Professional Documents
Culture Documents
1. INTRODUCTION
Working capital management is a part of the firms capital which is required for
financing current assets such as cash, marketable securities, debtors and
inventories. The basic objective of working capital is to manage the firms
currents assets and current liabilities in such a way that a satisfactory level of
working capital in maintained.
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Steel industry is one of the major industries in India. India is the fifth largest
steel producing country in the world. Indian Government plays an important role
in the development of steel. Steel has now been an important part of the industrial
economy. Steel was introduced in the late 1850s but steel has been the basic if
the worlds industrial economy. Steel industry is a business of processing iron or
into steel, which in its simplified form is an iron carbon alloy and in the same
cases turning that metal into partially finished products or recycling scrap material
into steel.
INDUSTRY STATISTICS
Government targets to increase the production capacity from 56 million tonnes
annually to 124 MT in the first phase which will come to an end by 2011-12.
Currently with a production of 56 million tonnes India accounts for over 7% of
the total steel produced globally, while it accounts to about 5% of global steel
consumption. The steel sector in India grew by 5.3% in May 2009. Globally
India is the only country to post a positive overall growth in the production of
crude steel at 1.01% for the period of January-March in 2009.
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EXPORT
About 50% of the steel produced in India is exported. Indias export of steel
during April-December 2008 was 64.4 MT as against 9.7 MT in December 2007.
In February 2009, steel export increased by 17% to 12.6 MT from 10.8 MT in the
same month last year. More than 50% of steel from India is exported to China.
The Governments decision to reduce export duty on iron ore lumps from 15% to
5% has given a major boost to the export of steel.
DOMESTIC SUPPLY
The estimated demand of the re-rolled products has been estimated at about 8
millionTonnes. The share of the secondary steel producers in India out of the total
production of finished steel has been assessed at 59 per cent which itself proves
the achievement of this sector. The secondary industry has always been
recognized by the Government and the steel experts as a compliment to the main
stream of steel industry. The industry has created thousands and thousands tonnes
of its products to core projects, dams, state Electricity Broad and other
infrastructure projects in India. The steel re-rolling industry caters to the needs of
the domestic fields up to the tonnes of 68 per cent of the total exports of rounds
and bars have been recorded from the secondary steel producers.
HURDLES
Power shortage hampers the production of steel
Use of out-dated process for production
Lags behind in the production of stainless steel
Deficiency of raw materials required by the industry
Labour productivity is low. It is 144 tons per worker per year againt 600
tons in Western Europe as per estimates
Inadequate shipment capacity and transport structure
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STRENGTHS
There are many strong points of the industry that makes it one of the leading
names in the global steel industry. The rate of labour wage in India is among one
of the lowest in the world thereby making large scale production feasible. The
boom witnessed in the automobile industry has ensured that the demand for steel
is increasing gradually and will continue to do so in the near future. There is huge
manpower in India which is another reason why steel production in India is high
and the industry is is doing pretty well both nation and internationally.
INVESTMENTS
Numerous steel companies some major projects in the pipeline to invest in
India steel industry. Steel companies have earmarked more than 100 million USD
for the setting up of sponge iron units in Koppal and Bellary in Karnataka. As per
investment commission of India more than 30 billion USD are in the pipeline for
investments over the next five years.
PRODUCTION
Steel production rose 4.2 per cent to reach 60MT in 2009-2010, according
to Ministry of Steel.
The National Steel Policy 2005 had projected an annual Steel consumption
growth of 7 per cent based on GDP growth rate of 7-7.5 per-cent and production
of 110 MT of crude Steel 2019-2020. Nonetheless, with the current rate of on-
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going Greenfield and Brownfield projects, the Ministry of Steel has projected that
these growth trends are likely to be exceeded and it in envisaged that in the next 5
years demand will grow at higher annual average growth rate of over 10 per cent
as compared to around 7 per cent growth achieved between 1991-92 and 2005-06.
Moreover, according to the Ministry, the crude Steel production capacity in the
country by 2011-12 will be nearby 124MT.
