excessive debtors and
defective credit policy which may cause higher incidence of bad
debts.
4. It may result into overall in efficiency in the organization
5. When there is excessive working capital, relations with banks
and otherfinancial institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may
also fall.
7. The redundant working capital gives rise to speculative
transactions.
Disadvantage or Dangers of Inadequate Working Capital
1. Excessive working capital means idle funds which earn no profit

for the business and hence the business cannot earn a proper rate
of return on its investment.
2. When there is a redundant working capital, it may lead to
unnecessary purchasing and accumulation of inventories causing
more chances of theft, waste and losses.
3. Excessive working capital implies excessive debtors and
defective credit policy which may cause higher incidence of bad
debts.
4. It may result into overall in efficiency in the organization.
5. When there is excessive working capital, relations with banks
and other financial institutions may not be maintained.
6. Due to low rate of return on investments, the value of shares may
also fall.
7. The redundant working capital gives rise to speculative
transactions.
Disadvantages or Dangers of Inadequate Working Capital.
1. A concern which has inadequate working capital cannot pay its

short term liabilities in time. Thus =, it will lose its reputation
and shall not be able to get good credit facilities.
2. It cannot buy its requirements in bulk and cannot avail of
discounts, etc.
3. It becomes difficult for the firm to exploit favorable market
condition and undertake profitable projects due to lack of
working capital.
4. The firm cannot pay day to day expenses of its operation and it
creates inefficiencies, increases costs and reduces the profits of
business.
5. It becomes impossible to utilize efficiently the fixed assets due to
non availability of liquid funds.
6. The rate of return on investments also falls with the shortage of
working capital.
Management of Working Capital
Working capital, in general practice, refers to the excess of current

assets over current liabilities. Management of working capital
therefore, is concerned with the problems that arise in attempting to
manage the current assets, the current liabilities and the inter-
relationship that exists between them. In other words it refers to all
aspects of administration of both current assets and current
liabilities.
The basic goal of working capital management is to manage the

current assets and current liabilities of a firm in such a way that a
satisfactory level of working capital is maintained, i.e., it is neither
inadequate nor excessive. This is so because both inadequate as
well as excessive working capital positions are bad for any business.
Inadequacy of working capital may6 lead the firm to insolvency and
excessive working capital implies idle funds which earn no profits
for the business. Working capital management policies of a firm
have a great effect on its profitability, liquidity, and structural health
of the organization. And the working capital has three dimensional
in nature.
i. First dimension is concerned with the formulation of

policies with regard to profitability, risk and liquidity.
ii. Second dimension is concerned with the decisions
about the composition and level of current assets.
iii. And the last dimension is concerned with the decisions
about the composition and the level of current
liabilities.
Principles of Working Capital Management Policy
The following are the general principles of a sound working capital

management policy:
1. Principles of risk variation.
2. Principles of cost of capital.
3. Principles of equity position.
4. Principle of maturity of payment.
1. PRINCIPLES OF RISK VARIATION (CURRENT ASSETS
POLICIES):
Risk here refers to the inability of a firm to meet its obligations

as and when they become due for payment. Larger investment incurrent
assets with less dependence on short term borrowings liquidity, reduce
dependence on short term borrowings increase liquidity, reduces risk
and there by decreases the opportunity for gain or loss. In other words,
there is a definite inverse relationship between the degree of risk and
profitability.
2. PRINCIPLES OF COST OF CAPITAL
The various sources of raising working capital finance have different

cost of capital and the degree of risk involved. Generally, higher the
risk lower is the cost lower the risk higher is the cost. A sound working
capital management should always try to achieve a proper balance
between these two.
3. PRINCIPLES OF EQUITY POSITION
The principles are concerned with planning the total investment in

current assets. According to this principle, the amount of working
capital invested in each component should be adequately justified by a
firms equity position. Every rupee invested in the current assets should
contribute to the net worth of a firm. And this level may calculated with
the help of two ratios such as:
a) Current assets as a percentage of total assets, and
b) Current asses as a percentage of total sales.
4. PRINCIPLES OF MATURITY OF PAYMENT
According to this principle, a firm should make very effort to

relate maturities of payment to its flow of internally generated funds.
Maturity pattern of various obligations is an important factor in risk
assumptions and risk assessments.
RISK AN RETURN (COST OF LIQUIDITY AND ILLIQUIDITY)

TRADE OFF
Risk refers to the level of current assets or the cost of liquidity.
Higher the investment in current assets, higher is the cost and lower the
profitability, and vice-versa. Thus, a firm has to reach a balance (trade
off) between the cost of liquidity and illiquidity.
To sum up, working capital management should be considered as

an integral part of overall corporate management. Mainly we know that
finance is the life blood of every business. Adequate amount of working
capital is very much essential for the smooth running of the business.
And the most important part is the efficient management of working
capital in right time. The liquidity position of the firm is totally effected
by the management of working capital. So, a study of changes in the
uses and sources of working capital is necessary to evaluate the
efficiency with which the working capital is employed in a business.
This involves the need of working capital analysis.
The analysis of working capital can be conducted through a
number of devices, such as: ration analysis, schedule of changes in
working capital etc.
RATION ANALYSIS
Ratio is a statistical yardstick by which an expression of

