CHAPTER-I INTRODUCTION 1.

1 ABOUT THE TOPIC:

Capitals required for a business can be classified under two main categories are 1) 2) Fixed Capital Working Capital

Every business needs funds for two purposes for its establishment and to carry out its day- to-day operations. Long terms funds are required to create production facilities through purchase of fixed assets such as p & m, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw material, payment of wages and other day to- day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short- term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assts keep revolving fast and are being constantly converted in to cash and

This cash flows out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.

Nature of Working Capital

The theory of Working Capital Management 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. The term Current Assets refers to those Assets which in the ordinary course of business can be, or will be, converted into Cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The Major Current Assets are Cash, Marketable Securities, Accounts Receivables and Inventory. Current Liabilities

are those Liabilities, which are intended at their inception, to be paid in the ordinary course of business, within a year out of the current assets or the earnings of the concern .The basic Current Liabilities are Accounts Payable, Bills Payable, Bank Overdraft and outstanding expense. The goal of Working Capital Management is to manage the firm's Assets and Liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The Current Assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of the short term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, therefore, the main theme management of working capital.

Concept of working Capital

There are two definitions of working capital (1) Gross working capital (2) Net working capital

Gross working capital refers to working capital as the total of current assets, whereas the net working capital refers to working capital as excess of current assets over current liabilities. In other words net working capital refers to current assets financed by long term funds. Accordingly, Gross working capital=Total current assets Net working capital = Current assets Current liabilities

The net working capital position of the firm is an important consideration, as this will determine the firms profitability and risk. Here the profitability refers to profits after expenses and risk refers to the probability that a firm will become technically insolvent where it will be unable to meet obligations when they become due for payment.

A finance manager has to make an appropriate financing mix, which will limit the risk and increase the profitability. Financing mix refers to the proportion of current assets financed by current liabilities and long term funds.

Classification of working capital

Working capital may be classified in to ways:
y y

On the basis of concept. On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as:
y y

Permanent or fixed working capital. Temporary or variable working capital

Permanent or Fixed Working Capital Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work- in-process, finished goods and cash balance. This minimum level of current assts is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets. Temporary or Variable Working Capital Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal need of the enterprise 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 for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business. And some special al is the amount of working capital which is required to meet the seasonal sets.

Factors Determining the Working Capital Requirement:

1. Nature of Business : The requirements of working is very limited in public utility undertakings such as electricity, water supply and railways because they offer cash sale only and supply services not products, and no funds are tied up in inventories and receivables. On the other hand the trading and financial firms requires less investment in fixed assets but have to invest large amt. of working capital along with fixed investments.

2. Size of the Business : Greater the size of the business, greater is the requirement of working capital.

3. Production Policy : If the policy is to keep production steady by accumulating inventories it will require higher working capital.

4. Length of Production Cycle : The longer the manufacturing time the raw material and other supplies have to be carried for a longer in the process with progressive increment of labor and service costs before the final product is obtained. So working capital is directly proportional to the length of the manufacturing process.

5. Seasonal Variations : Generally, during the busy season, a firm requires larger working capital than in slack season.

6. Working Capital Cycle : The speed with which the working cycle completes one cycle determines the requirements of working capital. Longer the cycle larger is the requirement of working capital.

7. Rate of Stock Turnover : There is an inverse co-relationship between the question of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will needs lower amt. of working capital as compared to a firm having a low rate of turnover.

8. Credit Policy : A concern that purchases its requirements on credit and sales its product / services on cash requires lesser amt. of working capital and vice-versa.

9. Business Cycle : In period of boom, when the business is prosperous, there is need for larger amt. of working capital due to rise in sales, rise in prices, optimistic expansion of business, etc. On the contrary in time of depression, the business contracts, sales decline, difficulties are faced in collection from debtor and the firm may have a large amt. of working capital.

10. Rate of Growth of Business : In faster growing concern, we shall require large amt. of working capital.

11. Earning Capacity and Dividend Policy : Some firms have more earning capacity than other due to quality of their products, monopoly conditions, etc. Such firms may generate cash profits from operations and contribute to their working capital. The dividend policy also affects the requirement of working capital. A firm maintaining a steady high rate of cash dividend irrespective of its profits needs working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

12. Price Level Changes : Changes in the price level also affect the working capital requirements. Generally rise in prices leads to increase in working capital.

Principles of working capital management:

1) Principle of Optimization: The level of working capital must be so kept that the rate of return on investment is optimized. In other words, the working capital should be maintained at an optimum level. This is the point at which the increase in cost due to decline in working capital is equal to the increase in gain associated with it.

(2) Principle of Risk Variation: This principle is based on the assumption that the rate of return on investment is linked with the degree of risk in the business. The greater the risk the business assumes, the greater is the opportunity for gain or loss. As stated by E. W. Walker, If working capital is varied relative to sales, the amounts of risk that a firm assumes is also varied and the opportunity for gain or loss is increased.

(3) Principle of Cost of Capital: Each source of working capital has different cost capital. The degree of risk also differs from one source to another. As E. W. Walker has remarked, The type of capital used to finance working capital directly affects the amount of risk that a firm assumes as well as the opportunity for gain or loss and cost of capital. For example, if capital is raised

through equity shares, the risk involved is less, while the prospect of higher return is more. But if capital is raised through debentures, or bank loans, the risk is less for the investors, but it is more for the firm. Also, the investors expect a lower return on investment in debentures. Hence, a firm should raise capital in such a manner that a balance is maintained between risk and profit.