According to the Ministry of Steel, 222 memorandum of understanding (MoUs)
have been signed with various states for planned capacity of around 276 MT.
Major investment plans are in Orissa, Jharkhand, Chhattisgarh, West Bengal,
Karnataka, Gujarat and Maharashtra.
According to the Annual Report 2009-10 by the Ministry of Steel, domestic
crude Steel production grew at a compounded annual growth rate of 8.6 per cent
during 2004-05 and 2008-09.
CONSUMPTION
Indias Steel consumption rose 8 per cent in the year ended March 2010,
over the same period a year above on account of improved demand from sectors
like automobile, infrastructure and housing. The countrys Steel consumption
increased to 56.3 MT in the 12 months to March 2010 from 52.3 MT in the
previous year, as per the Ministry of Steel.
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MS.INGOTS
Turn over : 24 Cr
PALAKKAD, KERALA
0421-2568763
Email id : krishnasteel@hotmail.com
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Krishna steel rolling mills is registered under the companys act 1956. It enjoy a
monopoly market in Kerala and tamilnadu. The company functions under the
ample leadership of Sri. R Elangovan who is the managing director of the
company. There are around 150 staff employees working in this company and
employees are appointed on contract basis in peak seasons the labourers are
mainly from Orissa and Bihar. Krishna steel rolling mills was set up on November
2008. The company achieved the certificate of ISI (Fe415) and ISO 9001-2000.
MrElangovan who is the managing director of Krishna steels has also received
the prestigious UdyogRatna Award 2009 for best employer. Krishna steel has
branches in tamilnadu and in Palakkad(two branches).
Krishna steel are situated in 16km away from Palakkad town in the industrial
development area, kanjikode.
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ORGANIZATION CHART
MANAGING DIRECTOR
General Manager
Supervisor Workers
Employees
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This project deals with the study about Working Capital Management in
KRISHNA STEEL ROLLING MILLS.
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PRIMARY OBJECTIVES
SECONDARY OBJECTIVES
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RESEARCH DESIGN
PROBLEM STATEMENT
The problem generally explains that, less attention has been paid to the area of
short-term finance, in particular that of working capital management. Such neglect
might be acceptable were working capital considerations of relatively little
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importance to the firm, but effective working capital management has a crucial
role to play in enhancing the profitability and growth of the firm. Indeed,
experience shows that inadequate planning and control of working capital is one
of the more common causes of business failure.
TYPE OF RESEARCH
ANALYTICAL RESEARCH
SOURCES OF DATA
There are mainly two through which the data required for the research is
collected.
Primary data:
The primary data is that data which is collected fresh or first hand, and for first
time which is original in nature.
In this study the Primary data has been collected from Personal Interaction with
finance manager and other staff members.
Secondary data:
The secondary data are those which have already collected and stored.
Secondary data easily get those secondary data from records, annual reports of the
company etc. It will save the time, money and efforts to collect the data.
In this stud the major source of data for this project was collected through annual
reports, profit and loss account of 5 year period from 2009-2014& some more
information collected from internet and text sources.
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RATIO ANALYSIS
CLASSIFICATION OF RATIOS:
A) Liquidity Ratios
B) Activity Ratios
C) Profitability Ratios
A) Liquidity Ratios
These ratios portray the capacity of the business unit to meet its short term
obligation from its short-term resources (i.e. Current Ratio, Quick Ratio.)
Current Ratio:
Current ratio may be defined as the relationship between current assets and
current liabilities it is the most common ratio of measuring liquidity. It is
calculated by dividing current assets and current liabilities. Current assets are
those, the amount of which can be realized with in a period of one year. Current
liabilities are those amounts which are payable with in the period of the year.
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Current assets
Current ratio =
Current liabilities
Liquid Ratio:
The term liquidity refers to the ability of a firm to pay its short-term obligation
as and when they become due. The term quick assets or liquid assets refers
current assets which can be converted into cash immediately it comprises all
current assets except stock and prepaid expenses it is determined by dividing
quick assets by quick liabilities.