relationship between two figures or two amounts. Rations can be found
out by dividing one number by another number. Ratios show how one
number is related to another. It may be expressed in the form of co-
efficient, percentage, proportion or rate.
According to ROBERT ANTONY defines ratio as simply one
number expressed in terms of another.
Ratio Analysis is a very powerful analytical tool useful for
measuring the performance of an organization. The ratio analysis
concentrates on the interrelationship among the figures appearing in the
mentioned financial statements. The ration analysis helps the
management to analyze the past performance of the firm and to make
further projections.
CLASSIFICATION OF RATIOS
Classification according to nature,
1. Liquidity Ratio
Liquidity is the ability of the firm to meets its short term
obligation out of its short term resources. The following are the
important types of liquidity ratios;
a. Current ratio.
b. Absolute liquidity ratio.
c. Acid test/liquid/quick ratio.
2. Leverage Ratio
These ratios are also called efficiency ratio. These ratio measure
the owners stake in the business the long term solvency of the business
can be examined by using leverage ratio. The important types of
leverage ratios are:
a. Debt-equity ratio.
b. Proprietary ratio.
c. Fixed asset to net worth.
d. Capital gearing ratio.
3. Activity Ratio
This ratio highlights the activity and operational efficiency of the
business concern. It indicates the speed with which assets and
converted into sales. The different types of activity ratios are:
a. Inventory/stock turnover ratio.
b. Fixed asset turnover ratio.
c. Working capital turnover ratio.
d. Debtor turnover ratio.
e. Average debt collection period.
f. Creditor turnover ratio.
g. Average debt payment period.
4. Profitability Ratio
Profitability is an indication of the efficiency in which the
operations of the business are carried on. The following are the
important profitability ratio.
a. Gross profit ratio.
b. Net profit ratio.
c. Operating ratio.
d. Operating profit ratio.
e. Return on total assets.
f. Return on net capital employed.
g. Return on shareholders fund.
h. Return on equity share capital.
i. Interest coverage/debt service ratio.
5. Market Test Ratio

Market test ratios are very important tool for investors in shares
and share dealers. These ratios are used for evaluating the shares and
stock traded in the market. The following are the important market test
ratio:
a. Earning per share.
b. Price earning ratio.
c. Dividend yield ratio.
d. Dividend payout ratio.
Statement Wise Classification of Ratios
The classification is based on the statement from its items are

taken,
1. Balance sheet ratios.

2. Income statement ratios.
3. Combined ratio.
ADVANTAGES/IMPORTANCE OF RATIO ANALYSIS
Helps in understating financial statement.

Helps in forecasting.
Helps in inter-firm comparison and intra-firm comparison.
It helps in control.
It is an effective way of communication.
Helps to assessment of liquidity, profitability, solvency and
efficiency of the firm.
It helps to measure the efficiency.
Helps to control cost.
It helps in planning, coordination.
Helps indecision making.
LIMITATIONS OF RATIO ANALYSIS

It does not reveal qualitative information.
Ratios are computed from historical accounting records.
It will affect personal ability and bias of the analyst.
It is not possible to exact and well accepted absolute standard for
comparison.
Arithmetical window dressing.
STATEMENT OF CHANGES IN WORKING CAPITAL
The statement shows scheduled changes in working capital is

prepared with the help of current assets and current liabilities of two or
more periods. In preparing statement of changes in working capital the
following point should be considered:
Increases in current asset <--------> increases in working

capital
Decreases in current assets <-------- >decreases in working

capital
Increased in current liability <--------> decreases in working

capital
Decreases in current liability <-------- >increased in working

capital
CHAPTER -4
DATA ANALYSIS AND

INTERPRETATION
ANALYSIS AND INTERPRETATION
The financial statement of a company contains a lot of

information about the financial performance of the company. Financial
statements mainly consist of a balance Sheet and Profit and Loss
Accounts. These statements give the overall picture of the company, but
to analyze each aspect of business extensively, financial ratios are used.
The Balance Sheet and the Statement of Income are essential, but they
are only the starting point of successful financial management.
Financial ratio Analysis derived from Financial Statements analyses the
success, failure, and progress of business.
Analysis refers to the computation of certain measure along

with the patterns of relationship that exist among the data group.
Interpretation refers to the task of drawing inferences the

collected fact after an analytical study. They need skill, intelligence and
foresightedness for finding ratios.
RATIO ANALYSIS
The ratios can be calculated through various purposes:
1. CURRENT RATIO:-
Current ratio is also called working capital ratio. It represents the ratio
of current liability. Current asset are those assets the amount which can
be realized within a period of one year. Current liabilities are those
liabilities which are payable within a period of year.
Formula :-
CURRENT RATIO = CURRENT ASSET / CURRENT LIABILIY
OR
CURRENT ASSET: CURRENT LIABILITY
Current assets include cash in hand, cash at bank, bills receivables,

sundry debtors, stock, prepaid expenses, short term investments, etc.
current liabilities include creditors, bill payable, bank overdraft,
outstanding expenses, income tax payable, proposed dividend, etc. in a
sound business a current ratio of 2:1 is considered as an ideal 1.
TABLE 3
Year Current Asset Current Liability Current Ratio

2008-2009 3278.89 1936.98 1.692784644
2009-2010 3144.94 1695.32 1.855071609
2010-2011 4605.34 2128.97 2.163177499
2011-2012 3432.49 2640.58 1.299900022
2012-2013 5364.35 3753.69 1.426886259
GRAPH 1
Current Ratio
2.5
1.5
Current Ratio
1
0.5
INTERPRETATION
Current ratio is general and quick measure of short term financial

position or liquidity of a firm. A ratio is near by 2:1 is considered as a
normal or satisfactory. A relatively high ratio is an indication of that the
firm is liquid and has the ability to pay its current obligations in time,
when it become due. On other way, a relatively low current ratio
represents that the liquidity position of the firm is not good and the firm
shall not be able to pay its current liabilities in time without facing
difficulties.
In the above graph, TRACO CABLE COMPANY shows, on the period
of 2008-09 the ratio is relatively sufficient to the firm and also it is
increased on the next year, on the period of 2010-11, the satisfactory
level shows for a sound business firm. But on the next year4 the ratio
being reduced relatively which is unfavorable for the firm. So the firm
should take necessary steps for maintaining their funds.
2. ABSOLUTE LIQUIDITY RATIO :-
This ratio is obtained by dividing cash and marketable securities by

current liability.
Formula:-
ABSOLUTE LIQUIDITY RATIO = (CASH + MARKETABLE

SECURITIES) / CURRENT LIABILITY
Absolute liquidity ratio shows relatively the financial position of an

organization. It is recommended to ensure the ratio 0.75:1 shows the
exact liquidity position of the firm.
TABLE 4
Year Cash + Current Liability Absolute