(4) Principle of Maturity of Payment: This principle suggests that working capital should be so raised from different sources that the firm is able to repay them on maturity out of its inflow of funds. Otherwise, the firm would fail to repay on maturity and ultimately, it would find itself on the brink of liquidation despite high profits. For this reason, many times, the investors who provide short term funds to the firm ask from it its reports of expected cash flows to get an idea of the timing of the inflow of cast to the firm and also to judge whether the firm would be in a position to repay its short term debts on maturity. This implies that the firms ability to repay its short term debts depends not on its earnings, but on the flow of cash into it.

PROCESS OF WORKING CAPITAL MANAGEMENT:

1.2 INDUSTRY PROFILE:

1. Background

Indian telecom is more than 165 years old, beginning with the commissioning of the first telegraph line between Kolkata and Diamond Harbour in 1839. In1948, India had 0.1 million telephone connections with a telephone density ofabout 0.02 telephone per hundred population. As of June 2007, there were225.21 million telephone (including cellular mobile) connections in the country with a telephone density of 19.86 telephonesperhundred population. Out of total 225.21 million telephone connections, 185.13million (nearly 82percent) connections pertained to wireless and mobile phones. Some administrative and functional aspects of the telecom sector in India are discussed below:

2. Administration and Control

The Telecom Commission set up in April 1989 has the administrative and financial powers of the Government of India to deal with various aspects of telecommunications. The Commission and the Department of Telecommunications (DoT) are responsible, inter alia, for policyformulation,licensing, wireless spectrum management, administrative monitoring and control of the Public Sector Undertakings (PSUs) engaged in telecommunication services, research and development, standardization/validation of equipment, and

internationalrelations.The Centre for Development of Telemetric (C-DOT) is an autonomous body established in 1984 with the objective of developing a new generation of digital switching items. It has developed a wide range of switching and transmission products both forrural and urban applications. Two important wings of DoT are the Telecom Engineering

Centr(TEC)andtheWirelessPlanningandCoordination(WPC)wing.TECisdevotedtoproductvalidati on and standardization for user agencies. It also provides technical and engineering support to the Telecom Commission and the fieldunits.The Wireless Planning and Coordination wing deals with the policies of spectrum management, wireless licensing, frequency assignments, international coordination for spectrum management and administration ofIndianTelegraph Act,

1885 for radio communication systems and Indian Wireless TelegraphyAct, 1933. In order to administer the use of radiofrequencies, the licenses/renewalsforuse of wireless equipment and the frequencies are authorized by WPC. Thelicences are granted for specific periods on payment of prescribed license fees and royalty in advance and are renewal on expiry of the validity periods.

3. Regulatory control The entry of private service providers in 1992 brought with it the inevitable need for independent regulation. The Telecom Regulatory Authority of India(TRAI) was thusestablishedwith effect from 20 February 1997 by an Act of Parliament, called theTelecomRegulatory Authority of India Act, 1997, toregulate telecomservices,includingfixation/revision of tariffs for telecom services, which were earlier vested in the DoT. The TRAI Act was amendedby an ordinance, effective from 24January2000, establishing telecommunications Dispute Settlement and Appellate Tribunal(TDSAT) totake over the adjudicatory and disputes functions from TRAI. TDSAT wassetup to adjudicate any dispute between a licensor and a licensee, between two ormore service providers, between a service provider and a group of consumers, and to hear and disposeof appeals against any direction, decision or order ofTRAI.

4. Telecom Policies The first National Telecom Policy was announced in 1994 with a major thrust on universal service and qualitative improvement in telecom services; and starting of private sector participation in basic telephone services. The New Telecom Policy 1999 (NTP-99) allowed private operators to migrate from thefixed license fee regime to a revenue-sharing regime. Other provisions ofNTP-99 included permitting of interconnectivity and sharing of infrastructure among various service providers within the same areas of operations;separationofthe policy and licensing functions of DoT from the service provision function; opening of National Long Distance (NLD) andInternational Long Distance (ILD) services to competition; and carrying ofboth voice and data traffic by service providers.NTP-99 laid emphasis on universal service and sought to achieve telephone ondemand and increase inrural tele-density. In pursuance of these objectives, afund named Universal Service Obligation Fund (USO Fund) was establishedin April 2002 under the administrative control of DoT, to exclusively meet theuniversal service obligations. The resources for implementation of USO are

raised through a Universal Service Levy which has presently been fixed at 5per cent of the Adjusted Gross Revenue of all telecom service providersexcept the pure value added service providers like internet, Voice Mail, and EMailservice providers.As of 31 March 2002, unrestricted entry was allowed in basic services on arevenue-sharing basis. All telecom services were opened up for private sectorparticipation: national and international data connectivity were opened to all;and internet services were also opened up without any restriction on the number of entrants and without any entry fee.A National Frequency Allocation Plan (NFAP2002) was evolved inline with the Radio Regulations of the International Telecom Union (ITU) tocater to the conflicting demands on the spectrum.

5. Government PSUs in the Telecom Sector There are six Public Sector Undertakings in the Telecom Sector. MahanagarTelephone Nigam Limited (MTNL) and Bharat Sanchar Nigam Limited(BSNL) are basically in the business of providing telecommunication servicesin the country and were incorporated in 1986 and 2000, respectively. MTNLprovides telecommunication services in Mumbai and Delhi and rest of the country is covered by BSNL. Besides these two, other public sectorundertakings in the telecom sector are Indian Telephone Industries Limited(ITI), Telecommunications Consultants India Limited (TCIL), Intelligent Communication Systems India Limited (ICSIL) and Millennium Telecom Limited (MTL). ITI Limited was established in 1948 for manufacturing a wide range of equipment, which included electronic switching equipment, transmission equipment and telephone instruments of various types. TCIL was established in 1978 for providing know-how in all fields of telecommunications at the global level. The core competence of TCIL is in communications network projects, software support, switching and transmission systems, cellular services, rural telecommunications, and opticalfibre based backbone network. ICSIL was established in April 1987 for manufacturing computer based communication systems and equipment to meet the growing demand in communication and information technology sector. However, the company ceased its manufacturing activities and surrendered its manufacturing license. At present, the company is engaged intruding of computers and other telecommunication system. It also provides engineering, technical and management consultancy services for computers and communication systems in India and abroad. MTL was established in February 2000 as a wholly owned subsidiary of MTNL for providing internet services in the country.