Liquid assets
Liquid Ratio =
Liquid liabilities
Absolute Liquid Ratio
Absolute Liquid Ratio is also called as Cash Position Ratio (or) Over Due
Liability Ratio. This ratio established the relationship between the absolute liquid
assets and current liabilities. Absolute Liquid Assets include cash in hand, cash at
bank, and marketable securities or temporary investments. The optimum value for
this ratio should be one, i.e., 1: 2. It indicates that 50% worth absolute liquid
assets are considered adequate to pay the 100% worth current liabilities in time. If
the ratio is relatively lower than one, it represents that the company's day-to-day
cash management is poor. If the ratio is considerably more than one, the absolute
liquid ratio represents enough funds in the form of cash to meet its short-term
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The term profitability means the profit earning capacity of any business activity.
Thus, profit earning may be judged on the volume of profit margin of any activity
and is calculated by subtracting costs from the total revenue accruing to a firm
during a particular period. Profitability Ratio is used to measure the overall
efficiency or performance of a business. Generally, a large number of ratios can
also be used for determining the profitability as the same is related to sales or
investments.
Gross Profit Ratio established the relationship between gross profit and net sales.
This ratio is calculated by dividing the Gross Profit by Sales. It is usually
indicated as percentage.
Gross profit
Gross profit ratio =
Net sales
Net Profit Ratio is also termed as Sales Margin Ratio (or) Profit Margin Ratio
(or) Net Profit to Sales Ratio. This ratio reveals the firm's overall efficiency in
operating the business. Net profit Ratio is used to measure the relationship
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between net profit (either before or after taxes) and sales. This ratio can be
calculated by the following formula:
Net Sales
A) Current assets
1) Cash balance
2) Bills receivable
3) Sundry debtors
4) Stock/inventories
5) Prepaid expenses
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B) Current liabilities
1) Sundry creditors
2) Bills payable
3) Bank overdraft
4) Outstanding expenses
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The scope of the study is identified after and during the study is conducted. The
main scope of the study was to put into practical the theoretical aspect of the study
into real life work experience. The study of working capital is based on tools like
Ratio Analysis, Statement of changes. Further the study is based on last 5 years
Annual Report of Krishna steel rolling mills.
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The study has been conducted for gaining practical knowledge about Working
Capital Management & activities Krishna steel rolling mills
It is beneficial to management of the company by providing clear picture
regarding important aspects like liquidity, leverage, and solvency.
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The analysis is limited to just 5 years of data study (from year 2011 to
2015) for financial years.
There may be some fractional differences in the calculated ratios.
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2.CHAPTER SCHEMA
CHAPTER 1 CHAPTER3
INTRODUCTI DATA
ON ANALYSIS
AND
INTERPRETA CHAPTER 4
CHAPTER 2
ION
FINDINGS
LITERATUR
E REVIEW
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CHAPTER 1 1 INTRODUCTION
1.9 LIMITATIONS
CHAPTER 2
INTERPRETATION
4.1 FINDINGS
CHAPTER 4
4.2 SUGGESTION
FINDINGS
4.3 CONCLUSION
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2.1REVIEW OF LITERATURE
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H. Jamal Zubairi (2010) studied Pakistan automobile sector and checked the
impact of WCM and capital structure on profitability of the firm. To measure the
profitability they used earnings before interest and taxes. Panel data set was
analyzed using regression. The results showed that profitability variations due to
the above mentioned four variables give three quarters of total variation. They
also reported positive relation between profitability and size of the firm which is
in accordance with the results of Raheman& Nasr (2007) study.
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Walker further stated that if a firm wished to reduce its risk to the minimum, it
should employ only equity capital for financing of working capital; however by
doing so, the firm reduced its opportunities for higher gains on equity capital as it
would not be taking advantage of leverage. In fact, the problem is not whether to
use debt capital but how much debt capital to use, which would depend on
management attitude towards risk and return. On the basis of this, he developed
his second proposition.