Marketable Liquidity Ratio
Securities
2008-2009 235.43 1936.98 0.1215448791
2009-2010 277.58 1695.32 0.1637331005
2010-2011 293.18 2128.97 0.1377097845
2011-2012 297.73 2640.58 0.1127517439
2012-2013 594.92 3753.69 0.1584893798
GRAPH 2
Absolute Liquidity Ratio

0.18
0.16
0.14
0.12
0.1 Absolute Liquidity
0.08 Ratio
0.06
0.04
0.02
0
INTERPRETATION
Absolute liquid assets include cash in hand and at bank and marketable
securities or temporary investments. Although receivables, debtors and
bills receivables are generally more liquid than inventories, yet there
may be doubts regarding there realization into cash immediately or in
time.
The TRACO CABLE COMPANY shows, the ratio is being reduced
relatively which is not favorable for the firm. It is highly less than the
actual ratio.
3. QUICK RATIO :-
Quick ratio is also known as liquid ratio or acid test ratio. It is the
relationship between quick assets to current liability.
Formula :-
QUICK RATIO = QUICK ASSETS OR LIQUID ASSETS /

CURRENT LIABILITY
Quick ratios include quick or liquid assets and current liabilities. The
quick assets are normally the difference between current assets and
stock. A quick ratio of 1:1 is considered as satisfactory as a firm can
easily meet all its current liability.
TABLE 5
Year Quick assets Current Liability Quick ratio

2008-2009 2827.67 1936.98 1.459834381
2009-2010 2333.87 1695.32 1.376654555
2010-2011 3306.96 2128.97 1.553314514
2011-2012 227104 2640.58 0.8601898068
2012-2013 3625.87 3753.69 0.9659481737
GRAPH 3
Quick ratio
1.6
1.4
1.2
1
0.8 Quick ratio
0.6
0.4
0.2
0
INTERPRETATION
Quick ratio is more rigorous test of liquidity than. Usually a high liquid
ratio is an indication that the firm is liquid and has the ability to meet
its current or liquid liabilities in time. On the other way low liquidity
ratio represents that firms liquidity position is not good. As a
convention, generally, a quick ratio of 1: 1 considered as the
satisfactory of a firm can meet all its current liabilities.
The graph shows that from the period of 2008-09 to 2010-11, the
TRACO CABLE COMPANY, have a high quick ratio than the standard
ratio. But on the next year it relatively down. The low quick ratio
represents that the firm has no sufficient working capital and the assets
can be converted into cash easily.
4. DEBT-EQUITY RATIO :-
The relationship between borrowed fund and owners capital is the

popular measure of long term financial solvency of the firm.
Formula :-
DEBT EQUITY RATIO = DEBT / EQUITY
Debt means outsiders fund or outsiders liability. It includes all current

liabilities and other outsiders liabilities like loans, debentures, etc.
Equity means shareholders fund. It includes share capital, fictitious

assets, reserves and surplus, etc.
TABLE 6
Year Debt Equity Debt-equity ratio

2008-2009 2356.72 3622.46 0.65058802
2009-2010 1804.51 3622.46 0.46814490
2010-2011 2972.70 4022.46 0.73902537
2011-2012 2278.40 1474.93 1.5447512
2012-2013 3612.81 4007.46 0.90152116
GRAPH 4
Debt-equity ratio
1.6
1.4
1.2
1
0.8 Debt-equity ratio
0.6
0.4
0.2
0
INTERPRETATION
The debt equity ratio is calculated to measure the extent to which debt
financing has been used in a business. It indicates the proportionate
claims of owners and the outsiders against the firms assets. A ratio of
1:1 is usually considered to be satisfactory ratio although there can be
rule of thumb or standard norm for all types of businesses.
The ratio of 2009-10 is collectively decreases than the previous year.

But from the period of 2009-10 to 2011-12 shows an increasing figure.
In 2011-12 the ratio is being 1.5 which is more than the standard ratio.
This shows that the safety margin for creditors is lesser and the firms
debt financing is low. On the last year 2012-13 the ratio is 0.90
indicating a higher safety margin to the outsiders and it states an
increase in the use of debt financing.
5. PROPRIETARY RATIO :-
It related to the share holders fund to total asset. It is equivalent of

the debt-equity ratio. It is also called net worth to total assets or equity
ratio. It indicates the future solvency position of the business.
Formula :-
PROPRIETARY RATIO=SHARE HOLDERS FUND / TOTAL

ASSET.
Share holders fund which means equity includes equity share capital,
preference share capital, fictitious assets, reserves and surplus, etc. total
asset include in goodwill excluded fictitious asset.
TABLE 7
Year Shareholders fund Total asset Proprietary ratio

2008-2009 3622.46 3858.69 0.93877
2009-2010 3622.46 3658.83 0.99005
2010-2011 4022.46 5816.80 0.61952
2011-2012 1474.93 4841.57 0.30463
2012-2013 4007.46 6682.58 0.59968
GRAPH 5
Proprietary ratio
1
0.9
0.8
0.7
0.6 Proprietary ratio
0.5
0.4
0.3
0.2
0.1
0
2008-09 2009-10 2010-11 2011-12 2012-13
INTERPRETATION
Proprietary ratio is enlightened on the general financial strength of the

company. It also called a test of soundness of the capital structure.
Higher the ratio of the shareholders in the total capital of the company
of the better is the long-term solvency position of the firm. A low
proprietary ratio will include greater risk to the creditors.
The graph shows, the proprietary ratio of TRACO CABLE COMPANY

is attain its satisfactory level only on the period of 2009-10 and the
other shows a decreasing trend. It implies that the company has less
proportion of total asset to the shareholders fund. It should term that
creditors take high risk.
6. FIXED ASSET TO NET WORTH :-
Fixed asset to net worth ratio shows the relationship between fixed
asset and shareholders fund.
Formula :-
FIXED ASSET TO NET WORTH = FIXED ASSET / NET WORTH
Net worth is also called shareholders fund and equity.
TABLE 8
Year Fixed asset Net worth Fixed asset to net

worth
2008-2009 579.8 3622.46 0.160056
2009-2010 513.89 3622.46 0.141821
2010-2011 1211.46 4022.46 0.301173
2011-2012 1409.08 1474.93 0.95535
2012-2013 1318.23 4007.46 0.328944
GRAPH 6
Fixed asset to net worth