1.3 Organization profile:

(GKAR INDIA) Power Systems Private Limited.

GKAR (INDIA) Power Systems Private Limited, Manufacturer of Telecom Power Management equipments, is to strive to meet customers need and expectation and to achieve continual improvement, with service second to none. We shall aim to establish an organization of mutual trust and understanding, which provides empowerment of all our employees. GKAR being trend setter for the past four years in field of wireless telecom with there innovative ideas in integrated power solutions towards optimizing CAPEX & OPEX of Wireless network provided and tower operators in the country. This organization is committed towards customer satisfaction by providing value added power solutions with stringent quality process and service second to none and also we offer state-of-the-art custom designed power solutions for the growing telecom applications to enable valuable telecom equipments to work without interruption. Greatest strength of GKAR is its highly dedicated & committed employees. Every employee are given equal opportunity to develop his career by continuous training on latest trends, career planning and in creating positive work environment. Organization is stabilized with mutual trust and understanding which provides empowerment of all employees.

Research & Development

Innovation is the focus of GKAR's research and development. Our design process is based on Product Life Cycle Management (PLM), providing a stringent and accelerated design cycle while ensuring product quality and reliability. Our capability for innovative design is what sets us apart from the competition. Continuous enhancement of our engineering capabilities allows us to develop products with better value and performance.

Infrastructure
1. The company has world class in-house 40,000sq. Ft. manufacturing facility in Chennai, Tamil Nadu

2. The company has fully equipped testing facility to cater stringent testing procedures as per the standards.

3. The company has in-house engineering dept. to facilitate R&D of Products.

4. Full-fledged training centre to create awareness on latest technologies and trends in power solutions.

Values
Ethics - Another form of feeling good. Integrity

Respect for every individual Name it a Client, Vendor, Employee

Vision To Become the No 1 Power Solution provider in the country by 2015.

system Certification

ISO 9001 2000 certification 2008. ISO 14001: 2004 certification 2010. OHSAS 18001: 1999 certification 2010.

Product Certification

Safety test as per IEC 60950 Standards. Environmental test as per TEC QM333-B2 Standards. Ingress Protection IEC 60529 Standards.

Products

Telecom Power Solution Ac Power Distribution Panel (Acpdp) Automatic Mains Failure Panel Automatic Voltage Regulator Lt Metering Panel Power Management Unit

1.4 SIGNIFICANCE OF THE STUDY:

The importance of the working capital management can be judged from the following facts. 1.There is a positive correlation between the sale of the product of the firm and the current assets. 2.More than half of the total captial of the firm is generally invested incurrent assets .it means less than half of the capital is blocked in fixed assets. 3. In emergency (non-avaliable of funds etc)fixed assets can be acquired on lease but there is no atternative for current assets. 4.working capital needs are move often financed through outside sources ,so it is necessary to utilize them in the best way possable. 5. The management of working capital is more important for small units because they scarcely rely on long term financial sources ie,trade credit,short-term bank loan etc.

1.5 SCOPE OF THE STUDY

The working capital management helps us to maintain the working capital at a Satisfactory level by managing the current assets and current liabilities. It also helps to Maintain proper balance between profitability, risk and liquidity of the business Significantly.

By managing the working capital, current liabilities are paid in time. If the firm makes Payment to its creditors for raw material in time, it can have the availability of raw Material regularly, which doesnt t cause any obstacles in production process. Adequate Working capital increases paying capacity of the business but the excess working capital Causes more inventories, increases the possibility of delay in realization of debts.

On the other hand, absence of adequate working capital leads to decrease in return on Investment. The goodwill of the firm is also adversely affected due to the inability to pay current liabilities in time.

1.6 STATEMENT OF THE PROBLEM:

The problem which is addressed in this study is one of the most talked about issue i.e. the problem of timely availability of working capital to GKAR (IND) POWER SYSTEM PVT LTD The above mentioned problem will be addressed in this study by a detailed literature review from various available sources and through a study of an GKAR (IND) POWER SYSTEM PVT LTD facing this problem.

1.7 OBJECTIVES OF THE STUDY: 1.To study the working capital management in GKAR (INDIA) POWER SYSTEM PVT LTD. 2.To find out effects of working capital management on profitability of GKAR(INDIA) POWER SYSTEM PVT LTD. 3. To analyze the credit worthiness of the firm. 4. To study the exists of cash, inventories, and payable management. 5. To give suggestion to improve the working capital management in GKAR (INDIA) POWER SYSTEM PVT LTD.

1.8 LIMITATIONS OF THE STUDY

Following are the limitations of the study being conducting: 1) Limited data:This project has to be done on the basis of the annual reports; it just constitutes one part of data collection i.e. secondary. There are limitations for primary data collection because of confidentiality. 2) Limited period:This project is based on three year annual reports. Conclusions and recommendations are based on such limited data. The trend of last three year may or may not reflect the real working capital position of the company 3) Limited area:Also it is difficult to collect the data regarding the competitors and their financial information. Industry figures were also difficult to.