Proposition II: The type of capital (debt or equity) used to finance working
capital directly affects the amount of risk that a firm assumes as well as the
opportunities for gain or loss. Walker again suggested that not only the debt-
equity ratio, but also the maturity period of debt would affect the risk-return trade-
off. The longer the period of debt, the lower be the risk. For, management would
have enough opportunity to acquire funds from operations to meet the debt
obligations. But at the same time, long-term debt is costlier. On the basis of this,
he developed his third proposition:
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Proposition III: The greater the disparity between the maturities of a firm's debt
instruments and its flow of internally generated funds, the greater the risk and
vice-versa.
Lambrix and Singhvi(1979) adopting the working capital cycle approach to the
working capital management, also suggested that investment in working capital
could be optimized and cash flows could be improved by reducing the time frame
of the physical flow from receipt of raw material to shipment of finished goods,
i.e. inventory management, and by improving the terms on which firm sells goods
as well as receipt of cash. However, the further suggested that working capital
investment could be optimized also (1) by improving the terms on which firms
bought goods i.e. creditors and payment of cash, and (2) by eliminating the
administrative delays i.e. the deficiencies of paper-work flow which tended to
extend the time-frame of the movement of goods and cash.
Deloof,( 2003): discussed that most firms had a large amount of cash invested in
working capital. It can therefore be expected that the way in which working
capital is managed will have a significant impact on profitability of those firms.
Using correlation and regression tests he found a significant negative
relationship between gross operating income and the number of days accounts
receivable, inventories and accounts payable of Belgian firms. On basis of these
results he suggested that managers could create value for their shareholders by
reducing the number of days accounts receivable and inventories to a reasonable
minimum. The negative relationship between accounts payable and profitability
is consistent with the view that less profitable firms wait longer to pay their bills.
Ghosh and Maji, (2003): in this paper made an attempt to examine the
efficiency of working capital management of the Indian cement companies during
1992 1993 to 2001 2002. For measuring the efficiency of working capital
management, performance, utilization, and overall efficiency indices were
calculated instead of using some common working capital management ratios.
Setting industry norms as target-efficiency levels of the individual firms, this
paper also tested the speed of achieving that target level of efficiency by an
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individual firm during the period of study. Findings of the study indicated that the
Indian Cement Industry as a whole did not perform remarkably well during this
period.
Smith and Begemann (1997): emphasized that those who promoted working
capital theory shared that profitability and liquidity comprised the salient goals of
working capital management. The problem arose because the maximization of the
firm's returns could seriously threaten its liquidity, and the pursuit of liquidity had
a tendency to dilute returns.
Gill, Biger and Mathur (2010) analyzed the relationship between working
capital management and profitability of 88 American firms listed on New York
Stock Exchange for a period of 3 years from 2005 to 2007 was selected. The data
was analyzed using Pearson Bivariate Correlation Analysis and Weighted Least
Squares (WLS) Regression techniques. They found statistically significant
relationship between the cash conversion cycle and profitability, measured
through gross operating profit. It followed that managers can create profits for
their companies by handling correctly the cash conversion cycle and by keeping
accounts receivables at an optimal level.
Gul, Khan, Rehman, Khan, Khan and Khan (2013) investigated the influence
of working capital management (WCM) on performance of small medium
enterprises (SMEs) in Pakistan. The duration of the study was seven years from
2006 to 2012. The data used in this study was taken from SMEDA, Karachi Stock
Exchange, tax offices, company itself and Bloom burgee business week. The
dependent variable of the study was Return on Assets (ROA) which was used as a
proxy for profitability. Independent variables were Number of Days Account
Receivable (ACP), Number of Days Inventory (INV), Cash Conversion Cycle
(CCC) and Number of Days Account Payable (APP). In addition to these
variables some other variables were used which included Firm Size (SIZE), Debit
Ratio (DR) and Growth (GROWTH). Regression analysis was used to determine
the relationship between WCM and performance of SMEs in Pakistan. Results
suggested that APP, GROWTH and SIZE have positive association with
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Profitability whereas ACP, INV, CCC and DR have inverse relation with
profitability.