1
0.9
0.8
0.7
0.6 Fixed asset to net
0.5 worth
0.4
0.3
0.2
0.1
0
INTERPRETATION
The ratio of fixed assets to net worth indicates the extent to which
shareholders funds are sunk into the fixed asset. Generally, the
purchase of fixed assets should be financed by shareholders equity
including reserves, surpluses and retained earnings. If the ratio is less
than 100%, it implies that owners fund is more than total fixed asset
and a part of working capital is provided by the shareholders. When the
ratio is more than 100%, it implies that owners funds are not sufficient
to finance the fixed assets and the firm has to depend upon outsiders to
finance the fixed assets.
Here the ratio shows that, all the fixed asset to net worth is less under
the standard ratio. Only a stable ratio that shows, on the period of 2011-
12 that is ranged in 0.95. It shows that the funds are provided to the
shareholder and the total assets are less than the shares.
7. INVENTORY TURNOVER RATIO :-
Inventory turnover ratio indicates whether investment in inventory is

efficiently used or not. Inventory turnover ratio is also known as stock
turnover ratio. It is the relationship between cost of good sold during a
particular period of time and the cost of average inventory during a
particular period. Also it expressed in a number of times.
Formula :-
INVENTORY TURNOVER RATIO = COST OF GOODS SOLD /

AVERAGE STOCK
Cost of goods sold, calculated by opening stock + purchases + direct

expenses closing stock. And the average stock is calculated with
opening stock and closing stock with the division of 2.
TABLE 9
Year Cost of goods sold Average stock Inventory turnover

ratio
2008-2009 4381.59 759.61 5.76
2009-2010 5341.63 631.14 8.46
2010-2011 5602.31 1054.72 5.311
2011-2012 9448.80 1223.7 7.683
2012-2013 8807.72 1449.785 6.075
GRAPH 7
Inventory turnover ratio
9
8
7
6
5 Inventory turnover
4 ratio
3
2
1
0
INTERPRETATION
Inventory turnover ratio measures the velocity of conversion of stock

into sales. Usually a high inventory turnover / stock velocity indicate
efficient management of inventory because more frequently the stocks
are sold. The lesser amount of money is required to finance the
inventory. Low inventory turnover indicates an efficient management
inventory.
The inventory turnover ratio of TRACO CABLE COMPANY shows,

an increasing decreasing value. The graph shows like a cardiograph
representation. It implies stock investments and over investment of
inventories. The ratio is being a consistency of stocks.
8. FIXED ASSET TURNOVER RATIO :-
Fixed asset turnover ratio indicates the extend to which the investments
in fixed asset contribute towards sales. The ratio measures the
efficiency and profit earning capacity of the concern. Fixed asset
turnover ratio is also known as sales to fixed assets ratio.
Formula :-
FIXED ASSET TURNOVER RATIO = NET SALES /FIXED ASSET
TABLE 10
Year Net sales Fixed assets Fixed asset

turnover ratio
2008-2009 4967.83 579.8 8.568178
2009-2010 7168.65 513.89 13.94977
2010-2011 7256.46 1211.46 5.98984
2011-2012 5369.53 1409.08 3.81066
2012-2013 4747.81 1318.23 3.60165
GRAPH 8
Fixed asset turnover ratio
14
12
10
8 Fixed asset turnover
ratio
6
4
2
0
INTERPRETATION
Fixed asset turnover ratio measures the companys effectiveness in

generating sales from its investment in plant, property and equipment.
The higher ratio indicates only the intensive utilization and the lesser
ratio indicates extensive utilization of fixed assets.
The graph shows, a decreasing rate of turnover ratio. There should be a

higher value of ratio shows under the period of 2009-10 that is figured
as 13.9. After it being diminished value. The ratio indicates, it has a
lower investment of fixed assets and it being under utilization.
9. WORKING CAPITAL TURNOVER RATIO :-

Working capital turnover ratio reflects the turnover of the firms net
working capital in the cost of the year. It indicates the velocity of the
utilization of net working capital.
Formula :-
WORKING CAPITAL TURNOVER RATIO = NET SALES / NET

WORKING CAPITAL
TABLE 11
Year Net sales Net working Working capital

capital turnover ratio
2008-2009 4967.83 1341.91 3.7020
2009-2010 7168.65 1449.62 4.9451
2010-2011 7256.46 2476.37 2.9302
2011-2012 5369.53 791.91 6.7804
2012-2013 4747.81 1610.66 2.9477
GRAPH 9
Working capital turnover ratio
7
6
5
Working capital
4 turnover ratio
3
2
1
0
2008-09 2009-10 2010-11 2011-12 2012-13
INTERPRETATION
The working capital turnover ratio indicates the number of times the
working capital is turned over the course of year. This ratio measures
the efficiency with which the working capital is being used by the firm.
A higher ratio indicates efficient utilization of working capital and a
low ratio indicates otherwise. But a very high ratio is not a good
situation for any firm and hence care must be taken while interpreting
the ratio.
The TRACO CABLES shows, their ability to carry their working

capital ratio is comparatively high only in the period of 2011-12, is
showing an efficient utilization of its working capital for making sales.
But it not make good for sufficient utilization of funds.
10.DEBTORS TURNOVER RATIO :-
The purpose of debtors turnover ratio is to discuss the credit collection

power and policy of the firm. Debtors turnover ratio is also known as
accounts receivables turnover ratio. And it indicates the velocity of debt
collection of a firm.
Formula :-
DEBTORS TURNOVER RATIO = NET CREDIT SALES /