CHAPTER II
2.1 REVIEW OF LITERATURE
Development policy of any country consists of efficient utilization of resources available at its disposal with paramount emphasis on proper utilization of scares productive resources. India a developing economy is faced with the problem of paucity as capacity while having ample quantities of natural and human resources hence in our development policy emphasis has always been on effective utilization of capital to accelerate the rate of growth and improve the efficiency of productive system. Capital as a company consists of fixed capital and working capital. Fixed capital utilization of capital and working capital allows use of this production capacity. The most effective utilization of capital requires the establishment of sound and consistent management policies covering both fixed as well as working capital. The review of literature of working capital management in India shows that working capital management has so far drawn little attention. The presence work attempts a detailed examination of working capital management in India industry is well known that different industries operate under different circumstances. The level of working capital investment that expected to maximize shareholders wealth is optimal level optimal levels however it is function several factors including the following: General nature of business Length operating cycle Business cycle affecting the sales level Future plans of growth and level expansion Profit level changes Uncertainty in the availability of raw materials Price level changes Credit polices

STUDIES CONDUCTED IN INDIA: The first, small but fine work is the study conducted by National Council of Applied Economic Research (NCAER) in 1966 with reference to working capital management in three industries namely cement, fertilizers and sugar. This was the first study on the nature and norms of working capital management in countries with scarcity of invertible resources. This study was mainly devoted to the ratio analysis of composition, utilization and financing of working capital for the period 1959 to 1963. Appavadhanulu (1971),recognizing the lack of attention being given to investment in working capital management analyzed working capital management by examining the impact of method of production on investment in working capital. It was emphasized that different techniques had a difference in the length of production period, the rate of output flow per unit of time and the time pattern addition. Different techniques would also affect the stock of raw materials and finished goods, by affection need-time, optimum lot size and marketing lag of output disposal and, therefore, a hypothesis that choice of production technique could reduce the working capital needs was proposed. Chakraborty and Bandopadhyay (2007) studied strategic working capital management, and its role in corporate strategy development, ultimately ensuring the survival of the firm and highlighted how strategic current asset decisions and strategic current liabilities decisions had multi-dimensional impact on the performance of the company.

Misra (1975)16 studied the problems of working capital with special reference to six selected public sector undertakings in India over the period 1960-61 to 1967-68. Analysis of financial ratios and responses to a questionnaire revealed somewhat the same results as those of NCAER study with respect to composition and utilization of working capital. In all the selected enterprises, inventory constituted the more important element of working capital. The study further revealed the overstocking of inventory in regard to its each component, very low

receivables turnover and more cash than warranted by operational requirements and thus total mismanagement of working capital in public sector undertakings.

Chakraborty (2008) evaluated the relationship between working capital and profitability of Indian pharmaceutical companies and pointed out that there were two distinct schools of thought on this issue: (1) working capital is not a factor of improving profitability and there may be a negative relationship between-them (2) Investment in working capital plays a vital role to improve corporate profitability, and unless there is a minimum level of investment of working capital, output and sales cannot be maintained-in fact, the inadequacy of working capital would keep fixed asset inoperative,

Sings and pandey (2008) Suggested that for the successful working of any business organization, fixed and current assets plays a vital role and that the management of working capital is essential as it has a direct impact on profitability and liquidity.

Krishnamurtys study (1964)18 was aggregative and dealt with inventories in the private sector of the Indian Economy as a whole for the period 1948-61. this study used sales to represent demand for the product and suggested the importance of accelerator. Short-term rate of interest had also been found to be significant.

FOOT NOTES
 V. Appavadhanulu, Working Capital and Choice of Techniques, Indian Economic Journal, July-Sept. 1971, Vol. XIX, pp. 34-41..

 21. S.K. Chakraborty, Cash Working Capital Vs. Balance Sheet Working Capital, The Economic and Political Weekly, March 1974, pp. MII-M22.

 K. Krishnamurty, Private Investment Behaviour in India: A Macro Time Series

Study, Arthaniti, January 1964.

 S.K. Chakraborty, Use of Operating Cycle Concept for Better Management of Working
Capital, The Economic and Political Weekly, August, 1973, Vol.8, pp. M69-M76

CHAPTER III
RESEARCH METHODOLOGY

3.1 INTRODUCTION

Research in common refers to a search for knowledge. Research is considered as an end over to discover answers to intellectual and practical problems through the application of scientific method to knowable universe. In short, research is and art of scientific investigation. The research for knowledge through objectives and systematic method is finding solution to a problem is research. .

Research Design
Research design is the overall operational pattern or frame work of project that stipulated on what information is to be collected from which source any by which procedures. The research design constitutes the blue print for the collection measurement and analysis of data. In this project, researcher has used.

Types of Research Primary Data

This refers to the information that is generated to meet the specific requirements of the investigation at hand. The data collected by this method consist of all answers obtained with first hand.

In this research, Primary data is collected as unstructured interview with official.

Secondary Data
This refers to the information that is collected for a purpose other than to solve the specific problems under investigation. this is not originally collected for the time. In this research, secondary data are collected from company records, profiles and audited annual reports. The data is one which already exists.

Tools and Techniques of the Study

 Change In The Working Capital  Ratio Analysis

Change In The Working Capital

Change in working capital analysis has been done to study the working capital position of the company for the period of three years.

Ratio Analysis
Ratio analysis reflects the relationship between variables and help to drew conclusions. It indicates the direction of change in performance.