Raheman, Afza, Qayyum and Bodla (2010) analyzed the impact of working
capital managementon firms performance in Pakistan for the period 1998 to
2007. For this purpose, balanced panel data of204 manufacturing firms was used
which are listed on Karachi Stock Exchange. The results indicate thatthe cash
conversion cycle, net trade cycle and inventory turnover in days are significantly
affecting theperformance of the firms. They concluded that manufacturing firms
were in general facing problemswith their collection and payment policies.
Moreover, financial leverage, sales growth and firm size also
had significant effect on the firms profitability. They study recommended that
effective policies mustbe formulated for the individual components of working
capital.
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Cohn and Pringle in their study (1973)9 illustrated the extension of Capital Asset
Pricing Model (CAPM) 10for working capital management decisions. They tried to
interrelate long-term investment and financing decisions and working capital
management decisions through CAPM. They emphasized that an active working
capital management policy based on CAPM could be employed to keep the firm's
shares in a given risk class. By risk, he meant unsystematic risk, the only risk
deemed relevant by CAPM. Owing to the lumpy nature for long-term financial
decisions, the firm is continually subject to shifts in the risk of its equity. The
fluid nature of working capital, on the other hand, can be exploited so as to offset
or moderate such swings. For example they suggested that a policy using CAPM
could be adopted for the management of marketable securities portfolio such that
the appropriate risk level at any point in time was that which maintains the risk of
the company's common stock at a constant level. Similarly, Copeland and
Khoury(1980)11 applied CAPM to develop a theory of credit expansion. They
argued that credit should be extended only if the expected rate of return on credit
is greater than or equal to market determined required rate of return. They used
CAPM to determine the required rate of return for the firm with its new risk,
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arising from uncertainty regarding collection due to the extension of credit. Thus,
these studies show how CAPM can be used for decisions involved in working
capital management.
One more approach, used mainly in empirical studies, towards working capital
management has been to apply regression analysis to determine the factors
influencing investment in working capital. Different studies in the past have
considered different explanatory variables to explain the investment in inventory.
A brief review12 of these studies is important as regression equation of investment
in working capital, in the present study, would be formulated on the basis of
works on investment in inventory.
with bulk buying and higher procurement costs for speedy delivery are also
mentioned. Uncertainties in the market for raw materials and in the demand for
final product also play a role in influencing the speed of adjustment. Technically,
firms like to make sure that changes in demand are of a permanent character
before making full adjustment. The acceleration principle has great relevance in
inventory analysis than in the analysis of fixed investment, as there are limits to
liquidate fixed capital in the face of declining demand.
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Working capital means the funds which are required to meet the daily
transactions of the business .In otherwords it refers to that part of the firms
capital which is required for financing current assets such as cash,marketable
securities, debtors and inventories. Thus working capital is very significant facet
of financialmanagement. Every business concern should have adequate working
capital to run its operations smoothly. Itshould have neither excess working
capital nor inadequate working capital because both of these have adverseeffects
on firms profitability and liquidity positions. Therefore, business concerns should
maintain adequateworking capital. The basic objective of working capital is to
manage the firms current assets and currentliabilities in such a way that that a
satisfactory level of working capital is maintained.Working capital policies have a
great effect on a firms liquidity and profitability. Therefore, the workingcapital
should be managed in such a way which will ensure higher profitability and
proper liquidity to thebusiness concern.The significance of working capital
management is to ensure that the organization maintains a good fit withthe
changing environment and strives to build the capability to cope with challenges.
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It shows the position of the firm at a certain point of time. It is calculated on the
basis of balance sheet preparedat a specific date. In this method there are two
types of working capital.
It refers to a firms investment in current assets. The sum of the current assets is
the working capital of thebusiness. The sum of the current is quantitative aspect of
working capital which emphasizes more on quantitythan on its quality, but it fails
to reveal the true picture of the financial position of the business because
everyincrease in current liabilities will decrease the gross working capital.
It is difference between the current assets and current liabilities or the excess of
total current assets over totalcurrent liabilities. It can also be defined as that part of
a firms current asset which is financed with long termfunds. It may be either
negative or positive. When the current assets exceed the current liabilities, the
workingcapital is positive and vice-versa.