AVERAGE ACCOUNT RECEIVABLES.
The term account receivables include trade debtors and bills receivable.
Debtors turnover ratio is also called debtors velocity.
TABLE 12
Year Net credit sales Average account Debtors turnover

receivables ratio
2008-2009 4967.83 2242.70 2.215111
2009-2010 7168.65 1743.87 4.11077
2010-2011 7256.46 2610.87 2.77932
2011-2012 5369.53 1873.72 2.8657
2012-2013 4747.81 2874.95 1.65144
GRAPH 10
Debtors turnover ratio
4.5
4
3.5
3
2.5 Debtors turnover ratio
2
1.5
1
0.5
0
INTERPRETATION
Debtors should always be taken at gross value. No provision for bad

and doubtful debts is deducted from them. Generally, the higher the
value of debtors turnover the more efficient is the management of
debtors or sales or more liquid are the debtors. Similarly, low debtors
turnover implies inefficient management of debtors or sales and less
liquid debtors. But a situation is needed while interpreting a very high
debtors turnover ratio because a very high ratio may imply a firms
inability due to lack of resources to sell on credit their by losing sales
and profits.
The debtors velocity of TRACO CABLE LTD was started from down
and ends to down. The ratio shows a trend of increasing and decreasing
velocity which indicates the inefficiency of a firm for managing their
debtors. In the year 2009-10 have a little extend of increasing ratio.
Here it says that debtors cannot be converted into cash.
11.AVERAGE DEBT COLLECTION PERIOD
Average debt collection period is also called receivables turnover ratio.

Debtors collection period shows the average number of days required
for the receipts of invoice by the customers and actual payment of the
invoice
Formula :-
AVERAGE DEBT COLLECTION PERIOD =(DEBTOR+BILL

RECEIVABLE)/NET CREDIT SALES *NO.OF DAYS
It can be calculated on to ways. In days we can multiply 365with the

equation and in month we can multiply 12 with the equation.
TABLE 13
Year Average Net credit No. of days Debt collection

account sales period
receivables
2008-09 2242.70 4967.83 365 164.7
2009-10 1743.87 7168.65 365 88.7
2010-11 2610.87 7256.46 365 131.3
2011-12 1873.72 5369.53 365 127.3
2012-13 2874.95 4747.81 365 221.01
GRAPH 11
Debt collection period
250
200
150
Debt collection period
100
50
INTERPRETATION
The average collection period ratio represents the average number of

days for which a firm has to wait before its receivables are converted
into cash. It measures the quality of debtors. Generally, the shorter the
average collection period is better in the quality of debtors as a short
collection period implies quick payment by debtors. Similarly, a higher
collection period implies as inefficient collection performs which in
turn adversely affects the liquidity of short term paying capacity of a
firm out of its current liabilities. More over longer the average
collection period, the larger are the chances of bad debts
The TRACO CABLE COMPANY shows there inefficiency on the

period of 2012-13, that they take 221days for collecting their prompt
payment.
12.CREDITORS TURN OVER RATIO
Creditors turn over ratio indicates the number of times the account
payable rotate in a year.
Formula :-
CREDITORS TURN OVER RATIO = NET CREDIT PURCHASE /

AVERAGE ACCOUNT PAYABLE
The termaccounts payable include creditors and bills payable.
TABLE 14
Year Net credit purchase Average account Creditors turnover

payable ratio
2008-2009 3045.05 1294.62 2.3520
2009-2010 4900.72 1146.60 4.2741
2010-2011 5235.62 1127.89 4.6392
2011-2012 3587.65 522.67 6.8640
2012-2013 3818.89 1264.98 3.0189
GRAPH 13
Creditors turnover ratio
7
6
5
Creditors turnover
4 ratio
3
2
1
0
2008-09 2009-10 2010-11 2011-12 2012-13
INTERPRETATION
In creditors turn over ratio, if opening and closing balances of creditors

are not known, the balance of creditors given may be taken to find out
the ratio. The ratio indicates the velocity with which the creditors are
turned over in relation to purchases. Generally, higher the
creditorsvelocities better it is or otherwise lower the creditors velocity,
less favorable are the results.
The creditors turn over ratio shows a diminishing graph. There is an

increasing value shows from the period of 2008-09 to 2011-12. The
graph increased and staged on 6.86on the period of 2011-12 it shows
less favorable results on the last year and better in other periods.
13.AVERAGE DEBT PAYMENT PERIOD
Average debt payment period always the reverse equation of creditors

velocity.
Formula :-
AVERAGE DEBT PAYMENT PERIOD =AVERAGE ACCOUNT

PAYABLE / NET CREDIT PURCHASE* NO. OF DAYS
TABLE 15
Year Average account Net credit No. of Debt payment

payable purchase days period
2008-2009 1294.62 3045.05 365 155.18
2009-2010 1146.60 4900.72 365 85.3
2010-2011 1127.89 5235.62 365 78.6
2011-2012 522.67 3587.65 365 53.1
2012-2013 1264.98 3818.89 365 120.9
GRAPH 13
Debt payment period
160
140
120
100
80 Debt payment period
60
40
20
0
INTERPRETATION
The average payment period ratio represents the average number of