CHAPTER-IV 4.1 CURRENT RATIO:

Current ratio express Relationship between current assets and current liabilities and can be calculated by dividing current assets by current liabilities. Current ratio = current assets Current liabilities The current ratio referred to as a measure of liquidity include the ability to measure the current liability coverage, buffer against losses and as a margin of safety against uncertainties to net cash flows. The reflects the firms ability to meet short-term obligations. Current assets include cash those other assets which can be converted into cash with in one year such as marketable securities accounts receivables (debtors) stock (inventories) and prepaid expenses current liabilities include liabilities which are to be paid by the firm with in one year and include creditors bills payable accured expenses bank over draft, income tax liability and long-term debts due to nature with in current year. Higher the current ratio higher the ability of the business to pay into current obligations, but such higher current ratio indicates more ideal current assets are kept and profitability of the company becomes low. The fewer current assets are kept compared to current liabilities the situation becomes risks.

TABLE 4. 1 CURRENT RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Current assets 325.73 1617.5 1467.09 Current liability 292.22 1471.76 981.79 Ratio (%) 1.1 1 1.4

Interpretation: From the table, it is inferred that current ratio is 1.1in the year 2008-2009 and it has increased to 1.4 in the year 2009-2010.

4.1 CURRENT RATIO

1.6 1.4 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 current ratio 1.1 1

4.2 QUICK RATIO:

Quick ratio is more refined measure of the firm liquidity it established relationship between quick or liquid assets and current liabilities. Liquid assets include cash and these assets which can be converted into cash immediately without loss of value such as securities and debtors and bills receivables. Shock and prepaid expenses and these assets take some time in relationship and are also subject to fluctuation in value. This ratio is calculated by dividing liquid or quick assets by current liabilities. Quick ration = Quick or liquid assets Current liabilities This ratio is also called liquid ratio generally a quick ratio 1:1is considered and represents a satisfactory financial position.

This ratio in contrast to current ratio in terms of inventory helps us to as certain the decisions regarding the inventory holding the firm.

TABLE 4. 2 QUICK RATIO Year 2004-2005 2005-2006 2006-2007 Quick assets 22.08 30.24 28.88
( Rs in Lakhs)

Current liability 13.72 36.46 17.43

Ratio (%) 1.61 0.83 1.66

Inference:
In the year 2007-2008, the quick ratio is 1.61 and it has reduced 0.83. But in the last year it has increased 1.66

4.2 QUICK RATIO

1.6 1.4 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-2008 2008-2009 2009-2010 quick ratio 1.1 1

4.3 INVENTORY TO CURRENT ASSETS RATIO:

This is the proportion of inventory in the current assets. The inventory includes raw materials spares, consumables, and work in progress and finished goods. It is given by Inventory to current assets ratio = Inventory Current assets

TABLE 4.3 INVENTORY TO CURRENT ASSETS RATIO Year 2004-2005 2005-2006 2006-2007 Inventory 32.39 175.68 185.31 Current Assets 325.73 1617.52 1467.09 Ratio (%) .09 .1 .12

Inference: In the year 2004-2005, inventory to current asset ratio was .09.But in the last year it has increased to 0.12

4.3 INVENTORY TO CURRENT ASSETS RATIO

0.14 0.12 0.12 0.1 0.1 0.08 0.06 0.04 0.02 0 2008 2009 2010 Inventory to current asset turnovre ratio 0.09

4.4 TURN OVER RATIO

The term over ratio is also known as the activity ratio, as it is a measure of the speed with which the specific assets are converted into sales or cash. The capital turn over may 1:1 UN Heavy industries. Whereas it may be two or three time the capital employed in small scale industries comprising the shorter production cycle. Better management of working capital improves the ratio. The various turnover ratios are, y Working capital Turnover ratio y Fixed assets turnover ratio y Capital turnover ratio y Current assets turnover ratio y Debtors turnover ratio y Creditors turnover ratio y Inventory turnover ratio In the computation of turnover ratio the (cross) saves is considered as the turn over and no segregation between credit sales and cash saves available from the data.

4.4 WORKING CAPITAL TURNOVER RATIO:

This is also known as working capital leverage ratio. This ratio indication whether or not working capital has been defectives utilized in making sales. In case a company can achieve higher volume of saves with relatively small amount of working capital. It is an indication of the operation efficiency of the company.

The Ratio is calculated as follows:Working capital turn over Ratio = Sales Working capital The working capital represents the excess of current assets over current liabilities. It helps the management of short-term assets and liabilities.

TABLE 4.4 WORKING CAPITAL TURNOVER RATIO ( Rs in Lakhs) Year 2004-2005 2005-2006 2006-2007 Sales 948.16 3117.12 4102.44 Working capital 33.51 145.76 485.30 Ratio (%) 28.29 21.38 8.45

Interpretation:
The ratio showing an declined during 2004-2005 and showing a students decrease as the net sales jumped compared to the corresponding previous year .

4.4 WORKING CAPITAL TURNOVER RATIO

30 25

28.29

21.38 20 15 working capital turnover ratio 10 5 0 2007-2008 2008-2009 2009-2010 8.45

4.5 FIXED ASSETS TURN OVER RATIO:

This ratio is also called the investment turnover ratio. This ratio indicates the extent to which the investment in fixed assets contributes towards sales. The fixed assets are valued after deduced the accumulated depreciation. This ratio indicates how effectively the fixed assets are utilized in the sales generation. The higher ratio indicates better efficiency.

TABLE 4.5 FIXED ASSETS TURN OVER RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Sales 948.16 3117.12 4102.44 Fixed assets 39.75 81.58 904.45 Ratio (%) 23.85 38.2 4.5

Interpretation:
The ratio declined during 2007-2008and 2008-2009 till it was showing an increasing trend. The decline is due to the fact that with corresponding increase in fixed assets. The turnover has increased.