The duration or time required to complete the sequence of events right from the
purchase of raw materials forcash to the realization of sales in cash is called
operating cycle or working capital cycle. The operating cycleconsists of three
phases:In phase 1, cash gets converted into inventory. This would include
purchase of raw materials, conversion of rawmaterials into work-in-progress,
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finished goods and terminate in the transfer of goods to stock at the end of
themanufacturing process. In the case of trading organization, this phase would be
shorter as there would be nomanufacturing activity and cash will be converted
into inventory directly. The phase will, of course, be totallyabsent in case of
service organizations.In phase 2 of the cycle, the inventory is converted into
receivables as credit sales are made to customers. Firmswhich do not sell on credit
will obviously not have phase 2 of the operating cycle.
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CURRENT ASSETS:
The list of current assets comprises inventories (including raw materials, work-
in-progress and finished goodsand spares), sundry debtors including receivables,
readily realizable securities and tax reserve certificates, shortterminvestments,
accrued incomes, prepaid expenses (not in the nature of deferred charge), cash at
bank, andcash in hand.In Durgapur Steel Plant current assets are:
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CURRENT LIABILITIES:
Sundry creditors
Advances from customers
Security deposit
Other liabilities etc.
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PRODUCTION CYCLE
BUSINESS CYCLE
DIVIDEND POLICY
DEPRECIATION POLICY
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3.RESEARCH MODEL
ACCOUNTS INCREASE
PAYABLE REVENUE
PROFITABILITY
PAYMENT
PERIOD WORKING
CAPITAL
CREDIT POLICY MANAGEMENT LIQUIDITY
COLLECTION
POLICY SOLVANCY
INVENTORY
POLICY FINANCIAL
STABILITY
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4.1RATIO ANALYSIS
4.1.1LIQUIDITY RATIOS
CURRENT RATIO
2.5
1.5
0.5
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
The standard current ratio is 2:1. The current ratio for 5 years from 2011-
2012 to 2015-2016 are calculated and presented in the above graph. The ratio
shows an fluctuating trend. But in 2012-2013 it shows a increasing trend. Some
actions should be taken to increase the ratio because the ratio has not reached up
to the standard level 2:1. Low current ratio indicates that a firm may have
difficulty to meeting current obligations. A low current ratio can often be
supported by a strong operating cash flow.
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QUICK ASSETS
CURRENT LIABILITIES
QUICK RATIO
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
The standard quick ratio is 1:1. The quick ratio for 5 years from 2011-2012 to
2015-2016 are calculated and presented in the above graph. The ratio shows an
fluctuating trend. But in 2013-2014 it shows a increasing trend. A quick ratio is
higher it indicates that the company can meet its current financial obligations with
the available quick funds on hand. In the year the ratio is 0.54. it is lower than the
standard rate. It indicates that the company relies too much on inventory or other
assets to pay its short-term liabilities.
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CASH& BANK
CURRENT LIABILITIES
ABSOLUTE RATIO
0.14
0.12
0.1
0.08
0.06
0.04
0.02
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
During the year 2011-12 , the Absolute liquidity ratio was 0.048 during the year
2012-13 it was 0.083 and in the year 2013-14 it was 0.126, in the year 2014-15 it
was 0.040 in the year 2015-16 the Absolute liquidity ratio was 0.041.This shows
the company had proper cash balance in its reserve to meet its day to day
expenses.
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SALES
CAPITAL EMPLOYED
RATIOS
3.5
3
2.5
2
1.5
1
0.5
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
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SALES
WORKING CAPITAL TURNOVER RATIO = -------------------------------------
-
NET WORKING CAPITAL
30
25
20
15
10
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
From the above table it is analyzed that the working capital turnover ratio of
the company is 26 in the year 2015-2016, and a slight decrease to 2011-2012 and
for the year 2014-2015 the company has concentrated and improved its working
capital ratio.A higher working capital ratio indicates greater efficiency. The
companys operations run more smoothly and limit the need for additional
funding.