days taken by the firm to pay its creditors. Generally, lower the ratio the
better is the liquidity position of the firm and higher the ratio, less
liquid is a position of the firm. But a higher payment period also
implies greater credit period enjoyed by the firm and consequently
larger the benefit reaped from credit supplies but one has be, careful in
interpreting this ratio, as higher ratio may also imply lesser discount
facilities availed or higher prices paid for the goods purchased on
credit.
The table of TRACO CABLES shows that in the year 2008-09 the days
taken to payment is 155 and the recent period shows a decreasing trend.
It implies the company has a good liquidity position and they enjoyed a
greater credit period.
14.GROSS PROFIT RATIO;-
Gross profit ratio expressed as the percentage of the relation ship

between gross profit and sales.
Formula :-
GROSS PROFIT RATIO = (GROSS PROFIT / NET SALES ) * 100
TABLE 16
Year Gross profit Net sales Gross profit

turnover ratio
2008-2009 98.11 4967.83 1.9749
2009-2010 19.08 7168.65 0.266
2010-2011 19.13 7256.46 0.2636
2011-2012 74096 5369.53 1.3960
2012-2013 44.487 4747.81 0.9368

GRAPH 14
Gross profit turnover ratio

2
1.5
1 Gross profit turnover

ratio
0.5
INTERPRETATION
The gross profit ratio indicates the extent to which selling prices of
goods per unit may decline without resulting in losses on operation of
firm. It reflects the efficiency with which a firm produces its products.
A low gross profit ratio generally indicates high cost of goods sold due
to unfavorable purchasing policies, lesser sales, lower selling prices,
excessive completion, over investments in plant and machinery, etc.
The graph shows a high gross profit ratio in the first year 2008-09
indicates the favorable condition of the firm. But the last four years are
not satisfied for the position of a financial firm. It is relatively lesser
than from others and shows its unfavorable level over investments.
15.NET PROFIT RATIO
Net profit ratio is also called the net profit to sales or net profit margin
ratio. Net profit ratio is determined by dividing the net income after tax
to net sales for the net period. It is also expressed in percentage. It is
used to measure the overall profitability by the proprietors.
Formula :-
NET PROFIT RATIO = (NET PROFIT / SALES)*100
Net profit means profit after interest and tax but before dividend.
TABLE 17
Year Net profit Net sales Net profit ratio
2008-2009 307.69 4967.83 6.19364
2009-2010 677.3 7168.65 -0.9448
2010-2011 214.22 7256.46 -2.9521
2011-2012 16.56 5369.53 0.3084
2012-2013 22.85 4747.81 -0.4812

GRAPH 15
Net profit ratio

8
4
Net profit ratio
0
2008-09 2009-10 2010-11 2011-12 2012-13
-2
-4
INTERPRETATION
The net profits are obtained after deducting income tax and, generally,
non operating incomes and expenses are excluded from the net profit
for calculating this ratio. The ratio is very useful as if the profit is not
sufficient, the firm shall not be able to achieve a satisfactory return on
its investment. Obviously, higher the ratio, the better is the profitability.
But while interpreting the ratio, it should be kept in mind that the
performance of profits must also be seen in relation to investments or
capital of the firm and not only in relation to sales.
The graph shows a negative interpretation of net profit ratio and shows
a better profitability only in the period of 2008-09.
16. OPERATING RATIO :-
Operating ratio is an important ratio that is used to discuss the general

profitability of the concern. Total operating expenses include all cost
like administration, selling and distribution, etc. But do not include
financing cost and income tax.
Formula :-
OPERATING RATIO = {(COST OF GOOD SOLD +OPERATING

EXPENSES)/NET SALES}*100
TABLE 18
Year Cost of Operating Net sales Operating ratio

goods sold expenses
2008-2009 4381.59 237.12 4967.83 92.9723
2009-2010 5341.63 275.12 7168.65 78.3515
2010-2011 5602.31 322.53 7256.46 81.6491
2011-2012 9448.80 728.02 5369.53 189.5290

2012-2013 8807.72 368.73 4747.81 193.27
GRAPH 16
Operating ratio
2012-13
2011-12
Operating ratio
2010-11
2009-10
2008-09
0 20 40 60 80 100120140160180200
INTERPRETATION
Operating Ratio indicates the percentage of net sales that is consumed

by operating cost. Obviously, higher the operating ratio, the less
favorable it is, because, it would have a small margin to cover interest
income tax, dividend and reserves. There is no rule of thumb for this
ratio as, it differ from firm to firm depending upon the nature of the
business and its capital structure.
However 75-85% may be considered to be a good ratio in case of

manufacturing undertakings. Here the graph shows a relatively higher
operating ratio than the stable and shows their consistent level. It shows
an increasing trend of operating ratio.
17. RETURN ON TOTAL ASSET :-
Return on total asset shows the relationship between net profit and total
asset. Return on total asset ratio is also known as return on gross capital
employed.
Formula :-
RETURN ON TOTAL ASSET= (NET PROFIT / TOTAL ASSET)*100
The term net profit stands for net profit before interest tax and
dividend.
TABLE 19
Year Net profit Total asset Return on total

asset
2008-2009 307.69 3858.69 7.9739
2009-2010 677.3 3658.83 18.5113
2010-2011 214.22 5816.80 3.6827
2011-2012 16.56 4841.50 0.3420
2012-2013 22.85 6682.58 0.3419
GRAPH 17
Return on total asset

20
18
16
14
12
10 Return on total asset
8
6
4
2
0
INTERPRETATION
Return on total assets indicates the efficiency of managing all of the
companys assets. Generally, the higher the return of total asset implies
the companys utilizing all its assets efficiently to generate sales.
Similarly, lower the return of total assets shows poor condition of the
sales of the firm.
Here the table shows a return of total assets are high only in the period
of 2009-10. It becomes decreases in value from the period of 2010-11
to 2012-13. It shows a highly inefficient and unfavorable condition of
TRACO CABLE LTD.
Table 20
STATEMENT OF SCHEDULE OF CHANGES IN WORKING