4.5 FIXED ASSETS TURN OVER RATIO

45 40 35 30 25 20 15 10 5 0 2007-2008 2008-2009 2009-2010 4.5 23.85 fixed asset turn over ratio 38.2

4.6 CURRENT ASSETS TURN OVER RATIO:

The ratio is computed as given below current assets turn over ratio = Net Sales Current Assets Current assets include bills payable debtors. The detailed analysis of this ratio would revel the fact that how effectively the current assets are utilized on the increment of sales.

TABLE 4.6 CURRENT ASSETS TURN OVER RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Net Sales 948.16 3117.12 4102.44 Current Assets 325.73 1617.52 1467.09 Ratio (%) 2.9 1.9 2.8

Interpretation:
Due to the fluctuations in the net sales, the utilization of current assets in generating sales in showing a distortive pattern of increment when compared to the previous year especially during 2007-2008 turnover 2008-2009.

4.6 CURRENT ASSETS TURN OVER RATIO

3.5 3 2.5 2 1.5 1 0.5 0 2007-2008 2008-2009 2009-2010 1.9 current asset turnover ratio 2.9 2.8

4.7 TOTAL ASSETS TURN OVER RATIO: Total assets turn over ratio = Net Sales Current Assets

TABLE 4.7 TOTAL ASSETS TURNOVER RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Net Sales 948.16 3117.12 4102.44 Current Assets 365.49 1699.11 2371.54 Ratio (%) 2.5 1.8 1.7

Interpretation: From the above analysis it is important to note that the ratio of asset was reduced from 1.8 to 1.7. When compared 2007-08 it was 2.5. It indicates that the usage of asset is increased.

4.7 TOTAL ASSETS TURNOVER RATIO

3 2.5 2.5 2 1.5 total assests turnover ratio 1 0.5 0 2007-2008 2008-2009 2009-2010 1.8

1.7

4.8 DEBTORS TURN OVER RATIO:

The credit and collection policy of a business in evaluated in terms of this ratio. The liquidity position of a firm depends upon the quality of debtors. This is determined by the above ratio and debt collection period. Debtors Turn over Ratio = Credit sales Average Debtors Here the sales are not separated as credit or cash sales and the closing debtors considered as average accounts receivables. The computation is based on the above assumption. The higher the ratio true better is the collection from debtors.

TABLE 4.8 DEBTORS TURNOVER RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Net Sales 948.16 3117.12 4102.44 Closing debtors 257.50 1086.88 419.66 Ratio (%) 3.6 2.8 9.7

Interpretation: The debtors turn over ratio is indicating a better position during 2007-2008 and 2009-2010.

4.8 DEBTORS TURN OVER RATIO

12 10 8 6 debtors turnover ratio 4 2 0 2007-2008 2008-2009 2009-2010 3.6 2.8 9.7

4.9 INVENTORY TURN OVER RATIO:

Inventory firm major constituent of current assets in any concern and it is held to prevent stocks outs. This overcomes the hidinances in continuous production and also as a buffer stock against the shortage of raw materials. This necessitates the inventory management possible by analyzing the inventory turn over ratio. The inventory turns over ratio. The inventory turnover ratio is computed as follows: Inventory Turnover Ratio = Cost of good sold Average stock This ratio indicates the relation between the stock of finished goods and cost of goods sold.

TABLE 4.9 INVENTORY TURNOVER RATIO ( Rs in Lakhs) Year 2004-2005 2005-2006 2006-2007 sales 948.16 3117.12 4102.44 Average Inventory Ratio (%) 16.19 87.84 92.65 58.53 35.48 44.27

Interpretation:
From the above table represent the inventory turn over ratio higher for during the year 20042005. The ratio decrease for during the year 2005-2006 and after 2006-2007 will every year the inventory ratio increases.

4.9 INVENTORY TURNOVER RATIO

70 60 50 40 30 20 10 0 2007-2008 2008-2009 2009-2010 35.48 inventory turn over ratio 58.53 44.27

PROFITABLITY RATIO:
They are designed to measure the profitability of a business. They indicate the units efficiency of operation, profitability of events that have already taken place linking it to the sales, investment and ownership does the profitability ratio analysis. Profitability also indicates public accept ensure of the product of the company is producing and the company if self and shows that the firm can produce competitively. Profitability is also important to measure the firms ability to pay debt and servicing. Profitability ratios can be determined on the basis of sales: 1. Gross profit to sales 2. Net profit to sales On the basis of investment: 1.Return on Assets 2.Return of capital employed On the basis of ownership: 1. Return on shareholder equity 2. Return on net worth 1.Profitability ratio as related to sales: These ratio are calculated on sales are based on the premise that the firm should earn a sufficient profits on its sales and are based on the promise that the firm should can a sufficient profits on its sales otherwise it may feel difficulty in meeting the operating expenses and share holders will get no returns. A.Under this group: y y Cross profit to sales ratio Net profit to sales ratio

4.10 GROSS PROFIT RATIO:

The ratio established relationship of gross profit with sales to measure the operating efficiency of the firm and to reflect its pricing. Cross profit is sales less cost of goods sold. The ratio of gross profit to sales shorts the efficiency of the production unit. The ratio is also called gross profit margin. A high gross profit margin indicates the efficiency on the part of management. The net sales are considered after adjusting the sales tax excise duty paid. The formula given by Gross profit ratio = Cross profit Net Sales

TABLE 4.10 GROSS PROFIT RATIO Year 2007-2008 2008-2009 2009-2010 Gross profit 56.93 414.06 494.37 Net Sales 948.16 3117.12 4102.44 ( Rs in Lakhs) Ratio (%) .06 0.13 0.12

Interpretation: The ratio has increase for during the year 2007-2008 and 2008-2009. The highest Gross profit margin ratio for the year 2009-2010.