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SALES
CASH TURNOVER RATIO = -------------------------------
CASH&BANK
45
40
35
30
25
20
15
10
5
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
From the above table it is found that the companys cash turnover ratio is
decreased in the year 2011-2012 from 34.36 to 17.4, and then in the year 2013-
2014, it is again decreased to 15.95, then in the year 2014-2015 it is increased to
41, and during 2015-2016 year cash ratio is 18.5 The Cash Turnover ratio of the
company was very low compared to 2012-2013 and 2013-2014, as there is an
increase in the amount of sales of the company and the receivables is also
increased and the net working capital is decreased due to which the cash inflow of
the company has reduced.
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SALES
DEBTORS TURNOVER RATIO = --------------------------
DEBTORS
16
14
12
10
8
6
4
2
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
K,
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INTERPRETATION
The above table depicts the companys debt turnover ratio, it is increasing trend
from 2012-2013 to 2013-2014 and 2014-2015 to 2015-2016.but in the year 2012-
2013 and 2014-2015there is a decrease in debtors turnover ratio. The normal ratio
is 5.The company converts the debtors in to cash more than one month. It
indicates they take more time to collect the cash. A high ratio indicates that the
receivables are more liquid and are being collected promptly.
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365
DEBTORS COLLECTION PERIOD = ------------------------------------------
DEBTORS TURNOVER RATIO
70
60
50
40
30
20
10
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
Debt collection period changing over the years. It was 36 days in the year 2011-
12. It increased to 29 day in the year 2012-13, in the year 2013-14 it decreased to
33 days., in the year 2014-15 it increased 37 days and 44days decreased 2015-
2016.This shows the efficient debt collection performance of the company at the
starting but it inefficient for the next year and then it again shows improve the
debt collection performance, in last year insuffientin collection of debt amount.
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PURCHASE
CREDITORS TURNOVER RATIO = ----------------------------
CREDITORS
2.5
1.5
0.5
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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INTERPRETATION
It is clear that creditor turnover ratio changing over the years. It was
190times in the year 2011-12.There was a subsequent increase 151 times in the
year 2012-13. In the year 2013-14 it is decreased to 193 times. It shows that
company has taken steps toprompt payment to the creditors.in the year 2014-2015
increased 5 times and 2015-2016 average payment period is 129 times.
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365
350
300
250
200
150
100
50
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
INTERPRETATION
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Average payment period changing over the years. It was 190 days in the year
2011-12. It increased to 151 days in the year 2012-2013, In the year 2013-14, it is
decreased 193 days.2014-2015 the company average payment period increased 5
days.In the last year Average payment period changed increased 129 days. It
indicates that the company has not making prompt payment to the creditors.
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`
SALES
FIXED ASSET TURNOVER RATIO = -------------------------
FIXED ASSETS
16
14
12
10
8
6
4
2
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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`
INTERPRETATION
There is a fluctuation in ratios during the period of study. In the year 2011-2012
the ratio is 12.10,2012-2013 A fixed asset ratio is decreasing 3.67. A low turnover
suggests that the fixed assets are being underutilized or that there are more assets
that can be effectively used.
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`
SALES
TOTAL ASSET TURNOVER RATIO = ------------------------------
TOTAL ASSETS
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
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`
INTERPRETATION
The first two year the total asset turnover is decreased in 0..75 to 0.47
respectively. Then the ratios are fluctuated. The low total asset turnover ratio is
preferred as it reflects the assets utilization and also indicate production or
management problems.