CAPITAL
FOR THE YEAR 2008-2009
Effect On Working Capital

Particulars Previous Year Current Year Increases Decreases
2007-08 2008-09
Current Assets :
Inventories 568.01 451.22 - 116.78

Sundry Debtors 1963.16 2242.70 279.54 -
Cash and Bank Balances 261.66 235.43 - 26.23
Loans and Advances 390 347.39 - 43

Other Expenses 269 215 54
Total Current Assets 3551.83 3278.89
Current Liabilities :
Current Liability 2123.88 1796.58 32.730

Provisions 198.61 140.40 58.21
Total Current Liabilities 2322.49 1936.98
Working Capital ( CA - CL) 1393.32 1341.91
Net Increases / Decreases In 51.41 51.41

Working Capital
1393.32 1393.32 330.95 330.95
INTERPRETATION
By analyzing the schedule of changes in working capital for the year

2008 09, the statement found that the volume of sundry debtors of the
firm had increased. Other all current assets and liabilities are decreased
it shows a net increase in working capital.
Table 21

CAPITAL
FOR THE YEAR 2009 2010


2008-09 2009-10
Current Assets :
Inventories 451.22 811.07 359.85 -
Sundry Debtors 2242.70 1943.87 - 298.83

Cash and Bank Balances 135.43 77.58 57.85 -
Loans and Advances 347.39 315 - 32.39

Other Expenses 215 215 - -
Current Liability 1796.58 1525.61 - 121
Provisions 140.40 169.71 29.31 -

Working Capital ( CA - 1341.91 1449.62

CL )
Net Increases / Decreases 107.71 107.71
In Working Capital
1449.62 1449.62 447.01 447.01
INTERPRETATION
By analyzing the statements 2009-10, the schedule found that the
increasing value of sundry debtors inventories and provisions. It shows
the effective utilization of current assets of the firm in that year. But the
cash and bank balances show the decreasing value have not take
corrective actions in the day to day undertakings.
Table 22

CAPITAL
FOR THE YEAR 2010 -2011

2009-10 2010-11
Current Assets :
Inventories 811.07 1298.38 487.31 -

Sundry Debtors 1943.87 2610.87 438.75 -

Loans and Advances 315 401.72 85 -
Other Expenses 215 1.19 - 213.81
Current Liability 1525.61 1892.74 41.285 -

Provisions 169.71 236.23 66.52 -
Total Current 1695.32 2128.97

Liabilities
Working Capital ( CA 1449.62 2476.37
- CL )
Net Increases / 1026.75 1026.75
Decreases In Working
Capital
2476.37 2476.37 1240.56 1240.56
INTERPRETATION
The statement showing the financial year of 2010-2011, also states that
the proper utilization of current assets over current liabilities. The table
shows only a decreasing value of other current assets over current
liabilities. It shows a net increase in working capital from the sources of
fund.
Table 23
CAPITAL

2010-11 2011-12
Current Assets :
Inventories 1298.38 1161.09 - 1159.9
Sundry Debtors 2610.87 1873.72 - 737.15
Loans and Advances 401.72 95.77 - 305.95
Other Expenses 1.19 4.18 2.99 -

Provisions 236.23 391.32 155.09 -
Working Capital(CA- 2476.37 791.91

CL )
In Working Capital
2476.37 2476.37 2203.61 2203.61
INTERPRETATION
While analyzing the statement showing here, it is the table shows the
volume of current asset. Stock, loans and advances and the sundry
debtors are increasing. But it showed a decreasing in working capital.
Table 24

CAPITAL

2011-12 2012-13
Current Assets :
Inventories 1161.09 935.47 225.62 -
Sundry Debtors 1873.72 874.95 - 999.37
Loans and Advances 95.77 87.99 - 7.78
Other Expenses 4.18 68.01 63.83 -

Provisions 391.32 519.38 128.06 -

Working Capital ( CA - 791.91 1610.66

CL )

In Working Capital
1610.66 1610.66 1825.9 1825.9

INTERPRETATION
The statement of analysis of working capital, shows that the prompt,

use of current assets and current liabilities during the period. Only have
a fluctuation of insufficient usage of current assets are sundry debtors
and loans in advances. Other terms are shows the efficient utilization of
current assets and the increasing value of net working capital analysis.
CHAPTER 5
FINDINGS AND SUGGESTIONS

FINDINGS
While analyzing the data, we found that the current ratio

and quick ratio of the current years are unfavorable for a
sound business firm. It causes some difficulties on debts
for the firm for paying short term assets.
Absolute liquidity ratio of TRACO Cable Company is
relatively less than the actual ratio.
Debt equity ratio shows that the safety margin for the
creditors is high and it increase the use of debt financing.
The data of proprietary ratio shows less proportion due to
low solvency positions and should term to take the
creditors into high risk.
On the period of studies, fixed asset to net worth ratio
indicates that the funds are provided to the share holders
are total assets are less than shares.
The inventory turnover ratio and the conversion period are
relatively good for the firms ability to convert stock into
sales.
It found that the firms fixed asset turnover shows an
unfavorable sign that indicates the firm uses its fixed
assets in an inefficient way.
Working capital turnover ratio analysis shows, the
effective utilization of working capital for making sales is
not good.
The analysis of debtors turnover ratio and its collection
period shows an increasing trend for the efficiency in
management of debt and sales.
Creditors velocity indicates better favorable condition and
a good liquidity position having the enjoyed a greater
credit period.
The data of gross profit ratio and net profit ratio shows
only better profitability condition on the period of 2008-
09.
Operating ratio of the firm shows its inefficiency. Only an
improvement shows in the last year.
Return on total assets of 2009-10 implies the company
utilizing there assets are efficiently to generate there sales.
Through this period of study, it found that the cash and
bank balances are fluctuating over a period of time.
The scheduled the changed of working capital show an
increasing trend on the period of 2008-09 and 2011-12.
Form the overall analysis of working capital for the last
five years, it is found that though company has failed to
attain the standard ratios in some years.
SUGGESTIONS
The firm must utilize its assets efficiently to generate its sales.
The company must take necessary obligation to attain 1:1 quick
ratio which shows a high liquidity or short term solvency of a
firm.
The short term solvency position of the firm must be improved
for meeting the current obligation of the firm.
The company should improve its cash management to avoid
fluctuations in cash.
A firm must improve its leverage ratios for increasing its
financial strength and to achieve better long term solvency.
A standard collection period and payment period must be set for
an improvement in the financial position of their company.
CONCLUSION
CONCLUSION
Working capital management is an important aspect of financial