4.10 GROSS PROFIT RATIO

0.14 0.12 0.1 0.08 0.06 0.06 0.04 0.02 0 2007-2008

0.13 0.12

gross profit margin

2008-2009

2009-2010

4.11 NET PROFIT RATIO:.

The formula given by net profit ratio = net profit Sales

TABLE 4.11 NET PROFIT RATIO Year 2007-2008 2008-2009 2009-2010 Net profit 42.58 258.35 320.52 Sales 948.16 3117.12 4102.44 ( Rs in Lakhs) Ratio (%) .04 0.08 0.07

Interpretation:
In the year 2008-2009, net profit ratio is 0.08. It was decreased to 0.07 on 2009-10. This tells that the profit was reduced when compared to last year. So the company was performed well during 2008-09.

4.11 NET PROFIT RATIO

0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0 2007-2008 0.04

0.08 0.07

Net profit ratio

2008-2009

2009-2010

4.12 CASH TURNOVER RATIO: Cash turnover ratio = Net Sales Current Assets

TABLE 4.12 CASH TURN OVER RATIO ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Net Sales 948.16 3117.12 4102.44 Cash 44.19 116.65 27.21 Ratio (%) 214 26 150

Interpretation:
The cash turnover ratio was increased from 26 to 150. It shows that the debtors payment gap was increased. It will be lack of cash flows. The gap period was too low (26) during 2008-09.

4.12 CASH TURN OVER RATIO

250 214 200 150 150 100 50 0 2007-2008 2008-2009 2009-2010 cash turnover ratio

26

4.13 CASH HOLDING: .

Cash holding = cash &bank Current liabilities

TABLE 4.13 CASH HOLDING ( Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 Cash &bank 4.41 116.65 27.21 Current liability 292.22 1471.76 981.79 Ratio (%) .15 .07 .02

Interpretation:
Cash holding ratio is come down to 0.02 from 0.07. It express that the holding period is low when compare to previous years. It is a favorable position to the company. So we can use the cash for other purpose.

4.13 CASH HOLDING

0.16 0.14 0.12 0.1 0.08 0.06 0.04

0.15

0.07 cash holding

0.02 0.02 0 2007-2008 2008-2009 2009-2010

4.14 CASH & BANK BALANCE TO CURRENT ASSETS :

cash & bank balance to current assets ratio = Inventory Current assets

TABLE 4.14 CASH& BANK BALANCE TO CURRENT ASSETS RATIO (Rs in Lakhs) Year 2007-2008 2008-2009 2009-2010 inventory 4.41 116.65 27.21 Current Assets 325.73 1617.52 1467.09 Ratio (%) .01 .07 .01

Interpretation
From the calculation it is essential to note that the position of cash and bank balance was reduced from 0.07 to 0.01. It is not too good for the company. So they have to increase the level from the current level to the acceptable level.

4.14 CASH& BANK BALANCE TO CURRENT ASSETS RATIO

0.08 0.07 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.01 0 2007-2008 2008-2009 2009-2010 0.01 cash& bank balance to current asset

4.15 CHANGES IN WORKING CAPITAL:

Working Capital = Current Assets Current Liabilities

TABLE-4.15
CHANGES IN WORKING CAPITAL

( Amount in Lakhs) year 2007-2008 2008-2009 2009-2010 Current assets 325.73 1617.5 1467.09 Current liability 292.22 1471.76 981.79 Working capital 33.51 145.76 485.30

Inference:
From the table it is evident that the working capital position is getting improved from one year to another year. In the year 2009-2010, the working capital is 485.30

4.15 CHANGES IN WORKING CAPITAL

600 500 400 300 changes in 200 145.76 100 0 33.51 2007-2008 2008-2009 2009-2010 485.3

CHAPTER-V
5.1 FINDINGS: 1. From the table it is evident that the working capital position is getting improved from one year
to another year. In the year 2009-010, the net working capital is 485.30 2. From the table, it is inferred that current ratio is 1.1in the year 2008-2009 and it has increased to 1.4 in the year 2009-2010. 3. In the year 2007-2008, the quick ratio is 1.61 and it has reduced 0.83. But in the last year it has increased 1.66. 4. In the year 2004-2005, inventory to current asset ratio was .09.But in the last year it has increased to 0.12 5. The ratio showing an declined during 2004-2005 and showing a decrease as the net sales jumped compared to the corresponding previous year . 6. The ratio declined during 2007-2008and 2008-2009 till it was showing an increasing trend. The decline is due to the fact that with corresponding increase in fixed assets. The turnover has increased 7. Due to the fluctuations in the net sales, the utilization of current assets in generating sales in showing a distortive pattern of increment when compared to the previous year especially during 2007-2008 turnover 2008-2009.

8. The debtors turn over ratio is indicating a better position during 2007-2008 and 2009-2010. 9. From the above table represent the inventory turn over ratio higher for during the year 20042005. The ratio decrease for during the year 2005-2006 and after 2006-2007 will every year the inventory ratio increases. 10. The ratio has increase for during the year 2007-2008 and 2008-2009. The highest Gross profit margin ratio for the year 2009-2010.