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`
GROSS PROFIT
GROSS PROFIT RATIO = -----------------------------*100
SALES
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`
0.2
0.1
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-0.1
-0.2
-0.3
-0.4
INTERPRETATION
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`
NET PROFIT
NET PROFIT RATIO = ---------------------------
SALES
0.2
0.1
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016
-0.1
-0.2
-0.3
-0.4
-0.5
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`
INTERPRETATION
70
`
NETPROFIT
TOTAL ASSET
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
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`
INTERPRETATION
It shows that in the year 2015, very poor management of assets the ratio as
0.033. the return on asset ratio is very low. It means the company cannot earn a
return on its investment in assets
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`
CURRENT ASSETS
CURRENT LIABILITIES
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`
-
SUNDRY 130276050 153937500 23661450
CREDITORS
-
SALARY PAYABLE 32157 58320 26163
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`
INTERPRETATION
In the above table, it is seen that during the year 2011 and 2012 there was a net
decrease in working capital of Rs 118287283It indicates an inadequate working
capital in Krishna steel rolling mills
This is because of
1. Increase current assets such as stock by Rs 26315825 other current assets are
increased. But the current investment is decreased Rs 82015831
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`
CURRENT ASSETS
CURRENT LIABILITIES
76
`
-
SUNDRY 153937500 76517249 77420251 -
CREDITORS
77
`
-
SEVICE TAX 37945 9132 28813
INTERPRETATION
78
`
In the above table, it is seen that during the year 2012 and 2013 there was a
net decrease in working capital of Rs 14978670. It indicates an inadequate
working capital in Krishna steel rolling mills.
This is because of
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`
CURRENT ASSETS
CURRENT LIABILITIES
80
`
-
SUNDRY 76517249 179259937 102742688
CREDITORS
-
SALARY PAYABLE 53240 304391 251151
SUBSCRIPTION
PAYABLE 2500 - 2500
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`
EXICE DUTY
PAYABLE - 5320000 5320000
82
`
INTERPRETATION
In the above table, it is seen that during the year 2013and 2014it is net increase in
working capital by Rs32254185.
This is because
83
`
CURRENT ASSETS
84
`
CURRENT LIABILITIES
85
`
EXICE DUTY
PAYABLE 5320000 5640000 - 320000
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`
INTERPRETATION
In the above table, it is seen that during the year 2014and 2015 there was also net
decrease in working capital by Rs 265320042
This is because
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5.1 FINDINGS
There are many factors that affecting working capital of the company. They
are
Accounts payable
Payment period
Credit policy
Inventory policy
An ideal current ratio is 2:1. Here Current ratio shows an increasing trend
from 2011-2012(1.86) to 2012-2013(2.97). But in 2013-2014(2.3), 2014-
2015(1.7) and 2015-2016(1.02) it shows a decline trend some action could be
taken to increase the ratio because this decrease due to high increase in current
liability over the years.
The standard quick ratio is 1:1the quick ratio of the company 2015-
2016(0.54:1) is not in a satisfactory level. As it does not reach to the standard
level
The standard Absolute quick ratio is 0.75:1As Krishna steel rolling mills
absolute quick ratio is 2015-2016(0.041), it does not meet the standard Level.
Debtors collection period is 25 days which shows the debts are collected
in a fast manner.
148 days is needed to pay the creditors,company make slow payments to its
creditors
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`
The increasing trend in working capital turnover ratio indicates that low
investment in working capital relation to sales is required for the company.
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`
5.2 SUGGESTION
The company takes necessary steps to maintain the current ratio to 2:1. That
means the current assets more than the current liabilities. This could be done by
proper management of current liability and current assets.
.
148 days is needed to pay the creditors, company can maintain its prompt
payment of its creditors, So that good relations could be achieved from its
creditors
The net profit of the firm is below performance. All the effort for increasing
profit may be taken which will further straight the working capital policies of the
company
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`
5.3 CONCLUSION
The study helps to understand the importance of working capital in the day to day
operations of the company. There are many inevitable factors that affect the
working capital decisions of the company. This study was helpful in
understanding the need for the company to improve their capacity to fully utilize
working capital of the company. The analysis reveals that the firm had a good
management system. By analysing the profitability ratios we can conclude that the
company is trying to manage, to keep the position favourable.
The top management is very aware about the good working capital analysis. They
know that can make their working environment and implementation of various
policies better with the good working capital analysis. They all are also known
that the good working capital analysis makes their environment healthy, through
which they makes their relationship is more & more better with the other parties.
The top management has a great role the progress of better working capital
analysis, through its various activities are the administrative increased in the
managerial personal. The working capital analysis is the base of company success.
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