management. The study of working capital management of TRACO
CABLE Ltd., IRUMPANAM has revealed that the current ratio is
showing decreasing trend. The study has been conducted on
working capital management which will help the management to
keep their working capital effectively and efficiently. Overall the
company has to maintain a sufficient liquidity position and repay the
funds to liabilities. From the study I found that, the ups of the
working capital of TRACO CABLE Ltd, IRUMPANAM is more
than the downs of the firm. The increase in the working capital in
the year which is significant in trends and the trend is giving a good
satisfactory level on this sound business firm.
BIBLIOGRAPHY
REFERENCE
1. Prasana Chandra, Financial Management Theory

And Practice (New Delhi, McGraw Hill Publishing
CO Ltd.1984).
2. V.K.Bhalla, Working Capital Management Text &
Cases. ((New Delhi, Anmol Publications Pvt. Ltd at
Mehara offset Press 11th revised and enlarge edition
2010.
3. Dr. P.Pariasamy, Working Capital Management
Theory & Practice (Published by Mrs. Meena
Panday for Himalaya Publishing house, last
reprinted in 2009) .
4. Shashi.K.Gupta, Neethi Gupta, Advanced
Corporate Finance (New Delhi, Kalyani
Publications 2009).
5. M.Y.Khan & P.K.Jain, Cost Accounting &
Financial Management (New Delhi, Tata McGraw
Hill Education Pvt.Ltd, 3rd Edition, 2010).
6. Eugene.F.Brigham, Michael.C Enrhardt, Financial
Management Theory & Practice 10th Edition.
copyright@2002 by South Western, A Division of
Thomson Learning, Inc.
7. Stanely.B.Block, Geoferry.A.Hirt. Foundations of
Financial Management 4th Edition 1987, USA@
Richard.D.Irwin, Inc.
8. Shashi K. Gupta , R. K Sharma & Anuj Gupta,
Management Accounting Kalyani Publication
Reprinted In 2012
9. Financial Management 9th Edition, I.M.Pandey.
Vikas@ Publishing house Pvt. Ltd reprinted in
2008.
10. Bentone. E .cup., principles of financial
management, ( new york, john wiley& sons, 1983).
WEBSITES
www.google.com
www.tracocables.com
www.economictime.com

Amrutha

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Amrutha

Uploaded by

Copyright:

Available Formats

CHAPTER-1

Working capital, the life blood and controlling nerve of an

In simple terms, working capital is an excess of current

Working capital represents that part of resources of

TRACO CABLE COMPANY LIMITED, a premier Kerala government

This project titled A STUDY ON WORKING CAPITAL

The organizational study of working capital management

STATEMENT OF THE PROBLEM

Working capital management is an important factor for the day to day

OBJECTIVES OF THE STUDY

2. To analyze the liquidity position of the company.

3. To measure the profitability of TRACO ltd, IRIMPANAM.

4. To find out the operations and financial efficiency.

5. To examine performance of receivables in the company.

6. To improve the working capital of TRACO cable company.

SCOPE OF THE STUDY

The scope of the study is limited to the working capital

1. The study is designed to cover the analysis of working capital,

2. The study of working capital is based on tools like ratio

3. The study provides better strategies to improve the financial

The duration of the study was one month from 8-12-2014.

PERIOD OF THE STUDY

Year of 2008-2009 to 2012-2013.

RESEARCH METHODOLOGY OF THE STUDY

This study is mainly based on secondary data.

The secondary data consists of readily available information in

LIMITATION OF THE STUDY

2. The data is limited for a period of five years from 2008-09 to

3. The study is entirely based on quantitative data involving

4. The time period provide for the study was insufficient.

TRACO CABLE COMPANY, a Premier Kerala Government

One of India's most sought after Paper Insulated Lead Sheathed

With the progress in Cable Technology, Paper Insulated Cables gave

Traco Cable Company Ltd.

Date of incorporation 5-2-1960

Present activities: Manufacture and supply of various kinds of electrical

Cables manufacture and supply of jelly filled telephone cables.

Summary of performance: The Company has been able to achieve

(About 36%) during the year 1994-95.However, the cost of raw

Capacity utilization at Irimpanam unit increased by 22.67% as the

Orders from KSEB.

Land : 15.38 hectares

Plant area : 7500 sq.meters

Total built up area : 9500 sq. meters

Electricity : 2 nos. 1000kva transformers

Water : 3 bore wells for processing drinking water;

7000 liters /day;

One frp/spray cooling tower for the process of water cooling.

One well for process water;

Self Supported Aerial Cable

Polythene Insulated Moisture barrier self supporting aerial cable.

PVC Drop Wire

Spec. No. SP/76-2/87/63

Flat Twin Cable

1100 V. Grade Spec: IS 694 Extensively used for providing connections

Power Cable with Aluminum Conductor

PVC insulated and sheathed armored/unarmored Aluminum power

Power Cables with Copper Conductor

PVC insulated and sheathed armored/unarmored copper

Power cables standard Specification: IS: 1554 Part I

Railway Signaling Cables

Signaling Cables - Used by Railways. PVC insulated & sheathed

Spec : Indian Railway Specification No : S63 - 89 for PVC insulated