11. In the year 2008-2009, net profit ratio is 0.08

5.2 SUGGESTION:
 The current ratio is in satisfactory level but it is better to maintain below the present level.  It is advisable to the company to maintain the quick ratio is 1. So they have to increase the present level to one.  Current ration also should be increase. It is for better when compared last year. Still it should be improved  Cash holding is decreased. The company should follow the same strategy to maintain this level.through that the company has not to face many problems in handing cash.  Cash turn over ration is also increased. It is not good for the company. So the company should reduce the level of cash turnover ratio.  Net profit ratio is reduced from 0.08 to 0.07. It shows that the profit on sales is decreased. It is a unfavorable to the company. So they have to concentrate on increase the profit by increasing the sales.  Debtor turnover ratio is increased; it is not good to the company. If it is like this the cash position will be affected. We have to face the lack of cash problem. So It should be reduced.  Working capital ratio is reduced from 21 to 8. It is not a good to the company. Hence the company should increase the level of working capital. Unless we fail to improve we have to face the lack of production problem with effect of lack of raw material situation.  Fixed asset turnover ratio also decreased from 38 to 4. It means we are not use the asset in a optimal level. It is too bad side for the company. Without using the asset in a optimal way we cannot earn more profit. So it is strong advisable to the company to use the asset in a maximum level.  From the above analysis it is very important to note that when compared to 2008 the performance is low in 2009-10. It may be because of the global recession..

5.3 CONCLUSION
From the above study it is found that in all segment the company are facing difficulty situation because of the global crisis. The effect of the crisis all the price levels are increasing. That is also one of the reasons for this poor performance. The company should follow the above mentioned suggestion to improve their capacity. Particularly the company should concentrate on cash ratio, quick ratio and turn over ration. Because, these are all very important factors for the companies. If they are fulfilling the above mentioned request, they can easily overcome their hurdles and they can improve their performance also.

BIBILIOGRAPY
M.Y.KHAN & P.K.JAIN

Financial Management Test and Problems Third Edition Tata McGraw-Hill Publishing Co Ltd New Delhi

PASANNA CHANDRA

Financial Management Theory and Practice Sixth Edition Tata McGraw-Hill Publishing Co Ltd New Delhi

SHASHIK. GUPTA & R.K. SHARMA Financial Management Theory and Practice Fourth Edition Kalyani Publisher Ludhiana-New Delhi I.M. PANDEY Financial Management Theory and Practice Eighth Edition Vikas Publishing house Pvt. Ltd New Delhi Dr.S.N. MAHESHWARI Principals Management Accounting Sultan Chand & Sons Educational Publishers New Delhi Websites: www.gkar.com www.google.com

GKAR (INDIA) POWER SYSTEMS PRIVATE LIMITED

Balance Sheet (Amount in Rupees)

As on 31.03.2008 As on 31.03.2009 As on 31.03.2010

Particulars Sources of Funds Share holders Fund Share Capital Subscribed & paid up equity share capital Reserves & Surplus Deferred Tax(net) Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total Application of Funds Fixed Assets Gross Block Less : Depreciation Net Block Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash & Bank Balances Deposits, Loans& Advances Total Less: Current Liabilities & Provisions Bank Overdraft (UB I) Current Liabilities Provisions Proposed Dividend Tax on proposed Dividend Net Current Assets Miscellaneous Expenditure Total

5,00,000 4,309,284

5,00,000 5,00,000 17,684,891

12,500,000 6,500,000 43,737,780

3,938,778 2,578,549 7,387,834 115,386 550,268 22,789,324

86,121,291 842,004 1,820,906 139,021,982

4,476,604 501,120 3,975,484

9,341,939 1,182,952 8,158,987

92,969,146 3,023,868 89,945,277 500,000

3,239,480 25,750,983 4,41,918 3,141,343 32,573,725

17,568,500 108,688,088 11,665,929 23,830,150 161,752,667

18,531,334 41,966,187 2,721,016 83,490,629 146,709,167

225,632 27,553,137 1,443,557 118,251,777 16,674,734 10,470,190 1,779,409 14,576,557 53,780 22,789,324 65,675,027 32,504,042

3,351,398 60,952 7,387,834

48,530,096 46,608 139,021,982

GKAR (INDIA) POWER SYSTEMS PRIVATE LIMITED

PROFIT & LOSS ACCOUNT (Amount in Rupees)

Particulars Income Sales Other Income Total Income Expenditure Raw Materials Consumed Manufacturing Expenses Salaries, Wages & Bonus Office & Administration Exp Selling & Distribution Exp Finance Charges Preliminary Exp Written off Depreciation Total Expenditure Profit for the year Profit Before Tax Provision for Fringe Benefit Tax Provision for Tax

As on 31.03.2008

As on 31.03.2009

As on 31.03.2010

94,816,347 2,716,477 97,532,824

311,712,632 1,796,192 313,508,824

410,244,388 4,962,782 415,207,170

68,850,773 2,165,428

218,055,489 4,008,098 30,911,670

276,269,711 4,255,340 45,955,032 24,680,450 6,118,064 6,642,646 7,172 1,840,916 365,769,344 49,437,836

20,532,831

13,147,448 3,975,230 1,315,233 7,172

290,412 91,839,445

681,832 272,102,173 41,406,650

5,693,378 190,700 1,244,000

Less : Provision for Income Tax Less : Provision for FBT Profit after Tax Less : Provision for Deferred Tax Net profit after Tax Balance of Previous year profit B/fd 4,258,678 50,606

14,838,677 392,500 26,175,473 339,782 25,835,690

16,114,308

33,323,527 1,270,638 32,052,888

Less: 2,583,569 Transfer to general reserve Deferred Tax Less : 10,470,190 Proposed Dividend Tax on Proposed Dividend Net profit to P&L Appropriation A/C Profit Brought flowered form previous year Less : Transfer to Bonus share capital A/C Balance carried to Balance Sheet 4,309,284 15,101,322 1,779,409 10,792,037 4,309,284 32,052,888 15,101,322 210,485

6,000,000 41,154,211